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Income Tax Appellate Tribunal, AHMEDABAD “A” BENCH
Before: Shri Amarjit Singh
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “A” BENCH Before: Shri Amarjit Singh, Accountant Member And Ms. Madhumita Roy, Judicial Member ITA No. 2457/Ahd/2014 Assessment Year 2010-11
Maruti Metal Industries, The Joint CIT, A-208-209, Leela Efcee, Range-1, Waghawadi Road, Vs Bhavnagar Bhavnagar-364002 (Respondent) PAN: AAIFM1017H (Appellant)
Revenue by: Shri L.P. Jain, Sr. D.R. Assessee by: Shri Sakar Sharma, A.R.
Date of hearing : 20-12-2018 Date of pronouncement : 13-03-2019 आदेश/ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-
This assessee’s appeal for A.Y. 2010-11, arises from order of the CIT(A)-XX, Ahmedabad dated 30-06-2014, in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”.
The assessee has raised the following grounds of appeal:-
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“1. The Ld. CIT (A) erred on facts and in law in confirming addition of Rs. 1,22,715/- for undervaluation of closing stock. In alternate also, he erred in not directing the Assessing Officer to adjust opening stock of next year by this amount. 2. The Ld. CIT (A) erred on facts and in law in confirming disallowance of Rs. 2,17,42,228/- for alleged bogus purchases u/s 69C of the Act. 3. The Ld. CIT (A) erred on facts and in law in confirming disallowance of interest paid of Rs. 2,55,534/-”
The brief fact of the case is that the return of income declaring total income of Rs. 1,80,77,360/- was filed on 30th Sep, 2010. The assessee firm was in the business of importing, exporting and trading in ferrous and non- ferrous metal scrap. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) of the act on 6th Sep, 2011. Further facts of the case are discussed while adjudicating the grounds of appeal as under:-
Ground No. 1 (addition of Rs. 1,22,715/- for undervaluation of closing Stock)
During the course of assessment the assessing officer noticed that the assessee assessee has disclosed total turnover of its head office Bhavnagar at Rs. 77,26,18,426/- and disclosed gross profit of Rs. 2,92,56,225/- @ 3.79% . In respect of branch office at Kota it had declared turnover of Rs. 27,71,90,091/- and disclosed gross profit at Rs. 17,13,359/- @ 0.62%. In the immediately preceding year the assessee has disclosed gross profit of head office at Rs. 1,08,26,357/- on total turnover of Rs. 40,44,66,872/- @ 2.68%. In respect of branch office GP rate was declared @ 0.38% on total turnover of Rs. 31,80,15,771/-. On verification of the detail the assessing officer observed that in the valuation of closing stock the assessee has not included the value of over head expenses such as custom duty and clearing forwarding charges in the value of the closing stock . On query the assessee
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explained that expenses such as custom duty and clearing forwarding charging were not included in the valuation of closing stock of imported goods. The assessee has also stated that even if addition of such difference of Rs. 1,22,715/- is made in the closing stock then the same effect is also required to be given in the valuation of opening stock for the financial year 2010-11. The assessing officer has not agreed with the explanation of the assessee and stated that there is under-valuation of stock by Rs. 1,22,715/-, therefore, same was added to the total income of the assessee by invoking provision of section 145(1) of the act.
Aggrieved assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee on this issue. Relevant part of the decision of ld. CIT(A) is reproduced as under:- “3.3 1 have considered the facts of the case and submission made by the appellant. The AO has made an addition of Rs. 1,22,715/- in respect of understatement of the value of the closing stock as the expenditure in respect of custom duty and clearing forwarding charges on imported goods have not been included in the value of the closing. Once the appellant has taken the method as cost price then only the purchases value of the material but the incidental expenditures which are directly on import of the goods which were lying ill closing stock. In the reply, the appellant agreed for such valuation of the stock and lie didn't have any objection for the addition of the differential amount of the value. However, he requested to give the effect of the same in the value of the opening stock of the subsequent year. Thus, there is no dispute about the ………………………….stock due to non-inclusion of the direct expenses in respect of the custom duty and clearing forwarding charges etc. for which the appellant was also agreed and therefore the AO's action, in this regard is correct and justified and the same is confirmed. Even otherwise also no appeal lies against the agreed addition as has been by the Hon'ble Kerala High Court in the Case of Mahesh B. Shah Vs. CIT 238 1TR 130 and Hon'ble Bombay High Court in the case of Rameshchandra & Co, Vs. CIT 168 ITR 375, In view of the above, the ground of the appellant is dismissed.”
