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TMI Blog2021 (5) TMI 297X X X X Extracts X X X X X X X X Extracts X X X X ..... olwati Devi (2009) 314 ITR AT1 (Delhi) wherein the Hon tie Tribunal has hold that despite the documentation supporting the claim of the assessee superficially, the evidence could not be accepted in view of the surrounding circumstances and human probabilities? 2. "Whether on the facts and in the circumstances of the case and in law, was Ld. CIT(A) justified in restricting the suppressed profit to the extent of 12.5% of the purchases made from the bogus entities, without appreciating the fact that, during the course of assessment proceedings patties claimed to the ones the assessee made purchases from were never proven genuine during the course of assessment proceedings?" 3. "Whether on the facts and circumstances of the case and in law, was the Ld. Cl T(A) justified in allowing bogus purchases at 12.5% of the value of the aggregate purchases claimed by the assessee ignoring the decision of Hon tie Supreme Court dated 16/01/2017 in the case of NK Proteins Ltd. Vs. DCIT (2017-TIOL-23-SC-IT)?" 4. 'Whether on the facts and circumstances of the case and in law, was the Ld. CIT(A) justified in restricting the suppressed profit to the extent of 12.5% of the purchases made from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carefully gone through the assessment order, submission of the AR of the appellant and the facts of the case. The Ld. AO made the addition: on the basis of information received from the Sales Tax Authorities. The Sales Tax (VAT) department, State of Maharashtra had recorded the statements of certain hawala operators who have confirmed to have given bogus bills to certain assessees including the appellant company. The appellant company was asked to submit the details of purported purchases made from these parties and a show cause was issued asking the appellant why the same should not be disallowed as bogus purchases. The appellant had filed their reply stating that purchases were made from regular parties supported by proper bills and the accounting entries. The payments were made by account payee cheques The Ld. AO was not m agreement with the submissions of the appellant and observed that the appellant failed to furnish the supporting documentary evidence to support that the purchases were actually made by them. The Investigation Wing of Mumbai had provided a list of hawala bill racketeers who were involved in issuing bills and also the list of beneficiaries. The Sales Tax D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prove that it is within the taxing provision and if a receipt is in the nature of income, the burden to prove that it is not taxable because it falls within exemption provided by the Act, lies upon the assessee. In the case of durgaprasad More (Supra), the Hon‟ble Court went on to add that a party who relies on a recital in a Deed has to establish the truth of this recital, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party who relied on those recitals. If all that an assessee who wants to evade tax has to have some recitals made in a document either executed by him or executed in his favor then the door will be left wide open to evade tax. The Hon‟ble Court further held that the Taxing Authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look in to the surrounding circumstances to find out the reality of the recitals made in those documents. 5.2.4 In yet another case of casting of onus viz. Jamnaprasad Kanhaiyalal Vs. CIT 130 ITR 244(SC), Hon‟ble Apex Court while considering the scope of immunity u/s. 24 of F. No.(2) Act 1965 held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been held by the Apex Court that though an apparent statement must be considered real until it was shown that there were reasons to believe that apparent was not the real, in a case where an authority relied on self serving recitals in documents, it was for the party to establish the proof of those recitals; the taxing authorities were entitled to look into the surrounding circumstances to find out reality of such recitals. 5.2.7 It is also a settled legal proposition that if no evidence is given by the party on whom the burden is cast, the issue must be found against him. Therefore, onus is always on a person who asserts a proposition or fact, which is not self evident. The onus, as a determining factor of the whole case can only arise if the Tribunal, which is vested with the authority to determine, finally all questions of fact, finds the evidence pro & con, so evenly balanced that it can come to no conclusion, then, the onus will determine the matter, Needless to say that the onus is heavy or light, depending on the facts and circumstances of each case. There cannot be any doubt that onus as a determining factor comes into play where, either there is no evidence on either si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avit was filed stating that only bogus bills were supplied without delivery of gods. Further, no vehicle numbers have been given in so far as delivery of the purchases are concerned and therefore, it is certain that no such purchases were actually made from the parties from whom bills were, procured and hence, no delivery could have been made by them. 5.2.11 In the case before the Hon‟ble Bombay High Court in NikunjExim, {supra}, the suppliers had not appeared before the Assessing Officer ang from the judgment it appears that it was not a case of the suppliers being non-existent. However, in the present case in appeal, the alleged suppliers have been found to be non-existent. This is not merely a case where the supplier has failed to appear before the Assessing Officer. Hence, the judgment of the Hon‟ble Bombay High Court would also be of no help to it. 5.2.12 Further, assessee also rely on the decision of Hon‟ble ITAT Mumbai Bench in the case of Rajeev G. Kalathil in ITA Nos. 6727/Mum/2012 and CO No. 06/Mum/2014 where vide order dated 20-08-2014, the addition made on account of bogus purchases were deleted. However, I find that the finding of the Hon‟ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position of law, it could not be said to have caused prejudice to assessee - Held, yes - Whether when a transaction is sham and not genuine as in instant case, then it could not be considered to be a part of tax planning or legitimate avoidance of tax lability - Held, yes - Whether further since issues in instant case were purely questions of facts on which there were concurrent findings of authorities below, it was to be held that there was no question of law to be considered - Held, yes [In favour of revenue]. 