M/S. PARAS PLASTIC PROCESSORS,MUMBAI vs. INCOME TAX OFFICER WARD-27(2)(5), MUMBAI

PER OM PRAKASH KANT, AM This appeal by the assessee is directed against order dated 06/06/2019 passed by the Ld. CIT(Appeals)-25, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2010-11. The assessee has revised its ground, which is reproduced as under:

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assessee against the reopening assessee against the reopening of assessment. For verification of the . For verification of the purchases made by the assessee, the purchases made by the assessee, the Assessing Officer Assessing Officer issued notice under section 133(6) of the under section 133(6) of the Act to the purchase partie to the purchase parties however same returned back by the postal authorities with the remark “left” same returned back by the postal authorities with the remark “left” same returned back by the postal authorities with the remark “left” or “not known”. The . The Assessing Officer also deputed also deputed Inspector of his office for service of the notice under section 133(6) of the office for service of the notice under section 133(6) of the office for service of the notice under section 133(6) of the Act, but he also could not trace those parties at also could not trace those parties at the given address the given addresses. Accordingly the Assessing Officer Assessing Officer asked the assessee to substantiate asked the assessee to substantiate the purchases by way of providing latest address of the parties, the purchases by way of providing latest address of the parties, the purchases by way of providing latest address of the parties, along with details of goods purchased, copy of bills raised by those along with details of goods purchased, copy of bills raised by those along with details of goods purchased, copy of bills raised by those parties, freight invoices, octr ies, freight invoices, octroi, and transportation bill in respect of and transportation bill in respect of delivery of the material from said parties. The assessee did not file the material from said parties. The assessee did not file the material from said parties. The assessee did not file any information except pleading that payments were made by any information except pleading that payments were made by any information except pleading that payments were made by cheque. The Ld. Assessing Officer Assessing Officer rejected the contention of the rejected the contention of the assessee observing as under: assessee observing as under:

10.5 The submissions of the assessee's AR have been considered at 10.5 The submissions of the assessee's AR have been considered at 10.5 The submissions of the assessee's AR have been considered at length, however it is not acceptable for the following reasons: length, however it is not acceptable for the following reasons: length, however it is not acceptable for the following reasons:

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The assessee failed to furnish the following details or document The assessee failed to furnish the following details or document The assessee failed to furnish the following details or documentary evidences;

i) Any documentary evidence, substantiating receipt of material Any documentary evidence, substantiating receipt of material Any documentary evidence, substantiating receipt of material claimed to be purchased from the above parties, claimed to be purchased from the above parties, to produce the parties from whnm purchases were made for ii) to produce the parties from whnm purchases were made for to produce the parties from whnm purchases were made for verification verification iii) to link the consumption or reselling of these materials with to link the consumption or reselling of these materials with to link the consumption or reselling of these materials with the production activity the production activity iv) in many instances, copy of corresponding sales bills are issued in many instances, copy of corresponding sales bills are issued in many instances, copy of corresponding sales bills are issued much before purchasing of said material. This proves that much before purchasing of said material. This proves that much before purchasing of said material. This proves that assessee tried to prove that the said material was resold by assessee tried to prove that the said material was resold by assessee tried to prove that the said material was resold by issuing bogus sale bills, issuing bogus sale bills, v) In his submission asse In his submission assessee's AR stated that the purchases ssee's AR stated that the purchases made by the assessee are made by the assessee are ultimately sold to various parties. ultimately sold to various parties. However, assessee failed to give quantitative details of However, assessee failed to give quantitative details of However, assessee failed to give quantitative details of opening stock, material purchase during the year, material opening stock, material purchase during the year, material opening stock, material purchase during the year, material consumed during the year, consumed during the year, material directly resold during the resold during the year and closing stock of the material. Hence, it is not Fully year and closing stock of the material. Hence, it is not year and closing stock of the material. Hence, it is not ascertainable that which items were used in manufacturing ascertainable that which items were used in manufacturing ascertainable that which items were used in manufacturing activity or resold during activity or resold during the year, vi) In para 28(a) and 28(b) of Form 3CD of Audit Report, no In para 28(a) and 28(b) of Form 3CD of Audit Report, no In para 28(a) and 28(b) of Form 3CD of Audit Report, no details have been given details have been given reg. quantitative details of principal quantitative details of principal items of goods either traded or used in manufacturing items of goods either traded or used in manufacturing items of goods either traded or used in manufacturing activity. activity.

prove that material purchase purchased from bogus parties was actually use from bogus parties was actually used

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in the manufacturing activity manufacturing activity. The Assessing Officer Assessing Officer has given detailed finding in para 12 of the assessment order as why the detailed finding in para 12 of the assessment order as why the detailed finding in para 12 of the assessment order as why the purchases of the assessee are not genuine. On further appeal, the Ld. purchases of the assessee are not genuine. On further appeal, the Ld. purchases of the assessee are not genuine. On further appeal, the Ld. CIT(A) noted that in absence of daily stock and production register noted that in absence of daily stock and production register noted that in absence of daily stock and production register, it could not be said that the purchase material was used in the it could not be said that the purchase material was used in the it could not be said that the purchase material was used in the manufacturing activity. There was no supporting evidence from the manufacturing activity. There was no supporting evidence from the manufacturing activity. There was no supporting evidence from the transporters. The assessee also failed to substantiate receipt of transporters. The assessee also failed to substantiate receipt of transporters. The assessee also failed to substantiate receipt of goods from bogus parties as well as possibility of purchas goods from bogus parties as well as possibility of purchas goods from bogus parties as well as possibility of purchase of goods from unknown sellers in the grey market. In view of the failure on from unknown sellers in the grey market. In view of the failure on from unknown sellers in the grey market. In view of the failure on the part of the assessee in linking the impugned purchase with the the part of the assessee in linking the impugned purchase with the the part of the assessee in linking the impugned purchase with the manufacturing products, the Ld. CIT(A) upheld disallowance of manufacturing products, the Ld. CIT(A) upheld disallowance of manufacturing products, the Ld. CIT(A) upheld disallowance of entire purchases by way of detailed finding. Aggr by way of detailed finding. Aggrieved ieved, the assessee filed appeal before the filed appeal before the Tribunal, raising the grounds is reproduced raising the grounds is reproduced above.

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Further on, filing miscellaneou Further on, filing miscellaneous application, the appeal has been s application, the appeal has been recalled by the Tribunal Tribunal vide order dated 23/03/2022. Accordingly, order dated 23/03/2022. Accordingly, the appeal of the assessee the appeal of the assessee is being adjudicated after hearing the is being adjudicated after hearing the parties.

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assessment is void ab intio void ab intio. The Ld. counsel referred red to the decision of Hon’ble Bombay High Court in the case of of Hon’ble Bombay High Court in the case of Hindustan Lever Ltd Hindustan Lever Ltd versus ACIT and others reported in 268 ITR 332 (Bom) versus ACIT and others reported in 268 ITR 332 (Bom) versus ACIT and others reported in 268 ITR 332 (Bom). He further referred to the decision of the Hon’ble Bombay High Court in to the decision of the Hon’ble Bombay High Court in to the decision of the Hon’ble Bombay High Court in the case of PCIT Vs Shodiman investment Private Limit PCIT Vs Shodiman investment Private Limit PCIT Vs Shodiman investment Private Limited 167 DTR 290 (Bom) and submitted that in the instant case there was no and submitted that in the instant case there was no and submitted that in the instant case there was no tangible material to reopen the assessment. tangible material to reopen the assessment.

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there was no tangible material for reopening the assessment, t there was no tangible material for reopening the assessment, t there was no tangible material for reopening the assessment, the Ld. DR submitted that there was a submitted that there was an information from the credible and information from the credible and reliable sources, which was gathered by way of searches and reliable sources, which was gathered by way of searches and reliable sources, which was gathered by way of searches and surveys action by the relevant investigating authorities of the surveys action by the relevant investigating authorities of the surveys action by the relevant investigating authorities of the Sales Tax Department of Maharashtra and of Maharashtra and Income Tax Department Income Tax Department Mumbai. He submitted that in view of the decision of the Hon’ble Mumbai. He submitted that in view of the decision of the Hon’ble Mumbai. He submitted that in view of the decision of the Hon’ble Supreme Court in the case of Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Broker ACIT v. Rajesh Jhaveri Stock Broker P. Ltd. [2007] (7 SCR 765) SCR 765) for reopening of the assessment, for reopening of the assessment, it is sufficient if a reasonable person can sufficient if a reasonable person can form requisite belief on the form requisite belief on the basis of the relevant material. He accordingly submitted that basis of the relevant material. He accordingly submitted that basis of the relevant material. He accordingly submitted that assessment has been reopen assessment has been reopened validly. He also submitted that validly. He also submitted that during the course of the reassessment during the course of the reassessment, the assessee did not file any objections against the reopening against the reopening.

