DCIT 13(1)(1), MUMBAI vs. NIHAR EQUIPMENT PVT. LTD., MUMBAI

Per Bench:- These cross appeals pertain to same assessee involving identical issues in different years, therefore, these were heard together and are disposed of by this common order.

2.02 The Learned CIT (A) failed to appreciate the fact that the appellant has raised specific ground regarding incorrect levy of Interest u/s 234B of the Income Tax Act, 1961.

2.03 The Learned CIT (A) failed to appreciate the fact that in case of reopening of assessment u/s 147, where return of Income has already been processed u/s 143(1) or 143(3) of the Act, Interest u/s 234B ought to have been calculated on additional tax demand raised from the date of processing u/s 143(1) or 143(3) and not from the first day of assessment year.” Similarly, the revenue has also filed appeal on identical grounds agitating the part relief granted by CIT(A), on the following grounds in :-

4. Whether on the facts and the circumstances of the case and in law, the Id. CIT(A) was right in deleting the additions/disallowance without appreciating the fact that even though ample opportunity was given to the assessee, the assesses did not produce the parties from whom the purchases in question were made? 5. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.” 3. The brief background in this case is that survey action u/s 133A was carried out at the business premises of the assessee. The survey party noticed that in some of the purchases made by the assessee payment of sales-tax and value added tax was not made. Further, the assessee was not able to satisfy the survey party about maintenance of records of inventory. Accordingly, statement of the director was recorded wherein he made a disclosure aggregating to Rs.13,35,18,837 spreading to different assessment years. The directors, however, subsequently retracted the statement on the ground that the same was made on the basis of incorrect understanding of facts and law. It was submitted in the retraction statement that purchases were bonafide and were used in manufacturing of the products sold by the assessee. However, in order to verify the authenticity of the retraction statement, the AO made verification from different parties u/s 133(6) of the Act. He also asked the assessee to furnish the details, viz. nature of transactions, amount involved, transaction date, invoice No., challan No., inward and outward register No. alongwith documentary evidences. The AO was not satisfied with the response given by the assessee and, therefore, entire amount of purchases aggregating to Rs.1,18,134,136 was added to the total income of the assessee on account of bogus purchases. Aggrieved, assessee carried the matter to CIT(A) and furnished detailed submissions. It was submitted in detail with the help of documentary evidences that purchases made by the assessee were used in the course of manufacturing. Various evidences for maintenance of inventory and requisite reconciliation statement in this regard were also furnished. Ld.CIT(A)

made detailed examination of evidences brought on record by the assessee and was satisfied with the submissions of the assessee and found that the purchases made by the assessee were utilised for manufacturing of products sold by the assessee. However, he was also of the view that since the amount of purchases could not be fully substantiated by the assessee, the possibility of inflation in the amount of purchases could not be ruled out. Under these circumstances, relying upon the judgement of Hon’ble Gujarat High Court in the case of CIT vs Polyfab Pvt Ltd (2013 355 ITR 290 (Guj) sustained the disallowance to the extent of 12.5% and deleted the balance disallowance after making following observations:- “5.1 I have circumspected the entire facts and circumstances covering the issue under reference and have carefully considered the outcome of survey u/ 33A, finding of the Assessing Oficer and rival submissions of the appellant. The appellant is a private limited company constituted much earlier In 2004 it 'as renamed as Parchemets Engineering Pvt Ltd. Again name of the company was changed as ‘Newtronics Equipments Company Pvt. Ltd’ in the year 2005. Further in June 2012 as stated by the Directors, Company was. renamed as "Nihaar Equipment Pvt. Ltd." in this case, on 09.01.2013 survey was conducted u/s.133A and during the survey, in his statement, Director, Shri Nilesh M. Mehta had stated that company has merely obtained, purchase bills from seven parties namely Goodluck Industries, Goodluck Metals, Mahalaxmi Steel India, Navratna Impex, Uday Steel, Vickesh Metals Pvt Ltd. and Jai Ambe Steel Corporation, and no goods were received from them. Thereafter, by affidavit dated 05.03.2011 Director of the Company, Shri Nilesh M. Mehta has retracted the statement given on 09.01.2013 on the ground that because of incorrect understanding of the fact and law and because of disturbed frame of mind as his mother lchhaben M. Mehta was hospitalized and was in ICU on the same day of survey, he had put his signature over the statement. However, while making the assessment Ld. Assessing Officer, has discarded the retraction and has proceeded for assessment on the basis of statement of the Director of the Company and on the basis of non service of notices on sellers. Obviously, Assessing Officer has not done targeted investigation nor has analyzed manufacturing account. Nevertheless, some part of the statement is obviously very relevant for assessment. It is, pertinent to mention that since Assessing Officer is not a court, it is open to her to consider evidence and draw inferences which may not be justified by or admissible, in the Indian Evidence Act, 1872, vide Dakeshwari Cotton Mills Lid. v. CIT AIR 1955 SC 65 : (1954) 26 1TR 175. 782 (SC) Seth Gurmukh Singh v. CIT (1944) 12 ITR 393. 416,425 (Lah), Lal Mohan Krishna Lal Paul v. CIT (1944) 12 ITR 441, 449 (Cal.). Assessing Officer has to look into the facts and circumstances of the case. 5.2 I find that addition made by the Assessing Officer for, the purchases from three parties to the tune of Rs.1.18,13,136/- on the basis of statement of Director Mr. Nilesh M. Mehta, is not fully approvable nor is the counter argument and reasoning advanced by- the Ld. A.R. for deletion of such entire addition acceptable. I arrive at this finding after factual-verification of evidences given in paper book and considering the statement of Director and various decisions of the Hon'ble ITAT, High Court and Hon'ble Supreme Court. It is a fact that Director of the Company has admitted the procurement of merely, purchase bills from these parties but simultaneously it also transpires from the evidence on record that such purchases were made and goods were utilized for manufacturing of various items.

