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M/s. Maruti Impex Versus JCIT (OSD) , Mumbai

2016 (5) TMI 104 - ITAT MUMBAI

Bogus purchases of goods - Held that:- The assessee was able to link the closing stock with the relevant purchase bills. When the entire purchases made from TTPL was available as stock as at the year end, then the disallowance of purchases should result in corresponding reduction of the closing stock, the result of which would have NIL effect on profit and hence there was no requirement of making any addition. However, this proposition should be applied only if the purchases were held to be non- .....

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nsactions. In any case, it cannot be said that the claim of the assessee defies the human probabilities, when one examines the documents furnished by the assessee. Accordingly, we are of the view that the Ld CIT(A) was not justified in confirming the addition made by the AO. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to delete the impugned addition. - Decided in favour of assessee. - I.T.A. No. 3823/MUM/2014 - Dated:- 9-3-2016 - Shri B. R. Baskaran (AM) And .....

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the ground relating to the disallowance made u/s 36(1)(iii) of the Act because of the smallness of the amount involved. Other grounds are consequential in nature. 3. The facts relating to the disallowance of purchases are set out in brief. The assessee is a partnership firm and is engaged in the business of trading and export of diamond and allied items. During the course of assessment proceedings, the AO made enquiries with regard to the purchases made by the assessee by issuing notices u/s 133 .....

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or a remand report from the AO. The assessing officer was satisfied with the documents filed/enquires made in respect of Royal Exports and accordingly the Ld CIT(A) deleted the addition relating to purchases made from M/s Royal Exports. With regard to the purchases made from TTPL, the assessing officer stood by the assessment order and hence the Ld CIT(A) also confirmed the addition. 5. The submissions made by the assessee before Ld CIT(A) with regard to the purchases made from TTPL have been su .....

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ed that the items purchased above remained in the closing stock as on 31.3.2009 and later the same had been exported to M/s Alsur Jewellery Trading LLC, Dubai in April and May, 2009. It is claimed that M/s Alsur Jewellery Trading LLC, Dubai on receipt of material informed the appellant vide letter dated 10-05-2009 that the material supplied was not in accordance with the order placed by it and, therefore, they were not ready to pay as per invoice raised. In response to this, the appellant vide l .....

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r was in dispute and export party was not ready to accept the material, the appellant has not paid to the supplier, i.e., TTPL. It is claimed that finally the entire goods exported against these purchases were returned by the export party and the appellant in turn returned the said goods to TTPL through broker, Mr. Dungrani Shaishbhai Kanjibhai. From the above events, according to the appellant, it is proved that the appellant has genuinely purchased material from TTPL which was subsequently exp .....

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fore the AO. The assessee placed reliance on the following case law in support of its contentions:- (a) Diagnostics Vs. CIT (334 ITR 111)(Cal) (b) ITO Vs. Kachwala Gems (122 TTJ (Jp) 854) (c) Rajesh Soni Vs. ACIT (100 TTJ (Ahd.) 892) (d) Shubh Laxmi Exports Vs. ITO (10 DTR 281 (Jp)) It may be noted here that the AO had observed that the purchase amount may also be disallowable u/s 40A(3) of the Act. The assesseee contended that the disallowances cannot be made on presumption basis u/s 40A(3) of .....

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entire purchases made from TTPL was available as Closing stock as at the year end and they were exported only in the succeeding year. Accordingly it was contended that the purchases, if considered to be bogus, then the corresponding amount should be reduced from the closing stock, the effect of which will be NIL on profit. The assessee also placed reliance on the decision rendered by Hon ble Bombay High Court in the case of Nikunj Exim Enterprises Pvt Ltd (ITA No.5604 of 2010), wherein it was h .....

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the report from CFSL was not received till the time of passing of the appellate order. (b) During the course of remand proceedings, the AO also examined the broker Shri Shaileshbhai K Dungrani, through whom the assessee has claimed to have purchased the goods. He has stated that he is not having any office in Mumbai and he is carrying on his business activities from Surat. He further stated that he has purchased goods through another broker named Shri Raju Patel, who is doing business in Mumbai .....

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with Registrar of Companies. Accordingly, the AO has doubted about the claim of purchases made from TTPL and accordingly held that the purchases were bogus. In this regard, the AO also placed reliance on the decision of Hon ble Supreme Court rendered in the case of Sumati Dayal Vs.CIT (214 ITR 801). 9. The Ld CIT(A) was in agreement with the assessing officer and accordingly observed as under:- …It is well established that in order to see whether the apparent is the real state of affairs, .....

