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2015 (6) TMI 763 - ITAT DELHI

2015 (6) TMI 763 - ITAT DELHI - TMI - Bogus purchases - AO made the addition only on the basis of statement of Sh. Surendra Kumar Sharma which was retracted later on by stating that no bogus entries were provided either to the assessee or any other person - CIT(A) directed the AO to apply net profit rate of 5% on the said unverifiable purchases - Held that:- AO made the addition merely on the basis of statement of one Sh. Surendra Kumar Sharma, Proprietor of M/s Riddhi Siddhi Enterprises which w .....

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hod of accounting was not followed consistently. The ld. CIT(A) examined the bank accounts as well as books of accounts of the assessee and categorically stated that the purchases as well as the sales were through banking channel and there was no cash deposit in the bank account of the assessee. In the present case, the AO has not pointed out any defects in the books of accounts, therefore, the ld. CIT(A) was fully justified in deleting the addition made by the AO on account of alleged bogus pur .....

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casion to make the addition by applying the net profit rate of 5% by considering the purchases of ₹ 1,39,70,618/- as unverifiable. We, therefore, by considering the totality of the facts as discussed herein above delete the addition sustained by the ld. CIT(A). - Decided against revenue. - ITA No. 670/Del/2013,C O N o . 6 8 / Del/2013 - Dated:- 17-6-2015 - Sh. N. K. Saini And Sh. George George K., JJ. For the Petitioner : Sh. Ajay Wadhwa, Adv. For the Respondent: Sh. P. Dam Kanunjna, Sr. D .....

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ing the addition of ₹ 1,39,70,618/-, being cost of material purchased paid through banking channel only irrespective of the fact that the existence of the party was doubtful and total payment was being rotated in various accounts in the name of fictitious firms. 3. That the Ld. CIT(A) has erred in deleting the addition of ₹ 1,39,70,618/-, on the ground that the trading results and sales were not disturbed by the AO. 4. That the Ld. CIT(A) has erred in deleting the addition of ₹ .....

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ed also. 6. That the Ld. CIT(A) has erred in deleting the addition of ₹ 1,39,70,618/-, even when he himself has accepted that the possibility of appellant buying material from the parties other than M/s Riddhi Siddhi Enterprises cannot be ruled out. 7. That the Ld. CIT(A) has erred in holding that AO has not disturbed the trading results as disclosed by the assessee, ignoring the fact that the defects exposed and addition made do constitute disturbing the trading results. 8. Therefore, the .....

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eal before CIT(A) Ghaziabad who after hearing the case partly allowed the appeal and addition was reduced from ₹ 1,39,70,618/- to ₹ 6,98,530/- which was also wrong and ought to be deleted. 3. That Ld. Assessing Officer relied upon the false statement of party, M/s Riddhi Siddhi Enterprises which was later on reverted back by the same party by filing an Affidavit with Ld. Assessing Officer but Ld. Assessing Officer denied the Affidavit and did not accepted the same. 4. From the above .....

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the total turnover of ₹ 23,19,41,312/- as against the total turnover at ₹ 8,65,18,700/- in the preceding year. He also noted that the G.P. rate declared by the assessee at 4.04% was better than the G.P. rate of the preceding year at 3.02%. The AO noted that there was a slight decline in net profit rate at 0.35% as against 0.63% in the preceding year. The AO asked the assessee to furnish the reason for decline in net profit rate. The assessee submitted that there was considerable inc .....

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he AO observed that the assessee made purchases from M/s Riddhi Siddhi Enterprises whose proprietor gave a statement on oath u/s 131(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act) showing his ignorance about sales and purchases in the name of M/s Riddhi Siddhi Enterprises and stated that he has given entries to various traders for earning commission for the same. The AO also pointed out that information was obtained from the office of Assistant Commissioner Commercial Tax, G .....

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mp; sales by the assessee as per arguments given below: (a) That as per your copies supplied from Trade Tax department where it has been mentioned that registration of firm M/s Riddhi Siddhi Enterprises was cancelled on 15.05.2008 while on the same date Trade Tax department has issued a certificate of registration and allotment of TIN 09688807641 effective with 15.05.2008 which is the same date hence, it is not clear that which certificate is correct. Copy of certificate UPVAT-XI is enclosed her .....

