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2015 (7) TMI 160 - ITAT PUNE

2015 (7) TMI 160 - ITAT PUNE - TMI - Disallowance of 50% of the so called bogus purchases - Held that:- The payments have been made by account payee cheques. The suppliers have confirmed to have supplied the goods in response to the notice issued u/s.133(6). The assessee has produced third party evidences such as gate receipts of the respective companies certifying the receipt of goods in their premises. The companies where the assessee has executed the work are well known reputed companies and .....

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cash was found. Further, the assessee has maintained proper books of accounts. The goods purchased have entered into the books of account and material consumed have also been entered into the books of account giving the quantitative details.

Perusal of the orders of the authorities below and the rival submissions made by both the sides indicate that while the entire purchases cannot be treated as bogus, at the same time the entire purchases also cannot be allowed as genuine. If we al .....

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arious details furnished by the assessee we find the assessee has given site-wise profitability statement vis--vis the disallowance made by the AO if the addition so sustained by the AO is accepted, then the GP rate in 2 cases is above 99%, in one case it is about 98%, in 2 cases it is almost 93% and in 1 case it is 95% which appears to be absurd as compared to assessees engaged in similar line of business.

Considering the totality of the facts of the case, we are of the considered o .....

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For the Petitioner : Shri Sunil Pathak & Shri Sharad Shah For the Respondent : Shri P.S. Naik ORDER PER R.K. PANDA, AM : ITA No. 1760/PN/2012 and ITA No.1753/PN/2012 are cross appeals. The first one is filed by the assessee and the second one file by the Revenue and are directed against the order dated 22-02- 2012 of the CIT(A)-I, Pune relating to Assessment Year 2007-08. ITA No. 1114/PN/2013 and ITA No.1201/PN/2013 are also cross appeals. The first one is filed by the assessee and the seco .....

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or leading corporates. The assessee s job contains execution of Civil, Interior, Gypsum, Flooring, Painting, Carpentry, A/c. Electrical and other allied works. The assessee filed its return of income on 29-10-2007 declaring total income of ₹ 1,48,08,038/-. Subsequently, the assessee filed a revised return on 06-02-2008 declaring total income of ₹ 2,17,73,862/-. 3. During the course of assessment proceedings the Assessing Officer observed that a survey u/s.133A of the I.T. Act was con .....

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s parties are as under : Sr. No. Name of the assessee F.Y. 06-07 F.Y. 07-08 1. M/s. Foram Traders - 67,59,282 2. M/s. Apple India Marketing Co. 82,98,924 47,46,122 3. M/s. V.S.K. Steels - 39,63,133 4. V.S.K. Enterprises 71,70,625 39,16,081 5. M/s. Khushi Enterprises 1,92,56,857 - 6. M/s. Samarth Trading Co. 78,15,429 - 7. M/s. Balaji trading - 8. M/s. Sun Enterprises 1,00,40,207 - 9. M/s. M.R. Corporation 1,38,49,532 19,95,337 10. M/s. Neelam Enterprises 47,24,390 34,41,811 Total 7,11,55,964 2,4 .....

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ar Ruparel, the Assessing Officer further noted from the survey report submitted by the ADIT that the assessee had given the reply with regard to the compliance and the observations made by the survey party on the twin points which are reproduced at para 4.2.3 of the order and which reads as under : (i) The assessee could not produce the above mentioned parties in its support on 14.01.2008 as per requirement of summon dated 08.01.2008. On its request seeking further time, the assessee was given .....

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ated that (a) All material is purchased with the responsibility of the delivery up to site with the respective vendor. The Good receipt note is prepared by Assessee Company and it is the basis on which all purchases are booked and subsequent payments are made to vendor. (b) A proper vendor registration procedure is followed before placing any order for purchase. The same procedure was followed in respect of parties in question too. (c) The material brought from parties in question have been used .....

