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TMI Blog2017 (2) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... he total bogus purchases ignoring the fact that the seller parties were bogus bill providers. 2.1. On the other hand, the ld. counsel for the assessee, Shri Suresh N. Otwani, defended the order of the Ld. Commissioner of Income Tax (Appeal). The Bench asked the ld. counsel for the assessee whether any appeal has been filed by the assessee challenging the order of the Ld. Commissioner of Income Tax (Appeal). It was claimed by the ld. counsel that the impugned orders have been accepted by the assessee and no appeal has been filed against the order of the First Appellate Authority. 2.2. We have considered the rival submissions and perused the material available on record. Before coming to any conclusion, we are reproducing hereunder the relevant finding along with the conclusion drawn in the impugned order for ready reference and analysis:- "2.3.1 Further during the course of the subsequent hearing, the AR had furnished semi -burntcopy of bill raised in respect of the following concerns: 1. M/s M.R. Corporation 2. V.M.Udyog 3. Snehal Enterprises 4. Mauli Enterprises 5. MeetiTrade lmpex 6. Motion Traders Pvt. Ltd. 2.3.2. I have perused the invoice in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009. The payments were made 7-11 months after the date of purchase in respect of two supplies made. 5. Rekha Trading Co. No transaction during the F.Y.2007-08. Purchases amounting to Rs. 1,19,600/- wasmade during the year on 21.03.2009 and the payment was settled on 23.05.2009. 6. Sthapna Trade lmpex Pvt. Ltd. No transaction during the F.Y.2007-08.The ledger extract of this party isavailable in page 80 & 81 of the paper book. During the year appellant had purchased material amounting to Rs. 33,45,771/-. Most of the purchases have been made in the month 'of May, 2008 to January, 2009 and some, purchases have also been made in the month of February & March, 2009. The appellant had made payment-of Rs. 11,44,282/- leaving a closing balance of Rs. 22,01,489/-. In the Subsequent financial year purchases amounting to Rs. 9,24,650/- was made. The opening balance as on 01.04.2009 along with purchases, made during the year amounting to Rs. 31,26,139/- together was settled during the subsequent Financial year 2009-10. Part of the purchases made during May and June 2008 was found to have been settled in the month of February, 2009 and for the balance i.e. material purchased in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been made in the month of March, 2009. The purchases made on 13.03.2009 Rs. 1,33,848/- remained as closing balance which was paid on 23.05.2009 in the subsequent financial year. Payments have been made beyond 3 months of purchase. 12. Mihir Sates Pvt. Ltd.: No transaction during the F.Y.2007-08. During the F.Y.2008-09 relevant to the A.Y.2009-10 the appellant had purchased goods worth Rs. 1,89,8001- in the month of December, 2008 and January, 2009 which remained as closing balance. During the financial year 2009-10 purchases amounting to Rs. 11,61,754/- was made. The appellant had made payment of Rs. 12,03,054/- and the purchases made during August, 2009 amounting to Rs. 1,48,500/- remained outstanding as on 31.03.2010. During F.Y.2010-11 the outstanding balance was settled by the appellant. The payment was found to have been made beyond 6 months after the purchase. 13. K. C. Enterprise No transaction during the F.Y.2007-08. 'The total purchases made during the F.Y.2008-09 relevant to the A.Y.2009-10 was Rs. 8,52,478/-. The purchases made in the month of May, 2008 was paid Q November, 2008 and January, 2009. Purchases made in August, 2005, January, 2009 and February ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant was directed to file-the ledger extract of some of the top regular suppliers to analyse the payment pattern and the details filed are available in pages 47 to 65 of the paper book. The details of purchases and the payment made are as under: 1. M/s R.T. Instruments : During the year the appellant had made purchases amounting to Rs. 1,41,68,921/- out of which a sum of Rs. 1,35,70,590/- was settled during the year itself, leaving a meager balance of Rs. 5,98,331/- as outstanding balance as on 31.03.2009 which were mostly the purchases made in the month of March, 2009. The payment pattern indicates that the appellant had settled the payments on month to month basis and, therefore, the payments were found to have been made within 30 days of the supply. 3.1. Similar is the picture with other lop suppliers ViZ LCGC Cromotography Solutions Pvt. Ltd., Sunlight Gas Equipment and Dakshin. Assessment year: 2010-11 4. Ground of appeal No 1& 2 are directed *against addition of Rs. 93,86,559/- on account of bogus purchases made in respect of 8 parties and bringing to tax 100% of purchase value. 