M/s Fortune Technocomps P. Ltd., New Delhi v. ITO, New Delhi

ITA 1466/DEL/2011 | 2007-2008
Pronouncement Date: 21-11-2014

Appeal Details

RSA Number 146620114 RSA 2011
Assessee PAN AAACF4987C
Bench Delhi
Appeal Number ITA 1466/DEL/2011
Duration Of Justice 3 year(s) 7 month(s) 29 day(s)
Appellant M/s Fortune Technocomps P. Ltd., New Delhi
Respondent ITO, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 21-11-2014
Appeal Filed By Assessee
Bench Allotted B
Tribunal Order Date 21-11-2014
Date Of Final Hearing 29-09-2014
Next Hearing Date 29-09-2014
Assessment Year 2007-2008
Appeal Filed On 23-03-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI H.S. SIDHU : JUDICIAL MEMBER ITA NO. 1466/DEL/2011 ASSTT. YR: 2007-08 M/S FORTUNE TECHNOCOMPS P. LTD. VS. INCOME-TAX OFF ICER C-504 SARITA VIHAR WARD 11(3) NEW DELHI. NEW DELHI-110076. PAN: AAACF 4987 C AND ITA NO. 1582/DEL/2011 ASSTT. YR: 2007-08 INCOME-TAX OFFICER VS. M/S FORTUNE TECHNOCOMPS P. LTD. WARD 11(3) NEW DELHI. C-504 SARITA VIHAR NEW DELHI-110076. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI C.S. AGARWAL SR. ADV. SHRI RAVI PRATAP MALL ADV. DEPARTMENT BY : SMT. PARMINDER KAUR SR. DR DATE OF HEARING : 29-09-2014 DATE OF ORDER : 21-11-2014. O R D E R PER S.V. MEHROTRA A.M:- THESE CROSS APPEALS PREFERRED BY THE ASSESSEE AS W ELL AS THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF CIT(APPEALS)-XIII NEW DELHI DATED 28-01- 2011 IN APPEAL NO. 365/09-10 FOR A.Y. 2007-08. 2 ITA 1466 & 1582/D/11 FORTUNE TECHNOCOMPS P. LTD. 2. BRIEF FACTS OF THE CASE ARE THAT IN THE RELEVANT ASSESSMENT YEAR THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF TR ADING OF ELECTRIC METER COMPONENTS. IT HAD FILED ITS RETURN DECLARING INCOM E OF RS. 8 96 782/-. IN COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THA T ASSESSEE HAD SHOWN CREDITORS AGGREGATING TO RS. 4 19 41 779/-. IN ORDE R TO VERIFY THE GENUINENESS OF ASSESSEES CLAIM THE AO ISSUED LETTERS U/S 133 (6) TO VARIOUS PARTIES AS ENUMERATED AT PAGES 1 & 2 OF THE ASSESSMENT ORDER. HE ALSO POINTED OUT THAT ONLY IN THE CASE OF M/S AEROVISION ENTERPRISES LET TER COULD BE SERVED WHEREAS OTHERS COULD NOT BE FOUND. WHEN THE ASSESSE E WAS CONFRONTED WITH THE RESULT OF 133(6) LETTERS REGARDING NO RESPONSE / POSTAL NOTINGS THE ASSESSEE POINTED OUT THAT RELEVANT CONFIRMATIONS FR OM ALL THE CREDITORS HAD ALREADY BEEN SUBMITTED. THE AO BEING NOT SATISFIED DEPUTED INSPECTOR AND HIS REPORT HAS BEEN REPRODUCED AT PAGE 2 OF THE ASS ESSMENT ORDER. THE INSPECTOR MAINLY POINTED OUT THAT THE PARTIES WERE EITHER NOT AVAILABLE OR THE INFORMATION WAS NOT AVAILABLE FOR THE SAME. THE AO ACCORDINGLY SHOW CAUSED THE ASSESSEE AS TO WHY THESE TRANSACTIONS BE TREATED AS NOT GENUINE. IN THE MEAN TIME INFORMATION U/S 133(6) WAS CALLED FO R FROM THE BANKER OF THE ASSESSEE TO PROVIDE THE BANK DETAILS OF THE PARTIES TO WHOM PAYMENTS HAD BEEN MADE BY THE ASSESSEE. UPON RECEIPT OF THIS INF ORMATION SUMMONS U/S 131WERE ISSUED TO THE BANKERS OF THE PAYMENT RECEIV ING PARTIES AND ON THE BASIS OF THE LATEST ADDRESSES MADE AVAILABLE BY THE M. THE AO HAS TABULATED THE DETAILS AT PAGES 3 & 4 OF HIS ORDER AND FROM TH ESE HE CONCLUDED THAT MOST OF THE CASES WERE CONTROLLED BY SHRI YOGESH KUMAR J AIN BEING EITHER PARTNER OR PROPRIETOR OR INTRODUCER TO THE SAID ACCOUNTS. H E FURTHER OBSERVED THAT FROM PERUSAL OF BANK ACCOUNTS IT WAS CLEAR THAT UP ON RECEIPT OF PAYMENT FROM THE ASSESSEE THE AMOUNTS HAD EITHER BEEN WITH DRAWN IN CASH OR TRANSFERRED TO OTHER ACCOUNT AND THEN WITHDRAWN IN CASH. HE ACCORDINGLY 3 ITA 1466 & 