DEPUTY COMMISSIONER OF INCOME-TAX vs. SHRI SHAHAJI BHANUDAS BHAD, PUNE

आदेश / ORDER

PER R.S. SYAL, VP :

This batch of ten appeals, having six appeals by the assessee

and four cross appeals by the Revenue, involving the assessment

years 2007-08 to 2012-13, arises out of a consolidated order passed

by the ld. CIT(A) on 10-02-2016. Since common issues are raised

in these appeals, we are, therefore, proceeding to dispose them off

by this combined order for the sake of convenience.

A.Y. 2007-08 :

ITA No.813/PUN/2016 – By assessee

seizure action u/s.132 of the Income-tax Act, 1961 (hereinafter also

called ‘the Act’) was carried out on 09-08-2011 in Shahaji Bhad

group of cases. The assessee, a part of this group as a proprietor of

M/s. S.S. Engineers, is engaged in the business of manufacturing

of sugar machinery, providing erection and installation services

and setting up of sugar factories and also trading in spare parts.

In response to notice u/s.153A of the Act, the assessee furnished

his return of income on 29-03-2012 declaring total income of

3 Shahaji Bhanudas Bhad

Rs.30,82,83,420/- (including disclosure of Rs.99,41,075/- made

during the course of search). The Assessing Officer (AO) found

that the original assessment in this case was completed u/s.143(3)

of the Act determining total income at Rs.29,85,67,639/- as against

the declared total income of Rs.29,81,42,340/-. He found that the

search action divulged that the assessee was inflating expenses by

recording bogus steel purchase bills from Mumbai based parties.

Prior to search, a survey u/s.133A was carried out at the business

premises of the assessee, which was converted into the instant

search action. In the statement u/s.133A of the Act, the assessee

was confronted with the fact that it had shown steel purchases from

30 parties in respect of which the relevant bills, purchase orders,

goods received note, delivery challans etc. were not fully available.

In many cases contact numbers given on the bills were found to be

non-existing. On field investigation at the addresses of the 30

parties, it was found that there was no activity of sale of steel and

the parties were non-existing entities. In response to question no.

22, the assessee submitted that the goods were purchased from

these parties through some agent; goods were received directly at

the factory or project sites; bills/delivery challans, lorry/Otroi

4 Shahaji Bhanudas Bhad

receipts were submitted after receipt of material; payment was

made by account payee cheques to the concerned parties and

hence, the transactions were genuine. However, in view of lack of

or some weaknesses in the documentation, the assessee admitted to

the disallowance of the expenses of Rs.36,01,34,587/- claimed on

account of such purchases over the years and also agreed to offer

the same as an additional income. In the statement u/s.132(4), the

assessee was confronted with his statement recorded u/s.133A of

the Act in which he made disclosure of Rs.36.01 crore on account

of disallowance of purchases. In response to question no.18 in the

statement u/s.132(4), the assessee agreed with such surrender and

agreed to offer disallowance in the concerned years. The amount

of such purchases relating to the A.Y. 2007-08 stood at

Rs.99,41,075/-. The assessee filed return u/s.153A of the Act for

the year under consideration by including the said amount of

Rs.99.41 lakh in the total income declared. However, during the

course of assessment proceedings, the assessee contended that all

the purchases were genuine and hence, no addition should be

made. It was further submitted that in case of certain purchases,

the payment of sales-tax was not made by such parties and if the

5 Shahaji Bhanudas Bhad

said suppliers had defaulted in making payment of sales-tax, then

the assessee should not be considered to have recorded bogus

purchases. He further stated that when the statement was recorded

at the time of search, the suppliers were not traceable. However,

later on, the assessee managed to get all the necessary documents

from the parties who supplied the goods to the assessee. The AO

found certain flaws in the purchase documents filed by the assessee

during the course of assessment proceedings. In view of the fact

that the assessee had himself offered Rs.99,41,075/- as additional

income on account of bogus purchases in the course of search

relating to the year under consideration and included the same in

his return of income, the AO disregarded the assessee’s

computation and added Rs.99,41,075/- to the income originally

determined u/s.143(3) of the Act by rejecting the assessee’s

contention for reduction in the amount of income offered in the

return u/s.153A on account of such a mistaken notion.

relevant documents in support of the genuineness of purchases. It

was contended that all the purchases were genuine and payments

were made by cheques in respect of the goods received pursuant to

6 Shahaji Bhanudas Bhad

such bills. The assessee furnished details of purchases along with

Octroi receipts etc. for all the years under consideration. For some

of the old transactions, Octroi receipts were misplaced which could

not be produced before the ld. CIT(A). The ld. first appellate

authority forwarded such details to the AO vide his letter dated 07-

09-2015 and instructed him to make more detailed enquiries. The

AO, vide his remand report dated 10-12-2015, reiterated the stand

taken in the course of assessment made by him u/s.153A. The ld.

CIT(A) forwarded the remand report to the Addl.CIT as well vide

his letter dated 11-12-2015, who reported that the assessee did not

make any retraction of the statement made during the course of

search regarding additional income on account of bogus purchases.

He further submitted that the additional evidence should not be

entertained and if it was to be accepted then an opportunity should

be given to the AO. The ld. CIT(A) recorded in para 5.4 onwards

of the impugned order that the Addl. CIT virtually admitted that

the assessment was completed without making proper enquiries

from the so called bogus vendors and further there was no

explanation by the AO or the Addl. CIT as to why no enquiries

were made regarding these purchases. He, however, refused to

7 Shahaji Bhanudas Bhad

admit any additional evidence and confirmed the addition made by

the AO. The assessee is aggrieved by the confirmation of the

addition.

relevant material on record. It is true that the assessee during the

course of survey u/s.133A, which got converted into search,

admitted in his statement u/s.132(4) that the purchases from 30

parties were not properly documented and also offered the total

amount of such purchases for disallowance. It is on the basis of

such a statement made during the course of search that the assessee

included the surrendered income in the return of income filed

u/s.153A of the Act but agitated before the AO that no addition

should be made on this score.

statement u/s 132(4) of the Act declaring bogus bills and offering

equal amount for taxation, the same cannot be retracted as it

constitutes `evidence’. In order to appreciate this contention, let us

have a look at the mandate of sub-section (4) of section 132 which

provides that : `The authorised officer may, during the course of

8 Shahaji Bhanudas Bhad

the search or seizure, examine on oath any person who is found to

be in possession or control of any books of account, documents,

money, bullion, jewellery or other valuable article or thing and any

statement made by such person during such examination may

thereafter be used in evidence in any proceeding … under this

Act.’ It is ostensible from the language of the provision that the

statement made by the assessee during the course of search may be

used in the assessment proceedings as `evidence’.

"Evidence" to mean and include - `(1) All statements which the

Court permits or requires to be made before it by witnesses, in

relation to matters of fact under inquiry; such statements are called

oral evidence. (2) All documents produced for the inspection of the

Court; such documents are called documentary evidence.’ When

we read sub-section (4) of section 132 in juxtaposition to section 3

of the Indian Evidence Act, it clearly transpires that the statement

made by an assessee u/s 132(4) of the Act can be construed as an

oral evidence or at the most a substitution of documentary

evidence. To put it simply, if an assessee states in his statement u/s

132(4) that he purchased certain asset from undisclosed income

9 Shahaji Bhanudas Bhad

and gifted it someone else or earned income from a clandestine

transaction, such a statement, in the context of section 132, by

virtue of sub-section (4), would dispense with the need for any

documentary evidence to corroborate the version so given. In that

case, even if the bill for the purchase of the asset is not found or no

other document for earning income from clandestine transaction is

unearthed in the course of search, his statement would be construed

as evidence of having purchased the asset or earned the income. In

that case, the Department can rightly proceed as if the assessee

purchased such an asset or earned such an income without bringing

on record any primary evidence of these transactions.

statement u/s 132(4) of the Act on factual aspects on one hand and

on legal aspects on the other. Even on the factual aspects, one

needs to appreciate distinction between the factual statement as

such and the legal consequences of such factual statements. In so

far as the statement on factual aspects, as such, is concerned, that

becomes final and constitutes `evidence’ against the assessee in the

assessment proceedings. However, the legal consequences of such

a factual statement have to be decided as per law. Proceeding with

10 Shahaji Bhanudas Bhad

the above example of the assessee admitting to have purchased a

certain asset outside his books of account, his statement would be

an evidence of having purchased the asset, but that per se would

not lead to addition. The legal consequences of such a statement

would have to be separately looked into. If the assessee proves that

he earned some undisclosed income, for which he had made a

declaration and then claims that the said asset was purchased out of

such an undisclosed income, then no addition would be warranted

for the purchase of the asset because the inflow of the undisclosed

income has been taxed and there cannot be tax on the outflow of

such taxed undisclosed income. In that situation, though the factual

aspect of having purchased an asset outside the books of accounts

would be treated as evidence, but there will be no further addition

on account of the legal consequence of the matter.

assessee made u/s 132(4) on legal aspects. It goes without saying

that there can be no estoppel against the provisions of the Act. If an

assessee makes a self-adverse legal statement u/s 132(4) of the Act,

then it will have to be tested on the touchstone of legal principles

as to whether or not it can be acted upon. If such a statement can

11 Shahaji Bhanudas Bhad

be legally acted upon, only then the same will be binding on the

assessee. If on the other hand, it is fully or partly contrary to the

legal principles, then it will be ignored to the extent of such an

illegality. For instance, if an assessee agrees to forego the claim of

depreciation de hors the genuineness of such a claim, such a

statement, being contrary to law, cannot be acted upon, because the

genuine depreciation has to be allowed as deduction. Such a

statement, which is contrary to law, cannot be acted upon as an

evidence against the assessee.

statement of the assessee u/s 132(4) has certain factual admissions

and also its consequential legal admissions. In such a situation, the

factual admissions will be used as an evidence but the

consequential legal admissions will have to be considered and

decided as per law. Continuing with the earlier example, if the

assessee accepts in the course of search that he purchased certain

asset outside the books of account and also agrees to offer it for

taxation in the statement u/s 132(4) of the Act, then the first part

of the statement of having purchased an asset outside the books of

account, being a factual aspect, would constitute evidence against

12 Shahaji Bhanudas Bhad

him and he cannot later on retract from the same. However, the

second part of the statement u/s 132(4) of agreeing to offer it for

taxation would not bind him. If he succeeds in proving that the

asset was purchased out of some other sources, disclosed or

undisclosed, which has already suffered taxation, then such a

second part of the statement would not bind him. The authorities,

before putting such an amount to tax, will have to independently

rebut the contention of the assessee and prove that the said asset

was purchased from undisclosed income. That is raison d’etre for

the legislature to have employed the word “may” in the language

of section 132(4), which delineates that the statement made by the

assessee may or may not be used as evidence in the assessment

proceedings. The nitty gritty of the matter is that though a

statement made u/s 132(4) carries immense weight and works as an

evidence, but the same is not conclusive in so far as the legal

assertions or the legal consequences of the factual assertions as

stated in such a statement are concerned.

statement of the assessee made u/s 132(4) of the Act is in two

parts, viz., that he recorded bogus bills in his books of account and

13 Shahaji Bhanudas Bhad

also offered the amount of such bogus bills to tax. Such a

statement falls in the third category as discussed above. The first

part, being a factual aspect, cannot be resiled by the assessee

during the course of assessment proceedings and will have to be

accepted as correct and binding on the assessee as constituting

evidence. However, the second part, being agreeing for

disallowance of the full amount of such bogus purchases is a legal

statement and also a legal consequence of the factual assertion

made, which will have to be examined independently for finding

out if the recording of bogus bills would lead to the addition of

equal amount or only the profit element embedded therein. To cut

short the controversy, it is suffice to say at this stage, that once the

assessee admitted that the bills of purchase of steel were not

proper, he cannot later on retract from the same. But in so far as his

statement about the taxability of such sum is concerned, it is a legal

statement and also a legal consequence of the factual aspect

admitted by him, which needs to be separately examined as per the

provisions of the law. We, ergo, hold that the assessee cannot run

away from his statement of recording bogus purchase bills, but can

prove legally that the entire amount of bills should not be legally

14 Shahaji Bhanudas Bhad

added. Therefore, the contention of the ld. DR that once the

assessee had admitted in his statement u/s 132(4) to the effect that

there was no proper evidence of the genuineness of the bills of

purchase of steel and offered the equal amount for taxation, then he

cannot take a contrary stand in the assessment proceedings, is

countenanced only to the extent of non-genuineness of the bills of

purchase of steel but not to the extent of offering equal amount for

taxation, which would be separately examined as per the

provisions of law.

effect that income once included by the assessee in his return of

income binds him and hence the assessee cannot claim for its

exclusion. This contention has no legal legs to stand on and is

liable to be rejected.

the Officers of the Department must not take advantage of

ignorance of the assessee as to his rights. The hon’ble

jurisdictional High Court in Sanchit Software and Solutions (P)

Ltd. Vs. CIT (2012) 349 ITR 404 (Bom.) has reiterated the position

15 Shahaji Bhanudas Bhad

stated in the circular by holding that where an assessee offered

certain income wrongly and thereafter realized that such income

was not liable to be included in the total income, he was justified in

filing application u/s. 264 seeking revision of the order. The

Hon’ble Delhi High Court in S.D.S. Mongia Vs. CBDT (2007) 211

CTR 357 (Delhi) has also held that where the assessee has wrongly

offered for taxation certain income which is otherwise not liable to

be included in the total income, such an amount cannot be brought

to tax. Applying the legal position emanating from the above

decisions and as accepted by the Department through the circular,

it is apparent that even if the assessee wrongly includes certain

income in his return, which is otherwise not chargeable to tax, he

has a right to lodge a claim before the AO in this regard during the

course of assessment proceedings. As the assessee in the instant

case has challenged the suo motu inclusion of such an income

before the AO, we do not find any fetters on the powers of the AO

in not examining if the same is actually liable to be fully or partly

included in the total income. The contention raised by the ld. DR

in this regard is, therefore, jettisoned.

16 Shahaji Bhanudas Bhad

recorded the alleged tainted purchases of steel amounting to

Rs.99,41,075/- in his books of account for the year under

consideration. The assessee is engaged in the business of

manufacture of sugar machinery. Steel is a raw material for the

manufacturing of the machinery. It is obvious that without raw-

material there cannot be any finished products. The assessee has

filed stock details before the authorities which show that purchases

for the disputed quantity were, in fact, made. The fact that the

assessee made genuine sales, has not been disputed by the

Revenue. In such a scenario, even if we accept the contention of

the Revenue that the purchases were bogus, still the entire amount

of purchases cannot be added in view of the fact that some

purchases must have, in fact, been made which got eventually

consumed in the process of manufacturing. This evidences that the

assessee made some cheaper purchases of steel, but obtained bogus

purchase bills of higher value so as to inflate the expenses and

reduce the profit. In such circumstances, only the profit (excessive

cost element) embedded in such bogus purchases can be included

in the total income of the assessee, which, in the peculiar facts and

17 Shahaji Bhanudas Bhad

circumstances of the instant case, is estimated at 10% of the bill

amounts. Our view in estimating the net profit rate @10% of

bogus purchases is fortified by the judgment of the hon’ble

jurisdictional High Court in Pr. CIT Vs. Paramshakti Distributors

Pvt. Ltd. (ITA No.413/2017, dt. 15-07-2019), in which addition at

the rate of 10% of bogus purchases has been held to be sustainable

in similar circumstances. To sum up, the assessee gets relief by

means of deletion of addition of 90% of Rs.99,41,075/- and

accordingly the addition @10% at Rs.9,94,107/- is sustained.

pressed by the ld. AR during the course of hearing, which are,

hereby dismissed.

A.Y. 2008-09 :

ITA No.814/PUN/2016 – By assessee ITA No.950/PUN/2016 – By Revenue

well as the Revenue. The first issue raised by the assessee in his

appeal is against the confirmation of addition of Rs.9,64,68,253/-

18 Shahaji Bhanudas Bhad

towards purchases effected from 31 parties, which were admitted

as bogus purchases during the course of search and the amount was

offered for taxation in the return filed for the year under

consideration u/s.153A of the Act. The AO made addition for the

said amount despite the assessee requesting otherwise. The ld.

CIT(A), vide his common order for all the years under

consideration, sustained the addition.

material on record, we find it is an admitted position that the facts

and circumstances of this ground are mutatis mutandis similar to

those of the assessee’s appeal for the A.Y. 2007-08. Following the

view taken herein above, we uphold addition @10% of purchase

amounts, which comes to Rs.96,46,825/-.

estimation of income at 15% of purchases amounting to

Rs.36,69,361/- which were not part of the bogus purchases

discovered during the course of search, but were detected by the

AO to have been made from some of the bogus parties only, during

the course of assessment proceedings.

19 Shahaji Bhanudas Bhad

of assessment proceedings, the AO found that, apart from making

surrender in respect of purchases made from 31 bogus parties, the

assessee had recorded further purchases from some of these

parties, which for the year under consideration stood at

Rs.36,69,361/-. Following the same yardstick, the AO added the

amount of purchases. When the matter came up before the ld.

CIT(A), he reduced the disallowance to the profit element in such

purchases, which he estimated at 15%. That is how, the assessee is

aggrieved by the confirmation of addition at 15% and the Revenue

wants the addition to be increased to 100% of the bill amounts.

relevant material on record, we find that the facts and

circumstances of this ground are similar to those of the earlier

ground except for the fact that the assessee did not make surrender

in support of these purchases which were found by the AO during

the course of assessment proceedings. Since the substance of the

matter is same, we, following our view, uphold the addition at

10% of such purchases at Rs.3,66,936/-. Thus, the ground raised

20 Shahaji Bhanudas Bhad

by the Revenue is dismissed and that of the assessee is partly

allowed.

pressed, which hereby, stand dismissed.

of the assessee is partly allowed.

A.Yrs. 2009-10, 2010-11 & 2011-12 :

ITA Nos.815 to 817/PUN/2016 – By assessee ITA Nos.951 to 953/PUN/2016 – By Revenue

the assessee as well as the Revenue are similar to those of the A.Y.

2008-09. Following the view taken hereinabove, we sustain the

addition at 10% of bogus purchases for which surrender was made

by the assessee at the time of search and also at 10% in respect of

purchases made from the parties which were found during the

course of assessment proceedings.

pressed, which hereby stand dismissed.

21 Shahaji Bhanudas Bhad

those of the assessee are partly allowed.

A.Y. 2012-13 :

ITA No.818/PUN/2016 – By assessee

addition of Rs.1,40,45,734/- towards purchases effected from 31

parties which were surrendered during the course of search.

material on record, we find that the facts and circumstances of this

ground are similar to the ground taken in the appeal of the assessee

for the A.Y. 2007-08. Following the view taken hereinabove, we

uphold the addition at Rs.14,04,573/-, being, 10% of purchase

amounts representing the profit element embedded in these bills.

Remaining 90% of the amount of purchase bills is directed to be

deleted.

which is hereby dismissed.

22 Shahaji Bhanudas Bhad

Order pronounced in the Open Court on 08th November,

2019.

Sd/- Sd/- (S.S. VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 08th November, 2019 सतीश आदेश क� क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to: अ�ेिषत आदेश आदेश आदेश अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. 3. The CIT(A)-11, Pune 4. The Pr. CIT (Central), Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे 5. “ए” / DR ‘A’, ITAT, Pune गाड� फाईल / Guard file 6. आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार

// True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

Shahaji Bhanudas Bhad

Date 1. Draft dictated on 07-11-2019 Sr.PS 2. Draft placed before author 08-11-2019 Sr.PS 3. Draft proposed & placed JM before the second member 4. Draft discussed/approved JM by Second Member. 5. Approved Draft comes to Sr.PS the Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order.

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