TMI Blog2017 (1) TMI 1108X X X X Extracts X X X X X X X X Extracts X X X X ..... the profits embedded in the bogus purchase @ 12% of the purchase cost i.e. ₹ 5,15,377/-, since the direct one to one relationship/nexus between the said purchases and sales have not been established by the assessee. - Decided against assessee - ITA No. 2601/Mum/2016 - - - Dated:- 18-1-2017 - Shri Jason P. Boaz, Accountant Member and Shri Saktijit Dey, Judicial Member Appellant by : None Respondent by : Shri Milind Rajguru ORDER Per Jason P. Boaz, A. M. This appeal by the assessee is directed against the order of the CIT(A)- 40, Mumbai dated 10.02.2016 for A.Y. 2009-10. 2. The facts of the case, briefly stated, are as under: - 2.1 The assessee, Proprietor of M/s. Citizen Sales Corporation, engaged in the business as wholesale dealer of iron and steel, filed her return of income for A.Y. 2009-10 on 25.09.2009 declaring total income ofRs. 1,81,900/-. The return was processed under section 143(1) of the Income Tax Act, 1961 (in short 'the Act'). On the basis of the information received, that the assessee was taking bogus bills from certain parties on payment of commission, the Assessing Officer (AO) initiated proceedings under section 147 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 5,15,377/- iii. i . The Ld. CIT(A) erred making addition of ₹ 5,15,377/- being estimated profit of the Appellant at the rate of 12.5% on alleged bogus purchases of ₹ 41,23,015/- without appreciating the facts and circumstances of the case. Hence, the estimation of profit amounting to ₹ 5,15,377/- on alleged bogus purchases is unjustified and the same may be deleted. iv. The Ld. CIT(A) failed to appreciate that the material purchased during the year are duly accounted in the book of the Appellant and the same are supported by proper documentary evidences. The said material was subsequently sold by the Appellant and the profit earned thereon is offered for tax. Hence, the estimation of profit at the rate 12.05% that is amounting to ₹ 5,15,377/- on alleged bogus purchases is unjustified and the same may be deleted. v. The Ld. CIT(A), further, failed to the appreciate that the Ld. A.O. has neither rejected the books of accounts of the Appellant nor pointed any discrepancies in the same. The Ld. A.O. also accepted the sales made during the year. Hence, the estimation of profit in the said circumstances is unjustified and the same may be delete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. On the facts and in the circumstances of the case and in law the Ld. AO erred in treating purchases of ₹ 41,23,015/- as unexplained purchases and added to total income u/s. 69C even after providing the requisite details. 2. On the facts and in the circumstances of the case and in law the Ld. AO failed to appreciate the fact that the goods alleged to be purchased from bogus parties were actually sold by the assessee. 3. On the facts and in the circumstances of the case and in law the Ld. AO erred in not taking into consideration the material and documentary evidences placed on the records. 4. On the facts and in the circumstances of the case and in law the Ld. AO erred in not giving proper opportunity of being heard to your appellant 5. On the facts and in the circumstances of the case and in law the Ld. AO violated the principle of natural justice. 6. Your appellant requests to allow him to add, to amend, to alter and or to delete any of the grounds mentioned above. From the ground raised by the assessee before the learned CIT(A) (supra), it is evidently clear that the issue of validity of reopening of the assessment for A.Y. 2009-10 was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and the profit earned thereon is offered to tax. Without prejudice to the above, the assessee contends that the addition hoc estimation of her profits at ₹ 5,15,377/- is unjustified and to be deleted since the basis for the said estimation was certain information received from the Sales Tax Department, without providing the assessee opportunity to cross-examine the persons on whose statements an adverse inference was drawn against the assessee. 6.2 The learned D.R. for Revenue placed strong reliance on the decision of the learned CIT(A) in determining the profits from bogus purchases at ₹ 5,13,777/- @12.5% thereof. It is submitted that the decision of the learned CIT(A) was a detailed and well reasoned decision, rendered after consideration of the facts of the case on hand and the relevant judicial pronouncements in this regard and therefore should be upheld. 6.3.1 We have heard the learned D.R. for Revenue and perused and carefully considered the material on record. We find that the learned CIT(A) has addressed this issue in detail and after considering the submissions of the assessee, the AO s findings and various judicial pronouncements on this issue, has hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s failed to furnish any cogent evidence to substantiate the delivery of goods. Moreover the assessee has not produced the parties concerned for verification. Accordingly, the Ld. AO treated the amount of ₹ 41,23,015/- as bogus purchases and added back to the total income of the appellant. Even during appellate stage, no fresh evidences have been submitted. 