1582/D/11 FORTUNE TECHNOCOMPS P. LTD. ISSUED SUMMONS U/S 131 TO THE PARTIES AND DEPUTED A N INSPECTOR TO SERVE THE SUMMONS. THE INSPECTORS REPORT HAS BEEN REPRODUCED AT PAGE 5 OF THE ASSESSMENT ORDER. AT PAGE 6 OF THE ASSESSMENT ORDER THE AO HAS GIVEN DETAILS OBTAINED IN REGARD TO PARTIES SHOWN UNDER CREDITORS WHICH WAS AS UNDER: S.NO. NAME OF PARTY AMOUNT PAN WITH AO REMARKS 1. M/S JOONI ENTERPRISES PROP. SHRI UMESH KUMAR 10 03 500 WD.5(1) AS PER DATABASE NO RETURN FILED 2. M/S M.N. OVERSEAS 7 84 160 WD. 30(1) -DO- 3. M/S NECOLA INTERNATIONAL 24 17 168 WD. 33(2) INV ALID PAN 4. M/S NIRVANA TRADING CO. PROP. BAHADUR SINGH 83 97 572 WD. 30(1) -DO- 5. M/S S.R. INTERNATIONAL 24 10 621 WD. 36(3) -DO- 6. M/S S.S. ENTERPRISES 72 18 444 WD. 24(1) -DO- 7. M/S SATYAM TRADING 46 15 523 WD. 36(3) -DO- 2.1. ACCORDINGLY THE AO TREATED THE PURCHASES FROM THESE PARTIES AGGREGATING TO RS. 3 62 49 274/- AS NON GENUINE AND ACCORDINGLY DISALLOWED THE PURCHASES. 2.2. BEFORE LD. CIT(A) THE ASSESSEE HAD FILED APPL ICATION DATED 14-5-2010 UNDER RULE 46A ALONG WITH PAPER BOOK CONTAINING 41 2 PAGES FOR ADMISSION OF ADDITIONAL EVIDENCE. IT WAS INTER ALIA SUBMITT ED IN THIS LETTER THAT THE ASSESSEE HAD SUBMITTED CONFIRMATION FROM ALL THE PA RTIES AND THE AO HAD ALSO CALLED FOR THE BANK STATEMENT OF ALL SUPPLIERS IN QUESTION. THE ASSESSEES CONTENTION WAS THAT ASSESSEE WAS NOT GRANTED SUFFIC IENT OPPORTUNITY FOR SUBMITTING DETAILS REGARDING THE IDENTITY OF VENDOR S AND SUPPORTING DOCUMENTS FOR TRANSACTION. 2.3. IN THE PAPER BOOK THE ASSESSEE HAD GIVEN DETA ILS OF EACH OF THE NINE SUPPLIERS ALONG WITH THEIR SALES TAX RETURN COPY O F PAN CARD COPY OF RATION CARD PHOTO COPY OF A/C PAYEE CHEQUES ISSUED TO SUP PLIERS SALES TAX 4 ITA 1466 & 1582/D/11 FORTUNE TECHNOCOMPS P. LTD. REGISTRATION CERTIFICATE THEIR SALES TAX ASSESSMEN T ORDER ETC. TO ESTABLISH THE IDENTITY OF SUPPLIERS. IT ALSO INCLUDED THE SUMMARY OF TRANSACTIONS WITH NINE PARTIES; ICICI BANK TRANSACTIONS DETAILS FROM 6-4- 2006 TO 31-12-2007; PARTY WISE DETAIL OF PURCHASES; COMPONENT WISE INWARD-OUT WARD STOCK DETAILS OF THE 6 ITEMS IN QUESTION; COPY OF VAT ASSESSMENT ORDER MONTH-WISE SALE PURCHASE DETAIL SUMMARY OF CLOSING STOCK AND EXTRA CTS OF STOCK REGISTER. 2.4. LD. CIT(A) AFTER CONSIDERING THE REMAND REPOR T IN REGARD TO EACH PARTY OBSERVED THAT IDENTITIES OF PARTIES WAS ESTA BLISHED. HE INTER ALIA OBSERVED AS UNDER: IT IS A MATTER OF RECORD THAT ALL THESE NINE PARTI ES ARE HAVING TIN NO. AND HAVE BEEN ASSESSED TO SALES TAX FOR THE RELEVANT FINANCIAL YEAR WHERE THEIR ASSESSED TURNOVER FOR F Y 06-07 IS AT A MUCH HIGHER FIGURE THAN THE AMOUNT FOR WHICH THEY HAVE SOLD GOODS TO THE APPELLANT. THE PAN RATION CARD PASSP ORT DRIVING LICENSE ETC. ARE ALSO REPORTED TO BE AVAILABLE ON S ALES TAX RECORDS. FROM THESE DOCUMENTATION AND THE FACT THAT THESE PARTIES ARE HAVING BANK ACCOUNTS WHERE THE PAYMENTS RECEIVED IN THE SUBSEQUENT F.Y. FROM THE APPELLANT HAS BEEN DEPOSITED GOES ON TO ESTABLISH THE IDENTITY OF THESE PARTIES. 2.5. HE DID NOT ACCEPT THE AOS CONCLUSION THAT MER ELY BECAUSE THE PARTIES WERE NOT TRACEABLE THEREFORE THE ENTIRE PURCHASES COULD BE TREATED AS BOGUS PURCHASES. BUT AT THE SAME TIME HE WAS ALSO NOT FUL LY CONVINCED WITH THE ASSESSEES EXPLANATION ALSO PARTICULARLY IN VIEW OF THE OBSERVATIONS IN THE REMAND REPORT AS UNDER:- 2.6. IN THE REMAND REPORT THE AO HAD POINTED OUT T HAT TIN NO. WAS ALLOTTED TO ALL THE PARTIES IN 2005 AND THE ENTITIES WERE OW NED/ CO-OWNED BY FIVE PERSONS NAMELY NARESH KUMAR KHANDELWAL M.H. SHAR MA YOGESH KUMAR JAIN UMESH KUMAR AND R.B. SINGH. SUMMONS WERE ISSU ED TO ALL PERSONS WHICH WERE EITHER NOT RESPONDED OR NOT SERVED. 