14. So far as the principle laid down in the matter of Omar Salay Mohamed Sait (supra) is concerned there can be no dispute about the proposition laid down therein. However, we have not been shown how the Tribunal was in breach of the same. We find that the Tribunal has considered the evidence of purchase and sale of shares to book long term and short term losses and taking all the evidence together including the surrounding circumstances reached a finding that the purchase and sale of shares is not genuine. So far as the decision of the Supreme Court in Vodafone International Holdings B.V. v. Union of India [2012] 204 Taxman 408 / 17 taxmann.com_202 is concerned, the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alleged that without bringing said case to notice of parties, revenue had caused prejudice to its case; all in violation of principles of natural justice and of rule 11 - Whether since decision of Supreme Court in SumatiDayal case (supra) was cited by Tribunal only for purpose of reiterating well settled and established position of law, it could not be said to have caused prejudice to assessee - Held, yes - Whether when a transaction is sham and not genuine as in instant case, then it could not be considered to be a part of tax planning or legitimate avoidance of tax lability - Held, yes - Whether further since issues in instant case were purely questions of facts on which there were concurrent findings of authorities below, it was to be held that there was no question of law to be considered - Held, yes [In favour of revenue]. 14. So far as the principle laid down in the matter of Omar Salay Mohamed Sait (supra) is concerned there can be no dispute about the proposition laid down therein. However we have not been shown how the Tribunal was in breach of the same. We find that the Tribunal has considered the evidence of purchase and sale of shares to book long term and short term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtent only. 8. Let us assume that the impugned purchases in this case are bogus what can be the causes and effects? Either corresponding bogus sales have to be accounted for, or, the closing stock to that extent have to be increased. But if either is done, the very purpose of entering bogus' purchases is defeated. What can be the purpose to enter a bogus purchase in the books, obviously to show lesser profit than actually earned. This in turn could be to bring the gross profit rate to near about the earlier years‟ performance in order to avoid a deeper probe by the taxing authorities and/or to avoid paying higher taxes. Thus, when once bogus purchase is entered in the books without a corresponding sales or increase in stocks, the obvious result would be lowering of g.p. rate. If these bogus purchases are removed, the g.p. rate would automatically go up. Under the assumption that the purchases are bogus, one situation visualized is that there are no corresponding sales, then addition at what rate can be more justifiable than by the bogus purchase itself ? 9. Likewise, there can be another situation also. The purchase may be bogus and correspondingly there may be a bogu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.2.16 Further, in Deoria Oxygen Company v. Commissioner of Income tax [2007] 160 TAXMAN 427 (ALL.), it was observed and held as under: "40. This leaves us to the question as to whether the Tribunal should have given due regard to the legitimate outgoings in the form of the entire purchases of gas cylinders or not. The principle regarding making of a best judgment assessment has been well settled by the Apex Court in the case of Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 wherein the Apex Court has held as follows : "As regards the second contention, we are in entire agreement with the learned Solicitor-General when he says that the Income-tax Officer is not fettered by technical rules of evidence and pleadings, and that, he is entitled to act on material which may not be accepted as evidence in a court of law, but there the agreement ends; because it is equally clear that in making the assessment under sub-section (3) of section 23 of the Act, the Income-tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he plea of the learned authorised representative that since the said amount of purchases has been added in the hands of Shri 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 High Court as relied on by the learned Departmental representative in the case of CIT v. La Medica [2001] 250 ITR 575, 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 and, accordingly, the Commissioner of Income-tax (Appeals) was not justified in deleting the addition of Rs. 1,37,048, which is directed to be reversed and added in the income of the assessee-company. Consequently, the addition made by the Assessing Officer amounting to Rs. 4,37,048 is upheld. The ground taken by the Revenue, is therefore, allowed." 