In a notable case, the Income Tax Appellate Tribunal (ITAT) Delhi Bench ‘H’ delivered its judgment on the appeal filed by the ACIT Central Circle, Panipat, challenging the genuineness of sales made by Kundan Rice Mills Ltd. The case was presided over by Shri Saktijit Dey, Judicial Member, and Shri M. Balaganesh, Accountant Member.
The appeal involved cross appeals by both the assessee, Kundan Rice Mills Ltd., and the Revenue, challenging the orders of the Commissioner of Income Tax (Appeals)-3, Gurgaon, for the assessment years 2005-06 to 2009-10. The main issue revolved around the addition/deletion made on account of estimation of profit on alleged bogus sales.
The ACIT Central Circle contested the sales made by Kundan Rice Mills Ltd. to two entities, M/s. Dee Kay Trade Centre and M/s. J.S. Enterprises, claiming they were non-existent and therefore, the sales were bogus. The Assessing Officer (AO) had observed that these entities did not exist at their given addresses and had made huge cash deposits in various bank accounts, which were subsequently transferred to Kundan Rice Mills Ltd.
During the hearing, the appellant’s representatives argued that the AO’s findings were not based on any incriminating material found during the search and seizure operation. They contended that the sales were genuine and the AO’s conclusions were purely based on estimates and suspicions without any substantial evidence.
The Tribunal noted that the search and seizure operation conducted on the assessee did not yield any incriminating material specifically related to the alleged bogus sales. It observed that the AO had made additions by estimating a gross profit (GP) rate of 6.75% on the entire sales turnover, which was not justified.
The Tribunal highlighted that the doubt regarding the genuineness of sales was limited to transactions with M/s. Dee Kay Trade Centre and M/s. J.S. Enterprises. For sales to other parties, no adverse material was found. The Tribunal also pointed out that both entities were having valid PANs and regular bank accounts, indicating their existence at the relevant time.
The Tribunal concluded that the AO’s approach of applying a different GP rate to sales made to the two disputed entities was incorrect, especially when similar products sold to other parties were accepted. It held that there was no reason to treat the sales to M/s. Dee Kay Trade Centre and M/s. J.S. Enterprises differently.
Accordingly, the Tribunal directed the deletion of the additions made by the AO and allowed the appeal filed by Kundan Rice Mills Ltd.
The ITAT Delhi Bench ruled in favor of Kundan Rice Mills Ltd., holding that the additions made by the AO were not sustainable in the absence of incriminating material found during the search. The Tribunal emphasized the need for concrete evidence when making such significant additions based on alleged bogus sales.
Order pronounced in open court on 16th May, 2023.
sd/- (M. BALAGANESH) ACCOUNTANT MEMBER
sd/- (Saktijit Dey) JUDICIAL MEMBER
Dated: 16th May, 2023
Copy forwarded to:
ITA 5173/DEL/2019: ACIT Central Circle vs. Kundan Rice Mills Ltd. – Dispute Over Bogus Sales
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