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ITO Ward-9 (4) Surat Versus Shri Yunus Haji Ibrahim Fazalwala Prop M/s. Ladly Prints Surat

Addition on account of bogus purchases - assessee disallowed 25% of the purchase price - CIT(A) deleted the addition - Held that:- The assessee miserably failed in this year to establish a reconciliation between the payments made by him towards purchases vis-à-vis the ultimate recipient of the amounts being his vendor. As far as the Asstt.Year 2001-02 is concerned, we find that in that year purchases were made from four parties. The assessee has demonstrated that the payments have been received .....

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found any instance whether the cheque issued by the assessee has been encashed on behalf of the assessee. It was for the assessee to establish how the payment was made to the ultimate seller of the goods. The assessee failed to establish this fact. The learned AO has made reference to the case of M/s.A.K.Textile, where the payments were withdrawn by the proprietor named “Aaisha”. These amounts have been doubted by the AO. It was for the assessee to explain as to how the payments are genuine and .....

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BER: The present appeal is directed at the instance of Revenue against the order of the CIT(A)-V, Surat dated 30.11.2010 passed for the Asstt.Year 2003-04. 2. Though the Revenue has taken four grounds of appeal, but its grievance revolves around single issue, whereby, it has challenged deletion of addition of ₹ 18,32,319/- 3. Brief facts of the case are that the assessee is an individual engaged in trading of grey cloth. He has filed its return of income on 21.10.2003 declaring a total inc .....

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has been allowed for statistical purpose. The Tribunal found that similar issue arose in the Asstt.Year 2001-02, and ITAT vide order dated 9.9.2005 passed in ITA No.2767/Ahd/2004 has set aside the issue for re-adjudication at the level of AO. Following the order of the Tribunal in the asstt.Year 2001-02, the ITAT has set aside the issue in the present year to the file of the AO. The Tribunal has relied upon the observations of the ITAT made in the Asstt.Year 2001-02, and directed the AO to re-ex .....

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r issue came up for consideration before the ITAT, Ahmedabad Bench 'C' relating to assessment year 2001-02 and the Tribunal vide its order dated 9-9-2005 set aside the order of the CIT(Appeals) and restored the issue to the file of the AO with certain directions and guide lines. The relevant observations of the Tribunal are as under: "We have carefully considered the arguments of both the sides and perused the material placed before us/We find that the assessee in his written submis .....

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rect or not. He has made the addition on the ground that the assessee was unable to produce the seller and that the cheques were encashed by somebody else. In our opinion, the above two facts raise serious doubt about the genuineness of the purchases but the same cannot be said to be conclusive. If the seller has given cheque to somebody else for discharge of their liability and the other party has encashed the cheque, it cannot be said that the purchase by the assessee is bogus. Therefore, it i .....

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ess or genuineness of the stock register is not doubted, then, obviously it would be improper to doubt the genuineness of the purchases itself. If the goods are received and the seller is not found at the address given, then, at the most doubt can be raised about the rate at which goods were purchased. However, all these facts need verification at the end of the AO. W, therefore, set aside the orders of the authorities below and restore the matter back to the file of the AO. We direct him to re- .....

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ssue afresh in the light of the decision of he Tribunal referred to above. The AO is also directed to give an opportunity of being heard to the assessee. 5. In pursuance of the Tribunal s order the learned AO had issued notice under section 142(1) of the Act, which was duly served upon the assessee on 10.7.2009. The learned AO called for the details from the bank with regard to the cheques issued by the assessee for payment of purchases made by him. The learned AO has compiled all those details .....

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filed a reply which has been reproduced by the AO in para no.5. This reply reads as under: "The serial no.42, 43, 52, 53, 54, 63, 64, 65, 72, 80, 81, 84, 86, 91, 95, 96, 100,102, 110, 112, 120, 125, 126, 127, 130, 132 and 138 are by mistake written twice which please note. Now, for the serial no. 30, 31, 49, 50, 60, 61, 71, 75, 76, 78, 90, 93, 97, 113, 114, 121, 122 and 139, you have mentioned in column Endorsed to "cash" which is not correct. The correct fact mentioned in the ban .....