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the report of ADIT that the assessee not only failed to produce the parties in question before the survey party but also its contention does not have much force. He observed that the assessee has not submitted any quantitative reconciliation between material purchased and its consumption. He has only submitted confirmations from 4 customers stating that certain amount of goods have been received at certain work site. The Assessing Officer noted that the assessee company is executing both kinds .....

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vendors. In such contracts the client has nothing to do with the quantum of materials consumed because the value of the contract is fixed after taking into consideration the cost of material that would be borne by the contractor. 6. The Assessing Officer noted that a large part of the total work contracts executed by the assessee are contracts with material. Therefore, for such projects, i.e. work contracts with material the submission of the confirmation from clients would not serve any purpose .....

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provided by the assessee company itself. In the present case, it is more in the nature of self serving documents in place of independent evidence as assessee had full liberty to prepare it even for bogus purchase transactions. The GRN has the signature of the store keeper who is an employee of the assessee itself. Therefore, he held that the GRN is not an independent piece of evidence. Further, the Assessing Officer observed that on comparison of GRNs in respect of goods received in question and .....

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against the column 'time in' i.e. such GRNs generally do not show when the goods were receive. On several occasions, even inward number, P.O. No. and date are not mentioned on such GRNs. Whereas, the GRNs for the goods received from other parties have such details written on them. He accordingly held that the GRNs submitted by the assessee cannot be relied upon. The AO further noted that the assessee could not produce any evidence in the form of delivery challan, transportation details .....

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neness of vendor including the parties in question, the AO noted that the parties in question did not have requisite infrastructure such as godown to supply the goods as evident from the statement of Shri Tushar Ruparel. Even the office address given by various concerns of Shri Tushar Ruparel is same. Therefore, he also rejected the claim of the assessee. 9. The AO also compared the purchase bills issued by parties in question and purchase bills issued by other parties and found some difference .....

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office and there is no godown or warehouse etc. In view of the above, the AO confronted the assessee to prove that purchases made by it are genuine. Since the assessee failed to discharge the onus the AO asked the directors of the company, who were present during the hearing proceedings, to produce the parties from whom the purchases were made and the person Shri Tushar Ruparel who has control over the above firms. The AO issued notice u/s.133(6) to the various parties to produce the following d .....

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nts extracts with covering letter mentioning only the sales reported to the assessee. The AO, therefore, was of the opinion that the assessee company is not taking pains to produce the above parties. Since the above parties neither appeared before the AO nor given the details of bank accounts indicating details of deposit of cheques and cash withdrawal from the banks, the AO was of the opinion that purchases to the tune of ₹ 7,11,55,964/- from the following parties are not genuine and bogu .....

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cases it cannot be disallowed. It was argued that in the case of the assessee the purchases effected from various parties referred to in the statement of Shri Tushar Ruparel cannot be treated as bogus or paper transaction as the same were supported by proper invoices and the payment of the same were made by account payee cheques. Further, the purchase of goods are established with corresponding sales made to various reputed limited companies who are regularly assessed to tax and who have also co .....

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ayee cheques from the limited companies who are duly registered with various authorities like VAT, Central Sales Tax Act and are also assessed to income tax. Further, the assessee is a dealer under the State law and filed the returns under the said Act in which said purchases are properly disclosed. Further, the customers viz., M/s. Kumar Housing Corporation Ltd. M/s. Zenith Birla India Ltd., M/s. Birla Power Solutions Ltd., M/s. Roshan Builders Ltd. and M/s.Birla Cotsyn Ltd. have confirmed that .....

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was not convinced with the above submissions made by the assessee. He relied heavily on the report of the ADIT who had stated that the above parties have not supplied the material to the assessee as accepted by their controller Shri Tushar Ruparel and the assessee has not disproved the same. Therefore, mere filing of some documents whose authenticity is also not proved cannot take away the categorical findings in the survey in assessee s case and admission of Shri Tushar Ruparel. The AO further .....

