RASIKLAL HIRALAL & CO. P.LTD,MUMBAI vs. ITO 4(3)(2), MUMBAI

आदेश / O R D E R

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Per Ashwani Taneja (Accountant Member): These appeals pertain to the same assessee for three different years passed against the assessment orders u/s 143(3) r.w. section 147 of the Income Tax Act 1961. These grounds raised in all three appeals are identical and therefore, these were heard together and being disposed of by this common order.

We shall first take up appeal for A.Y. 2007-08 in ITA No.258/Mum/2016:

3. Ground No.1: In this ground the assessee pertains to reopening u/s 147/148 of the Act.

4. Ground No.2: In this ground the assessee has challenged the action of AO in making addition of Rs.9,28,971/- being

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100% of amount of purchase made by the assessee from alleged bogus parties.

4.1. During the course of assessment proceeding, the AO noted that assessee had made purchases from a party namely M/s. Mayur Exports. It was noted by the AO that during the course of search operations carried out by the investigation wing of the Income Tax Department at various places with respect to finding out persons involved in fraudulent billing activities, it was revealed that the said party is one of the parties of a big racket involved in business of bogus billing. Accordingly, the AO treated entire amount of purchases made by the assessee from the said party as bogus and disallowed the same.

4.2. Being aggrieved, the assessee filed an appeal before the Ld. CIT(A) and made exhaustive submissions to show that amount of purchase made from the said party was not bogus. For the sake of ready reference written submissions filed by the assessee before the Ld. CIT(A) are reproduced below:

"The learned Assessing Officer has erred in making addition of Rs.9,28,9711- being 100% of amount of Rs.9,28,971/- of purchases made by Appellant from alleged bogus parties mentioned in the Assessment Order. In respect of the above addition, the appellant hereby submits the following details

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Particulars 1. A chart comprising of details of above 1 to 1 purchase/s and payment thereof through banking channels, export of the goods so purchased and receipts or payment of such exports 2. Copy of purchase invoice/s. 2 to 2 3. Copy of Bank statement being 3 to 3 evidence of payment for the alleged bogus purchases through banking channel 4. Confirmation in respect of above 4 to 5 referred purchases/s 5. Relevant extract of stock book 6 to 6 showing entry in respect of the above purchase/es and sales thereof.

6. Copy of related custom attested 7 to 16 export invoice, shipping bills for exports and evidence in respect of realization of export proceedings

The learned Assessing Officer has confirmed in par 4 on page 3 of the assessment order that Messrs Mayur Export from whom the goods were purchased have replied to his notice u/s. 133(6) dated 19-01-2015 vide their letter dated 27-01- 2015 and confirmed the transactions and receipts of payment by them.

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Reasons for Additions: The learned Assessing Officer has made addition u/s. 68 of the Income tax Act for an Amount of Rs. 35,35,9271- which inter alia includes the amount of Rs.928,971/- being purchases made by the appellant company from M/s. Mayur Exports. The primary reasons for such additions are as under; 1. During course of the investigation, the Investigation wing at Mumbai found number of companies who are providing bogus purchases bills to various beneficiaries for a commission 2. Such companies/firms were controlled, managed and operated by Shri Bhanwarlal Jain and his associates.

5. However the learned Assessing Office has made addition u/s. 68 of the Income tax Act, 1961 relating to cash credit and has inter alia held as under :- 6. (a) The expression " the assesses offers no 6 Rasiklal Hiralal & Co. P. Ltd.

explanation" means where the assesses offer no proper, reasonable and acceptable explanation as regards the sums found credited in the hooks maintained by the assessee. identity of the person was not proved. (b) (c) Creditworthiness and genuineness of the transactions was not proved as creditworthiness was not proved by mere issue of a cheque by furnishing a copy of statement of hank account. Circumstances might require that there should be some evidence of positive nature to show that the purchase transaction is a genuine transaction. (d) Surrounding and corroborative factual details are equally important and may justify requirement of further proof or details before onus is discharged. Thus, mere reliance on neutral documentary evidence cannot always be regarded as satisfactory discharge on onus.

