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TMI Blog2017 (11) TMI 1941X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact that the payment was made through cross account payee cheque and the same goods were subsequently sold and quantity is tallied. 2. Your appellant craves leave to allow to add/alter/amend/withdraw any ground of appeal. 4. The brief facts of the case are that the assessee filed his return of income on 14.10.2010 declaring total income to the tune of Rs. 9,98,823/-. The return was processed u/s 143(1) of the I.T. Act, 1961. The case was selected for scrutiny, therefore, the notice u/s 143(2) of the Act dated 02.08.2011 was issued and served upon the assessee. Subsequently, the notice u/s 142(1) of the Act dated 01.06.2012 along with questionnaire was also issued and served upon the assessee on 08.06.2012. The assessee is a proprietor of firm M/s Phinolek Steel & Engineering Co. and M/s. United Metal Industries both of which were trading in Ferrous and Non-Ferrous metals. Under the year of assessment, the assessee earned gross-profit of 5.47% and net profit of 0.86% on a turnover of Rs. 7,55,93,096/- in the case of M/s Phinolek Steel & Engineering Co. as compared to gross profit of 7.38% and net profit of Rs. 1076% earned last year. In the case of M/s United Metal Industries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be Trading, M/s Chanchal Tube Corporation, M/s Asian Steel and M/s Suraj Tube Corporation. The Assessing Officer examined the purchase of these parties and issued the notices u/s 133(6) of the Act but the parties were not traceable. Thereafter, the notice was given to the assessee to prove the genuineness of the transaction but the assessee failed to do same. Therefore, the assessing Officer took the peak credit of both the firms to the tune of Rs. 1,63,35,816/- u/s 69C of the Act and added to the income of Assessee. The Ld. Representative of the assessee has argued that the books of account have not been rejected by Assessing Officer, therefore, the purchase was genuine specifically in the circumstances, when the sale was not doubted, therefore, the addition confirmed by CIT(A) is not justifiable and is liable to be set aside. However, on the other hand, the Ld. Representative of the Department has refuted the said contention and argued that when the purchase is totally bogus, therefore, all the purchases are liable to be added to the income of the assessee in accordance with law. Before going further it is necessary to advert the finding of the CIT(A) on record.:- "AO was not r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, before them, they were prevented from doing so. It was further held by the Hon'ble Apex Court that all the Section 110 of the Evidence Act, 1872 did, was to embody a salutary principle of common law jurisprudence viz, where a person was found in possesson of anything, the onus of proving that he was not its owner, was on that person Thus, this- principle could be attracted to a set of circumstances that its conditions and was applicable to taxing proceedings. 5.7 The Ld. AR in his submissions has relied on a number of decisions at High Court Tribunal including those in the case of Nikunj Eximp in 1TA No. 5604 of 2010 to suggest that no addition-coult be made on account of disallowance of bogus purchases. 5.8 Having gone through the above case laws they are distintitshab1e from this case becau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and circumstances in the present case are clearly distinguishable from the cited cases. 510 Hon'ble Allahabad High Court while dealing with the issue of bogus purchase in the case of Sri Ganesh Rice Mills vs. Commissioner of Income-tax [2007] 294 JTR 316 (ALL.), held as under: 'Where Assess/ag Officer had recorded a finding that in order to lower profits, bogus purchases had been introduced and Tribunal upheld such finding, addition on account of disallowance of such purchases was justified [Assessment year 1984-85] The assessee was engaged in the production of grain, pulses, rice etc. The Assessing Officer treated five purchases as bogus. That was done after making enquiries wherein he. found that the p3rt7es mentioned at item, Nos. 4 and 5 never existed He therefore, made addition. The Tribunal also held that the purchases were bogus. Held that it was not the case of the assessee that he was a trader. On the other hand, the assessee was a manufacturer and in manufacturing process, chuni-bhusi also got manufactured as a by product. It was not the case of the assessee that it had made the purchases of chuni-bhusi from other persons also. The Assessing Officer had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d authorised representative that s//ice the said amount of purchases has been added in the hands of 5kM Mahesh Toshniwal, no addition can be made in the hands of the assessee-company, it is a settled law that the tax has to be levied on the real person. Under these circumstances and keeping in view the decision of the hon'ble Delhi /-1,'h Court as relied on by the learned Departmental representative in the case of CIT v La Med/ca [2001] 250 ITR 57, 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 anc. accordingly, the Commissioner of Income-tax (Appeals) was not justified in deleting the add/don of Rs. 4,37,048, which is directed to be reversed, and added in the me of the assessee-company. Consequently, the a mad by the Assessing Officer amounting to Rs. 4,3,7,048 is upheld. The by the Revenue; is therefore, allowed" 9 The Tribunal, thus, by its order dated June 10, 2002, set as the Commissioner of India the addition of Rs. 4,37,048/n the hands of the done by the Assessing Officer. 