TMI Blog2021 (11) TMI 998X X X X Extracts X X X X X X X X Extracts X X X X ..... various arguments which were advanced by both the sides being the learned AR and the DR. However, we do not find any reason to entertain the argument of both sides for the reason that the assessee has not made claim of expenditure on account of purchases in its audited financial statement. Thus the ground of appeal of the assessee is allowed. Estimation of income of Bogus purchases - A.Y. 2013-14 - HELD THAT:- The income which has been generated to the assessee out of such bogus transaction of purchase and sales. There is no standard jacket formula to work-out the income from the bogus activity carried out by the assessee. Some element of guesswork is required to determine the income of the assessee which is embedded in the bogus activities carried out by the assessee. It is also pertinent to note that the assessee has already disclosed the income in its income tax return for ₹ 77,07,990.00 which is inclusive of the income earned by the assessee with respect to its bogus purchases. Accordingly, in the interest of justice and fair play, we are inclined to estimate the gross profit at the rate of 8% of such bogus purchases as discussed above. Accordingly, we set aside the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable at all. 4. The appellant craves leave to add, alter, amend any ground of appeal. 3. The interconnected issued raised by the assessee in all the grounds of appeal is that the Ld.CIT(A) erred in confirming addition of ₹ 97,28,955/- being 25% of the bogus purchases and making the addition of ₹ 2,91,86,865/- under the provision of section 40A(3) of the Act. 4. The facts in brief are that the assessee in the present case is a private limited company and engaged in the business of Developing of Commercial Complexes. There was a search operation u/s 132 of the Act carried out at the premises of third party namely M/s Tricon Construction, Ahmedabad dated 05/12/2012. In the course of search it was found that M/s Tricon Construction is obtaining bogus purchase bills for its material consumption. 4.1 The post search investigation further revealed that there were three individuals who were engaged in issuing the bogus bills and M/s. Tricon construction has obtained bogus purchases bills from these individuals. The details of these individuals stands as under. Sr.No. Name Name of Proprietorship co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee for the reasons as detailed below: i. The opportunity of cross examination was extended to the assessee and suppliers two times but on both the occasion none of the party came forward for such cross examination. ii. There was the cash withdrawal from the bank account of the parties upon receiving the payment from the assessee. Thus it seems that the payment shown by the assessee against the purchases was retuned back to it. iii. The assessee against the bogus purchases has shown consumption in the books of accounts which indicates that assessee has purchased materials from unregistered parties in cash and to regularize such purchases the assessee has procured the bogus bills from the parties as discussed above. Accordingly it can be inferred that the assessee has made the purchase against the cash payment from the unregistered parties which is the violation of the provision of section 40A(3) of the Act, therefore such purchases can also not be allowed as deduction u/s 40A(3) of the Act. iv. The assessee has not furnished any documentary evidence to justify that it made purchases on behalf of the principal and it has not debited such purchases in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding of A.O that goods have been received by the appellant although payments have been made to unregistered dealer through cash. It has submitted that entire amount of bogus purchases should not be disallowed and it must be granted deduction of reasonable amount of purchase price since receipt of material by the appellant were supported by stock register. It has relied upon various case laws including that of judgment in the case of Vijay Proteins v/s. ACIT 58 !TD 428. it is a matter of fact that Riya Enterprise, Akshar Enterprises and Vaishvi Traders have not supplied the goods to the appellant. It is a matter of fact that cash was returned back by these three concerns to the appellant. Further, it is also a matter of fact that appellant had received the goods from unregistered persons by making payments in cash. It is a fact that cash payments were made for receipt of goods that have been reflected in the books of account. In the light of above, I am of the considered opinion that relying on the judgment of N.K. Proteins Ltd. and Vijay Proteins etc. wherein Hon'bie Tribunal has held 25% as reasonable rate of profit on purchases made in cash from the unregistered dealers a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties and the bank payment. But the AO disbelieved all the details furnished by the assessee in support of bogus purchases. The reasons for treating the purchases as bogus have already been elaborated in the preceding paragraph. The AO also observed that the assessee has originally purchase the materials from the unregistered parties in cash which is the violation of the provisions of section 40A(3) of the Act. As per the AO, the amount of purchases were also to be disallowed on account of the violation of the provisions of section 40A(3) of the Act. As such the AO has made the disallowance of the entire purchases amounting to ₹ 3,89,15,820/- and added to the total income of the assessee. However, the learned CIT (A) was of the view that the entire purchases shown by the assessee cannot be disallowed as the assessee has shown sales against such purchases. Accordingly, he held that the amount of profit embedded in such purchases should only be brought to tax. Consequently, the learned CIT (A) restricted the disallowance to the extent of 25% of the purchases amounting to ₹ 97,28,955/-. Nevertheless, the learned CIT (A) treated the balance amount of purchases amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook where the assessee has shown purchases amounting to ₹ 8,69,58,323/- only. This purchase ledger shows that the entire amount of purchases has been transferred to the account of the principal being M/s Kailashpati Property Holders Pvt. Ltd. The relevant extract of the purchase ledger as on 31 March 2013 is reproduced as under: Brought Forward 8,35,84,962.00 23-3-2013 To Shree Datt Glass Purchase 84 3,450.00 25-3-2013 To Shreeji marketing(hardware Saman) Purchase 502 23,387.00 To Arasuri Enterprise Purchase 379 6,61,500.00 26-3-2013 To Mahavir Sales corporation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e succeeds in its appeal. 