5 ITA 1466 & 1582/D/11 FORTUNE TECHNOCOMPS P. LTD. 2.7. IN THE REMAND REPORT OBSERVATIONS IN REGARD TO THESE PERSONS WERE AS UNDER: SUMMONS U/S 131 OF THE IT ACT WERE ISSUED TO ABOVE 5 PERSONS FOR PERSONAL DEPOSITION ON 29-09-2010 & ASKING FOR CERTAIN DETAILS SUMMONS ISSUED TO SHRI YOGESH KUMAR JAIN NARESH KUMAR KHANDELWAL UMESH KUMAR RETURNED BACK AS UNSE RVED WITH THE FOLLOWING REMARK OF POSTAL AUTHORITIES: YOGESH KUMAR JAIN NO SUCH PRSON NARESH KUMAR KHANDELWAL LEFT WITHOUT ADDRESS. UMESH KUMAR NO SUCH PERSON. THE SUMMONS ISSUED TO SHRI M.M. SHARMA AND SHRI R.B . SINGH NEITHER RETURNED BACK NOR NOBODY ATTENDED IN THIS O FFICE. VIDE THIS OFFICIAL LETTER NO. 29-07-2010 THE ASSESS EE COMPANY WAS ASKED TO FILE THE CORRECT ADDRESS OF THE PARTIE S AS MENTIONED. IN THIS RESPONSE ASSESSED COMPANY HAS SU BMITTED THAT SH. N.K. KHANDELWAL WHO IS THE PROPRIETOR OF 2 FIRMS & PARTNER IN ONE FIRM HE IS NOT CONTINUING THE BUSIN ESS DUE TO ILLNESS & ECONOMIC REASONS & SUBMITTED THE POSTAL A DDRESS I.E C-37 SARITA VIHAR NEW DELHI 110076. ON 03-09-2010 SUMMONS U/S 131 OF THE IT ACT WAS ISSUED & SERVED U PON SMT. ASHA KHANDELWAL W/O SH. NARESH KUMAR KHANDELWAL FOR PERSONAL DEPOSITION ON 09-09-2010. ON 09-09-2010 S H. N.K. KHANDELWAL DID NOT ATTEND THE OFFICE. ALTHOUGH THE VERIFICATION HAS BEEN MADE FROM THE SA LES TAX DEPTT. THAT ALL THE ABOVE MENTIONED PARTIES HAVE FI LED THE RETURNS OF SALES TAX AND THE TURNOVER OF ALL THE PA RTIES IS SUBSTANTIAL. HOWEVER IN THE ABSENCE OF PARTY WISE SALES IN THE SALES TAX RETURN IT CANT BE CONCLUSIVELY SAID THA T THE ASSESSED COMPANY WAS AMONG THE PARTIES WHO HAD MADE PURCHASE S FROM THESE PARTIES. ANOTHER FACTOR THAT CAME TO THE NOTI CE THAT ALTHOUGH TURNOVER OF THE PARTIES UNDER QUESTION IS IN CRORE OF RUPEES. HOWEVER NONE OF THESE HAD FILED THE RETURN OF INCOME TAX FOR AY 2007-08 WHICH CANNOT BE A MERE COINCIDEN T. 6 ITA 1466 & 1582/D/11 FORTUNE TECHNOCOMPS P. LTD. KEEP IN VIEW OF THE ABOVE THE LD CIT(A) MAY KINDLY CONSIDER THE ABOVE FACTS. 2.8. ALL THIS PROMPTED LD. CIT(A) TO FURTHER EXAMIN E THE TRANSACTIONS WITH THESE PARTIES. 2.9. LD. CIT(A) HAS OBSERVED THAT DURING THE APPELL ATE PROCEEDINGS IT TRANSPIRED THAT ASSESSEE HAD INCURRED OVERALL LOSS ON SUCH TRANSACTIONS RELATING TO PURCHASES FROM NINE PARTIES WHICH HAD BEEN SOLD TO VARIOUS VENDORS WITHIN DAYS OF PURCHASING THESE ITEMS. HE N OTED THAT THE TOTAL PURCHASES FROM NINE PARTIES AGGREGATED TO RS. 3 00 51 810/- AND HAD BEEN SOLD FOR AN AMOUNT OF RS. 2 12 03 520/- AND PART OF THESE PURCHASES WERE REFLECTED IN CLOSING STOCK FOR RS. 32 94 296/-. THU S THESE DISPUTED TRANSACTIONS HAD RESULTED IN GROSS LOSS FOR RS. 55 53 994/-. LD. CIT(A) FURTHER NOTICED THAT FROM GP PROVIDED BY THE ASSESSEE IT FU RTHER TRANSPIRED THAT GP RATE FOR A.Y. 2007-08 HAD DECLINED TO 2.67% AS AGAI NST 4.95% IN THE PREVIOUS YEAR I.E. IN A.Y. 2006-07. ALSO THE GP RAT E IN THE FOLLOWING YEAR 2008-09 HAD MARGINALLY INCREASED TO 3.89% ON ACCOUN T OF OPENING STOCK BEING THERE FROM THESE PARTIES AND FOR AY 2009-10 T O 4.25%. THUS THERE HAD BEEN A DECLINE OF 2.28% IN THE GP RATE FROM AY 2006 -07 AND EVEN IN AY 2008-09 IT REMAINED SOMEWHAT LOW WHICH WAS ATTRIBUT ABLE TO THE FACT THAT THE CLOSING STOCK OF UNBRANDED ITEM FOR RS. 32 94 296/- HAD BEEN SOLD AT A LOSS IN THIS YEAR TOO. HE FURTHER OBSERVED THAT THE GP RATE HAD BEEN A HEALTHY FIGURE OF 4.95% IN AY 2006-07 AND 4.25% IN AY 2009-10 WHEN THERE HAD BEEN NO DISPUTED SALES OF UNBRANDED ITEMS. HE HAS EXTRACTED THE ASSESSEES SUBMISSION IN THIS REGARD AT PAGES 22 TO 25 OF ORDE R AND CONCLUDED THAT THE EXPLANATION PROVIDED BY THE ASSESSEE FOR SUFFERING LOSSES ON THE TRANSACTIONS WHICH WERE UNDER SCANNER REVOLVES AROUND HIS SELF SERVING STATEMENT THAT HE 7 ITA 1466 & 1582/D/11 FORTUNE TECHNOCOMPS P. LTD. CHOOSE TO SUFFER THE LOSSES IN ORDER TO WARD OFF CO MPETITION FROM OTHER SUPPLIERS VIS--VIS HIS EXISTING VENDORS. 