TaxTMI 
TaxTMI 
2016 (5) TMI 104
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....ng notices u/s 133(6) of the Act to certain parties. The AO also conducted enquiries by deputing his inspector. The Inspector reported that the two parties named M/s Royal Exports and M/s Trichipuram Trading Pvt Ltd (TTPL) were not available at the given addresses. Since the assessee also did not furnish proper explanations, the AO disallowed the entire amount of purchases made from the above said two parties. 4. In the appellate proceedings, the assessee submitted various details and hence the Ld CIT(A) called for a remand report from the AO. The assessing officer was satisfied with the documents filed/enquires made in respect of Royal Exports and accordingly the Ld CIT(A) deleted the addition relating to purchases made from M/s Royal Exports. With regard to the purchases made from TTPL, the assessing officer stood by the assessment order and hence the Ld CIT(A) also confirmed the addition. 5. The submissions made by the assessee before Ld CIT(A) with regard to the purchases made from TTPL have been summarised as under by Ld CIT(A):- "4.2.2 With regard to the addition on account of bogus purchases from TTPL, it is submitted that the purchase made from the said party are record....
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....of its contentions:- (a) Diagnostics Vs. CIT (334 ITR 111)(Cal) (b) ITO Vs. Kachwala Gems (122 TTJ (Jp) 854) (c) Rajesh Soni Vs. ACIT (100 TTJ (Ahd.) 892) (d) Shubh Laxmi Exports Vs. ITO (10 DTR 281 (Jp)) It may be noted here that the AO had observed that the purchase amount may also be disallowable u/s 40A(3) of the Act. The assesseee contended that the disallowances cannot be made on presumption basis u/s 40A(3) of the Act and in this regard, it placed reliance on the decision rendered by the Tribunal in the case of Fee India Assurance Services Ltd (no citation available). Even though the ld CIT(A) has not rendered his decision on this alternative view of the AO, yet we find merit in the submissions of the assessee that there cannot be any disallowance u/s 40A(3) of the Act on presumption basis, as section 40A(3) is a legal fiction and it should be interpreted strictly. 7. It was further submitted that the entire purchases made from TTPL was available as Closing stock as at the year end and they were exported only in the succeeding year. Accordingly it was contended that the purchases, if considered to be bogus, then the corresponding amount should be reduced from the c....
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....f human probabilities. It is common knowledge that transactions of accommodation entries take place in secret and direct evidence about such transactions would be rarely available. In view of this position, the filing of mere confirmation, ledger account, invoices etc. of TTPL will be of no help to the appellant in the face of substantial circumstantial evidence led by the A.O in the course of assessment as well as remand proceedings clearly showing that these purchases from TTPL were non-genuine. I am in agreement with the findings arrived at by the A.O in his remand report. Indeed, it defies all logic and common sense that cut and polished diamonds worth Rs. 7.56 crores were given by TTPL to the appellant/Shri Shaileshbhai K Dungrani on credit and approval basis when the latter does not even know the former. The A.O is right in arriving at the conclusion that the existence of Shri Raju Patel (broker) and of TTPL as a genuine commercial concern has not been established at all. In other words, the source of the goods has not been satisfactorily established." The Ld CIT(A) has also rejected the claim of re-import of goods and returning of the same by the assessee to TTPL. With rega....
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....officer in respect of TTPL should not be used against the assessee, since the assessee could not be held to be responsible for the same. The relevant submissions made in this regard are extracted below:- a. The mention of incorrect PAN on the invoices does not convert the genuine transactions into a non genuine one. It is to be appreciated that M/s TTPL was not known to the appellant and the transaction was effected through a broker, who has in the statement given during the remand proceedings accepted the transaction. b. On the observation of the A.O as regards non availability of M/s TTPL at the given address we would like to state that M/s TTPL had a valid sales tax registration at the time of the transaction. The Sales Tax registration to M/s TTPL must have been granted after duly verifying the credentials of the Company. The purchase transaction with M/s TTPL happened in September 2008. No adverse view can be taken against the appellant if the party is not available after a lapse of more than two years at the time of assessment. c. The non-filing of annual returns before the ROC, Mumbai by M/s TTPL exposes it to legal proceedings under the Company Law. It however does no....
