TMI Blog2016 (2) TMI 1204X X X X Extracts X X X X X X X X Extracts X X X X ..... eque No.446894 and the assessee in his reply has clearly admitted that payment was made in cash and has stated that 20% thereof be disallowed. However, the same has been totally disregarded by the AO as well as the Tribunal. The court is of the view that the Tribunal while passing the impugned order has lost sight of the directions contained in its previous order and has recorded findings which are not in consonance with the record of the case and are, therefore, perverse. The impugned order of the Tribunal which suffers from various infirmities as noted hereinabove, therefore, cannot be sustained. - Decided against the revenue. - Tax Appeal No. 701 of 2015 - - - Dated:- 16-2-2016 - Ms. Harsha Devani And G.R. Udhwani, JJ. J.P. Shah and Manish J. Shah, Advs. for the Appellant. Sudhir M. Mehta, Adv. for the Respondent. JUDGMENT Ms. Harsha Devani, Heard Mr. J.P. Shah, learned counsel for the appellant. 2. Admit. The following substantial question of law arises for consideration :- Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that purchases of ₹ 73,29,278/-, out of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he cheque to somebody else for discharge of their liability and the other party has encashed the cheque, it could not be said that the purchase by the assessee is bogus. Therefore, it is very relevant to ascertain who encashed the cheque. If the cheque is encashed by somebody else on behalf of the seller, then, the purchases would be genuine. But if the cheque is encashed by or on behalf of the assessee, then, obviously the purchases would be bogus. Similarly, the actual receipt of goods is very important for determining the genuineness of the purchases. If the assessee has maintained day-to-day stock register of the goods and the goods in such register are recorded and the correctness or genuineness of the stock register is not doubted, then, obviously it would be improper to doubt the genuineness of the purchases itself. If the goods are received and the seller is not found at the address given, then, at the most doubt can raised about the rate at which goods were purchased. However, all these facts need verification at the end of the A.O. We, therefore, set aside the orders of the authorities below and restore the matter back to the file of the AO. We direct him to re-examine th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evious round of litigation, to point out the nature of the directions that came to be issued by the Tribunal. It was submitted that the findings recorded by the Commissioner (Appeals) were in consonance with the directions issued by the Tribunal in the previous order, whereas the Tribunal had failed to appreciate the evidence on record in proper perspective while setting aside the order passed by the Commissioner (Appeals). The attention of the court was invited to various infirmities in the order passed by the Tribunal, to submit that the Tribunal has proceeded on a misconception of facts which would render the findings of the Tribunal perverse. Referring to the findings recorded by the Assessing Officer, it was submitted that one of the grounds for holding against the appellant is that the appellant had issued crossed cheques instead of account payee cheques. It was submitted that at the relevant time, there was no mandatory requirement for payment of expenditure by an account payee cheque or account payee draft as contemplated under section 40A(3) of the Act, which was brought into force with effect from 13.7.2006, inasmuch as the present case relates to assessment year 2003-04. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the goods in such register are recorded and the correctness or genuineness of the stock register is not doubted, then, it would be improper to doubt the genuineness of the purchases itself. Lastly, if the goods are received and the seller is not found at the address given, then, at the most doubt can be raised about the rate at which goods were purchased. 10. Thus, the Assessing Officer was required to make inquiry in the aforesaid manner. In this regard, a perusal of the order passed by the Assessing Officer reveals that he has not rejected the books of account and has accepted the same. The Assessing Officer prepared a chart showing the name of the party in whose favour the cheque was issued, the amount, the date when the cheque came to be issued, the cheque number and to whom the cheque had been endorsed and held that in view of the chart it was clear that the assessee had issued cross/bearer cheques and some of the cheques are endorsed to other parties which reveals that the seller has not encashed/deposited the said amounts in his account. He, accordingly, called upon the assessee to show cause why the purchase should not be treated as bogus and 25% thereof should not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained quantity register, however, he could not produce details of purchases and therefore, quantity of purchases could not be ascertained. He, accordingly, concluded that the purchases made by the assessee during the year under consideration cannot be said to be genuine. However, despite the fact that it is the case of the Assessing Officer that the purchases made by the assessee are not genuine, he has not rejected the books of account and has accepted the same. The Assessing Officer has not doubted the purchases but has doubted as to whether the payments have in fact been made to the seller. On these findings, the Assessing Officer has disallowed 25% of the purchases of ₹ 73,29,278/-. 11. The Commissioner (Appeals) has found that insofar as the observations of the Assessing Officer that payments have been made by account payee cheques are concerned, the same were not relevant to the assessment year under consideration as the mandatory requirement for payment of expenditure by an account payee cheque drawn on a bank or account payee draft in section 40A(3) of the Act has come into force with effect from 13.07.2006 whereas the assessee's case pertains to assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to whether Faizan Texturising Unit is a representative of the assessee. The Tribunal, accordingly, held that the assessee miserably failed to establish a reconciliation between the payments made by him towards purchases vis- -vis the ultimate recipient of the amounts being his vendor. In this regard, on a perusal of the assessment order, it is evident that all the details with regard to the various parties from whom the assessee had purchased the raw materials, their names, the cheques and the amount in respect of which the cheques were issued are clearly provided in a tabular form as reflected in paragraph 4 of the said order. The observation as to whether Faizan Texturing Unit has supplied goods to the assessee on behalf of Anamika Fabrics or M/s Anamika Fabrics directed the assessee to endorse the cheque to Faizan Texturising Unit clearly reflects the ignorance on the part of the Tribunal about the provisions of the Negotiable Instruments Act, inasmuch as, a crossed cheque could be endorsed by the holder in due course to any party. If the assessee has issued a crossed cheque in favour of Anamika Fabrics which, in turn, has endorsed the same to Faizan Texturising Unit that does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that it cannot be concluded that the purchases made by the assessee during the year under consideration are genuine and has disallowed 25% of the purchases and made an addition of ₹ 18,32,319/-. Thus, the Assessing Officer without rejecting the books of account of the assessee for the year under consideration has observed that the genuineness of the purchases is not established and has made the addition whereas the Tribunal has proceeded on the footing that the Assessing Officer has recognised the purchases made by the assessee and the question is not of quantitative details. The Tribunal has also observed that the Assessing Officer has accepted the sales made by the assessee and if that be so, it would indicate that the assessee must have made purchases, otherwise it would not be possible for the assessee to make the sales. Thus, even as regards the basic facts, the Tribunal has proceeded on an erroneous footing. 14. As regards the cheque issued in favour of A.K. Textile which is withdrawn by the proprietor of A.K. Textile named Aaisha vide cheque No.446893 dated 03.06.2002 and cheque No.446894 dated 04.06.2002 in the name of A.K. Textile in which the proprietor's ..... 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