TaxTMI 
TaxTMI 
2010 (7) TMI 454
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....taken by the assessee at the end of the previous year." From the above observations, the Assessing Officer inferred that the assessee is not maintaining proper stock details. The Assessing Officer has not furnished quantitative details before the Assessing Officer or has not produced the stock register containing such details. 'The expenditure on account of job charges, wages etc. have been debited to trading account but it is not verifiable to see as to what charges have been paid in respect of any particular item manufactured by the assessee . The Assessing Officer further required the assessee to give the details of basis of valuation of closing stock . The information was not filed. In the absence of not providing such information, the Assessing Officer held that the valuation of closing stock is not verifiable and the same has been taken on estimate basis. 2.1 The assessee showed the purchases of Rs. 1,06,39,642 during the year under reference. Out of above, purchases to the extent of Rs. 38,81,984 have been made from the following parties : Sl.No. Name of parties from whom purchases Purchase Amount 1. Ruby Impex 2,36,004 2. Sevorite Exports 5,....
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....been made at competitive and prevailing market price. He has given the PAN of the parties from whom purchases have been made. Therefore, it was stated that books of account be not rejected. The Assessing Officer after considering the submissions rejected the books of account and for drawing the conclusion that books of account can be rejected, the Assessing Officer relied upon following case laws : (a) The onus was upon the assessee to prove the genuineness of the purchases. This view is supported by the decision of Hon'ble Rajasthan High Court in the case of Indian Woolen Carpet Factory v. ITAT [2002] 125 Taxman 763 and M.P. High Court in the case of VISP (P.) Ltd. v. CIT [2004] 136 Taxman 482. (b) In CIT v. Precision Finance (P.) Ltd. [1994] 208 ITR 465 (Cal.), the Hon'ble Calcutta High Court held that payment made by account payee cheque is not sacrosanct and it would not make an otherwise non-genuine transaction genuine. (c) In CIT v. Golcha (P.) Ltd. [1997] 227 ITR 391 (Raj.), it was held that the genuineness of transactions could be decided on the basis of primary facts on records. The Department is not required to lead a clinching evidence to prove th....
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....iers. (c) If the investigation done by the department leads to doubt regarding the genuineness of the purchases it is incumbent on the assessee to produce the parties along with necessary documents to establish the genuineness of the transaction. (d) Payment by account payee cheque is not sacrosanct. The Assessing Officer applied the gross profit rate of 25 per cent as against 11.88 per cent and accordingly made the trading addition of Rs. 17,38,830. 3. Before the ld. CIT(A), it was submitted that the assessee had furnished the copies of purchase bills , RST/CST No. , date and signature of the supplier. The assessee has received physical delivery of the goods. The payments have been made through account payee cheques. The assessee has discharged its onus as a purchaser of goods. The ld. AR relied upon the following case laws : 1. Dy. CIT v. Adinath Industries [2001] 252 ITR 476 (Guj.) 2. Om Metals & Minerals Ltd. 32 TW 54 (ITAT - Jp.) 3. Radha Mohan Agrwal 30 TW 190 (ITAT - Jp.) 4. CIT v. Crabo Industrial Holdings Ltd. [2001] 116 Taxman 159 (Cal.) 5. Sagarmal Daga & Co. v. ITO 32 TW 40 6. Asstt. CIT v. Shri Kishan Malpani 32 TW 123 7.....
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.... 2,55,062 10. Bhawana Gems Nil 1,52,680 11. Muskan Gems Nil 99,500 12. Shri Creations 3,34,220 3,34,220 13. Nisha Exports 75,359 75,359 14. Jaipur International 5,62,600 5,62,600 4.1 If the party is providing any bogus bills then it will remit back the cash to the assessee. The actual purchases are being made from other parties and the other parties will not give the goods without receiving the sale proceeds. In case the parties which have actually provided the goods to the assessee on credit then the assessee should have been able to verify such credit purchases. It is not the case of the assessee before any of the lower authorities that such credit purchases were made from X party but were shown to have been purchased from the party included in the list of 14 parties. Hence at the end of the year, there are credit balance which are not verifiable. The ITAT Jaipur Bench in the case of Gems Paradise [IT Appeal No. 700 (Jp.) of 2009, dated 18-12-2009] had occasion to consider the applicability of section 145(3) of the Act. In a case where purchases are not verifiable, the Tribunal vide paras 5 and 6 of its order has ob....