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Assessing Officer nor nor challenged before the Ld. CIT(A). It is before the Ld. CIT(A). It is for the first time before the first time before the Tribunal the assessee has has challenged the validity of the reassessment. Before us, the validity of the reassessment. Before us, the Ld. counsel Ld. counsel of assessee has relied on the decision of the Hon’ble Bombay High Court in the has relied on the decision of the Hon’ble Bombay High Court in the has relied on the decision of the Hon’ble Bombay High Court in the case of Hindustan Lever Ltd (supra). The relevan case of Hindustan Lever Ltd (supra). The relevant finding of the t finding of the Hon’ble High Court is reproduced as under: Hon’ble High Court is reproduced as under:

“21. The reasons recorded by the Assessing Officer nowhere state that 21. The reasons recorded by the Assessing Officer nowhere state that 21. The reasons recorded by the Assessing Officer nowhere state that there was failure on the part of the assessee to disclose fully and truly there was failure on the part of the assessee to disclose fully and truly there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment all material facts necessary for the assessment of that assessment all material facts necessary for the assessment of that assessment year. It is needless to mention that the reaso year. It is needless to mention that the reasons are required to be ns are required to be read as they were recorded by the Assessing Officer. No substitution read as they were recorded by the Assessing Officer. No substitution read as they were recorded by the Assessing Officer. No substitution or deletion is permissible. No additions can be made to those reasons. or deletion is permissible. No additions can be made to those reasons. or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not No inference can be allowed to be drawn based on reasons not No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing recorded. It is for the Assessing Officer to disclose and open his mind Officer to disclose and open his mind through reasons recorded by him. He has to speak through his through reasons recorded by him. He has to speak through his through reasons recorded by him. He has to speak through his reasons. It is for the Assessing Officer to reach the conclusion as to reasons. It is for the Assessing Officer to reach the conclusion as to reasons. It is for the Assessing Officer to reach the conclusion as to whether there was failure on the part of the assessee to disclose fully whether there was failure on the part of the assessee to disclose fully whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the material facts necessary for his assessment for the concerned assessment year. It is for the Assessing Officer to form his concerned assessment year. It is for the Assessing Officer to form his concerned assessment year. It is for the Assessing Officer to form his opinion. It is for him to put his opinion on record in black and white. opinion. It is for him to put his opinion on record in black and white. opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and sho The reasons recorded should be clear and unambiguous and sho The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose not suffer from any vagueness. The reasons recorded must disclose not suffer from any vagueness. The reasons recorded must disclose his mind. The reasons are the manifestation of the mind of the his mind. The reasons are the manifestation of the mind of the his mind. The reasons are the manifestation of the mind of the Assessing Officer. The reasons recorded should be self Assessing Officer. The reasons recorded should be self-explanatory explanatory

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and should not keep the assessee guessing for the reason and should not keep the assessee guessing for the reason and should not keep the assessee guessing for the reasons. Reasons provide the link between conclusion and evidence. The reasons provide the link between conclusion and evidence. The reasons provide the link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the recorded must be based on evidence. The Assessing Officer, in the recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same event of challenge to the reasons, must be able to justify the same event of challenge to the reasons, must be able to justify the same based on material available on record. He must di based on material available on record. He must disclose in the sclose in the reasons as to which fact or material was not disclosed by the assessee reasons as to which fact or material was not disclosed by the assessee reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as fully and truly necessary for assessment of that assessment year, so as fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the reasons and evidence. That to establish the vital link between the reasons and evidence. That to establish the vital link between the reasons and evidence. That vital link is the safeguard agai vital link is the safeguard against arbitrary reopening of the nst arbitrary reopening of the concluded assessment. The reasons recorded by the Assessing Officer concluded assessment. The reasons recorded by the Assessing Officer concluded assessment. The reasons recorded by the Assessing Officer cannot be supplemented by filing an affidavit or making an oral cannot be supplemented by filing an affidavit or making an oral cannot be supplemented by filing an affidavit or making an oral submission, otherwise, the reasons which were lacking in the submission, otherwise, the reasons which were lacking in the submission, otherwise, the reasons which were lacking in the material particulars would get s material particulars would get supplemented, by the time the matter upplemented, by the time the matter reaches the court, on the strength of the affidavit or oral submissions reaches the court, on the strength of the affidavit or oral submissions reaches the court, on the strength of the affidavit or oral submissions advanced.” 10.1 We find that Hon’ble High Court find that Hon’ble High Court in above case in above case has mainly quashed the reassessment due to the reason that in the quashed the reassessment due to the reason that in the quashed the reassessment due to the reason that in the reasons recorded by the Assessing Officer Assessing Officer nowhere it is stated that there was stated that there was any failure on the part of the assessee to disclose fully and truly all failure on the part of the assessee to disclose fully and truly all failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. This requirement of material facts necessary for the assessment. This requirement of material facts necessary for the assessment. This requirement of failure on the part of the assessee to disclose fully and tru failure on the part of the assessee to disclose fully and tru failure on the part of the assessee to disclose fully and truly all materials is as per first proviso first proviso to section 147 of the to section 147 of the Act, which apply wherever assessment is reopen apply wherever assessment is reopened beyond the period of four beyond the period of four

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years from the end of the relevant assessment year. But in the years from the end of the relevant assessment year. But in the years from the end of the relevant assessment year. But in the instant case assessment year involved is nt case assessment year involved is 2010 2010-11 and the assessment has been reopened on 19/03/2015 has been reopened on 19/03/2015, which is within four , which is within four years from the end of the relevant assessment year. Thus years from the end of the relevant assessment year. Thus years from the end of the relevant assessment year. Thus, the reliance placed by the reliance placed by the Ld. counsel of the assessee on the decision of of the assessee on the decision of the Hon’ble Bombay High Court in the case of Hindustan Lever Ltd the Hon’ble Bombay High Court in the case of Hindustan Lever Ltd the Hon’ble Bombay High Court in the case of Hindustan Lever Ltd (supra) is of no assistance being distinguishable on facts. Further, (supra) is of no assistance being distinguishable on facts. Further, (supra) is of no assistance being distinguishable on facts. Further, the Ld. counsel has placed reliance on the decision of the Hon’ble has placed reliance on the decision of the Hon’ble has placed reliance on the decision of the Hon’ble Bombay High Court i Bombay High Court in the case of Shodiman investment Private Shodiman investment Private Limited (supra), where the Hon’ble High Court has held as under: , where the Hon’ble High Court has held as under: , where the Hon’ble High Court has held as under:

“12 The reopening of an Assessment is an exercise of extraordinary 12 The reopening of an Assessment is an exercise of extraordinary 12 The reopening of an Assessment is an exercise of extraordinary power on the part of the Assessing Officer, as it leads to unsettling the power on the part of the Assessing Officer, as it leads to unsettling the power on the part of the Assessing Officer, as it leads to unsettling the settled issue/assessments. Therefore, the reasons to believe have to be issue/assessments. Therefore, the reasons to believe have to be issue/assessments. Therefore, the reasons to believe have to be necessarily recorded in terms of Section 148 of the Act, before reopening necessarily recorded in terms of Section 148 of the Act, before reopening necessarily recorded in terms of Section 148 of the Act, before reopening notice, is issued. These reasons, must indicate the material (whatever notice, is issued. These reasons, must indicate the material (whatever notice, is issued. These reasons, must indicate the material (whatever reasons) which form the basis of reopening Asse reasons) which form the basis of reopening Assessment and its reasons ssment and its reasons which would evidence the linkage/ nexus to the conclusion that income which would evidence the linkage/ nexus to the conclusion that income which would evidence the linkage/ nexus to the conclusion that income chargeable to tax has escaped Assessment. This is a settled position as chargeable to tax has escaped Assessment. This is a settled position as chargeable to tax has escaped Assessment. This is a settled position as observed by the Supreme Court in observed by the Supreme Court in S. Narayanappa v/s. CIT 63 ITR S. Narayanappa v/s. CIT 63 ITR 219, that it is open to exa that it is open to examine whether the reason to believe has mine whether the reason to believe has rational connection with the formation of the belief. To the same effect, rational connection with the formation of the belief. To the same effect, rational connection with the formation of the belief. To the same effect,