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ur assessee purchased the goods from him simultaneously sold the same to various parties during the period from August 2008 to February 2009 according to the assessee and as per records there was no bogus purchase or sales which has been confirmed by the assessee after filing his affidavit dated 22.12.2011. (d) That assessee has also filed copies of all purchase bills from M/s Riddhi Siddhi Enterprises which are the evidence that goods were actually purchased as on the bills truck no. and seller .....

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o us, but you have obtained copies of Bank account from Union Bank of India & Mahamedha Co-operative (P) Ltd. (g) That as assessee has not accepted through his affidavit that he has purchased the goods from M/s Riddhi Siddhi Enterprises in actual so there is no question of bogus purchase from him. (h) That your version that our assessee has purchased the goods which are bogus purchase is wrong, illegal and against the facts of the case as if purchase were the bogus than sale should also be b .....

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was with assessee on 31.03.2009 so it cannot be estimated that total purchase and payment were bogus or at one time. (j) That all the purchase from the said party or from other parties and sales to different parties were genuine and actual which has been declared before the Trade Tax Authority and required tax has also been deposited with Trade Tax Department. (k) That it is also requested that if any action is taken that should be taken against the proprietor of M/s Riddhi Siddhi Enterprises o .....

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as the purchases made by the assessee from M/s Riddhi Siddhi Enterprises) as income of the assessee. The reliance was placed on the following case laws: Ø Mc Dowell and Co. Vs Commercial Tax Officer 154 ITR 148 (SC) Ø Nanak Chand Laaxman Das Vs CIT (1983) 140 ITR 151 (All.) Ø Anraj Narain Das Vs CIT (1951) 20 ITR 562 (Punj) Ø A.D. Jayveerapandia Nadar Vs CIT (1964) 54 ITR 401 (Mad.) Ø CIT Vs V.K. Mahim (1995) 213 ITR 820 (Ker) Ø CIT Vs Precision Finance .....

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lant, the assessing officer has simply relied on the self serving statement of the third party namely Sh. Surendra Kumar Sharma. That the observations made in the order by assessing officer are totally based on the hear say. The Income Tax Officer, Ward-2(3), Ghaziabad has made an assessment on Sh. Surendra Kumar Sharma proprietor of M/s Riddhi Siddhi Enterprises and on the alleged information received from the Income Tax Officer, Ward-2(3), Ghaziabad, assessing officer has treated the purchase .....

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ons made by the assessing officer when analyzed, it can be safely concluded that it is certainly not the case of assessing officer that what is stated by Sh. Surendra Kumar Sharma alone is absolutely correct and consequently, it cannot be used in the case of the appellant till it is established beyond doubt that what is stated by him is true and correct. Whatever findings is recorded in the trade tax case of Sh. Surendra Kumar Sharma, it is simply a reflection of his system of working, presentat .....

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tement is provided to appellant. It is accordingly to be seen, even when the observation of the assessing officer is considered to be correct, where from the stock is received by the appellant for onward sales as recorded in the books of account. The assessing officer has not rejected the sales. The assessing officer has nowhere expressed any doubt over the sale of the material as reflected in the books of account and stock register. In such circumstances, going by the observation of the assessi .....

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t legally correct to make addition of the entire purchase value to the income of the appellant when the same is unverifiable and books are rejected the only judicious method to frame assessment is to be apply a reasonable rate of profit on the total turnover. It is further stated that the assessing officer has not brought any material on record to prove that the money withdrawn by Sh. Surendra Kumar Sharma of M/s Riddhi Siddhi Enterprises found its way back to the coffers of the appellant namely .....

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hi Enterprises. 8. The reliance was placed on the following case laws: Ø CIT Vs Atma Prakash Batra 340 ITR 177 (Guj.) Ø Dalpat Singh Choudhary Vs ACIT 65 DTR 148 (Jodh) Ø State of Kerala Vs M.M.M Mathew and Another 42 STC 348 (SC) 9. The assessee further submitted to the ld. CIT(A) as under: It is in continuation to the written submission made on the last date of hearing and in reply to the specific query raised by your honor on the question of unverifiable purchase from M/s .....

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time of the hearing of the case. If the reply given by Sh. Surendra Kumar Sharma to the questions asked by the assessing officer is carefully examined, it would be seen that Sh. Surendra Kumar Sharma has no where admitted that he is involved in providing accommodation bills to the parties and/or specifically to the appellant firm so to term the purchases made by the appellant as bogus. 10. The assessee made a reference to the statement of Sh. Surendra Kumar Sharma which has been reproduced by th .....

