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TMI Blog2022 (9) TMI 827X X X X Extracts X X X X X X X X Extracts X X X X ..... "(i) Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in directing the AO to apply GP@ 6% on total turnover whereas the AO had disallowed 25% of bogus purchase. (ii) Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in directing the AO to charge commission @ 6% on restricted addition only, whereas commission @6% had been charged on bogus purchase disallowed by the AO. (iii) Whether CIT(A) was justified in law in ignoring the fact that the assessee has failed to discharge its burden to establish the genuineness of the alleged purchase claimed to have made in its books of account. (iv) "Whether CIT(A) was justified in law in ignoring the enquiring conducted by the investigation wing and proving that the assessee was indulging in bogus purchase. (v) "The appellant craves its rights to add, amend or alter any of the grounds on or before the hearing." 4. Assessee in ITA no. 122/JPR/2022 for the year under consideration has raised following grounds of appeal: "1 The Learned CIT(A) has erred in sustaining the addition of Rs. 11476762/- on account of gross profit by apply GP Rate of 6% against 4.91% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in bogus purchases for the year under consideration from some bogus entities. As per the information, an inquiry was conducted by the ADIT (Investigation)(Hq-2), New Delhi wherein, it was observed that the assessee has shown purchases found from M/s. Unnati Alloys Private Limited and obtained bogus entry in the form of bogus purchases amounting to Rs. 21,05,94,215/- during the year under consideration. Based on these facts, information u/s. 133(6) of the Act was called from M/s. Unnati Alloys Private Limited to check the veracity of claim of purchase of the assessee. The AO has called for following information; (i) Copy of confirmations of account with M/s. Kandoi Metal Powders Manufacturing Company Private Limited duly certified in their books for FY 2011-12. (ii) Copy of detailed descriptions of the source from where the funds have been received including the Name, PAN and postal address of the source and proof of creditworthiness of the source for AY 2012-13. (iii) Copy of Bank account statement showing receipts of payment against sale of goods to the above party for F. Y. 2011-12. (iv) Copy of sales vouchers. 8. The above entity has not provided any information excep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me group of entities in similar trend. Movement of funds among the group accounts pointed to the suspicion that the proceeds might not actually pertain to the business activities. All these entities have offered very low income as compared to very high turnover and even the director of these companies have offered very low income. It is also observed that the summons were issued and the letter were sent but no satisfactory replies were received. The ld. AO further observed that two biggest intermediary entities which transferred funds to Mroal Alloys Private Limited during the FY 2011-12 were Unnati Alloys Private Limited and Misawa Impex Private Limited, their bank account statements were analysed and it was seen that almost all fund credited in the bank account was transferred further to other entities on the same day and accounts are left with minimal balance which strengthens the fact that this is layering of funds through various accounts. 10. Based on the above back ground ld. AO held that Major entities which transferred to Unnati Alloys Private Limited (i.e. Purchases claimed by them from Unnati Alloys Private Limited or credits extended by them to Unnati Alloys Private Li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnover in the year under consideration than the previous years. It is observed that in the subsequent years the appellant has declared consistently higher GP. Thus, in such a case, once the provisions of section 145 were invoked, the best course of action would be to apply GP ratio and confirm certain percentage of sales to cover any leakage of revenue. Therefore, the AO is directed to apply a GP rate of 6% on the total turnover of Rs. 1,05,29,10,586/ to cover any possible leakage of revenue on account of bogus purchases which works out to Rs. 6,31,74,635/-. Since the appellant has already declared Rs. 5,16,97,909/- as the GP for the year under consideration, therefore addition to the extent of Rs. 1,14,76,726/- is sustained and the appellant gets a relief of Rs. 4,11,71,827/-. As regards the second addition he has based on the reduction in GP rate relief also granted relief on account of alleged commission from Rs. 31,58,913/- to 6,88,603/-. 13. As the assessee and revenue both not finding favour in full from the order of the ld. CIT(A), both have preferred separate appeals before us for the same assessment year and against the very same order of the ld. CIT(A). 