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Facts
The Revenue appealed against two separate orders by the CIT(A) for assessment years 2011-12 and 2012-13, concerning the disallowance of bogus purchases. The Assessing Officer (AO) had made a 100% addition for bogus purchases, but the CIT(A) restricted the disallowance to 3% of the bogus purchase amount.
Held
The Tribunal noted that the issue is whether the addition should be 100% or a lesser percentage when purchases are established as bogus. The Tribunal also outlined a procedure for verification, including checking stock registers, sales, and potentially restoring the issue to the AO for further examination if certain aspects were not properly considered.
Key Issues
The core issue is the extent of disallowance for bogus purchases when the purchases are established as bogus, but the assessee claims only a profit element should be added, not the entire purchase amount.
Sections Cited
143(1), 148, 143(3), 147, 132(4)
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Income Tax Appellate Tribunal, MUMBAI BENCH “F” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI SUNIL KUMAR SINGH
In both these appeals a common issue of disallowance of In both these appeals a common issue of disallowance of In both these appeals a common issue of disallowance of bogus purchases is involved and therefore, both these appeals were bogus purchases is involved and therefore, both these appeals were bogus purchases is involved and therefore, both these appeals were heard together and disposed off by way of this consolidated order heard together and disposed off by way of this consolidated order heard together and disposed off by way of this consolidated order for convenience and avoid repetition of facts. for convenience and avoid repetition of facts.
2.1 The grounds rai The grounds raised by the Revenue in both the assessment sed by the Revenue in both the assessment years are identical except change of amount are identical except change of amount. In assessment year In assessment year 2011-12, the Ld. CIT(A) has restricted disallowance 12, the Ld. CIT(A) has restricted disallowance at the rate of 12, the Ld. CIT(A) has restricted disallowance 3% on the bogus purchases of Rs.2,01,67,404/- whereas in 3% on the bogus purchases of Rs.2,01,67,404/ 3% on the bogus purchases of Rs.2,01,67,404/ assessment year 2012 assessment year 2012-13 he has restricted the disallowance to 3% has restricted the disallowance to 3% in respect of bogus purchases of Rs.3,88,09,001/ in respect of bogus purchases of Rs.3,88,09,001/- -. Therefore, for ready reference, only grounds of the Revenue for assessment year only grounds of the Revenue for assessment year only grounds of the Revenue for assessment year 2011-12 are reproduced as under: 12 are reproduced as under:
1. "Whether on the fact and in the circumstances of t "Whether on the fact and in the circumstances of the case "Whether on the fact and in the circumstances of t and in law, the Ld. CIT(A) has erred in reducing gross and in law, the Ld. CIT(A) has erred in reducing gross and in law, the Ld. CIT(A) has erred in reducing gross profit @ 3%, as against the 100% addition made by the Assessing 3%, as against the 100% addition made by the Assessing 3%, as against the 100% addition made by the Assessing Office on account of bogus purchases of Rs. 2,01,67,404/ Office on account of bogus purchases of Rs. 2,01,67,404/ Office on account of bogus purchases of Rs. 2,01,67,404/- from two Hawala parties, by igno from two Hawala parties, by ignoring the fact that the ring the fact that the DGIT(inv.), had ), had proved beyond doubt that Mr. Rajendra Jain & proved beyond doubt that Mr. Rajendra Jain & his Group concerns were involved in providing accommodation his Group concerns were involved in providing accommodation his Group concerns were involved in providing accommodation entries of sales & purchases without actual delivery uf goods entries of sales & purchases without actual delivery uf goods entries of sales & purchases without actual delivery uf goods and the assessee was one of the beneficiary who has and the assessee was one of the beneficiary who has and the assessee was one of the beneficiary who has accepting accommodation entries for t accepting accommodation entries for the purchases of Goods ? he purchases of Goods ? 2. "Whether on the fact and in the circumstances of the case 2. "Whether on the fact and in the circumstances of the case 2. "Whether on the fact and in the circumstances of the case and in law, the Ld. CIT(A) has erred in reducing gross profit @ and in law, the Ld. CIT(A) has erred in reducing gross profit @ and in law, the Ld. CIT(A) has erred in reducing gross profit @ 3%, as against the 100% addition made by the Assessing 3%, as against the 100% addition made by the Assessing 3%, as against the 100% addition made by the Assessing Office on account of bogus purchases of Rs. 2,01,67, Office on account of bogus purchases of Rs. 2,01,67, Office on account of bogus purchases of Rs. 2,01,67,404/- from two Hawala parties, without appreciating the fasts that from two Hawala parties, without appreciating the fasts that from two Hawala parties, without appreciating the fasts that during the search operation statement of Mr. Rajendra Jain during the search operation statement of Mr. Rajendra Jain during the search operation statement of Mr. Rajendra Jain recorded u/s132(4) of the I.T. Act, in which he has recorded u/s132(4) of the I.T. Act, in which he has recorded u/s132(4) of the I.T. Act, in which he has categorically stated that those two entities/parties to whom categorically stated that those two entities/parties to whom categorically stated that those two entities/parties to whom the assessee clai the assessee claimed to have made purchases are managed med to have made purchases are managed and controlled by him for providing the accommodation entry and controlled by him for providing the accommodation entry and controlled by him for providing the accommodation entry only with no real business ? only with no real business ?
