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2016 (7) TMI 686 - ITAT CHANDIGARH

2016 (7) TMI 686 - ITAT CHANDIGARH - [2016] 49 ITR (Trib) 36 - Bogus purchase - Held that:- Though purchases were from bogus parties nevertheless purchases themselves were not bogus. - In our opinion, there is a merit in the contention of the learned counsel for the assessee that in the absence of the purchases, there could not be sales worth ₹ 4,03,34,375. Not only this, the Assessing Officer has also accepted the opening and closing stock as shown by the assessee in the books of acc .....

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Jain (Accountant Member) For the Appellant : Sudhir Sehgal For the Respondent : Sushil Kumar ORDER H. L. Karwa (Vice-President) 1. This appeal filed by the assessee is directed against the order of the Commissioner of Income-tax (Appeals), Panchkula, dated December 19, 2012, relating to the assessment year 2009- 10. 2. In this appeal, the assessee has raised the following grounds : "1. That the worthy Commissioner of Income-tax (Appeals), Panchkula, has erred in confirming the addition of & .....

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#39;s business. 4. That the Commissioner of Income-tax (Appeals) has failed to give any finding on ground No. 1 taken before herewith regard to the fact that the Assessing Officer has exceeded the limit of assessing under the scheme of selection through CASS which he could not have and departed from the jurisdiction envisaged under the scrutiny through CASS selection of the cases as clarified in E. No. 225/26/ 2006-ITA.II (Pt.)." 3. At the time of hearing of the appeal, Shri Sudhir Sehgal, .....

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(in short "the Act"). Subsequently, the case was selected for scrutiny and statutory notices were issued to the assessee. During the course of assessment proceedings, the assessee produced purchase bills of the material for the financial year 2008-09, out of which copies of certain bills were obtained. The details of the same are marked as annexure A which is annexed to the assessment order. The Assessing Officer conducted field enquires and noted that no such parties are in existence. .....

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entries in the books of account and has created thereunder false liability on account of the alleged so-called purchases. The Assessing Officer held the aggregate sum involved in these purchase bills as bogus and, hence, made an addition of ₹ 3,07,95,467 to the assessee's total income. 5. On appeal, the Commissioner of Income-tax (Appeals) upheld the order of the Assessing Officer, and, hence, the assessee is in appeal before the Tribunal. 6. Before us, Shri Sudhir Sehgal, learned coun .....

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ies as is the practice in this line of business. It is also claimed that due to keen competition in this line of business, the parties supply the goods at the shops of the purchasers and also collect money from them itself. Thus, the assessee is not supposed to know the said sources especially when the payments have been made after delivery of goods and no advance payments have been made. The learned counsel for the assessee vehemently argued that there was no justification in doubting the purch .....

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the profit by increasing the same to that extent, is highly objected to as the rate of profit will work out to 83 per cent. which is normally impossible/ unbelievable being unimaginable and, hence, cannot be there at all in all probabilities, looking to the market conditions of this line of business. According to the learned counsel for the assessee, if purchases are disbelieved, the sales are also to be reduced as the sales cannot be there without purchases. Shri Sudhir Sehgal, learned counsel .....

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Gupta v. Joint CIT (ITA No. 264/CHD/2010, ITAT, Chandigarh, order dated 31st May, 2012). 5. Piyush Developers P. Ltd. v. Asst. CIT (ITA No. 5599/DEL/2010, ITAT, Delhi Bench, New Delhi, order dated July 8, 2015) 6. Bhushan Power and Steel Ltd. v. Deputy CIT (ITA No. 38/CHD/2014, ITAT, Chandigarh Bench, Chandigarh order dated August 3, 2015). 7. CIT v. Bholanath Poly Fab Pvt. Ltd. [2013] 355 ITR 290 (Guj) 8. Venus Arts and Gems v. ITO [2014] 369 ITR 161 (Raj) In view of the above, Shri Sudhir Seh .....

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lleged purchases in the assessee's books of account created thereunder liability in the form of sundry creditors have been rightly treated as unexplained credit entries by the lower authorities. He, therefore, submitted that the impugned addition may be upheld. 8. We have heard the rival submissions and have perused the materials available on record. The perusal of the profit and loss account of the assessee shows the details as under : Trading account for the year ended 31 March, 2009 Parti .....

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ases 330795467 93,91,487 1,18,27,052 Total To gross profit 3,35,11,080 4,53,38,132 4,53,38,132 10. Comparative chart of gross profit for the earlier years and the year under consideration are as under : Comparative chart Assessment year Sales Gross profit (Rs.) G. Percentage 2009-10 (under appeal) 4,03,34,375 27,15,613 6.73% 2008-09 2,17,93,383 15,62,193 7.17% 2007-08 3,71,17,054 26,00,948 7.00% 2006-07 (u/s 143(3)) 2,89,70,626 20,34,973 7.02% 2005-06 (u/s 143(3)) 1,86,70,806 13,93,478 7.46% Fro .....