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al circumstantial evidence led by the A.O in the course of assessment as well as remand proceedings clearly showing that these purchases from TTPL were non-genuine. I am in agreement with the findings arrived at by the A.O in his remand report. Indeed, it defies all logic and common sense that cut and polished diamonds worth ₹ 7.56 crores were given by TTPL to the appellant/Shri Shaileshbhai K Dungrani on credit and approval basis when the latter does not even know the former. The A.O is r .....

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export invoices contain details of diamonds. Accordingly the Ld CIT(A) took the view that it was not established that goods purchased from TTPL have remained in stock and exported. Accordingly he rejected the stock register also, even though the same was furnished to the AO during the course of remand proceedings. Accordingly, the Ld CIT(A) confirmed the addition made by the AO. 10. The Ld A.R contended that the tax authorities have made this addition purely on surmises and conjectures by totall .....

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f the Broker Mr. Shaileshbhai K Dungrani confirming the purchases. e. Documents of export to M/s AJT. f. Stock register from 01.04.08 to 31.03.2010 g. Copy of correspondence with M/s AJT h. Copy of correspondence with the broker, Mr. Shaileshbhai K Dungrani i. Copy of import documents of the items exported to M/s AJT. j. Copy of letter from the broker, Mr. Shaileshbhai K Dungrani, confirming receipt of material on behalf of M/s TTPL. The Ld A.R submitted that the assessing officer has doubted th .....

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amined this issue with suspicion and accordingly they have drawn adverse inferences on surmises and conjectures, by disregarding various evidences filed by the assessee. He further submitted that the deficiencies pointed out by the assessing officer in respect of TTPL should not be used against the assessee, since the assessee could not be held to be responsible for the same. The relevant submissions made in this regard are extracted below:- a. The mention of incorrect PAN on the invoices does n .....

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TPL must have been granted after duly verifying the credentials of the Company. The purchase transaction with M/s TTPL happened in September 2008. No adverse view can be taken against the appellant if the party is not available after a lapse of more than two years at the time of assessment. c. The non-filing of annual returns before the ROC, Mumbai by M/s TTPL exposes it to legal proceedings under the Company Law. It however does not turn the transactions entered into by M/s TTPL into a non genu .....

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lid registration at the time the transaction took place and there was no information available in public domain that M/s TTPL was a suspicious party. d. As regards admission of Mr. Nitin Padwalkar, Director of M/s TTPL that the Company was a hawala dealer. We would like to state that this statement made before the Sales Tax authorities has no evidentiary value in the proceedings before the Income Tax Department. The position of law on the subject is fairly established. As far as Income Tax proce .....

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relying on the said statement. In support of the above said contentions, the Ld A.R placed reliance on the following case law:- (a) Kishinchand Chellaram Vs. CIT (4 Taxman 0029)(SC) (b) R.W Promotions P Ltd Vs. ACIT (ITA No.1489 of 2013) (c) Heirs and Legal Representatives of Late Laxmanbhai S Patel Vs. CIT (327 ITR 290)(Guj) (d) ITO Vs. Permanand (107 TTJ 395) Accordingly the Ld A.R submitted that the various evidences furnished by the assessee should not have been disregarded. With regard to t .....

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surrounding circumstances without considering the peculiar facts and further taken an adverse view by examining the transactions with TTPL only, i.e., the Ld CIT(A) did not examine the evidences furnished by the assessee about the export of those goods and reimport of them. 11. On the contrary, the Ld D.R submitted that the burden to prove an expenditure claimed by the assessee always lies upon the assessee. He submitted that the assessee did not co-operate with the AO during the course of asses .....

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supra), where in it was held that the tax authorities are entitled to go beyond the evidences and examine the issue from the angle of human probabilities and human conduct. He submitted that it is well established legal proposition that substance shall prevail over form‟ and hence various evidences furnished by the assessee to support the claim of purchases were found by the tax authorities to be against human probabilities. He submitted that the broker Shri Shailesh K dungrani has given a .....

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the stock register maintained by the assessee. He submitted that the Ld CIT(A) has rejected the stock register without examining the same. The description of goods is available in the export invoices and import documents. He submitted that, when the assessee is able to link the closing stock with the relevant purchase invoices and when the tax authorities could not contradict the same with any credible material, it was not justified on the part of tax authorities to disbelieve the stock register .....

