DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, SURAT vs. SIDDHI VINAYAK KNOTS & PRINTERS PVT. LTD., SURAT

This set of nine appeals/cross appeals by the assessee and the revenue are directed against the orders of learned Commissioner of Income Tax (Appeals)-4, Surat (in short, the ld. CIT(A) dated 11/05/2021 and 13/05/2021 for the Assessment years (AY) 2010-11 to 2014-15. In all these appeals, the assessee as well as revenue has IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT raised certain common grounds of appeal

The assessing officer recorded that during the investigation, statement of various persons was recorded under Section 131 of the Act. Statement of Mr. Babulal P. Sarashwar was recorded, who allegedly stated that proprietory concerns M/s Jai Matadi Fashion and M/s Jai Durga Silk Mills were issuing only sale bills to M/s Delta Tex Trade Pvt. Ltd. without actual delivery of goods. During the F.Y. 2013-14, the proprietory concern M/s Jay Matadi Fashion made bogus sales bills to M/s Delta Tex Trade Pvt. Ltd. of Rs.91,78,238/-. During the F.Y. 2012- 13, the proprietory concerned of her cousin M/s Jai Durga Silk Mills made bogus sales to M/s Delta Tex Trade Pvt. Ltd. the Assessing Officer recorded that in reply to question about the return of account against issuing bogus sale bills to Delta Tex Trade Pvt. Ltd., he stated that he returned the amount in cash after withdrawal from the bank IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT and sales of goods in cash to Mr. Ashok K. Varshney, Director of M/s Delta Tex Trade Pvt. Ltd. Except M/s Delta Tex Trade Pvt. Ltd., remaining five companies were based and their registered office were at Kolkata. A survey was carried out under Section 133A of the Act on 18/02/2014 by the Investigation Wing at Kolkata. The Investigation Wing, Kolkata reported that no such entities were found at such address, therefore, survey authorisation were not executed and no survey was ultimately conducted. During the assessment, notice under Section 133(6) of the Act was issued to all six concerns, replies were received from all these parties.

The Assessing Officer also issued notice to the parties from whom these six companies have purchased their goods, which in turn has been claimed to have purchased by assessee. The Assessing Officer recorded the summary of all six companies. For M/s Delta Tex Trade Pvt. Ltd., the Assessing Officer recorded that they furnished their reply and submitted that the purchases were made from 88 parties over the period of F.Y. 2009-10 to 2013-14. Further notice under Section 133(6) were sent to 88 parties for seeking their confirmation about the purported sale to M/s Delta Tex Trade Pvt. Ltd., mode of delivery of goods and proof of transportation. Out of 88 parties, 72 different parties filed their confirmation about the sales to M/s Delta Tex Trade Pvt. Ltd. Mode of delivery was disclosed as through tempo. The IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT Assessing Officer recorded that no evidence of such claim was filed. Notice issued for M/s Dhruti Fabrics Pvt. Ltd., the Assessing Officer noted that notice under Section 133(6) were issued to 28 parties, 11 parties have filed their compliance, details of transportation were not furnished. For M/s Ujwal Trendz Pvt. Ltd., Asharya Polyfab Pvt. Ltd., Shreekant Designer Pvt. Ltd., the Assessing Officer issued notice to 28 parties and only 11 parties filed their confirmation and no details of transportation was furnished. During the assessment, the Assessing Officer recorded the statement of Shri Ashok Varshney, Director of M/s Delta Tex Trade Pvt. Ltd. under Section 131 of the Act and asked about the delivery of goods. Shri Ashok Varshney in his statement stated that all the goods were supplied by the supplier directly to the factory premises of siddhi Vinayak Knots & Prints P Ltd. (assessee). Thus he has no record of such delivery.