10. In so far as the addition of Ps. 4,37,048 in the hands appellant company Is concerne4e are sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee have been actually received by the, apparent sellers. Hence, the estimate made by the two appellate authentic 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. 5.14 In Bholanath Polyfab Pvt. Ltd. 355 ITR 290 (Guj), the facts of the case were that the assessee was engaged in the business of trading in finished 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 If 41,10,187f. The Issue was carried in appeal by the assessee before the Id. 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 assesses 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal No, 679 of 2010 in the case of CIT vs. Kishor Amrutlal Pate in the result, tax appeal is dismissed': 5.16 In the present case, the Ld. AO has shown that the parties in question were non-existent. The appellant has not been able to disprove the findings of the Ld. ro9 the non-existence of the parties. However, the Ld. AO after examining the evidences did not disturb the sales and the income on such sale of goods Ld. AO has not disturbed the quantitative details of the stock. Ld. A.O. not having doubted the genuineness of sales, could not have gone ahead and made addition in respect of the total amount debited towards such purchases. Without disturbing the quantitative details and sales, the issue would boil down to finding out the dement of profit embedded in bogus purchases which the appellant would have made from some respectfully following the decision of the High Court In.11141161anath Polyfab Pvt. Ltd. (supra), It is conducted that the profit margin embedded in such amounts of purchases could only be disallowed subjected to tax. 5.17 Having decided that the profit margin only to be subjected to tax, now we have to see what is the percentage to be adopted for taxing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of accounts through fictitious invoices. 5.19 Further, 1n the case of M/s. Sanket Steel Traders (1TA No.2801/Ahd/ 2008 dated 20.05-2011 it was, inter-alia, stated as under: '3. At the time of hearing before us, it Ld. submitted by the Learned Counsel that the addition sustained is referred in support of this contention he referred to the decision of the Tribunal in the case of ITO vs Sun Steel 92 777 (A/id) 1126 wherein the Tribunal has seemed the addition of ?50,0001- on account of bogus purchases. However, we find that the fact in the above case were different. In the above case the assessee has shown purchases of ?27,39,4101-, safe of r 28,17,2071- and Gross Profit at 947401-. The Assess/rig Officer made the addition of 27,39,407/- for bogus purchases. If the above sum is added to the Gross Profit, the Gross Profit works out 2,83,41,24,71- which was more than the sale itself, The Tribunal held that it is impossible that the Gross Profit is more than the sale itself The Tribunal also found that the assessee has maintained the quantitative details in respect of materials purchased and sold. Considering peculiar 43ct5 of that case, the Tribunal arrived at the cOflClU5fofl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ix parties as the profit element embedded in such purchases. Accordingly, the ground of appeal is partly allowed. 5.21 During the present proceedings, in the submissions dated 20/11/2015, the appellant along with other arguments also put that, without prejudice to the above if at all the said purchases are treated as bogus then the appellant pray that the income should be applied to the extent of profit embedded in the transaction only and not the full amount of purchase because the goods were procured and quantity is tallied and the GP declared by the appellant be deducted. In para 23 of the same submissions it is stated that the assessee has disclosed gross profit of 5.470/0 on a turnover of turnover Rs. 7,55,93,096/- in the case of M/s Phinolek Steel & Engg. Co and 5.47% on 2,33,24,034 in the case of M/s United sales in the first year of function. In the submissions dated 20-11-15 vide para- 23, the Learned Counsel of the appellant requested to consider deduction of the profit percentage already declared in the return of income on such purchases, in case estimation of profit is considered on the bogus purchases. The request of the appellant is considered and the ratio followed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edy against mere initiation of penalty proceedings u/s. 246k of the LT. Act. However, the appellant shall be at liberty to approach this office in case such penalty is imposed by the AO in future For the statistical purpose, to be dismissed grounds of appeal. 8. Ground No 9 of the appeal says that the appellant says that the appellant craves leave to add, alter, classify, reclassify, delete or modify any of the above grounds of appeal and requests to consider each of the above grounds without prejudice to one another. No such option has been exercised by the appellant during the appellate proceedings and all the grounds are considered as requested by the appellant Therefore, it is clear that this ground of appeal is academic in nature and no decision is required in respect of this ground of appeal. For the statistical purpose, this should be taken to be dismissed ground of appeal." 6. On appraisal of the above said finding, we noticed that the assessee nowhere produced any evidence in support of his claim, therefore, the CIT(A) has passed the order on the basis of decision Hon'ble Gujarat High Court in the case of CIT Vs. Simit Sheth (2013) 38 Taxmann.com 385 (Guj) . The Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X
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