& 4644/MUM/2023 & 4644/MUM/2023
3. "Whether on the fact and in the circumstances of the case 3. "Whether on the fact and in the circumstances of the case 3. "Whether on the fact and in the circumstances of the case and in law, the Ld. CIT(A) has erred in reducing gross profit @ and in law, the Ld. CIT(A) has erred in reducing gross profit @ and in law, the Ld. CIT(A) has erred in reducing gross profit @ 3%, as against the 100% addition made) by the Assessing as against the 100% addition made) by the Assessing as against the 100% addition made) by the Assessing Office on account of bogus purchases of Rs. 2,01,67,404/ Office on account of bogus purchases of Rs. 2,01,67,404/ Office on account of bogus purchases of Rs. 2,01,67,404/- from two Hawala parties, without appreciating the facts that from two Hawala parties, without appreciating the facts that from two Hawala parties, without appreciating the facts that during the search operation no stock of diamond was found in during the search operation no stock of diamond was found in during the search operation no stock of diamond was found in the premises of the gro the premises of the group entities of Shri. Rajendra Jain, to up entities of Shri. Rajendra Jain, to whom the assessee claimed to have made purchases ?" whom the assessee claimed to have made purchases ?" whom the assessee claimed to have made purchases ?" 4 " Whether on the facts and in the circumstances of the case 4 " Whether on the facts and in the circumstances of the case 4 " Whether on the facts and in the circumstances of the case and in law, the La CIT(A) has erred in reducing gross profit @ and in law, the La CIT(A) has erred in reducing gross profit @ and in law, the La CIT(A) has erred in reducing gross profit @ 3% as against the 100% addition made by 3% as against the 100% addition made by the Assessing office the Assessing office on account of bogus purchases of Rs. 2,01,67,404/ on account of bogus purchases of Rs. 2,01,67,404/ - from two from two entities by ignoring the fact that action of the Assessing Officer entities by ignoring the fact that action of the Assessing Officer entities by ignoring the fact that action of the Assessing Officer was based on credible information received from the was based on credible information received from the was based on credible information received from the DGIT(Inu.), Mumbai and that the during the course of DGIT(Inu.), Mumbai and that the during the course of DGIT(Inu.), Mumbai and that the during the course of assessment proceedings the assessee has failed to prove the sessment proceedings the assessee has failed to prove the sessment proceedings the assessee has failed to prove the genuineness of the alleged purchase transactions ?" genuineness of the alleged purchase transactions ?" 5 -Whether on the facts and in the circumstances of the case Whether on the facts and in the circumstances of the case Whether on the facts and in the circumstances of the case and in law, the ld C/2(A) has erred in reducing gross profit @ and in law, the ld C/2(A) has erred in reducing gross profit @ and in law, the ld C/2(A) has erred in reducing gross profit @ 3% as against the 100% 3% as against the 100% addition made by the Assessing office addition made by the Assessing office on account of bogus purchases of Rs. 2,01,67,404/ on account of bogus purchases of Rs. 2,01,67,404/- from two from two entities are in the nature of unexplained and without giving entities are in the nature of unexplained and without giving entities are in the nature of unexplained and without giving any satisfactory ground on which the Ld. CIT(A) is defended?" any satisfactory ground on which the Ld. CIT(A) is defended?" any satisfactory ground on which the Ld. CIT(A) is defended?" 