ITO 14(2)(3), MUMBAI vs. ASHOK TALREJA (HUF), MUMBAI

6237+5-Ashok Talreja investment in purchase.During the assessment proceedings,the AO found that a survey u/s 133-A of the Act was carried out on 13/14- 2-2009 in case of Rakesh Kumar Gupta (RKG),one of the suppliers of goods to the assessee-HUF.In his statement recorded during the course of survey,RKG stated that he was providing accommodation sales bills for purchases in the name of various proprietary concerns namely M/s Manoj Mills, M/s Astha Silk Industries,M/s.Sainath Textiles,Devvani industries and M/s Shree Ram Sales & Synthetics,belonging to him and his family members.It was found that the assessee had purchased goods worth Rs.94.21 lakhs from the RKG Group.The AO asked the assessee to substantiate the genuineness of the purchases made from RKG Group and to explain as to why the disputed amount should not be added to its total income.The assessee stated that it had purchased goods from the Gupta Group of concerns, that sales were made throughout India on a regular basis relatable to the alleged purchases, that the payment for these purchases were made by Account payee cheques, if the purchases were to be disallowed GP would work out to the ratio of 17.33%.The assessee produced the Xerox copies of the purchase bills along with the day to day item movement of material (quality-wise) purchased from the Gupta Group of entities.However,the AO was not satisfied with the reply and referring to statement of RKG held that the assessee had obtained accommodation bills for an amount of Rs.94,21,268/- to inflate/accommodate its purchases.The assessee also produced evidences to show payment for purchases made by account payee cheques.In the course of the assessment proceedings,the assessee further produced the quantitative statements showing tally of purchases and sales with books of accounts in order to establish the genuineness of purchases. 3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA). Before him,it was contended that the AO had not pointed out any discrepancies in the detailed quantitative statements furnished alongwith the copies of sales/purchases bills, that he had not pointed out any infirmities in the books of accounts or the quantitative statements filed during assessments, that merely on the statement made by a person purchases could not be termed non-genuine,that the AO had not given the assessee opportunity to cross examine the parties/concerns,copies of the bank statement were furnished to the AO evidencing payment by Account payee cheques, that the AO had not rejected the sales figures sown in the books of account, that it was maintaining purchase register, sales register, stock register.The assessee submitted comparative statement of sales, gross profit and net profit before the FAA. He called for a remand report from the AO.After considering the available material,he held that the AO had relied upon the statements of RKG to make additions in the hands of the purchaser, that he had not provided the opportunity of cross examination of RKG inspite of specific request made by it,that the assessee had submitted the day to day movement of material alongwith the corresponding sales/inventory of stock, that the books of account of the assessee were audited,there was no adverse comment by the auditors about completeness of the books of account or about the quantitative details, that if the sales were treated as genuine corresponding purchase cannot be considered bogus,that addition could be made only to the extent of some percentage. Finally,he held that the cause of justice would be served by making addition @10% of such purchase in order to fill in gap of difference of GP in recording the said purchase as well to plug any leakage of revenue.He upheld the addition of Rs.9.42 lakhs and deleted the addition of Rs.84.79 lakhs. 4.Before us,the Departmental Representative (DR) supported the order of the AO.Authorised Representative (AR) stated that assessee had produced all the necessary documents before the AO, that copies of purchase bills and bank statement, indicating the payment through banking

The Survey operation u/s. 133A was conducted on the premises of Shri Rakeshkumar M. Gupta, Proprietor of M/s. Manoj Mills, Shri Mohit R. Gupta Prop. of M/s. Astha Silk Industries and Smt. Hema R. Gupta, Prop. of M/s. Shree Ram Sales & Synthetics. In the course of the survey operation, it came to the notice of the survey party that the aforestated persons were engaged exclusively in the activity of issuing accommodation bills on which they received commission at the rate of 1%. It was also noticed that assessee is also one of the persons who had made purchases from the aforementioned parties. The assessee was asked to justify his purchases from the aforementioned parties. 2.1. The assessee submitted bills with delivery challan, the evidence of making payment through account payee cheque. The assessee also filed monthly quantitative stock reconciliation. The assessee was further asked to explain why the bogus purchases made from the aforementioned parties be not added to the income. It was explained by the assessee that the statements given by Shri Rakeshkumar M. Gupta and his family members are not correct. It was further explained that purchases and sales are duly reflected in the books of account of the assessee. It was also brought to the notice of the AO that the Affidavit of Shri Rakeshkumar M. Gupta and his family members who have denied in the said affidavit about the activity of issuance of bogus bills. The explanation of the assessee did not find any favour from the AO who was of the opinion that the assessee has availed bogus bills amounting to Rs. 10,59,265/-. The AO went on to treat the purchases amounting to Rs. 10,59,265 from the said Shri Rakeshkumar M. Gupta and his family members as bogus and accordingly added the same to the returned income of the assessee and completed the assessment.

Aggrieved by this, the assessee carried the matter before the Ld. CIT(A). Before the Ld. CIT(A), the assessee reiterated his submissions. After considering the facts and the submissions made by the assessee, the Ld. CIT(A) came to the conclusion that an adhoc addition of Rs. 1,35,000/- which is about 12.5% of the purchase in question would meet the ends of justice. The Ld. CIT(A) restricted the addition to Rs. 1,35,000/-.

Aggrieved by this, the assessee is before us.

The Ld. Counsel for the assessee reiterated that the AO has grossly erred in treating the purchases as bogus purchase. It is the say of the Ld. Counsel that the Ld. CIT(A) further erred in making an adhoc disallowance which has no basis.

Per contra, the Ld. Departmental Representative relied upon the findings of the AO.

We have carefully perused the orders of the lower authorities. We find that the entire addition has been made on the statement of one Shri Rakeshkumar M. Gupta and his family members. It is the allegation of the Revenue that the said family members were issuing accommodation bills to the assessee. The AO accordingly went on to treat the entire purchases as bogus purchases. However, we find that the sales made by the assessee have been accepted. It is an elementary rule of accountancy as well as taxation laws that profit from business cannot be ascertained without deducting cost of purchase from sales, otherwise it could amount to levy of income-tax on gross receipts or on sales. We further find that the AO has not commented upon the retraction made by Shri Rakeshkumar M. Gupta and his family members. We noticed that the said retraction was made by filing an affidavit. Nothing has been brought on record except for the statement of Shri Rakeshkumar M. Gupta which could suggest that the purchases made by the assessee are bogus. 7.1. Considering the entire facts in totality and keeping in mind that no adverse inference has been drawn so far as sales are concerned, we do not find any reason for making any disallowance on this account. The adhoc addition sustained by the Ld. CIT(A) is also without any basis and the same is deleted.”