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52,451/- cash payment made towards purchases totaling to ₹ 1,02,591/-, out of which to the extent of 20% of such amount of ₹ 20,518/- can be disallowed." 6. According to the learned AO, the assessee failed to establish corelation between purchases made by him vis-à-vis the exact payment made to his seller. The learned AO did not dispute with regard to the sales made by the assessee. Also did not dispute with regard to the total stock available with him. The only dispute i .....

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the AO. The findings read as under: I have considered the assessment order and the submission of the appellant as enumerated above. I do not agree with the A.O.'s action as far as the above addition is concerned due to the following reasons: i. The mandatory requirement for payment of expenditure by an account payee cheque drawn on a bank or account payee bank draft in Sec.40A(3) of the I.T.Act has come w.e.f 13.7.2006 whereas the appellant's case pertains to A.Y.2003-04. ii. The A.O. h .....

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2 no addition was made on the same issue ( payment of expenditure by cheques) although similar facts & circumstances were there . This was done by the A.O. following similar directions given by Hon'ble ITAT, Ahmedabad. 9. The learned DR relied upon the order of the AO and submitted that the assessee failed to fulfill the directions given by the ITAT. Therefore, the AO has rightly made addition. On the other hand, the ld.counsel for the assessee has placed on record copy of the assessment .....

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nos.19 to 36 of the paper book. He also contended that the AO did not dispute with regard to the quantitative details. He accepted the sales made by the assessee. If that be so, then, it would indicate that the assessee must have made purchases, otherwise, it will not be possible for the assessee to make sales. Therefore, the learned AO ought to have not made any addition. 10. We have duly considered rival contentions and gone through the records carefully. The facts are not as simple as propoun .....

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ow to verify the genuineness of the payments and the goods procured by him ? The Tribunal while setting aside the issue to the file of the AO has categorically observed that the assessee was unable to produce the seller and cheques were encashed by somebody else. In the opinion of the Tribunal, this fact raises serious doubt about the genuineness of the purchases made by the assessee. The Tribunal observed that if the seller has given cheque to the somebody else for discharge of their liability .....

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me of the parties from whom the purchases were made, the amount paid and the cheque number. How that amount ultimately credited to that party is to be established by the assessee. For example sake, the first narration made by the AO in para no.4 of his order is Anamika Fabrics. A payment of ₹ 45,470/- vide cheque no.563305 dated 2.12.2002 was made. According to the AO, this cheque was endorsed to Faizan Texturising Unit. Now it is for the assessee to demonstrate that M/s.Anamika Fabrics ha .....

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pect also in para no.6 of the assessment order. His observations are worth to note, which reads as under: 6. On going through the reply of the assessee, the modus operandi of the assessee is clear and is elaborated as follows: The assessee has issued cross cheques instead of Account payee cheques. Some of the cheques are endorsed by seller to other parties. Some of the cheques appear to have been routed through other proprietary concern of the assessee; for instance, cheque issued in favour of M .....

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de cheque no. 446892 issued in favour of Anukul Textile and the same is withdrawn by him on the same dated, vide token no. 3549. It is pertinent to mention that the above cheques are in serial numbers i.e. 446892, 446893, 446894. As habitual the same theory is repeated and the cheque no. 446895 issued in the name of Tex trade was withdrawn by the assessee, by token no. 3436, an amount of ₹ 51,755/- and cheque no.446869 was issued in favour of self. However, on the deep scrutiny, it was fou .....

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as Co-op. Bank and The Memon Co-op. Banks have suspended by Reserve Bank of India; therefore, the details of bank encashment/ deposits could not be obtained till date. Further, it is noticed that the assessee has maintained quantity register; however, he could not produce the bills of purchases. Therefore, the quantity of purchase cannot be ascertained. Moreover, the assessee stated in his reply, vide letter dated 23/12/2009, that "I am not able to produce all the bills because heavy flood .....

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