We have heard the rival contentions and perused the material on record carefully. During the course of assessment the assessing officer found that the assessee has not included the overhead charges such as
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custom duty and forwarding changes in the closing stock. The assessee has contended that once such expenses is included in the value of closing stock then its effect is to be given in the opening stock, however, the assessing officer stated effect of the difference cannot be allowed without verification. During the course of appellate proceedings, the ld. counsel has referred the decision of Hon’ble Supreme Court in the case of CIT vs. Dynavision ltd. However, we observed that the above referred case is pertained to the valuation of the closing stock excluding excise duty. As the liability for payment of excise duty is incurred only when the process of manufacture is complete therefore, such liabilities are shown in the excise account maintained by the assessee. However, the facts in the case of the assessee are different as it has debited the custom duty and clearing forwarding charges in the P & L a/c, therefore, these expenses are required to be included in the closing stock for arriving at the correct profit for the year. It is noticed that before the Ld. CIT (A) the assessee has also submitted that such expenses has not been included inadvertently in the value of closing stock . It is also clear from the findings of the Ld.CIT (A) that the assessee has agreed for such valuation of the stock and didn't have any objection for the addition of the differential amount of the value. In the light of the above facts and circumstances we do not find any reason to interfere in the findings of the Ld. CIT(A), therefore, this ground of appeal of the assessee is dismissed. Ground No. 2 (disallowance of Rs. 2,17,42,228/- for bogus purchases u/s. 69C of the act)
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On verification of the detail filed by the assessee the assessing officer noticed that assessee has made purchases from Jay Ambe Metal Udhana, Surat as per the detail given under:- S. No. Bill No. Date of purchase Quantity Rate Amount 1 230 23.03.2010 15027 Kg Rs.455 Rs.7179150/- 2 231 24.03.2010 15012 Kg Rs.455 Rs.7171984/-
3 234 26.03.2010 15037 Kg Rs.405 Rs.6394484/-
4 235 27.03.2010 13042 Kq Rs.405 Rs. 6396610/- Total Rs.27142228/- Out of above purchases, the assessee sold has goods to M/s Somani Impex, Jamnagar as under- Sl. No. Date of sale Quantity Rate Amount 1. 25.03.2010 15012 Kg Rs.375 Rs.5910975/- Rs.591.6881/- 2. 30.03.2010 15027 Kg Rs.375
Out of the aforesaid good purchases assessee has sold some of the goods to M/s. Somany Impax, Jamnagar. After verification of the detail the assessing officer observed that assessee has purchased the goods at the amount of Rs. 1,43,51,134 ( Rs. 71,79,150/-+ Rs. 71,71,984/- and within a few days sold the same goods for Rs 1,18,27,856/- ( 59,10,975+ 59,16,881/-) at a lesser price to M/s Somani Impex Jamnagar at a loss of Rs. 25,23,278/-. The assessee was asked to explain the reason for this abnormal transaction. The assessee explained that they have booked goods with supplier M/s. Jay Amba Metal Corporation before five months of its delivery, however, at the time of sale the price of the goods fell down therefore they have incurred losses on selling the same goods to Somany Impax, Jamnagar. On
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verification of bill and voucher, the assessing officer noticed that there was overwriting in the bills and related challan issued by the seller of goods M/s Jay Amba Metal. The assessing officer has also noticed discrepancies in the name of the person who has signed the bills. The assessee has failed to prove the genuineness of aforesaid transactions as it had not produced bills/receipt of weigh bridge, loading/ unloading expenses, toll expenses and sales tax receipt etc. Notice u/s. 133(6) was issued to Jay Amba Metal Corporation for furnishing the various details but complete information was not furnished . Discrepancies in respect of confirmation furnished by the truck owners and drivers were also detected. The assessee has sold 15012 kilograms of goods to Somany Impax, Jamnagar on 25 March, 2013 consigned through vehicle GJ-12Y-6432, however, it is noticed that the same vehicle GJ-12Y-6432 had been shown of transporting the goods purchased on 28th March, 2013 of 15037 kilogram form Jay Amba Metal Corporation Surat. In this connection it is noticed that the distance from Bhavnagar to Jamnagar was 280 kilometer and distance from Bhavnagar to Surat was 550 kilometer therefore it was not feasible for the vehicle no. GJ- 12Y-6432 to covered 1380 kilometers within 24 hours to complete the loading and unloading of goods at both the places. Therefore, the assessing officer arrived to the conclusion that there was no actual purchases made by the assessee from Ambe Metal Corporation Surat consequently he has disallowed the whole of the purchases to the amount of Rs. 2,17,42,228/- and added to the total income of the assessee.