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the Apex Court in the Apex Court in ITO v/s. Lakhmani Merwal Das 103 ITR 437 ITO v/s. Lakhmani Merwal Das 103 ITR 437 had laid down that the reasons to believe must have rational connection laid down that the reasons to believe must have rational connection laid down that the reasons to believe must have rational connection with or relevant bearing on the formation of belief i.e. there must be a vant bearing on the formation of belief i.e. there must be a vant bearing on the formation of belief i.e. there must be a live link between material coming the notice of the Assessing Officer and live link between material coming the notice of the Assessing Officer and live link between material coming the notice of the Assessing Officer and the formation of belief regarding escapement of income. If the aforesaid the formation of belief regarding escapement of income. If the aforesaid the formation of belief regarding escapement of income. If the aforesaid requirement are not met, the Assessee is entitle requirement are not met, the Assessee is entitled to challenge the very d to challenge the very act of reopening of Assessment and assuming jurisdiction on the part of act of reopening of Assessment and assuming jurisdiction on the part of act of reopening of Assessment and assuming jurisdiction on the part of the Assessing Officer.” the Assessing Officer.”

10.2 The reasons recorded reasons recorded in the above case had been reproduced in the above case had been reproduced

by the Hon’ble High Court in para 7 of the decision. For ready by the Hon’ble High Court in para 7 of the decision. For ready by the Hon’ble High Court in para 7 of the decision. For ready

reference, said reasons recorded is reproduced as under: , said reasons recorded is reproduced as under: , said reasons recorded is reproduced as under:

“Intimation regarding reopening the Assessment u/s. 147 of the I.T. Act Intimation regarding reopening the Assessment u/s. 147 of the I.T. Act Intimation regarding reopening the Assessment u/s. 147 of the I.T. Act 1961 has been received in this office on 29.03.2010 from 1961 has been received in this office on 29.03.2010 from DDIT (Inv.) unit DDIT (Inv.) unit 1(4) Mumbai.

It was intimated that search action was conducted It was intimated that search action was conducted u/s. 132 of u/s. 132 of I.T. act 1961 on 25.11.2009. 1961 on 25.11.2009. In the case of Mahasagar Securities Pvt. Ltd., In the case of Mahasagar Securities Pvt. Ltd., where it is found suspicious transaction taken place in the Bank where it is found suspicious transaction taken place in the Bank where it is found suspicious transaction taken place in the Bank account of the company and its related company account of the company and its related company. The copy of said . The copy of said letter which is self explanatory whic letter which is self explanatory which is forwarded to your honour. h is forwarded to your honour.

From verification of Blue Book it is found that there is no such From verification of Blue Book it is found that there is no such From verification of Blue Book it is found that there is no such assessee is assessed in his charge. Similarly, no PAN No. is furnished. is assessed in his charge. Similarly, no PAN No. is furnished. is assessed in his charge. Similarly, no PAN No. is furnished. However, the assessee have jurisdiction in this charge & the action is the assessee have jurisdiction in this charge & the action is the assessee have jurisdiction in this charge & the action is going by bar by its of limitation of time. its of limitation of time.

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I have reason to believe that there is escapement of the income I have reason to believe that there is escapement of the income I have reason to believe that there is escapement of the income within meaning of u/s. 147 of the I.T. Act, 1961. meaning of u/s. 147 of the I.T. Act, 1961. As per proviso of section 151(2) As per proviso of section 151(2) of the I.T. Act, no notice u/s. of the I.T. Act, no notice u/s. 148 issued by the assessing officer below the 148 issued by the assessing officer below the rank of the J.C. after the k of the J.C. after the expiry of 4 years from the end of relevant A.Y. expiry of 4 years from the end of relevant A.Y. unless the Joint CIT is unless the Joint CIT is satisfied on the assessee recorded by the AO that it satisfied on the assessee recorded by the AO that it is fit case for the is fit case for the issue of such notice. In view of the above, sanction of issue of notice u/s. 148 of the In view of the above, sanction of issue of notice u/s. 148 of the In view of the above, sanction of issue of notice u/s. 148 of the I.T. Act, 1961 for A.Y. 2003 1961 for A.Y. 2003-04 may be accorded if deemed fit.” (emphasis supplied externally) (emphasis supplied externally) 10.3 From the above reasons recorded in the case of the above reasons recorded in the case of the above reasons recorded in the case of Shodiman investment Private Limited (supra), it is evident that suspicious investment Private Limited (supra), it is evident that suspicious investment Private Limited (supra), it is evident that suspicious transactions in the case of Mahasagar transactions in the case of Mahasagar Securities Private Limited was Private Limited was the foundation for making requisite belief and therefore the foundation for making requisite belief and therefore the foundation for making requisite belief and therefore Hon’ble High Court held that there was no rational conn High Court held that there was no rational connection between the ection between the reasons recorded and formation of the belief and formation of the belief. The Hon’ble high court Hon’ble high court also held that there was no live link between the material coming to that there was no live link between the material coming to that there was no live link between the material coming to the notice and formation of the belief regarding escapement of the notice and formation of the belief regarding escapement of the notice and formation of the belief regarding escapement of income.

10.4 But in the instant cas But in the instant case before us there is a tangible information e before us there is a tangible information received from the Director Director-general of Income-tax (Investigation), tax (Investigation),

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Mumbai that assessee had taken accommodation entries from two Mumbai that assessee had taken accommodation entries from two Mumbai that assessee had taken accommodation entries from two parties namely M/s SM Trading company ( amely M/s SM Trading company (₹3,14,600/ 3,14,600/-) and M/s RidhiSidhi Corporation RidhiSidhi Corporation (₹5,60,835/-) totalling to ₹ ₹8,74,835/-. The parties from whom the assessee obtained bogus bills have been duly arties from whom the assessee obtained bogus bills have been duly arties from whom the assessee obtained bogus bills have been duly mentioned along with their respective amount of bogus purchases mentioned along with their respective amount of bogus purchases mentioned along with their respective amount of bogus purchases in the reasons recorded. in the reasons recorded. In view of the above, the reasons recorded In view of the above, the reasons recorded satisfies the requirement of requisite belief which could be formed requirement of requisite belief which could be formed requirement of requisite belief which could be formed by a reasonable person on the basis of the relevant materi reasonable person on the basis of the relevant materi reasonable person on the basis of the relevant material. The Hon’ble Supreme Court in the case of Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock ACIT v. Rajesh Jhaveri Stock Broker P. Ltd. [2007] (7 [2007] (7 SCR 765) that at the initiation stage, what at the initiation stage, what is required is reason to believe but not the established fact of is required is reason to believe but not the established fact of is required is reason to believe but not the established fact of escapement of income. At the stage of issue of notice, the only escapement of income. At the stage of issue of notice, the only escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a question is whether there was relevant material on which a question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the reasonable person could have formed a requisite belief. Whether the reasonable person could have formed a requisite belief. Whether the materials could conclusively prove the escapement is not the materials could conclusively prove the escapement is not the materials could conclusively prove the escapement is not the concern at the stage. Further, the Hon’ble concern at the stage. Further, the Hon’ble Supreme Court in the ca Supreme Court in the case

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of Raymond Wollen Mills Ltd. V. ITO & Other reported in 326 Raymond Wollen Mills Ltd. V. ITO & Other reported in 326 Raymond Wollen Mills Ltd. V. ITO & Other reported in 326 ITR 34 (SC) held that sufficiency or correctness of material is no held that sufficiency or correctness of material is not a held that sufficiency or correctness of material is no thing to be considered at the stage of recording reasons. thing to be considered at the stage of recording reasons. thing to be considered at the stage of recording reasons. The relevant part of the decision of the Hon’ble Supreme Court is relevant part of the decision of the Hon’ble Supreme Court is relevant part of the decision of the Hon’ble Supreme Court is reproduced as under: reproduced as under:

“16. Section 147 Section 147 authorises and permits the Assessing Officer to assess fficer to assess or reassess income chargeable to tax if he has reason to believe that or reassess income chargeable to tax if he has reason to believe that or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word income for any assessment year has escaped assessment. The word income for any assessment year has escaped assessment. The word ‘reason’ in the phrase reason to believewould mean cause or ‘reason’ in the phrase reason to believewould mean cause or ‘reason’ in the phrase reason to believewould mean cause or justification. If the Assessing Officer has c justification. If the Assessing Officer has cause or justification to know or ause or justification to know or suppose that income had escaped assessment, it can be said to have suppose that income had escaped assessment, it can be said to have suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The reason to believe that an income had escaped assessment. The reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should expression cannot be read to mean that the Assessing Officer should expression cannot be read to mean that the Assessing Officer should have finally ascertained th have finally ascertained the fact by legal evidence or conclusion. The e fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with function of the Assessing Officer is to administer the statute with function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to solicitude for the public exchequer with an inbuilt idea of fairness to solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Delhi High Court in taxpayers. As observed by the Delhi High Court in Central Provinces Central Provinces Manganese Ore Co. Ltd. v. ITO Manganese Ore Co. Ltd. v. ITO [1991 (191) ITR 662], for initiation of [1991 (191) ITR 662], for initiation of action under section 147(a) section 147(a) (as the provision stood at the relevant time) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At of the two requisite conditions in that regard is essential. At of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. that stage, the final outcome of the proceeding is not relevant. that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is ‘reason to words, at the initiation stage, what is required is ‘reason to words, at the initiation stage, what is required is ‘reason to believe’, but not the established fact of escapement of income. At believe’, but not the established fact of escapement of income. At believe’, but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was the stage of issue of notice, the only question is whether there was the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person c relevant material on which a reasonable person could have formed ould have formed

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a requisite belief. Whether the materials would conclusively prove a requisite belief. Whether the materials would conclusively prove a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the escapement is not the concern at that stage. This is so because the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm the formation of belief by the Assessing Officer is within the realm the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. ITO v. Selected Dalurband Coal Co. Pvt. Ltd. [1996 (217) ITR 597 (SC)] ; . [1996 (217) ITR 597 (SC)] ; Raymond Woollen Mills Ltd. v. Raymond Woollen Mills Ltd. v. ITO [ 1999 (236) ITR 34 (SC)].” [ 1999 (236) ITR 34 (SC)].” (emphasis supplied ext (emphasis supplied externally by us) 10.5 In view of above above discussion, we reject the argument of the , we reject the argument of the Ld. counsel of the assessee challenging the validity of the reassessment of the assessee challenging the validity of the reassessment of the assessee challenging the validity of the reassessment and accordingly the additional cordingly the additional grounds raised by the assessee raised by the assessee are dismissed.

“12. Moreover, contention of the assessee that the purchases are Moreover, contention of the assessee that the purchases are Moreover, contention of the assessee that the purchases are genuine is not acceptable for the following reasons: is not acceptable for the following reasons: i. The assessee submitted invoices from the alleged bogus parties The assessee submitted invoices from the alleged bogus parties The assessee submitted invoices from the alleged bogus parties but failed to produce delivery challans and it was claimed by the but failed to produce delivery challans and it was claimed by the but failed to produce delivery challans and it was claimed by the assessee that in their line of business there is no system of issuing assessee that in their line of business there is no system of issuing assessee that in their line of business there is no system of issuing delivery cha delivery challan. On perusing the same, it was found that there llan. On perusing the same, it was found that there

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was no signature of receiving. No supporting document for was no signature of receiving. No supporting document for was no signature of receiving. No supporting document for acknowledgment of receipt of goods was produced by the acknowledgment of receipt of goods was produced by the acknowledgment of receipt of goods was produced by the assessee to confirm that the goods purchased were actually assessee to confirm that the goods purchased were actually assessee to confirm that the goods purchased were actually delivered to him. In the case of delivered to him. In the case of credit purchases, like in this case credit purchases, like in this case acknowledgment of receipt of material is a must to settle the acknowledgment of receipt of material is a must to settle the acknowledgment of receipt of material is a must to settle the claim in the future. claim in the future. ii. The production of invoice is no help to the assessee since in the The production of invoice is no help to the assessee since in the The production of invoice is no help to the assessee since in the activity activity activity of of of accommodation accommodation accommodation entry, entry, entry, such such such documents documents documents are are are meticulously maint meticulously maintained both by the entry provider and entry ained both by the entry provider and entry seeker. iii. The contention that the payment was made by account payee The contention that the payment was made by account payee The contention that the payment was made by account payee cheque is not a full proof method of substantiating assessee's cheque is not a full proof method of substantiating assessee's cheque is not a full proof method of substantiating assessee's claim as it was already accepted by person on whom enquiry was claim as it was already accepted by person on whom enquiry was claim as it was already accepted by person on whom enquiry was done by Sales Tax Dep done by Sales Tax Department that cash is given back after artment that cash is given back after deduction of commission once the cheque is realized. Further, the deduction of commission once the cheque is realized. Further, the deduction of commission once the cheque is realized. Further, the payment through banking channel does not give certificate to payment through banking channel does not give certificate to payment through banking channel does not give certificate to the assessee that the purchases made by him were from genuine the assessee that the purchases made by him were from genuine the assessee that the purchases made by him were from genuine and existing parties. Support and existing parties. Support is drawn from the decision of the is drawn from the decision of the Hon'ble ITAT, Jaipur in the case of M/s Kachwala Gems Vs JCIT Hon'ble ITAT, Jaipur in the case of M/s Kachwala Gems Vs JCIT Hon'ble ITAT, Jaipur in the case of M/s Kachwala Gems Vs JCIT (ITA No. 134/JP/2002 dated 10.12.2013), affirmed by the (ITA No. 134/JP/2002 dated 10.12.2013), affirmed by the (ITA No. 134/JP/2002 dated 10.12.2013), affirmed by the Hon'ble Supreme Court in the case of M/s Kachwala Gems VS Hon'ble Supreme Court in the case of M/s Kachwala Gems VS Hon'ble Supreme Court in the case of M/s Kachwala Gems VS JCIT (2006) 206 CTR (SC) 585:288 TR 10(SC), i JCIT (2006) 206 CTR (SC) 585:288 TR 10(SC), it has been held t has been held that even payment by account payee cheque is not sufficient to that even payment by account payee cheque is not sufficient to that even payment by account payee cheque is not sufficient to establish the genuineness of purchases. establish the genuineness of purchases. iv. Assessee did not produce the purchase parties for verification. Assessee did not produce the purchase parties for verification. Assessee did not produce the purchase parties for verification. The onus to prove the genuineness of existence of the parties lies The onus to prove the genuineness of existence of the parties lies The onus to prove the genuineness of existence of the parties lies on the on the assessee. The assessee failed to discharge this assessee. The assessee failed to discharge this responsibility. No serious efforts were made by the assessee to responsibility. No serious efforts were made by the assessee to responsibility. No serious efforts were made by the assessee to discharge such burden proving the genuineness of transactions discharge such burden proving the genuineness of transactions discharge such burden proving the genuineness of transactions

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with these parties. In this regards reliance is place on decision of with these parties. In this regards reliance is place on decision of with these parties. In this regards reliance is place on decision of Honble Calcu Honble Calcutta High Court in the case of CIT vs Korlay Trading tta High Court in the case of CIT vs Korlay Trading Co. Ltd reported in 232 ITR 820 where the Hon'ble court has held Co. Ltd reported in 232 ITR 820 where the Hon'ble court has held Co. Ltd reported in 232 ITR 820 where the Hon'ble court has held that the initial burden is on the assessee to prove the that the initial burden is on the assessee to prove the that the initial burden is on the assessee to prove the genuineness of purchases. genuineness of purchases. v. Assesse has failed to establish that the quantity of the material Assesse has failed to establish that the quantity of the Assesse has failed to establish that the quantity of the corresponding to the bogus purchase was actually used in the corresponding to the bogus purchase was actually used in the corresponding to the bogus purchase was actually used in the production activity or resold. production activity or resold.”

amount of bogus purchases observing as under: amount of bogus purchases observing as under:

“6.1 The grounds of appeal no. 1, 2 & 3 assail The grounds of appeal no. 1, 2 & 3 assail the disallowance of the disallowance of Rs.8,74,835/- on account of on account of bogus purchases. It is seen that the assessee bogus purchases. It is seen that the assessee is engaged in the business of manufacturing and is engaged in the business of manufacturing and reselling of plastic reselling of plastic granules/powder. It is trite that if purchases are genuinely made by the granules/powder. It is trite that if purchases are genuinely made by the granules/powder. It is trite that if purchases are genuinely made by the assessee, the same c the same can either be consumed in the manufacturing an either be consumed in the manufacturing business or diverted by sale elsewhere. The business or diverted by sale elsewhere. The assessee can succeed in his assessee can succeed in his claim only if he can prove that the material purchased was utilized by it claim only if he can prove that the material purchased was utilized by it claim only if he can prove that the material purchased was utilized by it to make some products. For this, the assessee should have maintaine to make some products. For this, the assessee should have maintaine to make some products. For this, the assessee should have maintained relevant daily stock and relevant daily stock and production registers. It is matter of record that production registers. It is matter of record that the assessee has not maintained any such record. The the assessee has not maintained any such record. The assessee has not assessee has not explained how the impugned material was utilized. On the contrary the explained how the impugned material was utilized. On the contrary the explained how the impugned material was utilized. On the contrary the AO had information that the alleged sup information that the alleged suppliers were hawala dealers who pliers were hawala dealers who only supplied accommodation bills. only supplied accommodation bills. The suppliers were not traceable at The suppliers were not traceable at the given address and the assessee was unable to produce the the given address and the assessee was unable to produce the the given address and the assessee was unable to produce the parties. There is no supporting evidence from any transporters or any There is no supporting evidence from any transporters or any There is no supporting evidence from any transporters or any manufacturing record. I manufacturing record. In the appellate proceedings also, the assessee appellate proceedings also, the assessee

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was allowed full opportunity to justify and prove his was allowed full opportunity to justify and prove his purchases. In the purchases. In the letter filed on 03.06.2019 the assessee claimed to show that the disposal letter filed on 03.06.2019 the assessee claimed to show that the disposal letter filed on 03.06.2019 the assessee claimed to show that the disposal of purchases can be linked through sale bills. However this is purchases can be linked through sale bills. However this is not found purchases can be linked through sale bills. However this is to be correct. For example, the to be correct. For example, the assessee claimed to have bought 5000 assessee claimed to have bought 5000 kgs of Plastic Scrap @ Rs. 38.50/kg from M/s Riddhi Siddhi kgs of Plastic Scrap @ Rs. 38.50/kg from M/s Riddhi Siddhi kgs of Plastic Scrap @ Rs. 38.50/kg from M/s Riddhi Siddhi Corporation on 15.12.2009. However, there is no mark either on the bill or on the on 15.12.2009. However, there is no mark either on the bill or on the on 15.12.2009. However, there is no mark either on the bill or on the delivery challan delivery challan indicating that this invoice was ever verified or checked s invoice was ever verified or checked by anyone. No transportation details are by anyone. No transportation details are mentioned and no vehicle no. is mentioned and no vehicle no. is given. Further the assessee claimed that this material was sold to 4 given. Further the assessee claimed that this material was sold to 4 given. Further the assessee claimed that this material was sold to 4 parties. It is noted that the contention of the assessee is self serving parties. It is noted that the contention of the assessee is self serving parties. It is noted that the contention of the assessee is self serving because 1300 kg of Plastic cause 1300 kg of Plastic Granule @60/kg was stated to have been Granule @60/kg was stated to have been sold to M/s Tulsyan Enterprises on 02.02.2010 and 1500 sold to M/s Tulsyan Enterprises on 02.02.2010 and 1500 sold to M/s Tulsyan Enterprises on 02.02.2010 and 1500 kg on 27.01.2010 to the same party without availability of any production 27.01.2010 to the same party without availability of any production 27.01.2010 to the same party without availability of any production record or manufacturing record or manufacturing account to show as to how the Plastic S account to show as to how the Plastic Scrap became Plastic Granule. Further out of the same became Plastic Granule. Further out of the same purchase 700 kg of purchase 700 kg of Plastic Granules were claimed to have been sold to M/s Maruti Plastic Plastic Granules were claimed to have been sold to M/s Maruti Plastic Plastic Granules were claimed to have been sold to M/s Maruti Plastic @26/kg. The assessee has no manufacturing detail and cannot explain The assessee has no manufacturing detail and cannot explain The assessee has no manufacturing detail and cannot explain the wide variation in sale rate. the wide variation in sale rate. Similarly it is noted that at times the is noted that at times the assessee claims to have sold Plastic Powder or Plastic Powder assessee claims to have sold Plastic Powder or Plastic Powder assessee claims to have sold Plastic Powder or Plastic Powder (Re- Processed) linking them to purchase of Plastic Scrap. Such details do not Processed) linking them to purchase of Plastic Scrap. Such details do not Processed) linking them to purchase of Plastic Scrap. Such details do not prove that the prove that the purchases are directly linked to any sales. It is therefore purchases are directly linked to any sales. It is therefore held that the held that the onus has never left the assessee. The assessee could not assessee. The assessee could not substantiate its own sellers. Therefore, the ground of appeal of the substantiate its own sellers. Therefore, the ground of appeal of the substantiate its own sellers. Therefore, the ground of appeal of the assessee to this extent is dismissed. assessee to this extent is dismissed.”

be made 100% of the bog be made 100% of the bogus purchases rather than addition for any us purchases rather than addition for any

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profit element in bogus purchases. The relevant finding of the Ld. profit element in bogus purchases. The relevant finding of the Ld. profit element in bogus purchases. The relevant finding of the Ld.

CIT(A) is reproduced as under: CIT(A) is reproduced as under:

“6.2 As regards the quantum of addition, the legal view is that where As regards the quantum of addition, the legal view is that where As regards the quantum of addition, the legal view is that where the trading sales and the trading sales and purchases are verifiable and proven e.g. to or from and proven e.g. to or from government bodies or agencies etc, no addition government bodies or agencies etc, no addition may be made (refer the may be made (refer the case of CIT-1, Mumbai vs. Nikunj Eximp Enterprises (P) Ltd (2015) 1, Mumbai vs. Nikunj Eximp Enterprises (P) Ltd (2015) 1, Mumbai vs. Nikunj Eximp Enterprises (P) Ltd (2015) 372 ITR 619 (Bombay). If however, the purchases invoices are bogus but the ITR 619 (Bombay). If however, the purchases invoices are bogus but the ITR 619 (Bombay). If however, the purchases invoices are bogus but the direct sales of r direct sales of related goods are proved, the assumptions are that the goods are proved, the assumptions are that the purchases were made from unknown parties and the purchases were made from unknown parties and the AO can apply a AO can apply a profit rate to determine the additional profits of the assessee. [It is also profit rate to determine the additional profits of the assessee. [It is also profit rate to determine the additional profits of the assessee. [It is also seen that putting an onus on the AO to trace the money trail putting an onus on the AO to trace the money trail or verify putting an onus on the AO to trace the money trail the withdrawals from the banks etc the withdrawals from the banks etc may give more pointers but it is not may give more pointers but it is not sufficient by itself and the ITAT has not accepted such an sufficient by itself and the ITAT has not accepted such an sufficient by itself and the ITAT has not accepted such an argument in the case of Shri Ganpatraj A Sanghavi vs. Assistant Commissioner of the case of Shri Ganpatraj A Sanghavi vs. Assistant Commissioner of the case of Shri Ganpatraj A Sanghavi vs. Assistant Commissioner of IncomeTax-15(3) dated 5.11.2014]. H 15(3) dated 5.11.2014]. However, if the bogus purchases are owever, if the bogus purchases are unproved and/or are declared unproved and/or are declared consumed by assessee itself in its trading, consumed by assessee itself in its trading, manufacturing or non manufacturing or non-trading activities without any evidence, the entire addition can be made as it only goes to inflate the expenses of the entire addition can be made as it only goes to inflate the expenses of the entire addition can be made as it only goes to inflate the expenses of the assessee. (refer the case of M/s. Shoreline Hotel Pvt. Ltd detailed below). (refer the case of M/s. Shoreline Hotel Pvt. Ltd detailed below). (refer the case of M/s. Shoreline Hotel Pvt. Ltd detailed below).