6 "Whether on the facts and in the 6 "Whether on the facts and in the circumstances of the case circumstances of the case and in law, the Ld. CITIA) has erred in reducing gross profit @ and in law, the Ld. CITIA) has erred in reducing gross profit @ and in law, the Ld. CITIA) has erred in reducing gross profit @ 3% as against the 100% addition made by the Assessing 3% as against the 100% addition made by the Assessing 3% as against the 100% addition made by the Assessing Office on account of bogus purchases of Rs. 2,01,67,404/ Office on account of bogus purchases of Rs. 2,01,67,404/ Office on account of bogus purchases of Rs. 2,01,67,404/- without appreciating the ration of the decision of the without appreciating the ration of the decision of the without appreciating the ration of the decision of the Hon'ble Apex Court in the case N.K.Protiens Ltd Vs Dy. CIT (2016)292 Apex Court in the case N.K.Protiens Ltd Vs Dy. CIT (2016)292 Apex Court in the case N.K.Protiens Ltd Vs Dy. CIT (2016)292 CTR(GUJ) 354, wherein the Hon'ble Court has held that, when CTR(GUJ) 354, wherein the Hon'ble Court has held that, when CTR(GUJ) 354, wherein the Hon'ble Court has held that, when the purchases are from bogus suppliers, the entire purchases the purchases are from bogus suppliers, the entire purchases the purchases are from bogus suppliers, the entire purchases are liable to be disallowed ?" are liable to be disallowed ?" 7 "Whether on the facts and in the 7 "Whether on the facts and in the circumstances of the case circumstances of the case and in law, the order of the Ld. CIT(A) is perverse in not and in law, the order of the Ld. CIT(A) is perverse in not and in law, the order of the Ld. CIT(A) is perverse in not considering the order of Hon'ble Supreme Court, in the case considering the order of Hon'ble Supreme Court, in the case considering the order of Hon'ble Supreme Court, in the case ofN. K. Protiens Ltd Vs Dy. CIT (2016)292 CTR(GUJ) 354, ofN. K. Protiens Ltd Vs Dy. CIT (2016)292 CTR(GUJ) 354, ofN. K. Protiens Ltd Vs Dy. CIT (2016)292 CTR(GUJ) 354, Dated. 16.01.2017, which is on the similar issue of bo Dated. 16.01.2017, which is on the similar issue of bo Dated. 16.01.2017, which is on the similar issue of bogus purchases and when the Hon'ble Apex Court order was purchases and when the Hon'ble Apex Court order was purchases and when the Hon'ble Apex Court order was already the law of the land when the Ld, CIT(A) has already the law of the land when the Ld, CIT(A) has already the law of the land when the Ld, CIT(A) has pronounced its order on 23.10.2023?" pronounced its order on 23.10.2023?" 8. "Whether on the facts and in the circumstances of the case 8. "Whether on the facts and in the circumstances of the case 8. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in reducing and in law, the Ld. CIT(A) has erred in reducing the gross the gross & 4644/MUM/2023 & 4644/MUM/2023 profit @ 3% as against the 100% addition made by the profit @ 3% as against the 100% addition made by the profit @ 3% as against the 100% addition made by the Assessing Assessing Assessing Office Office Office on on on account account account of of of bogus bogus bogus purchases purchases purchases of of of Rs.2,01,67,404/ Rs.2,01,67,404/-without appreciating the fact that in the case without appreciating the fact that in the case Swetamber Steels Ltd. (Supra), the Hon'ble ITAT, Ahmadabad Swetamber Steels Ltd. (Supra), the Hon'ble ITAT, Ahmadabad Swetamber Steels Ltd. (Supra), the Hon'ble ITAT, Ahmadabad had confirmed the dis had confirmed the disallowance of the bogus purchase in allowance of the bogus purchase in entirely stating that the purchases shown from respective entirely stating that the purchases shown from respective entirely stating that the purchases shown from respective Parties were found non Parties were found non-genuine and the decision of the ITAT genuine and the decision of the ITAT was upheld by Hon'ble Gujarat High Court and Hon'ble was upheld by Hon'ble Gujarat High Court and Hon'ble was upheld by Hon'ble Gujarat High Court and Hon'ble Supreme Court ?" Supreme Court ?"
