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2016 (10) TMI 318
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....e circumstances of the case and in law, the learned CIT [A] erred in directing the AO to accept the G.P. @3% and deleting the balance addition from the total of Rs. 95,25,636/- made by the AO on account of non-genuine and unproved purchase from the parties declared as "Hawala Operator" by the Sales Tax Department of Maharastra State. 2. On the facts and in the circumstances of the case and in law, the learned CIT [A] ought to have understood that it is the responsibility of the assessee to prove its purchase and the Ld. CIT(A) should have held that in the absence of that, the entire unsubstantial purchase cannot be allowed as deduction while computing the total income of the assessee. 3. On the facts and in the circumstances of the case and in law, the learned CIT [A] erred in adopting 3% of Rs. 95,25,636/- as the income escaped tax without explaining how she arrived at this 3% as income escaped tax. 4. The appellate prays that the order of the CIT(A) be set aside and matter may be decided according to law. The appellant craves leaves to amend or alter any ground or add a new ground which may be necessary." 3. The brief facts of the case are that the a....
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.... Leo Impex 27230614753V AOXPK1621F 2010-11 170914 19 Mahaveer Sales Corporation 27090707756V AMMPM3778R 2010-11 494816 20 Naveep Trading Corpn. 27540616280V AAAPV4487A 2010-11 397280 Total 95,25,636 It was observed by the A.O. that the Sales Tax Department conducted independent enquiries in each of the hawala parties and it was conclusively proved that these parties were engaged in the business of providing accommodation entries only. The sales Tax Department had provided several documents with respect to nine parties from whom assessee had made purchases and the list of documents are as under:- "1. Statement dated 28-03-2010 & Affidavit dated 10-06-2010 of Shri Nitin R Padvekar partner of M/s Nageshwer Enterprises. 2. Statement dated 17-08-2011 & affidavit dated 12-08-2011 of Shri Sanjay Jaysukbal Doshi partner of M/s National Trading Company, M/s Leo Impex, M/s Amar Enterprises and Nageshwar Enterprises. 3. Statement dated 15-07-2011 & Affidavit dated 16-07-2011 of Shri Sanjay Manharlal Solanki Prop Bhavani Trade Impex. 4. Statement & affidavit dat....
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....ppliers' premises. The assessee was not having any godown. The transporter prepares bills in assessee's name and shifts the material to the customers. The goods are weighed either at the point of origin or in transit for which weighment slips are obtained at approved weigh bridge. This weigh slips form part of delivery documents and ultimately goods are delivered to the customers. The details of the suppliers whereby the Sales Tax department considered them as hawala dealers are as under:- Sr Name amount remarks Remarks Remarks 1 Nageshwar nterprises 4,93,272/- Statement filed with Sales Tax Department Old supplier 2 National Company Trading 6,62,558/- Statement filed with Sales Tax Department Old supplier 3 Shubhlaxmi Sales Corpn. 4,01,024/- Statement filed with Sales Tax Department New supplier Confirmation already filed during assessment proceedings!. 4 Bhavani Trade Impex 2,99,853/- Statement filed with Sales Tax Department New supplier - 5 SS Enterprises 6,78,912/- Old supplier 6 Darshan Sales Corporation 3,....
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....tement or affidavits to the Sales Tax Departments and total purchases from such parties amounts to Rs. 34,01,893/- as against addition of Rs. 95,25,636/-. It was submitted that the AO has not gathered any material directly but has relied upon the information received from Sales Tax Department and also website of Maharashtra Government. It was submitted that the assessee was never asked to provide the whereabouts of the parties or produce the parties for verification and thereby prove the genuineness of the transactions. It was submitted that while making the addition, the A.O. did not consider the various details filed in the form of quantitative reconciliation and one to one identification of sale and purchases produced by the assessee, and the transport receipts and weighment slips filed before the AO. The payments to these parties were made through cheques. The assessee submitted that the A.O. has erred in making the addition of Rs. 95,25,636/- by treating the entire purchases as bogus although the sale was genuine. The A.O. has not made any enquiry as well did not consider the quantitative reconciliation and the one to one identification of sale and purchase whereby the stock w....
