M/S. L. G. CHOUDHARY,AHMEDABAD vs. THE DY.CIT, CIRCLE-2(2)(1), AHMEDABAD

Whether on the facts and in the circumstances of the case and in law. the Ld. CIT(A) was justified in deleting the addition mode of P50.75.315/ of bogus purchases without appreciating the facts of the case.

The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary".

It is therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored." Grounds in (Assessee’s Appeal)

A brief background of the issue, as emanates from the orders of the authorities below, is that the AO noted the assessee to have admitted in the course of statement recorded u/s.133A of the Act that 25% of amounts from some sundry creditors was not genuine and 100% in relation to one sundry creditor was non-genuine, totaling in all to Rs.46,43,534/-. The said parties are listed at page 4 of the assessment order as under:

During assessment proceedings, the assessee, however, stated that it had disclosed all the amounts so surrendered under IDS Scheme and had paid taxes also with respect to the parties listed at S.no 1-3 above, with respect to Gayatri V Sathvara, 100% of which allegedly was stated to be non-genuine by the assessee in his statement, the assessee submitted copy of her ledger confirmation. The AO, however, noted that the surrender made by the assesee in the IDS Scheme pertained to earlier year and not for the impugned year and with respect to the evidence furnished by the assessee relating to the Gayatri V Sathvara, the AO noted that the assessee had not proved the genuineness of the transaction with concrete evidences. Therefore, he disallowed purchases made by the assessee from the said parties as being bogus to the extent admitted in the statement recorded during survey amount to Rs.46,43,534/-.

The Ld. CIT(A), however, noted that transactions relating to three parties i.e. Godadbhai M. Chaudhary HUF, Laljibhai G. Chaudhary HUF and Gayatri V. Sathvara related to unsecured loan & 730/Ahd/2024. [L G Choudhary] A.Y. 2017-18 - 6 – and not for expenses as alleged by the AO. Accordingly, he deleted the disallowance made by the AO with respect to the same. With respect to the disallowance made in relation to the creditor Ambaben Laljibhai Chaudhary, being 25% of purchases made from her during the year of Rs.51,74,136/- amounting to Rs.12,93,534/-, the Ld. CIT(A) noted that in earlier assessment years the assessee had admitted that the said creditor was not correct and, therefore, had offered 25% of the total expenses claimed in the return of income and declared the same in IDS Scheme. He further noted that the assessee had not submitted any documents to suggest that the expense relating to this party was fully correct. Accordingly, he confirmed the action of the AO of disallowing 25% of the total expenses incurred in relation to the party amounting to Rs.12,93,534/-.

Since, as noted above, it is only the assessee which has come up in appeal before us challenging the confirmation of disallowance by the Ld. CIT(A) to the tune of Rs.12,93,534/- in Ground No.1 raised by him, the Revenue having correspondingly not raised any grounds against the deletion of disallowance by the Ld.CIT(A), We shall only be dealing with the issue of disallowance of expenses pertaining to Ambaben Laljibhai Chaudhary.

The argument of the Ld. Counsel for the assessee before us was that the disallowance was made on the basis of the statement & 730/Ahd/2024. [L G Choudhary] A.Y. 2017-18 - 7 – recorded during survey but the said statement was given for some parties for F.Y. 2010-11 to F.Y. 2015-16 for some amounts. No statement was made for the current year and that simply because the party was the same as mentioned in the statement made during survey it did not mean the transaction for the impugned year was also bogus. He contended that the AO had not brought anything else on record except the statement recorded during survey. Reliance was placed on the decisions of the ITAT in the case of Income Tax Officer vs. Toms Enterprises (2019) 103 taxmann.com 289 (Cochin) & Mahesh Ohri vs ACIT (2013) 35 taxmann.com 301 (Delhi) for the proposition that no addition could be made solely on the basis of statement recorded dehors any corroborative evidence. He further pointed out that the assessee had furnished PAN and ITR of the said creditor and had also demonstrated the said creditor to have declared impugned income in her return of income.