The assessee filed return of i The assessee filed return of income for assessment year 2011 ncome for assessment year 2011- 12 on 08.09.2011 declaring total income at Rs.3,75,830/-. The 12 on 08.09.2011 declaring total income at Rs.3,75,830/ 12 on 08.09.2011 declaring total income at Rs.3,75,830/ return of income filed was processed u/s 143(1) of the Income-tax return of income filed was processed u/s 143(1) of the Income return of income filed was processed u/s 143(1) of the Income Act, 1961 (in short ‘the Act’). Subsequently, a search action was Act, 1961 (in short ‘the Act’). Subsequently, a search action was Act, 1961 (in short ‘the Act’). Subsequently, a search action was conducted in the case of Shri R conducted in the case of Shri Rajendra Jain and other on ajendra Jain and other on 03.10.2013 03.10.2013 03.10.2013 by by by the the the Investigation Investigation Investigation Wing Wing Wing of of of the the the Income-tax Income Income Department, Mumbai wherein he found that various concerns Department, Mumbai wherein he found that various concerns Department, Mumbai wherein he found that various concerns controlled, managed and oper controlled, managed and operated by Shri Rajendra Jain and f ated by Shri Rajendra Jain and family were engaged in providing accommodation entries of sales of were engaged in providing accommodation entries of were engaged in providing accommodation entries of diamonds etc. to various persons. The Investigation Wing found diamonds etc. to various persons. The Investigation Wing found diamonds etc. to various persons. The Investigation Wing found that assessee is one of the one of the beneficiaries of obtaining bogus of obtaining bogus accommodation entry of purchase of diamond from the firm accommodation entry of purchase of diamond from the firm accommodation entry of purchase of diamond from the firm controlled and managed by family of Shri Rajendra Jain. The controlled and managed by family of Shri Rajendra Jain. The controlled and managed by family of Shri Rajendra Jain. The specific information related to the purchases by the assessee from ic information related to the purchases by the assessee from ic information related to the purchases by the assessee from two firms managed and controlled by Shri Rajendra Jain were two firms managed and controlled by Shri Rajendra Jain were two firms managed and controlled by Shri Rajendra Jain were provided to the Assessing Officer of the assessee provided to the Assessing Officer of the assessee. The name, . The name, PAN number and amount number and amount of purchase have been reproduced by the been reproduced by the Assessing Officer in ficer in para 2.1 of the impugned assessment order. para 2.1 of the impugned assessment order. For ready reference, , details of said purchases is reproduced as details of said purchases is reproduced as under:
& 4644/MUM/2023 & 4644/MUM/2023 Sr. No. Name of the Hawala Parties Name of the Hawala Parties PAN No. Bill amount in Rs. Bill amount in Rs.