2.10. LD. CIT(A) DID NOT ACCEPT THIS EXPLANATION AN D INTER ALIA OBSERVED AS UNDER: THIS EXPLANATION IS QUITE FLIMSY AND SUPERFICIAL I N CASE OF A TRADING BUSINESS AS HIS. IT IS INDEED POSSIBLE FOR A TRADER TO SELL AT REDUCED PROFIT MARGIN IF THE OVERALL RESULT IS I NCREASE IN TURNOVER AND CONSEQUENT PROFITABILITY BUT OPERATING AT A LOSS IN TRANSACTION AFTER TRANSACTION DEFIES ALL HUMAN & BU SINESS PROFITABILITIES/ POSSIBILITIES IN CASE OF A TRADER. THE FACT THAT ALL THE SIX UNBRANDED ITEMS PURCHASED ON VARIOUS DATES FROM THE NINE PARTIES HAVE BEEN IMMEDIATELY SOLD TO THE VEND ORS GOES ON TO SHOW THAT ALL THESE PURCHASES WERE MADE AT THE B EHEST OF THE VENDORS AND THUS THERE WAS A READY MARKET FOR THESE GOODS. THIS FACT ALSO RUNS AGAINST ANY POSSIBLE ARGUMENT T HAT THE TRADING LOSS HAS BEEN ON ACCOUNT OF OBSOLESCE OF TH E PRODUCTS. FURTHER IT IS ALSO INTERESTING TO NOTE THAT PAYMEN T FROM THE VENDORS FOR THESE ITEMS HAVE COME IN THE SUCCEEDING FINANCIAL YEAR AND HAS BEEN UTILIZED FOR MAKING CONSEQUENT PA YMENT TO THE NINE PARTIES. THE FACT OF THE DELAY IN RECEIPT OF PAYMENT FROM THE VENDORS WAS ALL THE MORE REASON FOR SEEKIN G A BETTER MARGIN BY THE APPELLANT AS THE COST OF INTEREST WOU LD ALSO NEED TO BE FACTORED IN. 2.11. THEREAFTER THE LD. CIT(A) HAS CLEARLY DEMONS TRATED IN REGARD TO TRANSFORMERS CAPACITORS DIODES AND TRANSISTOR THA T IT WAS NOT A CASE FOR ALLOWING THE LOSS FOR RS. 55 53 994/- ON THE UNBRAN DED ITEMS IN QUESTION THE PURCHASES OF WHICH WERE NOT ENTIRELY ABOVE BOAR D AS THIS LOSS DEFIES ALL CANONS OF HUMAN AFFAIRS IN TRADING BUSINESS. HE AC CORDINGLY ESTIMATED THE GP RATE AT 4.25% ON THE SALES FOR RS. 3 00 51 810/- WHICH WORKED OUT TO RS. 12 77 202/- AND ACCORDINGLY HE MADE AN OVERALL ADDI TION OF RS. 68 31 195/- (RS. 55 35 994+ RS. 12 77 202/-). 8 ITA 1466 & 1582/D/11 FORTUNE TECHNOCOMPS P. LTD. 2.12. LD. CIT(A) ALSO UPHELD THE AOS ACTION IN REJ ECTING THE BOOKS OF A/C AND INVOKING THE PROVISIONS OF SECTION 145. HE RELIED O N THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. SURJEET SINGH MAHESH KUMAR 210 ITR 83 WHEREIN IT HAS BEEN HELD THAT IN CASE WHERE THE PROVISIONS OF SECTION 145 ARE ATTRACTED ALTHOUGH THE ASSESSMENT IS MADE IN M ANNER PROVIDED IN SEC. 144 NEVERTHELESS THE ASSESSMENT IS MADE U/S 143(3) OF T HE IT ACT. LD. CIT(A) HELD AS UNDER: NEEDLESS TO ADD THAT THE FACTS OF THE CASE DID WAR RANT INVOKING OF SECTION 145(3) LEADING TO REJECTION OF ACCOUNTS. THE AO HAS IN MY VIEW ONLY ERRED IN DISALLOWING THE ENTIRE DIS PUTED PURCHASES FOR RS. 3.62 CRORES INSTEAD OF RESORTING TO A REASONABLE ESTIMATE OF INCOME ON SUCH DISPUTED TRAN SACTIONS. IT IS ALSO OBSERVED THAT THERE IS NOTHING WRONG IN HOL DING ONLY PART OF THE DISPUTED TRANSACTIONS AS INCORRECT AND ESTIMATING FAIR & REASONABLE INCOME ON THE SAME AND IN ACCEPTI NG THE UNDISPUTED PART OF TRANSACTIONS IN BOOKS OF ACCOUNT S AS CORRECT. IN FACT UNDER CIRCUMSTANCES AS EXISTING IN INSTANT CASE THE REJECTION OF THE ENTIRE BOOKS OF ACCOUNTS WOULD HAV E RESULTED IN MISCARRIAGE OF JUSTICE TO THE ASSESSEE THAN APPLYIN G A REASONABLE ESTIMATED ADDITION WITH REFERENCE TO ONL Y SUCH TRANSACTIONS WHICH ARE DOUBTFUL/ DISPUTED. 