7.4 The appellant was asked to submit the details of purported purchases made and to show cause why the same should not be disallowed as bogus purchases. The Ld. AO observed that the appellant failed to furnish the supporting documentary evidence to support that the purchases were actually made by them from these parties such as transportation documents, inward register etc. The Investigation Wing of Mumbai had provided a list of hawala bill racketeers who were involved in issuing bills and also the list of beneficiaries. The Sales Tax Department of Mumbai had investigated all these cases thoroughly and prepared a list of such hawala operators and their beneficiaries which have been uploaded in their Website. The Ld. AO observed that these hawala operators were providing only accommodation entries and the appellant was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in his favour then the door will be left wide open to evade tax. The Hon'ble Court further held that the Taxing Authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look in to the surrounding circumstances to find out the reality of the recitals made in those documents. 7.7. In yet another case of casting of onus viz. Jamnaprasad Kanhaiyalal Vs.CIT 130 ITR 244(SC), Hon'ble Apex Court while considering the scope of immunity u/s. 24 of F.No.(2) Act 1965 held that the immunity provided cannot be invoked in assessment proceedings relevant to any person other than the person making declaration under the Act. In that case, the firm Jamnaprasad Kanhaiyalal had shown cash credits in the names of 5 sons of Kanhaiyalal who had made voluntary disclosure under the Voluntary Disclosure Scheme of 1965 but the Ld. A.O. had not found the explanation satisfactory regarding the credit worthiness of the parties and the same came to be confirmed by the Hon' ble Supreme Court. If against such strict terms of immunity, the Hon'ble Supreme Court could confirm the rejection of explanation of cash credit, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence is considered, without reference to the onus and without relying on the circumstances that onus lies on a particular party, the issue is determined on facts and the onus cannot be said to have influenced the decisions. However, in the instant case, the appellant has miserably failed to lead evidence and hence, onus is a determining factor. 7.10. The Hon'ble Supreme Court, in the case of Chuharmal v. CIT [1988] 172 ITR 250/38 Taxman 190 highlighted the fact that the principle of evidence law are not to be ignored by the authorities, but at the same time, human probability has to be the guiding principle, since the AO is not fettered, by technical rules of evidence, as held by the Hon'ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775. The Hon'ble Supreme Court, in the case of Chuharmal (supra) held that what was meant by saying that Evidence Act did not apply to the proceedings under Income-tax Act,1961, was that the rigours of Rules of evidence, contained in the Evidence Act was not applicable; but that did not mean that when the taxing authorities were desirous of invoking the principles of Evidence Act, in proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en transported by the transporter. However, in the present case, no such proof of delivery through a particular lorry number has been provided as far as the appellant's purchase is concerned. Thus, the decision rendered in the case of Rajeev G. Kalathil (supra) cannot be said to be applicable in this case. Similarly, decision of the Hon'ble Bombay High Court in Nikunj Eximp (ITA No. 5604 of 2010) was rendered on the issue whether any substantial question of law was involved in that case. In fact, in a later decision in Nikunj Eximp (2014) 48 Taxmann.com 20 (Bom), Hon'ble Bombay High Court on the very same issue of obtaining bogus bills dismissed the assessee's Writ Petition filed against notice u/s. 148. 7.15 Hon'ble Bombay High Court in the case of Killick Nixon Ltd. v. Deputy Commissioner of Income-tax [2012] 20 taxmann.com 703 (Born.) was similarly faced with the question of sham transactions and it inter alia, held as under : Section 254 of the Income-tax Act, 1961, read with rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963 - Appellate Tribunal - Orders of - Assessment year 2001-02 - Assessee transferred certain land to hank - Assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer [1985] 154 ITR 48/22 Taxman 11 (SC), Union of India v. Azadi Bachao Andolan [2004] 10 SCC 1 and the Mathuram Agarwal v. State of Madhya Pradesh [1999] 8 SCC 667 and concluded that wl2ere the transaction is not genuine but a colourable device there could be no question of tax planning. The Supreme Court in the aforesaid case after considering the aforesaid two decisions concluded as follows: The majority judgment in McDowell held that tax planning may be legitimate Provided it is within ilieframeit'ork of law para- 45). In i/u' latter part of para 45, it held that colourable device