BHADRESH TRADING COMPANY,MUMBAI vs. ITO 24(1)(3), MUMBAI

आदेश / O R D E R PER R.C.SHARMA (A.M): These are the appeals filed by the assessee against the order of CIT(A)-36, Mumbai dated 30/01/2017 for the A.Y.2009-10, 2010-11 and 2011-12 in the matter of order passed u/s. 143(3) r.w.s. 147 of the IT Act. 2. Common grievance of assessee in all the years pertains to upholding the addition by CIT(A) applying profit rate of 12.5% on the bogus purchases. 3. The facts and circumstances in all the three years under consideration are same, I therefore heard all the appeals together and now deciding the same through this consolidated order. 4. The facts of the case are that the assessee filed return of income for A.Y.2009-10, by declaring total income of Rs.2,10,862/- on 26.09.2009.

(i) that the primary onus was on the assessee to establish the genuineness of the purchases claimed by it. As per section 101, 102 and 106 of the Indian Act, the onus lies upon the assessee to prove all the expenses including purchases to the satisfaction of the AO, which was not discharged by the assessee. (ii) that mere filing of bills in support of purchases and payment through account payee cheque cannot be conclusive in a case where genuineness of transaction is in doubt. (iii) that payment by account payee cheque is not sacrosanct and is not sufficient to establish the genuineness of the purchase. Reliance was placed on Kachawala Gems vs. Jt.CIT (2007) 288 ITR 10 (SC). (iv) that the undisputed fact is that the purchases claimed to have been made from these parties remained unverified.

4 2084 & 2085/Mum/2017 M/s. Bhadresh Trading Company (v) that the genuineness of the transaction could be decided on the basis of primary facts on record and the Revenue is not required to lead a clinching evidence to prove that purchases are bogus. (vi) that it is settled law that strict rules of evidence do not apply to lncome Tax proceedings and the real test with regard to genuineness of the transaction is "Preponderance of "probabilities" and not "Beyond reasonable doubt". Reliance was placed on C. Vasantlal & Co. vs. CIT (1962) 45 ITR 206 (SC), Chaturbhuj Panauj AIR 1969 (SC) and SumatiDayal Vs. CIT (1905) 2014 ITR 801 (SC). One has to consider the totality of facts, surrounding circumstances and human probability for arriving at a conclusion as held in CIT Vs. Durga Prasad 82 ITR 540 (SC) and SumatiDayal Vs. CIT 214 ITR 801 (SC). (vii) that the purchase from hawala operators falls within the ambit of the term "colourable devices" and the Supreme Court observed in the case of McDowell and Co. Ltd. vs. CTO 154 ITR 148 that "Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges". (viii) that there is a specific findings of Maharashtra Sales Tax Department that these parties had issued false bills without delivery of goods and none of these parties were available at their addresses when verification letters u/s133(6) of the Act were issued.

5 2084 & 2085/Mum/2017 M/s. Bhadresh Trading Company 7. In view of the above discussion, it was held by AO that the assessee has failed to prove the genuineness of purchases from these parties and purchases from these parties are bogus and non-genuine. However, as the assessee has been able to correlate the purchases of material with the allocation of goods and the sales thereof, it was assumed that the assessee has purchased these goods from the grey market and has introduced the same in his regular stock by obtaining bogus bills / accommodation bills from these parties. Any person indulging in the practice of purchasing goods from the grey market and obtaining bogus bills of some other parties would do so getting some benefit. Therefore, the purchase rate as per the purchase bills cannot be accepted. The rate of purchase made from the grey market is much lower than the rate of purchases from the regular market due to evasion of VAT, other taxes and discount. Thus, there is inflation of purchases. Therefore, on the basis of these facts and circumstances of the case, AO estimated the profit element embedded in the bogus purchase transactions @12.50% of the amount of the total bogus purchase bills of Rs.37,58,941/- and added in assessee’s income was disallowed by the AO. Accordingly, an amount of Rs.4,69,868/- was treated as unexplained expenditure within the meaning of section 69C of the act and deemed to be income of the assessee.

6 2084 & 2085/Mum/2017 M/s. Bhadresh Trading Company 9. It was argued by learned AR that The Ld. Assessing officer erred in making the addition of Rs.4,69,868/- on account profit element embedded in these bogus purchase transactions is held to be 12.50% of amount of alleged bogus purchases of Rs.37,58,941/- based on the information received from sales tax department, without appreciating the fact that the assessee had submitted all the documents to prove the purchases beyond doubt, and hence the addition made of Rs.4,69,868/- may be deleted., the AO had carried out independent examination/ verification as whether the goods purchased from so called bogus billers do exist or no but did not provide any information regarding the same to the assessee and also failed to examine assessee in this behalf and allow cross examination of the inspector who went to verify the details and also cross examination of the Sales Tax Authorities on whose information the learned assessing officer had relied in reopening the assessment. The AO failed to appreciate the evidence produced by the assessee as regards the receipt of goods, transportation receipt etc and was not justified in merely relying on the information received from the sales tax department in framing the impugned assessment u/s 143(3) r.w.s 147 of the Act. Therefore, the assessment orders dt. 29/02/2016 is bad in law and may be deleted. Learned AR further submitted that since the Ld. Assessing officer has accepted the sales, the corresponding purchase of Rs.37,58,941/- cannot be treated as bogus and only N.P. to the extent of alleged bogus purchases can be added as income of the assessee.

7 2084 & 2085/Mum/2017 M/s. Bhadresh Trading Company 10. Our attention was also invited to the following documents filed before the lower authorities. a. Balance Sheet & Profit & Loss Account, copy of Vat Audit Report. b. List of Debtors, Creditors, Purchase party and sales party along with Tin Numbers. c. Copy of Bank Statements and Address Details of purchase parties to whom department called as non - genuine dealers. d. It was submitted-that information from Sales tax department stating that these purchases are not genuine, is contrary to the facts of the present case. The Appellant specifically refuted this allegation, by producing purchase bills, delivery challans, supplier's ledger accounts, transportation bills, one to one correlation of purchases made and sales thereof, and information regarding purchase and payment made. e. The Appellant filed the copy of bank statement to prove that the payments were subsequently made to all the parties and that through account payee cheques.