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....tion of the A.O. to make addition on account of bogus purchases is to be sustained, then it can only be to the extent of Rs. 34,01,893/- on account of alleged bogus purchases from these nine parties with respect to the dealers who have filed the affidavit/statement. The assessee submitted that as per the assessment order, the A.O. had sent notices u/s 133(6) of the Act to twenty dealers who were hawala dealers and the notices were returned undelivered. The assessee submitted that the assessee want to buy peace and do not want to litigate the matter therefore requested to make lumpsum addition on account of alleged bogus purchases by adopting GP ratio on the said bogus purchases. In the support, the assessee relied on the following decisions :- 1. CIT v. leaders Valves Private Limited reported in 258 ITR 435(P & H HC) 2. J.R.Solvent Industries Private Limited v. ACIT 68 ITD 65(TM) , ITAT Chandigarh 3. ITO v. Sunsteel, 92 TTJ 1126, ITAT Ahmadabad Bench 4. Vijay Proteins Ltd. v. ACIT, 58 ITD 428, ITAT Ahmadabad 5. Ramesh verma v. ITO, ITA No. 541/Ahd/2007, ITAT Ahmadabad 6. Shri Simit P. Sheth v. ITO, ITA 3238 & 3293/Ahd/2009, ITAT Ahmadabad Bench. Thus, it was pr....
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....its contentions as the said amount is duly reflected in books of accounts of the assessee. He relied upon the decision of Hon'ble Allahabad High Court in the case of Sri Ganesh Rice Mills v. CIT (2007) 294 ITR 316 (All. HC). 8. On the other hand, the ld. Counsel for the assessee submitted that the assessee has made purchases from these 20 parties against which proper quantitative reconciliation of sale and purchase was made whereby stock was duly reconciled. Complete details of the purchases were furnished before the A.O. whereby quantitative reconciliation of sales and corresponding purchases were also submitted to reconcile stock. The revenue has accepted sales as genuine but doubted purchases. The ld. Counsel submitted that in the earlier years, the department has accepted the assessee's books of account and GP ratio. GP ratio of five years were produced before the authorities below and GP ratio of the current year under appeal is in line with GP ratio of earlier years. Movement of goods was also not in dispute with the Revenue. Payments have been made by cheques for said purchases. These details were submitted before the A.O. as well as the ld. CIT(A). The A.O. has not made ....
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....es have been returned back by the postal authorities with the remark "not known". The parties were not available at the given address and are untraceable. The assessee also expressed his inability to supply new addresses of these twenty parties nor was able to produce these parties before the authorities below on being called upon to produce these parties before the Revenue. The assessee submitted that the assessee is not in contact with these parties and the dealings were made through the brokers and the assessee is not aware of the whereabouts of these parties. The primary onus was on the assessee to prove the genuineness of the transactions entered into its books of accounts. However, the assessee duly produced the details of quantitative reconciliation of sales and purchases whereby the stock tallied. The assessee is not maintaining any inventory as it is stated that after receipt of customer orders, the goods were sourced and hence no godown is maintained by the assessee. The books of account were not rejected by the A.O. while the purchases were doubted and addition of Rs. 95,25,636/- has been made by the AO to the returned income u/s 69C of the Act. In the preceding year, th....
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....he statement / affidavits of these 9 bogus dealers. We order accordingly. We would also like to place reliance on the recent decision of the Tribunal pronounced by a division bench consisting of both of us on 25-07-2016 recently wherein under similar circumstances, same view was taken by us in the case of Reliance Cables and Conductors Private Limited v. ITO in ITA no 3311/Mum/2012 for assessment year 2007-08 vide orders dated 25-07-2016, whereby it was held by the Tribunal as under : "10. We have considered the rival contentions and perused the material placed on record including the Tribunal orders in ITA No. 6457/Mum/2012 & ITA 6611/Mum/2012 dated 17th February, 2016 in the case of sister concern of the assessee namely M/s Prakash Metals which was also covered by survey action on 12-12-2007. The Tribunal in ITA No. 6457/Mum/2012 & ITA 6611/Mum/2012 dated 17th February, 2016 in assessee company's sister concern namely Prakash Metals decided the case whereby the findings are as under:- "These are cross appeals by the assessee and Revenue directed against the order of the CIT(Appeals)-31, Mumbai dated 17/08/2012 for assessment year 2007-08. 2. The facts of t....