The Assessing Officer on the basis of his investigation was of the view that there are discrepancies in the purchases and he issued show cause notice as to why purchases from these six companies should not be treated as bogus and why books of account should not be rejected under Section 145 of the Act vide notice dated 19/01/2016. The assessee filed its reply on 27/01/2016. The crux of reply is recorded in para 8 of assessment order. The assessee contended that all the purchases are genuine and bonafide. The purchases from certain IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT companies were suspected as bogus during the course of search and detailed enquiry and investigation was carried out at our factory, residence and supplier parties about the genuinenity of the purchases. After conclusion of search, the Investigation Wing did find anything contrary. The investigation wing carried out deep investigation about the allegation of bogus purchases but not a single document/fact was found which indicates that the purchases were bogus. The show cause notice is based on presumption and without any basis. About the discrepancies in the inward register, the assessee explained that there was certain discrepancies pointed out in the inward register at security point. The assessee explained that there was multiple entry in the factory premises. The factory premises have two entry gates, one was the main gate of factory for entering into plot No. A-26, A-32 and another gate is situated at plot No. A-25. The site map was also furnished. Being two different gates at different locations managed by different persons, thus certainly some mistake is bound to happened in maintenance of basic record. The passage of gate at plot No. A-25 is very narrow, so no vehicle can enter inside the gate, whereas free moment of vehicle is possible in the main factory gate and explained that the difference in inward register as different or dissimilar is not a discrepancy. The assessee also explained method of guarding of gates by security guard and supervisor. On receipt of goods at plot No. A- IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT 25, which is jointly locked but look after by one person, on receipt of goods, first it is confirmed that the goods belonged to assessee or not, if it is found, then the goods is verified, after verification of stock, details of goods are noted in the inward sheet available, once the inward sheets accumulate at gate, they are filed in the same box file in which inward sheet of main gate are filed. Thus, there is no such serious discrepancies, such difference is merely the working by different security guards. On non-receipt of reply from various suppliers, the assesse explained that the assessee has purchased fabrics from six entities, which have confirmed in reply to notice under Section 133(6) of the Act and further confirmation from their suppliers were also received in majority of cases. On-going through the reply of notices, it can be accepted that the suppliers are bonafide and existing and not paper concerned. The payments were made through account payee cheques. There is no cash withdrawal from any of the suppliers. The service of notice under Section 133(6) is a conclusive evidence about the existence and genuinety of suppliers. The assessee also furnished summary of stock in various assessment years from A.Y. 2009-10 to 2014-15 as well as finished stock for A.Y. 2009-10 to 2014- 15. The assessee submitted that if the purchases are bogus and purchases are removed from purchase register, the closing stock of assessee will become negative which is practically impossible. The IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT assessee also furnished the projection of hypothetical adjustment if purchases are treated as bogus from A.Y. 2009-10 to 2014-15. Such summary are recorded by Assessing Officer on page No. 25 to 26 of the assessment order. The assessee stated that no discrepancies were found in physical stock during the course of search proceedings. If purchases were bogus, there must have been difference in physical stock and stock register. No discrepancies were found in the physical stock and book result during search proceedings. Sales of assessee was accepted as genuine and true. It is impossible to make the sale without corresponding purchases. All suppliers are genuine and existing and have confirmed the sales. The assessee also furnished the gross profit ratio, net profit ratio from A.Y. 2009-10 to 2014-15 and submitted that the gross profit ratio is almost consistent as 17.84% in 2009-10, 18.15% in 2010-11, 18.52% in 2011-12, 17.38% in 2012-13, 16.26% in 2013-14 and 16.58% in 2014-15. Similarly, the net profit/NP is almost consistent in all years. The assessee also given comparable instances of profit of other concerns. All such details are recorded in para 12.11 by the Assessing Officer in assessment order. On the basis of comparable instances, the assessee submitted that the comparable comparison clearly demonstrates that there is no tax evasion/avoidable by the assessee company and the assessee has shown highest profit margin and highest tax paying company in their sector. The assessee IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT further contended that the assessment for A.Y. 2009-10, 2010-11 & 2011-12 were completed under Section 143(3) of the Act. The book result in all the years were accepted after due verification including purchases. The assessee on the issue of rejection of books of account, submitted that the twin condition for rejection of books provided in Section 145(3) is not satisfied. There is no reason for rejection of books of account which are complete and correct. The books of account are accurate and maintained as per accounting standard. The completed assessment for A.Y. 2009-10, 2010-11 and 2011-12 clearly established the correctness and completeness of books of account. The proof of delivery/transportation is the record of suppliers and not of assessee company. Even if there are some defect in the books of supplier and not in the books of assessee. So the assessee prayed for accepting the books entry and their correctness.

In without prejudice submission, the assessee contended that even if the purchase is bogus, it is not the total amount of purchases which is to be brought to tax but the real profit embedded in such purchases is to be brought to tax as has been held by the Hon’ble Gujarat High Court in CIT Vs. Simit P Seth (2013) 38 taxmann.com (Gujarat). The assessee also relied on various other cases.

The Assessing Officer after considering the submission of assessee held that during the assessment, the assessee is not able to explain IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT satisfactorily why the purchases from only six companies were entered into gate at plot No/ A-25 and other purchases from another gate at plot No. A-26 to A-32. The explanation of assessee is after thought. About the statement of Mr. Babulal Sarashwat of M/s Delta Tex Trade Pvt. Ltd., the Assessing Officer held that he never retracted from his statement. The assessee has not furnished the evidence of delivery of goods by local Tempos or angadias. On the objection of assessee that no difference in stock position at their premises by the Investigation Wing and that purchases cannot be ignored, the Assessing officer held that no transportation/ flat inward about the purchases from these six parties. The assessee has not brought any plausible explanation and books of account is not reliable. The explanation offered by the assessee about the genuineness of purchases is not plausible. The purchases are not genuine. The purchase register found at the time of search was doctored. Several persons were examined during the search, who admitted that they have provided bogus bills. The assessee procured bogus bills to reduce the profit. Merely there is no cash withdrawal or payments were made through cheques, the surrounding circumstances of bogus purchases cannot be ignored. The books of assessee was rejected under Section 145(3) of the Act and the Assessing Officer estimated the addition of such alleged purchases @ 18%. The Assessing Officer prepared the summary of purchases IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT shown from all these parties as recorded in last sub para of para 11 at page No. 39 and worked out the aggregate purchase from these six parties of Rs. 26.01 crores and disallowed 18% thereof thereby worked out the addition of Rs. 4.68 crores in the assessment order dated 15/02/2016.

