P S METAL STORE,NEW DELHI vs. ITO WARD- 63(3), NEW DELHI

PER SHAMIM YAHYA, AM : This appeal filed by the assessee for the assessment year 2007-08 is directed against the Order of Ld. CIT(A)-35, Delhi dated 24.12.2019.The assessee has raised the following grounds of appeal :-

“1. On the facts and circumstances of the case, the order passed by the learned CIT(A) is bad both in the eye of law and on facts. 2. On the facts and circumstances of the case, learned CIT(A) has erred both on facts and in law in confirming the order of the AO rejecting the contention of the assessee that reopening the assessment under Section

147 of the Act and Consequent reassessment without complying with the statutory conditions and the procedure prescribed under the law are bad and liable to be quashed. 3. On the facts and circumstances of the case, learned CIT(A) has erred both on facts and in law in confirming the order of the AO rejecting the contention of the assessee that the reasons recorded for reopening the assessment does not meet the requirements under section 147 of the Act, bad in law and are contrary to the facts. 4. On the facts and circumstances of the case, learned CIT(A) has erred both on facts and in law in confirming the reopening ignoring the fact that there is no live nexus between the reasons recorded and the belief formed by the assessing officer. 5. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming action of the AO despite that assessment order having been framed on the basis of material collected at the back of the assessee, without providing adequate opportunity to the assessee to rebut the same in violation of statutory provision of section 142(3) of the Act. 6. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in confirming the order passed by the AO despite the fact that reopening the assessment proceedings as well as re- assessment order passed under section 148 of the Act are illegal, as the same have been made without assumption of valid jurisdiction. 7. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in rejecting the contention of the assessee that the reassessment proceedings initiated by the learned AO without obtaining approval of the prescribed authority under the Act is bad in law and liable to be quashed. 8. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law, in confirming the addition of Rs.7,28,404/- made by the AO on account of purchases made by the assessee treating the same as unexplained expenditure invoking the provision of section 69Cof the Act. (i) That the addition has been confirmed at an arbitrary rate of 10% of/purchases made by the assessee without there being any basis for the same (ii) That the above-said addition has been confirmed rejecting the detailed explanation and evidences brought on record by the assessee in this regard.

notice, the AR of the legal representative of the assesse filed reply dated 16.5.2014 stating that the above assessee had already expired, therefore there was no effective service of the notice. The AR of the assesee also enclosed the copy of the death certificate in support of the claim. Further, the AR also stated that the wife of the deceased assessee with an intention to cooperate with the department is ready to submit the documents as could be gathered by her. The Ld. AR vide reply dated NIL submitted that the return already filed u/s. 139(1) shall be considered as return in response to notice u/s. 148. Notice u/s. 143()2) of the Act was also issued by the AO. In this case the AO made the additions of Rs. 72,84,047/- being purchases from Shree Goverdhan International, Om Agencies, Shree Shyam Trading Co. & Vishnu Trading Co. holding that they were bogus purchases and assessed the income at Rs. 74,53,127/- vide order dated 20.03.2015 passed u/s. 143(3)/147 of the Act. 3. Aggrieved with the above order of the AO, the assessee preferred appeal before Ld.CIT(A), who after considering the submissions of the assessee, restricted the disallowance to 10% of the purchases vide order dated 24.12.2019.

5.1 At the time of hearing, Ld. AR submitted that similar additions were made in respect of the other assessee’s on account of the same allegation and the Hon’ble ITAT, Delhi Tribunal in each of these orders have deleted the addition. Accordingly, he submitted that the facts of the present case are identical and hence, the issue in dispute in the instant appeal is squarely covered by the decision of the ITAT, Delhi in the case of Unique Metal Industries Ltd. passed in ITA No. 1372/Del/2015 dated 28.10.2015. In this regard, the submissions of the Ld. AR are as under:-

“1. The issue in the present appeal is in addition on account of the purchases restricted by the CIT(A) to 10% of the purchases.

5.3 Ld. Sr. DR did not controvert the aforesaid proposition made by the Ld. AR, but he supported the orders of the authorities below.

“24. Now the issue is whether on the facts and circumstances of this case it can be said that the purchases are bogus. The Assessing Officer has placed reliance on the statement of Sh. Rakesh Gupta and Sh. Vishesh Gupta and Sh. Naveenet Jain & Sh. Vaibhav Jain. Admittedly these statements were recorded at the back of the assessee. Though the copy of the same was provided to the assessee but an opportunity of cross examination has not been allowed to the assessee. The Assessing Officer in this regard has stated that he has issued summons to these persons repeatedly but these persons have not appeared nor has filed the desired details and documents. In the absence of their cross examination and also in the absence of furnishing desired details and the documents it will not be appropriate to substantiate the addition on the basis of the statement. On examination of facts it also transpires that these persons were in the trade of scrap, the same business in which the assessee is engaged. A survey was carried out on these persons and during the course of the survey it is not the case of the department that they were not found not carrying on the same business. On the contrary there is evidence on record that these persons were not only in the business of scrap but also stock of scrap was also found with them. 25. The department has also made assessment of these persons in respect of the business of scrap carried on by them. The Revenue is doubting the purchases of the assessee on the basis that these persons have made a statement that they have issued accommodation bills and have not made actual sales to the assessee. Can such statements be taken at its face value? If these people were engaged in the scrap trade as contended by the learned AR then there is every possibility that these persons would have collected the scrap for which they were not having any invoices or source of supply and have sold the same to the assessee and to various other parties. On being caught at wrong foot these 6

persons have taken the defence that the sales made by them are not genuine and they have issued accommodation bills. In the present case the assessee has made purchases and there are corresponding sales. These sales are not being doubted. If sales are not being doubted then obviously purchases would be there. Now the learned CIT(A) held that the purchases made by the assessee are not genuine and assessee would have made purchases from other persons. The case of the assessees that is that it has made purchases from these very persons and having made the payment by account payee cheque and there being nothing adverse in the transaction, it is for the supplier i.e. so called people to explain their source of purchase and not the assessee. The Revenue is trying by making presumption that the purchases made by it are not genuine despite accepting its sales. In my opinion shifting of this onus and the assumption being made that purchases are not genuine in the present set of facts is not correct. There would have been some logic, had these people would not have been in the same trade and had there been some other circumstances leading to the conclusion that the so called purchases by the assessee under no circumstances can be from these persons. Adverse inference cannot be drawn against a person merely on the basis of doubt. Doubt howsoever strong cannot par-take the character of legal proof. In the present cases there is complete trail of the purchases and sales so far assessee is concerned. The assessee has been able to co-relate each transaction of purchase with sales as is evident from the submission made before the learned CIT(A). 26. There is a complete co-relation between the purchases and the same is fully documented. Thus the AO as well as learned CIT(A) was not correct in drawing adverse inference against the assessee on this account. I further note that the learned CIT(A) while giving a finding that the purchases are bogus has placed much reliance on the statement of these persons. As discussed hereinabove the statement of these persons cannot be taken on the face of it in view of the surrounding facts. These persons were definitely in the trade. These persons have not appeared before the Assessing Officer despite repeated summons being issued. Had these persons were clean and wanted to stand by their statement given before the Assessing Officer and the affidavit filed, there was no reason for these persons to not to appear and to stand by their statement. I am also of the view that the CIT(A) was not justified in drawing adverse inference on the basis of the transportation. As rightly pointed by the learned AR that these were local movements. The purchases and sales were within the walled city of Delhi where the transportation is by manual driven carts and the charges for the same are debited under the head cartage. Further when sales are accepted as genuine, then 7

definitely the transactions have occurred and movements of goods have taken place. It is also not the case of the learned CIT(A) that transactions has not happened. Thus transportation on such facts cannot be a basis to draw adverse inference against the assessee. I further note that the Ld. CIT(A) has upheld the allegation of the Assessing Officer of the bogus purchases by making an observation that the appellant's dealing with these parties is not free from any doubt. It is a settled law that doubt cannot be a basis for sustaining the allegation. On the contrary the assessee had lead sufficient evidences in support of its purchases which the Assessing Officer in my view has not been able to rebut. Accordingly I am of the view that in the facts and circumstances of the case it cannot be said that the purchases made by the assessee are bogus. 27. As regards the addition of 20% sustained by the learned CIT(A) I am of the view that since purchases are not bogus, the addition on this account cannot be sustained. Even otherwise the addition of 20% on the facts and circumstances is apparently too high. The learned CIT(A) having held that tax has to be levied on real income and the profit cannot be ascertained without deducting the cost of purchases from the sales as otherwise it amount to levy of tax on gross receipt, she ought to have applied profit rate in this nature of trade. Estimating profit at the rate of 20% by taking into consideration the provisions of section 40A(3) will not lead to determination of correct real income. Section 40A(3) is meant for a different purpose when the assessee has made purchases in cash. This provision cannot be applied in such cases. Once the purchases are held to be bogus then the trading results declared by the assessee cannot be accepted and right course in in such case is to reject books of accounts and profit has to be estimated by applying a comparative profit rate in the same trade. Though there can be a little guess work in estimating profit rate but such profit rate cannot be punitive. 28. In view of the above, the addition sustained by the Ld. CIT(A) is directed to be deleted and ground no. 4 to 11 are allowed.” 7. After perusing the aforesaid findings, we find that the facts of the present case are identical to that of the aforesaid case of other assessee, hence, the issue in dispute involved in the instant appeal is squarely covered in favour of the assesee. Therefore, respectfully following binding precedent (Supra), we delete the addition sustained by

the Ld. CIT(A). Since we have already deleted the addition in dispute on merit itself, the other grounds of legal nature become academic, hence, need not be adjudicated.

Order pronounced in the Open Court on 29th August, 2024.

Sd/- Sd/- (NARINDER KUMAR) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER SRB Copy forwarded to:- 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT Assistant Registrar