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he cheques given by assessee and returned the cash to the assessee for a commission which was stated by Shri Tushar Ruparel. Distinguishing the various decisions cited before him and rejecting the submissions the AO made addition of ₹ 7,11,55,964/- to the total income of the assessee being the purchases made from the 7 parties treating the same as bogus. 13. Before CIT(A) the assessee more or less reiterated the same arguments as made before the AO. It was submitted that the AO mainly and .....

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that the other 6 concerns are owned by 6 different individuals and therefore merely based on the statement of Mr. Tushar Ruparel that he is the controlling person cannot be the basis of the addition in the hands of the assessee. 14. It was submitted that on the basis of the notice sent by the AO u/s.133(6) of the I.T. Act all the above 7 parties have submitted the account extracts mentioning the sales reported to the assessee. Thus there is confirmation of the transactions from all 7 parties wh .....

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was only a gap of 20 days. The survey party conducting the survey on both Mr. Tushar Ruparel as well as the assessee was the same. Although there was hardly a gap of 20 days between the survey conducted in the business of Mr. Tushar Ruparel as well as the assessee and the statement of Mr. Tushar Ruparel was shown to the assessee, however, the survey party did not issue summons to Mr. Tushar Ruparel for examination/cross examination by the assessee or vice versa. Thus, the opportunity available w .....

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books of account and no difference was found out. It was submitted that the statement of Mr. Tushar Ruparel relied upon by the AO, is a statement of third party which cannot be applied without the same being examined and scrutinized with evidence. Various decisions were also relied upon to the proposition that statement recorded u/s.133A cannot be used as evidence without its corroboration by any other evidence to prove the correctness thereto. 17. As regards the contention of the AO that the as .....

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reiterated the submissions as made before the AO stating that assessee had produced documentary evidence about actual supply of material by the above parties by furnishing the confirmation from the customers regarding the receipt of goods at the site and consumption thereof. It was submitted that the contracts with the 5 customers were lumpsum contract including material and the purchase from the aforesaid parties was all for the above 5 customers. It was submitted that goods costing about S .....

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7; 11,50,525/- represent the VAT for which VAT credit was availed. It was argued that if the above purchases from the aforesaid parties is treated as bogus, the closing value of ₹ 92,04,200/- was also not existent and therefore the addition should not have been made for ₹ 1,03,54,725/- as there was no purchases and therefore there was no closing stock. The assessee further submitted that the addition made by the AO amounting to ₹ 7,11,55,964/- includes VAT of ₹ 79,06,218/ .....

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e the Ld.CIT(A) called for a remand report from the AO who reiterated that the purchases made by the assessee are bogus and the submission of the assessee are not acceptable. The AO accordingly requested that the assessment order should be upheld. 19. The Ld.CIT(A) forwarded a copy of the remand report to the assessee and called for his comments. After considering the submissions made by the assessee, the comments of the AO in the remand report and the comments of the assessee to such remand rep .....

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ks of account, and therefore what was being admitted by him and others were looking to be correct on the face of it. The evidence gathered by the investigation unit at the end of the supplier were quite clearly showing that the assessee was engaged in taking bogus bills from the concerns of Mr. Tushar Ruparel. 20. However, he also observed that when the evidences gathered at the end of the assessee during the course of follow up survey conducted subsequently is looked into it is also not difficu .....

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d that all admissions were made to reach to the bottom and due process was followed. What was found were only indicating weaknesses in the maintenance of records in respect of purchases made from the above referred impugned purchasers. By not taking the investigations to the logical end at the relevant point of time on the leads found at the premises of Mr. Tushar Ruparel, for the reasons which is not expressly mentioned anywhere, a situation has reached wherein it has become difficult to hold c .....