M/s Aadi AHOPJ3837B 70,69,293/- 70,69,293/ 2. M/s Kalash AFRPJ9962J 1,30,98,111/- 1,30,98,111/ Total 2,01,67,404/- 2,01,67,404/ 3.1 In view of the above information, the Assessing Officer In view of the above information, the Assessing Officer In view of the above information, the Assessing Officer recorded reason to believe that income escaped assessment and recorded reason to believe that income escaped assessment and recorded reason to believe that income escaped assessment and following due procedure of law following due procedure of law, he issued notice u/s 148 , he issued notice u/s 148 of the Act on on on 28.03.2018. 28.03.2018. 28.03.2018. During During During the the the course course course of of of the the the re-assessment proceedings, the assessee was asked to justify genuineness of the proceedings, the assessee was asked to justify genuineness of the proceedings, the assessee was asked to justify genuineness of the purchases. In view of adverse observations in respect of purchase purchases. In view of adverse observations in respect of purchase purchases. In view of adverse observations in respect of purchase made by the assessee from those two concerns namely M/s Aadi made by the assessee from those two concerns namely M/s Aa made by the assessee from those two concerns namely M/s Aa and M/s Kalash, the assessee contested that corresponding bills he assessee contested that corresponding bills he assessee contested that corresponding bills from those parties are duly entered in the books of account of the from those parties are duly entered in the books of account of the from those parties are duly entered in the books of account of the assessee and payment assessee and payment was made through bank, was made through bank, therefore, purchases were genuine. However, the Ld. Assessing Officer genuine. However, the Ld. Assessing Officer genuine. However, the Ld. Assessing Officer referred to observations during the course of the search in the case to observations during the course of the search in the case to observations during the course of the search in the case of Shri Rajendra Jain and of Shri Rajendra Jain and others, which interalia, include (i) name include (i) name sake directors, partners in the firms controlled and managed by directors, partners in the firms controlled and managed by directors, partners in the firms controlled and managed by Shri Rajendra Jain, (ii) , (ii) all such directors partners and propri all such directors partners and proprietors of those firms were associated of those firms were associated or related to Shri Rajendra Jain and Shri Rajendra Jain and family, (iii) directors partners or proprietor of those firms directors partners or proprietor of those firms directors partners or proprietor of those firms were working as employees with working as employees with Shri Rajendra Jain and family, (iv) t Shri Rajendra Jain and family, (iv) those persons were not having genuine knowledge of diamonds business not having genuine knowledge of diamonds business not having genuine knowledge of diamonds business, (v) they were receiving salary as employee of the firms of Shri they were receiving salary as employee of the firms of Shri they were receiving salary as employee of the firms of Shri Rajendra Jain (vi) t a Jain (vi) those persons were residing in houses/flats owned by Shri Rajendra Jain and family, (vii) t Shri Rajendra Jain and family, (vii) those firms were hose firms were & 4644/MUM/2023 & 4644/MUM/2023 stated to be operating and premises by Shri Rajendra Jain & perating and premises by Shri Rajendra Jain & perating and premises by Shri Rajendra Jain & Family, (viii) those persons were not having any contacts those persons were not having any contacts those persons were not having any contacts with any of the importers form whom diamonds had form whom diamonds had been shown to be been shown to be purchased under those firms purchased under those firms (ix) admission by Shri Rajendra Jain admission by Shri Rajendra Jain that those persons were were dummy directors and partners and all directors and partners and all the business affairs of those entities were managed and controlled by fairs of those entities were managed and controlled by fairs of those entities were managed and controlled by Shri Rajendra Jain and (x) and (x) no stock of diamond was found any of no stock of diamond was found any of the business premises of those entities. The Assessing Officer the business premises of those entities. The Assessing Officer the business premises of those entities. The Assessing Officer further concluded that onus was on the assessee to establish the that onus was on the assessee to establish the that onus was on the assessee to establish the genuineness of the purchases made from those two parties and genuineness of the purchases made from those two parties and genuineness of the purchases made from those two parties and mere filing of the evidence in the form of purchase bills and mere filing of the evidence in the form of purchase bills and mere filing of the evidence in the form of purchase bills and payment through account payee cheque wa payment through account payee cheque was not conclusive and s not conclusive and sacrosanct. Accordingly, sacrosanct. Accordingly, he concluded that the purchases in the he concluded that the purchases in the books of account of the assessee to the extent of shown from two books of account of the assessee to the extent of shown from two books of account of the assessee to the extent of shown from two parties remain unverifiable and hence, held bogus purchases for parties remain unverifiable and hence, held bogus purchases for parties remain unverifiable and hence, held bogus purchases for the purpose of suppressing the true profit of the assessee. The the purpose of suppressing the true profit of the assessee. The the purpose of suppressing the true profit of the assessee. The ingly made addition for entire amount of Assessing Officer accord Assessing Officer accordingly made addition for entire amount of the bogus purchases amounting to Rs.2,01,67,404/- in the the bogus purchases amounting to Rs.2,01,67,404/ the bogus purchases amounting to Rs.2,01,67,404/ assessment order passed u/s 147 r.w.s. 143(3) of the Act dated assessment order passed u/s 147 r.w.s. 143(3) of the Act dated assessment order passed u/s 147 r.w.s. 143(3) of the Act dated 17.12.2018.