5.3 As evident Ld Assessing Officer has made additions solely on the basis of statement given by the Directors of the Company during the course of survey proceedings ignoring various. explanations and evidences submitted by the Appellant It is also very evident from the assessment order itself that Ld Assessing Officer has not made consequential investigation and nor has caused efforts to disapprove the statement retracted by the assessee during the course of assessment proceedings. Nevertheless, some of the findings based on factual admission by the Director of the company, is tenable. Same will be discussed later on.

5.4 Of course, I find force in the submission of Ld A R that in plethora of judgement, it has been held by the Hon'ble Courts that it is the trite position of the law that statement recorded during the course of survey cannot be held as a 'sole, basis' for making the addition specially when there is nothing incriminating or any undisclosed material unearthed during the course of survey proceeding u/s.133A of the LT.Act vide DCIT vs. Amrapali Homes. 1.T.A.No.4 779 / Delhi /2009 and Hon'ble Mumbai ITAT's decision in the case of DCIT vs. Prem Sons (2010) 130 TTJ 159. Mahesh Ohri vs. ACIT (2013) 35 Taxmann.com 201 (Delhi).

5.5 However some of the findings of the Assessing Officer, based on statement given by the Director cannot be lightly discarded because the Appellant through its Directors has repeatedly admitted in his statement dated 09.01.2013 that goods were no received from the seven parties. It means goods i.e. S.S. Sheets. S. S. Angles, S. S. Pipes etc. might have been received from other parties. Here, it is relevant to refer to the answer to Q. No. 10 of statement which is as under: - "Q.10 On perusal of the Purchase Bill Produced if is seen that many of the Bills are not accompanied with delivery challan. Please produce any documentary evidence with respect to receipt of goods purchased against these bills. Ans. All the purchases made and goods received are entered in the computer in ERP Software - Further bills and challan are available are produced. 5.6 It is very important to, note that during the course of assessment proceedings, appellant by letter dated 17-10-20134, has clarified that statement was given by misunderstanding of the fact where company has maintained regular books of accounts which is duly audited by the Auditor. Further, by this letter, appellant has submitted before the Assessing Officer as under:- We submit that the said purchases are in fact bonafide purchase of the goods and same are consumed in the process of manufacturing. In support of the same we hold all the supporting evidences, required under the provisions of the Act. We submit that we have sold finished product to various companies, who are identifiable and are big pharmaceutical companies which are incorporated under the provision of the Companies Act. These sales (100%). are verifiable and payment are received by account payee cheque.'' 5.7 Here it is to be noted that appellant is engaged in the business of manufacturing / fabrication of Humidity Control Oven Machines which are used mainly in Pharmaceuticals Laboratories for testing the lifespan of various products. Such production process involves fabrication of the body of chamber. oven, fitting it with electronic items for control of temperature humidity. Further, such product has to go through testing validation of control set of computer software. Amongst other items, steel is an important raw material utilized for manufacturing of such goods. The products of the company, as has been demonstrated by the appellant by brouchere are a. Stability Chambers . b. BOD Incubators c. Cooling Incubators d. Photo Stability Chambers e. Laboratory Ovens f. Laboratory Incubators g. Deep freezers h. Ultra Low Cooling Cabinets i. Walk-in Cooling Chambers j. Walk-in Stability Chambers k. Walk-in incubators All these products cannot be possible without the use of such raw. materials. The quantitative details of input and output of raw material and finished products was also given by the appellant during assessment proceedings to the Assessing Officer and copy of the same has also been submitted alongwith paper book, Page No.97 to 136. The genuineness of such input and output details has not been denied or doubted by the Assessing Officer, hence such vital evidence corroborating the stand of the appellant cannot be brushed aside. Ld. Assessing Officer 'has simply ignored, the vital. evidénces and 'facts brought to her notice, during the course, of assessment proceedings itself, therefore merely' on, the basis of such statement, such "corroborative" and "material evidences" cannot be ignored. In the case of CIT vs. S. Khader Khan Son -(2012) 25 Taxmann 413 (SC) it has been held that statement recorded u/s.133A has no evidentiary value and any admission made during such statement cannot be made basis of addition. Similar is the proposition in the case of Paul Mathews and Sons vs. CIT (2003) 129 Taxmann 416(Kerala).