2.13. BEING AGGRIEVED WITH THE ORDER OF LD. CIT(A) BOTH ASSESSEE AND THE DEPARTMENT ARE IN APPEAL BEFORE US. ASSESSEES APPEAL (ITA NO. 1466/DEL/11): 4. FOLLOWING GROUNDS ARE RAISED: 1. THE LD. CIT(A) HAS ERRED IN LAW AND FACTS OF TH E CASE IN SUSTAINING THE ADDITION AMOUNTING TO RS. 68 31 195/ - ON ACCOUNT OF ESTIMATED GROSS PROFIT ON THE SALE OF IT EMS IN QUESTION IGNORING THE SUBMISSIONS OF THE ASSESSEE AND TREATING THE SAME AS UNDISCLOSED INCOME WHICH IS UNJUSTIFIE D UNCALLED FOR AND BAD IN LAW. 9 ITA 1466 & 1582/D/11 FORTUNE TECHNOCOMPS P. LTD. 2. THE LD. CIT(A) HAS ERRED IN REJECTING THE PART O F BOOKS OF ACCOUNTS FOR THE PURPOSE OF RESORTING TO THE ESTIMA TES AND MAKING ADDITION ON THE BASIS OF G.P. RATE WHICH IS BASED UPON SURMISES CONJECTURES AND IS BAD IN LAW. 3. THE ASSESSEE CRAVES TO HAVE THE RIGHT TO ADD AM END OR MODIFY THE GROUND OF APPEAL. 5. GROUND NO. 3 IS GENERAL IN NATURE AND REQUIRES N O ADJUDICATION. 6. LD. SR. COUNSEL SHRI C.S. AGARWAL SUBMITTED THAT ALL SALES WERE VERIFIABLE AS THEY WERE THROUGH A/C PAYEE CHEQUES. LD. COUNSEL SUBMITTED THAT PARTLY BOOKS CANNOT BE ACCEPTED AND PARTLY REJ ECTED. HE FURTHER SUBMITTED THAT LD. CIT(A) SHOULD HAVE GIVEN A FINDI NG AS TO WHICH SALES WERE NOT VERIFIABLE. LD. SR. COUNSEL REFERRED TO THE DEC ISION OF FULL BENCH OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SAR DARI LAL & CO. 251 ITR 864 )ALL.)(FB) FOR THE PROPOSITION THAT NEW SOURCE COULD NOT BE CONSIDERED BY LD. CIT(A). LD. COUNSEL FURTHER RELIED ON THE DE CISION OF HONBLE SUPREME COURT IN THE CASE OF CIT S. SHAPOORJI PALL ONJI MISTRY 44 ITR 891 (SC) FOR THE PROPOSITION THAT A QUESTION WHICH HAS NOT BEEN EXAMINED BY AO IS BEYOND LD. CIT(A) POWER. HE SUBMITTED THAT THE A O HAS NOT HELD THAT SALES WERE NOT VERIFIABLE. THEREFORE LD. CIT(A) CO ULD NOT DO SO. 6.1. LD. SR. COUNSEL REFERRED TO PAGES 28 TO 36 OF THE PB WHEREIN COPIES OF CONFIRMATIONS FROM CREDITORS FOR PURCHASES IN QUEST ION ARE CONTAINED. HE FURTHER POINTED OUT THAT COPIES OF BILLS FOR PURCH ASES IN QUESTION ARE CONTAINED AT PAGES 37 TO 149 OF THE PB. THE LETTER ISSUED U/S 133(6) WAS DULY SERVED UPON PARTIES. COPIES OF ACCOUNTS OF CREDITOR S FOR PURCHASES IN QUESTION ARE CONTAINED FROM PAGES 150 TO 174 AND TH E COPIES OF ACCOUNT OF CUSTOMERS TO WHOM SALES WERE MADE ARE CONTAINED AT PAGES 175 TO 206. FURTHER THE SUBMISSIONS SUMMARIZING AMOUNT OF PURC HASES INVOICES AND 10 ITA 1466 & 1582/D/11 FORTUNE TECHNOCOMPS P. LTD. DESCRIPTION OF PRODUCTS AND CORRESPONDING SALES MA DE TO VARIOUS CUSTOMERS ARE CONTAINED FROM PAGES 207 TO 212 OF THE PB. THE REMAND REPORT OF AO IS CONTAINED AT PAGE 217 AND IN THE REMAND REPORT AO H AD DULY EXAMINED THE SALES-TAX RECORDS OF VARIOUS SUPPLIERS. 7. LD. DR SUBMITTED THAT LD. CIT(A) HAS NOT CONSIDE RED ANY NEW SOURCE OF INCOME AND KEEPING INTO CONSIDERATION THE ENTIRE CONSPECTUS OF THE CASE CONCLUDED THAT LOSS INCURRED WAS NOT GENUINE. HE FU RTHER SUBMITTED THAT LD. CIT(A) DID NOT ENHANCE THE INCOME BECAUSE THE FINAL ADDITION SUSTAINED BY LD. CIT(A) IS MUCH LESS THAN THE ADDITION MADE BY A O. LD. DR FURTHER SUBMITTED THAT FROM THE DOCUMENTS SUBMITTED BY ASSE SSEE IT CANNOT BE CONCLUDED THAT THE IMPUGNED PURCHASES WERE INCLUDED IN THE SALES-TAX RETURNS OF THE PARTIES. 8. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND HAVE PERUSED THE RECORD OF THE CASE. THE AO HAD TREATED THE ENTIRE PURCHASES FROM NINE PARTIES AS BOGUS AND HAD ACCORDINGLY MADE AN A DDITION OF RS. 3 62 49 274/-. THE TOTAL PURCHASE SHOWN BY ASSESSEE WAS RS. 10 34 26 283/- AND THE SALES WERE FOR RS. 10 62 59 747/-. THE AO H AD NOT COMMENTED UPON THE SALES. LD. CIT(A) AFTER CONSIDERING THE REMAND REPORT AND THE DOCUMENTS FILED BY THE ASSESSEE CONCLUDED THAT THE IMPUGNED PARTIES WERE HAVING BANK ACCOUNTS WHERE PAYMENTS RECEIVED IN THE SUBSEQUENT FINANCIAL YEAR FROM THE ASSESSEE HAD BEEN DEPOSITED AND THIS GOES TO ESTABLISH THE IDENTITY OF THE PARTIES. HOWEVER LD. CIT(A) INTER ALIA OBSERVED THAT ALL EFFORTS INCLUDING SENDING INSPECTOR OF INCOME-TAX AT ADDRESSES GATHERED FROM THE BANKS HAD BEEN MADE TO TRACE NINE PARTIES BUT UNFORTUNATELY THERE WAS NOT A SINGLE COMPLIANCE FROM ANY OF THESE NINE PARTIES. HE FURTHER OBSERVED THAT A DIRECT INQUIRY RELATING TO THE SOUR CE FROM WHERE THESE PARTIES HAD MADE THE PURCHASES AS WELL AS THEIR COST SHOUL D HAVE POSSIBLY MADE 11 ITA 1466 & 1582/D/11 FORTUNE TECHNOCOMPS P. LTD. ONLY IF THESE PARTIES HAD APPEARED BEFORE THE AO AT THE SAME TIME. THEREFORE LD. CIT(A) HAS NOT GIVEN ANY CONCLUSIVE FINDING AS REGARDS THE GENUINENESS OF PURCHASES. HE HAS RIGHTLY OBSERVED THAT DISPUTED PURCHASES CARRY WITH IT A NATURAL COROLLARY OF DISPUTED SALES TO THAT EXTENT. HE HAS ONLY HELD THAT ENTIRE PURCHASES COULD NOT BE TREATED AS BOGUS INTER ALIA OBSERVING AS UNDER: THE QUESTION HOWEVER REMAINS WHETHER THE APPELLANT COULD BE HELD ACCOUNTABLE IN AS MUCH AS THE ENTIRE PURCHASES OF UNBRANDED ELECTRONIC ITEMS CAN BE TERMED AS BOGUS & ACCORDINGLY DISALLOWED AS HAS BEEN HELD BY THE AO ONLY BECAUSE THESE PARTIES ARE NOT APPEARING BEFORE THE I.T. AUTHORITIES WHICH IS AFTER A GAP OF MORE THAN 2 YE ARS FROM THE DATE OF THE DISPUTED TRANSACTIONS. IT IS A MATTER O F RECORD THAT THE APPELLANT IS NOT HAVING ANY BUSINESS TRANSACTIO N WITH THESE PARTIES SINCE MORE THAN 2 YEARS. I AM CONSTRAINED T O HOLD ON A BALANCING OF FACTS THAT AS THE IDENTITY OF THE PART IES IS ON RECORD WITH BANKING AUTHORITIES IT AUTHORITIES SALES TAX AUTHORITIES ETC. & PAYMENTS HAVE BEEN EFFECTED THROUGH CHEQUES AND THE FACT THAT THE PURCHASES MADE FROM THESE NINE PARTIE S HAVE BEEN RECORDED IN THE STOCK REGISTER OF APPELLANT AND FRO M WHICH ITSELF THE SUBSEQUENT SALES HAVE BEEN MADE GOES ON TO SHOW THAT IT MAY NOT BE APPROPRIATE TO OUT RIGHTLY HOLD THAT THE PURCHASES ARE BOGUS MERELY BECAUSE THE PARTIES ARE NOT TRACEA BLE NOW. IN FACT ANY FINDING TO THIS EFFECT WOULD ALSO CARRY IT SELF WITH THE NATURAL INFERENCE THAT THE CORRESPONDING SALES SHOU LD ALSO BE HELD BOGUS AND DELETED FROM THE TURNOVER OF THE ASS ESSEE. IN VIEW THEREOF ON A TOTALITY OF FACTS & CIRCUMSTANCES & DISPASSIONATE WEIGHING OF THE EVIDENCES THE ADDITIO N MADE BY THE AO BY HOLDING THE ENTIRE PURCHASES AS BOGUS TRA NSACTIONS AND DISALLOWING THE SAME IS NOT SUSTAINABLE. 8.1. HAD THAT BEEN SO LD. CIT(A) WOULD NOT HAVE VE NTURED ANY FURTHER AND SIMPLY DELETED THE ADDITION. BUT BEING NOT SATISFI ED WITH THE OVERALL CONDUCT OF ASSESSEE HE EXAMINED THE OVERALL LOSS ON SUCH T RANSACTIONS RELATING TO PURCHASES FROM NINE PARTIES. IT IS TRUE AS NOTED EA RLIER THAT AO HAD NOT EXAMINED THE SALES AND ONLY DISALLOWED THE ENTIRE DISPUTED PURCHASES. 12 ITA 1466 & 1582/D/11 FORTUNE TECHNOCOMPS P. LTD. HOWEVER LD. CIT(A) HAS ONLY EXAMINED THE SALES WIT H REFERENCE TO THE PURCHASES FROM THESE PARTIES AND CAME TO THE CONCLU SION OF UNIQUE FEATURE THAT ONLY THE DISPUTED TRANSACTIONS HAD RESULTED IN GROSS LOSS. THEREFORE THOUGH HE DID NOT DISTURB THE PURCHASES BUT AFTER E XAMINING THE ENTIRE BILLS CONCLUDED THAT LOSS WAS WRONGLY RETURNED BY ASSESSE E. UNDER THESE FACTS THE MOOT POINT FOR CONSIDERATION IS FIRSTLY WHETHER LD. CIT(A) EXCEEDED HIS POWERS AND RESORTED TO A NEW SOURCE OF INCOME; SECO NDLY WHETHER LD. CIT(A) HAD MADE ENHANCEMENT OF INCOME; AND THIRDLY WHETHER LD. CIT(A) WAS JUSTIFIED IN REJECTING THE SALES RETURNED BY A SSESSEE. 