TaxTMI 
TaxTMI 
2016 (7) TMI 836
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....s 'bogus' by the Revenue. 3.1 The facts of the case are that a survey u/s. 133A of the Act was conducted by ITO-14(3)(2), Mumbai on 13.2.2009 on the following group concerns: 1. Shri Rakeshkumar M Gupta, Prop. of M/s. Manoj Mills 2. Smt. Hema R. Gupta(wife of Shri Rakeshkumar Gupta), Prop. of M/s. Shree Ram Sales & Synthetics 3. Shri Mohit R. Gupta(son of Shri Rakeshkumar Gupta), Prop. of M/s. Astha Silk Industries Shri Rakeshkumar Gupta was examined u/s. 133A of the Act on 13/14.02.2009. He named five proprietary concerns of himself and his family members (along with the name of the respective proprietor), i.e., including three concerns afore-mentioned (which were stated by him as old and main concerns) subject to survey, which were admitted to be involved in providing accommodation bills of purchases for consideration, called 'commission'. The bills were issued as per the requirement of the parties, i.e., the 'purchasers' or the 'buyers'. Payments (against such purchases) or purchase bills were received by cheque, i.e., through the banking channel; the amount withdrawn and returned in cash to the 'buyer' in cash after deducting commission @ 1%. To cover such 'sales', bogus p....
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....d in the assessment order per the use by him of the words 'apparently nothing wrong was visible'. The A.O. per the remand report (dated 11.9.2013) reiterated his stand, relying on the findings in the assessment order/s. The statement as to: 'nothing wrong being visible' had been wrongly construed in-as-much as it meant just that, i.e., nothing wrong on the face of it. The absence of any purchase by the 'seller' firms, coupled with the statement on oath confirming no purchase and sale transactions having been actually made by the three firms, which were only providing accommodation entries, left one in no manner of any doubt as regards the non-genuineness of the purchases by the assessee-firm. When no sales had actually been made (by the seller firm), how could the assessee's purchases be genuine? That is, the sales (of the seller firms) being bogus stood proved, so that by necessary implication the assessee's purchases were also bogus. In view of the ld. CIT(A), the A.O. did not provide opportunity to the assessee to cross examine Shri Rakeshkumar M Gupta, despite specific request by the assessee. The statement/s u/s. 133A/131 of the Act could not be relied upon by the A.O., citing....
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....his family members had been made by the assessee at any stage. The ld. DR would, on the other hand, emphasize on the facts of the instant case being distinguishable in-as-much as the A.O. had given a categorical finding of nonreflection of the goods per the impugned purchases in the stock register. The entire such purchases were under the circumstances inadmissible, and the ld. CIT(A) had, by issuing a wrong finding of fact, inconsistent with and not borne out by the material on record, restricted the disallowance to 10% of that exigible. On a question by the Bench qua the assessee's sales being not doubted by the Revenue, he conceded to it being so, with the A.O. in fact pointing to the possibility of the goods having been purchased outside books, and to cover up which only the 'purchase bills' had been procured by the assessee. This, he would add was, however, without prejudice and in fact subject to his objection with regard to the stock register, availability of which constituted the principal reason for the theory of alternate purchases (from the grey market) prevailing with the tribunal and the hon'ble High Court. 5. We have heard the parties, and perused the material on re....
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....r: '1. The Ld. CIT(A) has erred in law as well as on fact by not sustaining addition u/s.69 after having accepted the finding in principle that the purchases were made from undisclosed/unverifiable/unidentifiable parties in the grey market by investing in cash and the purchases from the group concerns of Shri Rakesh Gupta & family were only accommodation entries and not actual purchases. 2. On the facts and circumstances of the case, the Ld.CIT(A) after having accepted the fact that the purchases made from or through Shri Rakeshkumar Gupta and his family members are bogus, erred in law in not confirming the addition at least to the extent of peak of the purchases made from such parties on account of bogus purchases made in cash from the open market out of unaccounted cash, in view of the decision held by the Hon'ble ITAT's C-Bench, Ahmedabad, in the case of Vijay Proteins Ltd. Vs. ACIT (58 ITD 428). 3. For the above mentioned reason and any other reasons that may be urged at the time of hearing, it is requested that the order of the CIT(A) be quashed and that of the Assessing Officer be restored.' This aspect has also not been dealt with or otherwise considered in the d....
