Ita/67/2014 Of Commissioner Of Income Tax-Ii Jalandhar v. M/S Deepak Heritage

IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH. Income Tax Appeal No. 67 of 2014 (O&M)Date of Decision: 08.08.2016Commissioner of Income Tax.Il, Jalandhar..Appellant: VeTSUS M/s Deepak HeritageCORAM:HON'BLE MR. JUSTICE S.J.VAZIFDAR, CHIEF JUSTICE.HON'BLE MR. JUSTICE DEEPAK SIBAL. ..Respondent Present:Mr. Vivek Sethi, Advocate, for the appellant. Mr. Ronit Sud, Advocate, for the respondent. AIS F SJ.VAZIFDAR, CHIEF JUSTICE This appeal is against the order of the Income Tax AppellateTribunal in so far as it directs the Assessing Officer to apply a G.P. rate of12.38% on the turnover declared by the respondent-assessee. Ihe order was"passed by the Tribunal in an appeal against the order of the Commissioner ofIncome ‘Tax (Appeals) fixing the GP rate of 25%. The CIT(Appeals) in turnhad passed the order on the respondent-assessee’s appeal against the order ofthe Assessing Officer making an addition of about)41.32 crores to the|respondent-assessee’s returned income on account of bogus purchasesClaimed by it in order to reduce its GP. and evade payment of taxes. Thematter pertains to the assessment year 2009-10. 2.|The appeal is admitted on the following substantial questions oflaw:- | (1)Whether on the tacts and in the circumstances of the.case and in law, having given a findings in para 12.1that the purchases were bogus and that the assessee|had created bogus creditors in the books of account,|the Hon’ble ITAT was justified in applying G.P. rate|instead of confirming the disallowance of bogus|purchases of =1,31,28,580/-.case and in law, having given a findings in para 12.1that the purchases were bogus and that the assessee|had created bogus creditors in the books of account,|the Hon’ble ITAT was justified in applying G.P. rate|instead of confirming the disallowance of bogus|purchases of =1,31,28,580/-. (11)Whether on the tacts and in the circumstances of the.case and in law the Hon'ble ITAT failed to appreciate|the fact that the A.O. highlighted the low G.P. rate onlyto strength the case for bogus purchases and did not|make addition on account of law G.P. rate.case and in law the Hon'ble ITAT failed to appreciate|the fact that the A.O. highlighted the low G.P. rate onlyto strength the case for bogus purchases and did not|make addition on account of law G.P. rate. %)))'Whether on the tacts and in the circumstances of the.case and in law the Hon’ble ITAT was justified in/estimating G.P. rate of the assessee ignoring the fact|that in view of the specific investigation done, the pasthistory and comparable cases were not entirelyrelevant to the present case while deciding the issue.”case and in law the Hon’ble ITAT was justified in/estimating G.P. rate of the assessee ignoring the fact|that in view of the specific investigation done, the pasthistory and comparable cases were not entirelyrelevant to the present case while deciding the issue.” %)))'Whether on the tacts and in the circumstances of the.case and in law the Hon’ble ITAT was justified in/estimating G.P. rate of the assessee ignoring the fact|that in view of the specific investigation done, the pasthistory and comparable cases were not entirelyrelevant to the present case while deciding the issue.”case and in law the Hon’ble ITAT was justified in/estimating G.P. rate of the assessee ignoring the fact|that in view of the specific investigation done, the pasthistory and comparable cases were not entirelyrelevant to the present case while deciding the issue.” It is not necessary to answer the other two questions raised inthe appeal.3 |The assessee filed a return of income declaring an income of493,513/-. The Assessing Officer rejected the books of accounts undersection 145(3) of the Income Tax Act, 1961 (for short ‘the Act’). Theassessee has not challenged the rejection of the books. The assessee carriedon business.inter-aliaof trading in textiles. The Assessing Officer found thatthe gross profit percentage returned by the assessee of 7.71%, 7.74% and8.19% for the assessment years 2007-08, 2008-09 and 2009-10 was verylow. The finding was on a comparison with the G.P. rates of other assesseesin the same line of business. 57 sundry creditors of the value of about=2.273)crores against purchases of an aggregate amount of about=3.85 crores wereshown. A questionnaire was issued on 29.09.2010 to furnish theconfirmation of creditors of overL50,000/- alongwith their PAN numbers|and addresses. The confirmation was not furnished in respect of fivecreditors. There were also discrepancies in the books of accounts in respectof four creditors. The assessee was given sulticient time to show cause inthis regard. The Assessing Officer also found the bills to be forged and thatin some cases there was a difference in signatures. The CIT(Appeals) upheld the Assessing Officer’s decision to reject the Dooks of accounts but applied aG.P. rate of 25% instead of adding an amount of=1.32 crores to the'|assessee’s income. Cross appeals were filed. The department challenged thedecision of the CIT (Appeals) applying the GP. rate of 25% and setting asidethe order of the Assessing Officer adding to the assessee’s return of incomein the sum of=1.32 crores. The respondent on the other hand challenged theG.P. rate of 25% adopted by CIT (Appeals). The Tribunal adopted the G.P.rate of 12.38%. 