6.2.1 In the case of M/s. Shoreline Hotel Pvt. Ltd vs. CIT Central-1 in In the case of M/s. Shoreline Hotel Pvt. Ltd vs. CIT Central In the case of M/s. Shoreline Hotel Pvt. Ltd vs. CIT Central ITA No.964/M/2015 ITA No.964/M/2015 dated 19.06.2015 the ITAT E' Bench Mumbai has dated 19.06.2015 the ITAT E' Bench Mumbai has dealt with a similar case. In this case, the dealt with a similar case. In this case, the assessee was in hotel business ee was in hotel business and running a hotel in the name of Hotel Marine Plaza. During the and running a hotel in the name of Hotel Marine Plaza. During the and running a hotel in the name of Hotel Marine Plaza. During the course of scrutiny assessment, the AO found that assessee has made course of scrutiny assessment, the AO found that assessee has made course of scrutiny assessment, the AO found that assessee has made purchases from black purchases from black-listed parties and obtained accommodation bills. parties and obtained accommodation bills. Such parties were entry prov Such parties were entry providers as identified by the iders as identified by the Sales Tax

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Department of Maharashtra. The AO had initially rejected the books of Department of Maharashtra. The AO had initially rejected the books of Department of Maharashtra. The AO had initially rejected the books of account under account under section 145(3) of the IT Act and after taking average GP section 145(3) of the IT Act and after taking average GP rate of 15%, made an addition of rate of 15%, made an addition of Rs.54,03,687/- computed on such computed on such bogus purchas bogus purchases/expenses. This order was set aside by the es/expenses. This order was set aside by the jurisdictional CIT u/s 263 of the Act. CIT u/s 263 of the Act.

6.2.2 The ITAT in M/s. Shoreline Hotel cases held that since the 6.2.2 The ITAT in M/s. Shoreline Hotel cases held that since the 6.2.2 The ITAT in M/s. Shoreline Hotel cases held that since the purchases so made were not purchases so made were not sold by the assessee, the AO was not sold by the assessee, the AO was not justified in estimating 15% profit on such justified in estimating 15% profit on such bogus purchases. Such bogus purchases. Such bogus purchases/expenses were only going to reduce the assessee's profits by purchases/expenses were only going to reduce the assessee's profits by purchases/expenses were only going to reduce the assessee's profits by the equal amount of such expenses and not only by 15% as taken by the the equal amount of such expenses and not only by 15% as taken by the the equal amount of such expenses and not only by 15% as taken by the AO. It was held that AO. It was held that in the instant case, the assessee was engaged in the in the instant case, the assessee was engaged in the business of hotel wherein the expenditure otel wherein the expenditure alleged to be incurred on alleged to be incurred on plumbing, electrical items, furniture, printing and stationary etc. plumbing, electrical items, furniture, printing and stationary etc. plumbing, electrical items, furniture, printing and stationary etc. amounting to Rs.2,98,13,059/ amounting to Rs.2,98,13,059/-, appears to have reduced directly the , appears to have reduced directly the profit earned by assessee. profit earned by assessee. The ITAT confirmed the order u/s 263 o The ITAT confirmed the order u/s 263 of the Act.

6.2.3 The jurisdictional Bombay High Court has also confirmed the 6.2.3 The jurisdictional Bombay High Court has also confirmed the 6.2.3 The jurisdictional Bombay High Court has also confirmed the decision of the ITAT in decision of the ITAT in Shoreline Hotel (P.) Ltd vs CIT (2018) 259 Shoreline Hotel (P.) Ltd vs CIT (2018) 259 Taxman 49.

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of the AO to disallow the claim of bogus expenditure of Rs. 8,74,835/ of the AO to disallow the claim of bogus expenditure of Rs. 8,74,835/ of the AO to disallow the claim of bogus expenditure of Rs. 8,74,835/- is upheld. The grounds of appeal no. 1, 2 & 3 grounds of appeal no. 1, 2 & 3 of the assessee are dismissed. of the assessee are dismissed.” 14. Before us the Ld. counsel Ld. counsel of the assessee relied on the decision of the assessee relied on the decision of the Hon’ble Bombay High Court in the case of of the Hon’ble Bombay High Court in the case of of the Hon’ble Bombay High Court in the case of CIT Vs Nikunj Eximp Enterprises Private Limited reported in 372 DT Eximp Enterprises Private Limited reported in 372 DT Eximp Enterprises Private Limited reported in 372 DTR 619 (Bom) and submitted that merely on and submitted that merely on the basis of suppliers did not the basis of suppliers did not appear before the Assessing Officer Assessing Officer, it cannot be concluded that it cannot be concluded that purchases were not made by the assessee. The purchases were not made by the assessee. The Ld. counsel Ld. counsel also relied on the decision of the Hon’ble Bombay High Court in the case relied on the decision of the Hon’ble Bombay High Court in the case relied on the decision of the Hon’ble Bombay High Court in the case of PCIT Vs Vaman Internationa PCIT Vs Vaman International Private Limited reported in 422 reported in 422 ITR 520(Bom). Further in support of the contention that entire . Further in support of the contention that entire . Further in support of the contention that entire bogus purchases should not be disallowed and only profit element bogus purchases should not be disallowed and only profit element bogus purchases should not be disallowed and only profit element involved therein should be disallowed, the involved therein should be disallowed, the Ld. counsel Ld. counsel relied on the decision of the Hon’ble Bombay High Court in the case of decision of the Hon’ble Bombay High Court in the case of decision of the Hon’ble Bombay High Court in the case of PCIT Vs Mohommad Haji Adam & Co in ITA 1004 of 2016 Mohommad Haji Adam & Co in ITA 1004 of 2016. .

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of the goods, but the assessee failed on this account also of the goods, but the assessee failed on this account also of the goods, but the assessee failed on this account also and no evidence were filed by the assessee in this regard. In view of failure evidence were filed by the assessee in this regard. In view of failure evidence were filed by the assessee in this regard. In view of failure on the part of the assessee in substantiating the p on the part of the assessee in substantiating the p on the part of the assessee in substantiating the purchases from those two parties, the , the Assessing Officer in background o in background of the information in investigation report investigation report, interalia, those parties were those parties were engaged in providing accommodation engaged in providing accommodation entries, wit without physical delivery of goods, held the purchases from those two parties as held the purchases from those two parties as held the purchases from those two parties as bogus purchases.

16.1 In view of the background of the above facts of the case, we the background of the above facts of the case, we the background of the above facts of the case, we may like to refer to the finding of the Hon’ble Bombay High Court in may like to refer to the finding of the Hon’ble Bombay High Court in may like to refer to the finding of the Hon’ble Bombay High Court in the case of Nikunj Exip Enterprises (supra), as under: the case of Nikunj Exip Enterprises (supra), as under: the case of Nikunj Exip Enterprises (supra), as under:

“7. We have considered the submission on behalf of the revenue. We have considered the submission on behalf of the revenue. We have considered the submission on behalf of the revenue. However, from the order of the Tribunal dated 30.04.2010, we find that However, from the order of the Tribunal dated 30.04.2010, we find that However, from the order of the Tribunal dated 30.04.2010, we find that the Tribunal has deleted the additions on account of bogus purchases the Tribunal has deleted the additions on account of bogus purchases the Tribunal has deleted the additions on account of bogus purchases not only on the basis of stock statement i.e. reconcilia not only on the basis of stock statement i.e. reconciliation statement, but tion statement, but also in view of the other facts. The Tribunal records that the Books of also in view of the other facts. The Tribunal records that the Books of also in view of the other facts. The Tribunal records that the Books of Accounts of the respondent Accounts of the respondent assessee have not been rejected. Similarly, assessee have not been rejected. Similarly, the sales have not been doubted and it is an admitted position that the sales have not been doubted and it is an admitted position that the sales have not been doubted and it is an admitted position that substantial amount of sa substantial amount of sales have been made to the Government les have been made to the Government