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ng that the assessee was involved in purchasing bogus bills. Similarly, the evidentiary value of the oral evidence gathered in the statement recorded on oath u/s.131 of the I.T. Act was also compromised by not providing the opportunity to cross examine Mr. Tushar Ruparel and others from whom valuable evidences were gathered. It is also not apparent from the record as to why was this done. If it was for the fear that Mr. Tushar Ruparel and others may dilute or revert from the earlier statement gi .....

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dverse situation. In view of these deficiencies the oral evidence which is only partly supported by other circumstantial or documentary evidence relied by the AO and partly disproved by circumstantial and other indirect evidences relied upon by the assessee has lost its true potential to stand up on a stand alone basis and lead to a particular conclusion. According to the Ld.CIT(A) the statement on oath u/s.131 given by Mr. Tushar Ruparel and others in itself were quite strong to substantially n .....

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(A) further observed that there are strengths and weaknesses in the evidences and the arguments of both the sides and it is not possible to hold either the AO or the assessee as fully correct in their claims. He observed that although the evidences forwarded by the AO was overwhelmingly against the assessee but the entire disallowance cannot be sustained as no answer could be found by the AO to the arguments made that the contracts cannot be executed without the purchases which are being disallo .....

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e profit disclosed by the assessee against the sales and observed that under the facts and circumstances of the case the disallowance of ₹ 7,11,55,964/- cannot be made since the assessee cannot complete the job of ₹ 35 crores with material consumption of only ₹ 5.5 crores. He further observed that statement of Babu Sutar, Prop. of Sun Enterprises, Mr. Gopal Sutar, Prop. of M.R. Corporation and Smt. Neelima T. Ruparel, Prop. of Neelam Enterprises were not recorded even by the In .....

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Ld.CIT(A) was of view that 50% relief can be granted to the assessee and the extent of bogus purchases can be restricted to 50% of the additions. He further noted that after this addition the net profit comes to the vicinity of approximately 15% to 16% which can be considered to be fair and reasonable for a case where evidences for arranging bogus bills were found and the assessee failed to discharge the heavy onus cast on it to rebut the apparent so found at the end of the impugned suppliers. .....

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s : Grounds by Assessee : 1. The learned Commissioner of Income Tax (Appeals) - I, Pune [CIT(A)] erred in confirming the disallowance of 50% of the so called bogus purchases of ₹ 7,11,55,964 i.e. ₹ 3,55,77,982. Your appellant submits that entire purchases of ₹ 7,11,55,964 are genuine purchases and the same ought to have been allowed. 2. The learned CIT(A) erred in not excluding the amount of closing stock of material purchased from so called bogus parties while computing the in .....

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he observations of the learned CIT(A) are not supported by any evidences and are made in disregard of the principles of natural justice. Your appellant submits that the entire addition of ₹ 7,11,55,964 ought to be deleted as against 50% thereof as held by CIT(A). 4. Your appellant craves leaves to add to, alter, amend or vary all or any of the aforesaid ground of appeal as they/their representative may deem fit. Grounds by Revenue : 1. On the facts and in the circumstances of the case, the .....

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har Ruparel who was controller of impugned parties has admitted in his statement on oath that he was engaged in the activity of providing accommodation entries/ bogus bills only in the name of 7 parties on the request of customers and had never made actual purchases or sales. 4. For these and such other grounds as may be urged at the time of hearing, the order of the Ld. Commissioner of Incometax( Appeals) may be vacated and that of the Assessing officer be restored. 5. The appellant craves to a .....

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139 to 222 of the paper book the Ld. Counsel for the assessee drew the attention of the Bench to the various details furnished by the assessee before the lower authorities substantiating the genuineness of the purchases. Referring to page 139 of the paper book he drew the attention of the Bench to the purchase of goods from M/s. M.R. Corporation amounting to ₹ 4,54,140/-. Referring to page 140 of the paper book he drew the attention of the Bench to the bill raised by M/s. M.R. Corporation .....