"After considering the entire material, I am of the opinion that the assessee did not purchase the goods from the party mentioned in the sale bill. As per the information received from the Director of Income Tax (Inv.), Mumbai, this party M/s. Mayur Exports is a non-genuine party who only engaged in fraudulent billing activities. Therefore, the amount of alleged purchases Rs. 35,35,927/- is treated as non-genuine purchase. In view of the above, I am of the opinion, an amount of alleged purchases Rs. 35,35,927/- credited in the books of the assessee company in the name of M/s. Mayur Exports and the nature and source thereof

7 Rasiklal Hiralal & Co. P. Ltd. offered/explained by time assessee company is not satisfactory." SUBMISSIONS 1. The appellant has given full details in respect of alleged bogus purchase from M/s. Mayur Exports which are available at Page Nos. 1 to 16 2. Further M/s. Mayur Exports has responded to notice u/s. 133(6) issued and confirmed the transactions (As confirmed by the learned Assessing Officer in para 4 of his order). 3.The initial burden on the appellant to prove genuineness of the purchase was fulfilled and the appellant has thus discharged primary onus.

4. Before arriving at conclusion the learned Assessing Officer has not conducted any enquiry except notice issued to M/s. Mayur Exports u/s. 133(6) which was fully complied and the transactions was confirmed and thus the learned A.O. is bound to follow the presumption of law "what is appeared is real". 5.No defects have been found in books. 6.The appellant has never been provided copies of material based on which the learned Assessing Officer was relying. 7.Once Sales of the appellant (In this case exports) are not doubted no addition can be made by doubting purchases. 8.Without prejudice Only profits embodied in sale proceeds can be taxed, as it is real income which is taxable as consumption related to sales against alleged bogus purchases stands proved, no addition can be made. 9.The profitability level of the appellant is as under:

Sales Gross Profit Rs. 93,43,677 8,00,294 8.56 Prayer In view of the above it is stated that no addition is called for in this case and thus addition of 8 Rasiklal Hiralal & Co. P. Ltd.

Rs:9,28,971/- needs to be deleted."

4.3. But, Ld. CIT(A) did not agree with the submissions of the assessee and confirmed addition made by the AO by passing brief order.

4.4. Being aggrieved, the assessee filed an appeal before the Tribunal.

4.5. During the course of hearing Ld. Counsel of the assessee vehemently argued that Ld. CIT(A) erred in rejecting the evidences filed by the assessee that too without giving a proper reasoning. It was submitted by her that the AO had made direct inquiry with the said party which was positively confirmed. It was further submitted that since the goods purchased were sold by way of export which could not be denied by the Income Tax Department. The quantitative reconciliation is available, thus, it can be said that items sold must have been purchased also. She also drew our attention on a chart to show that if purchases are disallowed fully then GP rate shall shoot up to a very high and unreasonable figure. She alternatively submitted that in any case purchases cannot be disallowed in full. She relied upon the judgment of Honb’le Bombay High Court in the case of CIT v. Nikunj Exim Enterprises P. Ltd. 372 ITR 619 and judgment of the tribunal in the case of ACIT v. Say India Jewellers in dated 08.08.2014 and Shri Jigar Shah (ITA NO.1223/Mum/2014 dated 22.01.2016.

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4.6. Per contra Ld. DR submitted that this is a case of bogus purchases. The disallowance was rightly made by the AO and confirmed by the Ld. CIT(A).

