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TMI Blog2020 (11) TMI 816X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,39,91,884/- whereas the sundry creditors are shown at Rs. 6,71,74,832/- . The AO asked the assessee vide query No.8 of his first notice u/s 142(1) dated 19.04.2016 to furnish the list of sundry creditors and debtors and their ledger accounts with confirmation containing PAN and latest address. 4. However, the assessee vide her letter dated 05.07.2016 submitted only the names of sundry creditors and amounts outstanding as on 31.03.2014. The other details called for by the AO were not furnished. Therefore, the AO vide order sheet entry dated 05.07.2016 asked the assessee to justify/reconcile/confirm the CASS reasons with respect to assessee's ITR. 5. In response to this, 7 confirmations were filed vide letter dated 19.07.2016 and 6 confirmations were filed on 26.07.2016 but without any supporting documents i.e. even without mentioning PAN No. of the party from whom confirmation has been taken. Therefore, the AO vide order sheet entry dated 26.07.2016 asked the AR to produce the creditors. 6. The AO observed from the documentary evidences filed before him that the confirmations filed bear signature of some person whose identity could not be proved as no ITR, PAN No., identit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded on oath and vide order sheet entry dated 26.12.2016, copy of their statements were shown to the AR of the assessee and Sh. Keshav Dutt Sharma, husband of the assessee who were present there for confrontation/ cross examination of the persons whose statements have been recorded. However, no confrontation/ cross-examination of these parties were done by them. Finally, vide order sheet entry dated 26.12.2016, the assessee's AR was asked to produce the remaining 3 creditors for verification namely Sh. Riyazuddin, Sh. Irshad Khan and Sh. Lalmiyan on 28.12.2016 at 11.00 AM with supporting documents mentioned in summons u/s 131 dated 21.12.2016. 11. The AO vide final show cause notice dated 29.12.2016 again giving the brief facts of the case and thereafter, highlighting the non- verification of sundry creditors, asked to assessee to show cause as to why the balance amount shown outstanding against the name of these 6 creditors amounting to Rs. 3,20,92,833/- be not added back and the case was fixed for hearing on 30.12.2016 at 11.00 AM. 12. In spite of being allowed opportunity to produce the 6 creditors afresh for verification, the assessee refused to produce them except Sh. Ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has also failed to produce the creditor for personal deposition as asked for vide note sheet entry dated 26.12.2016 and show cause dated 29.12.2016. The Husband and A.R. of the assessee also did not produce the creditor for personal examination on oath and also did not submit any bill/voucher and details of documents as asked for vide show cause dated 29.12.2016 to prove the genuineness of the transaction as asked for vide note sheet entry dated 26.12.2016 and show cause dated 29.12.2016. Hence, in the absence of examination/verification, the identity, genuineness of transactions and creditworthiness of the creditor is not proved as per section 68 of the Act by the assessee. 3. Irshad Khan-Rs. 65,31,250/- summons u/s 131 of the Act could not be served on him as per above inspector report and also no compliance/reply has been received from him vide this office summons dated 21.12.2016 sent to- him by speed post no. ED070048711IN. The husband and AR of the assessee also did not produce the creditor for personal examination on oath and also did not submit any bill/voucher and details of documents as asked for vide show cause dated 29.12.2016 to prove the genuineness of the transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequent years as revealed from their ledger a/c. Hence, it is not certain whether these payments have been actually paid to Ovais Khan or not or that any transaction of purchase and sale has been carried out. Also Mohd. Younus did not give any bill to its customers. Therefore, I treat that 50% of these purchases in F.Y.2013-14 as unverifiable/ bogus. Section 68 of the Act states that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year. In view of the above enquiries and verification conducted by this office in respect of the above creditors and also after giving the assessee an opportunity of being heard from time to time it has been found that these creditors are either bogus or the liability shown by the assessee against them has not been proved by the assessee in terms of identity, creditworthiness and genuineness of these creditors. Since the assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jharkhand); xiv) Acron Finance (P) Ltd. vs. CIT (2011) 13 taxmann.com 69 (P&H); xv) Pr. CIT (Central-1) vs. NRA Iron & Steel (P) Ltd. (2019) 103 taxmann.com 48 (SC); 15. Aggrieved with such order of the ld.CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds:- "1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in passing a completely non-speaking order, without adjudicating the grounds of appeal as raised before him and without even making reference to 664 pages of evidence as before him. 2. On the facts and in the circumstances of the case and in law, the CIT( A) erred in not examining the issues in appeal and simply copy pasting parts of the Remand Report dated 24.11.2017 and thereafter making sundry references to case law. 3. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in not even paying heed to observations of the Assessing Officer in the Remand Report dated 24.11.2017, wherein the AO himself has admitted: a. That export sales made by the assessee were duly scrutinized and found to be genuine and; b. Evidence as to payment made to the creditors in the subseque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the AO has not rejected the books of account of the assessee and the sales has been accepted. He accordingly submitted that once the sales has been accepted and the assessee has filed the quantitative details of all purchases, sales, opening stock and closing stock item-wise and quantitywise and the items were exported out of the country, therefore, merely because certain creditors, who are illiterate persons not knowing the intricacies of the tax laws, has made some adverse statements or expressed their ignorance about the various entries, the same cannot be a ground to make huge addition by disregarding the purchases. He submitted that without purchases there cannot be any sales. He further submitted that the entire goods are exported out of the country after thorough inspection by the competent authorities. 19. Referring to the decision of the Hon'ble Bombay High Court in the case of PCIT vs. Jakharia Fabric (P) Ltd., 118 taxmann.com 406, he submitted that in that case, information was received by the AO to the effect that eight parties from whom purchases were made by the assessee were engaged in job work of dyeing of fabrics were hawala dealers who had issued bogus bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence. 21. Referring to the decision of the Hon'ble Delhi High Court in the case of CIT vs. Sunrise Tooling System (P) Ltd., 47 taxmann.com 20, he submitted that the AO in that case made addition to assessee's total income on the basis of statement of Director of Company that certain amount represented non-existent or bogus transaction. In appeal, the Tribunal took note of statement of 'D' and retraction made later on. It was also noted that said statement was recorded in course of survey under section 133A and, consequently, did not have any evidentiary value. The Tribunal, thus, deleted the addition made by the authorities below. The Hon'ble High Court, while dismissing the appeal filed by the Revenue, upheld the order of the Tribunal. It held that the Tribunal has passed the order after taking note of materials before Revenue authorities which included assessee's books of account. Besides, the Tribunal also noted that the authorities below had not even rejected the books of the assessee while treating the transaction in question to be bogus. It was accordingly held that the Tribunal has rightly deleted the addition made by the AO and sustained by the CIT(A). 22. Referring to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case. The AO in the instant case has made extensive enquiries and made the additions which has been sustained by the CIT(A) after obtaining a remand report from the AO. He submitted that the assessee has miserably failed to substantiate the purchases from the six creditors to the tune of Rs. 3.05 crores and, therefore, the addition made by the AO and sustained by the CIT(A) is fully justified. He further submitted that even though the assessee was given opportunity to cross-examine three of the sundry creditors, however, the assessee did not avail of the opportunity and, therefore, the assessee cannot make any plea that she was not given the opportunity to cross-examine. 25. The ld. Counsel, in his rejoinder, drew the attention of the Bench to the copy of the remand report and submitted that the AO himself has accepted in the remand report that the assessee has filed the bills of goods purchased from the six creditors, freight charges paid for purchases, details of freight charges of Rs. 3.96 lakhs debited to the Profits & Loss Account and has also given a finding that the assessee has paid the amount outstanding against the name of six sundry creditors as on 31.03.2004 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... three of the six creditors before the AO. Therefore, under the circumstances, the addition u/s 68 of the Act in respect of the trade creditors is not justified. 