Aggrieved by the additions in the assessment order, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee again filed detailed written submissions. The submissions of assessee are recorded in para 4 on page No. 2 to 44 of the order of ld. CIT(A). The assessee stated that a search under Section 132 of the Act was carried out on 18/02/2014 in Laxmipati Group. The assessee was also covered. Statement of Shri Rakesh Govind Sarawagi, Director of the assessee was also recorded on 18/02/2014. Shri Rakesh Govind Sarawagi made disclosure of Rs. 15.00 crores as additional income from business. At the time of search, assessment for A.Y.2011-12 was not pending and was completed under scrutiny on 24/01/2014. The additional income offered by the assessee was earned from the business. The assessee gave a bifurcation of disclosure of Rs. 15.00 crores, out of which Rs. 1.00 crore was declared for A.Y. 2012-13, Rs. 1.00 crore for A.Y. 2013- 14 and remaining Rs. 13.00 crores for A.Y. 2014-15. The search was suspended and prohibitory order was passed under Section 132(3) of the Act and search was finally concluded on 10/04/2014.

The Assessing Officer rejected the books of account in a casual manner without pointing out any defect in the books of account. All bills and vouchers were found at the time of search were recorded in the books of assessee. Up to date books of accounts were maintained till the date of search. No bills or vouchers were found which was not recorded in the books of account. The assessee maintained complete stock alongwith quantitative details as mentioned in audit report. The sales of assessee was not disputed. Sale is not possible in absence of purchases. The assessee submitted the basis of rejecting books of accounts by the Assessing Officer i.e. (i) he may proceed to reject the books of account if he is not satisfied about the correctness or completeness of the books of account or (ii) where method of accounting cash or mercantile not been followed regularly or (iii) accounting standard notified by the Central Government have not been regularly followed by the assessee. Thus, for rejecting the books of account, the Assessing Officer must record his satisfaction that he is not satisfied about the correctness and completeness of account. The third party statement, which has not been cross verified cannot be the basis to disturb the correctness and completeness of account, there might be system of malice which the assessee account would be IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT suffering. It is the duty of Assessing Officer to point out the incompleteness in the account. The Assessing Officer cannot reject the books of account solely on the basis of third party record. The confirmation of all these supplies were filed and their statement under Section 131 of the Act was also recorded. No adverse inference can be drawn against the assessee. The twin condition prescribed for rejection of books of account as per Section 145(3) of the Act are not satisfied. There was no reason for rejection of books of account, which are correct and complete. The completed assessment for A.Y. 2009-10, 2010-11 and 2011-12 testifies and certifies the correctness and completeness of books of account. The proof of delivery or transportation insisted by the Assessing Officer is not the record of assessee but record of supplier, so even if there is some defect, it is in the books of supplier. The assessee reiterated that the assessment for A.Y. 2009-10 to 2011-12 was already completed under Section 143(3) at the time of search and books result were accepted after due verification including the purchases. So no addition can be made in such assessment year.

On the disallowance on account of bogus purchases, the assessee stated that during the search proceedings, according to the Assessing Officer, there are certain discrepancies about the purchases from six following parties namely:

The assessee again submitted that all the purchases are entered in inward sales received in the factory. Stock register properly maintained and purchases are reflected. The assessee also furnished summary of grey stock for A.Y. 2009-10 to 2014-15 and summary of finished stock IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT for A.Y. 2009-10 to 2014-15. The copy of stock statements was forwarded to the bank from time to time, copy of such report was filed. The Assessing Officer not found any discrepancy in the stock during the course of assessment. The sales of assessee was not disputed.

The assessee in its without prejudice submission submitted that even if, it is presumed that alleged purchases are bogus and are removed from the purchase register, their closing stock will become negative which is impossible. The assessee submitted that sale of assessee was never disputed. Sale is not possible in absence of purchase. The assessee has also shown one to one correlation of all sales and purchases. Sale is accepted as true. The assessee again furnished the comparison of profit of comparable companies and submitted that profit margin of assessee is at highest. The assessee also relied on certain case laws wherein the various benches of Tribunal and Higher Courts have held that when the assessee has shown sales out of purchases, and it was accepted there is no question of addition. The assessee in its further without prejudice submission, submitted that when all these suppliers have confirmed the transaction, the addition if any is to be made it should not be more than 2% of total purchases. The assessee despite making without prejudice submission reiterated that such submission is without prejudice though, they still insist that there is no defect in their books of account and no addition should be IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT made. To support their contention that no addition in the concluded assessment can be made as no evidence of bogus purchases were found for assessment year wherein the assessment has already been concluded. To support of their various other contentions, the assessee relied upon the following decision;  CIT Vs Kabul Chawla 93 CCH 210 (Delhi),  CIT Vs Continental Warehousing Corporation (Nhava Sheva) Ltd. 58 taxmann.com 78 (Bom),  DCIT Vs Creative Trendz Pvt. Ltd. 272 & 273/Ahd/2016, dated 13/11/2020,  CIT Vs Kashiram Textile P Limited (2007) 160 TAXMAn 4 (Guj),  CIT Vs M.K. Brother (1997) 30 TAXMAn 547 (Guj),  Rohit Kumar Kapadia Vs PCIT (2018) 94 taxmann.com 324 (Gujrat),  ACIT Vs Kishan Lal Jewels Private Limited ( ITANo. 229 of 2011 Delhi HC),