8.2. AS FAR AS THE ISSUE REGARDING TAKING A NEW SOU RCE OF INCOME IS CONCERNED LD. COUNSEL HAS RELIED ON FOLLOWING TWO CASE LAWS FOR THE PROPOSITION THAT THE SAME CANNOT BE DONE BY LD. CIT (A): - CIT VS. SARDARI LAL & CO. 251 ITR 864 (ALL.)(FB); - CIT S. SHAPOORJI PALLONJI MISTRY 44 ITR 891 (SC) 8.3. HOWEVER IN THE CASE OF CIT VS. NIRBHERAM DALU RAM 224 ITR 610 (SC) IT HAS BEEN HELD THAT THE APPELLATE POWERS CO NFERRED ON THE AAC U/S 251 OF THE ACT WERE NOT CONFINED TO THE MATTERS CON SIDERED BY THE ITO. IT WAS HELD THAT EVEN IF THE SUM ADDED BY THE AAC RELATED TO NEW SOURCES OF INCOME NOT CONSIDERED BY THE ITO THE AAC COULD NOT BE HEL D TO HAVE EXCEEDED HIS JURISDICTION IN MAKING THE ADDITION. IN THIS CASE IN REASSESSMENT PROCEEDINGS THE AO HAD INCLUDED IN THE TOTAL INCOME A SUM OF R S. 2 45 000/- REFERABLE TO OSTENSIBLE TRANSACTIONS IN HUNDI LOANS SHOWN BY THE ASSESSEE FIRM. ON APPEAL THE AAC NOT ONLY SUSTAINED THE ADDITION OF RS. 2 45 000/- BUT ALSO TOOK NOTICE OF TEN OTHER ITEMS OF OSTENSIBLE HUNDI LOAN S AMOUNTING TO RS. 2 30 000/- AND DIRECTED THAT THE TOTAL INCOME BE EN HANCED BY THE SUM OF RS. 13 ITA 1466 & 1582/D/11 FORTUNE TECHNOCOMPS P. LTD. 2 30 000/-. THIS ACTION OF AAC WAS SUSTAINED BY HON BLE SUPREME COURT. THEREFORE IN VIEW OF THE DECISION OF HONBLE SUPRE ME COURT IN THE CASE OF NIRBHERAM DALURAM (SUPRA) IT CANNOT BE HELD THAT L D. CIT(A) HAD EXCEEDED HIS JURISDICTION OR MADE ENHANCEMENT BECAUSE HE HA D GIVEN A FINDING WITH RESPECT TO THE DISPUTED PURCHASE THOUGH ON DIFFEREN T BASIS. 8.4. HE WAS OF THE OPINION THAT THERE WAS NO BASIS FOR INCURRING LOSS IN RESPECT OF DISPUTED TRANSACTIONS. THEREFORE IN ANY VIEW OF THE MATTER THIS COULD NOT BE HELD TO BE A NEW SOURCE OF INCOME. NOW COMING TO THE SECOND ASPECT WE FIND THAT IT IS NOT A CASE OF ENHANCEMEN T OF INCOME BECAUSE THE ULTIMATE ADDITION SUSTAINED BY CIT(A) ON CONSIDERA TION OF SAME TRANSACTIONS WAS MUCH LESS THAN THE ADDITION MADE BY AO. THEREFO RE BY NO STRETCH OF IMAGINATION IT CAN BE HELD TO BE ENHANCEMENT OF INC OME. NOW THE THIRD ASPECT IS REGARDING SALES REJECTED BY LD. CIT(A). A T PAGE 26-27 OF HIS ORDER LD. CIT(A) HAS GIVEN SOME EXAMPLES TO DEMONSTRATE T HAT THE ASSESSEE HAD SOLD VARIOUS ITEMS AT LOSS WITHIN ONE OR TWO DAYS OF THEIR PURCHASES. IT IS WELL SETTLED LAW THAT UNLESS A DEFECT IS POINTED OU T IN THE BOOKS OF A/C NO ADDITION CAN BE MADE MERELY BECAUSE GROSS PROFIT MA RGIN SHOWN BY ASSESSEE IS LOW. IN THE PRESENT CASE LD. CIT(A) HAS PRIMARIL Y NOT ACCEPTED THE PURCHASES BUT AT THE SAME HE WAS NOT AGREED WITH A O THAT THE ADDITION TO THE EXTENT OF ENTIRE PURCHASES COULD BE SUSTAINED. THEREFORE HE REJECTED THE SALES MADE BY ASSESSEE QUA THESE PARTIES ONLY ON TH E GROUND THAT THERE WAS PROXIMITY BETWEEN THE DATE OF PURCHASES AND DATE OF SALES. ENTIRE CONSPECTUS OF CASE HAS TO BE TAKEN INTO CONSIDERATION TO FIND OUT THE TRUE IMPORT OF HIS OBSERVATIONS. KEEPING IN VIEW VARIOUS ASPECTS INCLU DING SALES OF THE TRANSACTIONS QUA PURCHASES FROM IMPUGNED PARTIES HE REJECTED THE SAME AND APPLIED THE G.P. RATE ON IMPUGNED TRANSACTIONS ONLY . 