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Aggrieved assessee filed appeal before the ld. CIT(A). The ld. CIT(A) dismissed the appeal of the assessee. Relevant part of the decision of ld. CIT(A) is reproduced as under:- “4.3. I have considered the facts of the case and written submission made by the appellant. The AO has made the disallowances of the purchases of Rs.2,71,42,228/-treating the same as bogus purchases from the party namely M/s. Jay Ambe Corporation, Surat. Details of the purchases and sales made are given in the assessment order arid also reproduced in the- preceding paras of this order, It has been seen that the appellant stated to have made the purchase of the copper wire and scrap on 23,3,2010 and 24.3.2010 @ Rs.455/- per K..G. while the same is said to be sold on 25.3,2010 and 30.3.2010 respectively in the equal quantity @ Rs.375/- per K.G. So, the has shown the total purchases of Rs. 1,43,51,134/- from M/s. Jay Ambe Metal Corporation, Surat on the aforesaid two purchases and the corresponding have shown to be at Rs.1,18,27,856/- and thus it resulted into tosses of Rs.25(23,278/-. 4.4. Subsequently the appellant has also shown the purchases of 1503? kg and 15042 kg @ Rs.405/- per K.G, on 26.3.2010 and 27.3,2010 respectively from the party namely M/s.Jay Anibe Metal Corporation, Surat and the same is shown to the lying in the closing stock at the end of the year. 4.5. During the course of assessment proceedings, the A.O. found that the purchases shown from Jay Arnbe Metal Corporation, Surat were not the genuine for which various reasons have been discussed in the order. It has been observed by the A.O. that on the Bill No.230 issued by Jay Ambe Metal Corporation the was over written. Further on the challan enclosed with this bill the quantity as well the was over written. Likewise, in the challan enclosed with Bill No.231 over written. It is visible that initially the rate in this challan written as Rs.355/- per kg which was over written at Rs.455/-. Assessee's explanation that the purchase contract from Jay Ambe Metal Corporation was made five months back however due to down fall in rate of copper wire scrap the delivery was delayed in hope of upward trend till the end of the year but there was no such rise in the prices at the end of the year and consequently the delivery of the was taken and losses were incurred was found not by the A.O. The AO observed that the sale contract was only on in the of M/s Jay Ambe Metal Corporation dtd. 12.11.2009 for 30 M.T. and the payment was to be made within 10 days the delivery and the delivery period was 30 from the of sale of contract i.e. 12,11,2009, First of all it was observed that it was not a valid contract as the is not authenticated by any independent authority and hence its sanctity having executed on 12.11.2009 was in doubt. It could be an afterthought as per the mutual understanding of both the party to accommodate each other. Further, the delivery period was 30 days from the sale of contract which expired on 11,12,2009, However except some correspondences no evidences have been submitted to the validity and need of the continuation of the aforesaid contract. So the reliance of the appellant on the sale contract was not acceptable. 4.6 Further, the AO has observed that on the letter of the supplier company Shri Sanjay has the signature while the proprietor of Jay Ambe Metal Corporation was Shri Kishanlal Jain, So neither in the sale agreement nor in any of the letters/ reminders Shri Kishanla! Jain has made the signature more so when the status of Shri Sanjay in the supplier company is not known. Further from the reminders issued by M/s.Jay Ambe Metal Corporation dtd. 17.12.2009. 15.9.2010 and 11.3.2010 although purported to be issued on various dates Shri Sanjay has signed and all these correspondences appears to have prepared, on same day on the same letter heads with the pattern. So documents were also creating the doubts on the authenticity of the agreement the reminders for delivery of the goods. The AO also observed that the so called bills have been signed by Shri K.C. Jain while the proprietor was namely Shri K.L. Jain. Moreover, the agreements so made dtd. 12.11.2009 was only for the 30 M.T. of Copper Wire and scrap while the appellant has shown to of more than 60 M.T. more so when the prices were going down there was no need to make one more sale agreement dtd. 15.3.2010 @ Rs,405/~ per kg as the market rate was much lower than the same. It is needless to mention here that the said contract was once