cannot he a part of tax planning and it is wrong to encourage the belief that it is honourable to avoid payment of tax by resorting to dubious methods . It is the obligation of every citizen to pay the taxes without resorting to subterfuges . The above observations should be read with para 46 where the majority holds on this aspect one of us, Chinappa Reddy, J. has proposed a separate opinion with which we agree . The words this aspect express the majority's agreement with the judgment of Reddy, J. only in relation to tax evasion through the use of colourable devices and by reso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bogus purchases is defeated. What can be the purpose to enter a bogus purchase in the books, obviously to show lesser profit than actually earned. This in turn could be to bring the gross profit rate to near about the earlier years' performance in order to avoid a deeper probe by the taxing authorities and/or to avoid paying higher taxes. Thus, when once bogus purchase is entered in the books without a corresponding sales or increase in stocks, the obvious result would be lowering of g.p. rate. If these bogus purchases are removed, the g.p. rate would automatically go up. Under the assumption that the purchases are bogus, one situation visualised is that there are no corresponding sales, then addition at what rate can be more justifiable than by the bogus purchase itself? 9. Likewise, there can be another situation also. The purchase may be bogus and correspondingly there may be a bogus sales also, and since both are bogus, the GP rate is obviously manipulated to affect the overall result. Then, accepting Shri Sanghvi's contention would further make the accounts bogus. Similarly, there may be many such situations because, accountancy is essentially an art and not a sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of the entire purchases of gas cylinders or not. The principle regarding making of a best judgment assessment has been well settled by the Apex Court in the case of Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 1TR 775 wherein the Apex Court has held as follows :- As regards the second contention, we are in entire agreement with the learned Solicitor-General when he says that the Income- tax Officer is no/fettered by technical rules of evidence and pleadings, and that, he is entitled to act on material which may not be accepted as evidence in a court of law, but there the agreement ends; because it is equally clear that in making the assessment under sub-section (3) of section 23 of the Act, the Income-tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under section 23(3). The rule of law on this subject has, in our opinion, been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Singh v. CIT [1944] 12 ITR 393 . . . . (782) 41. In the present case we find that the Commissioner of Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be levied on the real person. Under these circumstances and keeping in view the decision of the Hon'ble Delhi High Court as relied on by the learned Departmental representative in the case of CIT v. La Medial [2001] 250 ITR 575, we are of the view that the assessee-company has debited bogus purchases in its books of account which the assessee-company could not substantiate and, accordingly, the Commissioner of Income-tax (Appeals) was not justified in deleting the addition of ₹ 4,37,048, which is directed to be reversed and added in the Income of the assessee-company. Consequently, the addition made by the Assessing Officer amounting to ₹ 4,37,048 is upheld. The ground taken by the Revenue, is therefore, allowed . 9. The Tribunal, thus, by its order dated June 10, 2002, set aside the order of the Commissioner of Income-tax (Appeals) and restored the addition of ₹ 4,37,048 in the hands of the appellant-company as was done by the Assessing Officer. 10. In so far as the addition of ₹ 4,37,048 in the hands of the appellant company is concerned, we are satisfied with the reasons given by the Tribunal in paragraph 6 of its order. The addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding. The issue is not whether the purchase price reflected in the books of accounts matches the purchase price stated to have been paid to other persons. The issue is whether the purchase price paid by the assessee is reflected as receipts by the recipients. The assessee has, by state of evidence available on record, made it possible for the recipients not being traceable for the purpose of inquiry as to whether the payments made by the assessee have been actually received by the apparent sellers. Hence, the estimate made by the two appellate authorities does not warrant interference. Even otherwise, whether the estimate should be at a particular sum or at a different sum, can never be an issue of law. 7.21 In the case of Assistant Commissioner of Income-tax v Tribhovandas Bhimji Zaveri [2000] 74 ITD 92 (MUM.), Hon'ble Mumbai Bench of ITAT while dealing with the issue of bogus purchases where similar arguments were advanced to buttress the claim of purchase, held as under: Considering the number of coincidences