4 Section 144 of the Income Tax Act,1961 in so far as it is relevant reads as under:- “Best judgment assessment: 144|(1) If any person— (a) fails to make the return required under sub-section (1) ofsection 139and has not made areturn orarevised return under sub-section (4) or sub-section (5) ofthat section, or (b) fails to comply with all the terms of a notice|issued under sub-section (1) ofsection 142or tails to|comply with a direction issued under sub-section (2A) ofthat section, or (a) having made a return, fails to comply with all.the terms of a notice issued under sub-section (2)|ofsection 143, the Assessing Officer, after taking intoaccount all relevant material which the Assessing Officer|has gathered, shall, after giving the assessee ansopportunity of being heard, make the assessment of the|total income or loss to the best of his judgment and.determine the sum payable by the assessee on the basis_oft such assessment: (2) The provisions of this section as they stoodimmediately before their amendment by the Direct Tax|Laws (Amendment) Act, 1987 (4 of 1988), shall apply to|and in relation to any assessment for the assessment yearcommencing on the lst day of April, 1988, or any earlier|assessment year and references in this section to the|other provisions of this Act shall be construed as|references to those provisions as for the time being in|force and applicable to the relevant assessment year.” It is not necessary to refer to the proviso. In making a best judgment assessment, the authorities are entitled to adopt any reasonable approach which would best determine the actual tax liability. | (2) The provisions of this section as they stoodimmediately before their amendment by the Direct Tax|Laws (Amendment) Act, 1987 (4 of 1988), shall apply to|and in relation to any assessment for the assessment yearcommencing on the lst day of April, 1988, or any earlier|assessment year and references in this section to the|other provisions of this Act shall be construed as|references to those provisions as for the time being in|force and applicable to the relevant assessment year.” It is not necessary to refer to the proviso. In making a best judgment assessment, the authorities are entitled to adopt any reasonable approach which would best determine the actual tax liability. | 5.|The Assessing Officer found in respect of said 9 creditors thatthey had not furnished the confirmation or that there was a discrepancy inthe accounts/documents. He also found that the cash payments onconsecutive dates each of less than|L25,000/- was only to circumvent the|provisions of section 40A(ii1) of the Act. 6.|CIT(Appeals), however, disagreed with the addition of|=1.3)|crores to the assessee’s returned income. Finding that if that was done theGP rate of the assessee would be more than 40% which was not possible.The CIT (Appeals), therefore, decided to apply the GP rate. On the rejectionof the books of accounts on the ground that an assessee had returned loweross profit percentage, it is open to the authorities to ascertain the correct(5;P rate. 7 |In such circumstances, the adoption of the GP rate instead ofadding of41.32 crores to the income of the assessee cannot be said to beperverse or irrational. The CII(Appeals) had the GP rates of five assesseesin respect of Phagwara and three in respect of Jalandhar. The GP rates ofassessees of Phagwara ranged from 16.21% to 18.30% whereas the GP ratesof three assesses at Jalandhar were 10.64%, 12.09% and 13.6%. The CIT(Appeals) adopted the GP rate of 25%. There is, however, nothing in theorder to indicate why the GP rate of 25% was adopted. The average of GPrates of Phagwara and Jalandhar was also much less. 8The Tribunal on the other hand adopted the average GP rate ofassessees at Jalandhar as the assessee in the case before us also carried onthe business at Jalandhar. The Tribunal observed that the CIT (Appeals) hadfixed the GP rate of 25% which was not based on any material or cogentreasoning. This finding of the Iribunal is based on facts which is neither OQ In the circumstances, the appeal does not raise a substantial question of law. | 10.The appeal is, therefore, dismissed. (S.J.VAZIFDAR)CHIEF JUS TICE,08.08.2016 |(DEEPAK SIBAL)‘ravinder’JUDGEWhether speaking/reasoned √Yes/No Whether reportable Yes/No√