On further appeal, the assessee challenged the validity of the On further appeal, the assessee challenged the validity of the On further appeal, the assessee challenged the validity of the reassessment proceedings as well as addition on merit. The Ld. ceedings as well as addition on merit. The Ld. ceedings as well as addition on merit. The Ld. CIT(A) rejected the ground challenging validity of the reassessment. CIT(A) rejected the ground challenging validity of the reassessment. CIT(A) rejected the ground challenging validity of the reassessment. As far as issue on merit is concerned the Ld. CIT(A) has As far as issue on merit is concerned the Ld. CIT(A) has As far as issue on merit is concerned the Ld. CIT(A) has & 4644/MUM/2023 & 4644/MUM/2023 conclusively held that the purchases recorded in the books of conclusively held that the purchases recorded in the books of conclusively held that the purchases recorded in the books of accounts in respect o accounts in respect of those two parties namely M/s Aadit f those two parties namely M/s Aadit (Rs.70,69,293/-) and M/s Kalash (Rs.1,30,98,141/ ) and M/s Kalash (Rs.1,30,98,141/-) are bogus. But ) are bogus. But according to the Ld. CIT(A) disallowance for 100% of such bogus according to the Ld. CIT(A) disallowance for 100% of such bogus according to the Ld. CIT(A) disallowance for 100% of such bogus purchases was not warranted and according to him in view of purchases was not warranted and according to him in view of purchases was not warranted and according to him in view of various decisions of the Co various decisions of the Co-ordinate Bench of the Tribunals and Bench of the Tribunals and High Court only profit element embedded in those two bogus High Court only profit element embedded in those two bogus High Court only profit element embedded in those two bogus purchases should only be added. Accordingly, he restricted 3% of purchases should only be added. Accordingly, he restricted 3% of purchases should only be added. Accordingly, he restricted 3% of the bogus purchases as profit element additionally earned by the the bogus purchases as profit element additionally earned by the the bogus purchases as profit element additionally earned by the assessee and he sustained the di assessee and he sustained the disallowance to the extent of the 3% sallowance to the extent of the 3% of such bogus purchases. of such bogus purchases.
Before us, no appeal has been preferred by the assessee Before us, no appeal has been preferred by the assessee Before us, no appeal has been preferred by the assessee. In the present appeal filed appeal filed, the Revenue is agitated only with the issue Revenue is agitated only with the issue of disallowance restricted by the Ld. CIT(A) @ 3% as against 100% of disallowance restricted by the Ld. CIT(A) @ 3% as against 1 of disallowance restricted by the Ld. CIT(A) @ 3% as against 1 disallowance which was made by the Assessing Officer. disallowance which was made by the Assessing Officer. disallowance which was made by the Assessing Officer.
Before us, the Ld. counsel for the assessee has filed a Paper Before us, the Ld. counsel for the assessee has filed a Paper Before us, the Ld. counsel for the assessee has filed a Paper Book containing paged 1 to 267. Book containing paged 1 to 267.
We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material on record. The as relevant material on record. The assessee in its books of accounts sessee in its books of accounts for the year under consideration for the year under consideration has shown purchases from two shown purchases from two parties namely M/s Aadit (Rs.70,69,293/ parties namely M/s Aadit (Rs.70,69,293/-) and M/s Kalash ) and M/s Kalash (Rs.1,30,98,141/-). On the basis of information gathered in the ). On the basis of information gathered in the ). On the basis of information gathered in the course of search action at the premises b course of search action at the premises by the Rejendra Jain and y the Rejendra Jain and & 4644/MUM/2023 & 4644/MUM/2023 family (supra), the Assessing Officer was of the view that assessee family (supra), the Assessing Officer was of the view that assessee family (supra), the Assessing Officer was of the view that assessee had obtained bogus bills of accommodation entry only for reducing had obtained bogus bills of accommodation entry only for reducing had obtained bogus bills of accommodation entry only for reducing its profits to be declared for the purpose of the taxation and its profits to be declared for the purpose of the taxation and its profits to be declared for the purpose of the taxation and accordingly, he disallowed 100% of he disallowed 100% of such bogus purchases. The Ld. such bogus purchases. The Ld. CIT(A) has though sustained sustained that purchases are bogus however, considered 3% of such bogus purchases as reasonable for addition. considered 3% of such bogus purchases as reasonable for addition. considered 3% of such bogus purchases as reasonable for addition. Thus, the issue in dispute before us is whether in the issue in dispute before us is whether in the issue in dispute before us is whether in a case where purchase from two parties have purchase from two parties have been established as bogus as bogus and not disputed by the assessee disputed by the assessee, then, what should be the addition in the what should be the addition in the hands of the assessee corresponding to such bogus purchases. We hands of the assessee corresponding to such bogus purchases. We hands of the assessee corresponding to such bogus purchases. We are of the view that are of the view that wherever, an assessee is under the cloud of under the cloud of obtaining bogus purchases bogus purchases bills, the Assessing Officer should , the Assessing Officer should primarily first verify, whether purchase quantity corresponding to , whether purchase quantity corresponding to , whether purchase quantity corresponding to bogus purchase bills is entered in day to day stock register. If not, bogus purchase bills is entered in day to day stock register. If not, bogus purchase bills is entered in day to day stock register. If not, is liable for disallowance. then 100% amount of bogus then 100% amount of bogus bills is liable for disallowance.
