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2015 (4) TMI 95 - ITAT AHMEDABAD

2015 (4) TMI 95 - ITAT AHMEDABAD - TMI - Disallowance of trading purchases - CIT(A) restricted the disallowance to 25% instead of deleting the entire disallowance - Held that:- Seen in the light of the mandatory disclosure requirements of the Companies Act 1956, it is seen that the impugned purchases and sales have not been disclosed by the Assessee in its audited account and therefore the submission of the assessee that it had entered into trading transactions and had maintained the quantitativ .....

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accounted, the goods which were purchased were used by the assessee in the production activity and therefore in those circumstances 25% of the purchases were disallowed. However in case in hand the Assessee could not prove the sale and purchases by placing any credible material on record. Thus CIT(A)'s action of restricting the addition cannot be upheld and therefore in the present facts, the AO was justified in making the addition and therefore we uphold the action of the AO. - Decided agai .....

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ecord are as under. 3. Assessee is a company stated to be a member related to Pratibha group and engaged in the business of manufacturing of cotton yarn, knitted fabrics and trading in textile goods having its factory at Pithampur and offices at Indore and Mumbai. In this case search and seizure operation u/s 132 of the Act was carried out on 8.2.2007. Thereafter notice u/s 153A(a) was issued on 19.5.2008 which was served on Assessee requesting it to file the return of income for A.Y. 2001-02 to .....

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(A) who vide order dated 21.12.2010 granted partial relief to the assessee. Aggrieved by the order of CIT(A), Assessee and Revenue are now in appeal before us. Before us, the ground raised by the Assessee reads as under:- 1. That on facts and circumstances of the case, the Id. CIT(A) has grossly erred in restricting the disallowance of trading purchases to 25% instead of deleting the entire disallowance erroneously made by the AO, even though - The appellant company has made sales of the corresp .....

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to add, amend, alter, substitute, modify any or all the above grounds of appeal, if necessary, on the basis of submissions to be made at the time of personal hearing. 4. On the other hand the ground raised by the Revenue reads as under:- 1. On the facts and circumstance of the case and in law, the Ld CIT(A) erred in law and in facts in restricting the addition at 25 % of Rs,2,62,21,805/- made on account of bogus purchase by relying on the decision of Hon'ble ITAT in the case of Vijay Protein .....

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ks which is offered for taxation, ignoring that the unexplained expenditures made out of books by the assessee are covered by the provisions of section 69C of the IT Act, whereby such unexplained expenditure which is deemed to be the income of the assessee is not allowed as deduction under any head of income. 3. On the facts arid circumstances of the case and in law, it is prayed that the order of the Ld CIT(A) be set aside and that of the Assessing Officer may be restored. 5. The issue in the g .....

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sellers concerned as per the purchase bills and thus it was admitted that bogus purchases have been made by the Assessee. AO also noted that while corroborating the statement of Shri E.G. Peethambaran, in conformity statement, Shri Madanlal Bagrecha of Mumbai has stated that his business is to issue bogus sales bills of various concerns floated by him to interested parties on commission basis. Various concerns floated by him comprised of the nine concerns listed by the AO at page 6 of the order. .....

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. On the basis of impounded material, the year wise details of bogus purchase for A.Y. 06-07 & 07-08 was listed at page 7 of the order and the aggregate amount of bogus purchase for the year under consideration was worked out ₹ 2,62,21,805/-. Assessee was asked to furnish account number, cheque number and name of the bank through which the amount was paid and also produce the seller parties for personal verification along with the books of account and prove their identity. Assessee int .....

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t of actual sales. AO thus concluded that Assessee has failed to establish with positive and admissible evidence that the purchases have actually been undertaken. He also noted that notices sent u/s 133(6) for verification and independent inquiries were returned unserved which according to the A.O indicated that no genuine concerns existed at the given addresses. He further concluded that the purchases through "debit note" was an afterthought. He therefore concluded that the amount whi .....

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7; 3,58,96,924/- for A.Y. 07-08 as unaccounted income due to bogus purchase claims (and consequent inflation of expenses) on the basis of facts emerging from survey at Mumbai office and confession statement of Shri E.C. Peethambaran. He accordingly considered the purchases to be fictitious and added ₹ 2,99,03,076/- to income. Aggrieved by the order of AO, Assessee carried the matter before CIT(A) who decided the issue by holding as under:- 5. I have considered the facts and the submissions .....

