Bogus Purchases case study – Addition of full purchase or only Profit component

ITO Vs SP International

Whether in case of bogus purchases, the addition merits being restricted to the rate of profit embedded in such purchases – YES: ITAT

•⁠ ⁠Appeal dismissed: MUMBAI ITAT

THE Assessee is a partnership firm engaged in the business of trading in diamonds. Assessment under Section 147 read with Section 143(3) of the Act was framed on the Assessee vide order, dated 19/12/2019, reassessing the taxable income of the Assessee at INR 3,20,96,267/-, as against income of Rs 1,66,680/- assessed under Section 143(3) of the Act. The Assessing Officer has made addition of Rs 3,19,29,587/- holding that the purchases made from the following four parties were bogus. Being aggrieved by the assessment order, dated 19/12/2019, passed under Section 143(3) read with Section 147 of the Act, the Assessee preferred appeal before CIT (A) challenging the validity of the reassessment proceedings as well the addition of Rs 3,19,29,587/- made by the Assessing Officer on account of alleged bogus purchases. While the CIT (A) upheld the validity of the reassessment proceedings, substantial relief was granted to the Assessee as the CIT (A) restricted the disallowance to Rs 9,57,888/-, being 3% of the alleged bogus purchases of Rs 3,19,29,587/-, and deleted the balance disallowance of Rs 3,09,71,699/-. Being aggrieved by the above relief granted by the CIT (A), the Revenue has preferred the present appeal before the Tribunal.

On appeal, the Tribunal held that,

Whether in case of bogus purchases, the addition merits being restricted to the rate of profit embedded in such purchases – YES: ITAT

++ we concur with the CIT (A) that in the aforesaid facts and circumstances only profit element embedded in the alleged bogus purchases can be brought to tax in the hands of the Assessee, and that the judicial precedents relied upon by the Revenue in grounds of appeal are distinguishable in view of the aforesaid facts. In the present case the rate of profit embedded in the alleged bogus purchases has been accepted to be 3% by the Assessing Officer and the CIT(A) in the aforesaid assessment/appellate proceedings. There is nothing on record to show that the aforesaid decision of the Assessing Officer/CIT (A) have been challenged by the Revenue and/or have been overturned in the revision/appellate proceedings. Accordingly, we do not find any infirmity in the order dated 01/12/2023, passed by the CIT (A) restricting the addition on account of alleged bogus purchases to the profit element of 3% embedded therein. We note that the decision of the CIT (A) is also in line with the decision in the case of the Mumbai Bench of the Tribunal in the case of Oopal Diamond Vs. Assistant Commissioner of Income Tax 19(2), Mumbai: [ITA No.1499/Mum/2020, ITA No. 1500/Mum/2020 & ITA No.1501/Mum/2020, dated 26/10/2022] cited by the Assessee before the CIT (A). There is nothing on record to persuade us to take a view different from the view taken by the CIT (A). Accordingly, we do not find any infirmity in the order passed by the CIT (A).

All the grounds raised by the Revenue are dismissed as being without merit.

2024-TIOL-993-ITAT-MUM

What do the courts say… on the allegation of bogus purchases.. how to defend. What are the other decisions ?

ACIT Vs Varun Resources Ltd

Whether as per settled precedent, provisions of IBC 2016 prevail over provisions of Income Tax Act – YES: ITAT

Whether I-T authorities have limited jurisdiction to assess quantum of Income Tax dues but have no authority to initiate recovery of such dues at its own during the period of moratorium in violation of Section 14 or 33(5) of the IBC – YES: ITAT

Whether the I-T Department can stake its claim before the official liquidator or adjudicatory authority, within the statutory limitation period provided under the IBC – YES: ITAT

– Case remanded: MUMBAI ITAT

THE assessee was a limited company engaged in the business of ship operation and ceased to exist on 01.04.2011 by demerging part of its business in M/s. Valun Global Ltd (VGL) and with remaining business got amalgamated with M/s. Varun Resources Ltd (VRL). Appellant did not file its return of income for the A.Y. 2012-13 as it was not in existence due to aforesaid demerging/amalgamation. The notice u/s. 148 of the Act was issued. Subsequently assessing officer, gathered information from 26AS. Notice u/s. 142(1) of the act was issued by AO asking certain informations from the assessee but for no avail. Assessing Officer, then proceeded on the basis of information available in ITS on ITD system and assessed income for A.Y. 2012-13 as Rs. 39,86,34,333/- vide assessment order dated 29.12.2019 passed u/s. 143(3) r.w.s 147 of the Act. Penalty proceedings u/s. 271(1)(C) of the Act for concealing the particulars of Income, penalty proceedings u/s. 271(1)(b) of the Act for non-compliance of notice u/s. 142(1) of the Act and penalty proceedings u/s. 271F of the Act for non filing of return of income, were also initiated. Aggrieved with the assessment order, assessee preferred an appeal before CIT (A), who deleted the addition made by assessing officer as not sustainable in view of section 33(5) of IBC 2016 as the assessee company was under liquidation process without adjudicating the case on merit.

In writ, the Tribunal held that,

Whether as per settled precedent, provisions of IBC 2016 prevail over provisions of Income Tax Act – YES: ITAT

Whether I-T authorities have limited jurisdiction to assess quantum of Income Tax dues but have no authority to initiate recovery of such dues at its own during the period of moratorium in violation of Section 14 or 33(5) of the IBC – YES: ITAT

Whether the I-T Department can stake its claim before the official liquidator or adjudicatory authority, within the statutory limitation period provided under the IBC – YES: ITAT

++ Above referred Sub Section 6 of Section 178 of the Act was amended by Section 247 r/w 3rd schedule of IBC with effect from 01.11.2016. This provision makes it clear that IBC code will override the provisions of Income Tax Act 1961. The three judges bench of Supreme Court in Civil Appeal No. 7667 of 2021, Sundaresh Bhatt, Liquidator of ABC Shipyard V. Central Board of Indirect Taxes and Customs, vide order dated 26.08.2022, has held that the respondent could only initiate assessment or re-assessment of the duties and other levies, once a moratorium is imposed in terms of Section 14 or 33(5) of the IBC as the case may be, the Department authority, only has limited jurisdiction to assess/determine the quantum of the customs duty and other levies. The respondent authority does not have the power to initiate recovery of dues. Liquidator has an obligation to ensure that assessment is legal and he has been provided with sufficient power to question any assessment if he finds the same to be excessive;

++ based on this binding precedent, we hold that the provisions of IBC 2016 would prevail over the Income Tax Act. However, Income Tax authorities have limited jurisdiction to assess/determine the quantum of Income Tax dues but have no authority to initiate recovery of such dues at its own during the period of moratorium in violation of Section 14 or 33(5) of the IBC. The Income Tax Authorities are like any other creditor, may stake their claim before liquidator or adjudicatory authority as the case may be, within the statutory limitation period provided under the IBC for substantiating its claim under the waterfall mechanism related to the order of priority as provided u/s. 53 of IBC 2016. The first point is accordingly determined in positive except to the extent that the Income Tax Authorities are not barred from determining the tax dues, which is “sine qua non” for staking its claim as creditor before the liquidator or the adjudicatory authority as the case may be, under the provisions of IBC;

++ Secondly, in view of the findings given at point no.1 referred as above, it is easily concluded that CIT (A) has erred is not adjudicating the matter on merit, which was with respect to the determination of tax dues only, more so, when the liquidator, himself, was pursuing the matter before the first appellate authority. The second point is accordingly determined in positive. In view of our findings given at point no. 1 & 2 above, the case deserves to be restored back to the file of CIT (A) for the disposal of the case on merits in accordance with law. It is clarified that we have not made any observations in respect of the merits of the case. In the result, the appeal is allowed for statistical purposes. The impugned order dated 19.02.2024, is set aside. The case is restored back to the file of CIT (A) for passing an order afresh on merit in accordance with law after affording an opportunity of hearing to the appellant/corporate debtor through liquidator.

2024-TIOL-994-ITAT-MUM

Whether income tax dept can do recovery when the case is in Insolvency ? ITAT says.. IBC is superior. See case. Clarity.

There was a recent Decision in case of a Writ Petition No. 405/23 Karnataka HC.

If life certificate is not submitted by pensioner; before stopping his pension, it is the duty of the bank to visit the house of pensioner and know the reason for non-submission.

Court ordered payment of all arrears,

and also imposed a fine of ₹. One lakh on the Respondent.

Payment is to be made in two weeks, with 6% interest._
If payment not made in 2 weeks, the rate of interest increased to 18% percent interest.

All Bankers to note.
A useful judgement for all the pensioners.
My Dear
Kindly circulate this post to all Pensioners

GST Rate Change for Corrugated Box, Mono Cartons from 18% to 12%

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Notification No. 02/2024-Central Tax (Rate)   Released to Public on 12-7-2024 …

Effective from 15th -July-2024

GST on most of the Cartons ( Both Corrugated boxes, and Mono Cartons ) Changed to 12%

GST Rate change is applicable from today – 15th-July-2024

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[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II, SECTION 3, SUBSECTION

(i)]

GOVERNMENT OF INDIA

MINISTRY OF FINANCE

(Department of Revenue)

Notification No. 02/2024-Central Tax (Rate)

New Delhi, the 12th July, 2024

G.S.R. ……(E).- In exercise of the powers conferred by sub-section (1) of section 9 and sub-section (5) of section 15 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council, hereby makes the following further amendments in the notification of the Government of India, Ministry of Finance (Department of Revenue), No. 1/2017-Central Tax (Rate), dated the 28th June, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 673(E), dated the 28th June, 2017, namely:-

In the said notification, –

(c)        in Schedule II – 6%, –

            (iii)      for S. No. 153A and the entries relating thereto, the following S. No. and the entries shall be substituted, namely: –

“121A.

4819

Cartons, boxes and cases of, – (a) corrugated paper or paper board; or (b) non-corrugated paper or paper board”;

Focus of Government was on the Fruit growers, since their output is GST free,… and input was having 18% GST …..

Anyway.. it effects us all – Either as Buyers or as Sellers

For the Manufacturers of Corrugated Boxes and Mono Cartons, the Cash Flow problem gets reduced a bit

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Action required for Web Finsys users… see thispowerpoint on this Google link below

Action required for Main VB Finsys users… see thispowerpoint on this Google link below

Notification Copy / Circular Copy official from CBIC / GST Dept

An Old video we made in 2021… for Change the GST Rate on your Sale Invoices in your ERP Software from 12 to 18

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However, unlike in 2021 change… all Other items continue at existing rates and remain in 18% example :

 following items connected with the Printing and Packaging Industry

157D.	4909	Printed or illustrated postcards; printed cards bearing personal greetings, messages or announcements, whether or not illustrated, with or without envelopes or trimmings.
157E.	4910	Calendars of any kind, printed, including calendar blocks.
157F.	4911	Other printed matter, including printed pictures and photographs; such as Trade advertising material, Commercial catalogues and the like, printed Posters, Commercial catalogues, Printed inlay cards, Pictures, designs and photographs, Plan and drawings for architectural engineering, industrial, commercial, topographical or similar purposes reproduced with the aid of computer or any other devices.”;

and also change in case of Debit Notes or Credit Notes you make for past Price Increases or Decreases

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Purchase Side

for all manufacturers…if you buy any of the above mentioned items, you also have to be aware of this, and Purchase Orders, MRR, and Purchase Voucher passing will change accordingly

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Click the button below to download the original notification by the Government.

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Once again, Remember to Change the GST Rate on both sides,

if you sell Corrugated boxes and Mono cartons, or you purchase the Corrugated Boxes and Mono Cartons

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“Do it yourself” 1 step manual in the youtube above

Effects on you, on your ERP, on your Sales, and on your Purchase… due to the Change in the GST rates for Corrugation and Mono Cartons

Do you know what changes you have to do in Finsys ERP for the Correct action on the GST Rate change in Mono Cartons and Corrugated Boxes ?

Tax ALERT

 

This is normal yearly Quarterly SOP. Nothing new. But sending this reminder only for ready reference.

We all know that we must pay advance tax before the financial year ends in 4 instalments: 15th June, 15th September, 15th December and 15th March.

This is not applicable if your Tax due is nil, of Tax due is less than the TDS already deducted by your customers etc.

Points to remember

1. Estimated ? Yes.  make your best estimate .
2. How much ? This is 15% of the Annual Tax payable by 15th June for FY 23-24
3. This is not applicable if your Tax due is nil, (example due to any loss)
4. Similarly, if your Tax due is less than the TDS already deducted by your customers etc. then, again Advance tax is not required
5. What will happen if you don’t pay in time ? Govt will charge a bit of interest… this is approx 1% p.a. ( for a block of 3 months, in 1 go )
6. How to pay ? Online only
7. Site name = either your Bank account will have a link, or
8. Official sites are : https://incometaxindia.gov.in/ and
9. https://incometaxindia.gov.in/Pages/tax-services/pay-tax-online.aspx

Benefits of Paying Advance Tax
1. Avoidance of interest and penalty charges
2. Better cash flow management
3. Avoidance of last-minute rush and stress
4. Avoidance of default notice by the tax department

SO
PLS AVOID LAST DATE. and pay in time, as per normal annual SOP.