7.1 But if purchase quantity But if purchase quantity is entered in day to day stock is entered in day to day stock register, then the AO should verify register, then the AO should verify whether the sales corresponding whether the sales corresponding to the bogus purchases are verified or genuine to the bogus purchases are verified or genuine. For this purpose, . For this purpose, the Assessing Officer should verify the day to day inventory regis he Assessing Officer should verify the day to day inventory regis he Assessing Officer should verify the day to day inventory register and identify the quan dentify the quantity of purchase recorded in stock register tity of purchase recorded in stock register corresponding to bogus purchases corresponding to bogus purchases bills, then identify corresponding bills, then identify corresponding sales. Once, he identify the parties to whom the sales corresponding . Once, he identify the parties to whom the sales corresponding . Once, he identify the parties to whom the sales corresponding to bogus purchases are made to bogus purchases are made, the Assessing Officer is required to the Assessing Officer is required to examine those parties and verify their sales after verification of the hose parties and verify their sales after verification of the hose parties and verify their sales after verification of the & 4644/MUM/2023 & 4644/MUM/2023 evidence in support of delivery evidence in support of delivery, transportation expenses etc. transportation expenses etc. Wherever, sales are made to Government agencies or export, it is Wherever, sales are made to Government agencies or export Wherever, sales are made to Government agencies or export presumed that those those sales are verified, as export sales are through as export sales are through custom boundary, where , where physical goods are verified physical goods are verified. Wherever, sales corresponding to bogus purchases corresponding to bogus purchases are not verified are not verified, and then the sales made by the assessee the sales made by the assessee will also amount to be to be in the nature of the ‘accommodation entry bills accommodation entry bills’ only. Once, the bills of only. Once, the bills of the purchases and sales both are in the nature of accommodation purchases and sales both are in the nature of accommodation purchases and sales both are in the nature of accommodation entry, then the assessee falls in the category of assessee falls in the category of bogus biller engaged bogus biller engaged in providing accommodation entry bills and in that case addition for accommodation entry bills and in that case addition for accommodation entry bills and in that case addition for the commission for providing entry bills can be mad the commission for providing entry bills can be made. e.
7.2 But, wherever, sales by herever, sales by an assessee corresponding to the assessee corresponding to the bogus purchases are verified bogus purchases are verified, then only presumption is that the then only presumption is that the assessee must have purchased assessee must have purchased the goods in cash in cash from the grey market and supplied market and supplied to the sales parties. Thus in such a situation, to the sales parties. Thus in such a situation, the assessee is taking bills from one party the assessee is taking bills from one party for recording purposes in recording purposes in his books of accounts his books of accounts, whereas goods recorded in those bogus bills goods recorded in those bogus bills are purchased from grey market in cash for supplying to the sales from grey market in cash for supplying to the sales from grey market in cash for supplying to the sales party. In the Co-ordinate ordinate Benches of the Tribunal and and Hon’ble High Courts, which have been cited by the assessee which have been cited by the assessee, it is held that in it is held that in such cases the assessee has obtained benefit of discount on the such cases the assessee has obtained benefit of discount such cases the assessee has obtained benefit of discount cash purchases and addition should be restricted to the extent and addition should be restricted to the extent of and addition should be restricted to the extent benefit obtained by the assessee benefit obtained by the assessee . In the instant case, the Ld. CIT(A) . In the instant case, the Ld. CIT(A)
& 4644/MUM/2023 & 4644/MUM/2023 has restricted that cash discount to the extent of 3% as higher has restricted that cash discount to the extent of 3% has restricted that cash discount to the extent of 3% gross profit earned by the assessee on bogus purchases. gross profit earned by the assessee on bogus purchases. gross profit earned by the assessee on bogus purchases.
