JAYVADAN RUGHNATHWALA,SURAT vs. ITO, WARD-1(2)(1), SURAT

Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.

The ld. A.R. submitted that the assessee has made genuine purchase of yarn from M/s. S.K. Enterprises and made the payment through banking channel. The assessee furnished the invoices but did not make full payment to M/s. S.K. Enterprises against the purchase of Rs. 14,84,152/-. The assessment order is not just and proper as the assessee had made the payments and paid the GST with interest and penalty. The ld. A.R. filed following arguments in the form of written submissions:- “5. As stated above, assessee in his statement before the GST authority stated that he received the delivery of the goods but the broker has given the false bills.

Therefore, it is clear that assessee has actually purchased the goods and because of the bogus billing, the ITC was reversed and assessee paid the GST with interest and penalty. However, so far as the purchases are concerned the assessee is eligible for deduction of such purchases as the purchases are accounted in the books supported by stock tally. Accordingly, there is no escapement of the income.

Assessee maintains the quantity tally and the details of the quantity of raw material and finished goods were mentioned in Form No. 3CD of Tax Audit Report at column no 35(a) & (b) The assessing officer has not pointed out any defect in this quantity tally The alleged purchases are in respect of grey cloth which were sold by the assessee As there is the corresponding sales against the alleged purchases, the addition cannot be made. The assessing officer has not pointed out that assessee purchased the goods at the inflated price.

In the course of assessment proceedings all the books of accounts were produced before the Assessing Officer with purchase invoices and other details and he did not find any defect in the Books of Accounts The Assessing Officer did not reject the Books of Accounts in the Assessment Proceedings. It has been held in case of Nikunj Exim Enterprises Pvt Ltd - 372 ITR 0619 (Bom) that the addition of bogus purchases cannot be made when the books of accounts are not rejected and merely because the suppliers had not appear before the assessing officer.

The addition cannot be made u/s 69C as can be seen from the observation of Honbourable Gujarat High Court in case of ACIT vs Vardhman Exports - Tax Appeal No. 265 of 2008 (Gu)) where in the similar circumstances the following finding was given: "5. The Assessing officer has made disallowances u/s 69C of the Act. However in our opinion, the same is erroneous since section 69C is applicable to cases where the source of expenditure has not been explained by the assessee Even if we take a plea that assessee has incurred expenditure, it is a case where the source of expenditure is duly explained as the payment for the purchase has been made by assessee out of its bank account. Therefore, the Tribunal rightly concluded that provision of section 69C of the Act will not apply to the case on hand"

Further the reliance is placed on the decision of CIT vs M.K Brothers 163 ITR 249 (Gu)). CIT V Nangalia Fabrics Tax Appeal No. 689 of 2010(Guj) and ACIT vs Akruti Dyeing & Printing Mills Pvt Ltd Tax Appeal No 997 of 2008 (Guj.) 18. It is to be noted that the cross examination of Shahrukh Khan Pathan was denied on the fact that he has never filed ITR and he is not registered on e-filing portal However, it is to be noted that the statement of Shahrukh Khan Pathan was recorded by the GST department and was also registered with the GST 6 Department The reason that he is not registered on e-filing portal is not tenable. Further it is to be noted that the assessing officer has not supplied the full statement of Madhav Shah. The assessing officer has only supplied the statements recorded by the GST Department However, neither investigation report nor the statements recorded by the Income Tax Department if any was provided to the assessee The assessing officer didn't make the further inquiry Accordingly, the addition made by the assessing officer is not valid in view of the following judgments of the courts: i Andaman Timber Industries vs Comm of Central Excise [Civil Appeal No 4228/2006 (SC)] i. Kishanchand Chellaram v/s CIT [125 ITR 0713 (SC)] iii DCIT vs Mahendra Ambalal Patel (Tax Appeal No. 462 of 1999) (Guj.) iv PCIT Vs Chartered Speed Pvt Ltd [Tax Appeal No. 126 of 2015 with 127 of 2015) (Gu)) v CIT v Ashwani Gupta [322 ITR 0396) (Del) vi HR Mehta v ACIT [289 ITR 0561) (Bom) Wrong invocation of S. 115BBE: Arguments.

The addition relates to the disallowance of the purchases Because of the disallowance of the purchases the income from business is increased and therefore S 115BBE cannot be invoked. Even otherwise, the addition for alleged bogus purchases cannot be made u/s 69C as the payments for the purchases have been recorded in the books of accounts. It is to be noted that the assessing officer has not invoked section 115BBE in the assessment order. 20 In support of the above the reliance is placed on the under mentioned decisions of courts: I Dr.TA Qureshi vs CIT-287 ITR 0547 (SC) ii. Lakhmichand Baijnath v CIT 35 ITR 416 (SC) Nalinikant Ambalal Mody v/s CIT 61 ITR 428 (SC) iv CIT v/s D P Sandu Bros Chembur (P) Ltd 273 ITR 1 (SC) v CIT v Shilpa Dyeing & Printing Mills (P) Ltd 39 taxmann.com 3 (Gu)) vi JK Chokshi vs ACIT - Tax Appeal 149 of 2003 (Guj.) vii Green Associates vs PCIT-Tax Appeal No 1199 of 2018 (Gu)) viii DCIT v/s Radhe Developers India Ltd329 ITR 1 (Guj.) ix CIT vs Mhaskar General Hospital in Tax Appeal No 1474 of 2009 (Gu)) x Daulatram Rawatmull v CIT 64 ITR 593 (Cal) 7

We have heard both the parties and perused all the relevant material available on record. The assessee in his written submissions has categorically mentioned that assessee in his statement before the GST authorities stated that he received the delivery of goods but the broker has given the false bills. The submissions of the ld. A.R. that assessee actually purchased the goods and because of the bogus billing, the GST department imposed penalty and the demand of GST with interest. The assessee paid GST with interest alongwith penalty. Thus, the assessee proved his case as per the submissions of the Ld. AR. But the fact remains that the assessee has not given the details of actual movement of purchase of yarns as contemplated by the assessee. The assessee in his submissions despite giving ledger of these delivery challan, ledger account and bank statement has not given the stock register of the assessee as the details related to the purchase of whether the same was that of yarn or something else and whether the same was properly mentioned or not, was not demonstrated either before us or before the lower authorities. The assessee is relying on the decision of his wife’s case, but in the said case 5% addition has been restricted without taking into account the stock register entry and the other details such has delivery from M/s S. K. Enterprises to the assessee’s premises with inward and outward entries which will prove that the assessee actually purchased these goods and it is not only the paper purchase. Even if we accept the additional ground of the assessee, the Assessing Officer has to first verify the component of the actual movement of purchased goods and whether the entire sale was rejected or 9 whether there was no sale at all and only the gross profit has been shown also needs to be verified. Therefore, this matter needs verification and adjudication and will not be treated as identical to case of assessee’s wife. Besides this the decision of Hon’ble Gujarat High Court in case of Vardhaman Exports (supra) clearly set out that when payment proved the same should be allowed, but it also take into account the genuine purchase. But in the present assessee’s case the purchase has been doubted. Hence, the said decision will not be applicable. The matter is remanded back to the file of the Assessing Officer for proper verification and adjudication as mentioned hereinabove. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice.

In result apple of the assessee is partly allowed for statistical purpose.