TMI Blog2022 (9) TMI 827X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdictional high court decision where in the court has not guided as to make separate addition on the commission on the bogus purchases and therefore, respectfully following that judgement we do not find any merits in the appeal of the revenue to confirm the addition of commission and thus this ground of the revenue is dismissed and that of the assessee is allowed. - ITA. No. 122/JP/2022 And ITA. No. 244/JP/2022 - - - Dated:- 15-9-2022 - Dr. S. Seethalakshmi, JM And Shri Rathod Kamlesh Jayantbhai, AM For the Assessee : Sh. S. L. Poddar (Adv.) For the Revenue : Sh. Sanjay Dhariwal (CIT) ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM These are the cross appeals filed by the assessee and revenue and are directed against the order of the learned Commissioner of Income Tax (Appeals)-4, Jaipur [hereinafter referred to as (ld. CIT(A)] dated 29.03.2022 for the Assessment Year 2012-13, which in turn arise out of an order passed by ACIT, Central Circle-3, Jaipur passed u/s. 147 r.w.s. 143(3) of the Income Tax Act, 1961 [ here in after referred to act Act ] on 29.12.2019. 2. As the issues involved in the present appeals are inextricably interlinked or in fact in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 53C of the Income Tax Act, 1961 on 26.03.2015. On the basis of information received and after analyzing the fact related to escapement of income, the case of the assessee was re-reopened under section 147 of the Act. The necessary approval of the Principal Commissioner of Income Tax, (Central), Jaipur was obtained. Thereafter, the case was reopened u/s. 148 after recording the reasons for satisfaction and obtaining due approval. Notice u/s. 148 was issued on 30.03.2019 which was duly served on the assessee. In response to the statutory notice issued during the proceedings the assessee efiled the reply. 6. In response to notice u/s 148 the assessee filed e-return declaring the income at Rs. Nil as filed originally u/s 139 of the Income Tax Act, 1961 on 17.03.2013. Thereafter, the assessee requested for providing copy of reasons recorded for reopening of the case u/s. 148. The copy of the reasons recorded for issuing notice u/s. 148 were provided and assessee was required to file information in response to the notice issued. 7. An inquiry was conducted by the investigation wing authorities. During the course of investigation, it was found that various entities were indulged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty information without further verification cannot be used for making any addition on account of bogus purchase allegation. 9. The ld. AO based on the finding and information received alleged that the assessee indulged in bill shopping from bogus concern M/s. Unnati Alloys Private Limited. During enquiries it was found that Moral Alloys Private Limited in an effective period 4 years (FY 2011-12 to 2014-15) has made turnover of Rs. 856 crores in its bank account. As per the information said account was opened on 23.08.2011 in Axis Bank. The aforesaid company was incorporated in September, 2010 and declared its activity as trading in metals. The outflows in the said account were exact equivalent to inflows and on same day. Account exhibited unusual transaction pattern of high value rounded amount transfer/RTGS credits from different entities such as listed in the order of the ld. AO. The ld. AO further observed that in all these entities the out flow in the account were to the similar entities. A large number of debit to companies was noticed in the account. After every withdrawal, the account was left with minimal balance. Though account had witnessed transactions with entities i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) If the investigation done by the department leads to doubt regarding the genuineness of alleged accommodation entries in lieu of bogus purchases, it is incumbent on the assessee to produce the parties along with necessary documents to establish the genuineness of the transaction. c) The purchases have been made from alleged bogus concerns and therefore, it was the duty of the assessee to establish the existence of the concerns which allegedly entered into the said transactions. Therefore, it is the duty of the assessee to satisfy the Assessing Officer regarding the existence of the payee and to establish the genuineness of the payment for business needs. 11. Based on these observations by the AO the assessment was completed by making addition of Rs. 5,26,48,554/- by disallowing 25% out of alleged bogus purchases and Rs. 31,58,913/- on account of commission paid determining total income at Rs. 5,58,07,470/-. 12. Aggrieved from the order of the ld. AO, assessee has preferred an appeal before the ld. CIT(A) who has after considering the arguments and submission held that the appellant has declared a GP rate of 2.51% in the F Yr. 2010-11, 4.91% in the year under considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from whom the purchases were made, same were not replied and only confirmation was filed. Thus, the assessee failed to substantiate the figures of their purchases alleged to have been paid from the bogus suppliers and submitted that the assessee is engaged in the bill shopping only. In support of estimation of profit @ 25 % ld. DR relied upon the decision of M/s. Vijay Protein wherein also the issue of bogus purchase was involved and in that case profit estimated @ 25 %. Thus, he supported the addition made by the AO @ 25 % of purchase. The ld. DR also draw our attention to the findings recorded by the AO that how the exact credit and debit transactions recorded in the parties from where these purchases are accounted. He has also drawn our attention to the findings that all these companies have high volume of turnover and very low income for taxation. The ld. DR also supported