TMI Blog2024 (2) TMI 744X X X X Extracts X X X X X X X X Extracts X X X X ..... ing grounds have been raised by the assessee: 1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)]) is bad both in the eye of law and on facts. 2. On the facts and circumstances of the case. Id. CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the proceedings initiated under Section 153C against the appellant and the assessment framed under Section 153C/143(3) are in violation of the statutory conditions of the Act and the procedure prescribed under the law and as such the same is bad in the eye of law and liable to be quashed. 3. On the facts and circumstances of the case, the proceedings initiated under Section 153C are bad in law in the absence of any incriminating material belonging to the assessee being found during the course of the search. 4. On the facts and circumstances of the case, Id. CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the proceedings initiated under Section 153C and the assessment framed under Section 153C is bad and liable to be quashed in the absence of a proper satisfaction be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of commission @2%, without there being any basis for the same. 3. The issue involved in ITA Nos. 7896 to 7900/Del/2019, are similar, they were heard together and being adjudicated by a common order. In ITA No. 7896/Del/2019, following grounds have been raised by the Revenue: 1. On the facts and in the circumstances of the case, the Id.CIT(A) has erred in law and on facts in restricting the addition at Rs. 2,14,73,050 /- as against the addition of Rs. 8,58,92,200/- made in the assessment order on account of bogus purchase without considering the fact that these documents were intended for the purpose of reconciliation of the figures of accommodation entries only as there were no documents for supporting the transactions mentioned in tally documents. The manual resister also did not support the documents maintained in tally. 2. On the facts and in the circumstances of the case, the Id.CIT (A) has erred in law and on facts in restricting the addition to the tune of 25% without considering the fact that the purchase amounts are nothing but bogus purchase entries taken by the appellant from the Jain Brothers. These are taken through the intermediary Suni Kum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... genuineness of purchases. The Revenue held that they are in possession of concrete evidences in the form of documents found during the course of search at the premises of Jain Brothers, which prove that the appellant has taken accommodation entries in the form of bogus purchase bills during the year under consideration. Therefore, an addition of Rs. 8,58,92,200/- was made on account of purchases by the assessee from the 14 entities managed by Jain Brothers holding the same to be bogus accommodation entries in lieu of cash. Further, an addition of Rs. 17,17,844/- was also made on account of unaccounted commission paid in cash in relation to said entries. 9. Aggrieved with the addition, the assessee filed appeal before the ld. CIT(A). 10. The gist of the appellant's arguments in respect of these purchases is that while casting doubt on the purchases, no doubt has been casted on the sales shown by the appellant. The appellant has submitted purchase bills and also a detailed explanation with regard to the freight expenses. Details of expenses like packing material, testing charges, air sea freight, washing and pressing, postage, courier, telephone, establishment, repair, ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ictitious invoices in the names of 33 bogus suppliers. In the said order as well, the Hon'ble High Court confirming the order of tribunal disallowed 25% of the purchase price instead of making addition of 100% of the purchases. Placing reliance on the aforesaid decision of Apex Court, it was submitted that various courts and tribunals have restricted the disallowance of purchases as against the practice of making complete disallowance of purchases, in the following cases:- CIT, Jaipur (Raj) Vs M/S Carpet Mahal in ITA No. 170 / 2009 dated May 10, 2017 CIT, Jaipur (Raj.) Vs Gems Paradise in ITA No. 201/2010 dated November 2, 2016 M/s Stromag Engineers Ltd. Vs. DCIT in ITA No. 5333/Mum/2017 dated 16.01.2019 ACIT vs. Shri Akshay Rajesh Samdariya and Vice Versa in ITA no. 2076/PUN/2016, C.O. No. 58/PUN/2018 dated 31.12.2018 Shri Moolchand H. Seth Vs ITO in ITA No. 2320/Mum/2018 dated 20.12.2018 ACIT, Vs Karam Chand Rubber Industries (P) Ltd. in ITA No.6599/Del/2014 dated 12.12.2018 Dharmesh P. Bhatt Vs ACIT-32 (1), Mumbai in ITA No.2182/Mum/2017, ITA No.2841/Mum/2018, S.A. No.494/Mum/2018, S.A. No.495/Mum/2018 dated 11.12.2018 M/s. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he disallowance to 25% of the25% of such purchases i.e. 2,14,73,050/- (25% of 8,58,92,200), thereby, according the appellant a relief of Rs. 6,44,19,150/- (8,58,92,2002,14,73050). 15. Aggrieved with the order of the ld. CIT(A) giving relief of 75%, the Revenue filed appeal and the assessee filed appeal against confirming 25% of the alleged purchases before the Tribunal. 16. Before us, the ld. AR relied on the arguments taken up before the ld. CIT(A) and further argued that since the sales have not been questioned, the assessee was involved in 100% export of the goods manufactured out of the purchases made and argued that had there not been any purchases there could not have been any sales. The ld. AR reiterated that if the purchases are disallowed, the profit would have gone to 35% which is a sky rocketing figure against the normal profits earned by the assessee of 7.15% to 8.73% over a period of 4 years. 