4. The AO had made addition amounting to Rs,93,86,559/-from eight alleged hawala operators ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tstanding balances were found to have been settled in the month of May to November, 2010. Therefore, the payment pattern shows that bills have been settled beyond three to six months. Copy of invoices filed by the appellant is available in pages 207 to 275 of the paper book. The perusal of the invoices indicates that order no, date and the details of lorry no were left blank. Though the appellant had filed voucher for transport paid which did not indicate the name of the concern. The payment was made by way of cash and it was self- made. 4. Abhilasha Sales Private Limited: No transaction during F.Y.2007-08 and 2008-09. During the assessment year *purchases amounting to Rs. 29,62,357/- was made from this party. The purchases amounting to Psi 52,854/- made on 07.09.2009, was paid on 31.03.2010 and rest other purchase made from April to January, 2010 amounting to Rs. 28,09,503/- remained outstanding which was found to have been settled if the subsequent financial year 2010-11. During F.Y.2010-11 purchases to the tune of Rs. 15,32,532/- was made in the month of April and May, 2010 which were found to have been settled in the month of January and March, 2011. The outstanding balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sporter and it was self made. 7. Ashley Traders Private Limited No transaction with this concern during F.:Y.2007-08 and 2008-09. During the assessment year purchases amounting to Rs. 16,93,953/- was made from April, 2009 to August, 2009. The entire amount was outstanding as of 31.03.2009 and it was settled in the subsequent financial year in the month of May, 2010 to December, 2010. In some instance the payment was made even beyond 1 year after the purchase. During the F.Y.2010-11 materials worth Rs. 9,13,365/- was purchased from this party all in the month of April and May, 2010 and payments have been made in the month of January to March, 2011. Copy of invoices indicates that order no, date and the details of lorry no were left blank. The delivery challan did not indicate the lorry no. and name of the transporter. The voucher for payment of transport charges did riot indicate the name of the transporter and it was self made. 8. Motion Traders Pvt. Ltd.-The purchases and payments made during the year are discussed in para 2.3.3 in serial no. 9 of the order (in A.Y.2009-10). 4.3 The AR of the appellant was directed to file the ledger extract of some of the top regular suppli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed goods worth Rs. 15,88,202/- during the year. The opening balance carried from the previous year was Rs. 9,20,014/-. During the year payment to the tune of Rs. 18,45,776/- was made leaving a closing balance of Rs. 6,62,440/-. Part of the purchases made during the month of April and May, 2010 was paid in September and January, 2011. During the F.y.2011- 12 the balance Rs. 6,62,440/- was settled in the months of June to August, 2011 which pertain to part of the purchases made in the month of May, 2010. Therefore, the appellant took more than a year to settle the payment. Invoice and delivery challan pertaining to this assessment year of this party was not furnished by the appellant. 3. Abhilasha Sales Private Limited :- During F.Y.2010-11 purchases to the tune of Rs. 15,32,532/- was made in the month of Apri l and May, 2010 which were found to have been set t led in the month of January and March, 2011. The outstanding balance of the earlier financial year was found to have been sett led from May, 2010 to December, 2010. The payment pattern indicates that in some instances the purchases have been settled one year after the purchase was made. No invoice was filed. 4. M.N. Comtra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced, which in some cases had extended upto one year. Going by the market practices credit limit of 3. months is considered as normal. More over no prudent businessman would extend the credit limit beyond 6 months to 1 year in a tight market conditions. Therefore, going by this circumstantial evidence one can come to a reasonable conclusion that suppliers are bogus. The payment pattern itself indicates the bogus nature of the transact ion. Applying the human probabil ity and the circumstant ial evidence, it can be concluded that the supplies by th6above parties are bogus. 