5.8 During the course of assessment proceedings itself assessee has filed following evidences - a. Copy of invoices of the purchases from the above parties h. Bank Statement highlighting payment made by account payee cheque c. Ledger copies of accounts of parties d. Bank Certificate of clearance of cheques issued to the parties e. Quantity / Item wise details of purchases. consumption and closing stock of the materials. The details contained datewise, monthwise purchases and consumption f. The manufacturing product to whom sold was also filed 5.9 It can be seen from the assessment order as pointed out by Ld. A.R. that Ld. Assessing Officer has ignored all these evidences. The contention of the Assessing Officer, that no purchases were made or no goods have come in, cannot be accepted at all, as there cannot he any outflow without inflow/ purchase, and there cannot be any corresponding sales without such outflow of goods. This clearly establishes the fact that when the assessee has shown sales, purchases cannot be denied as there cannot be any sales without the purchases. The appellant find support from the decision of the Hon’ble Gujarat High Court in the case of CIT vs. M. K. Bros. (163 ITR 249). In this case the Honble Court held that if payments for purchases are made by account payee cheques and the same has not been received back in any form, even if seller of goods declares that he has simply issued bills and he has not sold goods, still nothing can be added in the case of the assessee. 6.1 The relevant part of the important other cases relied upon by Ld. A.R. reproduced herein below:- In the case of: ITO vs. Permanand 25 SOT 11 ITAT Jodhpur has held as under:- In the instant case, The addition rested mainly only on the observation of the Sales lax Department The assessee was never associated with the enquiries made by the Sales-tax to that extent. The satisfaction of the Assessing Officer himself while assessment of an income and these duties satisfaction of someone else. The assessee did pay for the he made from the above two through as was evident from the record. The statements or even the affidavits of the sellers could not be utilized against tile assessee unless an opportunity was given to him to confront the said statement way .etc. Admittedly, no such was to tile assessee to confront the above sellers in the instant case. the assessee had also the onus cast on him .by section 69 by showing the purchases;. their entries in the books of account, payments way of account payee cheques and producing (he vouchers of sales of the goods. The Assessing Officer had miserably failed to bring on record any clinching evidence to prove that these alleged purchases were bogus and not genuine. Further. the Assessing Officer did not make requisite • investigation, against the two sellers. Therefore, the. Commissioner Appeals had rightly held that the addition made by the Assessing Officer merely on the basis of observations of sale tax department without conducting independent enquiries was not justified." 6.2 In case of Jagdamba Trading company vs. ITO the Hon'ble Tribunal held as under :- 'In the instant case. it was a crystal clear finding of fact that there was no proof on record that the amount' of Rs. 2.20,000 was deposited in the account of the assessee This was amply verified by the department and the Assessing Officer could not make a clear-cut finding in that regard. II was also evidently clear from the available evidence that the impugned addition of Rs 2,20 000 was made only or; account of We contra entry narration made on tile backside of the cheque in question Except this contra entry on the backside of the cheque there was no other evidence on record to connect the assessee with the allegation that it had received back the said money. No doubt the contra entry on the backside of the cheque might give rise to a doubt against the assessee but a doubt, howsoever, strong it might be could not take place of a proof of a fact. In case the seller stated in his affidavit that he did not make any sales during the relevant year that 100 in sales-tax proceedings and particularly when an opportunity of cross-examination was not given to the assessee. It was hardly justified to heavily rely upon the same. Further these affldavits were filed during sales-tax proceeding of the seller which did not have any concern with the income-tax proceeding of the assessee and had no value against the assessee. Further when the Assessing Officer had not disputed the purchase in question and he had only disputed the purchase from the particular party. It was hardly a case of unexplained investment. Tie assesses had clearly shown and explained the alleged investment. In case the seller did not pay sales-tax and mandi tax the purchase in question could not be taken as bogus. The Assessing Officer, took the purchases made by the assessee from these parties as fictitious and bogus mainly on the strength of the toe affidavits of these parties tendered before the sales-tax authorities. These affidavits 01 even statement of the Assistant Manager of the bank were subject matter of cross- examination by the assessee. Therefore, the purchase in question could not be held to be bogus. Therefore, the addition made to the income of the assessee under section 69 on account of purchase of Narma was justified and required to be deleted. In case of CIT vs M.K. Brothers, the hon’ble Gujarat High Court has held as under:- It was clear from the tribunal's order that whether the said transanction where bogus or not was a question of fact. The assessee was given credit facilities for a short duration and thy payments were given by cheques. When that was so it could not be said that the entries for the purchases of the goods made in the books of the account were bogus entries. Thus the conclusion arrived at by the Tribunal was not against the weight of evidence. The tribunal was therefore justified in deleting the addition to the income of the assessee. Besides these judicial decisions relied on by the AR, the gists; of the other decisions relied on by the AR which are relevant to the facts of the present case are reproduced as under :-- 6.4 In case of Umacharan Shaw and bros Vs. CIT (1959)37 ITR 271(SC) Hon’ble Supreme Cur has held as under:- Taking into consideration the entire circumstances of the case we are satisfied that there was no material on which the ITO could come to conclusion that the firm was not genuine. There are many surmises and conjectures and the conclusion is the result of the suspicion which cannot take the place of proof in these matters. 6.5 In the case of Lalchand Bhaqat Amoica Ram Vs. CIT (1959) 37 ITR 288 (SC) Hon’ble Supreme Court has held as under :-

When a court of fact arrives its decision by considering material which is irrelevant to tile enquiry or acts on material party relevant and partly relevant where it is impossible to say to what extent the mind of the Court was affected by the irrelevant material used by it in arriving at its decision a question of law arises. Whether the finding of the Court of fact is not vitiated by reason of its having relied upon conjectures. surmises and suspicions not supported by any evidence on record or partly upon evidence and partly upon inadmissible mat trial. An assessment so made without disclosing to the assessee the information supplied by the Departmental representative and without giving any opportunity to the assessee to rebut the information so supplied and declining to take into consideration all materials which the assessee wanted 10 produce in support of the Case constituted a violation of the fundamental rules of justice and called for interference. The conclusions based on facts proved or admitted may be conclusions of fact but whether a particular inference can legitimately be drawn from such conclusions may be a question of law. Where however the fact 5nding authority ties acted without any evidence or upon a view of the facts which could not reasonably be entertained or the facts found were such that no person acting judicially and properly instructed as to the relevant law could have found the Court is entitled to interfere. A finding on a question of fact is open to attack under s 66(1) as erroneous in law when there is no evidence to support it or if it is perverse.”

6.6 Hon’ble Apex Court in the case of Kishinchand Chellaram vs. CIT (1980) 125 ITR 713 held that-

The only evidence on which the Tribunal could rely for the purpose of arriving at this finding was the letter of 18th Feb. 1955 said to have been addressed by the manager of the Punjab National Bank Ltd to the ITO. Now, it is difficult to see how letter could at all be relied upon by the Tribunal as a material piece of evidence supportive of its finding. In the first place, this letter was not disclosed to the assessee by The ITO and even though the AAC reproduced an extracted from it in his order he did not care to produce it before the assessee or give a copy of it, to the assessee. The same position obtained also before the Tribunal and the High Court and it was only when a supplemental statement of the case was called for by this Court by its order dt. 16th Aug. 1979 that according to the ITO this letter was traced by him and even then it was not shown by him to the assessee but it was forwarded to the Tribunal and it was for the first time at the hearing before the Tribunal in regard to the preparation of the supplemental statement of the case that this letter was shown to the assessee. It will, therefore be seen that even if we assume that this letter was in fact addressed by the manager of the Punjab National Bank Ltd to The ITO. No reliance could be placed upon it since it was not shown to assessee until at the stage of preparation of the supplemental statement of the case and no opportunity to cross- examine the manager of the bank could in the circumstances be sought or availed of by the assessee. It is true that the proceedings under the income-tax law are not governed by the strict rules of evidence and therefore, it might be said that even without calling the manager of the bank in evidence to prove this letter, it could be taken into account as evidence. But before the IT authorities could rely upon it, they were found to produce it before the assessee so that the assessee could cocontrovert the statements contained in it by asking for an opportunity to cross examine the manager of the bank with reference to the statements made by him:

6.7 In case of Rajesh P Soni vs ACIT (2006) 100 TTJ 892 (Ahd) it was held that- Purchases were recorded in the regular books of account maintained. The purchases are supported by proper bills n/ vouchers. The assessee filed the necessary details regarding name address sales-tax number. The payments were made through banking channel- Thus, the sale against the purchases is not doubted it is not the case of AO that amounts paid for purchases had come back to the assessee. The AO had made addition merely on file ground that the suppliers are not located and they were not produced for examination. After considering the facts of the case when purchases are supported with auhenticated purchase bills having sales-tax numbers and payment through cheques the addition cannot be made urder 69 or 69A. In the light of the above discussion, the addition is not warranted. 6.8 In case of CIT vs HI Lux Automotive Pvt Ltd (2009) 23 DTR (Del) 3855, fact and discussions are as under:-

Business expenditure – Allowability - Genuineness of purchases - AO initially - Assessing Officer ,has allowed tile payments made to two parties on the bases that the payments were made tyo them by means of account payee cheques and the same were actually credited in their bank accounts even though they were not maintaining books of account - Proprietors of BE and SS have confirmed that they had received the payments by means of account payee cheques and specifically affirmed that they had been supplying goods / raw material to the assessee- Assessee produced the bank statements of these parties which clearly show that the payments made by the assessee were duly credited in the bank accounts of the said suppliers - Thus, these two cases are at par with those in which the payments have been allowed and hence the payments could not be disallowed – Disallowance of payments made to the remaining parties for the reason that they aid not appear when the notices ware sent was not justified – Assessee has produced sufficient material namely bank account of such parties to show the payments - Therefore the finding of fact arrived at by the Tribunal that the said parties were genuine suppliers and that they receive d payments by account payee cheques is plausible and based on evidence - No question of law arises for consideration. The Hon’ble High Court held as under:-

Conclusion Assessee having made payments for purchase of raw material by means of account payee cheques and produced the bank sstatement of the supplier showing that the payments were duly credited in the bank accounts of the said suppliers said payments cannot be disallowed more so, the AO himself has allowd such payments made to other two parties on similar facts and circumstancs.

6.9 Jitendra Harshadkumar Textile vs ITO (ITAT Mum)(ITA No.771 & 2211/Mum/2011 for 2007-08) dated 21-11-2012 –Brief facts o the case are that there was a survey action on the group concern of Shri. Rakesh Kumar Gupta and his family and on the basis of statement given by Shri Rakesh Kumar Gupta during such survey, purchases made by the assessee from his. group concerns were treated as bogus and thus. addition of Rs. 15,38,792/- was made. On appeal by the assessee to CIT(A), such addition was restricted to Rs. 3,72,079/- on the ground that entire purchases cannot be added back as unexplained as the assessee has, already shown the sale proceeds against alleged purchases. On further appeal to ITAT, Hon’ble ITAT held as under:- There is no material on record to say that the purchases made by the assessee from the said concern were bogus except the general statement recorded by the department in the case Shri Rakesh Kumar Gupta which was later on retracted in absence of any material brought on record against the submissions made by Shri Rakesh Kumar Gupta in his letter dated 20.02. 2009 filed before the AO of the assessee the addition if any made in the case of the assessee will be based on presumption bests. Therefore, keeping in view the facts and circumstances of the case we are of the opinion that addition made by the AO deserves to be deleted in its entirety.” 6.10 It is also submitted that in the case of Babulal C. Borana VS. ITO 282 ITR 251 (Bom). ITO vs. Surana Trading 92 lTD 212 (Mumbai ITAT) support the appellant.