The ld. CIT(A) after considering the contents of assessment order and the submission of assessee, allowed part relief to the assessee. On the issue of rejection of books of account, the ld. CIT(A) held that the Assessing Officer rejected the books of account by pointing out the discrepancy in the inward register found at the gate for the period 2013 to 2014 as the purchase invoices found during the course related with six parties and considering such factual matrix, the Assessing Officer was of the view that the accounts are not correct. The ld. CIT(A) held that there was discrepancy in the inward register prepared for purchases. It was held that on confronting such discrepancies, Shri IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT Ravi Khaitan, Admin, in answer to question No. 23 replied that he cannot gave reply at this stage, therefore, the accounts are not correct.

On the legal issue that no incriminating material for concluded assessment was found, the ld. CIT(A) held that at the time of search, purchase bills were found which cumulatively considered. The search party found defects in the purchase bills and the manner in which the bills were kept together with the peculiarities vis-a vis normal bills found during the course of search are incriminating material. Thus, ld CIT(A) thus dismissed the corresponding ground. 17. On the estimation of addition, the ld. CIT(A) in para-6.4 of his conclusion held that evidence suggest that the purchase parties may be bogus but purchases are not bogus. Thereafter, ld CIT(A) after referring various decisions of Jurisdictional High Court and Tribunal held that the factual matrix of the case indicates that the assessee made purchases from grey market which means that the assessee purchased goods from “X” who did not issue bills to the assessee and the assessee obtained bills from “Y” who did not deliver the goods to the assessee in real. So far as quantification of profit element in such unsubstantiated purchases, the ld. CIT(A) held that only profit element embedded in such purchases can be brought to tax. The ld. CIT(A) accepted that there was no discrepancy in the stock register as well as in physical stock during the search. The assessee has furnished IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT comparative chart in respect of purchase from Aadhat and without Aadhat and their gross profit. The assessee also relied on various decisions where the estimation of profit is ranging from 2 to 5% on the basis of such decisions, the ld. CIT(A) estimated profit @ 5% instead of 16% and thereby granted partial relief to the assessee. Similar relief was granted in all other years.

Aggrieved by the order of ld. CIT(A), both the parties have file their respective appeals before the Tribunal. The assessee has challenged the order of ld. CIT(A) in confirming the addition to the extent of 5% of the disallowance of purchases and likewise, the revenue has assailed the order of ld. CIT(A) in granting relief to the extent of 13% of disputed purchases 19. We have heard the submissions of learned Authorized Representative (ld.AR) for the assessee and the learned Commissioner of Income Tax- Departmental Representative (ld. CIT-DR) for the revenue and have gone through the orders of lower authorities carefully.

The ld. AR of the assessee submits that the search was carried out on 18/02/2014. On the date of search, the assessment for A.Y. 2010-11 and 2011-12 was completed. No material or evidence of criminating material qua such completed assessment were found during the course of search action. During the search action, certain infirmities/ discrepancies in inward register sheet for the period of August, 2013 to IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT February, 2014 was recorded by the search party. Admittedly, there is no incriminating material for the completed/ unabated assessment for A.Y. 2010-11 and 2011-12. No additions in assessment under Section 153A, in absence of incriminating material can be made under Section 153A of the Act, thus the addition in A.Y. 2010-11 and 2011-12 made pursuance to search carried out on 18/02/2014 is void ab initio. The search party suspected the inward register by noting certain infirmities in the files where certain invoices were kept. On the basis of such alleged discrepancies found at the gate, the Assessing Officer rejected the books of account. The Assessing Officer after rejecting the books of account, estimated addition @ 18% in A.Y. 2010-11 to 2014-15. The ld. AR for the assessee submits that all the invoices were duly recorded in the books, payments were made through account payee cheques, stock was up to date. No documents during the search was found which was unaccounted. The search party has not pointed out any deficiency in the books of account at any point of time. Books of assessee was rejected without any basis. The Assessing Officer has not disputed the sale of assessee. The sale is not possible in absence of purchases. There is no allegation or finding of Assessing Officer that the assessee is beneficiary of accommodation entry provider. The assessee furnished comparative chart of similar situated companies who is engaged in similar business and proof before the Assessing Officer that the gross IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT profit and the net profit shown by the assessee is highest. The gross profit shown by the assessee is ranging from 17.80% to 16.58% which is higher than the other comparable instances like Bahubali Prints Pvt. Ltd., Divya Fashion Pvt. Ltd., Jinnam Dresses Pvt. Ltd., Sakabari Silk Mills P Ltd. and Garden Silk Mills Pvt. The rejection of books of account was absolutely baseless and not in accordance with the provisions of Section 145(3) of the Act.