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es for A.Y.2007-08. Further, the appellant also failed to establish with evidence that delivery of goods have taken place. Therefore, it is held that the Assessing Officer was justified in treating the purchases as bogus purchases However, in my view, the Assessing Officer was not justified in making the addition of ₹ 2,62,21,805/- by disallowing entire purchase amount and treating it as income from undisclosed sources. It is a fact that the appellant has made sales of the corresponding go .....

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n of ITAT Ahmedabad, the addition is restricted to ₹ 65,55,4.50/-[25% of ₹ 2,62,21,805/-] and the appellant is allowed relief for the balance amount of ₹ 1,96,66,355/-. 7. Aggrieved by the order of CIT(A), Assessee and Revenue are now in appeal before us. 8. Before us Ld AR apart from reiterating the submissions made before AO and CIT(A) submitted that the purchases were by way of debit note where as per the instructions of the Assessee, the purchase parties delivered the goods .....

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s then there cannot be sales and also profit from its sale. He further submitted that the additions have been made by the AO by purely relying on the statement of Shri E.C.Peethambaran u/s 133A of the Act and it is settled law that a statement recorded u/s 133A has no evidentiary value. He further placed reliance on the decision of Ahmedabad Tribunal in the case of Totaram Sharma vs. ITO (ITA No 2239 & 2291/A/2004 order dated 25.1.2008. He further submitted that the aforesaid decision of the .....

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orts (2014) 43 taxmann.com 244 (Guj) has upheld the addition of 5% of the purchase amount. He also relied on the decision of Gujarat High Court in the case of CIT vs Nangalia Fabrics (P) Ltd (2013) 40 taxmann.com 206 (Guj). The Ld AR therefore submitted that the addition as sustained by the CIT(A) is on a higher side. Therefore, he prayed that addition either be deleted or reduced. 9. The Ld DR on the other hand pointed to the findings of AO and submitted that when the employee of the Assessee h .....

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ted the fraudulent means to evade tax liability. He further submitted that the ld. CIT(A) has erred in granting the relief on the basis of the decision of Gujarat High Court in the case of Vijay Protiens (supra) because the facts in those case are distinguishable and cannot be applied to the present facts. He thus supported the order of AO. 10. We have heard the rival submissions and perused the material on record. It is an undisputed fact that during the course of survey at the premises of Asse .....

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to the Assessee after deducting the agreed commission. AO has noted that Mr Bagrecha in his statement has admitted to have never done any real business nor supplied any goods to the Assessee. It is also a fact that the statements made by Mr Peethambaran and Bagrecha have not been retracted or have been proved to be untrue nor any material has been placed on record by the Assessee to demonstrate that the statements given by them are wrong. AO has also noted that Assessee for A.Y. 07-08 has admit .....

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no 13 to 30 it is seen that trading activity of purchase and sale of the goods has not been disclosed though the same is mandatorily required to be disclosed as per Schedule VI of the Companies Act, 1956. Here it would be relevant to reproduce the relevant portion of Schedule VI of the Companies Act,1956, which were applicable to the Assessee at the relevant time, requiring the disclosure to be made as under:- Part II to Schedule VI of the Companies Act, 1956 "Requirements as to the Profit .....

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ties of such sales for each class separately". 3. (2) The opening and closing stock of goods produced, giving breakup in respect of each class of goods and indicating the quantities thereof (b) In case of trading companies, the purchases made and the opening and closings stocks, giving breakup in respect of each class of goods traded in by the company and indicating the quantities thereof. 11. (c)........ 12. (d) In case of a company which falls under more than one of the categories mention .....

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n in the light of the mandatory disclosure requirements of the Companies Act 1956, it is seen that the impugned purchases and sales have not been disclosed by the Assessee in its audited account and therefore the submission of the assessee that it had entered into trading transactions and had maintained the quantitative records does not carry any force and therefore, no disclosure of sales and purchases on the part of the Assessee goes to prove, that no such sale and purchases were made. 14. Bef .....

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ases can be said to be genuine, the payments however were made in cash which were unaccounted and therefore the Hon'ble High Court has held that there was no basis for arriving at such conclusion. It was further noted by the Hon'ble High Court that Tribunal had recorded that the purchases made from 4 parties were recorded and the genuineness of the sales were not doubted by the Revenue. However in the present case, the facts are different and therefore the ratio of decision is not applic .....

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lanath Poly Fab Pvt.Ltd (supra) is also not applicable to the facts of the case because in that case the Hon'ble High Court has noted that Tribunal was of the opinion that the purchases may have been made from bogus parties, nevertheless, the purchases themselves were not bogus. Further, the Tribunal came to the conclusion that the entire quantity of opening stock, purchases and the quantity manufactured during the year under consideration were sold by the assessee. The ratio of the decision .....

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