DCIT 10(3), MUMBAI vs. JAKHARIA FABRICS P.LTD, MUMBAI

O R D E R

Per ASHWANI TANEJA, AM

" On the facts and in the circumstances of the case and in law, 1. the Ld. CIT(A) erred in holding that out of the total bogus purchases of Rs. 1,14,92,970/-, only 17.5% be treated as bogus purchases.

2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not providing any opportunity to the AO and additional evidence(s) was admitted in violation to Rule 46A of the I.T. Rules. " On the facts and in the circumstances of the case and in law, 3. the Ld. CIT(A) erred in applying the ratio of Hon'ble Gujarat High Court decision in the case of CIT vs Simit P. Seth, 356 ITR 451(Guj) and thereby Ld.CIT(A) erred in not appreciating the fact that the assessee failed to substantiate its case with evidence. "On the facts and in the circumstances of the case and in law, 4. the Ld. CIT(A) erred in not appreciating the fact that the assessee failed to substantiate its case with evidence that the said purchase entries with 8 parties were not accommodation entries.”

i) The assessment order is invalid and bad in law, as no cross examination has been allowed of the witnesses whose statement has been made the basis of the impugned order. The assessment order is invalid and bad in law, as the same ii) has been passed by the A.O. without application of mind, on the basis of information received from investigation wing which in turn relied on the surveys conducted by the sales tax department.”

3. During the course of hearing, the Ld. Ld. Departmental Representative supported the order of the Assessing Officer whereas the Ld.counsel for the assessee supported the order of Ld.CIT(A) and also relied upon the judgement of Hon’ble Bombay High Court in the case of CIT(A) vs Nikunj Eximp Enterprises Pvt Ltd 372 ITR 6129 (Bom).

4. We have gone through the orders passed by lower authorities and judgement placed before us. With respect to ground relating to additional Ld.CIT(A), we pointed out to the Ld.DR to show us the additional evidences considered by the Ld.CIT(A) while passing his order and recording his conclusions and findings. In response, the Ld.DR could not point out any additional evidences and did not press this ground, as a result. We have also gone through the findings recorded by the Ld.CIT(A) and found that no additional evidence has been considered by the Ld.CIT(A) and, therefore, this ground is dismissed.

5. As far as merits of the case are concerned, the brief background of the issue involved is that during the year under consideration, the assessee was engaged in the business of doing job work of dyeing of fabrics and has shown income from job work charges and scrap sales in its P&L account. During the course of assessment proceedings, the Assessing Officer found that in view of the information received from the Investigation Wing of Income-tax Department, Mumbai, the assessee had obtained bogus purchase bills aggregating to Rs.1,14,92,970 from 8 parties, whose details have been given at paragraph 4 of the assessment order. The assessee was asked to substantiate these purchases. In response, the assessee submitted copies of bogus invoices, delivery challans, details of payment made to the said parties, ledger accounts of these parties and other documentary evidences to substantiate the purchases. But the Assessing Officer was not satisfied with the documentary evidences and, therefore, he disallowed the total amount of purchases made from these parties aggregating to R Rs.1,14,92,970 by solely relying upon the alleged information received from the investigation carried out by the sales-tax department, Mumbai. While doing so, the Assessing Officer did not point out any deficiencies, shortcomings or contradictions in the documentary evidences submitted by the assessee. Being aggrieved, assessee filed appeal before the Ld.CIT(A) and submitted that complete documentary evidences have been submitted before the Assessing Officer and without controverting these evidences, the Assessing Officer made total disallowance of purchases. It was alternatively submitted that in any case, the Assessing Officer has accepted the income received by the assessee on account of job work charges. Nothing has been brought on record by the Assessing Officer to show that items purchased have not been used for the purpose of job work. The assessee was not in a position to carry out the job work in absence of impugned purchases. It was further submitted that the Assessing Officer did not provide any adverse material in support of his allegations. The Ld.CIT(A) considered the submissions of the assessee and documentary evidences submitted by the assessee before the Assessing Officer as well as the Ld.CIT(A) and decided this issue by recording the following findings:

The facts in the present case shows that the appellant 2.15 was not in a position to prove the existence of the suppliers. The suppliers were found to be engaged in providing bogus 'bills without actual delivery of goods Moreover few of the Suppliers are hot regular parties and they were found to have been supplied only during the ear and there were no supply either in the earlier year or in the subsequent year from such parties. This circumstantial evidence also prove the bogus nature of the transaction. On careful analysis or the finding of Hon’ble High Court or Court in the above mentioned cases, I am of the firm view that without purchase of materials it was not possible for the appellant to complete the job work of dying. As mentioned above the AO had never disputed or examined the aspect of job work receipts. Hence I am of the firm belief that the appellant had made cash purchases from other parties which were not recorded in the books. The appellant took only bills from these 6 parties as accommodation to explain the purchases.

Therefore the entire purchase from these 8 parties cannot. be added as bogus and what needs to be taxed is the profit element embedded in such transaction. The appellant carrvout only the job work of dying the cloths one contract basis. Estimation ranging from to 25% has been upheid by the Hon'ble Gujarat High Court depending upon the nature of the business. As held in the case of Simit P. Sheth (supra) no, uniform yardsticks could be applied to estimate the rate of profit and it vary with the nature of business. Taking all the facts into consideration and the findings of the Hon’ble Courts on this issue, I am of the view that estimation of 17.5% of profit would meet the ends of justice. Therefore, I direct the AO to estimate profit of 17.5% on the total alleged bogus purchase which, works out to Rs. 2011270 (17.5% of Rs.114,92,970!-). The appellant get the relief of the balance Rs,94817001-. The grounds raised are partly Allowed.”

Order pronounced in the court on this 21st day of September,2016.