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....s, which can be examined in view of past result of the assessee and in absence of that few comparable instances having similar facts and circumstances. The decision relied upon by the Assessing Officer for justifying the addition made by applying 25 per cent of unverified purchases over and above the declared g.p., are not applicable in the present case as they are having distinguishable facts. In the case of Kachwala Gems v. Jt. CIT (supra), the concerns from whom assessee claimed to have purchased the goods had denied the selling of goods to the assessee. In the case of CIT v. Precision Finance Ltd. (supra) the issue was relating to genuineness of the cash credit to establish the same different yardstick are required. In the case of Sanjay Oil Cake v. CIT (supra) a specific finding was given by the Assessing Officer that purchases were made from the alleged bogus suppliers at higher rate as compared to other parties. In the case of Vijay Proteins Ltd. (supra) after examining the bank account it was established that the cheques issued to various parties were deposited in one of the accounts which was found to be owned by the assessee himself. If we examine the past result of the a....
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.... High Court held that, the onus lies upon the assessee to prove all the expenses including purchases to the satisfaction of the Assessing Officer. 6. The Hon'ble Apex Court in the case of Sreelekha Benerjee v. CIT [1963] 49 ITR 112 had an occasion to consider as to whether an entry on conversion of high denomination notes can be considered an income after considering the explanation of the assessee. It was necessary for the assessee to establish, if asked, to explain the source of money and to prove that it does not bear the nature of income. The department at this stage is not required to prove anything. It can ask the assessee to bring any books of account or other documents or evidence pertinent to the explanation, if one is furnished and examine the evidence and explanation. In case of high denomination notes, where the business and the state of accounts and dealings of the assessee justify a reasonable inference that he might have for convenience kept the whole or a part of a particular sum of high denomination notes, the assessee prima facie discharge his initial burden when he proves the balance and that it might reasonable have been kept in high denomination notes. Befor....
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....ble Apex Court in the case of Sumati Dayal (supra) had an occasion to consider as to whether the Settlement Commission has rightly inferred that amount shown as winnings from horse races is contrived and not genuine. For such proposition the Settlement Commission noticed that no drawings are available either in the day of winning or preceding days to purchase jackpot combination tickets. It was noticed that assessee won a number of jackpot in three or four reasons not merely at one place but at three different centres namely Madras, Bangalore and Hyderabad and such winnings are prima facie will and contrary to statistical theories and experience of the frequencies and probabilities considering the conclusion drawn by Settlement Commission on the basis of facts as above, the Hon'ble Apex Court observed :- "In our opinion the majority opinion after considering the surrounding circumstances and applying the test of human probabilities has rightly concluded that the claim about the amount being winnings from races is not genuine. It cannot be said that explanation offered by the assessee in respect of the said amounts has been rejected unreasonably and that finding that the said amo....
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.... of deduction under section 80HHC. Hence on the basis of surrounding circumstances and considering the decision of Hon'ble Apex Court in the case of CIT v. P. Mohanakala [2007] 291 ITR 278, the Tribunal held that revenue has rightly taxed the receipt. 6.8 The Hon'ble Punj. & Har. High Court in the case of Som Nath Maini v.CIT [2008] 306 ITR 414 had an occasion to consider as to whether claim of short-term capital gain on sale of shares has been rightly disallowed against set off of short-term capital gain on sale of gold jewellery. Shares were purchased at Rs 2.06 to Rs. 3.1 per share and sold them within a short span of six-seven months at the rate varying from Rs. 47.75 paise to Rs. 55. Before the Hon'ble High Court the contention of the counsel was as under : "Learned Counsel for the assessee submitted that the view taken by the Tribunal is perverse. The assessee having discharged the burden of proving the transaction of sale and purchase of shares to be genuine, burden of proving that the said transactions were not genuine, was on the department and in the absence of any material on record, holding the transaction to be not genuine, was not permissible". 6.9 The Hon'bl....
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....es made by the assessee were genuine or not or to whether the assessee has inflated those purchases or not. It is also not material to consider whether the GRs from ST Department were verified or not, so, the CIT(A) on considering these points was not justified in deleting the impugned addition without discussing as to whether the liability of trade creditors shown by the assessee in the absence of furnishing complete address of trade creditors/consignors and the payment vouchers was genuine or not." 6.11 The Hon'ble Delhi High Court in the case of La Medica (supra) held as under : "Though essentially the conclusions of the Tribunal have the colour of factual findings, still the Tribunal has not taken into consideration relevant materials and has also acted on irrelevant materials. The fact that the alleged sellers have been found to be persons with no means to effect purchases or to carry on business is a factor which does not appear to have been considered by the Tribunal in its proper perspective. Materials on record clearly establish that C was a petty employee of a concern of which SP was a partner. In fact SP was a partner of M, one of the sister-concerns of the assesse....
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....re supplier admitted to have not supplied the goods. The affidavits of such suppliers were filed at the fag end of the limitation period in which such suppliers retracted the statement. No request for cross examination of suppliers was made by assessee. The assessee failed to produce the broker as according to assessee such broker arranged purchases. The assessee has not only derived the benefit of circulation of large money for purchases of such unaccounted material from open market. The assessee does not want to tell the truth but simply wants to have total deletion on technical & legal ground which have no valid base whatsoever. The Bench relied on the decision in the case of Vijay Proteins Ltd. v. Asstt. CIT [1996] 58 ITD 428 (Ahd.). 6.13 The Hon'ble Punj. & Har. High Court in the case of Vikas W.S.P. Ltd . v. CIT [2008] 307 ITR 304 held as under :- "Scope of best judgment assessment by rejecting books of account is different from the scope of assessment by not accepting any particular entry. No doubt, during the assessment, burden is in the department to show taxability of income but for discharging that burden, it as not necessary that the department leads evidence. On ....
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....ved that it cannot interfere with the finding of fact as the issue of bogus purchases is a finding of fact. The facts as noticed by theHon'ble Apex Court are as under:- : "Genuineness of purchase of about Rs. 42 lakhs were not proved. G.P. rate during the year under consideration was 13.49 per cent as it was not a match the result declared in earlier year. M/s.GemPlazashowed a rate of 35 per cent on domestic sales while M/s. Dhadda Exports showed a rate of 43.8 per cent in export sales (without considering the value of export incentive). The Assessing Officer applied G.P. rate of 40 per cent which was reduced to 35 per cent by CIT(A) and the Tribunal upheld the g.p. rate of 30 per cent". 6.17 The same was upheld by the Hon'ble Rajasthan High Court and the Hon'ble Apex Court upheld the decision of Hon'ble Rajasthan High Court after observing as under :- "It is well-settled that in best judgment assessment there is always a certain degree of guesswork. No doubt the authorities concerned should try to make an honest and fair estimate of the income even in best judgment assessment and should not act arbitrarily, but there is some amount of guesswork involved in a best judgment....
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....es as to whether amount was given back to the assessee. Hence disallowance under section 40A(3) was deleted. In this case the assessee showed abnormal profit. The facts of this case are different as the parties were produced and their statements were recorded. Moreover the issue was in respect of disallowance under section 40A(3). 6.22 The Hon'ble Delhi High Court in the case of CIT v. J.M.D. Computers & Communications (P.) Ltd. [2009] 180 Taxman 485 had an occasion to consider as to whether a substantial question of law arises. In this case investigation wing collected material to show that bogus bills were being issued in favour of assessee but such information was not available with Assessing Officer statement of the person on the basis of which addition was made was not put to the assessee. Hence it was held that no substantial question of law arises. This decision is not relevant to the issue before us. 6.23 The Tribunal in the case of Asstt. CIT v. Amar Mining Co. [2009] 121 ITD 273 (Ahd.)(TM) held that ld. CIT(A) was not justified in deleting disallowance on account of bogus purchases on the ground that production/sale could not have been possible in absence of purchas....