TMI Blog2010 (4) TMI 1126X X X X Extracts X X X X X X X X Extracts X X X X ..... s were picked up by him for verification. 3. The Assessing Officer noted that the assessee had purchased raw material of ₹ 55,64,931 from M/s. Deep Chem having their office at 2/32, Ronak Bhuvan, 2nd Floor, B.N. Road, Malad (East), Mumbai-97. He issued notice u/s. 133(6) of the Income-tax Act, 1961 (the Act) to the above party calling for certain specific details such as details of sales made to the assessee during the impugned assessment year, copy of ledger account of the assessee in their books of account, their income-tax particulars and bank account. In response to such notice, Shri Apurva Ashwin Masalia, proprietor of M/s. Deep Chem appeared before the Assessing Officer and submitted that he had not sold any material to the assessee and has only issued accommodation bills. The Assessing Officer recorded the statement of Shri Masalia u/s. 131 of the Act and confronted the same to the assessee. However, there was no response from the assessee in spite of specific opportunities given by the Assessing Officer either to explain the same or to cross examine Shri Masalia. The Assessing Officer accordingly held that the assessee has no explanation to offer and has inflated h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port of purchase of raw material, their receipts in the factory, their consumption in the factory and the production cost under which final sales were made. It was submitted that the assessee had paid Central Excise Duty of ₹ 49,66,206 and sales-tax of ₹ 8,52,924 against the sales recorded for the year under consideration. It was also submitted that in the chemicals market goods are usually purchased through broker and purchasers do not have direct contact with the supplier. Same was the case in the case of the assessee. However, in the case of the assessee all the purchases were made through proper purchase orders. Further all payments were made by account payee cheques. As far as the statement of Mr. Masalia was concerned, it was submitted that the statement of Mr. Masalia was not properly tested by the Assessing Officer and his statement was a selfserving statement to save his skin inasmuch as he might not have recorded the transaction in his books of account to avoid payment of tax. Hence this statement could not be used against the assessee for alleged addition. It was also submitted before the CIT(A) that if the addition made by the Assessing Officer is sustained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sales because for every purchase, there was corresponding sales. 8. According to the CIT(A), the assessee could not have manufactured and sold the finished goods without purchasing the raw material. There can be a possibility that raw material must have been purchased in the open market for which invoices were obtained from the above parties. There is every possibility of inflation at purchases in value. Considering all these aspects, he held that it would be fair to disallow an amount of 8% of the total purchases of ₹ 5.26,37,320 which works out to ₹ 42,10,985 and which would increase the net profit approximately from 4.8% to 8%. He accordingly directed the Assessing Officer to restrict the disallowance at 8% of ₹ 5,26,37,320. 9. Aggrieved with such part relief, the assessee as well as the Revenue are in appeal before us with the following grounds: Assessee s grounds of appeal: 1. The learned CIT(A)-IX erred in disallowing 8% of purchases of ₹ 5,26,37,320/- amounting to ₹ 42,10,985/-. 2. The learned CIT(A) erred in concluding that with the addition of ₹ 42,10,985/- the net profit of the appellant also increase from 4.6 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee irrespective of the fact that the GP ratio and net profit ratio will go up and which may not be of the average industry standard. 11. The learned counsel for the assessee, on the other hand, submitted that when the gross profit and net profit ratios have been accepted by the Assessing Officer and the audited accounts furnished by the assessee were not rejected by the Assessing Officer no addition can be made on account of the purchases. Referring to the financial statement for the A.Y. 2004-05 to 2006-07, he submitted that the assessee has shown GP rate of 10.65% for the A.Y. 2004-05, GP rate of 6.88% in the A.Y. 2005-06 and 10.60% during the A.Y. 2006-07. Similarly, the assessee has shown net profit of 4.55% during the A.Y. 2004-05 and 2.25% in the A.Y. 2006-07. However, there was a loss during the A.Y. 2005-06 due to fire. Referring to the scrutiny assessment order for the A.Y. 2005-06, he submitted that the Assessing Officer has not made any addition on account of purchases. He accordingly submitted that no addition should be made. 12. We have considered the rival submissions made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Masalia nor took opportunity to cross examine Mr. Masalia. The submission of the assessee before the CIT(A) that Mr. Masalia might be trying to save his skin as he might not have recorded the transaction in his books of account to avoid payment of tax is without any basis especially when the assessee has silently accepted the statement given by Shri Masalia by not responding to the Assessing Officer s query despite proper opportunity given. We, therefore, are of the considered opinion that the entire amount of ₹ 55,64,931 has to be added to the total income of the assessee on account of bogus purchases. We do not find any merit in the observations of the learned CIT(A) that the assessee might have inserted the accommodation bills for its other purchases made without bills to properly set right its records of production and sales. In our opinion when the assessee has no explanation to offer for the bogus purchase, the same has to be added to the total income. It cannot be said that no addition can be made since the assessee might have purchased from grey market. An assessee cannot be given an opportunity to legalise its illegal transaction through accommodation entries. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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