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of the Bench to the purchase order raised on M/s. M.R. Corporation. Referring to subsequent pages the Ld. Counsel for the assessee submitted that when the goods have come to the place of third party such as Birla Cotsyn (India) Ltd., Kumar Housing Corporation Ltd., Zenith Birla India Ltd., Birla Power Solutions Ltd., Rohan Builders Ltd. etc., which have been authenticated by these companies, therefore, the same should not have been disbelieved. He filed the following details and explained the p .....

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rises 617,203.00 1,702,508.00 533,871.00 594,011.25 1,252,224.00 5,340,390.00 10,040,207.25 Apple India Marketing - 1,818,336.00 6,480,588.00 8,298,924.00 Neelam Enterprises - 4,724,390.00 - 4,724,390.00 VSK enterprises - 6,284,208.00 886,417.00 - 7,170,625.00 Kushi Enterprises 3,798,716.00 - 6,436,332.00 1,647,004.00 - 7,374,805.00 19,256,857.00 Customer Wise Purchases. 7,034,301.00 11,738,061.00 12,054,439.00 6,237,620.25 10,354,726.00 23,736,817.00 71,155,964.25 26. As regards the allegation .....

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yee cheques. There is no evidence that the money has come back to the assessee. Referring to pages 17 to 32 of the paper book the Ld. Counsel for the assessee drew the attention of the Bench to the confirmations given by the assessee to the various suppliers and those parties have accepted the same and signed as a token of their acceptance with their PAN Nos. Referring to pages 107 to 128 of the paper the Ld. Counsel for the assessee drew the attention of the Bench to the sales tax registration .....

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fit comes to 37.41% for A.Y.2007-08. Similarly, as against GP of 36.87% and net profit of 2.93% for A.Y. 2008-09 the addition so made by the AO gives the G.P. of 47.81% and net profit of 13.86%. 27. The Ld. Counsel for the assessee drew the attention of the Bench to the following chart giving comparable profitability of the assessee and other persons engaged in similar line of business : (Rs. In Lacs) Particulars Archdeep Interior Pvt. Ltd. Cherry Hill Interior Ltd., A.Y.2007-08 A.Y.2008-09 A.Y. .....

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case of Cherry Hill Interior Ltd. the net profit is shown at 7.34% for A.Y. 2007-08 and 5.17% for A.Y. 2008-09. He accordingly submitted that the net profit shown by the assessee for A.Y.2007-08 at 16.88% and for 2008-09 at 5.49% being higher than that of the net profit declared by his competitors, the same should not have been doubted. 29. Referring to the chart showing the customer wise work done where the goods purchased from the 6 parties are utilised, the Ld. Counsel for the assessee submi .....

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ecorded during the course of survey. He submitted that Mr. Tushar Ruparel has evaded sales tax for which the assessee should not be penalised. He submitted that all purchases are genuine. The delivery of goods have been accepted by the third party. Without the material the assessee could not have executed the work. The assessee is not concerned from where Mr. Tushar Ruparel has purchased the goods. As long as the assessee gets the material as per the orders placed, it is immaterial for the asses .....

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us know the day & time for cross examination. 31. Referring to the decision of the Pune Bench of the Tribunal in the case of Gopal Pulse Processors Pvt. Ltd. vide ITA Nos. 708 and 636/PN/2001 order dated 29-09-2006 the Ld. Counsel for the assessee submitted that under identical circumstances when the assessee could not produce the suppliers for which the AO disbelieved the purchases as bogus, the Tribunal deleted the addition/disallowance on the ground that if entire purchases were treated .....

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Member) in the case of J.R. Solvent Industries Pvt. Ltd., Vs. ACIT reported in 68 ITD 65 (TM) he submitted that the Tribunal in the said decision has held that purchase of materials from an unidentified suppliers cannot be treated as bogus when it is established from day to day records that the said quantity went into production and the production and sales have been accepted by the department. Referring to the decision of the Mumbai Bench of the Tribunal in the case of Balaji Textile Industries .....