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al from M/s Riddhi Siddhi Enterprises. That from the statementof Sh. Surendra Kumar Sharma recorded under oath by the assessing offier, Ward- 2(3), Ghaziabad it is not proved that Sh. Surendra Kumar Sharma is engaged in providing accommodation bills. Sh. Surendra Kumar Sharma has equally nowhere alleged in his statement under oath that material was not supplied to appellant. To every answer given by him in response to the questions of the assessing officer, he has simply stated that the so calle .....

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h Prasad is no where mentioned by the said Sh. Surendra Kumar Sharma in his statement recorded under oath. It is nothing less than a self serving statement that appears to have been given just to avoid the tax liability in his own cases. That Sh. Surendra Kumar Sharma has given an affidavit in which he has alleged that the assessing officer Ward-2(3), Ghaziabad forced him to sign the pre-prepared statement under threat and undue pressure. It is further stated that even without considering the co .....

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conclusion. Since, Sh. Surendra Kumar Sharma has nowhere admitted to issue accommodation bills, the purchases made from Sh. Surendra Kumar Sharma proprietor M/s Riddhi Siddhi Enterprises cannot be termed as bogus and consequently, addition of ₹ 2,38,86,670/- being the total purchase price of the material is illegal and bad in the eyes of the law. The addition made by the assessing officer is unjustified and without proper material on record. The purchase rate and sale rate of iron and stee .....

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also enclosed the photocopy and ledger copy of various bank account maintained by the assessee which clearly prove that there are no cash deposits in the bank of the appellant and thus it is wrong to alleged that the cash withdrawn by M/s Riddhi Siddhi Enterprises found its way back to the coffers of the appellant. In view of the submissions made above the addition has been made without sufficient material on record and thus the same deserves to be deleted. Appropriate relief may kindly be grant .....

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served that no independent enquiry had been made by the AO to form an opinion that M/s Riddhi Siddhi Enterprises had provided accommodation bills to the assessee in respect of the material purchased by it and his remand report was silent on this issue. The ld. CIT(A) pointed out that Sh. Surendra Kumar Sharma had given evasive replies to the questions and had nowhere stated that he was into business of providing accommodation bills or that he had provided accommodation bills to the assessee in t .....

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re mostly cheque clearing entries and no cash deposits. The ld. CIT(A) mentioned that Sh. Surendra Kumar Sharma in his statement recorded under oath by Income Tax Officer, Ward 2(3), which was attached by the AO with the remand report, had nowhere stated that he issued accommodation bills to the parties including the assessee and that the AO had not conducted any independent enquiry to conclude that the actual material was not purchased by the assessee. The ld. CIT(A) observed that the informati .....

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pressed any doubt over the sales made by the assessee and that the copy of the Trade Tax Order filed by the assessee for the year under consideration revealed that the purchases made by the assessee from M/s Riddhi Siddhi Enterprises had been accepted by the Trade Tax Department. The ld. CIT(A) further observed that looking to the facts and surrounding circumstances of the case the possibility of buying the said material from the parties other than M/s Riddhi Siddhi Enterprises could not be comp .....

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cost of material to the income of the assessee that would result into unimaginable profit in the business particularly when the sales had been accepted purchases also have to be accepted. The ld. CIT(A) observed that the AO had not disturbed the trading results as disclosed by the assessee and the payment for the purchase of material had been made through banking channel, similarly, the payment for the sale of the material had been received through proper banking channel and there was no materi .....

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d unverifiable purchases of ₹ 1,39,70,618/- which was worked out at ₹ 6,98,530/-. Accordingly the addition to that extent was sustained. 13. Now the department is in appeal against the deletion of addition of ₹ 1,39,70,618/- and the assessee had filed the Cross Objection against the sustenance of addition of ₹ 6,98,530/-. 14. The ld. DR strongly supported the order of the AO and reiterated the observations made in the assessment order dated 30.12.2011. He further submitte .....

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15. In his rival submissions the ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the AO made the addition only on the basis of statement of Sh. Surendra Kumar Sharma which was retracted later on by stating that no bogus entries were provided either to the assessee or any other person. It was further submitted that the sales shown by the assessee were accepted by the Trading Tax Department as well as by the AO and when the sale .....

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progressive in comparison the earlier year so, there was no occasion to make the impugned addition. He accordingly prayed to delete the addition sustained by the ld. CIT(A). 16. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it appears that the AO made the addition merely on the basis of statement of one Sh. Surendra Kumar Sharma, Proprietor of M/s Riddhi Siddhi Enterprises which was later on retracted .....

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