14. The ld. AO i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .) Indian Woollen Carpet Factory Vs. Income-tax Appellate Tribunal. * [2018] 99 taxmann.com 47 (SC) (09-12-2014) Commissioner of Income-tax Vs. Clarity Gold (P.) Ltd. * [1997] 92 TAXMAN 356 (RAJ.) Commissioner of Income-tax Vs. Golcha Properties (P.) LTD. 16. The assessee has also challenged the order of the ld CIT(A) in confirming an addition of Rs.1,14,76,726/- and sustaining commission @ 6 % on this sustained addition of Rs. 1,14,76,726/- for an amount of Rs. 6,88,603/-. The ld. AR of the assessee has submitted following written submission against the grounds raised by the assessee: "The case of the assessee was reopened on the basis of information received from ADIT (Investigation) Head Quarter-2, New Delhi on 28/03/2019 regarding purchases of raw material of Rs. 21,05,94,215/- from M/s Unnati Alloys Pvt Ltd which is not a genuine supplier. During the assessment proceedings the assessee submitted all the possible evidences regarding genuiness of the purchases which are placed from paper book page no. 39 to 213. But the learned AO did not accept the evidences filed by the assessee and made the addition on account of bogus purchases @ 25% of total alleged bogus purchases o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee having been filed letters of confirmation of suppliers, copies of bank statement showing entries of payment through Account Payee cheques to the suppliers, copies of invoices for purchases and stock statement i.e. stock reconciliation Statement giving complete details with regard to opening stock, purchases, sales and closing stock and no fault with regard to it being found & the books of accounts not being rejected & the sales not being doubted - the purchases cannot be treated as bogus & be disallowed merely because the suppliers have not appeared before the Assessing Officer or the CIT(A) on the basis of suspicion & merely on the basis of 1 of the parties categorically being denying in having business dealings with the assessee company, one cannot conclude that the purchases were not made by the respondent assessee, when there are material on record to prove otherwise. (ii) CIT v. Adinath Industries (2001) 252 ITR 476(Guj.) (SLP dismissed) (2001) 247 ITR (St)35 AO issued notice on ground that purchase made by assessee were bogus. Duty of authorities to make necessary inquiry before arriving at conclusion. Court held that the AO could have unearthed the fact that seller wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debit of the amount paid through Account payee Cheques to them in the account of assessee and credited in the Bank Account of sellers, had discharged its primary onus, thereafter the onus shifted on the department to rebut the same. 4. Copy of documents which have been relied upon were not provided to the assessee - In the assessment order the learned AO has mentioned that she relied upon certain documents to reach on the conclusion that the transaction with M/s Unnati Alloys are not genuine which are as under: - (i) Copy of bank account of M/s Moral Alloys Pvt Ltd for the financial year 2011-12 to 2014-15. (ii) Transaction between Moral Alloys Pvt Ltd and Unnati Alloys. (iii) M/s Moral Alloys and Unnati Alloys has shown low income in comparison to turnover. (iv) There are inflow and outflow of equivalent amount in the bank account of M/s Moral Alloys and Unnati Alloys and after every withdrawal the account was left with Minimum Balance. (v) Notice was issued to Unnati Alloys u/s 133(6) of the Income Tax Act, 1961 and no reply was received by the department. (a) That Learned Assessing Officer has mentioned the above reasons for treating the purchase as non genuine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) Vasantlal & Co. (C) Vs. CIT (1962) 45 ITR 206 (SC) Where the Assessing Officer relies on the statement of a witness, or evidence allegedly given or a copy of accounts allegedly produced before some other authority by the assessee, the assessee be given, if he requires it and the circumstances warrant it, an opportunity to cross-examine the witness or official. (iv) In the following it was held that the Assessing Officer can make enquiries to gather material privately and confidentially. He can also summon witnesses and record their statement in the presence of the assessee or even behind his back. However the substance of any information sought to be used against the assessee, should be put to him and he should have fare opportunity. It is upto the assessee to avail of it, consistent with the principal of natural justice, to rebut the same. (a) Chiranji Lal Steel Rolling Mills Vs. CIT 84 ITR 222 (P&H) (b) Namasivayam Chettiar (S.N.) Vs. CIT (1960) 38 ITR 579 (SC) (c) Abdul Razak Vs. CIT (1935) 3 ITR 361 (Pat) (d) Balasubramanian (P.N.) Vs. ITO (1978) 112 ITR 512 (AP) (e) Bagsu Devi Bafna Vs. CIT (1966) 62 ITR 506 (Cal) (f) Cashmir Vastralaya Vs. CIT (1978) 112 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chases are bogus. Payments were made through proper banking channel. There is a possibility that sometimes after a gap of 1/2 years the party may not be available at the address given or that they did not bother to reply the summons issued by the Department. Otherwise, all other details along with purchases and sales vouchers, day-to-day stock register etc., were maintained by the assessee and they were not found incorrect. It is also a matter of fact that sales made against those purchases have been accepted by the AO himself. Therefore, in our considered view rejection of books of account were not justified. Accordingly, we allow this ground of the assessee. (ii) COMMISSIONER OF INCOME TAX vs. JACKSONS HOUSE (2010) 39 DTR (Del) 212 : (2011) 198 TAXMAN 385 As noted by the CIT(A) as well as by the Tribunal, the AO has not pointed out any specific defect or discrepancy in the accounts books maintained by the assessee. The accounts books, admittedly, were produced before the AO for his consideration. This is also not the finding of the AO that the accounts of the assessee were not complete. As regards the assessee not maintaining stock register in the form expected by the AO, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter and also better than a disclosed in the line of trade. Therefore, considering the G.P. rate of the current year as reasonable the addition made by the learned assessing officer deserves to be deleted. It is further submitted that once the trading results are accepted there remains no case for disturbing the purchases or stock etc. In view of this it is submitted that once the trading results stood accepted the Learned Assessing Officer was precluded from making any addition in the trading account i.e. by doubting the purchases. The following case law is quoted in support: - (i) Ravi Kumar Rawat Vs. ITO (2010) 47 DTR 470 (Jaipur ITAT) In our considered view, there was no cogent reason to attract provisions of s. 145(3) and hold that the purchases shown by assessee are bogus. Undisputedly, the trading results shown by assessee are better as in immediately preceding year the GP rate shown by assessee was 12.3 per cent whereas in the year under consideration the GP rate shown is 13.03 per cent. Therefore, there is no basis to make any addition. Accepted past history is the best guide to consider the GP rate of the year under consideration. Past history reveals gross profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the aforesaid submission, the learned CIT(A) has sustained the addition by estimating the GP rate @ 6% as against 4.91% declared by the assessee. The learned CIT(A) has also rejected the books of accounts of the assessee u/s 145(3) of the IT Act 1961. It is submitted that even if books of accounts are rejected on one or the other ground, this in itself does not give a license to the Appellate Authority for applying higher GP rate unless something specific is pointed out. The learned CIT(A) himself has mentioned in the appellate order on page 19 in para (iii) that "However the alleged party did not provide any information except ledger account of the appellant in its books of accounts". It means M/s Unnati Alloys Pvt Ltd has respond the notice issued by the learned AO u/s 133(6) of the IT Act, 1961. Therefore, it is clear that the party was in existence and in the token of acceptance the party has send the copy of ledger account and accepted all the sales transaction to the assessee. Therefore, there is no reason to reject the books of accounts of the assessee alone on this ground and applied the higher GP rate. The Hon'ble Rajasthan High Court has decided this issue that where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her submitted that the Learned Assessing Officer has no documents in his possession or any categorical statement of any person to support his finding that in lieu of purchase and sale of shares the assessee has paid any commission. The action of the Learned Assessing Officer is based merely on assumption and presumption. The Learned Assessing Officer has no cogent evidence, which may establish that the assessee has paid any commission. The AO simply making assumptions and presumptions from the statement of beneficiaries and taking slip shot extracts of the statement has made additions on frivolous grounds. The same deserve to be deleted. It is submitted that no such presumption could be drawn by the AO merely on surmises and conjectures. In the absence of any cogent material in this regard, having been placed on record, the AO could not make the additions. The learned CIT(A) has reduced this addition from Rs. 31,58,913/- to Rs. 6,88,603/- by saying that it is paid only on addition sustained of Rs. 1,14,76,726/-. The appellant submission is that there is no evidence that the assessee has paid commission. When the purchases are genuine, there is no possibility of payment of commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, the AO is directed to apply a OP rate of 6% on the total turnover of Rs. 1,05,29,10,586/- to cover any possible leakage of revenue on account of bogus purchases which works out to Rs. 6,31,74,635/-. Since the appellant has already declared Rs. 5,16,97,909/- as the GP for the year under consideration, therefore addition to the extent of Rs. 1,14,76,726/- is sustained and the appellant gets a relief of Rs, 4,11,71,827/-. As regards the Ground of Appeal No. 2, it is observed that the AO has made an addition of Rs. 31,58,913/- on account of commission paid 6% on the total alleged purchases disallowed by the AO at Rs. 5,26,48,554/-. Since the purchases made from M/s Unnati Alloys Pvt. Ltd. has been held to be an accommodation entry, therefore there is no denying the fact that in the order to obtained the bogus bills for the alleged purchases, commission would definitely have been paid by the appellant. As the addition has been sustained at Rs. 1,14,76,726/- on account of alleged purchases, accordingly, commission is also confirmed on the above addition @ 6% which is worked out at Rs. 6,88,603/- and is accordingly sustained. In view of the aforesaid discussion, the Grounds of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord and also gone through the findings of the lower authorities recorded in their respective orders. We have also gone through the various judicial ruling placed before us by both the parties to drive home to their contentions. The bench noted that against the allegation made by the revenue the assessee has not demonstrated that the contentions of the department can be put a side. He has even in the reassessment proceeding remained silent and has not made any effort to revert the contentions raised by the revenue. The fact of the case shows that during the course of reopened assessment for reasons that assessee has purchases of Rs 21,05,94,215/- as part of bogus purchases the parties are in appeal before us. Therefore, now the question arises that what is the amount of income earned by the assessee out of the bogus purchases arising out of the circular trading. We do not have any hesitation in confirming the action of the learned CIT - A in stating that the 25 % of the purchases cannot be added in the hands of the assessee. But now, the question arises is that how much income is to be imputed and in what manner. 19. For this both the parties have relied upon the decision of the ho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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