6.1 I f ind the AO did not make any independent investigat ion/enquiry by issue of notice u/s. 133(6) except in the case of Mihir Sales Pvt. Ltd. or summon u/s 131 to ascertain the true nature of the transaction and the existence of the suppliers. He has simply concluded the assessment by treating the suppliers as hawala .0ealers purely based on the information received from the Investigation wing which in turn retied on the surveys conducted by Sales tax Department and the statement recorded by interrogating the alleged bogus suppliers. As a proof of delivery of the material at the appellant's premise the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal noted that the entire 1,02,514 metres of cloth was sold during the year and 'therefore accepted the assessee's content ion that finished goods purchased by the appellant may not be from the parties shown in the accounts but from other parties. In view of this the Hon'ble ITAT was of the view tfit only profit margin embedded in such purchases would be subjected to tax. The Hon'ble Tribunal relied Op earlier decision in the case of M/s. Saket Steel Trader s Vs. ITO ( ITA No.2801/Ahd/2008 dt . 20/5/2008) and al so made reference to the decision in the case of Vijaya Protein Vs. GIT 56 ITD 425 (Ahd.). On appeal by the Department, the Hon'ble HC of Gujarat dismissed the appeal. The head note is as under: Income from undisclosed sources- -Assessment(--Assessee trading in finished fabrics-Whether purchases themselves bogus--Whether parties from whom such purchases were made bogus--Questions of fact-Tribunal finding assessee did purchase cloth and sell finished fabrics--Not entire purchase price but profit element embedded in purchases liable to tax--Income-tax Act, 1061. The assessee, for the assessment year 2005-06, was engaged in the business of trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 274(Guj), the Hon'ble court had upheld the action of the CIT(A) and ITAT in determining estimated addition of 25% of the purchases in cases involving bogus purchases. The head note is as under- Assessment-Income from undisclosed sources--Additions on account of inflated purchase price--Estimate--Not a question of law--No material produced by assessee to disprove inflated purchases-Tribunal's order in accordance with law-Income-tax Act. 1961. Whether an estimate should be at a particular sum or at a different sum, can never be a question of law. For the assessment years 1984-85 and 1985-86, the Assessing Officer made additions to the income of the assessee on account of inflated purchase price of oilcakes. The Commissioner (Appeals) held that 25 per cent. of the value of the purchase price was not genuine and the addition made by the Assessing Officer was accordingly restricted to 25 per cent, of the amount paid to the parties from whom the Assessing Officer had disallowed the entire purchases. On cross-appeals by the assessee and the Revenue, the Tribunal confirmed the order of the Commissioner (Appeals). The assessee sought modification of the order on the ground t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer noticed that some of the suppliers of steel to the assessee had made their statements on oath to the effect that they had not supplied the steel to the assessee but had only provided sale bills. In turn, they were receiving a small commission. The Assessing Officer concluded that the total purchase of Rs. 41,04,903 cumulatively made from the three parties were bogus. He thus treated such purchases as bogus purchases and added the entire amount of Rs. 41,04,903 to the gross profit of the assessee. He also rejected the books of account and estimated the assessee's business profits at Rs. 5 lakhs. The Commissioner (Appeals) held that the assessee had made purchases from other parties in the open market. Therefore, he retained 30 per cent. of the purchases cost as The probable profit of the assessee. He reduced the additions from Rs. 41,04,903 to Rs. 12,31,471 and deleted the balance of Rs. 26,73,432. While doing so, he deleted the addition of Rs. 5 lakhs as made by the Assessing Officer on the ground that the addition on account of bogus purchases had already been made. The Tribunal was of the opinion that twelve and half percent. of the disputed purchases should be ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit @ 15% of the total alleged bogus purchase as income of the appellant which is worked out as under:- Sr. No. A.Y. Total Bogus Purchases Estimated profit @ 15% of the purchases Balance Relief 1 2009-10 1,56,47,527 23,47,129 1,33,00398 2 2010-11 93,86,559 14,07,984 79,78,575 3 2011-12 68,94,851 10,34,228 58,60,623 Ground No. 1 & 2 raised in all the three years are, therefore, partly allowed." 2.3. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, it is noted that the information was received from the investigation wing of the Sales Tax Department that they have recorded the statement of certain hawala operators, who have confirmed to have given bogus bills to certain parties including the present assessee. The details of such bogus bills were also claimed to be accepted by the assessee. In order to verify the genuineness of the transactions, notice u/s 133(6) of the Act were issued to the parties calling for the following information. "* Purchase or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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