27. We find some force in the above argument of the ld. Counsel. It has been an undisputed fact that the books of account of the assessee have not been rejected and the sales of the assessee has been accepted. The assessee, in the instant case is maintaining stock register giving item-wise and quantity-wise items purchased, sold, opening stock and closing stock. Further, out of the six creditors, the assessee has produced three creditors, namely, S/Shri Ovais Khan, Mohd. Younus and Shakeel, whose statements were recorded u/s 131 of the IT Act. Although the statements recorded during the course of assessment proceedings from the above three creditors are not in favour of the assessee, however, during the remand proceedings, on being asked by the AO, the assessee has produced bills of goods purchased from the six sundry creditors, freight charges paid for purchases, details of freight charges, ledger account of these parties for subsequent assessment years highlighting the payments, etc. It is also pertinent to mention here ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbedded in these purchases can be added to the total income of the assessee. 29. We find, somewhat identical issue had come up before the Hon'ble Bombay High Court in the case of PCIT vs. Jakharia Fabric (P) Ltd., 118 taxmann.com 406. In that case, information was received by the AO to the effect that eight parties from whom purchases were made by the assessee were hawala dealers who had issued bogus bills and the AO treated the aforesaid purchases as bogus purchases and accordingly addition was made to the total income of the assessee. The CIT (A) noted that without purchase of materials, it was not possible for the assessee to complete job work of dyeing and, thus, the entire purchases could not be added as bogus and profit element embedded in such transaction had to be added to the total income of the assessee. Since profit estimation ranged from 12.5% to 25%, the CIT (A) took the view that 17.5% as profit element would meet the ends of justice and he accordingly he directed the AO to estimate the profit at 17.5% of the total alleged bogus purchases and, thereafter, to delete the balance addition. The Tribunal concurred with the said view. On further appeal by the Revenue, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Courts on this issue, I am of the view that estimation of 17.5% of profit would meet the ends of justice. Therefore, I direct the AO to estimate profit of 17.5% on the total alleged bogus purchase which works out to Rs. 20,11,270(17.5% of Rs. 1,14,92,970/-). The appellant get the relief of the balance Rs. 94,81,700/-. The grounds raised are partly Allowed." 13. Thus as can be seen from the above, CIT (A) had relied upon the decision of the Gujarat High Court in Simit P. Sheth (Supra) and took the view that entire purchases from the eight parties could not be added as bogus but what needed to be added to the total income of the assessee was the profit element embedded in such transaction. CIT (A) noted that assessee carried out only the job work of designing the clothes on contract basis; profit estimation ranged from 12.5% to 25%. In the circumstances of the case, CIT(A) took the view that taking of 17.5% as the profit would meet the Priya Soparkar 7 10 itxa 1354-17-o ends of justice. Accordingly, Assessing Officer was directed to estimate profit of 17.5% on the total alleged bogus purchases and thereafter, to delete the balance amount of addition. 14. In further appeal Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... returned a finding of fact that the assessee had filed copies of purchase bills, copies of purchase/ sale invoices, challan cum tax invoices in respect of the purchases, extracts of stock ledger showing entry/exit of the materials purchased, copies of bank statements to show that payment for such purchases were made through regular banking channels, etc., to establish the genuineness of the purchases. Thereafter, Tribunal held that Assessing Officer could not bring on record any material evidence to show that the purchases were bogus. Mere reliance by the Assessing Officer on information obtained from the Sales Tax Department or the statements of two persons made before the Sales Tax Department would not be sufficient to treat the purchases as bogus and thereafter to make addition under Section 69C of the Act. Tribunal has also held that if the Assessing Officer had doubted the genuineness of the purchases, it was incumbent Priya Soparkar 9 10 itxa 1354-17-o upon the Assessing Officer to have caused further enquiries in the matter to ascertain genuineness or otherwise of the transaction and to have given an opportunity to the assessee to examine/cross- examine those two parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In that case Tribunal was of the opinion that the purchases might have been made from bogus parties but the purchases themselves were not bogus. Considering the fact situation, Tribunal was of the opinion that not the entire amount of purchases but the profit margin embedded in such amount would be subjected to tax. Gujarat High Court upheld the finding of the Tribunal. It was held that whether the purchases were bogus or whether the parties from whom such purchases were allegedly made were bogus was essentially a question of fact. When the Tribunal had concluded that the assessee did make the purchase, as a natural corollary not the entire amount covered by such purchase but the profit element embedded therein would be subject to tax. 21. We are in respectful agreement with the view expressed by the Gujarat High Court." 