involved in the scheme, we are of the view that the entire scheme has been planned and coordinated by the assessee-firm. In the case of Homi Jehangir Gheest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TO occupies the position of a quasi-judicial Tribunal and is not bound by the rules of the Evidence Act, but he must act in consonance with natural justice, and or such rule is that he should not use any material against an assessee without giving the assessee an opportunity to meet it. He is not bound to divulge the source of his information. There is no denial of natural justice if the ITO refuses to produce an informant for cross- examination though if a witness is examined in the presence of the assessee, the assessee must he allowed to cross-examine him. The range of natural justice is wide and whether or not there has been violation of natural justice would depend on the facts and circumstances of the case. 7.23. The Supreme Court had also an occasion to consider the applicability of the principles of natural justice in R.S. Dass v. Union of India AIR 1967 SC 593. Referring to the same, the Supreme Court in Chairman, Board of Mining Examination v. Ranijee AIR 1977 SC 965, inter alia, held as follows: Natural justice is no unruly horse, no lurking land mine, nor a judicial cure all. If fairness is shown by the decision maker to the man proceeded against, the form, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d fabrics. For the A.Y. 2005-06, the Assessing Officer held that the purchases worth ₹ 40,69,546/- were unexplained. He, therefore, disallowed such expenditure claimed by the assessee and computed the total income of ₹ 41,10,187/-. The issue was carried in appeal by the assessee before the Ld. CIT(A) who rejected the appeal, upon which the assessee went in further appeal before the Hon'ble Tribunal. The Hon'ble Tribunal substantially allowed the assessee's appeal. In so far as the question of bogus purchase is concerned, the Hon'ble Tribunal concurred with the Revenue's views that such purchases were made from bogus parties. The Tribunal noted that the Assessing Officer had issued notice to all parties from whom such purchases were allegedly made. Such notices were returned unserved by the postal authorities with the remark that the address was incomplete. The Inspector deputed by the Income-tax Department also could not find any of the parties available at the given addresses. The assessee was Liable to produce any confirmation from any of the parties. Though the assessee had claimed to have made payment by account payee cheques, upon verification i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad found that some of the alleged suppliers of steel to the assessee had not supplied any goods but had only provided sale bills and hence, purchases from the said parties were held to be bogus. The A.O. in that case added the entire amount of purchases to gross profit of the assessee. Ld. CIT(A) having found that the assessee had indeed purchased though not from named parties but other parties from grey market, partially sustained the addition as probable profit of the assessee. The Tribunal however, sustained the addition to the extent of 12.5%. Taking into account the above facts, the Hon'ble Gujarat High Court held that since the purchases were not bogus, but were made from parties other than those mentioned in books of accounts, only the profit element embedded in such purchases could be added to the assessee's income and as such no question of law arose in such estimation. While arriving at the above conclusion, the Hon'ble Court also relied on the decision in the case of Vijay M. Mistry Construction Ltd. 355 ITR 498 (Guj) and further approved the decision of Ahmedabad Bench, ITAT in the case of Vijay Proteins 58 ITD 428. 7.29. In the case of Vijay Proteins ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of ₹ 27,39,407/- made by the Assessing Officer. However, the Learned Commissioner of Income-tax (Appeals) considering the facts of the assessee's case, has sustained the addition at 12.5%. While doing so, he has also relied upon the decision of the Tribunal in the case of M/s. Vijay Proteins Ltd. 55 TTI (Ahd) 76. In the case of M/s. Vijay Proteins Ltd. the Tribunal has sustained the addition of 25% of the bogus purchases. However, considering the facts of the assessee's case the C1T(A) restricted the disallowance to 12.5% as against 25% made in the case of M/s. Vijay Proteins Ltd. From these facts it is evident that the CH(A) has sustained the addition at 12.5% of the non-genuine purchases considering the facts of the assessee's case. We, therefore, do not find any justification to interfere with the order of the CIT(A) in this regard. The same is sustained. After considering the facts and the arguments of both the sides, we are of the opinion that it would meet ends of justice, if the disallowance is sustained at 12.5% of the purchase from these two parties. The Assessing Officer is directed to work out the disallowance accordingly Since the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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