14 ITA 1466 & 1582/D/11 FORTUNE TECHNOCOMPS P. LTD. 8.5. IN OUR OPINION THIS CANNOT BE HELD TO BE A CAS E OF REJECTION OF SALES BUT ESSENTIALLY IT IS A CASE OF REJECTION OF PART PURCH ASES AND ACCORDINGLY OF PART SALES. IN OUR OPINION KEEPING IN VIEW THAT THE PUR CHASES MADE BY ASSESSEE BEING NOT FULLY ESTABLISHED EXCEPT IDENTITY OF PAR TIES PARTICULARLY IN VIEW OF THE FACT THAT THERE WAS NO EVIDENCE TO ESTABLISH TH AT THE IMPUGNED PURCHASES WERE INCLUDED IN THE SALES-TAX RETURNS OF THE PARTI ES LD. CIT(A)S CONCLUSION OF ARRIVING AT A REASONABLE ESTIMATE CONSIDERING T HE ENTIRE CONSPECTUS OF T HE CASE CANNOT BE FAULTED. WE ACCORDINGLY CONFIRM TH E ORDER OF LD. CIT(A) ON THIS COUNT. 9. AS FAR AS GROUND NO. 2 IS CONCERNED THE MAIN CO NTENTION OF LD. COUNSEL FOR THE ASSESSEE IS THAT LD. CIT(A) WAS NOT JUSTIFI ED IN REJECTING PART BOOKS OF ACCOUNTS. 10. HAVING HEARD BOTH THE PARTIES WE DO NOT FIND A NY INFIRMITY IN THE ORDER OF LD. CIT(A) ON THIS COUNT ALSO BECAUSE WHEN -EVER AO EXAMINES SPECIFIC ISSUES IN COURSE OF ASSESSMENT AND MAKE AD DITIONS/ DISALLOWANCES QUA THOSE ISSUES THEN IMPLIEDLY PART BOOKS STAND REJECTED. THE AO IS NOT ENTITLED TO ALTOGETHER DISCARD THE EVIDENCE OF THE BOOKS OF ACCOUNT. IT IS OPEN TO THE AO TO ACCEPT ASSESSEES BOOKS WITH REGARD TO CERTAIN KIND OF TRANSACTIONS AND REJECT THEM IN RESPECT OF OTHER TR ANSACTIONS AS WAS HELD IN GANESHILAL CHHAPPAN LAL VS. CIT 9 ITR 81 (ALL). THE REFORE THERE IS NOTHING WRONG IN ACCEPTING THE BOOK RESULTS TO THE EXTENT O F NO DISCREPANCY FOUND. THE AO THOUGH HAD REJECTED THE BOOKS OF A/C BUT HA D MADE ADDITION ONLY IN RESPECT OF BOGUS PURCHASES. THUS IMPLIEDLY THE BOO KS OF A/C WERE REJECTED TO THIS EXTENT ONLY WHICH WAS SUSTAINED BY LD. CIT(A) BUT HE REDUCED THE ADDITION BY APPLYING ONLY ESTIMATED GROSS PROFIT TO THE IMPUGNED TRANSACTIONS. THEREFORE WE UPHOLD THE LD. CIT(A)S ACTION IN PART REJECTION OF BOOKS OF ACCOUNT. 15 ITA 1466 & 1582/D/11 FORTUNE TECHNOCOMPS P. LTD. 11. IN THE RESULT ASSESSEES APPEAL IS DISMISSED. DEPARTMENTS APPEAL (1582/DEL/11): 11. FOLLOWING GROUNDS ARE RAISED: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE ORDER OF THE LD. CIT(A) IS WRONG PERVERSE ILLEGAL AND AGAINST THE PROVISIONS OF LAW WHICH IS LIABLE TO BE REVERSE D. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AS CIT(A) ADJU DICATED AN ISSUE WHICH WAS NEVER BROUGHT TO THE NOTICE OF AO A ND EVEN IN REMAND PROCEEDINGS. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE LD. C IT(A) HAS CONTRADICTED HIS OWN FINDING THAT THE PURCHASES WERE DOUBTFUL AND ALLOWED RELIEF OF RS. 2 94 20 579/-. 4. THE APPELLANT CRAVES TO ADD ALTER/ AMEND ANY GR OUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 12. GROUND NOS. 1 & 4 ARE GENERAL IN NATURE AND REQ UIRE NO ADJUDICATION. 13. AS FAR AS GROUND NO. 2 IS CONCERNED SINCE LD. CIT(A) HAS ONLY SUSTAINED THE ADDITION WITH REFERENCE TO THE IMPUGN ED PURCHASES AFTER CONSIDERING THE REMAND REPORT FILED BY THE AO IT C ANNOT BE SAID THAT MERELY BECAUSE HE SUSTAINED ONLY PART ADDITION THEREFORE THE ISSUE WAS NEVER BROUGHT TO THE NOTICE OF AO. THE AO HAS REJECTED TH E BOOKS OF A/C AND MADE THE ENTIRE ADDITION IN RESPECT OF ALLEGED BOGUS PUR CHASES WHICH WERE ONLY SUSTAINED PARTLY WITH REFERENCE TO THE SALES MADE O UT OF PURCHASES FROM SAME IMPUGNED TRANSACTIONS. ACCORDINGLY GROUND NO. 2 IS DISMISSED. 16 ITA 1466 & 1582/D/11 FORTUNE TECHNOCOMPS P. LTD. 14. AS REGARDS GROUND NO. 3 IN VIEW OF OUR FINDING IN ASSESSEES APPEAL WE UPHOLD THE ORDER OF LD. CIT(A) ON THIS COUNT. 15. IN THE RESULT BOTH THE APPEALS FILED BY THE ASSESSEE AS WELL AS THE REVENUE STAND DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 21-11-2014. SD/- SD/- (H.S. SIDHU ) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2111-2014. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR