TMI Blog2010 (7) TMI 454X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT(A)-III, Jaipur dated12-11-2009for the assessment year 2006-07. The solitary ground of the assessee is that the ld. CIT(A) has erred in sustaining the trading addition to the extent of Rs. 9,70,496 after rejection of books of account on the basis of the findings that purchases to the extent of Rs. 38,89,984 from 14 parties are not verifiable. 2. The Assessing Officer in his order referred to the following observations given by theC.A. in its audit report : ( i ) Column 28( a ): The assessee deals in a large number of small items, therefore, it is very difficult to adduce the same here. ( iii ) Column 28( b ): No details provided to us. However, the stock has been valued as per physical verification taken by the assessee at the end of the previous year. From the above observations, the Assessing Officer inferred that the assessee is not maintaining proper stock details. The Assessing Officer has not furnished quantitative details before the Assessing Officer or has not produced the stock register containing such details. The expenditure on account of job charges, wages etc. have been debited to trading account but it is not verifiable to see as to what charges ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer may examine the genuineness of such purchases. The assessee on one pretext or the other did not produce such parties but filed the reply on the last date of hearing i.e., 31-10-2008. In the reply, it was stated that the assessee has filed the accounts statements of all the parties and some of such statements are duly confirmed. The Assessing Officer issued the summons under section 131 of the Act on 8-12-2008 fixing the date of hearing on 16-12-2008 but none of the 14 parties appeared on the given date i.e., 16-12-2008. The ld. AR of the assessee was intimated that none of the parties attended the proceedings though summons were issued. Such summons were received back unserved. In view of these facts, it was noticed that the parties are not verifiable and hence purchases cannot be accepted. The assessee therefore, was again asked to prove the genuineness of the purchases. The assessee submitted that the purchases have been made at competitive and prevailing market price. He has given the PAN of the parties from whom purchases have been made. Therefore, it was stated that books of account be not rejected. The Assessing Officer after considering the submissions rejecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and whose whereabouts are not known, the addition is justified. ( i ) It is also of relevance to mention here that under sections 101, 102 and 106 of the Evidence Act, the onus lies upon the assessee to prove all the expenses including purchases to the satisfaction of the Assessing Officer, which was not discharged by the assessee as it failed to produce the parties from whom purchases have been made. The onus lies upon the assessee to prove the genuineness of the transaction when it claimed that the purchases are genuine for which reliance is also placed in the case of Indian Woolen Carpet Factory ( supra ) ( j ) 4.7.4 From the above case laws and discussion it is crystal clear that ( a ) The primary onus is on the assessee to establish the genuineness of the purchases claimed by it. ( b ) Since the primary facts are in the knowledge of the assessee it is his duty to provide the correct address or contact modes of the alleged suppliers. ( c ) If the investigation done by the department leads to doubt regarding the genuineness of the purchases it is incumbent on the assessee to produce the parties along with necessary documents to establish the genuineness of the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound Rs. 1.00 crore, purchases to the extent of Rs. 38.81 lakhs are not verifiable. Hence the purchases to the extent of 40 per cent are not verifiable. It is further noticed that the amounts have been payable to few of the parties from whom purchases to the extent of Rs. 38,81,984 have been made. We are mentioning below the quantum of purchases from 14 parties as well as the amounts outstanding at the end of the year as under:- Sl.No. Name of the parties Amount outstanding at the end of the year (Rs.) Quantum of purchases (Rs. ) 1. Ruby Impex 53,900 4,69,642 2. Sevorite Exports Nil 1,06,000 3. D.J. Impex (830711+201750) Nil 1,84,080 4. Rahul Exports 1,33,112 5,42,907 5. Shree Laxmi Enterprises 1,43,414 2,43,414 6. N.V. International Nil 2,36,004 7. Annu Enterprises Nil 2,17,440 8. S.P. Jewellers Nil 4,11,075 9. G.R. Enterprises Nil 2,55,062 10. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given addresses. It is really surprising that none of the claimed 34 parties was found in existence on the given addresses nor was it produced by the assessee before the Assessing Officer to get the claimed purchases verified. Thus undisputed fact is that the purchases claimed to have been made from those parties remained unverified justifying the action of the Assessing Officer in rejecting the books of account by invoking the provisions of section 145(3) of the Act on the basis that correct income cannot be deduced from such unverifiable books of account. The ld. CIT(A) was thus correct in upholding such action of the Assessing Officer. The same is affirmed. The objection No. 1 is accordingly rejected. 6. So far as reasonableness of the approach of the lower authorities in estimating the profit in the present case is concerned, we concur with the argument of the ld. AR that estimation of profit by applying a different g.p. rate is not always a necessary consequence of the rejection of books of account. The ratio laid down by Hon ble Jurisdictional Rajasthan High Court in the case of CIT v. Gottan Lime Khaniz Udyogn ( supra ) supports the contention of the ld. AR. The sole r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer nor was it in existence on the given address as well as keeping in mind the past result of the assessee. The first appellate order in this regard is thus upheld. The ground No. l (revenue ) and objection No. 1.1 (C.O.) are thus rejected. 5. While deciding the appeal in the case of Dhadda Exports [IT Appeal No. 823 (Jp.) of 2009, dated16-6-2010], we have considered the following decision for rejection of books of account in a case where there were non-verifiable purchases : (1) The Hon ble ITAT Bench, Jaipur in the case of Shree Krishna Malpani ( supra ) has held that alleged bogus purchase is a defect in the maintenance of books of account and therefore, the books of account can be rejected. (2) The Hon ble ITAT, Jaipur in the case of Kachwala Gems ( supra ) has held that payment made by account payee cheque is not sufficient to establish the genuineness of the purchases. Further also that registration under sales tax does not conclusively prove that purchases from these parties were genuine. (3) In the case of Kachwala Gems ( supra ), the Hon ble Supreme Court has upheld the rejection of books of account on account of unverifiable nature of purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source of income of wife of assesee was there. TheHon ble Apex Court observed : Now coming to the question of onus, the law does not prescribe any quantitative test to find out whether the onus on a particular case has been discharged or not. It all depends on the facts and circumstances of the each case. In some cases, the onus may be heavy whereas in others, it may be nominal. There is nothing rigid about it. Herein the assessee was receiving some income. He says that it is not his income but his wife s income. His wife is supposed to have had two lakhs of rupees neither deposited in banks nor advanced to others but safely kept in her father s safe. Assessee is unable to say from what source she built up that amount. It was said that the said amount was just left in the hands of the father-in-law of the assessee. The Tribunal disbelieved the story, which is prima facie a fantastic story. It is story that does not accord with human probabilities. (p. 545) 6.2 TheHon ble Apex Court observed : Science has not yet invested any instrument to test the reliability of the evidence placed before a Court or Tribunal. Therefore the Courts and Tribunals applying the test of huma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The genuineness if such party has not been conclusively proved. Hence whether the purchase of item is on credit or cash is not verifiable and credit entry is shown till the end of accounting year. 6.6 Self-interest talks in all sorts of tongues and plays all sorts of roles. The indifference of not producing the party which issued the bill is indicative of the truth. The revenue is not doubting all the purchases but doubting only those purchases for which the investigation wing of the department noticed that certain parties were only providing bills as and when amount is received in the firm of cheque the same is withdrawn in cash by some parties. One cannot lose sight of the fact that dark deeds are performed under the cover of darkness and direct evidence can never be available. Sometimes the facts speak loud and clear. 6.7 The I.T.A.T. Mumbai Bench in the case of Vijay C. Kamdar v. ITO [2009] 118 ITD 577 had an occasion to consider the allowability of deduction under section 80HHC. In that case goods were exported but these were destroyed at High sea at the instruction of exporter. Amount receivable from buyer was neither refunded nor any claim of enforcing delivery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s prima facie required to prove the genuineness of the transaction and identity of the creditors is not misplaced because there is no distinction laid between the trade creditor and the non-trade creditor and we are further of the opinion that in case the assessee claims liability of payment to the trade creditors shown in the balance sheet, the assessee is definitely required to prima facie prove the identity of the trade creditors as well as the genuineness of the transaction. In this case, admittedly the assessee has neither been able to disclose the complete addresses of the trade creditors nor is able to give the complete addresses of the consignors nor the name has been mentioned on the challan forms, so the verification of the same by the Assessing Officer become a totally impracticable on account of lack of this complete information supplied by the assessee. It means that the assessee failed in establishing the genuineness of the so called trade creditors appearing in its stocks of account. We are further of the opinion that since in the instant case of the assessee, the point under consideration before us is regarding the genuineness of the liability amounting to Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents were alleged to have been made, the question whether the purchases were made from some other source ought not to have weighed with the Tribunal as a factor in favour of the assessee. The conclusions of the Tribunal are, therefore, clearly erroneous, contrary to materials on record and have been arrived at without taking into consideration relevant material and placing reliance on irrelevant materials. It is to be noted that assessee s stand was not that it had effected purchases from anybody else. Its stand throughout was that it had effected purchases from KE. It was not open to the Tribunal to make out a third case, which was material. That gives rise to a question of law. On the facts and in the circumstances of the case the Tribunal had no material to come to the conclusion that the sum of Rs. 3,82,750 could not be treated as the assessee s income from undisclosed sources - Omar Salay Mohamed Sait v. CIT [1959] 37 ITR 151 (SC) : TC 54R 372, Dhirajlal Girdharilal v. CIT [1954] 26 ITR 736 (SC) : TC 54R 297, CIT v. Daulat Ram Rawatmull 1972 CTR (SC) 411 : (1973) 87 ITR 349 (SC) : TC 54R 301 and CIT v. Radha Kishan Nandlal 1975 CTR (SC) 136 : [1975] 99 ITR 143 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit from another s only which provided the bills of such concern. The assessee is not willing to come clean and hence one will have to take recourse for arriving at a conclusion in the basis of material on record. 6.15 We are aware that Jaipur Bench in the case of Shanti Kumar Chordia v. Asstt. CIT [2010] 128 TTJ 708 held that 25 per cent addition cannot be made in respect of bogus purchases though books of account can be rejected. In this case the Tribunal held that Assessing Officer has not made specific enquiries and summons were not issued. In that case the Tribunal observed that purchases from three concerns out of eight concerns could have been treated as non-verifiable. Such purchases were only to the extent of Rs. 23,97,454 while the Assessing Officer treated the unaccounted purchases at higher figure. The Tribunal therefore held that G.P. rate of 25 per cent on the entire turnover is not justified. Addition of Rs. 5 lakhs was confirmed. If one considers the non-verifiable purchases of Rs. 23,97,454, it is clear that addition of Rs. 5 lakhs is around 22 per cent of non-verifiable purchases. 6.16 The Hon ble Apex Court in the case of Kachwala Gems ( supra ) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Ld. Counsel for the revenue could not show as to what material has not been considered by the Tribunal and what irrelevant material has been considered in reducing the additions made. In making best judgment, the only relevant thing required to be considered was application of G.P. rate, which has been applied by the Ld. Tribunal hence the Hon ble High Court held : In our view, it cannot be said that any material has not been considered, or any irrelevant consideration has been taken into account by the learned Tribunal. 6.20 Thus the question before jurisdictional High Court was to see whether Tribunal has not considered the material evidence or has considered irrelevant material. The issue was not before the Hon ble High Court that as to whether bogus purchases can be allowed as expenditure when liability of bogus purchases is appearing as liability in the balance sheet at the end of the year. 6.21 The ITAT Mumbai Bench had an occasion to consider the addition under income from undisclosed sources in the case of G.G. Diamond International v. Dy. CIT [2007] 11 SOT 33 (Mum. - URO). The case of revenue is that there were purchases from 11 parties and such par ..... X X X X Extracts X X X X X X X X Extracts X X X X
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