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....se transactions carried out with these parties in the relevant period (supra). In this regard, the statement of Shri Prakash J. Shah, partner of the assessee firm was recorded on 12/12/2007 wherein, inter-alia, he has stated that he is only acting as an indenting agent wherein the materials purchased by it is directly dispatched through the parties from whom the material was purchased to the customers to whom it is sold i.e. M/s. Rajasthan Aluminium & M/s. D.C.Metals, payments/receipts in this regard being both by way of account payee cheque. Alternatively, it was submitted by the assessee that in case the said purchases from the aforesaid two parties are treated as bogus, then the corresponding sales shown by the assessee should also be considered bogus and the difference between purchases and sales being the G.P, only this amount should be considered as its income. The Assessing Officer did not accept the explanations put forth by the assessee observing that except for making the aforesaid claims, the assessee could not furnish material to prove the mode of delivery of goods purchased/sold, names and addresses and other related particulars and details of the parties to whom goods....
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....3,82,69,759/- and to afford the assessee opportunity of cross examination of Shri Pravin T. Agarwal. The matter was remanded to the Assessing Officer on more than one occasion to address the rebuttals put forth by the assessee. Report in the matter was also called for from the DDIT (Inv) Unit IV(i), Mumbai. 3.2 After taking into account all the facts before him, the CIT(Appeals) observed that the assessee had only facilitated the concerned purchase and sale parties, as an indenting agent for commission, in their transactions of bogus sale and purchases. The CIT(Appeals) observed that no evidence was brought on record by the Assessing Officer /DDIT to establish that the assessee purchased the goods from third parties in cash, as all the transactions of the assessee with both the concerned sale and purchase parties was admittedly through banking channels. In this view of the matter, the CIT(Appeals) held that the Assessing Officer was not justified in holding that the entire purchases by the assessee are its undisclosed income and that the corresponding sales only are genuine; particularly when the quantity purchased and sold are identical. The CIT(Appeals) was of the view t....
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....prays that the addition be reduced to reasonable appropriate rate depending upon the circumstances of the Appellant's case. II. 1. The appellant craves leave to add to , amend and/or alter the above grounds of appeal." 4.1.2 At the outset, the Ld. Representative for the assessee for the assessee submitted that in its appeal, the assessee will be pressing only Ground No.I (supra) and that all other grounds I (2 to 4) and (2 to 4) as well as II(1) are not being pressed. Since the grounds at S.Nos.I (2 to 4) and (2 to4) and II(1) are not pressed in this appeal, the same are rendered infructuous and accordingly dismissed. 4.2 The grounds raised in Revenue's appeal are as under:- 1. " The Learned CIT(A) has erred on facts and circumstances of the case and in law in directing AO to delete Rs. 3,64,21,330/- held as bogus purchases by the Assessing Officer. 2. The Learned CIT(A) has erred on the facts and circumstances of the case and in law in assuming the assessee as merely an agent receiving prefixed commission in respect of the transaction of alleged bogus purchases. 3. The appellant prays that the order of the CIT (Appeals) on the above ground....