6.11 Recently, the Hon’ble ITAT in the case of Shri Ganpatraj A Sanghai vs ACIT 15(3) Mumbai order dated 05.11.2014 has deleted the addition of Rs.1,74,01,436/- made on account of presuming bogus purchases. The finding of the Hon’ble ITAT is as under – A perusal of the orders passed by the tax authorities would show that they have suspected the genuineness of the purchases only for the reason that the above said five parties were not available in the given addresses If is pertinent to note that the AC himself, during the course of remand proceedings have obtained the bank statements of the above said five parties his in the common knowledge of everybody that the bank account nowadays could be opened only on submission of proper documents Further the assessee has furnished the Sales tax documents of the above said five parties and also their income tax details to prove their existence Thus it is seen that the assessee has furnished many documents to prove the existence of the parties and they have not been controverted by the assessing officer Be that as it may, another important factor the bank account copies collected by the assessing officer shows that the assessee had made the payments to the above said parties by way of account payee cheques Thus it is seen that the transactions have been routed through the bank accounts Further it is not the case of the assessing officer that the assessee has indulged an accounting of bogus purchases When the assessee submitted that he could not have effected the sales without making corresponding purchases the AC has taken the view that the assessee could have effected purchases in the grey market which conclusion is in fact not supported by any material. Under this impression only, the AC has further expressed the view That the assessee would have purchased the materials by paying cash thus violating the provisions of sec 40A(3) of the Act which is again based on only surmises In the absence of any material to support the said view, we are unable to agree with the view taken by the tax authorities that the purchases amount is liable to be disallowed u/s 40A(3) of the Act. On the same impression only. the AO has expressed the view in the remand report That the purchases amount is also liable to assessed u/s 69C of the Act as the source of purchases were not proved. Again the said conclusion is based upon only surmises which could not be sustained Thus it is seen that the assessing officer has accepted the fact that the quantity details of purchases and sales have been reconciled by the assessee. Further, various case law relied upon by the assessee also supports his case. Under these set of facts, we are of the view that the Ld CIT(A) was riot justified in confirming the disallowance of purchases. Accordingly we set aside the order of Ld Cl T(A) on this issue and direct the AO to delete the disallowance of purchases" 6.12 Further, Hon’ble jurisdictional ITAT in the case of DCIT 25(3) vs. Rajeev G. Kalathil I.T.A.No.6727/Mum/2012 order dated 20.08.2014 had deleted the addition made by the Assessing Officer. The decision is as under:- We have heard the rival submissions and perused the material before us. We find that Assessing Officer had made the addition as one of the supplier was declared a hawala dealer by the VAT Department. We agree that it was a good starting point for making further investigation and take it to logical end. But he left the job at initial point itself Suspicion of highest degree cannot take place of evidence. He could have called for the details of the bank accounts of the suppliers to find out as whether there was any immediate cash withdrawal from their account. We find that no such exercise was done. Transportation of good to the site is one of the deciding factor to be considered for resolving the issue. The FAA has given a finding of fact that part of the goods received by the assessee was forming part of closing stock. As far as the case of Western Extrusion Industries (supra) is concerned, we find that in that mailer cash was immediately withdrawn by the supplier and there was no evidence of movement of goods. But, in 'he case before us, there is nothing in the order of the Assessing Officer about the cash traial. Secondly, proof of movement of goods is not in doubt. Therefore, considering the peculiar facts and circumstances of the case under appeal, we are of the opinion that the order of the FAA does not suffer from any legal infirmity and there are not sufficient evidence on file to endorse the view taken by the Assessing Officer, So confirming the order of the FAA we decide ground No.1 against the Assessing Officer.”

7.1 Thus from above judicial pronouncements and findings it can be understood that merely on the basis of non-service of notices u/s.133(6) or summon u/s.131 upon selling parties or only because of their non-availability at given address, no addition could b made when such assessee furnishes purchase bills, delivery challans, transportation bills and demonstrate that payments has been made through account payee cheque. Therefore, unless evidences produced by such assessee are proved bogus, false or unreliable, no addition can be made. Here, it is. however, important to mention that while making assessment of such cases, Assessing Officer is entitled to look into the entire facts and circumstances. Material or evidence on which taxing authorities may rely under I.T. Act is not confined to direct testimony in the shape of statement made. Vide. Kanhailal Umrao Singh v/s. CIT (1941) 9 ITR 225 (Oudh). Lalmohan Krishnalal Paul vs. CIT (1944) 12 ITR 441 (Cal.), Abdullabhai Abdul Kadar vs. CIT (1952) 22 ITR 241 (Bom). Thus. while making assessment. Assessing Officer has to see "material", "circumstances", "evidences" and "direct testimony" and thereafter reach to the conclusion for quantification of taxable income.