The ld. AR submits that all the suppliers confirmed about the sales made to the assessee. All purchases were duly received at the factory, recorded in inward register, all invoices are duly stamped for security check and registered in stock register, stock register properly maintained. No discrepancy was found during the search. There is no allegation of cash withdrawal from the bank account of supplier. Not only suppliers confirmed the purchases but supplier’s supplies also called during the assessment and almost all the supplier’s suppliers have confirmed the sales to the supplier of assessee.

On the addition of bogus purchases sustained to the extent of 5% of impugned purchases, the ld. AR of the assessee submits that apart from five parties, who supplied goods to Delta Tex Trade Pvt. Ltd., all were summoned under Section 131 of the Act. The common Director in all five supplies of assessee confirmed that they supplied goods. The ld. AR of the assessee by referring the assessment order, invited our IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT attention at para No. 5.1 of assessment order wherein the Assessing Officer recorded that 88 notices were issued to the suppliers of Delta Tex Trade Pvt. Ltd. All notices under Section 133(6) were duly served. Out of 88 notices, 72 suppliers filed their replied before the Assessing Officer. The ld. AR of the assessee submits that there is no allegation of Assessing Officer that the notices sent to the suppliers of Delta Tex Trade Pvt. Ltd were returned back, in fact, all notices were duly served. If some of the suppliers has not responded, the assessee cannot be held liable. The ld. AR of the assessee submits that the assessment of Delta Tex Trade Pvt. Ltd. was also completed by same Assessing Officer under Section 153A r.w.s. 143(3) of the Act for all assessment year and no addition in his assessment order was made. Surprisingly, the Assessing Officer presumed that the supply/purchases from Delta Tex Trade Pvt. Ltd. are not genuine, however, sales at the hands of Delta Tex Trade Pvt. Ltd was accepted. The ld. AR of the assessee submits that to substantiate the purchases, the assessee furnished complete details before the Assessing Officer as well as before the ld. CIT(A). No defect was pointed out on the evidence furnished by the assessee. The Assessing Officer disallowed the purchases @ 18%, as the assessee himself offered gross profit rate almost at 18%. The ld. AR of the assessee submits that when no sales was disputed, the purchases cannot be disallowed. When the assessee has offered income from IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT sales, sales are not possible in absence of purchases, therefore, no addition in absence of dispute of sales can be made. The assessee furnished one to one correlation of purchase and sales, therefore, no addition on the allegation of alleged bogus purchases was warranted against the assessee. To support his submission, the ld. AR of the assessee relied upon the decision of Hon’ble Gujarat High Court in Pr.CIT Vs Tejua Rohitkumar Kapadia in dated 18/09/2017.

The ld. AR of the assessee submits that during the search action, statement of one of the Director namely Shri Rakesh Govind Sarawagi made disclosure of Rs. 15.00 crores out of which Rs. 1.00 crore was offered for A.Y. 2012-13, Rs. 1.00 crore for A.Y. 2013-14 and Rs. 13.00 crores for A.Y. 2014-15. The assessee has not withdrawn or retracted from their statement and honestly paid the due tax on the business income disclosed during the search action. Despite honouring the disclosure, the Assessing Officer made further addition in A.Y. 2012-13, 2013-14 and 2014-15. The assessee has disclosed gross profit of 17.38% and net profit of 3.83% in A.Y. 2012-13, gross profit of 16.26%% and net profit of 3.89% in A.Y. 2013-14 and gross profit of 16.58% and net profit of 4.83% in A.Y. 2014-15. If the amount of disclosure which has not been included while declaring books result, if additions sustained by the ld. CIT(A) is sustained, the net profit ratio IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT for all three assessment years would give abnormal result which is not possible. On the allegation of Assessing Officer that five companies were Kolkata based companies which was not found at the time of survey action at their addresses. The ld. AR of the assessee submits that Shri Amit Singhal attended the assessment proceedings who is common Director in all five companies. His statement was recorded under Section 131 wherein he has confirmed the sales to the assessee. He also confirmed that he runs his business from Surat and was in the process for transferring his registered office to Surat. All the companies were ultimately shifting to Surat after taking necessary permission and the Company Law Board, West Bengal for shifting their registered office. Before shifting their office all were supplying goods to the assessee. The ld. AR of the assessee submits that during the assessment as well as at first appellate stage, the assessee furnished complete explanation about such adverse remark of the Assessing Officer. The lower authorities have not disregarded the explanation furnished by the assessee. The ld. AR of the assessee further submits that after appreciating the evidence filed by assessee, the ld. CIT(A) accepted that the purchases are not bogus, despite the fact that the ld. CIT(A) sustained the additions to the extent of 5% by adopting a new methodology as recorded in para 6.5 of their order that the purchases were made from grey market. There is no such allegation either of IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT searched team, or the Assessing Officer during the assessment proceedings. The ld. CIT(A) also accepted the fact that there was no discrepancy in the stock register as well as in physical stock verification during the course of search still the ld. CIT(A) restricted the disallowance to the extent of 5%. The ld. AR of the assessee submits that when the assessee himself voluntarily disclosed Rs. 15.00 crores as additional business income and honestly honoured the committed made to search party and paid the tax thereon which was made only in keeping in view there was a minor discrepancy in the inward register for certain purchases. Though, all purchases were duly recorded in the stock and purchase register which was ultimately sold and the sale proceed was offered to tax which are not disputed rather the ld. CIT(A) accepted such fact, therefore, addition even to the extent of 5% is not sustainable.