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....n fact cancelling or neutralizing each other, with in fact the profit (on sales) being disclosed/offered as income. The cash received from the 'seller' is again brought in books on receipt (against corresponding book sales) from the buyer/s, paying them in cash. Such an arrangement, extremely unlikely, as it ostensibly provides no benefit to any party, with the assessee on the contrary incurring a loss (of 1%), which perhaps could be recouped on providing 'sale bills' to the customers. The same is nevertheless listed with a view to examine the transaction from all angels, so that in either case, section 69/69A is not attracted, save to the extent of one per cent of the purchases as booked and claimed. The ld. CIT(A), by accepting the assessee's contention of the goods being purchased from an alternate source/s (grey market), has in fact only taken the assessee's argument of no part of its sales being doubted by the Revenue to its logical conclusion. This is as sale of goods imply their purchase - the stated and the most obvious means of acquisition of goods by the assessee. In-as-much as the impugned purchases are not genuine - there being no actual purchase of goods to that extent....
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....on which cash is withdrawn by the bogus supplier firms from their respective bank accounts (against the assessee's payments). Assuming the availability of cash with the assessee (to that extent) on the same date/s, the same would then have to be matched with the purchase date/s. A difference between the date/s of purchase/s (of payment) and the availability of cash implies that the same would require being explained for source (of payment) in-as-much as there is no basis or reason to consider the purchase/s (from the grey market) as unpaid. Of course, in actual terms, it is only the peak such value, i.e., at any time during the relevant year, that alone would require being brought to tax u/s. 69/69A. The Revenue's case for addition thereunder would be to this extent valid, even as it would have to be preceded by and subject to the result of an exercise in its respect being undertaken to ascertain the deficiency, if any, for and toward which the addition could be made. Further, lest one argues of even this addition; the purchase cost of goods sold being a permissible deduction in computing business income, as being u/s. 69-C and not u/s. 69/69A, the same would be of little consequen....
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....), the exercise has to be with a purpose, as where it results in or gives rise to a financial gain. Why, the ostensible seller not making actual sales (to the assessee) also does so for a gain, stated at 1% of the bill amount. He may, further, not pay tax on his 'sales', while the assessee claims full deduction (in its' VAT returns) for the purchases made from it. This tax component may then be shared equally between the assessee and the 'seller'. The assessee's sales tax assessments could throw light on this aspect, so that where the ostensible seller has not been allowed full credit for his purchases, or the assessee not allowed credit for the tax not paid by the 'seller', i.e., by the sales-tax department, the tax component could well be the gain referred to earlier. The book results are another indicator. If the assessee's trading results are not in conformity with that of others in the trade (i.e., whose accounts are not similarly inflicted), this may be a serious pointer to the assessee's purchases (as booked and claimed), being inflated to that extent, i.e., to the extent of the lower (than normative) trading profit. This, then, would form and constitute evidence or the mat....
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....ook) trading profit. The source of payment for the purchases being the assessee's books of account, no case for addition qua the unexplained source (of purchases) is made out, except to the extent of 1% retained (in cash) by the provider of accommodation bills on transmitting the purchase value - withdrawn in cash, back to the assessee, and which shall be u/s. 69C, proscribing, per proviso thereto, deduction in its' respect, so that an addition to that extent shall, therefore, obtain. The assessee, however, has not explained its' behavior, much less satisfactorily and/or with reference to any material, at any stage. Why should it purchase goods, otherwise available, from the grey market, incurring a cost, if it is not accompanied by a gain, particularly considering its' sales are actual and duly accounted? The inference of the assessee, a businessman, standing to gain by such a circuitous exercise, entailing risk of transfer of unaccounted cash on a regular basis, is unmistakable and, besides, supported by statutory presumptions under sections 102 and 114 (Illustration (g)) of the Evidence Act. To suggest that the assessee's books of account warrant an unqualified approval, or can....
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....for the addition that may ensue u/s.69/69A (on account of unexplained stock). It is this document (stock register), profiling the purchases and sales date-wise, that is relevant. The stock register would reflect the stock on a day to day basis, though an addition, if any, shall arise only for the peak such capital, where unexplained. In this regard, we are conscious that it is the actual purchase, and not the book purchases (backed only by paper bills) that is material, so that a stock register culled out from the assessee's books of account may not represent the true picture. But, then, it is only the assessee, whose case rests on alternate purchases (for the same value), who is to furnish the materials evidencing or toward the actual state of affairs. It is for this reason that we have, taking a broad and holistic view of the matter, required the AO to assess the capital deployed in the inventory of goods on the basis of the stock held (at different times during the year), taking guidance from and on the basis of the (book) stock register - which thus becomes a surrogate measure of the stock so held and, further, determine the addition u/s. 69/69A only to the extent it is not exp....