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....ir transaction of bogus sales and purchases. 5.4.2 In respect of Ground No.I(1) in the assesse's appeal, the Ld. Representative for the assessee contended that the CIT(Appeals), after observing that the assessee was only an indenting agent or facilitator for the aforesaid sellers and purchasers in their transactions of bogus sales and purchases in return for remuneration of commission, erred in not accepting the commission of 0.17% as admitted by the assessee. It is contended that the estimation of commission income earned by the assessee on the aforesaid transactions as a facilitator @5% thereon was too high and the same could not be more than 1 to 2% thereof in such business. 5.5.1 In respect of the grounds raised at S.No. 1 to 4 of Revenue's appeal, the Ld. Departmental Representative placing strong reliance on the findings of the Assessing Officer in the order of assessment, contended that the CIT(Appeals) had erred in holding that the assessee was merely an indenting agent receiving commission in respect of transactions of bogus purchases and in consequently deleting the addition made by the Assessing Officer on account of bogus purchases from the aforesaid two parties; ....
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....t the Assessing Officer was not justified in holding that the entire purchases by the assessee from M/s. Shraddha Saburi Merchants Ltd. and M/s. Sai Kripa Metallic Tradecom Ltd. are the assessee's undisclosed income and that only the corresponding sales to M/s. Rajasthan Aluminium and M/s. D.C Metals are genuine, particularly when the items/quantity purchased and sold are identical. 5.6.2 It is seen that the CIT(Appeals) from the material on record, was of the view that the assessee facilitated these bogus transactions of sale and purchase for the aforesaid sale and purchase parties as an indenting agent and received commission thereon. We find that CIT(Appeals) was of the opinion that since the aforesaid bogus transactions of sales and purchases were clandestinely carried out, the assessee would have certainly earned more than the 0.17% declared by the assessee or 1 to 2% earned in such type of business as admitted by the Ld. Representative for the assessee. The CIT(Appeals) following the ratio of the decision of the ITAT Ahmedabad Bench in Vijay Protein Ltd. (supra) proceeded to estimate the commission earned by the assessee @5% on the said purchase transactions amounting to R....
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....ant has submitted that it is only engaged in the indenting agency business; whereby, the gods purchased were directly dispatched by M/s. Shraddha Saburi Merchants Ltd and M/s. Sai Kripa Metallic Tradecom Ltd. to the godowns of M/s. D.C.Metal and M/s. Rajasthan Alluminium without any involvement of the appellant. It was further submitted that the appellant for its indenting agency services was duly compensated by way of commission which is the difference between the sale price and the purchase price as shown in its books of account. At the same time the AR has vehemently argued that neither a copy of the statement recorded of Shri Pravin T. Agarwal as discussed in the assessment order was provided nor the appellant was allowed to cross examine Shri Pravin T. Agarwal either by the AO or by the ADIT. It was vehemently argued that the denial of the cross examination by the appellant of Shri Pravin T. Agarwal as discussed in the assessment order is false and incorrect. Accordingly, the appellant has filed an affidavit dated 19.05.2010 of Shri Pravin T. Agarwal; wherein, he has admitted having made sale of material as per the sale bills issued to the appellant. The AR has also filed corr....
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.... by the appellant or by M/s D.C. Metal and M/s. Rajasthan Aluminium. Nothing is brought on record to prove the movement, transportation as well as the names and particulars of the parties from whom these goods were either purchased M/s Shraddha Saburi Merchants Ltd and M/s Sai Kripa Metallic Tradecom Ltd or by the Appellant or by the M/s D.C. Metal and M/s Rajasthan Aluminum; except for the issue of bogus sales bills by M/s. Shraddha Saburi Merchants Ltd and M/s. Sai Kripa Metallic Tradecom Ltd and by the appellant which as discussed above are already confirmed to be bogus bills without sale of actual material by M/s. Shraddha Saburi Merchants Ltd. and M/s. Kripa Metallic Tradecom Ltd. (statement of Shri Pravin T. Agarwal dated 24.03.2008) and by the appellant (affidavit of Shri Prakash J. Shah dated 06.01.2012). No other evidences are brought on record by the AO or by the DDIT so as to prove that the appellant has purchased these goods from third parties in cash. Nothing is produced to prove that such material purchased is sold to M/s. D.C. Metal and M/s Rajasthan Aluminum by the appellant as no such evidences to prove the movement of goods is either produced by the AO or by the D....