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kmangad Bawane Vs. ITO - ITA No.637/PN/2010 order dated 20-06-2012 3. CIT Vs. M/s. Nangalia Fabrics Private Ltd. - Tax Appeal No.689 of 2010 order dated 22-04-2013 4. ACIT Vs. Shri Ramila Pravin Shah - ITA No.5246/Mum/2013 order dated 05-03-2015 32. The Ld. Departmental Representative on the other hand heavily relied on the order of the AO. He submitted that it has been clearly established by the Investigation Wing during the course of survey that the purchases are mere accommodation entries. Me .....

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of the CIT(A) should be set aside and that of the order of the AO be restored. He accordingly submitted that the appeal filed by the assessee should be dismissed and the appeal filed by the Revenue should be accepted. 33. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the AO in the instant case made .....

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he services. There was no infrastructure at the end of the suppliers for making supplies like godowns etc. and no books of accounts were found. Further, there were immediate cash withdrawals after depositing the cheques in the bank accounts maintained by Mr. Tushar Ruparel and others found during the course of survey. Mr. Tushar Ruparel had specifically taken the name of the assessee and stated that assessee has availed the benefit for taking bogus bills of ₹ 8 to 9 crores. It is also the .....

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find when the matter travelled to the CIT(A) he deleted 50% of the addition and sustained 50% for the reasons given by him in the appellate order and which has been summarised in the preceding paragraphs. It is the case of the assessee that there was no adverse finding during survey in the premises of the assessee. No unaccounted cash or evidence for bogus bills were found. The assessee was not given any opportunity to cross examine Mr. Tushar Ruparel. The assessee has produced the details of P .....

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onsumption of material. Further, the payments were made by account payee cheques. The concerned suppliers have responded to the notice issued u/s.133(6) and have confirmed to have supplied the goods to the assessee. 35. From the various details furnished by the assessee we find the payments have been made by account payee cheques. The suppliers have confirmed to have supplied the goods in response to the notice issued u/s.133(6). The assessee has produced third party evidences such as gate recei .....

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Even during the course of survey at the premises of the assessee, no incriminating materials were found to show that assessee was involved in accommodation entries. No excess cash was found. Further, the assessee has maintained proper books of accounts. The goods purchased have entered into the books of account and material consumed have also been entered into the books of account giving the quantitative details. The Assessing Officer at page 2 of the assessment order has mentioned that regular .....

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es against contract receipts which has been offered to tax and accepted by the Assessing Officer. We find the Assessing Officer apart from relying heavily on the statement of Mr. Tushar Ruparel has not brought any corroborative evidence to nail the assessee that it had received only accommodation entries and the purchases to the tune of ₹ 7,11,55,964/- are in fact bogus especially when the assessee has disputed such allegation by producing other materials to substantiate the purchases. The .....

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ng has been brought on record by the AO that no work was carried out by the assessee for these parties and they have also made payments to the assessee for no work done. Further we also find some force in the argument of the Ld. Counsel for the assessee that when the contract is with cost of material to be borne by the assessee, carrying out the contract work without purchase of material is just not possible. 36. Under the aforementioned circumstances disbelieving the entire purchases merely on .....

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ated by him and various other concerns, it was incumbent upon the assessee to produce those persons before the AO to substantiate his case. The assessee in the instant case has failed to do so. Further when reputed suppliers are available in the market, there was no necessity of buying goods from dubious suppliers who do not have proper godown and office. Although the assessee is at liberty to buy goods from persons/parties according to his choice, at the same time, it raises a doubt in the mind .....

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ously maintain full records, produce the parties before the AO on being directed and produce the necessary details to substantiate their transactions. We therefore agree with the finding given by the Ld.CIT(A) that there are strengths and weaknesses in the evidences and the arguments of both the sides and it is not possible to hold either the AO or the assessee as fully correct in their claims. 38. Having observed as above now we have to see as to what extent the purchases can be treated as bogu .....

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