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again signed by Shri Sajay of which identity is not known and the assessee has incurred the losses on such transactions. So, no prudent business man will do the transactions knowingly when the purchases prices are on decreasing trend with no corresponding increase in the sale price. Even on the contrary the appellant has sold the goods to M/s.Jay Am be Metal Corporation on 1.2.2010. On a specific requisition the appellant was asked to provide the necessary evidences in support of the purchases in the form of freight inward expenses but the appellant could furnish the self made vouchers of freight inward expenses which were signed by the drivers of the vehicle, No other independent evidences in the form of weigh bridge receipt, loading and unloading, slips/receipts, toll expenses receipts and sales tax payment receipts were furnished. 4.7. It is needless to mention here that from Surat to Bhavnagar various toll booths are working for collection of the toll fees etc. and these expenses are always being borne by the owner of the goods which is exclusive to the freight expenses to be paid to truck owner but no such evidences have been submitted by the appellant to prove the movement of goods from Surat to Bhavnagar. 4.8. Even the A.O, during the course of scrutiny assessments vide his dtd. 73.2013 to M/s. Jay Ambe Metal Corporation asked for the various details to verify the genuineness of the purchases. However, simply ledger account copy and a copy of bank statement was submitted by the aforesaid party and therefore once the A.O. vide his letter dtd. 19.3.2013 asked to file the remaining relevant information to verify the genuineness of the supply of the goods by the aforesaid party to the appellant. However, no proper compliance in respect to the above two letters have been made by M/s.Jay Ambe Metal Corporation. The relevant portion of the letters requisition of various details from supplier party are reproduced in the assessment order. Further, the A.O. also observed that the confirmation from the truck owners with to the 'transportation of the goods was also not proper for the reason that the receipt of the freight of the truck was given by some Jayubha Raubha and not by Shri Jaydevsingh Anoopsingh who had issued the confirmation letter. The another receipt was also issued by Shri Khatabhai while the confirmation was given by Shri Jaydevsingh Anoopsingh. Likewise in respect of another truck No,GJ-3T-5100 the confirmation was given by Shri Triloksingh Dharrnendrasingh Chudasma while the receipt has been signed by the driver Triloksingh Chudasma but the signature available on the receipt is completely different from the signature on the confirmation. So the authenticity of the confirmations the goods carriage through the said trucks was found not verifiable. Further the AD also observed that the Track No.GJ-12Y-6432 has carried the goods on 25.3.2010 from Bhavnagar to Jamnagar and the same vehicle on next day i.e. 26.3,2010 has carried the from Surat to Bhavngar. So the A.O's observation that the distance from Jamnagar to Bhavnagar and Bhavnagar to Surat totaling to 1380 Kms. have completed within a span of 24 hours with loading and unloading of the goods at Bhavnagar then Jamnagar and also at Surat which was not possible to be completed. In view of the aforesaid discussions, the A.O, by invoking '.he provisions of Section 145(1) of l.T. Act has disallowed the entire purchases made from the party namely Jay A robe Metal Corporation, Surat. 4.9. The facts and the submissions made by the appellant have been examined. It is seen that the authenticity of the sale contract does not establish the purchases price as shown by the appellant in its books of accounts. Sale contracts were on simple letter of the supply party and it does not establishes the transactions independently, Further, as per the terms of the sale agreement the quantity contracted was only 30 M.T. and subsequently by another contract dtd. 15,3,2010 again 'the contract of 30 M.T. was made in view of the fact that the prices were going down and hence no business exigency /prudency is coming out from such contracts when the himself has the goods immediately on receipt of the same at lower rates. Even otherwise also there is no justification to take the delivery of the goods from Surat and unloading the same at Bhavnagar when on the next day of the delivery taken, the goods were dispatched from Bhavnagar to Jamnagar, Had the transactions were genuine the goods would have been transported directly from Surat to Jamnagar rather firstly from Surat to and then Bhavnagar to Jamnagar to save the freight expenses loading and unloading expenditures. There were no reason of unloading the goods at Bhavnagar firstly then loading the goods at Bhavnagar within a short period i.e. one day to deliver the at Jamnagar, So this fact also indicates that in fact the goods shown to have purchased
