Case Number: ITA 633/DEL/2019
Appellant: S.G.V. Cotyarns Pvt Ltd, Panipat
Respondent: ITO, Ward-4, Panipat
Assessment Year: 2010-11
Result: Partly Allowed
Case Filed On: 2019-01-29
Order Type: Final Tribunal Order
Date of Order: 2023-05-10
Pronounced On: 2023-05-10
The case of S.G.V. Cotyarns Pvt Ltd vs ITO in the Income Tax Appellate Tribunal (ITAT) for the assessment year 2010-11 revolves around the tax dispute concerning alleged bogus purchases. This article provides an in-depth analysis of the case, the proceedings, and the final judgment that led to the partial allowance of the appeal.
S.G.V. Cotyarns Pvt Ltd, the appellant in this case, is a company engaged in the business of manufacturing and trading of yarn. During the course of scrutiny assessment proceedings, based on information received from the office of the DDIT, Investigation, Panipat, the Assessing Officer (AO) came to know about purchases made from M/s Ganpati Enterprises, which were alleged to be accommodation entries.
During the assessment proceedings, the statement of Shri Rajesh Kumar, proprietor of M/s Ganpati Enterprises, was recorded under section 131 of the Income-tax Act, 1961. Shri Rajesh Kumar admitted that he was not engaged in any actual business but was only providing accommodation bills. Based on this information, the AO suspected that the purchases made by the assessee from M/s Ganpati Enterprises were bogus and added the amount of Rs. 10,99,578/- to the assessee’s income.
The assessee challenged the addition before the Commissioner of Income Tax (Appeals) [CIT(A)], who upheld the AO’s decision. Aggrieved by the CIT(A)’s order, the assessee filed an appeal with the ITAT. The appeal was heard by the ITAT Bench ‘G’, New Delhi, comprising Shri N.K. Billaiya, Accountant Member, and Ms. Astha Chandra, Judicial Member. The hearing was conducted on 08.05.2023, and the order was pronounced on 10.05.2023.
The Learned Authorized Representatives (AR) for the assessee, Ms. Apoorva Bhardwaj and Shri Sanjay Agarwal, argued that the reasons to believe recorded for initiating proceedings under section 147 of the Income Tax Act, 1961, must be reasonable and based on relevant and material reasons. They contended that the reopening of the case was not valid and tenable as per law. They further argued that the purchases from M/s Ganpati Enterprises were genuine, supported by invoices on which VAT was separately charged and paid by the assessee. They highlighted that the entire purchases were part of the closing stock as of 31st March and treating the purchases as bogus would be revenue neutral.
The Senior Departmental Representative (Sr. DR), Ms. Yamini Gautam, supported the AO’s order, emphasizing that M/s Ganpati Enterprises was providing accommodation bills, and the assessee failed to prove the genuineness of the transactions.
After considering the submissions and examining the material on record, the ITAT found that the entire purchases from M/s Ganpati Enterprises were made in the month of March and were part of the closing stock as of 31st March. The Tribunal noted that treating these purchases as bogus and excluding them from the stock in trade would result in a revenue-neutral exercise for the year under consideration.
However, the Tribunal also acknowledged that if M/s Ganpati Enterprises was indeed providing accommodation entries, the assessee must have paid some commission for arranging these accommodation bills. Typically, such commissions range from 0.5% to 1%. Therefore, the Tribunal directed the AO to restrict the addition to 1% of the purchases, amounting to Rs. 10,52,140/- excluding VAT.
The ground relating to the reopening of the assessment was not pressed by the assessee’s counsel and was dismissed.
In conclusion, the ITAT’s decision in the case of S.G.V. Cotyarns Pvt Ltd vs ITO for the assessment year 2010-11 highlights the importance of verifying the genuineness of transactions and the need for relevant and material reasons for reopening assessments. The partial allowance of the appeal underscores the Tribunal’s balanced approach in addressing the issue of bogus purchases while considering the potential revenue impact. This case serves as a reference for similar disputes, emphasizing the significance of thorough scrutiny and adherence to legal principles in tax adjustments and related appeals.
Order pronounced in the open court on 10.05.2023 by the Accountant Member Shri N.K. Billaiya and the Judicial Member Ms. Astha Chandra.
Source: Income Tax Appellate Tribunal, Delhi Bench ‘G’, New Delhi
Disclaimer: This article provides a general overview of the case and is not a substitute for professional legal advice. For detailed information, readers are encouraged to refer to the official case documents and consult with a qualified legal professional.
S.G.V. Cotyarns Pvt Ltd vs ITO: Tax Dispute for AY 2010-11 Over Alleged Bogus Purchases
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