TMI Blog2017 (8) TMI 322X X X X Extracts X X X X X X X X Extracts X X X X ..... see : None ORDER PER R.C.SHARMA (A.M): These are the appeals filed by the Revenue and Cross Objections by the assessee against the order of CIT(A)-2 Thane, dated 26/08/2016 for the A.Y. 2009-10 and 2011-12 in the matter of order passed u/s.143(3) r.w.s. 147 of the IT Act. 2. Common grievance of revenue and assessee both pertains to addition made on account of bogus purchases. 3. Nobody appeared on behalf of assessee inspite of service of notices, Bench, therefore decided to dispose the appeal after hearing learned DR and considering the material placed on record. Facts in brief are that on the basis of information from Sales Tax Department regarding persons providing bogus purchase bills, the AO reopened the assessment by issue of notices u/s.148. In the assessment so framed, AO added entire amount of bogus purchases as assessee s income. In the assessment year 2009-10, addition was made to the tune of ₹ 16,05,936/- whereas in the assessment year 2011-12 addition was made to the tune of ₹ 24,90,080/- u/s.69C of the Income Tax Act. 4. By the impugned order, CIT(A) restricted the addition to the extent of 12.5% of such purchases after observin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts/defects: a. The appellant's claim that the payments to the hawala parties have been made through banking channels, is not tenable as hawala parties have duly admitted in their statement / affidavit that after deducting their due commission i.e. approximately 1 %, they have refunded back the balance cash to the buyers. b. It is the duty of the appellant to justify the genuineness of purchases, by furnishing necessary supporting documents, bank statement, confirmation, delivery challan, transport receipts etc. and produce the parties for examination. Even during the course of appellate proceedings, the appellant, number of times, was asked to file above details and produce parties for examination, but failed to do so. No transport / octroi receipts were filed to justify genuineness of purchases. c. As regards the appellant's claim that there cannot be any sales without there being corresponding purchases, is also not tenable as the appellant could not reconcile the quantity wise details of purchases from these hawala parties vis. a vis. sales thereof. d. The appellant could not produce proper verifiable documents which could prove physical deliver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leged bogus party then it is the responsibility of the assessee to establish that Ca) party is in existence Cb) party is capable of supply of goods and Cc) party has actually supplied the goods (d) goods so received had actually been used for business and declared as part of sale for the year. If the assessee is asked to produce the parties for verification, then it is the duty of the assessee to do so to establish the genuineness of the claim of the expense. In these cases, the assessee has tried to claim that they have discharged their onus by doing the following: (i) By submitting the name, address, PAN (ii) By claiming that payments were through banking channels (iii) By claiming that the purchases are reflected in the books of accounts. Considering the facts of the cases under consideration, it can safely be concluded that assessee had failed in their efforts in discharging the onus cast upon them. Merely filing name, address, PAN payments by cheque will not discharge him from the onus especially when the department had received specific material/information from the Sales-tax / VAT department, wherein these suppliers, on oath had admitted the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d their values, or not furnished in the manner in which called for. Bogus bill provider either not produced, or not found existent at the address provided by the assessee or they admitted to the fact of issuance of bogus bills against charging some nominal commission, without actually supplying any goods. Payments made by A/c Payee cheques - The Hawala parties accept that after deducting their nominal commission, the balance amount was refunded by cash. Name, address PAN of parties given - Assessee claimed it as sufficient compliance discharge of onus of proving the expenditure, is not acceptable as these parties were not found on given addresses / not traceable, hence purchases not proved. In the absence of the required details, the AO could not verify the genuineness of purchases. Assessee was asked to produce the so-called hawala parties from whom bills were obtained - However failed to do so - sufficient opportunities were given during assessment proceedings as well as during appeal. notices issued u/s. 133(6) - None appeared or could not be served because of defective address. The assessee could not furnish current mailing addresses no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reproduced, here as Once it is found that the purchases were bogus, addition has to be made to the extent of the purchases found to be fictitious. The consideration that the gross profit disclosed by the assessee compares favourably as compared to the earlier years is wholly irrelevant. To neutralize the effect of inflation in purchases, the only course open to the Income-tax Officer is to add back that amount to the income irrespective of the fact whether the rate of gross profit goes up and whether the resultant gross profit is higher than the gross profit normally shown in the earlier years. 25% disallowance of bogus I unverifiable purchases had been upheld in following cases (1) Sanjay Oil Cake Industries Vs CIT (2008) 316 ITR 274 (Guj) (2) Vijay Proteins Ltd Vs ACIT 58 ITD 428 (Abad) (3) M/s Nand Kishore Meghraj Jewellers, Jaipur CO. No. lOSIJP/09 arising out of ITA No. 433/JP/2009 by ITAT Jaipur (4) M/s. Trident Jewellers ITAT Jaipur ITA No. 552/JP/2013. Disallowance @ 25% out of Bogus purchases, held as a reasonable in the case of Vijay Proteins Ltd., in view of the fact that the savings occurred to the suppliers on account of sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance of bogus purchases, have been upheld. 