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from Jay Ambe Metal Corporation, Surat are only on papers without any physical delivery from the party. Even no transactions from Jay Ambe Metal Corporation, Surat seems to have been made by the appellant in the preceding years. Even against the purchases of Rs.2,71,42,228/- the appellant has paid only Rs.10 lakhs and the balance payment was outstanding at the end of the year. For a new party with whom the appellant has dealt with first time the huge payments outstanding also indicates the suspicion over the transactions. Even no independent evidences with regard to the Tolnaka receipts and weighing receipts have been submitted establishing the movement of the goods from Surat to Bhavnagar. 4.10. The appellant has debited the loading and unloading expenses of Rs.14,000/- and Rs.16,651/- on 31.3,2010 under the ledger account of labour charges towards cutting, segregating, loading and unloading charges for the total material of 153.253 M.T. However, no bills/vouchers in respect of the goods stated to be purchased from M/s.Jay Ambe Metal Corporation has been provided to verify that what type of expenditures on the aforesaid metal purchases have been incurred. Further, there was the outgoing of 133.189 M.T. during the month of March but no loading and unloading expenditures or any other expenditures are found debited in the aforesaid material which is not possible to be happened so, Thus, the correctness of the claim of labour expenditure is also in doubt. Therefore,' the .appellant's claim about incurring of the labour expenditures on the aforesaid material is found unsubstantiated, 4.11. The appellant has made the objection that the proper opportunities have not been granted by the A.O, during the course of assessment and he has failed to follow the principles of natural justice. This contention has been but the is found baseless for the reason that during the course of assessment proceedings the AO. has issued the query letters calling for the informations relevant to the issue such as dtd. 12.3.2013, 19.3.2013 and many more letters and in compliance thereto the has made the written submissions also and some of them are discussed, in para No. 4 & para No,5 of the assessment order, Even otherwise also in the appellate proceedings the appellant has been given sufficient opportunities to put-forth its case by necessary submissions and there cannot be grievance on this account. 4.12. The has relied upon ease laws, however, the same are different on the facts from the facts of the present case and hence the ratio laid down in them cannot be applied on the facts of the case. 4.13. It has also been noticed that during the year under consideration the appellant has transacted in the item of Copper Wire and scrap by purchase from Jay Arabe Metal Corporation and part of it claimed to have been sold to M/s.Somani Inipex, No other transactions with any other party during the entire year of this commodity has been made. So it is evident that this was not a regular commodity in which the appellant was dealing. 4.1.4, It has also been noticed that when the appellant has the goods on 25.3,2010 @Rs.375/- per Kg. then why he would purchase those goods one day before @ Rs.455/- per kg. Likewise when the goods were sold, on 30.3,2010 @ Rs.375/- per Kg, then why those goods purchased 7 days ago (aj Rs,455/~ per kg. Likewise when the appellant has sold the goods @Rs.375/- per kg. on 25.3.2010 and 30.3.2010 for what the goods were purchased on 26.3,2010 and 27.3.2010 @ Rs,405A per kg. So, there are no reasons to substantiate the purchase rates the goods were sold at the prevalent lower rate. Since the appellant has failed to prove tire movement of goods from Surat to Bhavnagar which claimed to have been purchased from Jay A.mbe Metal Corporation. But at the same time part of the goods shown to have been sold to M/s.Somani Impex, Jamnagar and the balance has been shown as closing stock, it is certain that the goods have been purchased by the appellant but not from Jay Ambe Metal Corporation, Surat and from some other party in cash. So the provisions of Section 69C are clearly applicable over the facts for the unexplained expenditure by the appellant for the unaccounted cash payments utilized for the purchases of the goods from some other parties of which no sources have been explained by the appellant. Therefore, the additions to the extent of Rs.2,71,42,228/- are confirmed in view of the provisions of Section 69C of the I.T. Act and the AO's observation about the purchases held to be bogus from Jay Ambe Metal Corporation, Surat is correct and justified. Thus, the ground of appeal is dismissed.”