The Ld. DR, however, relied on the findings of the Ld. CIT(A) that in the earlier years also this creditor had admittedly been stated to be bogus and the assessee had offered 25% of expenses claimed on account of said creditor in the IDS Scheme and he further pointed out that the Ld. CIT(A) had recorded the fact that no documentary evidences were produced by the assessee proving that the expenditure relating to this party was fully correct.

We have heard the contention of both the parties and we are not completely convinced with the argument of Ld. Counsel for the assessee that the assessee had discharged the onus of proving the genuineness of its transaction of purchases with Ambaben Laljibhai Chaudhary. And further that addition cannot be made solely on the basis of statement recorded during survey not backed with any corroborative evidence.

It is fact on record that in statement recorded during survey the assessee had admitted to the transaction with the impugned party being bogus to the extent of 25%. In the preceding year, admittedly, the assessee had surrendered amounts relating to this party in view of its admission made in the IDS Scheme and paid taxes also. Having admitted to the transaction with the impugned parties being bogus to the extent of 25% and confirmed the same by surrendering the transaction with the impugned parties in the preceding years, admittedly as far as the preceding year is concerned the purchases made from the impugned party was bogus to the extent of 25%. In the impugned year except for filing ITR demonstrating that she is a regular assessee and furnishing her PAN & ledger confirmation, no other documentary evidence has been furnished by the assessee to prove the genuineness of the purchase transaction. The order of the AO reveals that on receipt of the above evidences, the assessee was asked to produce the said party for verification, but the assessee expressed the inability of & 730/Ahd/2024. [L G Choudhary] A.Y. 2017-18 - 9 – the party to be present before the AO at short notice due to advanced age and health problems.

The assessee admittedly having entered into bogus purchase transactions with the said party in the past and having not discharged its onus of proving the genuineness of the transaction in the impugned year, the Ld.CIT(A), we hold, was right in disallowing 25% of the purchase transactions entered into with the said party, as per the admitted position in the past. We agree with the Ld.CIT(A) that the documents filed by the assessee in itself are not sufficient to prove the genuineness of the transaction, when the AO was prevented from verifying the veracity of the documents by the assessee, by not producing the said party before him for examination.

The plea of shortage of time taken by the assessee before the AO for not producing the said party, does not help the case of the assessee, since we have noted from the assessment order that it was the assessee who was responsible for postponing and dragging the assessment proceedings to the fag end of the limitation period by not complying with notices issued initially by the AO. The AO has categorically noted that the assessee did not comply with any notice issued to it right up to November of 2019. The assessee in fact started responding only when show cause notice was issued on 11-11-2019, submitting part details on 15-11-2019.Thereafter two more notices were issued in the month of December on 03-12-2019 & 730/Ahd/2024. [L G Choudhary] A.Y. 2017-18 - 10 – and 07-12-2019, to which reply was filed submitting evidences. The assessment was getting time barred on 31-12-2019. Thus it is clear that the assessee started participating in the assessment proceedings barely a month and a half before it was getting time barred, filed reply and evidences piecemeal on the issues raised by the AO in his show cause notice, giving no time to the AO to verify the same. The reply in relation to the genuineness of transaction with Ambaben Laljibhai Chaudhary was filed by the assessee on 10-12-2019 in response to notice dated 07-12-2019 and on considering the reply when the AO asked the assessee to produce the said party for verification vide notice dated 24-12- 2019, the assessee pleaded shortage of time. Clearly shortage of time cannot be in any way attributed to the AO, but it is on account of the non-cooperative attitude of the assessment in the assessment proceedings dragging the same to the fag end of the limitation period. The assessee cannot benefit by its own faults. Therefore, we hold, the Ld.CIT(A) was right in holding that the documents filed did not prove the genuineness of the transaction and that the assessee failed to discharge its onus of proving the genuineness of the transaction.

