In case of purchases made from small raddi-walas/kabadi-walas it is not practically possible to have them supported by bills. It is equally not possible to furnish details of such small raddi-walas/kabadi-walas.
INCOME TAX APPELLATE TRIBUNAL AHMEDABAD
ITA. No: 1360 & 1552/AHD/2012 (Assessment Year: 2006-07)
ITA. No: 1361 & 1553/AHD/2012 (Assessment Year: 2007-08)
ITA. No: 1362 & 1554/AHD/2012 (Assessment Year: 2008-09)
Income Tax Officer, Vapi Ward-1, Vapi vs. Shri Gufran A Chaudhari
Date of Order/Judgment: 11/03/2016
Brief facts of the case:
Since the facts in issues involved in all the appeals were identical for all the years under consideration. these appeals were heard together and are disposed of by this common order.
During the course of the scrutiny assessment proceedings, the Assessing Officer asked assessee to to furnish complete names and addresses of the parties from whom purchases have been made along with copy of their ledger account. However no reply were received, therefore the AO issued a show cause notice to the assessee asking him to explain why 25% of the total purchases should not be disallowed on account of failure on the part of the assessee to prove the genuineness and creditworthiness of the purchase transaction.
In response, the assessee filed a detailed reply explaining in detail the nature of business vis-à-vis the transactions related to purchases. It was explained that the books of accounts of the assessee were audited as per the provisions of the Income Tax Act, the trading account was quantified and was well supported by purchase bills, sales invoices as recorded in the sales register. In support of its contention, the assessee also filed VAT returns.
However, the AO considered 15% of the total purchases as non genuine and unverifiable and made an disallowance by addition of Rs. 34,48,537/-.
The assessee carried the matter before the CIT(Appeals). The assessee contended that the nature of business of the assessee is such that it is practically not possible to furnish the details of “raddi-wallas”. It was further explained that the assessee has sold its goods through Gujarat Paper Mills Association which fixes the rate of each ton of waste paper in the Vapi Industrial town where there are 45 to 50 small scale paper mills. Considering the facts and submissions and also considering the details of the assessment made in the Central Circle, Surat in similar cases ranging between 0.5% to 0.75%, CIT(A) directed the A.O to apply NP rate of 2% in A.Y. 06-07, 3% in A.Y. 07- 08 and 2% in A.Y. 08-09.
Aggrieved by CIT(A) order, both revenue and the assessee went in appeal before ITAT
Important Excerpts from ITAT Judgment/Order:
Undisputedly, the books of accounts of the assessee are audited as per the provisions of the law. There is also no dispute that the auditors have not qualified, the purchases made by the assessee during the year under consideration. It is also an admitted fact that no adverse inference has been drawn in so far as sales are concerned. We find that in the audit report, the auditors have mentioned that they examined purchase and sales register. We also find that the trading accounts are quantified.
There is no denying that the purchases of the assessee are made from small “raddiwallas” therefore, it is not practically possible to have purchases supported by bills. Secondly, it is equally not possible to furnish details of such small “raddiwallas”.
Therefore in our considered opinion, treating 15% of the total purchases as bogus purchases is unjustifiable and the action of the A.O is totally erroneous on the peculiar facts of the case in hand.
There may be some room for some inflation in the purchases and the estimation of the profit by the First Appellate Authority appears to be reasonable and pragmatic. We, therefore, decline to interfere with the findings of the ld. CIT(A).