7.3 However, one more situation which needs to be examined in However, one more situation which needs to be examined in However, one more situation which needs to be examined in such cases. In such cases n such cases, it is to be seen from the day to day day to day stock register, as when the goods , as when the goods had arrived in warehouse or godown of arrived in warehouse or godown of the assessee. The date of entry in warehouse or godown The date of entry in warehouse or godown The date of entry in warehouse or godown is deemed to be the date of the cash purchase by the assessee and assessee to be the date of the cash purchase by the assessee a to be the date of the cash purchase by the assessee a must have paid cash must have paid cash for purchase of goods from grey market, for purchase of goods from grey market, but source of which, the the assessee is required to explain. It is further assessee is required to explain. It is further need to be examined when the assessee has made payment through need to be examined when the assessee has made payment through need to be examined when the assessee has made payment through cheque in respect of bogus purchases debited in the books of cheque in respect of bogus purchases debited in t cheque in respect of bogus purchases debited in t accounts. It can be presumed that assessee must have received accounts. It can be presumed that assessee must have received accounts. It can be presumed that assessee must have received cash back from those parties and same could have been utilized for cash back from those parties and same could have been utilized for cash back from those parties and same could have been utilized for funding the purchase of goods in cash funding the purchase of goods in cash for supplying to supplying to sales parties. In such a situation, the availability of the parties. In such a situation, the availability of the unexplained cash unexplained cash in the hands of the assessee need to be examined and wherever no in the hands of the assessee need to be examined and wherever no in the hands of the assessee need to be examined and wherever no cash is available with the assessee for such purchase, the addition cash is available with the assessee for such purchase, the addition cash is available with the assessee for such purchase, the addition for unexplained cash purchases also need to be considered. This for unexplained cash purchases also need to be considered. This for unexplained cash purchases also need to be considered. This issue has not been examined by the Ld. CIT issue has not been examined by the Ld. CIT(A) in the instant case (A) in the instant case and therefore, we feel it appropriate to restore this issue back to the and therefore, we feel it appropriate to restore this issue back to the and therefore, we feel it appropriate to restore this issue back to the file of the Assessing Officer for examination and verification of the file of the Assessing Officer for examination and verification of the file of the Assessing Officer for examination and verification of the stock inventory of purchase and stock inventory of purchase and sales relevant to tho sales relevant to those two parties and date of payments and date of payments debited in bank account for corresponding for corresponding purchases from those two parties. Accordingly, we restore the issue purchases from those two parties. Accordingly, we restore the issue purchases from those two parties. Accordingly, we restore the issue & 4644/MUM/2023 & 4644/MUM/2023 in dispute to the file of the Assessing Officer. The grounds of appeal in dispute to the file of the Assessing Officer. The grounds of appeal in dispute to the file of the Assessing Officer. The grounds of appeal of the Revenue are accordingly allowed for statistical purposes. of the Revenue are accordingly allowed for statistical purposes. of the Revenue are accordingly allowed for statistical purposes.
7.4 The grounds raised by the Revenue in assessment year 2012 ounds raised by the Revenue in assessment year 2012- ounds raised by the Revenue in assessment year 2012 13 are identical to the identical to the grounds raised in assessment year 2011 assessment year 2011-12 and therefore, the grounds raised in assessment year 2012-13 are and therefore, the grounds raised in assessment year 2012 and therefore, the grounds raised in assessment year 2012 adjudicated mutatis mutandis mutatis mutandis.
In the result, both the appeals of the R In the result, both the appeals of the Revenue are allowed for evenue are allowed for statistical purposes.