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We have heard the rival contentions and perused the material on record carefully. During the course of assessment proceedings, the assessing officer has noticed that assessee has made purchases from M/s. Jay Ambe Metal Corporation Surat at a abnormally high rate and sold the same goods to Somani Impex Jamnagar at a very low rate as elaborated supra in this order. The Ld. Counsel has referred 94 taxmann.com 324(Gujarat) in the case of PCIT Surat V. Tejua Rohitkumar Kapadia, and decision of ITAT Amritsar vide 77 ITD 71 in the case of J.H. Metals v. ITO, and other cases but we observe that the facts of the these cases are distinguishable from the case of the assessee after taking in to consideration the following infirmity established on examination and verification of such transactions:-
(i)Assessing officer has noticed that the assessee has given a very general explanation that the reason for loss in the aforesaid transaction was because of fall in rate of copper wire scrap which it had booked at higher price however the delivery was taken late. ii) On verification, the assessing officer has found discrepancy in bill/challans/documents produced by the assessee in support of its claim of purchase of such goods made from M/s. Jay Ambe Metal Corporation. It was noticed that there was over writing in the bills/challan as initially the rate on the challan was written @ Rs. 355/- which was over written as Rs. 455/- (iii) The bills/challans were hand written and signature of the signing authority was not authenticated. (iv) There was no proper contract as the copy of sale agreement and other letters were on simple letter head of M/s Jam Ambe Metal Corporation
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singed by the person named “Sanjay” and the assessee has not demonstrated with relevant evidences the status of the person named Sanjay (v) The assessee has also failed to furnish the proper freight format expenses and no separate evidences in the form of weigh bridge receipt loading and unloading slips toll expenses receipt and sale tax payment receipts were furnished (vi) The assessee has also not produced any evidence of toll fees for the movement of goods from Surat to Bhavnagar. (vii) The assessing officer during the course of assessment has written letter dated 07-03-2013, 19-03-2013 asking the Jay Ambe Metal Corporation to furnish the carriers to verify the genuineness of the purchases but the suppliers of goods has failed to make compliance by not fully responding to notices issued by the assessing officer (viii) The assessing officer has also stated that the assessee has failed to prove with the relevant supporting material that how the same truck had made loading and unloading from Jamnagar to Bhavnagar and Bhavnagar to Surat within a duration of 24 hours covering nearly 1380 kms. In the light of the above facts and detailed findings elaborated by the ld. CIT(A) as above, we observe that assessee has purchased goods from other parties not from M/s. Jay Ambe Metal Corporation and these facts were also admitted by the Ld.CIT(A) as per his findings elaborated above in this order and relevant part again reproduced as under:- “Since the appellant has failed to prove tire movement of goods from Surat to Bhavnagar which claimed to have been purchased from Jay A.mbe Metal Corporation. But at the same time part of the goods shown to have been sold to M/s.Somani Impex, Jamnagar and the balance has been shown as closing stock, it is certain that the goods have been purchased by the appellant but not from Jay Ambe Metal Corporation, Surat and from some other party in cash. So the provisions of Section 69C are clearly applicable over the facts for the unexplained expenditure by the appellant for the unaccounted cash payments utilized for the purchases of the goods from some other parties of which no sources have been explained by the appellant. Therefore, the additions
