SHARMA EGG SUPPLIER ,SILIGURI vs. ITO, WARD - 2(3), SILIGURI , SILIGURI

Ground no. 1 of assessee’s appeal is against the action of Ld. CIT(A) in confirming the addition of Rs.7,21,803/- as made by the AO on account of bogus purchases. Briefly stated facts are that AO while going through the purchase ledger and copies of relevant bills & vouchers produced noted that there is payment of cash for purchase which were in violation of section 40A(3) of the Act and that there were purchases made by assessee out of books which were not recorded. So the AO called for the inspector’s report & after perusing the report of the inspector and reply of assessee was pleased to hold that the purchase of eggs of Rs.7,21,803/- was bogus. Therefore, the AO treated the sum of Rs.7,04,478/- as bogus purchase u/s. 69C of the Act. On appeal, the Ld. CIT(A) confirmed the action of AO. Aggrieved, assessee is now in appeal before us.

We have heard rival submissions and gone through the facts and circumstances of the case. Facts are not repeated again for the sake of brevity. We note that AO has accepted the sale of eggs. However, he doubted the purchases, when he accepted the sales. The Sharma Egg Supplier, AY 2015-16 Ld.AR submitted before us that all the purchases and sales made are recorded regularly in the books. We note that the purchases were taken into account and charged to the P&L Account. The natural corollary would be that the eggs have been purchased and then only it can be sold. The Inspector’s report that certain selling parties are not traceable cannot be a ground for treating the entire purchases of eggs by assessee as bogus at the when AO accepts the sale of eggs shown by the assessee. Sale of eggs cannot happen without eggs are there in assessee’s possession and so the entire addition of purchase of eggs of certain parties as done in this case cannot be countenanced. The AO cannot disallow the purchase without reducing either the sales or the stock by a matching sum. So we are of the opinion that even if the eggs purchased by the assessee are not from the parties shown in the books, the assessee infact had purchased the eggs from some other party which was eventually sold. So the entire purchase cannot be added and only the profit embedded in the sales can be added. We note that the assessee has shown the GP @ 3.5%. Relying on the decision of Hon’ble Gujarat High Court in a similar case reported as CIT Vs. Bholanath Poly Fab Pvt. Ltd. 355 ITR 290 (Guj.) and CIT Vs. Simit P. Sheth 356 ITR 451 (Guj), we consider the GP @ 5% would be sufficient in the facts and circumstances of the case for the interest of justice in this case. Therefore, this ground of appeal

We have heard rival submissions and gone through the facts and circumstances of the case. The facts stated above are not repeated for the sake of brevity. We note that the AO noted that the assessee has purchased eggs in cash from M/s. Paul Egg Centre to the tune of Rs.4,26,021/- which fact has been confirmed by the owner of M/s. Paul Egg Centre Shri Dipak Paul and duly noted by AO while framing the assessment order. So the genuineness of the cash payment to procure egg for trade of assessee from M/s. Paul Egg Centre is not disputed. In such a scenario, the Ld.AR relied upon the decision of Hon’ble High Court of Calcutta in the case of CIT vs Crescent Export Syndicate in of 2008 order dated 30.07.2008 wherein it was held as under:- “It also appears that the purchases have been held to be genuine by the learned CIT(Appeal) but the learned CIT(Appeal) has invoked section 40A(3) for payment exceeding Rs.20,000/- since it is not made by crossed cheque or bank draft but by bearer cheques and has computed the payments falling under provisions of section 40A(3) for Rs.78,45,580/- and disallowed @ 20% thereon 15,69,116/-. It is also made clear that without the payment being made by bearer cheque these goods could not have been procured and it would have hampered the supply of goods within the stipulated time. Therefore, the genuineness of the purchase has been accepted by the Ld.CIT(Appeal) which has also not been disputed by the department as it appears from the order so passed by the learned Tirbunal. It further appears from the transaction that neither the Assessing Officer nor the CIT(A) has disbelieved the genuineness of the transaction. There was no dispute that the purchases were genuine. Accordingly, in our opinion, the learned Tribunal has correctly came to the conclusion by deleting by addition of Rs.15,69,116/- under section 40A(3) of the Act.”

Since the AO has not doubted the genuineness of the purchases made by cash by the assessee from M/s. Paul Egg Centre, by applying the ratio as held by Hon’ble jurisdictional High Court of the opinion that no disallowance was warranted so, we order deletion of the addition.