16. On thorough consideration of the matter, we do not find any error or infirmity in the finding returned by the Tribunal. No substantial question of law arises from such finding returned by the Tribunal. Accordingly, the appeal is dismissed. However, there shall be no order as to cost." 30. We find, similar issued had come up before the Hon'ble Delhi High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chase of chemicals for production of products. A search was carried out at the premises of one FHR in which it was found that the said party was running ten concerns which were mainly used for issuing bogus purchase bills and the assessee had also purchased chemicals from one of its concerns. The AO, invoking the provisions of section 69C, made addition to the total income of the assessee on account of bogus purchases. The CIT(A) noted that it was impossible to generate profit ratio of 107.95% and, thus, the assessee had produced goods by utilizing such bulk drugs purchased by it. In the light of the finding of fact, he restricted the addition on account of bogus purchase to 25%. The Tribunal upheld the action fo the CIT(A). On further appeal by the Revenue, the Hon'ble High Court dismissed the appeal of the Revenue by observing as under:- "14. In the light of the rival submissions, the question that arises for consideration is whether the restriction of disallowance in respect of bogus purchases to 25% thereof is justified. 15. As can be seen from the order passed by the Commissioner (Appeals), he, after appreciating the material on record, has recorded a finding of fact to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the prevalent price is fair and reasonable and, accordingly, confirmed the findings of the Commissioner (Appeals). This court concurred with the findings of the Commissioner (Appeals) and the Tribunal and held that the estimate made by the two appellate authorities did not warrant interference as even otherwise, whether the estimate should be at a particular sum or at a different sum, can never be an issue of law. 17. In the facts of the present case, the Tribunal, having concurrently found that there were corresponding sales in respect of the bogus purchases, was wholly justified in confirming the order passed by the Commissioner (Appeals) in restricting the bogus purchases to 25% of the bogus purchases. Since the Tribunal as well as the Commissioner (Appeals), have merely followed the decision of the jurisdictional High Court, no infirmity can be found in the impugned order passed by the Tribunal warranting interference. However, it may be clarified that the quantum of deduction, namely, 25% cannot be said to be a fixed standard, inasmuch as, in the case of Sanjay Oilcake Industries {supra) what the court has held was that the extent of restriction was merely an estimate an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the six creditors which comes to Rs. 48,85,485/- as against the addition of the entire amount payable to the six parties u/s 68 of the IT Act. Thus, the addition is restricted to Rs. 48,85,485/- as against Rs. 3,05,34,283/- made by the AO and sustained by the CIT(A). 33. So far as the decisions relied on by the ld.CIT(A) and the ld. DR are concerned, all those decisions relate to addition u/s 68 of the Act where loans or advances have been obtained by the respective assessees and they could not substantiate with evidence to the satisfaction of the AO regarding the three ingredients of section 68 of the Act. However, in the instant case, there is no such cash loan or advances from the six parties and the amount outstanding against their names represent outstandings payable for purchase of goods. Further such goods have been sold and such sales has been accepted and books of account have not been rejected. Further the payments have been made to them in the subsequent assessment years, a finding given by the AO in the remand proceedings. Therefore, those decisions are distinguishable and not applicable to the facts of the present case. 34. In view of the above discussion, we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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