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M/s. Raj Exports, Versus Assistant Commissioner of Income Tax, Circle-6, Surat. (Vice Versa)

I.T.A. No 1827/AHD/2005 & I.T.A. No 1954/AHD/2005 - Dated:- 11-11-2011 - SHRI BHAVNESH SAINI & SHRI A. MOHAN ALANKAMONY Appellant by: Shri S.N. Soparkar, Sr. Advocate. Respondent by: Shri Y.C. Surti. ORDER PER: SHRI A. MOHAN ALANKAMONY, A.M. 1. These two appeals instituted - (i) one by the appellant firm in ITA No.1827/05 and (ii) another by the Revenue in ITA No.1954/05 - are directed against the impugned appellate order of the Ld. CIT (A)-IV, Surat in appeal No. CAS-IV/18/05- 06 dated 30.5 .....

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not maintainable as the issue is at its infancy. In the remaining grounds, the issues agitated being elaborate and illustrative in nature, they are reformulated in a concise manner, for the sake of clarity, as under: (i) the Ld. CIT (A) had erred in confirming the stand of AO in adding ₹ 52.95 lakhs u/s 69 of the Act; - alternatively, if the addition is sustained, corresponding deduction u/s 37 of the Act be allowed; & - without prejudice, the estimated disallowance at 50% out of the p .....

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s u/s 69C of the Act. 3. As the issues raised by the rival parties pertaining to the same assessment year, both the appeals were heard, considered and disposed off, for the sake of convenience and clarity, in this common order. ITA NO.1827/2005 - appellant firm: 4. The facts of the issues, briefly, are that the appellant firm [ the appellant in short], engaged in the business of purchase of rough/polished diamond from the local market, processing of diamond, trading and export, had furnished its .....

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For the detailed reasons recorded in his impugned order and also the directions of the Addl. CIT, Range 6, Surat u/s 144A of the Act, the AO was of the view that the purchase being bogus, non-genuineness of transactions and also citing various judicial pronouncements and, accordingly, concluded that all the transactions were fictitious and, as such the entire amount was to be added less the commissions charges of ₹ 31,677/-, but, since the same was not claimed by the appellant in its P &a .....

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that exports have taken place i.e., sales are realized and, therefore, purchases must have been made in cash from parties whose details only the assessee is privy too and may as well be unregistered dealers. The AO states that ₹ 1,05,59,154/- represents unexplained expenditure u/s 69C and is this added and deduction u/s 80HHC is also denied to that extent. 2.13. It is difficult to accept appellant s contention that there is (sic) was coercion on part of the assessing officer on the purchas .....

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to produce the best possible evidence in support of his contention so as to enable the AO to verify the same. In the case of the appellant the fact that purchases have been effected is not disputed, but, what is disputed is that the purchases from some of the parties are not amenable to proper verification as such parties in their statements before the assessing officer denied the purchases and, subsequently, did not appear despite reasonable opportunity. 2.16. After considering all relevant fac .....

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iating that if the purchases were held to be bogus, there could not have been any sales and, therefore, the corresponding sales ought to have been excluded from the trading results; & - that both the lower authorities have erred in not considering the explanations, submissions and evidences adduced on record by the appellant in its proper perspective and the actions of the authorities below were in clear breach of principles of natural justice and, therefore, deserve to be annulled. 6.1. To .....

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Ld. D.R was in total disagreement with the findings of the Ld. CIT (A) to the extent that - the Ld. CT (A) had erred in deleting the addition of ₹ 52.95 lakhs out of ₹ 1.05 crores made by the AO on account of bogus purchases u/s 69C of the Act; - she had further erred in not appreciating the fact that all the 11 selling parties denied to have sold the goods, but, accepted to have issued only accommodation bills and major payments against purchases were received back in cash by the a .....

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and also various case laws on which the appellant had placed unstinted faith. 7.1. The appellant had claimed that the total purchases were to the tune of ₹ 1.54 crores from the twelve parties and to strengthen its claim, it had furnished confirmation letters from the eleven parties. According to the AO, out of 11 parties based in Surat, seven parties were examined on oath and they have produced the requisite details except for their purchases and sales registers claiming that all those bi .....

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tion that the payment of purchasers will be given only after the payments being received. Hence, they are bound to withdraw the cash immediately after the payments are being received so that they can make payment for their purchases. So the withdrawals of cash by the persons from whom goods have been purchased do not prove that the payments have come back to the assessee and, hence, it is of no use. The assessee has nothing to do with it i.e., the assessee is not supposed to take care of the fac .....

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alized and, therefore, purchases must have been made in cash from parties whose details only the assessee is privy too and may as well be un registered dealers…. Moreover, the appellant had furnished copies of affidavits of the eleven parties which were executed before the Executive Magistrate of Surat wherein it has been emphatically stressed that the sales of diamonds were made to the appellant during the relevant period under challenge and the payments have been received through cheque .....

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rder of the AO as to whether the veracity of the parties contentions had been put under the scanner. 7.3. Let us now have a glimpse of the judicial view on the issue. I. An identical issue to that of the present appellant had cropped up before the Hon ble A Bench in the case of Shri Tolaram B Sharma v. ITO W-6(4), Surat [in ITA Nos.2239 & 2291/Ahd/2004 dated: 25.1.2008 - AY 2001-02]. The issue before the Hon ble Bench was, in brief, that as to whether the Ld. CIT (A) had erred in directing t .....

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ellip;………………………………………………………… ……………………………………………………………………………………… Therefore, we are of the opinion that there is no ju .....

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addition on account of undisclosed investment in such purchases. (a) if the aforesaid fact is coming out from the books of account, the addition, if any, can be made only on account of following two counts: (i) if it is established that sale of goods so purchased (if sold) is not accounted for in the books of account; or (ii) the goods so purchased are not accounted for in the closing stock (if not sold). 9.3. it is, therefore, clear that where the sales corresponding to such purchases are foun .....

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redients are established by the Revenue, there cannot be any addition for so called bogus/in-genuine purchases; (b) there is another way of making addition and that can be only when the Revenue is able to establish that the assessee has inflated the purchases - either by way of value or by way of quantity; But, so far as quantity is concerned, the onus is on the assessee to establish that whatever quantity was purchased, was either sold or was available in closing stock. (c) So far as inflation .....

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osed investment or on account of undisclosed sales of undisclosed profit on the ground that some purchases are considered to be bogus or in-genuine only for want of availability of the seller. 10. From the above discussion, we are of the opinion that in a given case, if - until the Revenue establishes such fact by cogent material. 11. Coming to the present case, admittedly, the purchases made by the assessee from the relevant four parties, quantity-wise as well as value-wise have been found to h .....

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inflation of purchases also. In view of these facts, we are of the opinion that there could not be any addition on any account. Consequently, even the addition sustained by the CIT (Appeals) on the basis of peak of purchases, in our opinion, is not sustainable and we delete the same. II. The Hon ble jurisdictional High Court [Tax Appeal No.1344 of 2008 with Tax Appeal No.1355 of 2008 dated: 9.2.2010] in the case of ITO, W 6-4 v. Totaram B Sharma, Proprietor of Super Therm dealt with one of the .....

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ed made by Mr. Naik and also perused the orders passed by the authorities below. First of all, it is to be recorded that, in the order passed by the assessing officer, the assessing officer has started the discussion on the issue of bogus purchases and ultimately came to the conclusion that though the purchases can be said to be genuine, the payments, however, for such purchases were made by the assessee in cash, which is unaccounted for. As such, there is no basis for arriving at this conclusio .....

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neness of the sales, rather has accepted the same, there is no allegation of suppression of sale price or suppression of value of closing stock - either quantity wise or value wise and there is no allegation of inflation of purchases also. The Tribunal, therefore, came to the conclusion that no addition can be made on either of these counts and the peak arrived at by the CIT (Appeals) is also not justified. 7.4. In an overall consideration of the facts and circumstances of the issue as deliberat .....

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