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to the extent of Rs.2,71,42,228/- are confirmed in view of the provisions of Section 69C of the I.T. Act and the AO's observation about the purchases held to be bogus from Jay Ambe Metal Corporation, Surat is correct and justified. Thus, the ground of appeal is dismissed.” However, we do not find justification in the decision of the ld. CIT(A) in adding the whole amount of the purchases of Rs. 2,71,42,228/- from the said party as it has not been established with relevant material that the assessee has utilized the unaccounted cash payment for the purchase of the goods from some other parties. Out of total amount of purchases of Rs. 2,17,42,228/- the assessing officer has disallowed 100% of the purchases by treating the same as bogus purchases. After analysis of the sales existed against the purchases we observe that the case is not of totally non-existent of purchases but it is the case of not establishing the same with proper bills and evidences . Because of above infirmity transpired in verification of purchases we consider that inflating of expenditure on account of unverified purchases is feasible. We have also considered that the Hon’ble jurisdictional High Court in the case of Vijay Proteins Ltd (2015) 58 taxmann.com 44 (Gujarat) held at para 16 of the order as under :- “ It is a matter of fact that the goods were not received from the parties from whom it is shown to have been purchased but, such material was received from a different source which is exclusively within the knowledge of the assessee and none else. Therefore, it is evident that the assessee had inflated the expenditure in question by showing higher amount of purchase price through the fictitious invoices in the names of 33 bogus suppliers. Considering the overall factual scenario, the Tribunal was justified in disallowing 25% of the purchase price”
After considering the above facts and circumstances we are of the view it will be appropriate to restrict such disallowance to 25% of Rs. 2,17,42,228/- which come to Rs.54,35,557/ as against Rs. 2,17,42,228/- disallowance
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made by the assessing officer. Accordingly, the appeal of the assessee is partly allowed on this issue.
Gound No. 3: Disallowance of interest of Rs. 2,55,534/-
On verification of the P & L account the assessing officer has noticed that assessee has claimed interest expenses of Rs. 55,27,011/- . The assessing officer observed that assessee has not charged interest from Smt. Bhanumati Rana Chetan Overseas and Pure Gases on the advances/ loan given to them by the assessee. The assessing officer has not accepted the explanation of the assessee that loan advances were given to the aforesaid person out of the interest free fund as the assessee has failed to explain that how the loans were given out of the interest free fund. Therefore, the assessee has disallowed the interest expenses @ 12% of interest receivable on the advances given to the aforesaid three parties amounting of Rs. 2,55,334/- to the total income of the assessee.
The assessee filed appeal before he ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee. The relevant part of decision of ld. CIT(A) is reproduced as under:- “6.3 I have considered the facts of the case and submission made by the appellant. The AO has made the disallowance of the notional interest expenses of Rs.2,55,534/- stating that the appellant has granted interest free advances to Smt. Bhanurnati Rana, Chetan Overseas and Pure Gases. It has been observed by the AO that the total interest expenses of Rs.55,27,011/- has been claimed by the appellant on the various loans and advances taken from various parties including banks. Neither the appellant has proved any business connection for making such advances nor it has been proved that those advances were made only from interest flee funds available with the appellant. Therefore, the interest @12% which worked out to Rs.2,55,534/- has been disallowed by the A.O.”
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We have heard the rival contentions and perused the material on record on this issue. It is admitted fact that the assessee has not charged any interest in respect of the loan amount provided to the aforesaid three parties however it has incurred interest expenditure of Rs.55,27,011/ . In this connection we observe that neither before the lower authorities nor during the course of appellate proceedings before us the assessee has substantiated with the relevant material that the aforesaid advances were provided out of interest free funds , therefore we do not find any reason to interfere in the decision of Ld. CIT(A). Accordingly this appeal of the assessee is dismissed.
In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 13-03-2019
Sd/- Sd/- (MADHUMITA ROY) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad : Dated 13/03/2019 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद