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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI RAJENDRA, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The revenue has filed the present appeal against the order dated 15.05.2015 passed by the Commissioner of Income Tax (Appeals) -30, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2010- 11.
The revenue has raised the following grounds: - “
(1) Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition to the extent of 7.5% of non-genuine purchase claimed by the assessee A.Y.2010-11 from the alleged parties instead of peak balance of Rs.31,36,882/- as unexplained expenditure u/s69C. (2). Whether, on the facts and in the circumstance of the case and in law, the Ld. CIT(A) has erred to appreciate the findings of the AO that the Assessee has failed to (the genuineness of the loan transaction amounting to Rs.90,00,000/- respectively during the F.Y.2009-10 corresponding to A.V.2010-11. (3). The appellant craves leave to amend or alter any ground or add a new ground which may necessary.”
3. The brief facts of the case are that the assessee filed his return of income on 26.09.2010 declaring total income to the tune of Rs.Nil. The return was processed u/s 143(1) of the I.T. Act, 1961. Thereafter, the case was selected for scrutiny. Notices u/s 143(2) and 142(1) of the Act were issued and served upon the assessee. The assessee was a resident individual who runs a proprietorship concern in the name and style of M/s. Steel Samrat (India) having branches at Mumbai and Tarapur. The assessee was engaged in the business of dealing in ferrous and non-ferrous metal and Iron & Steel Alloys. During the year under consideration, the assessee earned gross profit of 12.24% and net profit of 1.23% on a turnover of Rs.7,80,22,953/- as compared to gross profit of 7.36% and net loss of (Rs.44,78,536/-) as per last year. In the year under consideration, the assessee has claimed the purchase to the tune of Rs.3,80,77,264/- from different parties. The Assessing Officer issued the notices to the parties u/s 133(6) of the Act but the 6 parties has not been traceable. The name of the 6 parties are hereby mentioned below: - Sr. No Name of the parties Amount (Rs) Remarks 1 B.P.T Tube Corporation (Prop. Shri 2,43,910 Served but no Abbas N Turabal) compliance. A.Y.2010-11 2 M/s. Sidhivinayak Steels (Prop. Shri 8,06,738 Served but no Pramod Kumar Singh) compliance 3 M/s. Asian Steel (Prop. Shri 1,29,792 Served but no Dushyant M. Singh) compliance 4 M/s. Rajdeep Metals and Tubes 10,01,000 Not known (Prop. Shri Dadamchand Roopchand jain)
5 M/s. Shriti Enterprise (Prop. Jignesh 82,836 Left R. Batt)
6 M/s. Reliable Metal (India) (Prop. 8,72,606 Left Shri Savlaram P. Dewasi) M/s.
Total 31,36,882/- The purchase to the tune of Rs.31,36,882/- was not verified, therefore, the same was added to the income of the assessee. The loan to the tune of Rs.90,00,000/- was not verified and was treated as unexplained cash credit, therefore, the same was also added to income of the assessee. The total income of the assessee was assessed to the tune of Rs.76,28,940/-. The assessee was not satisfied, therefore, filed an appeal before the CIT(A) and the CIT(A) restricted the addition to the extent of 7.5% of the purchase to the tune of Rs.31,36,882/- and allowed the claim of unexplained cash credit, therefore, the revenue has filed the present appeal before us.
ISSUE NO. 1:-
Under this issue the revenue has challenged the restricting the addition to the extent of Rs.7.5% of the non-genuine purchases to the tune of Rs.31,36,882/- u/s 69C of the Act. The Assessing Officer issued the A.Y.2010-11 notice to the parties and among all the parties, the noticed to the 6 parties were not served whose name are being hereby mentioned below : - Sr. No Name of the parties Amount (Rs) Remarks 1 B.P.T Tube Corporation (Prop. Shri 2,43,910 Served but no Abbas N Turabal) compliance.
2 M/s. Sidhivinayak Steels (Prop. Shri 8,06,738 Served but no Pramod Kumar Singh) compliance 3 M/s. Asian Steel (Prop. Shri 1,29,792 Served but no Dushyant M. Singh) compliance 4 M/s. Rajdeep Metals and Tubes 10,01,000 Not known (Prop. Shri Dadamchand Roopchand jain)
5 M/s. Shriti Enterprise (Prop. Jignesh 82,836 Left R. Batt)
6 M/s. Reliable Metal (India) (Prop. 8,72,606 Left Shri Savlaram P. Dewasi) M/s.
Total 31,36,882/-
The Assessing Officer added the total purchase to the tune of Rs.31,36,882/- on account of non-service of notice or verification. The CIT(A) has restricted the claim of the assessee to the extent of 7.5% of the total purchase to the tune of Rs.31,36,882/-. The CIT(A) has given the following findings: - “2.4.12 Having gone through the above case laws, it is seen that in none of those cases so much of investigation was done including those by another Government authority, viz. Maharashtra Sales Tax authority before whom affidavit was filed stating that only bogus bills were supplied without A.Y.2010-11 delivery of goods. Further, no vehicle numbers have been given in so far as delivery of the purchases are concerned and therefore, it is certain that no such purchases were actually made from the parties from whom bills were procured and hence no delivery could have been made. As seen later, Ld. A O. has himself held that the transactions from the supplier were not genuine but the appellant's purchases were not sham. However, addition was made as the expenditure remained unproved. 2.4.13 In the case before the Hon'ble Bombay High Court in Nikunj Eximp (supra), the suppliers had not appeared before the Assessing Officer and from the judgment it appears that it was not a case of the suppliers being non-existent. However, in the present case in appeal, the alleged suppliers have been found to be non-existent This is not merely a case where the supplier has failed to appear before the Assessing Officer. Hence, the judgment of the Hon'ble Bombay High Court relied upon by the appellant would be of no help. 2.4.14 The assessee often rely on the decision of Hon'ble ITAT Mumbai Bench in the case of Rajeev G. Kalathil in ITA Nos. 6727/Mum/2Q12 and CO No. OG/Mum/2014 where vide order dated 20-08-2014, the addition made on account of bogus purchases were deleted. However, I find that the finding of the Hon'ble ITAT is based on the peculiar facts of the case as in that case, goods received by the assessee from the supplier was admitted to have been transported by the transporter. However, in the present case, no such proof of deliver/ through a particular lorry number has been provided as far as the appellant's purchase is concerned. Thus, the decision rendered in the case of Rajeev G, Kalathil (supra) cannot be said to be applicable in this case. Similarly, decision of the Hon'ble High Court in Nikunj Eximp (ITA No. 5604 of 2010) was rendered on the any substantial question of law was involved in that case. In fact, in a later decision in Nikunj Eximp (2014) 48 Taxmann.com 20 (Bom), Hon'ble Bombay High Court on the very same issue of obtaining bogus bills dismissed the assesses writ petition filed against notice u/s. 148. 2.4.15 Hon'ble Bombay High Court in the case of Killick Nixon Ltd- v. Deputy Commissioner of Income-tax [2012] 20 ITA No. 4506/M/2015 A.Y.2010-11 taxmann.com 703 (Bom) was similarly faced with the question of sham transactions and it inter alia, held as under: "Section 254 of this Income-tax Act, 1967, read with rule 11 of the income-tax (Appellate Tribunal) Rules, 1963 - Appellate Tribunal - Orders of - Assessment year 2001-02 - Assessee transferred certain land to bank - Assessee claimed to have incurred long-term and short-term cap/fa/ losses on share trading transactions - Accordingly, it set off said losses against capital gain earned on sate of land - Assessing Officer found that assesses entered m!o sham and bogus share trading transactions resulting in capital loss with purpose to reduce tax liability arose on capita! gain - Assessing Officer, therefore, discarded capita! losses - Commissioner (Appeals) confirmed order of Assessing Officer - Tribunal a!so confirmed order of Assessing Officer, and while doing so, referred to a decision of Supreme Court in case of Sumali Daya/ v. ClT [1995} 214 !TR 301 / 80 Taxman 89 to held that evidence produced must be analysed by applying theory of surrounding circumstances and human probabilities - Assesses alleged that without bringing said case to notice of parties, revenue had caused prejudice fo its case; af! in violation of principles of nstural justice and of rule 11 - Whether since decision of Supreme Court in Sumati Dayai case (supra) was cited by Tribunal only for purpose of reiterating we!! s&ttled and established position of law, it could not be said to have caused prejudice to assesses -Held, yes - Whether when 3 transaction is sham and not genuine as in instant case, then it could not be considered to be a part of tax planning or legitimate avoidance of tax liability - Held, yes - Whether further sines issues in instant case purely questions of facts on which there were concurrent findings of authorities below, it was to be held that there was no question of law to be considered - Held, yes {in favour of revenue], 14. So far as the principle laid down in the matter of Qmar Salay Mohamed Sait (supra) is concerned there can be no dispute about the proposition laid down therein. However, we have not been shown how the Tribunal was in breach of the same. We find that the Tribunal has considered the evidence of purchase and sale of shares to book long term and short term losses and all the evidence together including the surrounding circumstances reached a finding that (he A.Y.2010-11 purchase and sale of . '' shares is not genuine. So far as the decision of the Supreme Court in Vodafone international Holdings 8.V. v Union of India [2012] 204 Taxman 408 / 17 taxmann com 202 is concerned, the Court considered its decisions in the matters of Me Dowel! & Co. Ltd. v Commercial Tax Officer [1985] 154 ITR 48/22 Taxman 11 (SC), Union of india v. Azadi Bacrtao Andolan [2004] 10 SCC 1 and the Mathuram Agarwal v. State of Madhya Pradesh [1999] 8 SCC 667 and concluded that where the transaction is not genuine but a colourable device there could be no question of fax planning The Supreme Court in the aforesaid case after considering the aforesaid two decisions concluded as follows "The majority judgment in McDowell held that "tax planning may be legitimate provided it is within the framework of law" (para-45). In the latter part of para 45. it held that "colourable device cannot be a part of tax planning and it is wrong to encourage the belief that it is honourable to avoid payment of tax by resorting to dubious methods" it is the obligation of every citizen to the taxes without resorting to subterfuges. The above observations should be read with para 46 where the majority holds "on this aspect one of us, Chinappa Reddy, J. has proposed 3 separate opinions with which we agree". The words "this aspect" express the majority agreement with the judgment of Reddy, J. only in relation to tax evasion through the use of colourable devices and by resorting to dubious methods and subterfuges. Thus, it cannot be said that all tax planning is. Moreover, Reddy, J. himself says that he agrees with the majority. in the judgment of Reddy, J. there are repeated references to schemes and devices in contradistinction to "legitimate avoidance of tax liability (Paras 7-10, 17 and 18). In our view, although Chinnappa Reddy, J makes a number of observations regarding the need to depart from the "Westminster" and tax avoidance- these are clearly only in the context of artificial and colourable devices. Reading McDowell, in the manner indicated hereinabove, in cases of treaty shopping and/or tax avoidance, there is no conflict between McDowell and Azadi Bachao or between Mcdowell and Mathuram Agarwal."
The aforesaid observations of the Supreme Court makes it very clear that a colourable device cannot be a part of tax A.Y.2010-11 planning. Therefore, where a transaction is sham and not genuine as in the present case then it cannot be considered to be a part of fax planning or legitimate avoidance of tax liability. The Supreme Court in fact concluded that there is no conflict between its decisions in the matter of McDowell (supra), Azadi Bachao (supra) and Mdthuram Agarwa! (supra) in the present case the purchase and sale of shares, so as to take long term and short term capital toss was found as a matter of fact by aH the three authorities to be a sham. Therefore, authorities came to a finding at the same was not genuine. So far as the question Nos. (ii), (iii) v) and (v) are concerned, we hold that these are pure questions of facts and as there are concurrent finding of the authorities below, no question of law arises for this Court to interfere." 2.4.16 Hon’ble Allahabad High Court while dealing with the issue of bogus purchase in the case of Sri Ganesh Rice Mills v. Commissioner of Income-tax [2007] 294 ITR 316 (ALL.) held as under ''Where Assessing Officer had recorded a finding that in order to lower profits, bogus purchases had been introduced and Tribunal upheld such finding, addition on account of disallowance of such purchases was justified [Assessment year 1984-85] . The assesses was engaged in the production of gram, pulses, rice chunni-bhusi, etc. The Assessing Officer treated five purchases as bogus That was done after, making enquiries wherein he found that the parties mentioned at item Nos. 4 and 5 never existed He therefore, made addition. The Tribunal also held that the purchases were bogus. Held that it was not the case of the assessee that he was 3 traders. On the other hand, the assessee was a manufacturer arid in manufacturing process, chuni-bhusi also got manufactured as a by-product, it was not the case of the assessee that it had made the purchases of chuni- bhust from other persons also. The Assessing Officer had recorded a finding that in order to lower the profits, the bogus purchases had been introduced. Taking into consideration the entire facts and circumstances of the case, the findings recorded by the Tribunal could not b& said to be based on irrelevant maternal and consideration. The assesses being a manufacturer of chuni-bhusi had not been A.Y.2010-11 able to establish the purchases in question which had been made from the non-existent firms. Further, the two firms owned by the brothers of the partners of the assessee-firm were said to have purchased the goods from (he non- existent firms and even the invokes/bids had been prepared by the of the applicant. Merely because the applicant had been dealing with the finn, that would not make the purchases of chuni-bhusi genuine when there was sufficient evidence to the contrary. So far as the question of deduction of purchases from the corresponding sates was concerned, the assessee being a manufacturer of chuni-bhusi and purchases having been found to be bogus and as there were no other purchases of chuni-bhusi, the benefit of deduction of such purchases had rightly been disallowed," 2.4.17 Similarly, in the case of KHANDELWAL TRADING CO. v, ASSISTANT COMMISSTONER OF INCOME-TAX [1996] 55 TTJ 261 (JR.), it was held as under:
"7. We take, up the first contention of Shri Singhvi it was contended that only gross profit rate should have been applied and the addition should have been to that extent only.
Let us assume that the impugned purchases in this case are t bogus-what can be the causes and effects? Either corresponding bogus sates have to be accounted for, or, the closing stock to that extent have to be increased. But if either is done, the very purpose of entering 'bogus' purchases is defeated What can be th& purpose to enter a bogus purchase in the books, obviously to show lesser profit than actually earned- This in turn could be to bring the gross profit rate to near about the earlier years' performance in order to avoid a deeper probe by the taxing authorities and/or to avoid paying higher taxes. Thus, when once bogus purchase is entered in the books without a ‘corresponding sales or increase in stocks, the obvious result would be lowering of g p. rate. If these bogus purchases are removed, the g.p. rate would automatically go up Under the assumption that the purchases are bogus, one situation visualized is that there are no corresponding sales, then addition at what rate can be more justifiable than by the bogus purchase itself A.Y.2010-11
Likewise, there can be another Situation also. The purchase may be bogus and correspondingly there may be a bogus sales also, and since both are bogus, the GP rate is obviously manipulated to affect the overall result. Then, accepting Shri Sanghvi's contention would further make the accounts bogus. Similarly, there may be many such situations because, accountancy is essentially an art and not a science. 10 The point we are trying to drive home is that when a bogus entry is found in accounts, there cannot be a better solution than to remove that entry. The legitimate way of removing the entry would be, as every student of accountancy would agree, is to do what has been omitted to be done or undo what has been wrongly done. 11 Now, so far we were only assuming that the purchases are bogus. Coming to the facts of the case, there the purchases worth Rs. 86,500 really bogus? There is no doubt about it. The investigations got done by the Assessing Officer leave hardy any doubt about it The failure on the part of the assesses to show cause strengthens the Department's case. This stoic silence of the assesses a/so blunts the assessee's argument that Shrt Hukamchand's statement was recorded at its back. It may have been recorded at its back, but the results thereof were informed of the assessee and that is what the assessee was asked to explain and failed to do so. Thus, now we are not ^assuming but are that the purchases of Rs, 86,500 were infect bogus, In case of bogus entries, in our opinion, what could be the best remedy, has been discussed above The Assessing Officer has simply done that are unable to appreciate Shn Singhvi's contention Had there been suppression of sales, probably, depending on the facts of the case, the addition to (he extent of g.p rate would have been sufficient. But in case of bogus purchases we do not see a better solution than the one adopted by the Assessing Officer. 12. But what about the quantitative record which is said to have tallied? in the instant case the assesses has maintained the stock register but the same has been test- checked by the Assessing Officer. There is no specific discussion or finding as regards quantitative tally. However, when in substance the transactions have been proved to be A.Y.2010-11 bogus the unverified 'quantitative tatty cannot lead us to conclude otherwise. Under the circumstances of this case, we are not inclined to give much weightage to this contention of the assesses." 2.4.18 Further, in Deoria Oxygen Company v. Commissioner of Income-tax [2007] 160 TAXMAN 427 (ALL.), it was observed and held as under: "40. This /eaves us to the question as to whether th& Tribunal should have given due regard to the legitimate outgoings in the form of (he entire purchases of gas cylinders or not. The principle regarding making of a best judgment assessment has been well settled by the Apex Court in the case of Dhakeswari Cotton Mills Ltd. v. 017119541 26 ITR 775 wherein the Apex Court has held as follows.— regards the second contention, we are in entire agreement with the learned Solicitor-General when he says that the Income-tax Officer is not fettered by technical rules of evidence and pleadings, and that, he is entitled to act on maternal which may not be accepted as evidence in a court of law, but there the agreement ends; because it is equally clear that in making the assessment under sub-section (3) of section 23 of the Act, the Income-tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at at!. There must be something more than bare suspicion to support the assessment under section 23(3). The rule of law on this subject has, in our opinion, been fairly and rightly stated by the Lahore High Court m the case of Seth Gurmukh Singh v. CIT f1944J 12 ITR 393 . . . ."(782) 41. In the present case we find that the Commissioner of Income-tax (Appeals) as also the Tribunal has recorded a categorical, finding of fact that the applicant did not make purchases to the extent he has shown. The purchases in question have conclusively been provided to be bogus. If the purchases of the gas cylinders have not made and on the other hand have been found to be bogus by authorities Including the Tribunal, the question of legitimate in the form of purchases of the gas cylinders would not arise. Therefore, the Tribunal was justified in not giving benefit of the alleged amount spent towards the purchases of gas cylinders."
ITA No. 4506/M/2015 A.Y.2010-11 2.4.19 In Samurai Software (P.) Ltd- v. Commissioner of Income-tax [2008] 299 ITR 324 (RAJ.), it was held as under: "6. The Tribunal considered the matter in paragraph 6 of its order thus: "6. We nave carefully considered the rival submissions of the parties, perused the material available on record and the decision relied upon by the learned Department representative. We find that as a result of search on the assessee-company, the purchases totaling to Rs. 4,37,048 were not found recorded in the seized books of account of the assessee-company. Wo surrender was made on behalf of the company by any of the directors of the asses see-company. The surrender was made by Shri Mahesh Toshniwal, one of the directors of th& company in his individual capacity and on behalf of the assessee- company and fhe same was considered in his personal assessment. Under the taw, the company is a separate juridical person. The surrender made by Shri Mahesh Toshniwal, in his individual capacity is not tending on the assessee-company. Shri Mahesh Toshniwal in his personal statements, has nowhere stated that the surrender was made on behalf of the a assessee-company. We also find th&t even in the return fifed in response fa a notice under section 148, the assessee-company did not include the amount of bogus purchases. The assessee-company as not pieced any material as to show that the said purchases, in fact, belong to Shri Mahesh Toshmwai and not ihe a ssessee-company. Under these circumstances, we do not find any merit in fne ptea of the Seamed authorized representative that since the said amount of purchases has been added in the hands of Shri Mahesh Toshniwal, no addition can be made in the hands of the assessee- company. it is a settled law that the tax has to be viewed on the real person. Under these circumstances and keeping in view the decision of the Hon’ble Delhi High Court as relied on by the learned Department representative in the case of CIT v. La Medica [2001] 250 ITR 575, we are of the view that the assessee-company has debited bogus purchases in its books of account which the assessee-company could not substantiate and, accordingly, the Commissioner of Income-tax (Appeals) was not justified in deleting the addition of Rs.4,37,048, which is directed to be A.Y.2010-11 reversed and added in the income of the assessee- company. Consequently, the addition made by the Assessing Officer amounting to Rs.4,37,048 is upheld The ground taken by the Revenue, is therefore, allowed,"
9. The Tribunal, thus, by its order dated June 10, 2002, set aside the order of the Commissioner of Income-tax (Appeals) and restored the addition of Rs.4,37,048 in the hands of the appellant company as was one by the Assessing Officer. in so far as the addition of Rs.4,37,043 in the hands of the appellant company is concerned, we are satisfied with the reasons given by the Tribunal in paragraph 6 of its order. The addition of the amount of Rs.4,37,043 in the hands of the appellant-company cannot be said to be unjustified.” 2.4.20 In the case of Indian Woollen Carpet Factory vs. Income-tax Appellate Tribunal [2002] 125 TAXMAN 763 (RAJ.J it was held as under; "If the transactions were genuine and if the parties had migrated somewhere else, their latest addresses should have been supplied and burden was on the assessee to prove the genuineness of the transactions, when the assesses c/a/med that the purchases were genuine It was true that no loan had been taken from those parties. The case before the Assessing Officer was that the assessee claimed some purchases from some parties, whom he could not produce or those parties were not available when the summon under section 131 was issued Therefore, the initial dispute was with regard to genuineness of the transaction regarding purchase of wool from the parties, the assessee had failed to discharge the onus to prove the genuineness of the transactions, mere mentioning of section 68 did not affect the addition made when transactions were found bogus." 2.4.21 In Sanjay Oilcake Industries vs. Commissioner of Income-tax [2009] 316 ITR274{Guj), it was held as under: "12. Thus, it is apparent that both the Commissioner (Appeals) and the Tribunal have concurrently accepted the finding of the Assessing Officer that the apparent sellers who had issued sale bills were not traceable. That goods were received from th$ parties other than the persons who had issued bills for such goods. Though the purchases are shown to have been made by making payment thereof by A.Y.2010-11 account payee cheques, the cheques have been deposited in hank accounts ostensibly in the name of the apparent sellers, thereafter the entire amounts have been withdrawn by bearer cheques and there is no trace or identity of the person withdrawing the amount from the bank accounts. In the light of the aforesaid nature of evidence it is not possible to record a different conclusion, different from the one recorded by the Commissioner (Appeals) and the Tribunal concurrently holding that the apparent sellers were not genuine, or were acting as conduit between the assessee- firtn and the actual sellers of the raw materials. Both the Commissioner (Appeals) and the Tribunal have, therefore, come to the conclusion that in such circumstances, the likelihood of the purchase price being inflated cannot be ruled out and there is no material to dislodge such finding. The issue is not whether the purchase price reflected in the books of account matches the purchase price stated to have been paid to other persons. The issue is whether the purchase price paid by the assessee is reflected as receipts by the cipients. The assessee has, by set of evidence available on made it possible for the recipients not being traceable for of inc9uilY as to whether the payments made by the have been actually received by the apparent sellers the estimate made by the two appelhte authorities does not warrant interference. Even otherwise, whether the estimate should be at 3 particular sum or at a different sum, can never be an issue of law." 2.4.22 In the case of Assistant Commissioner of Income-tax-V. Tribhovandas Bhimji Zaveri [2000] 74 ITD 92 (MUM.), Hon’ble Mumbai Bench of ITAT while dealing with the issue of bogus purchases where similar arguments were advanced to buttress the claim of purchases, held as under: "Considering the number of coincidences involved in the scheme, we are of the view that the entire scheme has been planned and coordinated by the assesses-firm, in the case of Homi Jehangir Gheesta v. CIT [1961] 41 ITR 135 , the Apex Court held that while deciding an issue, the Tribunal can consider probabilities property arising from the facts alleged or proved and by doing so the Tribunal does not indulge conjectures, surmises or suspicions. The Apex Court expressed a similar view in the case of Sumati Dayal v, CIT A.Y.2010-11 F1995] 214 ITR 801 / SO Taxman 89 (SC) and held that the decision of an adjudicating body based on surrounding circumstances and human probabilities is not bad in taw and deserves to be upheld, tri the case or McDowell & Co. Ltd. v. CTQ [1985] 154 ITR 148 /22 Taxman 11, the -Apex Court held that colorable devices are not part of legitimate tax planning. Going by the ratio of these decisions, we are of the view that the assesses- firm cannot be dissociated from the scheme of declaration of good under the amnesty scheme in the names of the family members of the partners of the assessee-firm, as different individuals could not have hit upon the same idea of acquiring gold in the year of account relevant for the assessment year 1978-79 and declaring such gold under the amnesty scheme and getting the got valued by the same value on the same day and filing their returns under the amnesty scheme on the same day, i.e., 30-3-1BQ7, and subsequently getting the gold converted into ornaments through Kangars on more or less the same day and subsequently selling the ornaments to the assessee-firm in the same year of account without the planning, controlling and coordination of a central agency and that agency in the surrounding circumstances appears to be only the assessee- firm. The Apex Court has held in the case of Jamnaprasad Kanhaiyalal (supra) that there is no double taxation in taxing the person to whom the income actually belonged with the persons who falsely declared t in their returns filed under the Voluntary Disclosure Scheme. That is a risk which an assesses resorting to unfair fax saving devices has necessarily to run and an assessee who has resorted to such devices has to thank himself for it.” 2.4.23 As regards the issue of cross-examination, in T. Devasahaya Nadarv, [l964] 51 ITR 20 (Mad.). it was held: cannot be hid down as a general proposition of taw that the - tax Department cannot rely upon any evidence which has been subjected to cross-examination. An ITO occupies the position of a quasi-judicial Tribunal and is not bound by the rules of the Evidence Act hut he must act in consonance with natural justice, and one such rules is that h& should not use any material against an assesses without A.Y.2010-11 giving the assessee an opportunity to meet it. He is not bound to divulge the source of his information. There fs no denial of natural justice if the ITO refuses to produce an informant for cross-examination (though if a witness is examined in the presence of the assesses, the assesses must be allowed to cross-examine him The range of natural justice is wide and whether or not there has been violation of natural justice would depend on the facts and circumstances of the case. " 2.4.24 The Supreme Court had also an occasion to consider the applicability of the principles of natural justice in R.S. Dass v. Union of India AIR 1967 SC 593. Referring to The same, the Supreme Court in Chairman, Board of Mining Examination v. Ramjee &\R 1977 SC 965, inter alia, held as follows : "Natural justice is no unruly horse, no lurking land mine, nor a judicial cure alt if fairness is shown by the decision maker to the man proceeded against, the form, features and the fundamentals of such essential processual propriety being conditional by the facts and circumstances of such situation, no breach of natural justice can be complained of. Unnatural expansion of natural justice, without reference to the administrative realities and other factors of a given case, can be exasperating. We can neither be financial nor financial but should be flexible yet firm in this jurisdiction.'" 2.4.25 In GTC Industries Ltd. v. Assistant Commissioner of Income-tax [1 998] 65 ITD 380 (BOM), it was held as under: In our opinion right to cross-examine the witness who made adverse report, is not an invariable attribute of the requirement of the dictum, 'audi alteram partem '. The principles of natural justice do not require format cross- examination. Formal cross-examination is a part of procedural justice, it is governed by the rules of evidence, and is the creation of Court, it is part of legal and statutory justice, and not a part of natural justice, therefore, it cannot be laid down as a general proposition of law that the revenue cannot rely on any evidence which has not been subjected to cross-examination, However, if a witness has given directly incriminating statement and the addition in the assessment is based solely or mainly on the basis of such statement, in that eventuality it is incumbent on the Assessing Officer to allow cross- A.Y.2010-11 examination. Adverse evidence and material, relied upon in the order, to reach finality, should be disclosed to the assessee. But this rule is not applicable where the material or evidence used is of Collateral '{Emphasis supplied in all quotations) 2.4.26 To sum up, I would like to quote the landmark case of State Bank t. India v. S.K. Sharma AIR 1996 SC 364 where the Hon'ble Apex Court observed: "Justice means justice between the parties. The interest of justice equally demand that the guilty should be punished and that technicalities and irregularities which do not occasion failure of justice are not allowed to defeat the ends of justice. Principles of natural justice are but the means to achieve the end of justice. They cannot be perverted to achieve from opposite end." _ 2.4.27 In Bholanath Polyfab Pvt. Ltd. 355 ITR 290 (Guj). the facts of the case were that the assessee was engaged in the business of trading in finished fabrics. For the A.Y. 2005-06, the Assessing Officer held that the purchases worth Rs.40,69,546/- were unexplained He, therefore, disallowed such.expenditure claimed by the assessee and computed the total income of Rs.41r1G,187/- The issue was carried in appeal by the assessee before the Ld, CIT(A) who rejected the appeal, upon which the assessee went in further appeal before the Hon'ble Tribunal. The Hon'ble Tribunal substantially allowed the assessees appeal. In so far as the question of bogus purchase is concerned, the Hon'ble Tribunal concurred with the Revenue's views that such purchases were made from bogus parties. The Tribunal noted that the Assessing Officer had issued notice to all parties from whom such purchases were allegedly made. Such notices were returned unserved by the postal authorities with the remark that the address was incomplete. The Inspector deputed by the Income-tax Department also could not find any of the parties available at the given addresses. The assessee was unable to produce any confirmation from any of the parties Though the assessee had claimed to have made payment by account payee cheques, upon verification it was found that the cheques were encashed by some other parties and not by the supposed sellers.
ITA No. 4506/M/2015 A.Y.2010-11 2.4.28 Having come to such a conclusion, however, the Tribunal was of the opinion that the purchases may have been made from bogus parties, nevertheless, the purchases themselves were not bogus. The Tribunal adverted to the facts and data on record and came to the conclusion that the entire quantity of opening stock, purchases and the quantity manufactured during the year under consideration were sold by the assessee. The purchases of the entire 1,02,514 meters of cloth were sold during the year under consideration. The Hon'ble Tribunal, therefore, accepted e's contention that the finished goods were purchased by the assessee, may not from the parties shown in the accounts, but from other sources. In that view of the matter, the Tribunal was of the opinion that not the entire amount, but the profit margin embedded in such amount would be subjected to tax. The Tribunal relied on its earlier decision in the case of Sanket Steel Traders vs. ITO [IT appeal Nos. 2801 & 2937 (Ahd) of 2009, dated 20-05-2011] and also made reference to the Tribunal's decision in the case of Vijay Proteins Ltd, vs. Assessment.CIT [1996] 58 LTD 428 (Ahd) On appeal by the Department, the Hon’ble Gujaral High Court held as follows. We are of the opinion that the Tribunal committed no error. Whether the purchases themselves were bogus or whether the parties from whom such purchases were allegedly made were bogus is essentially a question of fact. The Tribunal having examined the evidence on record came to the conclusion (hat the assesses did purchase the cloth and sell finished goods. In that view of the matter, as natural corollary, not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax This was the view of this Court in the case of Sanjay Oilcake Industries vs. CIT (2009) 316 ITR 274 (Guj.). Such decision is a/so followed by this Court in a judgment dated August 16, 2011, in Tux Appeal No. 579 of 2010 in the case of CIT vs. Kishor Amrutlal PateA in the result, tax appeal is dismissed". 2.4.29 The facts in the present case are similar to the facts in the above mentioned case in the present case, the Ld. AO has shown that the party in question was non-existent. The appellant has not been able to disprove the findings of the Ld. AO regarding the non-existence of the party. Ld AO has, A.Y.2010-11 after examining the evidences, found that the appellant did purchase the goods, although not from the party in question and it had also shown sales of the goods and had offered the income on such sale of goods. In this case, I also find that Ld. AO has observed that quantitative details were maintained and the appellant being a trader of goods, Ld. A O. not having doubted the genuineness of sales, could not have gone ahead and made addition in respect of peak of purchases especially when he himself recorded a finding that the appellant made the purchases from some other party. Thus, the issue would boil down to finding out the element of profit embedded in bogus purchases which the appellant would have made from some unknown entities. Hence, following of the Hon'ble Gujarat High Court in Bholanath Polyfab Pvt Ltd. profit margin embedded in such amounts of purchases could only be subjected to tax. 2.4.30 Similarly, in yet another decision of Hon'ble Gujarat High Court in the case of CLT vs. Simit Sheth 12013) 38 Taxmann.com 385 (Guj), Hon'ble Court was seized with a similar issue where the A.O. had found that some of the alleged suppliers of steel to the assesses had not supplied any goods but had only provided sale bills arid hence, purchases from the said parties were held to be bogus. The A.O. in that case added the entire amount of purchases to gross profit of the assessee. Ld, CIT(A) having found that the assessee had indeed purchased though not from named parties but other parties from grey market, partially sustained the addition as probable profit of the assessee. The Tribunal however, sustained the addition to the extent of 12.5%. Taking into account the above facts, the Hon'ble Gujarat High Court held that since the purchases were not bogus, but were made from parties other than those mentioned in books of accounts, only the profit element embedded in such purchases could be added to the assessor’s income and as such no question of law arose in such estimation. While arriving at the above conclusion, the Hon'ble Court also relied on the decision in the case of Vijay M. Mistry Construction Ltd. 355 1TR 498 (Guj) and further approved the decision of Ahmedabad Bench, ITAT in the case of Vijay Proteins 58 1TD 428- A.Y.2010-11 2 4.31 In the case of Vijay Proteins (supra), the Hon'ble ITAT was seized with a case of bogus suppliers of oil cakes where 33 parties were found to be bogus by the departmental authorities even though payments were made to the said parties by cross cheques and in fact the A.Q. in that case had brought adequate material on record to prove that the cross cheques had not been given to parties from whom supplies were allegedly procured but these were encased from a bank account in the name of another entity, possibly hawala dealer. Subsequently, the money deposited in that account was withdrawn in cash almost on the same day. The Tribunal however, held that if the purchases were made from open market without insisting for genuine hills, the suppliers may be willing to sell the product at a much less rate as compared to a rate which they may charge in which the dealer has to give genuine sale invoice in respect of that sale. Keeping all such factors In mind, the Tribunal estimated an element of profit percentage of the overall purchase price accounted for accounts through fictitious invoices, 2.4.32 Further, in the case of M/s. Sanket Steel Traders (ITA No. 2301/Ahd/ 20C8 dated 20-05-2011 it was inter-alia, stated as under: "3. At the time of hearing before as, it is submitted by the Learned Counsel that the addition sustained is excessive. In support of this contention he referred to the decision of the Tribunal in the case of ITQ vs. Sun Steel 92 TTJ (Ahd) 1126 wherein the Tribunal has sustained the. addition of R$ 50.QOO/- on account of bogus purchases. However, we find that the facts in the above case were different. In the above case, the assessee has shown purchase of Rs.27,39,410/-,sale of Rs.28,17,207/- and Gross Profit at Rs.27,39,407-. The Assessing Officer made the addition of Rs.27,39,407/- for bogus purchases If the above sum is added to toe Gross Profit, the Gross Profit works out Rs.2,83,41,247/- which. was more than the sale itself The Tribunal held that it is impossible that the Gross Profit is more than the sale itself. The Tribunal also found that the assessee has maintained the quantitative details in respect of materials purchased and sold. Considering peculiar facts of that case, the Tribunal arrived at the conclusion that A.Y.2010-11 it would b^ fair and reasonable to estimate the addition at Rs.50,000/- as against the addition of Rs.27,39,407/- made by the Assessing Officer. However, the Ld. Commissioner of income-tax (Appeals) considering the facts of the assesses case, has sustained the addition at 12.5%. while doing so, he has a/so re/fed upon the decision of the Tribunal in the case of M/s. Vijay Proteins Ltd. 55 TTJ (Ahd) 76. In the case of M/s Vijay Proteins Ltd. the Tribunal has sustained the addition of 25% of the bogus purchases However, considering the facts of the assesses case the CIT(A) restricted the disallowance to 12.5% as against 25% made in the case of M/s. Vijay Proteins Ltd. From these facts it is evident that the CIT(A) has sustained the addition at 12.5% of the non-genuine purchases considering the facts of the assesses case. We, therefore, do not find any justification to interfere with the order of the CIT(A) in this regard. The same is sustained." After considering the facts and the arguments of both the sides, we are of the opinion that it would meet ends of justice, if the disallowance is sustained at 12.5% of the purchase from these two parties. The Assessing Officer is directed to work out the disallowance accordingly." Since the facts of the assesses '5 case are identical, we respectfully following the above decision of the ITAT, direct the Assessing Officer to disallow 12.5% of the purchases made during the year under consideration," 2,4.33 As narrated earlier, in similar set of facts in A.Y.2Q11- 12, Ld. A.O. has that the purchases were not bogus though the party from whom the made by the appellant was found to be bogus and that is the reason for which it was not produced during the assessment proceedings. Ld. AO. had 1 further observed that stock register was maintained by the appellant. The motive behind obtaining bogus bills thus, appears to be inflation of purchase price so as to suppress true profits. Considering the facts of the case as well as the various case laws cited (supra) especially in the cases of CIT vs. Simit P. Sheth, Bholanath Poly Fab and Sanket Steel Traders (supra), I estimate the profit to the extent of 12.5% of the purchases made from the bogus parties during the year as per the chart below {However, as per the appellant net purchases from A.Y.2010-11 these parties is Rs.32,2Q,218/-which needs to be considered) as the profit element embedded in such purchases. However, as the appellant has been showing high G.P, in the last few years, the net addition confirmed would be 7,50% (125% - 5%) of such purchases by giving estimated abatement of 5% on that account. Accordingly, the grounds raised are partly allowed.”
6. On appraisal of the above said finding, we noticed that the matter of controversy has been adjudicated by the CIT(A) on the basis of the decision of CIT Vs. Simit Sheth (2013) 38 taxmann.com 385 (Guj), Bholanath Polyfab P. Ltd. (supra), M/s. Sanket Steel Traders (ITA. No. 2801/Ahd/2008 dated 20.05.2011 and Vijay Proteins 58 ITD 428. The addition was restricted to the extent of gross profit of the assessee which doesn’t seems unjustifiable. Therefore, in the said circumstances, we affirmed the finding of the CIT(A) on this issue and decide this issue in favour of the assessee against the revenue.
ISSUE NO. 2:-
Issue no.2 is in connection with the deletion of the addition of Rs.90,00,000/- on account of unexplained cash credit. The AO has raised the addition on account of non-proving the genuineness of the loan transaction. The CIT(A) has decided the matter of controversy vide para no,2.5 which is hereby reproduced below as under: - “2.5. Ground No. VI is on the issue of addition on account of unsecured loans from M/s. Shikha Diamonds P. Ltd.and Bahubali Diamonds P. Ltd. of Rs.5 lakh and Rs.85 lakhs respectively treating it as unexplained cash credit u/s 68 of the I.T. Act. 2.5.1. Ld. AO made the addition as there was no proper response to notices u/s 133(6) issued to these two parties. Although in the case of M/s. Shikha Diamonds P. Ltd. he has himself noted at the para 6.3 of the order that copy of acknowledgement of I.T. return A.Y.2010-11 and ledger account of the appellant in its books was filed by him in response to notice u/s 133(6), he found that the ledger so submitted was different from the one submitted by the appellant as per which the appellant had claimed to have received a fresh loan of Rs.5 lacs from the said party during the relevant year and the opening balance was Rs.1,80 crore. Ld. AO also observed that as per copy of acknowledgment of return filed by M/s. Shikha Diamonds P. Ltd. for A.Y. 2010-11, its total income was shown at only Rs.2,35,120/-. He, therefore, to the conclusion that out of such a paltry income how it could have advanced such huge loans to the appellant. Ld. A.O, therefore, concluded that the appellant had failed to prove the genuineness of the transactions and creditworthiness of the said loan creditor He, accordingly, brought to tax the fresh loan credit of Rs.5 lakh as unexplained cash credit in the hands of the appellant. 2.5.2 Per contra, Id. A R. has slated that as far as the appellant is concerned, he had discharged his onus by not only tiling the confirmed copy of account but also the PAN and copy of I.T. return of the creditor It has also been contended that once notice u/s 133(5) was issued by the Ld. A.O. and the loan creditor had responded to the same by filing copy of its I.T. return as well as ledger copy of the appellant's account, Id. A.O. could not have made an addition only on the basis of conjecture and surmise. Ld. A.R. further contended that it was for the Id. AO to establish that the loan advanced by the said creditor was in the nature of income. Ld A,R. also brought out the fallacy in Id. A.O.'s contention that the ledger account submitted by the loan creditor was different from the one submitted by the appellant. In this regard, he stated that the appellant had got two loans from M/s. Shikha Diamonds Pvt. Ltd., one in the name of M/s. Steel Samrat(lndia), a proprietary concern of the appellant and another in the name of the proprietor appellant, Shri Babulal U. Munot. These confirmations were available before the Id. A.O. and even the copy of Bank Statement was filed before him to substantiate the above said contention. 2.5.3 Similarly, as far as another addition of Rs.85 lacs being fresh loan from Mfs. Bahubali Diamonds is concerned. Id, A.O. has remarked that although there was no response to notice u/s 133(6) , in reply to the show-cause, the appellant furnished a copy of I.T. return of the loan creditor, copy of ledger account and copy of bank statement. However, Id, A.O was not satisfied with the genuineness of the transaction and the creditworthiness of the loan A.Y.2010-11 creditor as he found that immediately before the loan was advanced to the appellant, there were credit entries in the bank account of the loan creditor from various entities which appeared fishy to the Id. A.O. Accordingly, he held that it was appellant's money from undisclosed sources which he had brought in the garb of unsecured loans. 2.5.4. Per contra, Id, A.R. has stated that once the foan confirmation along return and bank statement highlighting the payments were filed, a fact which has been acknowledged in the assessment order, Id. A.O. could not have made the addition merely on the basis of conjecture and surmise. 2.5.5 On weighing the pros and cons, I find that as far as the identity of loan creditors is concerned, the same was never in doubt as both the loans creditors were Pvt. Ltd. Companies. As far as the genuineness of the transactions and the creditworthiness of the parties is concerned, as soon as the parties had either responded to the notice u/s.133(6) and / or Tiled copies of l,T return, ledger account etc. with valid PAN, the onus which lay upon the appellant stood discharged and if Id. A.D still harbored any doubt, he should have made further enquiries by enforcing the attendance of the said loan creditor by issuance of summons or by way of exercise of any other power which is vested in him as per the statute. Law does not permit an addition to be made by simply brushing aside the return of income, copy of which was filed with the appellant. 2.5.6 In this regard, I am fortified in my view by the decision of Hon'ble Bombay High Court in the case of M/s, Orient Trading Co. Ltd. vs, CIT 49 ITR 723 where while dealing with the issue of burden of proof in respect of cash credit, it was held that when the entry stands in the name of a third party and the assessee satisfies the 1TO as to the identify of that third party and also supplies such other evidence which prima facie shows that the entry is not fictitious, the initial burden which lies on him can be said to have been discharged. 2.5.7 In yet another case, Hon'ble Bombay High Court in CIT vs. Shyam R. Pawar (2015) 229 Taxmann 256 (Bom), while dealing with a worse case of cash credit in respect of suspicious share transactions done through brokers at Calcutta, dismissed the Departmental appeal against the order of Hon'ble Tribunal by observing that once the DFMAT account and Contract Note showed credit / details of share transactions and the revenue had A.Y.2010-11 stopped the enquiries at that particular point, it could not have made the addition as the revenue failed to prove that the transactions were bogus/sham. 2.5.8 In another decision of Hon'ble Bombay High Court in the case of CIT Construction 217 Taxmann.com 22 (Bom), while dealing with the issue of Hon'ble High Court refused to interfere in the decision of Hon'ble a concurrent finding of fact was given that the credits shown by the asessee were explained and hence, the same could not be added to its income In the case at hand. Id A.O has himself given a finding that copies of loan confirmations as well as I.T. returns were on record and therefore, it could not be said that the cash credits were unexplained. 2.5.9 In view of the above, I am of the considered opinion that Id. AG, had failed to link the cash credits to any undisclosed income of the appellant and addition made by him only on the basis of conjecture and surmise is not permissible in the eyes of law. In this regard, it is relevant to refer to certain case laws on the subject of making addition by way of conjectures and surmises. 2.5.10 ' It is trite law that no assessment can be framed merely on the basis of conjectures and surmises. In Smt. Sushila Suresh Malge vs. ACIT [2012] 26 taxmann.com 53 (Mum.), it was held as under; "There is already evidence on record that assesses wife has been filing the returns much before the search and there were scrutiny assessments in her case as well. Just because her affairs are being looked after by her husband, it does not mean that she is benami case the Assessing Officer has to avoid that she is benami, it should be based on evidence and burden is on the revenue. Unless there is evidence, no addition should be made in the hands of her husband on mere conjectures, surmises and presumptions. These aspects should be examined by the Assessing Officer and only when there is clear evidence/findings addition of income of wife can be made in the hands of the assesses, otherwise they should he examined separately/independently without getting prejudiced by earlier orders of the Assessing Officer, i.e., the Assessing Officer should determine the undisclosed income separately in respective hands." 2.5.11 Similarly, while dealing with powers of CIT u/s 263, Hon'ble Mumbai Bench of HAT in Indexco International vs, DCU [2004J 88 LTD 293 (MUM.), held as under; A.Y.2010-11 "In the garb of exercising powers under section 263, the Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in the matters or orders are already concluded. Such action will be against the accepted policy of Saw that there must be a point of finality legal proceedings It is well established that revisional ' under section 263 is quasi-judicial power hedged in with limitation and has to be exercised, subject to the same and within its scope and ambit. The Commissioner performs performs a quasi-judicial act under section 263 and his decision cannot be based upon his whims or caprice. He has to act justly and fairly. The power has to be exercised objectively and dispassionately and thereafter conclusions have to be drawn on the basis of material on record in accordance with law. However, perusal of impugned orders of the Commissioner would go to reveal that he had based his conclusions purely on conjectures and surmises and not on an appreciation of material on record in the right perspective." 2.5.12 Hon'ble Bombay High Court also had an occasion to examine the issue of assessment based on conjectures and surmises in the case of Commissioner of Income-tax-21, Mumbai v. Uttamchand Jain [2009] 182 TAXMAN 243 (BOM.) where it was held as under; ''Theft* is nothing on record to suggest that the assesses hacj given cash to Mr Sanjay Saxena. The Assessing Officer has not chosen to examine Mr. Sanjay Saxena to establish that cash was given by the assesses to Mr. Trivedi through Mr Sanjay Saxena. Perusal of th& reassessment order shows that the Assessing Officer has not made any efforts to fink the cash received and deposited by Mr. Trivedi in his bank account was in fact paid by the assessee. in other words, the decision of the Assessing Officer in discarding the sate and holding that the amount received by the assesses from Mr. Trivetii represented the undisclosed income of the assessee is based on conjectures and surmises and is not based on any independent evidence gathered prior to of during the course of reassessment proceedings. In these circumstances, in the absence of any cogent evidence brought on record, the decision of the Tribunal in holding that the Assessing Officer has failed to establish the nexus between the cash amount deposited m the bank account of Mr Trivedi is attributable to the cheque Issued by Mr A.Y.2010-11 Triveds in favour of the assesses cannot be faulted. Consequently, the decision of the Tribunal in deleting the addition of Rs. 10,35.562 cannot be faulted." 2.5.13 In the case of Pooja Bhatt vs. AC1T 79 ITD 205 the Hon'ble Mumbai ITAT deleted the addition made on account of alleged on money paid for purchase of flat The ITAT held as under: "There may be a strong suspicion of payment of on-money in respect of the property deals but no addition can be made on mere suspicion, it is established principle of law that howsoever strong it may beit does not take the place of proof.” 2.5.14. In view of the above finding of fact as well the relevant case laws cited supra, I do not find merit in the addition made by the Ld. AO. Accordingly, ground no. VI is allowed.”
8. On appraisal of the above said mentioned finding, we noticed that the CIT(A) has allowed the claim on seeing the facts that the identity of the creditors and the genuineness of the transactions and creditworthiness of the said loan creditor are not dispute. Both the creditors were private limited companies and genuineness of the transaction and credit-worthiness of the parties were not seems doubtful. The parties responded to the notice u/s 133(6) of the Act and filed the copy of I.T. return, ledger account with valid PAN number. The onus which lies upon the appellant stood discharged. The Assessing Officer after furnishing the documents nowhere conducted further enquiries, therefore, the CIT(A) relying upon the certain decision mentioned in its order allowed the claim of the assessee which doesn’t seems unjustifiable. The facts are not distinguishable at this stage also. Therefore, in view of the said circumstances, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Accordingly, these issues are being decided in favour of the assessee against the revenue.
ITA No. 4506/M/2015 A.Y.2010-11