4.7. We have gone through the orders of the lower authorities and submissions made by the Ld. Counsel and all the judgments relied upon by her before us. We have also gone through the submissions made by Ld. DR on behalf of revenue. It is noted by us that various details and evidences were filed by the assessee before the Ld. CIT(A) which were supported by exhaustive submission on law and facts. Ld. CIT(A) noted that the purchases were made from one of the Bhanwralal Group concerns which were found by the investigation wing to be engaged in business of bogus billing. Thereafter, Ld. CIT(A) without dealing with the evidences filed by the assessee individually, confirmed the order of the Ld. AO in a summarised manner as under: “5.3.2. From the above chart, it is found that 9,28,971/- was purchased as a part of arrangement with Bhanwarlal group of cases by virtue of bogus entries as per the findings of Investigation Wing of Income Tax Department and as discussed by the AO in the assessment order. This is the case of assessee company being direct beneficiary of the bogus billing. Therefore, the case laws referred by the AR cannot be accepted in the facts and circumstances of the present case. Accordingly, the addition of 9,28,971/- which has been added in the hands of company is upheld for the detailed reason given by the AO in the assessment order and for the sake of brevity, which is not being reproduced here. The addition of 10 Rasiklal Hiralal & Co. P. Ltd.

Rs.9,28,971/- made by the AO is upheld. In the result, appellant's ground of appeal is Dismissed.”

4.8. It is noted by us that Ld. CIT(A) has not given proper reasoning as to why the evidences filed by the assessee were rejected. It is noted that the assessee has submitted various evidences including confirmation of the suppliers, copies of bills, copies extract book shown entries in respect of purchase and sale of these items and also copies of customs and copies of export invoice and shipping bills and evidences of export of the items purchased. Copy of bank statement was also submitted evidencing payment for the alleged bogus purchase through banking channel. None of these evidences have been discussed by the Ld. CIT(A)while rejecting the claim of the assessee. Under these circumstances, we find it appropriate to send this issue back to the file of the Ld. CIT(A) with the direction to examine all the evidences submitted by the assessee. The Ld. CIT(A) should give adequate opportunity of hearing to the assessee to explain its case and submit all the documentary evidences in support of their claim. In case, the primary request of the assessee is not found acceptable by the Ld. CIT(A) then before rejecting the ground of the assessee in toto, the Ld. CIT(A) should also consider alternative prayer of the assessee wherein it has been submitted that since quantitative reconciliation is available, then, it is established that items sold by the assessee must have been purchased by the assessee, if not from this concern then definitely from some other supplier. Under these circumstances, the 11 Rasiklal Hiralal & Co. P. Ltd. purchases cannot be disallowed in entirety. Under these circumstances, the Ld. CIT(A) may examine the correct rate of purchase or he may consider part disallowance out of purchase, keeping in view G.P. rate of the assessee in the current year and in the past years and may also consider G.P. rate of the industry. He may also consider market rates of impugned items or any other parameters to ascertain appropriate amount of purchases to be allowed. For working out total amount to be disallowed, he may also consider if any addition is required to be made on account of any investment made by the assessee in rotating the cash for procuring bogus bills, issuing cheques and returning cash etc. The assessee is also free to submit all requisite evidences and may raise all legal and factual issues as may be considered appropriate as per law and may also submit all the judgments as have been relied upon before us or any other judgment as may be considered appropriate. After considering entire material placed by the assessee and judgments available as on that date, Ld. CIT(A) shall decide this issue afresh and shall pass speaking order dealing with all the aspects and issues as may be raised by the assessee and as may be considered appropriate by the Ld. CIT(A) as per law.

4.9. In the result, this appeal is partly allowed for statistical purposes in terms of our directions as discussed above.

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Now we shall take up for A.Ys. 2008-09 & 2009-10:

6. Ground No.2: This ground in both the appeals, pertain to the addition on account of bogus purchases. The facts and issues involved in this ground in both these years is identical to A.Y. 2007-08, therefore, this ground is sent back to the file of Ld. CIT(A) with the same directions as have been given in A.Y. 2007-08. The Ld. CIT(A) is directed to follow our order for A.Y. 2007-08.

Order pronounced in the open court on 29th June, 2016.