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....ods will not prefer to pay the money and bear the losses when the goods were not according to his requirements. The Ld A.R submitted that the Ld CIT(A) has discussed about the surrounding circumstances without considering the peculiar facts and further taken an adverse view by examining the transactions with TTPL only, i.e., the Ld CIT(A) did not examine the evidences furnished by the assessee about the export of those goods and reimport of them. 11. On the contrary, the Ld D.R submitted that the burden to prove an expenditure claimed by the assessee always lies upon the assessee. He submitted that the assessee did not co-operate with the AO during the course of assessment proceedings, but furnished relevant details only before Ld CIT(A). He further submitted that the bills given by TTPL do not contain the description and quality of diamonds supplied by them and hence the Ld CIT(A) was justified in holding that the assessee could not prove that the said purchases were available as stock at the year end and then exported. He submitted that the tax authorities have rightly relied upon the decision of Hon'ble Supreme Court rendered in the case of Sumati Dayal (supra), where in it was....
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....he director of TTPL in the Sales tax proceedings, without examining the director independently under Income tax proceedings and further without providing an opportunity of cross examination. In this regard, the Ld A.R drew support from the decision rendered by Hon'ble Supreme Court in the case of Andaman Timber Industries Vs. CCE (Appeal No.4226 of 2006 dated 02-09-2015). 13. We have heard rival contentions and perused the material available on record. A careful perusal of the orders passed by the tax authorities show that they have not accepted the claim of purchases of diamonds from TTPL on the reasoning that the said transaction defies the human probabilities. The tax authorities have, accordingly, rejected the various evidences furnished by the assessee in support of claim of purchases. We also notice that the tax authorities have arrived at such a conclusion only by considering the purchase transaction and did not prefer to examine the claim of export of same goods in the succeeding year and re-import of the same goods thereafter. In our view, the surrounding circumstances and human probabilities attached to a transaction should be examined by considering the transactions as ....
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....k register and further without disproving the said claim by bringing any other credible material. If closing stock available with the assessee was not accepted as the materials purchased from TTPL, then the tax authorities should have pointed out that the closing stock represented some other purchases. The assessee has also shown that the said goods were exported subsequently. It is pertinent to note that the tax authorities have ignored the claim of export, since they have doubted the claim of purchases from TTPL. There should not be any doubt that a person cannot sell any goods without purchasing the same. In the instant case, the claim of sales in the succeeding year has not been doubted with or disproved. As a matter of fact, the sales cannot be disproved, since the assessee has exported the goods by obtaining clearances from RBI and Customs authorities. We have noticed that the assessing officer has suspected the correspondences exchanged between the assessee and the client, who imported the goods from the assessee, under the impression that those papers should have been fabricated and accordingly sent them for examination to CFSL, Hyderabad. According to Ld A.R, the assessing....
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.... TTPL was available as closing stock as at the year end and they were exported in the succeeding years. The fact that the assessee has exported the goods was not controverted. It is a known fact that the claim of export cannot be considered to be not-genuine, since the export cannot take place without clearance from Customs Authorities, another arm of Government of India. Hence, the claim of export has to be necessarily accepted on the basis of relevant documents. In the instant case also, the assessee has furnished the copies of purchase invoices, confirmation letters, copies of ledger accounts, copies of export bills, the details of re-import of the same and details of payment of customs duty on re-import, the details of purchase return. All these chronological events have not been disproved by the tax authorities. 17. The concept of agency and sales/purchases through agents are commonly prevailing trade practices. The assessee has claimed to have made purchases through an agent named Shri Shaileshbhai K Dungrani, who has claimed to have purchased goods through another broker, who was the agent of supplier company. It is quite prevalent practice that the principal would place re....