9.The Tribunal, thus, by its order dated June 10, 2002, set aside the order of the Commissioner of Income-tax (Appeals) and restored the addition of Rs. 4,37,048 in the hands of the appellant-company as was done by the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nduit between the assessee-firm and the actual sellers of the raw materials. Both the Commissioner (Appeals) and the Tribunal have, therefore, come to the conclusion that in such circumstances, the likelihood of the purchase price being inflated cannot be ruled out and there is no material to dislodge such finding. The issue is not whether the purchase price reflected in the books of account matches the purchase price stated to have been paid to other persons. The issue is whether the purchase price paid by the assessee is reflected as receipts by the recipients. The assessee has, by set of evidence available on record, made it possible for the recipients not being traceable for the purpose of inquiry as to whether the payments made by the assessee have been actually received by the apparent sellers. Hence, the estimate made by the two appellate authorities 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." 5.2.20 In the case of Assistant Commissioner of Income-tax Tribhovandas Bhimji Zaveri [2000] 74 ITD 92 (MUM.), Hon‟ble Mumbai Bench of ITAT while dealing with the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examination, in T. Devasahaya Nadar v. CIT [1964] 51 ITR 20 (Mad.), it was held: 'It cannot be laid down as a general proposition of law that the Income-tax Department cannot rely upon any evidence which has not been subjected to cross-examination. An ITO occupies the position of a quasi-judicial Tribunal and is not bound by the rules of the Evidence Act, but he must act in consonance with natural justice, and one such rule is that he should not use any material against an assessee without giving the assessee an opportunity to meet it. He is not bound to divulge the source of his information. There is no denial of natural justice if the ITO refuses to produce an informant for cross-examination though if a witness is examined in the presence of the assessee, the assessee must be allowed to cross-examine him. The range of natural justice is wide and whether or not there has been violation of natural justice would depend on the facts and circumstances of the case." 5.2.22 The Supreme Court had also an occasion to consider the applicability of the principles of natural justice in R.S. Dass v. Union of India AIR 1967 SC 593. Referring to the same, the Supreme Court in Chairman, Boar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieve from opposite end." 5.2.25 In BholanathPolyfab 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 Rs. 40,69,546/were unexplained. He, therefore, disallowed such expenditure claimed by the assessee and computed the total income of Rs. 41,10,187/-. The issue was carried in appeal by the assessee before the Ld. CIT(A) who rejected the appeal, upon which the assessee went in further M/s. Samanta Urygunsen - - u/s. 143(3) r.w.a. 147 A.Y.2009-10 appeal before the Hon‟ble Tribunal. The Hon‟ble Tribunal substantially allowed the assessee‟s 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 notices were returned unserved by the postal authorities with the remark that the address was incomplete. The Inspector deputed by the Income-tax Department also co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, tax appeal is dismissed". 5.2.27 In the present case, the Ld. AO has shown that the party in question was non-existent. The appellant has not been able to disprove the findings of the Ld. AO regarding the non-existence of the party. However, Ld. AO after examining the evidences did not give any adverse finding that the appellant had not shown consumption/sales of the goods and that it had not offered the income on such sale of goods. In this case, Ld. A.O. not having doubted the genuineness of sales could not have gone ahead and made addition in respect of the entire purchases as it would lead to absurd profits. Thus. the issue would boil down to finding out-the element of suppressed profit embedded in purchases which the appellant would have made from some unknown or bogus entities. Hence, following the decision of the Hon‟ble Gujarat High Court in BholanathPolyfab Pvt. Ltd. (supra), the estimated suppressed profit margin embedded in such amounts of purchases could only be disallowed and subjected to tax. 5.2.28 Similarly, in yet another decision of Hon‟ble Gujarat High Court in the case of CIT vs. Simit Sheth (2013) 38 Taxmann.com 385 (Guj), Hon'ble Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the parties from which the purchases were made by the appellant were found to be and that is the reason for which it was not produced during the motive behind obtaining bogus bills thus, appears to be inflation of purchase price so as to suppress true profits. Considering the facts of the case as well as various case laws cited (supra), I estimate the suppressed profit to the 12.5% of the purchases made from the bogus entities, as the Suppressed profit element embedded in such purchases. This estimation is in addition to the GP shown by the appellant. Accordingly, this ground of appeal is partly allowed. 5.2.31 In the result. Ground No. 1 is partly allowed." 6. On appraisal of the above mentioned finding, we noticed that the CIT(A) has allowed the claim of the assessee on the basis of decision of Hon'ble Bombay High Court Nikunj Eximp in ITA. No.5604 of 2010 and Balaji Textile 49 ITD 177 (Bom) and Bholanath Polyfab Pvt. Ltd. 355 ITR 290 (Guj). In the instant case, sale is not doubted, therefore, the CIT(A) has restricted the addition to the extent of 12.5% of the total bogus purchase in sum of Rs. 13,05,599/-. The facts are not distinguishable at this stage. Taking into accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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