10.6. As regards other aspects such as payment through banking channels, justification for purchases made from hawala parties as genuine, sales made against such purchases, etc., I would like to place the reliance on finding of the Hon'ble Supreme Court, in the case of Lachminarayan Madan Lal v. CIT (1972) 86 ITR 439 (SC), wherein it is held that even if there is an agreement, between the assessee and its agents for payments of certain amounts as commission, assuming there was such payment, that does not bind the Income-tax Officer to hold that the payment was made exclusively and wholly for the purposes of the assessee's business. In this case, the Supreme Court observed as under :- Although there might be such an agreement in existence and the payments might have been made. it is still open to the Income-tax Officer to consider the relevant factors and determine for himself whether the commission said 10 have been paid is properly deductible. In this case absolutely no material on record has been brought by the assessee to suggest that the commission agents had procured any orders for the assessee. The product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seam was going on in the market, in the name of persons / employees (who are not man of means), who do not have their permanent establishment in the city/operating from rented premises, therefore, run away from the scene, hence not traceable. In view of these facts, in my considered opinion, this type of seam should not be legalized, by restricting the disallowance of bogus purchases to a certain percentage, unless and until it is proved that the appellant had affected, the certain purchases from grey markets due to compelling circumstances, as the same were not available in the regular market, as has been held in the case of M/s. Kanchwala Gems Pvt. Ltd. vs . .fCIT 288 ITR 10 (SC). 10.10 Considering the above facts and in view of the decision of the Hon. Delhi High Court in the case of CIT Vs. Jansampark Advertising and Marketing (p) Ltd, it is also an obligation on the part of the first appellate authority to ensure that the effective enquiry is carried out, to arrive at logical conclusion. Therefore, the Ld AR was required to furnish the comparative details of GP/NP and GP/NP rates for hawala years, preceding two years and subsequent two years. In compliance, the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant could not offer any valid explanation. However, after disallowance of bogus purchases, the GP in these years, have gone abnormally high i.e. ranging from 25% to 50%, as against highest GP of 15.11 %, declared in A.Y.07-08. Therefore, this is not a case where the entire cash has been siphoned off by booking the hawala purchases. At the most it is a case of suppression of profit by booking of hawala purchases. These facts clearly established from the fact that the appellant had suppressed its profits by booking alleged hawala purchases, in all three years i.e. 5.79% (15.11- 9.32) in A Y 2009-10, AY 07-08 AY 08-09 AY 09-10 AY 10-11 AY 11-12 AY 12-13 AY 13-14 Sales 38,04,061 57,11,723 1,02,43,322 1,31,49,623 1,22,55,601 1,16,48,332 1,55,85,100 Purchases 16,83,681 44,48,301 99,45,081 1,14,34,317 97,92,372 78,11,259 80,47,383 Gross profit 5,74,867 6,58,201 9,54,831 13,03,045 15,18,970 15,03,061 16,55,723 % of GP to sales 15.11% 11.52% 9.32% 9.92% 13.50% 12.90% 10.62% Add: Bogus Purchase 0 0 16,05,936 53,42,540 24,90,080 0 0 GP including bogus purchase 5,74,867 6,58,201 25,60,767 66,45,585 40,09,050 15,03,061 16,55,723 % of GP to sales 15.11% 11.52% 25% 50.54% 35.62% 12.90% 10.6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Particulars Total Sales Affected Gr. Profit GP Ratio (%) Sales against purchases from regular parties 72,79,966 22,77,241 31.28 Sales against purchases from alleged parties 39,75,635 10,25,148 25.79 Total Sales 1,12,55,601 33,02,389 29.34 Suppressed GP=39,75,635 x 31.28/100=GP declared (10,25,148)=Rs.2,18,431/- 10.13 From the above chart it is seen that the appellant had declared the GP @ 20.81 %, 18.78% and 25.79%, in respect of goods traded from alleged hawala parties, as against GP rate of 25.02%,24.49% and 31.28% in respect of goods traded from regular parties, in A Yr 2009-10, 10-11 and 2011-12, respectively. In compliance, the Ld AR could not offer any valid explanation. These facts clearly establish the fact that appellant had suppressed its profits by inflating its purchases through alleged hawala dealers which are not open for verification. From the facts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,05,936/-.,Less ₹ 5,93,088/-), is hereby deleted. Accordingly, all the grounds of appeal, are partly allowed. A Yr 2010-11 By booking alleged bogus purchases, as compared to the A.Y. 2007-08, the appellant has suppressed its profit by ₹ 6,83,7801- ( 1,31,49,623 x 5.20%). In compliance, the Ld. AR could not offer any valid reasons for fall in the GP rate. Considering the facts in entirety / the appellant being wholesale trader and relying on decisions in the case of M/s. Kanchwala ms Pvt. Ltd. Vis JCIT 288 ITR 10 (SC), etc, as quoted above, in my considered opinion, the. estimation of GP@15.11% will be reasonable. The disallowance @ 12.5% of bogus purchases, as requested by the Ld. AR, is worked out at ₹ 6,67,817/- (53,42,5401- x 12.5/100), which is less than suppressed GP of ₹ 6,83,7801-, therefore, the disallowance to the extent of ₹ 6,83,780/-(suppressed GP), out of hawala purchases of ₹ 53,42,540/-, is sustained, and balance amount of ₹ 46,58,760/- (Rs 53,42,540/-Less ₹ 6,83,7801-), is hereby deleted. Accordingly, all the grounds of appeal, are partly allowed. A Yr 2011-12 By booking alleged bogus purch ..... X X X X Extracts X X X X X X X X Extracts X X X X
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