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le Supreme Court in the case of Dhakeshwari Cotton Mills Ltd Vs.CIT (26 ITR 775). He further submitted that the Hon ble jurisdictional High Court has held in the case of CIT Vs. Omprakash K Jain and others (322 ITR 362) that the documentary evidence, if genuine must prevail over the oral statement. He further submitted that the assessing officer was not justified in placing reliance on the statement given by the director of TTPL in the Sales tax proceedings, without examining the director indepe .....

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from TTPL on the reasoning that the said transaction defies the human probabilities. The tax authorities have, accordingly, rejected the various evidences furnished by the assessee in support of claim of purchases. We also notice that the tax authorities have arrived at such a conclusion only by considering the purchase transaction and did not prefer to examine the claim of export of same goods in the succeeding year and re-import of the same goods thereafter. In our view, the surrounding circum .....

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low:- (a) With regard to the first point relating to the genuineness of documents, the Ld A.R submitted that the report from CFSL has since been received by the assessing officer and the assessee has also inspected the same. He submitted that the documents have not been found to be fabricated. It is pertinent to note that the said submissions of Ld A.R have not been controverted by Ld D.R. (b) With regard to the second point relating to non-production of another broker, the Ld A.R submitted that .....

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that the goods have been exported, which could not have been done without receiving goods in physical condition. He further submitted that the assessee has, thereafter, re-imported the same goods and returned back the same to the very same supplier. Accordingly, the Ld A.R submitted that the assessee should not be penalised for the default, if any, committed by the supplier under any other Act. We find merit in the said submissions of the assessee for the reasons discussed in the succeeding para .....

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tock register and further without disproving the said claim by bringing any other credible material. If closing stock available with the assessee was not accepted as the materials purchased from TTPL, then the tax authorities should have pointed out that the closing stock represented some other purchases. The assessee has also shown that the said goods were exported subsequently. It is pertinent to note that the tax authorities have ignored the claim of export, since they have doubted the claim .....

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o imported the goods from the assessee, under the impression that those papers should have been fabricated and accordingly sent them for examination to CFSL, Hyderabad. According to Ld A.R, the assessing officer has since received report from CFSL and it has not given any adverse report against those documents, which fact has not been controverted by the revenue. Thus, one of the basis for suspecting the transactions has been proved wrong. When the evidences are available with the assessee and w .....

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ted below, for the sake of convenience:- 7. We have considered the submissions on behalf of the revenue. However, from the order of the Tribunal dated 30-04-2010, we find that the Tribunal has deleted the additions on account of bogus purchases not only on the basis of stock statement, i.e., reconciliation statement, but also in view of the facts. The Tribunal records that the Books of accounts of the respondent appellant have not been rejected. Similarly, the sales have not been doubted and it .....

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chases were not made by the respondent appellant. The Assessing officer as well as CIT(A) have disallowed the deduction of ₹ 1.33 crores on account of purchases merely on the basis of suspicion because the sellers and the canvassing agents have not been produced before them. We find that the order of Tribunal is well a reasoned order taking into account all the facts before concluding that the purchases of ₹ 1.33 crores was not bogus. No fault can be found with the order dated 30-04- .....

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export has to be necessarily accepted on the basis of relevant documents. In the instant case also, the assessee has furnished the copies of purchase invoices, confirmation letters, copies of ledger accounts, copies of export bills, the details of re-import of the same and details of payment of customs duty on re-import, the details of purchase return. All these chronological events have not been disproved by the tax authorities. 17. The concept of agency and sales/purchases through agents are c .....

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, as it was not a known party to TTPL. In our view, the credit should have been extended to the assessee by TTPL by placing reliance on the agent. It is in the knowledge of everyone that a commercial deal shall be concluded smoothly, if the terms and conditions relating to quality of goods, payments were strictly adhered to. However, if any of the parties fail to adhere to the agreed terms, then the transaction shall lead to disputes, which may also result in stopping of payment and return of go .....

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aim of his client. Hence, we are of the view that there is no reason to suspect the claim the assessee in this regard. When the evidences available with the assessee support the claim of the assessee, the assessing officer was not right in suspecting the same on the basis of mere surmises and conjectures. This proposition gets support from the decision rendered by the Hon ble Supreme court in the case of Dhakeswari cotton Mills Ltd (26 ITR 775) and the decision of jurisdictional High Court in th .....

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s claimed to have given statement before the Sales tax authorities. It is also not shown that the said director has implicated the transactions entered with the assessee before the Sales tax authorities. Hence, it cannot be said that the statement so given before the sales tax authorities has any relevance to the issue under consideration. Even, if it is considered for a moment that the said statement has relevance, then also the assessing officer should have carried out independent enquiry and .....

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