9.6 At the time of hearing, there were various arguments which were advanced by both the sides being the learned AR and the DR. However, we do not find any reason to entertain the argument of both sides for the reason that the assessee has not made claim of expenditure on account of purchases in its audited financial statement. Thus the ground of appeal of the assessee is allowed. 9.7 In the result, the ground of appeal of the assesse is allowed. Coming to the ITA No.1106/Ahd/2018 for A.Y. 2013-14 in the case of Rachna Organisers Pvt. Ltd. 10. The assessee has raised the followings grounds of appeal: 1. That on facts and in law, the learned CIT(A) has grievously erred in confirming the addition in respect of purchases held to be bogus, without providing the adverse material/statements relied upon, and also without providing an opportunity to cross-examine the concerned deponents. 2. That the learned CIT(A) has grievously erred in law, and on facts, in confirming the addition of ₹ 58,77,413 being 25% profit of the alleged bogus purchases to the tune of ₹ 2,35,09,655/- 3. That the learned CIT9A) has grievou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of purchases were to be disallowed on 2 accounts. Firstly the amount of purchases being bogus in nature and secondly against the provisions of section 40A(3) of the Act. Thus the amount of disallowance of ₹ 4,94,21,418/- was made by the AO by adding to the total income of the assessee. 15. Aggrieved assessee preferred an appeal to the learned CIT (A) who was pleased to hold that entire purchases shown by the assessee cannot be disallowed as the assessee has shown sales against such purchases. Accordingly, he held that the amount of profit embedded in such purchases should only be brought to tax. Consequently, the learned CIT (A) restricted the disallowance to the extent of 25% of the purchases amounting to ₹ 1,23,55,355/- only. Nevertheless, the learned CIT (A) treated the balance amount of purchases amounting to ₹ 3,70,66,063/- in cash which is the violation of the provisions of section 40A(3) of the Act. Thus, the learned CIT (A) made the disallowance of ₹ 3,70,66,063/- under the provisions of section 40A(3) of the Act. 16. Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us. 17. The learned AR before u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19.1 Now we proceed to analyze the facts furnished by the assessee in support of its transaction of purchases and the allegations framed by the AO against the purchases shown by the assessee. Admittedly, the suppliers have furnished their statement under section 131 of the Act in a proceeding connected to a 3rd party which has no relation either directly or indirectly with the assessee. But it is a piece of information which is very vital. It is because the entire basis of treating the purchases shown by the assessee from these parties was based on such statements. However, the assessee was afforded the opportunity for the cross verification 2 times but it failed to avail the same. Non-availing the opportunity of cross-examination goes against the assessee. At the time of hearing, the learned AR has also not brought anything on record contrary to the finding of the authorities below. Besides this, the observation of the AO that there was immediate cash withdrawal from the bank account of the suppliers after receiving the payment from the assessee is also very alarming. In a situation where the party is actually carrying on the business, he will not withdraw the money immediately. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchases made through non-genuine parties. No question of law in such estimation would arise. The estimation of rate of profit return must necessarily vary with the nature of business and no uniform yardstick can be adopted. 19.4 We also draw support and guidance from the judgment of Hon ble Gujarat High Court in case of Vijay Trading Co. vs. ITO reported in 76 taxmann.com 366, where the Hon ble court held as under: we are of the opinion that the Assessing Officer's action in treating the purchases as bogus and adding the entire cost of purchases in the assessment ought not to have been restored by the Tribunal. The view taken by the Tribunal in the case of Vijay Proteins Ltd. v. CIT [1996] 58 ITD 428 (Ahd.) has been approved. In that view of the matter, keeping in mind the fact that not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax, 19.5 In the light of the above stated discussion, now it has to be seen the income which has been generated to the assessee out of such bogus transaction of purchase and sales. There is no standard jacket formula to work-out the income from the bogus activity carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed or the assessee should have been held to be eligible for grant of deduction of a reasonable amount of purchase price of the oil cakes in question in view of the fact that receipts of the materials in question by the assessee were supported by various registers and books of account maintained by the assessee, which the Revenue has not disputed. The Revenue has also not disputed the genuineness of said documents. 14. On the basis of the entries recorded in the books of account of the assessee, the provisions of Section 40A(3) of the Act would not be applicable as such payments were shown to have been made by crossed cheques . If these entries are ignored, the books of account stand rejected u/s.145(2) and then the income will have to be estimated on the basis of best judgment. 15. It is by now well settled that in order to decide as to whether a particular payment for expenditure would be covered under the exceptions provided in Rule 6DD(j) or not will depend on the peculiar facts and circumstances of each case. In the present case, for reasons recorded herein above, the provisions of Section 40A(3) would not be applicable and even if they are held to be applica ..... X X X X Extracts X X X X X X X X Extracts X X X X
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