7.2 It is noteworthy that this case under appeal is not that plain as above referred to and relied upon cases are. Because during the course of survey, proceeding. the Director of the Company has admitted that only bills from seven parties were obtained' and not the goods, hence it becomes very obvious that goods might have been purchased from other parties. In answer to Q. No.

11. Directors has mentioned that delivery challan have not been received from seven parties, hence entries of the same are not available in data maintained in the ERP software in the computer. Thus. it is visible from the statement that goods under reference might have not been received from the seven parties (in this Year three parties), but it might have been received from other parties because during the course of assessment proceedings Appellant has given the quantitative details of consumption of raw material and production of finished goods vide submission dated 17.03.2013. Thus, there is no denial of the fact that material purchased from open market might have been used and (bills might have been obtained from these parties. This observation is based on answer to question No.12 of statement of the Director, which is reproduced here as under:-

Q. 12 In reply to Q. 11, you have mentioned you have not received the delivery challans from above mentioned seven suppliers, hence the entries of the same are not available in the data maintained in ERP Software in the Computer. Please state how were the goods purchased from the above parties were put to use--in your Company? Ans.:We had not received in goods or raw materials from the seven parties mentioned in Q.

“We are broadly in agreement with the reasoning adopted by the Commissioner (Appeals) with respect to the nature of disputed purchases of steel It may be that the three suppliers from whom the assessee darned to have purchased the steel did not own up to such sales However, !he vital question while considering whether the entire amount of purchases should be added back to the income of the assessee or only the profit element embedded therein was 10 ascertain whether the purchases themselves were completely bogus and non-existent or that the purchases were actually made but not from the parties from whom it was claimed to have been made and instead may have been purchased from grey market without proper balling or documentation In the present case, the Commissioner of Income-tax (Appeals) believed that when as a trader in steel the assessee sold certain quantity of steel, he would have purchased the same quantity from some source. When the total safe is accepted by the Assessing Officer, he could not have questioned the very basis of the Purchases. In essence, therefore, the Commissioner (Appeals) believed the assessees theory that the purchases were not bogus but were made from the parties other than those mentioned in the books of account. That being the position, not the entire purchase price but only the profit element embedded in such purchases can be added to the income of the assessee. So much is clear by the decision of this court. In particular, the court has also taken a similar view in the case of CIT v. Vijay M. Mistry Construction Ltd. (2013) 355 ITR 498 (Guj) and in the case of CIT v. Bholanath Poly Feb (P.) Ltd. [2013] 355 1TR 290 (Guj). The view taken by the Tribunal in the case of Vijay Proteins Ltd. v. Asstt. CIT 11996] 58 lTD 428 (Ahd.) came to be approved. If the entire purchases were wholly bogus and there was a finding of fact on record that no purchases were made at all, counsel for the Revenue would be justified in arguing that the entire amount of such bogus purchases should be added back to the income of the assessee. Such were the facts in the case of Pawanraj E Bokadia (supra). This being the position, the only question that survives is what should be the fair profit rate out of bogus purchases which should be added back to the income of the assessee. The Commissioner adopted ratio of 30 per cent of such total sales. The Tribunal, however, scaled it down to 12.5 per cent. We may notice in the immediately preceding year to the assessment year under consideration the assessee had declared gross profit at 3.56 per cent of the total turnover. If the yardstick of 30 per cent, as adopted by the Commissioner (Appeals) is accepted the gross profit rate will be much higher. In essence, the Tribunal only estimated the possible profit out of purchases made through non- genuine parties. No question of law in such estimation would arise. The estimation of rate of profit return must necessarily vary with the nature of business and no uniform yardstick can be adopted.”

7.4 Since Hon'ble Gujarat High Court has approved that 12.5% additional profit taken by the ITAT is reasonable hence respectfully following the decision the addition to the extent of Rs.14,76,642/-, being 12.5% of such purchase expenditure, is sustained and rest of the addition of Rs. 1,03,36,494/- is deleted.”

As a result, appeal of the assessee is partly allowed and that of the 7. revenue is dismissed.