To support various contentions, the ld AR for the assessee relied on all the case laws filed before ld CIT(A). In addition to the ld AR for the assessee also relied on the following case laws; (A) On the issue of impugned bogus purchases,  ACIT Vs Vardhman Export (Tax Appeal No. 265 of 2008 Gujarat High Court)  ACIT Vs Akruti Dying & Printing Mills Private Limited (Tax Appeal No. 997 of 2008 Gujarat High Court)

The ld. AR of the assessee has also filed following documents on record, (i) Show cause notice dated 19/01/2016 issued by Assessing Officer, (ii) Reply of assessee dated 27.01.2016 to show cause notice, (iii) Statement of Sanjay Sarawagi recorded under Section 131 of the Act., (iv) Statement of Rakeshkumar Govind Sarawagi recorded under Section 132(4) of the Act., (v) Letter dated 31.03.214 filed by assessee company, (vi) Statement of Ravi Khetan, Admin Head recorded u/s 132(4) of the Act., IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT (vii) Assessment order in case of assessee passed u/s 143(3) for A.Y. 2011-12 dated 18.2.2104, (viii) Assessment order in case of assessee passed u/s 143(3) for A.Y. 2010-11, dated 25.05.2014, (ix) Purchase invoices of suppliers and inward register of assessee company showing the inward entries, (x) Sample invoices of another concern having same standard format invoice as supplied by the suppliers., (xi) Stock statement submitted with bank., (xii) Working of GP and NP ratio for A.Y. 2009-10 to 2014-15, (xiii) Factory map showing two gates, (xiv) Acknowledgement of return of income alongwith computation of income filed in response to notice u/s 153A for A.Y. 2010-11 to 2013-14. (xv) Acknowledgement of return of income alongwith computation of income filed in response to notice u/s 153A for A.Y. 2014-15. (xvi) Audit report alongwith audited financial statements for A.Y. 2010-11 to 2014-15. (xvii) Assessment order of Delta Trade Tax Private Limited dated 18/11/2015 for A.Y. 2010-11 to 2014-15, (xviii) Letter filed by Delta Tex Trade pvt. Ltd. before Assessing Officer. (xix) Statement of Shri Ashok Keshavdev Varshney (Director of Delta Tex Trade Pvt. Ltd) recorded under Section 131 of the Act. (xx) Letter filed by Delta Tex Trade Pvt. Ltd. before Assessing officer, (xxi) Statement of Shri Ashok Keshavdev Varshney recorded u/s 132(4) of the Act. (xxii) Statement of suppliers of Delta Tex Trade Pvt. Ltd. recorded under Section 131 of the Act i.e. Dinesh Dhankani, Gopilal Sohanalal Garuwa, Revatram Megharam Jat, Gordhanlal Sharma, IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT Hanuman Parlad Sarswa, Pushpa Sharma, Omprakash Sharma, Sampatram Lalaram Sharma, Tolaram Sharma, Kanhaiyalal Prabhudayal Ojha, Gordhanlal Sharma (Prop. of Khatushyam Textiles), Babulal Parlad Sarashwat (Prop. of Jai Mata Di Fashion), Babulal Parlad Sarashwat on behalf of Shardadevi Sarashwat (Prop. of Jai Durga textile Trading), (xxiii) Reply filed by various suppliers in response to notice issued u/s 133(6) in case of Delta Tex Trade Pvt. Ltd, (xxiv) Confirmations of accounts of various suppliers of Delta Tex Trade Pvt. Ltd., (xxv) Letters / reply -filed by Khatushayam textiles, Laxmi Silk Mills and Bhardwaj Syntax in response to summons issued u/s 131 in case of Delta Tex Trade Pvt. Ltd., (xxvi) Acknowledgement of return of income alongwith computation of income of Delta Tex Trade Pvt. Ltd. for A.Y. 2010-11 to 2014-15. (xxvii) Purchase invoices of M/s Dhruti Fabrics Pvt. Ltd. M/s Ujawal Trendz Pvt. Ltd., M/s Acharya Polyfab Pvt. Ltd., M/s Shreekant Designer Pvt. Ltd., M/s Vashudhara Fashions Pvt. Ltd. (xxviii) Statement of 4 suppliers of above companies recorded u/s 131 of the Act i.e. Govindjee Jha, Praveen Kumar Saraogi, Rabindra Nath Thakur and Rajesh Kumar Agarwal. (xxix) Statement of Shri Amit Pradeep Singhal recorded u/s 131 of the Act. (xxx) Statement of Shri Amit Pradeep Singhal recorded under Section 131 of the Act, (xxxi) Reply fled by various suppliers in response to notice issued u/s 133(6) in case of above companies. (xxxii) Oder of Regional Director, Ministry of Corporate Affairs (MCA) to shift the registered address to Surat.

On the other hand, the ld. CIT-DR for the revenue supported the order of Assessing Officer. The ld. CIT-DR for revenue submits that a search was carried out on the premises of assessee. During the search action, certain bills were doubtful. Such fact is recorded by Assessing Officer in para 4 of the assessment order. The Assessing Officer noted that bills and vouchers of six supplier parties were not correctly entered at the entry gate of assessee. The entries of the inward register were not matching with the dates and serial numbers. No vehicle numbers were mentioned in the register. The bills of all six companies were looking similar so far as fonts and manner of printing, no bills were found alongwith delivery challan. During the course of investigation, Mr. Babulal Prahlad Sarshwat who is proprietor of Jay Matadi Fashion attended on behalf of Smt. Shardadevi Sarashwat who is the proprietor of Jai Durga Silk Mills. His statement was recorded who have disclosed about the bogus bills to Delta Tex Trade Pvt. Ltd. without actual delivery of goods in F.Y. 2012-13 and 2013-14. The ld. CIT-DR for the revenue submits that Delta Tex Trade Pvt. Ltd. and five other companies were based in Kolkata. A survey under Section 133A of the Act was conducted on 08/02/2014 by the Investigation Wing Kolkata which was mentioned on the sales bills of these companies. The Kolkata Investigation Wing in their report dated 32 IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT 18/02/2014 reported that the address mentioned no such entity was found, thus all supplier companies were non-existing companies. The assessee has shown purchases from such companies which were not existing. ON the rejection of books of account, the ld. CIT-DR submits that on the basis of various discrepancies recoded by the Investigation wing, the Assessing Officer found sufficient material for rejecting the books of account and estimating the addition @ 18% of the purchases shown from all such parties. The ld. CIT-DR for revenue submits that the Assessing Officer reasonably disallowed the percentage of disputed purchases @ 18% of the purchases. The ld. CIT(A) granted relief to the assessee without appreciating the evidence on record. The ld. CIT(A) restricted the addition to the extent of 5% of the disputed purchases which is on lower side.

On the submission of ld. AR of the assessee, no addition can be made in respect of completed assessment on the date of search, the ld. CIT- DR for the revenue submits that he relied upon the decision of Hon’ble Allahabad High Court in Pr.CIT Vs Mehandipur Balaji 447 ITR 5617 (All) wherein the Hon’ble Court has taken a contrary view that even in completed assessment (unabated assessment), the addition can be made in absence of incriminating material.

In short rejoinder submission, the ld. AR of the assessee submits that the allegation of Assessing Officer that the purchase parties of Delta IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT Tex Trade Pvt. Ltd. has given statement that they were indulged in providing accommodation entry, yet the Assessing Officer who was the Assessing Officer in assessees own case as well as Delta Tex Trade Pvt. Ltd., he has not made any addition on account of bogus purchases if any, against Delta Tex Trade Pvt. Ltd. in the assessment order passed under Section 143(3) for A.Y. 2010-11 to 2014-15. Thus, on the basis of allegation which is related to third party, no addition in the case of assessee is sustainable.

We have considered the submissions of both the parties and have gone through the order of lower authorities. We have also deliberated on various case laws relied by the lower authorises as well as by le representatives. It is undisputed fact that search action 132 was carried out on the premises of assessee on 18/02/2014. On the date of search, the assessment of AY 2010-11 and 2011-12 was already completed under section 143(3). Assessment for AY 2010-11 was completed on 25.05.2012 under section 143(3) and for AY 2011-12 was completed on 24.01.2014 under section 143(3). No incriminating material or evidence was found for AY 2010-11 and 2011-12. The only incriminating evidence claimed the searched party relates to the inwards entry on the register maintained at the gate of factory for the period of August 2013 to February 2014 only. The assessing officer nowhere mentioned in the assessment orders passed under section IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT 153A/143(3) for AY 201-11 &2011-12 about any incriminating material found during search action on 18.02.2014. Discrepancy, if any in the inward register found at the gate for the period 2013 to 2014 only. Now it is settled position under law that no addition can be made in the unabated assessment under section 153A in absence of incriminating material as has been held by jurisdictional High Court in PCIT Vs Saumya Construction (P) limited (supra) and decisions of various High Court including Delhi High Court in CIT Vs Kabul Chawla (supra). Such position of law has been upheld by Hon’ble Apex Court in PCIT Vs Abhisar Buildwell P Limited in Civil Appeal No. 6580 of 2021 dated 24.04.2023. Thus, respectfully the decision of Hon’ble Apex Court in PCIT Vs Abhisar Buildwell P Limited, the addition in AY 2010- 11 & 2011-12 on account of alleged bogus purchases made in absence of incriminating material (in unabated assessment) is set aside. In the result, the grounds of appeal

In the result, the appeal of assessee for AY 2010-11 and 2011-12 are allowed and the appeal of the revenue for AY 2011-12 has become infructuous and dismissed.