various legal decision cited by the ld. AO while making the assessment and he has submitted that the AO has instead of adding 100 % purchases as non-genuine only added a justified percentage of 25 %. In last the ld. DR has relied on the recent judgment of the M/s. Clarity Gold in ITA No. 125/2014 delivered b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l those ingredients are present which make any purchase genuine. The Learned Assessing Officer has simply treated them bogus on the basis of suspicion, doubt and conjecture. It is established position of law that Suspicion however strong cannot take the place of evidence. Uma Charan Shaw Brothers 37 ITR 271, CIT vs. Anupam Kapoor 299 ITR 179 (P H); CIT vs. Dhiraj Lal Girdhari Lal 26 OTR 736. The assesssee has furnished PAN, address and bills of purchases during the course of assessment vide his reply dated 14.08.2019/13.12.2019. Copy of letter dated 13.12.2019 is available on paper book page no. 39 to 40. The same fact is mentioned in assessment order page no. 3 in para 7.1 by the Learned Assessing Officer. The purchases are genuine. The assessee has made payment of above purchases by crossed account payee cheques. All the purchases are fully genuine and the same has been sold by the assessee by paying excise duty and same amount is also reflected in the regular books of accounts. There cannot be a sale without any purchases. The assessee is also maintaining purchase and sale details. In view of the aforesaid facts the assesse places reliance on the following cases wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax authorities have taken the view that the purchases are bogus and if assessee has accepted the same. The order of Sales Tax authorities can be relied on by the AO to doubt the genuineness of the purchase transactions. In such a situation the burden is on the assessee to prove that though the sales tax authorities have taken the view that purchases are genuine. (iv) Babulal C. Borana v. ITO (2006) 282 ITR 251 (Bom)(HC) The assessee has recorded the transaction relating to 50 M.Ts. of HDPE in the regularly maintained books of account and the assessee has offered explanation regarding the nature and source of investment but the same was not accepted. However, books of account were not rejected. Identity of vendor was disclosed, source of investment was explained. Held, amounts could not be added as unexplained investment only because the vendor denied the transaction. The Court held that though the assessee s contention that he had no bank account was found to be false, the disallowance was not justified. And the fact that Sales Tax was not paid by the party who sold the goods does not affect the genuineness of transaction. (v) ACITv.Kishan Lal Jewels (P.) Ltd.(2012) 147 TTJ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of bogus purchases which are not genuine as the sellers were not carrying on any genuine business activity and was only providing accommodation entries in lieu of cash obtained from the beneficiaries No such information was provided to the assesse for rebuttal. This has resulted in miscarriage of justice. However despite the specific request made the Learned Assessing Officer did not furnish copies of documents on which reliance was place and also did not allow cross examination of any witness. The Learned Assessing Officer has erred in using material, statements without furnishing the copies to the assesse and without allowing cross examination witnesses. This has resulted in vitiating the assessment proceedings. The same deserves to be quashed. The following case laws are quoted in support:- (i) The Apex Court has observed that not allowing cross examination is a serious flaw and makes the order nullity. Andman Timber Ind. Vs. Commission of Central Excise (2015) 281 CTR 211 (SC). not allowing the assessee to cross examine the witness by the adjudicating authority though the statements of those witnesses were made the basis of the impugned order, is a serious flaw wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been audited and a copy of audit report u/s 44AB has been furnished along with return of income. A copy of the audit report were submitted during the course of assessment proceedings/ The auditors have not been made any adverse remarks regarding the maintenance of the books of accounts. During the course of assessment proceedings all these books of accounts were produced before the Learned Assessing Officer and no defect was pointed out. The Learned Assessing Officer has rejected the books of accounts on the basis of alleged bogus purchases. Although in the assessment order the Learned Assessing Officer has discussed at various places that during the course of enquiries on Moral Group of companies and material was found establishing the fact of bogus sales by him. But no such papers and material has been provided to the assesse for rebuttal. Therefore the assertion made by the Learned Assessing Officer in the assessment order are not having any basis. In view of this the Learned Assessing Officer was not justified in rejecting the books of accounts. The following case laws are quoted in support: - (i) Shankar Exporters vs. Addl. CIT (2010) 42 DTR 441 (Jaipur ITAT) In our c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sociated Stone Ind. Ltd. 22 TW 155 (JP) Without pointing out any specific defect in the account books or bringing on record instances of unrecorded sales books of account cannot be rejected by applying provisions of section 145(3). (iii) HARIDAS PARIKH vs. INCOME TAX OFFICER (2008) 113 TTJ (Jd) 274 : (2008) 1 DTR 390 Unless the AO is able to point out certain transactions which have been left to be entered in the books of account or that the assessee has sold some of the items at a price higher than what is disclosed in the books of account or if proper particulars, bills, vouchers, are not forthcoming etc., the books of account cannot be rejected without assigning specific reasons. 