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....is not investigated either by the AO or by the ADIT/DDIT either during the course of the assessment order or during the remand proceedings. Both these authorities as discussed above have failed to examine Shri Pravin T. Agarwal on this issue nor they could succeed in recording the statement of Shri Pravin #T. Agarwal and further to be cross examined by the appellant as discussed above. The AO as well as the DDIT have expressed their in this regard. Similarly, no cross examination of Shri Chandra Prakash Bhansali and Shri Raju Bhansali is granted to the appellant in spite of the contents of their affidavits dated 14.05.2010 as discussed above vis-a-vis their independent statements recorded by the AO during the remand proceedings on 19.07.2011. On account of these facts brought on record, I find sufficient merits in the submissions of the AR that the statements recorded by the AO at the back of the appellant cannot be considered as valid piece of evidence. 2.4.1. Besides, it may be noticed that in spite of granting sufficient opportunity by way of remanding the proceedings to the AO as well as referring the matter to the DDIT (Inv), as discussed above, they have failed to su....
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....ayments made to M/s Shraddha Saburi Merchants Ltd and M/s. Sai Kripa Metallic Tradecom Ltd by the appellant through banking channels is out of the payments received from M/s. D C Metals and M/s. Rajasthan Alluminium. This proves that no unaccounted investment is made by the appellant for this purpose during the relevant accounting year. 2.4.2 Besides, Shri Prakash J Shah in his statement dated 06.01.2012 has sated the detailed modus-operandi of the entire transactions arranged by the appellant, which proves that the appellant has merely rendered or facilitated these two parties i.e. M/s. Shraddha Saburi Merchants Ltd. and M/s. Sai Kripa Metallic Tradecom Ltd.(purcahse parties) and M/s. D C Metals and M/s. Rajasthan Aluminium (sales Parties) by way of issue of bogus sales bills against pre-fixed commission received. The contents of the affidavit filed are further corroborated by way of the evidences furnished i.e. from the copies of bank account opening forms filed, it is seen that the appellant has opened a new account particularly for this purpose in the same bank and branch (Ratnakar Bank) in which, the bank accounts of M/s. D C Metals and M/s. Rajasthan Alluminium were ....
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....tances, where the AO disallowed the entire expenditure on account of purchases made from certain parties trating the same as bogus, has held that "it is an elementary rule of accountancy as well as of taxation laws that profit from business cannot ascertained without deducting cost of purchase from sales/ otherwise It could amount to levy of income tax on gross receipts or on sales. Such recourse is not permissible unless it is specifically authorized to do so under any particular provisions contained in the Act." It has been held by the Hon'ble Tribunal that in such circumstances, a certain percentage of expenditure has to be disallowed on account of inflation of purchase price. The ITAT has held that if purchases are made from the open market without insisting for the genuine bills, the suppliers may be willing to sell those products at a much lower rate compared to the rate at which they may charge in case the dealer has to give a genuine sale invoice in respect of that sale and supply of goods. There may be various factors due to which there is bound to be a substantial difference between the party purchase price of unaccounted material and rate of purchase of unaccounted f....
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..... 65,059/-) of addition made on this account is sustained and the remaining addition made is directed to be deleted. This ground raised by the appellant is therefore partly allowed." 5.6.4 Before us, both revenue and the assessee have merely reiterated their respective claims (i) of revenue that the entire purchase to M/s. Shraddha Saburi Merchants Ltd. and M/s. Sai Kripa Metallic Tradecom Ltd. amounting to Rs. 3,82,69,759/- be brought to tax as the assessee's income and; (ii) of the assessee that the commission income be assessed at 0.17% as purchases as declared by it. We find that apart from putting forth these averments, both parties have failed to bring on record any material evidence to controvert the findings rendered by the ld. CIT(A) in the impugned order on these two issues in cross appeals. In this view of the matter, and after careful consideration of the material on record, we find no reason for interference in the order of the ld. CIT(A) on both these issues before us raised respectively by revenue and the assessee. We, therefore, confirm the order of the ld. CIT(A) in holding that - (i) the AO was not justified in holding that the entire bogus purcha....