17. The ld. DR argued eloquently at length. The arguments of the ld. DR are as under: Profit rate earlier yours, accepted or scrutinized cannot be accepted, since material as enumerated vide AO - pages 5-23, exists that impeaches the disclosure made earlier and expo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and signed unsigned cheque books. All these bank documents pertained to the shell companies of the Jain Brothers. Accordingly, information was called in respect of the bank accounts from various banks and branches which were identified from the seized materials. From the perusal of the details collected from the banks, it was found that most of these accounts were managed and controlled by Shri Anand Kumar Jain or Shri Naresh Kumar Jain. (h) It was seen that the I.P. Addresses of the computer systems, representing most of the online transactions carried out by the different shell companies/concerns, which were used to effectuate these transactions, were similar to the I.P. Addresses of the computers used by the Jain Brothers during analogous date and time frames. (i) The documents such as correspondence relating to statutory compliances, bank statements, balance sheets etc., of the following companies were found at 914 D Mall, Netaji Subhash Place, Pitampura, Delhi-34, the main office of the Jain Brothers. (j) However, the payments made did not match with the figures shown for purchases. No corresponding documents (such as journals, correspondences, bility, chal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the following: a. Confirmations b. Bank statements Copy of invoices c. Ledger accounts d. Stock register e. Sales invoices f. ITRs of the various parties. Thus the finding of the said case doesn t hold in the case of the assessee. 2. (A, C and G) Kaveri Rice Mills, Allahabad HC 157 taxmann 376 and La Medical DHC and Rishabhdev Tachnocable Ltd.: It is startling that the revenue has taken 3 cases wherein the first two matters, the total purchases has been added while in the third only the addition to the extent of gross profit has been added. Both of the first two said judgments have been relied by the revenue in the matter of Pr. Commissioner of Income Tax-13 Vs. Rishabhdev Tachnocable Ltd., however the Hon ble Bombay High Court while relying on the judgment in the case of Bholanath Polyfab Limited, has upheld the decision of the Tribunal in making addition to the extent of 5% of the purchases. Allahabad High Court in Kaveri Rice Mills (157 Taxman 376) held that the addition has to be made to the extent of purchases found to be fictitious. However, this decision of Allahabad High Court was considered by the Hon ble Bombay Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be disallowed. However, subsequent to this various decision have been rendered by Delhi High Court, Bombay High Court and Tribunals in favour of the assessee considering the decision of La Medical. In this regard, reliance is being placed on the following: In the case of Pr. Commissioner of Income Tax-13, Mumbai Versus Rishabhdev Tachnocable Ltd., Income Tax Appeal (IT) No. 1330 of 2017 dated 10.02.2020, Bombay High Court held as under: 18. Tribunal noted that it was an admitted fact that the Assessing Officer did not object to the sales made by the assessee. Therefore, it was evident that they were corresponding purchases. Having noted the above, Tribunal examined the books of accounts of the assessee wherefrom it was found that the assessee had made payments on account of the purchases through account payee cheques and the purchases were entered in its books of account. Thus, assessee was able to prove that the purchases were made only in the alternative way. If that be so, then Revenue was only required to estimate the profit at a particular rate. Referring to the figure of 2% arrived by the CIT(A), Tribunal observed that assessee's gross profit varied from 5% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esumed that assessee purchased material from market in cash and bills were obtained from the above two bogus concerns of the accommodation entry provider. Therefore, it is apparent that the addition of whole of the amount cannot be made. Therefore, in view of the decision of the Hon'ble Supreme Court and Hon'ble High Court cited by the Id DR, we direct the Id Assessing Officer to restrict the addition @25% of the total purchases of Rs.5247565/- from these tainted parties. Accordingly, the addition is restricted to Rs.1311891/- and balance addition of Rs.3935673/- is deleted. In the result ground No. 4 to 7 are partly allowed. 3. Point B Your Honour, how the extract reproduced is aiding Id. CIT DR. is out assessee s understanding. As the extract mentions about the facts of the case only and not the decision. In the stated judgment, the issue involved is that of sales which has been made to the government agencies but there were some kachcha bills taken in respect of purchases to suppress the profit earned on sales. It has been held that 3% of the bogus purchases shall be added in the income of the assessee. 4. In point D certain parameters have been given, howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the goods manufactured out of the purchases made were presented revenue authorities. The ld. CIT(A) has accepted that the exports have indeed been completed. There were no dispute on this issue by the ld. CIT(A). The ld. CIT(A) concluded that there have been purchases otherwise there could not have been any production of material, in this case the readymade garments and consequent export. Having held so, the ld. CIT(A) has disallowed 25% of the purchases on the grounds that the assessee could have made some super profits. We have also gone through the various judgments quoted by the ld. CIT(A) and we are in agreement with the ratio laid down by the ld. CIT(A). With regard to the determination of the embedded profit element we rely on the following judgments in addition to the judgments quoted by the ld. CIT(A): 1. ITA vide 509 510/KOL/2017 OM FORGING ENGG (P) LTD. AYs 2010-11 and 2011-12, the assessee made sales to govt. originations and other reputed organizations and perhaps did not get a chance to suppress sales. As a result, there was necessity for the assessee to introduce purchases its bills to manage its profit to a desired and consistent ratio. The attempt of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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