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Department i.e. Defence Research and Development Laboratory, Department i.e. Defence Research and Development Laboratory, Department i.e. Defence Research and Development Laboratory, Hyderabad. Further, there were confirmation letters filed by the Further, there were confirmation letters filed by the Further, there were confirmation letters filed by the suppliers, copies of invoices for purchases as well as copies of bank suppliers, copies of invoices for purchases as well as copies of bank suppliers, copies of invoices for purchases as well as copies of bank statement all of which statement all of which would indicate that the purchases were in fact would indicate that the purchases were in fact made. In our view, merely because the suppliers have not appeared made. In our view, merely because the suppliers have not appeared made. In our view, merely because the suppliers have not appeared before the Assessing Officer or the CIT(A), one cannot conclude that the before the Assessing Officer or the CIT(A), one cannot conclude that the before the Assessing Officer or the CIT(A), one cannot conclude that the purchases were not made by the respondent purchases were not made by the respondent- assessee. The Assessing assessee. The Assessing Officer as well as CIT(A) have disallowed the deduction of Rs.1.33 crores icer as well as CIT(A) have disallowed the deduction of Rs.1.33 crores icer as well as CIT(A) have disallowed the deduction of Rs.1.33 crores on account of purchases merely on the basis of suspicion because the on account of purchases merely on the basis of suspicion because the on account of purchases merely on the basis of suspicion because the sellers and the canvassing agents have not been produced before them. sellers and the canvassing agents have not been produced before them. sellers and the canvassing agents have not been produced before them. We find that the order of the Tribunal is well We find that the order of the Tribunal is well a reasoned order taking a reasoned order taking into account all the facts before concluding that the purchases of Rs.1.33 into account all the facts before concluding that the purchases of Rs.1.33 into account all the facts before concluding that the purchases of Rs.1.33 crores was not bogus. No fault can be found with the order dated crores was not bogus. No fault can be found with the order dated crores was not bogus. No fault can be found with the order dated 30.04.2010 of the Tribunal. the Tribunal.” 16.2 In above case, sales have been made to the In above case, sales have been made to the Government In above case, sales have been made to the Department, whereas in the instant case before us the assessee is , whereas in the instant case before us the assessee is , whereas in the instant case before us the assessee is engaged in manufacturing and those purchases have been consumed engaged in manufacturing and those purchases have been consumed engaged in manufacturing and those purchases have been consumed in manufacturing and therefore facts of the instant case are being in manufacturing and therefore facts of the instant case are being in manufacturing and therefore facts of the instant case are being entirely different and that the ratio of the decision of the Hon’ble entirely different and that the ratio of the decision of the Hon’ble entirely different and that the ratio of the decision of the Hon’ble High Court in the case of Nikunj Eximp enterprises (supra), cannot High Court in the case of Nikunj Eximp enterprises (supra), cannot High Court in the case of Nikunj Eximp enterprises (supra), cannot be imported.

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16.3 In the case of Vaman international Private Limited (supra), In the case of Vaman international Private Limited (supra), the In the case of Vaman international Private Limited (supra),

Hon’ble High Court held as under: held as under:

“4.4.3 In the factual matrix of the case, where the AO failed to cause a 4.4.3 In the factual matrix of the case, where the AO failed to cause any 4.4.3 In the factual matrix of the case, where the AO failed to cause a enquiry to be made to establish his suspicions that the said purchases enquiry to be made to establish his suspicions that the said purchases enquiry to be made to establish his suspicions that the said purchases are bogus, the assessee has brought on record documentary evidences to are bogus, the assessee has brought on record documentary evidences to are bogus, the assessee has brought on record documentary evidences to establish the genuineness of the purchase transactions, the action of the establish the genuineness of the purchase transactions, the action of the establish the genuineness of the purchase transactions, the action of the AO in ignoring these evidences cannot AO in ignoring these evidences cannot be accepted. Further, the Hon'ble be accepted. Further, the Hon'ble Bombay High Court in the case of Ashish International (supra) has held Bombay High Court in the case of Ashish International (supra) has held Bombay High Court in the case of Ashish International (supra) has held that the genuineness of the statements relied upon by Revenue is not that the genuineness of the statements relied upon by Revenue is not that the genuineness of the statements relied upon by Revenue is not established when the assessee disputes the correctness of those established when the assessee disputes the correctness of those established when the assessee disputes the correctness of those statements and ha statements and has not been aforded adequate opportunity to cross s not been aforded adequate opportunity to cross examine these parties even though he has asked for the same. Moreover, examine these parties even though he has asked for the same. Moreover, examine these parties even though he has asked for the same. Moreover, as correctly observed by the learned CIT(A), when the payment for the as correctly observed by the learned CIT(A), when the payment for the as correctly observed by the learned CIT(A), when the payment for the said purchases to the concerned two parties is through proper bank said purchases to the concerned two parties is through proper bank said purchases to the concerned two parties is through proper banking channels and there is no evidence brought on record by the AO to channels and there is no evidence brought on record by the AO to channels and there is no evidence brought on record by the AO to establish that the said payments were routed back to the assessee, the establish that the said payments were routed back to the assessee, the establish that the said payments were routed back to the assessee, the addition made by the AO under section 69C of the Act is unsustainable. addition made by the AO under section 69C of the Act is unsustainable. addition made by the AO under section 69C of the Act is unsustainable. We are fortifed in this view of ours by the d We are fortifed in this view of ours by the decisions of, inter alia, the ecisions of, inter alia, the Hon'ble Bombay High Court in the cases of Nikunj Eximp Enterprises Hon'ble Bombay High Court in the cases of Nikunj Eximp Enterprises Hon'ble Bombay High Court in the cases of Nikunj Eximp Enterprises Pvt. Ltd. (supra), Ashish International (supra), the decision of the Pvt. Ltd. (supra), Ashish International (supra), the decision of the Pvt. Ltd. (supra), Ashish International (supra), the decision of the Coordinate Benches of this Tribunal in the case of Hiralal Chunilal Jain Coordinate Benches of this Tribunal in the case of Hiralal Chunilal Jain Coordinate Benches of this Tribunal in the case of Hiralal Chunilal Jain (supra) and Imperi (supra) and Imperial Imp & Exp (supra). In this factual matrix of the al Imp & Exp (supra). In this factual matrix of the case, as discussed above, we fnd no requirement for interference in the case, as discussed above, we fnd no requirement for interference in the case, as discussed above, we fnd no requirement for interference in the order of the learned CIT(A) and consequently uphold the same. order of the learned CIT(A) and consequently uphold the same. order of the learned CIT(A) and consequently uphold the same. Therefore, Revenue’s fve grounds (i) to (vii) are dismissed. Therefore, Revenue’s fve grounds (i) to (vii) are dismissed. Therefore, Revenue’s fve grounds (i) to (vii) are dismissed.

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In the result, Revenue’s appeal for A.Y. 2010 sult, Revenue’s appeal for A.Y. 2010-11 is dismissed. Order 11 is dismissed. Order pronounced in the open court on 16th November, 2016.” pronounced in the open court on 16th November, 2016.” 16.4 We find that in the above case no inquiries were carried out by find that in the above case no inquiries were carried out by find that in the above case no inquiries were carried out by the Assessing Officer Assessing Officer for verification of the bogus purchases, for verification of the bogus purchases, whereas in the instant case before us the the instant case before us the Assessing Officer Assessing Officer has made due inquiries for veri due inquiries for verification of the bogus purchases. It is fication of the bogus purchases. It is the assessee, who failed to provide any evidence i failed to provide any evidence in support of its claim. n support of its claim. Further said case the statement of the parties were the only s case the statement of the parties were the only s case the statement of the parties were the only source relied by the Assessing Officer Assessing Officer for making addition, whereas in the for making addition, whereas in the instant case the Assessing Officer Assessing Officer has made due inquiries for has made due inquiries for verification of the purchase verification of the purchases however it is assessee who failed to however it is assessee who failed to substantiate its purchases by way of documentary evidences substantiate its purchases by way of documentary evidences substantiate its purchases by way of documentary evidences including delivery or payment for transport of goods, coupled with including delivery or payment for transport of goods, coupled with including delivery or payment for transport of goods, coupled with the fact of not providing new addresses of the parties for their of not providing new addresses of the parties for their of not providing new addresses of the parties for their verification. And therefore verification. And therefore ratio in the above case cannot be applied ratio in the above case cannot be applied over the facts of the assessee. over the facts of the assessee.