6. Trading results: - The trading results of the proceedings years of the assessee are as under:- Fin. Year 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 Turnover 1966466609 1052910586 709061300 829795056 120 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.08 per cent and in the year under consideration the same is 13.03 per cent. Therefore, there was no reason to make any addition or sustaining the addition in part. (ii) Babulal C Borana V/s ITO 282 ITR 251 (Bom) Where the identity of the persons from whom goods are purchases has been explained, payment are made by account payee cheques, transactions are recorded in books, no addition can be made. (iii) ITA N o . 2 8 2 6 / Mu m / 2 0 1 3 b. ITO V/s Surana Trading 92 ITD 212 (Mum)(para 98) Where a quantitative tally of sales is furnished, even if purchasers are not available, no addition could be made merely on assumptions or presumptions or surmises or conjectures. 7. Favorable decision of Hon'ble ITAT Jaipur and Hon'ble High Court of Rajasthan - In continuation of our submission, we would like to further submit that the issues regarding unverifiable purchase has been decided by the Hon'ble ITAT as well as by the Hon'ble Rajasthan High Court wherein it has been held that after the rejection of books of accounts only course of action was to estimate the income of the assessee by applying the G.P. rate. It was held by ITAT in the case of M/s. Gem Paradise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejected on account of alleged bogus purchases then average GP rate of last 5 years should be applied. This direction was issued by Hon ble Rajasthan High Court in the case of Clarity Gold Pvt. Ltd. in D.B. IT No.126/2014. Therefore the decision of the learned CIT(A) on this issue deserves to be quashed as the assessee has declared highest ever GP rate in the year under consideration and also more than average GP rate of last 5 years. Therefore the addition sustained deserves to be deleted. Ground No. 2:- Under the facts and Circumstances of the case and in law, the learned CIT(A) has erred sustaining the amount of Rs. 6,88,603/- against an addition of Rs. 31,58,913/- made on account of alleged payment. The AO contended that in the enquires conducted by the department on Moral Group described the modus operandi of their business accepting the fact that they are included in issuing of bogus bills only against certain commission. They have made only general statements and it is further not known that they stood committed to their statements or retracted later on. It is common knowledge that the Investigation Wing exerts pressure while recording statement at the time of searc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO did not bring any evidence on record to substantiate the claim that the assessee has paid commission. Therefore, the addition of Rs. 6,88,603/- deserves to be deleted. Ground No. 3:- Under the facts and circumstances the Learned CIT(A) has erred in confirming the action of the learned AO on account of reopening of assessment by appreciating wrong facts and without making proper enquiries only on the basis of information received. The learned AO did not make any enquiry after receiving the information. He just acted upon the information received from investigation wing. Therefore relying on the following case laws the whole order passed by the learned AO deserves to be quashed. Ground no. 4 The assessee craves your indulgence to add amend or alter all or any grounds of appeal before or at the time of hearing. Not pressed. 7. In first appeal the CIT(A) has confirmed the action of the AO by observing as under:- XIX In view of the these facts, after the rejection of books of account u/s 145, the income of the appellant is required to be estimated on best judgment basis. It is also a settled proposition that while estimating the income of the assessee, the G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 Appeal No. 1 and 2 raised by the appellant are partly allowed. 17. In addition to the returned submission the Learned authorised representative supported the order of the learned CIT A for deletion of addition and further submitted that even the additions confirmed by the learned CIT A cannot be sustained in view of the fact that the purchase are genuine and the ld. AO treated genuine purchases as non-genuine simply on suspicion doubts and conjectures. The assessee has furnished PAN, address, bills were filed before the assessing officer. The assessee is subjected to excise duty and all are records mentioning all the inwards and outwards with the quantitate records. Thus, the allegation made by the department are far from the truth. The ld. AR of the assessee submitted that even the addition sustained by the ld. CIT(A) is required to be deleted as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 honourable jurisdictional High Court in the case of Clarity Gold (P) Ltd in ITA No. 125/2014 where in the court has held that: 6. Taking into account the evidence on record, the tribunal while considering the matter has totally deleted the amount of addition. In our considered opinion taking into account the industry which is running the business, the addition which has been made on the basis of GP which has been shown of the identical industry whose is also heard together. The GP rate of previous years reads as under: Taking into account the average GP rate which will be applied in the present case will be 12 per cent. It is made clear that where ever the profit is more than 12 per cent, the same will not be refunded to the assessee but where it is less than 12 per cent, the income will be assessed on the basis of 12 per cent GP . 20. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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