The case laws relied on the Ld.Counsel for the assessee before us, also do not help the case of the assessee. The proposition laid down therein is that addition cannot be made solely on the basis of statement recorded without any corroborative evidence. In the facts of the present case the & 730/Ahd/2024. [L G Choudhary] A.Y. 2017-18 - 11 – purchases have been held non genuine to the extent of 25% not solely on the basis of statement recorded during survey. In fact, the assessee had in the preceding years surrendered purchases admitted to be bogus in the statement recorded, and in the impugned year had failed to discharge its onus of proving the genuineness of the transaction. Therefore, the statement of the assessee stood corroborated by the surrender made in the past years by the assessee coupled with assessee failing to prove the genuineness of the transaction in the impugned year. The case laws relied upon by the Ld.Counsel for the assessee are therefore found to serve no purpose.

In view of the above the order of the Ld.CIT(A) confirming the addition on account of bogus purchases made from Ambaben Laljibhai Chaudhary amounting to Rs. 12,93,534/- is upheld.

Ground No.1 of the assessee is dismissed.

Next issue relates to disallowance of purchase made by the assessee treating them to bogus, amounting to Rs.98,90,725/-. The disallowance made by the AO was 25% of the total purchases of Rs.3,95,62,897/- made by the assessee from 16 parties. The AO had made the impugned disallowance on the basis that three parties out of the 16 parties were not found at their addresses and the notices sent to them u/s.133(6) of the Act had returned unserved. With respect to the remaining 13 parties, the AO found & 730/Ahd/2024. [L G Choudhary] A.Y. 2017-18 - 12 – them to have not responded to notices issued u/s.133(6) of the Act. The total transaction of the assessee with three parties to whom notices issued remained unserved amounted to Rs.1,15,03,539/- and that of the remaining 13 parties amounted to Rs.2,80,59,358/-. The order of the AO reveals that the three parties in whose case notices were returned were: i. Shri Bhuvneshwari Constc. Co. ii. Global Transport iii. Padmshree Corporation The 13 parties who did not respond to the notices issued u/s.133 (6) of the Act are listed at page 8 of the assessment order as under:

The assessment order reveals that the assessee was specifically asked by notice issued by the AO dated 24.12.2019 to produce all the above parties with documentary evidences, in response to which the assessee filed letter dated 26.12.2019 & 730/Ahd/2024. [L G Choudhary] A.Y. 2017-18 - 13 – submitting new address of the parties whose notices remained unserved and also submitted that the transactions undertaken with them were through account payee cheques. The assessee submitted evidences of bills also. The AO, however, noted that the assessee had submitted new address at the fag end of the assessment proceedings which was to be completed by the 31st December, 2019 and the assessee had responded with new address only on 26.12.2019 giving no time for the AO to verify the existence of these parties in any way and he further noted that the evidences now furnished by the assessee showing that it had entered into the transaction with the parties through Banks were not sufficient to establish the genuineness of the transactions, since, there was no evidence submitted by the assessee having actually made purchases from the said parties. Further, with respect to the remaining 13 parties, he found the same to be not verified since they had not filed any response to the notices issued to them u/s.133(6) of the Act. Accordingly, he disallowed 25% of the total purchases done by the assessee from the 16 parties which amounting to Rs.98,90,725/-.

The order of the Ld. CIT(A) reveals that he appreciated all the evidences allegedly filed by the assessee vide its letter dated 26.12.2019 and noting that the AO had made no adverse comments against the evidences filed by the assessee, he deleted the entire addition made by the AO except the disallowance made with respect to three parties i.e. Jay Bhagwati Quarry Works, M/s.

Against the addition confirmed by the Ld. CIT(A) of Rs.8,82,371/-, the assessee has come up in appeal before us vide Ground No.2 raised in its appeal, while the Revenue in Ground No.1 raised before us has challenged the deletion of disallowance by the Ld. CIT(A) of Rs.90,08,354/-.

We have gone through the order of the Ld. CIT(A) and we have noted that he has appreciated evidences filed by the assessee vide its letter dated 26.12.2019 and deleted most of the disallowance made by the AO. The evidences so filed, as noted by the Ld.CIT(A) at para 6.3 & 6.4 of his order are PAN of the said parties, contra confirmation ledger account, copies of bills raised and ledger account of succeeding year showing payment made to the parties through banking channels. He noted no adverse comments to have been made by the AO on the same and also that the AO did not give sufficient time to the assessee to furnish evidences, issuing its show cause notice at the fag end of the year on 24.12.2019 giving very little time to respond the same also.

We find that this finding of the Ld. CIT(A) is grossly unjustified. As noted above in our order at para 21 the Ld.CIT(A)completely ignored the entire chronology of events which happened during assessment proceedings, recorded in the assessment order, wherein the AO has categorically noted that the assessee did not comply with any notice issued to it right up to November of 2019. The assessee in fact responded to only the last few notices issued from November 15 2019 onwards and filed all evidences at the fag end when the limitation for passing order by the AO was approaching on 31-12-2019, leaving no time for him to verify the same. The AO, we hold, has rightly noted that the evidences so filed at the fag end of assessment proceedings were impossible to be verified. The Ld.CIT(A), therefore, we hold, was not correct in appreciating these very same unverified evidences and holding that the AO had no adverse comments to make on the same or that the AO gave no time to the assessee to file evidences. The Ld.CIT(A) was grossly unjustified on facts, for blaming the AO for not giving sufficient time to the assessee to file evidences.

The facts revealing the AO having not even considered these evidences filed before him, the Ld. CIT(A) could not have held that there were no adverse findings by the AO on these evidences. In our view, rightfully the Ld. CIT(A) ought to have sought a remand report from the AO on all the evidences filed after duly verifying all of them and only thereafter should have adjudicated the issue. The Ld. CIT(A) appreciated all the evidences filed by & 730/Ahd/2024. [L G Choudhary] A.Y. 2017-18 - 16 – the assessee before him, without affording an opportunity to the AO to make his submissions on the same, which is grossly against the principles of natural justice. We, therefore, consider it fit to restore this issue back to the file of the AO to verify all the evidences filed by the assessee and adjudicate the issue afresh after giving due opportunity of hearing to the assessee.

Both ground no.2 of the assessee and ground no.1 of the Revenue, therefore, are allowed for statistical purposes.

The disallowance of purchase to the extent of Rs.8,76,48,036/- to be treated as bogus.

The facts relating to the issue are that the AO noted in relation to 29 creditors which are listed at page nos.10 & 11 of his order. The assessee was unable to prove their genuineness due to non-availability of PAN and, their current address. He further noted the assessee to have no basic documentation supporting that goods had actually been purchased from them, such as, stock register, slips, transportation receipts etc. Accordingly, he disallowed 100% of the purchase made on the said parties amounting to Rs.8,76,48,036/-.

The Ld. CIT(A) deleted the entire disallowance made by the AO. The Ld. CIT(A) firstly held that since the AO in his show cause notice had proposed disallowance @ 25% of purchases relating to these parties, he could not have made disallowance of & 730/Ahd/2024. [L G Choudhary] A.Y. 2017-18 - 17 – 100%. Further, he noted the assessee to have furnished sufficient evidences to the AO vide its letter dated 26.12.2019 to establish the genuineness of all these parties except four parties which are noted in Para 7.5 of his order. Accordingly, he restricted the disallowance made by the AO to the extent of Rs.25,72,721/- being 25% of the purchase transaction made by the assessee from the said four parties which amounted to Rs.1,02,90,882/-.

On this issue also, we have noted that the Ld. CIT(A) has appreciated evidences filed by the assessee to the AO vide its letter dated 26.12.2019. We have held in our order above while dealing with the issue of disallowance of purchase of Rs.90,08,354/- at para 25, that this act of the Ld. CIT(A) was completely unfair considering that all these evidences were furnished at the fag end of the assessment proceedings entirely on account of fault of the assessee alone who had not participated at all the entire assessment proceedings except at the fag end. Therefore, following the reasoning mentioned in para 25 we consider it fit to restore this issue back to the file of the AO with the direction to verify the evidences filed by the assessee in relation to the specific issue, giving proper opportunity of hearing to the assessee and, thereafter, adjudicate the issue before him. In the light of the same, grounds of appeal no.3 of the assessee and Ground No.2 of the Revenue are allowed for statistical purposes.

The last issue raised relates to addition made by the AO of unsecured loans taken by the assessee, source of which remained unexplained. The facts on record reveal the AO to have made addition of such loans totaling Rs.1,21,50,000/-, and pertaining to 4 parties listed at para 8.1 of the Ld.CIT(A)’s order. However, the Ld.CIT(A) confirmed addition only with respect to loan taken from one party, Shree Sai Krupa Construction, amounting to Rs.12,00,000/-.

The assessee has challenged the confirmation of this addition in Ground No.4 raised before us. The Revenue however has raised no ground challenging the balance addition deleted by the Ld.CIT(A).

The impugned addition was made by the AO and confirmed by the Ld. CIT(A) noting that the assessee had failed to furnish any documentary evidence proving the genuineness and creditworthiness of the lender.

During the course of hearing before us, Ld. Counsel for the assessee pointed out that the assessee had submitted bank statement of the said party, PAN no., ledger and confirmation of the said party as also the evidence of repayment of loan in the next year. He drew our attention to the submissions made by the assessee in this regard before the Ld. CIT(A) reproduced at page 9 & 10 of his order. Our attention was also drawn to identical submissions made before the Ld. CIT(A) reproduced at page 19 & & 730/Ahd/2024. [L G Choudhary] A.Y. 2017-18 - 19 – 20 of Ld. CIT(A)’s order. Ld.Counsel for the assessee also drew our attention to paper book page nos. 290 and 399 to 401 being the confirmation of the loan received by the assessee from Shree Sai Krupa Construction and copy of ledger account of the said party for the impugned year in which the loan was taken by the assessee through banking channel and also the ledger account of the succeeding year reflecting repayment of the impugned loan. Ld. Counsel for the assessee pointed out that the authorities below, therefore, was unjustified in stating that no evidences have been filed by the assessee proving the genuineness of unsecured loan taken amounting to Rs.12 Lakhs.

Ld. DR further relied on the orders of the authorities below.

We have considered the contention of the assessee and we agree with the Ld. Counsel for the assessee that both the basis for making the addition and confirming the same by the authorities below was incorrect. Both the AO and the CIT(A) have recorded a finding of fact no evidences were furnished by the assessee proving the genuineness of unsecured loan taken by it from Shree Sai Krupa Construction amounting to Rs.12 Lakhs, however, from the CIT(A) order itself the assessee has demonstrated the fact of having furnished the ledger confirmation of the said party. The PAN no. of the said party and also copies of ledger account of succeeding years showing re-payment of the impugned loan all receipts and repayment of the loan has been demonstrated to have made through banking channel. In the light of the same, we are & 730/Ahd/2024. [L G Choudhary] A.Y. 2017-18 - 20 – unable to agree with the Ld. CIT(A) that the assessee has failed to discharge its onus of proving the genuineness of the impugned loan taken of Rs.12 lakhs. The assessee having sufficiently demonstrated the genuineness of the impugned transaction with documentary evidences and none of the authorities below having found any infirmity in the evidences so submitted by the assessee. We hold that the assessee had duly discharged its onus of proving the genuineness of the unsecured loan and accordingly, direct the deletion of the addition made of Rs.12 Lakhs. Ground No.4 of the assessee’s appeal is, therefore, allowed.

In the result, appeal of the assessee is partly allowed for statistical purposes while the appeal filed by the Revenue is allowed for statistical purposes.