Now adverting to the facts of AY 2012-13 to 2014-15. As recorded earlier the facts leading to the addition of alleged bogus purchases in all the years are common, the ld CIT(A) restricted the addition to the extent of 5% of such disputed purchases with similar view. The summarised facts consisting the return income, discloser made by the assessee, figures of addition made by assessing officer and sustained by ld CIT(A) is as under: AY Returned Disclosure Addition Addition by Addition income (Rs.) (Rs.) Proposed @ AO after sustained by 18% for setting of CIT(A) @ 5% Bogus Disclosure Purchase (153A) 2012-13 8,27,94,599 1,00,00,000 5,78,01,521 4,78,01,521 60,55,978 2013-14 10,32,53,131 1,00,00,000 6,55,39,131 5,55,39,131 82,05,314 2014-15 10,74,10,950 13,00,00,000 5,42,20,615 0 0 Total 15,64,25,585 2,90,07,107 33. Ground No.1 in all appeals for AY 2012-13 to 2014-15 relates the rejection of books of accounts and estimating addition @ 18%, which was reduced to 5% by ld CIT(A). Other Ground of appeal on merit, in all appeals, by assessee is against sustaining to the extent of 5% and by revenue in granting relief of 13% to the assessee. First we shall deal with this issue of rejection of books of account. The assessing officer rejected the books of account by taking view that material question 36 IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT raised against certain purchases is not satisfied. The books of assessee does not represent the reliable result. The explanation provided by the assessee regarding claim of genuinenity of purchases are not plausible. All the evidences lead to believe that the purchases are not genuine. The purchase register found at the time of search was doctored. Some purchase of six parties were not verified. The assessee procured several bills to inflate the expenses.

Before us, the ld AR for the assessee vehemently submitted that all the invoices were duly recorded in the books, payments were made through account payee cheques, stock was up to date. No documents during the search was found which was unaccounted. Further, search party has not pointed out any deficiency in the books of account at any IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT point of time and that books of assessee was rejected without any basis. Further, the Assessing Officer has not disputed the sale of assessee. The sale is not possible in absence of purchases. There is no allegation or finding of Assessing Officer that the assessee is beneficiary of accommodation entry provider. The assessee furnished comparative chart of similar situated companies who is engaged in similar business and proof before the Assessing Officer that the gross profit and the net profit shown by the assessee is highest, therefore, the rejection of books is not justified.

Section 145(3) of Income Tax Act lays down that assessing officer can proceed to make best judgment assessment under section 144 only on the event of not being satisfy with the correctness of books of accounts produced by the assessee. It is matter or common knowledge that no specific method to be adopted is prescribed in the Act. Thus, the assessing officer has a discretion to reject the books of accounts produced by the assessee by pointing out defects in the books. Yet the discretion cannot be exercised arbitrarily and has to be exercised in a judicious. We are in agreement with the contention of ld AR for the assessee that the assessing officer may proceed to reject the books of account if he is not satisfied about the correctness or completeness of the books of account or where method of accounting cash or mercantile not been followed regularly or the accounting standard IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT notified by the Central Government have not been regularly followed by the assessee. however, before rejecting he should record his satisfaction that he is not satisfied about the correctness and completeness of account. Similarly, the assessing officer should not rely on third party statement, which has not been cross verified cannot be the basis to disturb the correctness and completeness of account, there might be system of malice which the assessee account would be suffering. It is the duty of Assessing Officer to point out the incompleteness in the account. The Assessing Officer cannot reject the books of account solely on the basis of third party record. The system of accounting of the assessee was not questioned either by the search party or by assessing officer. All the particulars of purchase including vouchers were available nothing abnormal was found by search team. Opening and closing balances was tallied at the time of search. Proper stock register was maintained and was checked by search party. The sale of the assessee is not disputed by the assessing officer. It is not the case of search party or the assessing officer that the assessee failed to produce the purchase or sale register or the stock register at the time of search or such record was not produced by the assessee before assessing officer. There is no allegation that the quantitative telly of material purchase are not tallied. The assessee is consistently showing the GP @ 17% or around that in all three years. The books of assessee IT(SS)A 40 to 45, 115, 112 & 50/Srt./2021 Siddhi Vinayak Knots & Prints Pvt. Ltd. Vs DCIT in AY 2010-11 & 2011-12 was accepted in regular assessment and there is no material variation in the books result in current assessment years i.e in AY 2012-13, 2013-14 & 2014-15. The only allegation of the search party was that there was certain discrepancy in the inward register at the entry gate of the factory premises. The assessee filed numerous evidence in support of purchase, however, no specific defect or discrepancy was pointed out by the assessing officer. In our view mere certain discrepancy at the entry gate cannot be a basis of rejection of entire books results for three assessment years, when no other incriminating evidence was find at the time of search.

The Hon’ble Orrisa High Court in a recent decision in Crescent Co. Vs CIT (2022) 137 taxmann.com 408 (Orrisa) also held that mere non- issuance of sale memos could not have been a ground to reject entire account books. The Hon’ble Apex Court in leading case law in Kachwala Gems Vs JCIT (2007) (158 Taxman71 / 288 ITR 10-SC) held that it is well-settled that in a best judgment assessment, there is always a certain degree of guess work. No doubt, the authorities concerned should try to make an honest and fair estimate of the income even in a best judgment assessment, and should not act totally arbitrarily, but there is necessarily some amount of guess work involved in a best judgment assessment.

In the result, all the appeals of the assessee are allowed and appeals of revenue are dismissed. One copy of this order be kept in respective files. Order pronounced in the open court on 12th May, 2023.