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in the assessee's line of business. At this stage, we may refer to the decision of the Income- tax Appellate Tribunal, Delhi Bench, in the case of Piyush Developers P. Ltd. v. Asst. CIT (supra) relied on by Shri Sudhir Sehgal, learned counsel for the assessee, wherein the Assessing Officer made the addition of ₹ 2,89,34,711. The purchases from three parties were held to be bogus and non-genuine. On appeal, the Commissioner of Income-tax (Appeals) held that if these purchases are disal .....

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r : "14.1 No defects have been found in the stock register nor any defects have been pointed out by the Assessing Officer in the audited books of account maintained by the assessee. Despite search and seizure no adverse material was found to substantiate the disallowance made by the Assessing Officer. The so-called spot enquiry done by the Inspector has no credence as no details have been filed before us nor was the assessee confronted with the manner in which spot enquiry was conducted, th .....

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identity could be ascertained by the Assessing Officer, both from the banker and the sales tax authorities. Under the circumstances, we have to uphold the contentions of the assessee that the finding of the Assessing Officer, that the assessee has not furnished full details, is factually incorrect. 14.2. Coming to the identity of the parties we find that all the parties are registered with the Sales Tax Department and have charged VAT in each of the bills. All these parties have bank accounts a .....

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nrelated parties. (ii) The volume and quality of evidence produced by the assessee is such that non-production of the party from whom the assessee purchased cannot lead to a conclusion that the purchases are not genuine. The learned Commissioner of Income-tax (Appeals) at paragraph 4.4 held as follows. '4.4. It is also seen that during the course of assessment proceed ings the assessee had filed various evidences (which have been filed in the paper book) of the purchases made from the said p .....

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hicle used for delivery of goods and VAT has also been charged by the parties in their bills. The goods mentioned in the bills are mainly cement and steel (TMT bars) which are the basic component required for construct ion of any building or complex. The evidence of receipt of such goods by the assessee in the form of purchase voucher/material receipt note is also there. Most impor tantly as stated by the authorised representative all the payments made to the parties have been made by account pa .....

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e appellant which have not been denied by the Assessing Officer and have not been found to be false. Therefore, in such circumstances there was heavy onus on the Assessing Officer to prove otherwise which has not been discharged by him and on the other hand the initial onus on the assessee has been discharged. The hon'ble apex court in Daulat Ram's case [1973] 87 ITR 349 (SC) has held that the onus to prove that the apparent was not real was on the party who claimed it to be so. Thus, th .....

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rchases in violation of the principles of natural justice in such circumstances. I am in agreement with the contentions of the learned authorised representative that the action of the Assessing Officer in simply brushing aside the evidences before him was highly unjustified in the facts and circumstances of the case.' These findings of the learned Commissioner of Income-tax (Appeals) could not be controverted by the learned Departmental representative. We find no infirmity in the same. (iii) .....

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ce of purchases is upheld then the gross profit rate of the assessee would be abnormal at 67 per cent. (v) The hon'ble Calcutta High Court in Diagnostics v. CIT reported in [2011] 334 ITR 111 (Cal) ; [2012] 20 taxmann.com 692 (Cal) at paragraphs 9 and 10 held as follows (page 114 of 334 ITR) : 'However, as regards the payments made to M/s. Selvas Photographics are concerned amounting to ₹ 3,12,302 we find that those have been made by account payee cheques and those have been encash .....

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. If an assessee took care to purchase materials for his business by way of account payee cheques from a third party and, subsequently, three years after the purchase, the said third party does not appear before the Assessing Officer pursuant to the notice or even has stopped the business, the claim of the assessee on that account cannot be discarded as non- existent. In the case before us, the Revenue has not put forward any other ground, such as, it was not a genuine transaction for other reas .....

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r of Income-tax (Appeals) on the deletion of the disallowance of ₹ 2,89,34,711, which was treated as bogus purchases by the Assessing Officer. These grounds of the Revenue are dismissed." 11. In this case also, the allegation of the Revenue authorities is that the assessee was not able to produce the parties, in view of the decision of the Income-tax Appellate Tribunal Delhi Bench referred to above, we hold that non-production of parties cannot be a ground of disallowance of all the p .....

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fore, we hold that in this case also, there is no justification in making the disallowance of ₹ 3,07,95,467 on account of bogus purchases. In this case, the Assessing Officer had treated purchases worth ₹ 3,07,95,467 from certain parties as bogus one, however, sales made out of such purchases were not disputed or questioned and the resultant profit on such sales has been accepted in toto by the Assessing Officer and the Commissioner of Income-tax (Appeals). The account books of the a .....

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purchases and the quantity manufactured during the year under consideration were sold by the assessee. Therefore, the purchases of the entire 1,02,514 metres of cloth were sold during the year under consideration. The Tribunal, therefore, accepted the assessee's contention that the finished goods were purchased by the assessee, may be not from the parties shown in the accounts, but from other sources. In that view of the matter, the Tribunal was of the opinion that not the entire amount, bu .....

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