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16.5 The Ld. counsel Ld. counsel also relied on the decision of the Hon’ble also relied on the decision of the Hon’ble Supreme Court in the case of Supreme Court in the case of CIT Vs Odeon builders Private CIT Vs Odeon builders Private Limited reported in 418 ITR 315(SC) Limited reported in 418 ITR 315(SC) where the Hon’ble Cou the Hon’ble Court dismissed the Revenue Revenue’s review petition on merit by observing that review petition on merit by observing that the disallowance was based solely on third the disallowance was based solely on third-party information, which party information, which was not subjected to any further scrutiny. But in the instant case was not subjected to any further scrutiny. But in the instant case was not subjected to any further scrutiny. But in the instant case before us, we find that the before us, we find that the Assessing Officer made made all efforts for verification of the those bogus purchase parties, but it is the verification of the those bogus purchase parties, but it is the verification of the those bogus purchase parties, but it is the assessee who neither provided their current addresses not assessee who neither provided their current addresses not assessee who neither provided their current addresses not produced those parties and also failed to substantiate the those parties and also failed to substantiate the actual those parties and also failed to substantiate the purchases from the parties by way of evidence in sup purchases from the parties by way of evidence in sup purchases from the parties by way of evidence in support of the delivery or payment for transport of goods. Thus delivery or payment for transport of goods. Thus, it is not the case it is not the case where the disallowance has been made solely on the third where the disallowance has been made solely on the third where the disallowance has been made solely on the third-party information.

16.6 The Ld. counsel Ld. counsel in support of the contention that entire bogus in support of the contention that entire bogus purchase should not be disallo purchase should not be disallowed, has relied on the decision of the wed, has relied on the decision of the

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Hon’ble Bombay High Court in the case of Mohommad Haji Adam Hon’ble Bombay High Court in the case of Mohommad Haji Adam Hon’ble Bombay High Court in the case of Mohommad Haji Adam

and company (supra), wherein the Hon’ble High Court has observed and company (supra), wherein the Hon’ble High Court has observed and company (supra), wherein the Hon’ble High Court has observed

as under:

“8 In the present case, as noted above, the assessee was a trader of 8 In the present case, as noted above, the assessee was a trader of 8 In the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities who were indulging in bogus billing A.O. found three entities who were indulging in bogus billing A.O. found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these activities. A.O. found that the purchases made by the assessee from these activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on entities were bogus. This being a finding of fact, we have proceeded on entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises wh such basis. Despite this, the question arises whether the Revenue is ether the Revenue is correct in contending that the entire purchase amount should be added correct in contending that the entire purchase amount should be added correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct in by way of assessee's additional income or the assessee is correct in by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) contending that such logic cannot be applied. The finding of the CIT(A) contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would s and the Tribunal would suggest that the department had not disputed uggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases the assessee's sales. There was no discrepancy between the purchases the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sales declared. That being the position, shown by the assessee and the sales declared. That being the position, shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases the Tribunal was correct in coming to the conclusion that the purchases the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The cannot be rejected without disturbing the sales in case of a trader. The cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the Tribunal, therefore, correctly restricted the additions limited to the Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other extent of bringing the G.P. rate on purchases at the same rate of other extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the G purchases. The decision of the Gujarat High Court in the case of ujarat High Court in the case of N.K. Industries Ltd. (supra) cannot be applied without reference to the N.K. Industries Ltd. (supra) cannot be applied without reference to the N.K. Industries Ltd. (supra) cannot be applied without reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and facts. In fact in paragraph 8 of the same Judgment the Court held and facts. In fact in paragraph 8 of the same Judgment the Court held and observed as under observed as under-

"So "So "So far far far as as as the the the question question question regarding regarding regarding addition addition addition of of of Rs.3,70,78,125/ Rs.3,70,78,125/- as gross profit on sales of Rs.37.08 Crores as gross profit on sales of Rs.37.08 Crores made by the Assessing Officer despite the fact that the said made by the Assessing Officer despite the fact that the said made by the Assessing Officer despite the fact that the said

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sales had admittedly been recorded in the regular books sales had admittedly been recorded in the regular books sales had admittedly been recorded in the regular books during Financial Year 1997 during Financial Year 1997-98 is concerned, we are of the 98 is concerned, we are of the view that the assessee cannot be pun view that the assessee cannot be punished since sale price is ished since sale price is accepted by the revenue. Therefore, even if 6 % gross profit accepted by the revenue. Therefore, even if 6 % gross profit accepted by the revenue. Therefore, even if 6 % gross profit is taken into account, the corresponding cost price is is taken into account, the corresponding cost price is is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the required to be deducted and tax cannot be levied on the required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly same price. We have to reduce the selling price accordingl same price. We have to reduce the selling price accordingl as a result of which profit comes to 5.66 %. Therefore, as a result of which profit comes to 5.66 %. Therefore, as a result of which profit comes to 5.66 %. Therefore, considering 5.66 % of Rs.3,70,78,125/ considering 5.66 % of Rs.3,70,78,125/- which comes to which comes to Rs.20,98,621.88 we think it fit to direct the revenue to add Rs.20,98,621.88 we think it fit to direct the revenue to add Rs.20,98,621.88 we think it fit to direct the revenue to add Rs.20,98,621.88 as gross profit and make necessary Rs.20,98,621.88 as gross profit and make necessary Rs.20,98,621.88 as gross profit and make necessary deductions accordingly. Accordin deductions accordingly. Accordingly, the said question is gly, the said question is answered partially in favour of the assessee and partially in answered partially in favour of the assessee and partially in answered partially in favour of the assessee and partially in favour of the revenue." favour of the revenue." 16.7 We find that in the a find that in the above case assessee was a trader bove case assessee was a trader, whereas in the instant case before us the assessee is a manufacturer and in the instant case before us the assessee is a manufacturer and in the instant case before us the assessee is a manufacturer and consumed the bogus purchases for its production, and therefore bogus purchases for its production, and therefore bogus purchases for its production, and therefore ratio in the case of Mohommad Haji Adam & Co (supra) cannot be ratio in the case of Mohommad Haji Adam & Co (supra) cannot be ratio in the case of Mohommad Haji Adam & Co (supra) cannot be applied over the facts of the instant case. the facts of the instant case.

16.8 In our opinion , finding of the Ld. CIT(A) on the In our opinion , finding of the Ld. CIT(A) on the issue in dispute are justified, according , according to which first category of cases, where first category of cases, where a percentage of profit could be added in cases where sales percentage of profit could be added in cases where sales percentage of profit could be added in cases where sales

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corresponding to the bogus purchases are verifiable from the day corresponding to the bogus purchases are verifiable from the day corresponding to the bogus purchases are verifiable from the day- to-day inventory tally or from the stock register and sales have been day inventory tally or from the stock register and sales have been day inventory tally or from the stock register and sales have been made to government bod made to government bodies or export sales , then in such cases an ies or export sales , then in such cases an assumption can be drawn that actual purchases were made from assumption can be drawn that actual purchases were made from assumption can be drawn that actual purchases were made from unknown parties whereas only bills were taken from bogus billers. unknown parties whereas only bills were taken from bogus billers. unknown parties whereas only bills were taken from bogus billers. In such case, unexplained investment made for purchases made In such case, unexplained investment made for purchases made In such case, unexplained investment made for purchases made from the unknown parties from the unknown parties may also be considered. But in may also be considered. But in second category of cases, where purchases have been claimed as consumed where purchases have been claimed as consumed where purchases have been claimed as consumed in manufacturing or non in manufacturing or non-trading activity and the assessee fails to trading activity and the assessee fails to explain the consumption by way of production register or stock explain the consumption by way of production register or stock explain the consumption by way of production register or stock register, then in thos those cases purchases clearly goes to reduce the e cases purchases clearly goes to reduce the profit earned by the assessee profit earned by the assessee and therefore in such cases 100 and therefore in such cases 100% percent purchases are liable for disallowance. The case of the percent purchases are liable for disallowance. The case of the percent purchases are liable for disallowance. The case of the assessee falls under second category of the cases and therefore, we falls under second category of the cases and therefore, we falls under second category of the cases and therefore, we uphold the finding of the Ld. CIT(A) on the issue in dispute and g of the Ld. CIT(A) on the issue in dispute and g of the Ld. CIT(A) on the issue in dispute and dismiss the ground of the appeal of the assessee. dismiss the ground of the appeal of the assessee.

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Order pronounced in the Court on ounced in the Court on 27/07/2022. Sd/- Sd/- (SANDEEP SINGH KARHAIL SANDEEP SINGH KARHAIL) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 27/07/2022 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Sr. Private Secretary Sr. Private Secretary) ITAT, Mumbai ITAT, Mumbai