TaxTMI 
TaxTMI 
2017 (1) TMI 1108
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....der section 148 of the Act dated 12.03.2013 was issued and served o the assessee. The assessment was completed under section 143(3) r.w.s. 147 of the Act vide order dated 18.03.2014, wherein the assessee's income was determined at Rs. 42,75,360/-, in view of an addition of Rs. 41,23,015/- under section 69C of the Act as unexplained expenditure on account of bogus purchases for which accommodation/bogus bills were taken by the assessee from nine parties listed in page 2 of the order of assessment. 2.2 Aggrieved by the order of assessment for A.Y. 2009-10 dated 18.03.2016, the assessee preferred an appeal before the CIT(A)-40, Mumbai. The learned CIT(A) disposed off the assessee's appeal by way of the impugned order dated 10.02.2016 allowing the assessee partial relief; whereby only the profit on bogus purchases estimated @12.5% of Rs. 41,23,015/- i.e. Rs. 5,15,377/- was held to be taxable in the assessee's hands, as against the entire value of bogus purchases of Rs. 41,23,015/- brought to tax under section 69C of the Act by the AO. 3. Aggrieved by the order of the CIT(A)-40, Mumbai dated 10.02.2016 for A.Y. 2009-10, the assessee has preferred this appeal, raising the fol....
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.... estimating the profit of Rs. 5,15,377/- at the rate 12.5% on alleged bogus purchases on the basis of the certain information received from Sales Tax Department without providing the Appellant an opportunity to cross examine the persons relying on whose statement an adverse inference has been drawn against the Appellant. Hence, the ad-hoc addition of Rs. 5,15,377/- is unjustified and the same may be deleted. vii. The Appellant craves leave to add, alter, rescind or amend any of the above grounds of appeal." 4. Hearing in the case on hand were fixed on a number of occasions and on all these dates, none was present for the assessee and no adjournment of hearing was sought on behalf of the assessee. Even issue of notice by RPAD, which was served on the assessee, did not result in any compliance from the assessee. In these circumstances, we are of the view that the assessee is not interested in pursuing this appeal seriously. On the other hand, the learned D.R. for Revenue was present and ready to argue the case on behalf of Revenue. We, therefore, proceed to dispose off this appeal ex-parte with the assistance of the learned D.R. for Revenue and the material on record. ....
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....ore he was not called upon to adjudicate on this issue. 5.2.2 We have also perused the order of assessment for A.Y. 2009-10 passed under section 143(3) r.w.s. 147 of the Act vide order dated 18.03.2014. From a perusal thereof it is not evident that the assessee had requested the AO for the reasons recorded for initiation of proceedings under section 147 of the Act for reopening the assessment or that statements of persons whose statements were relied on were sought for cross-examination requested. Further, from the grounds of appeal raised before the learned CIT(A), we find that these issues were not raised before the learned CIT(A) and therefore he was not called upon to consider and adjudicate this issue. 5.2.3 In our view, a perusal of ground No. 1 ((i) & (ii) raised by the assessee before us, were never raised before the learned CIT(A) in appellate proceedings nor is it evident that reasons recorded were sought for form the AO in assessment proceedings or that cross-examination of the parties whose statements were relied upon by the AO was sought by the assessee. These grounds are not maintainable as they are factually erroneous and misleading. We notice that the averment....
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....and sales have not been established, bringing the profit element embedded in the impugned purchase estimated @12.5% thereof, i.e. Rs. 5,15,377/- to tax in the hands of the assessee would meet the ends of justice. The learned CIT(A) at paras 7 to 7.31 of the impugned order has considered and decided the issue as under: - 7. After taking into consideration the AO's findings and the appellant's submissions and order sheet notings, as well as the facts of the case, decision on the ground raised by the appellant, is made here under:- 7.1. All the above grounds of appeal are in respect of addition of Rs. 41,23,015/- on account of alleged bogus purchases made by the appellant from certain parties. Therefore all the grounds are being taken up together for disposal. Briefly stated, assessee is a proprietor of M/s. Citizen Steel Corporation and engaged in the business as wholesaler dealer in iron and steel. Ld. AO made the addition on the basis of information received from Sales Tax Department, Govt. of Maharashtra regarding parties who are only providing accommodation entries without doing any actual business. Consequent investigation revealed these parties a....
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.... treated the amount of Rs. 41,23,015/- as bogus purchases and added back to the total income of the appellant. 7.5 At assessment stage, opportunity was given to assessee to produce the parties for verification, but the assessee failed to do so. The supplier was in fact the appellant's witness and the Ld. AO was not required to force its attendance. It was for the appellant to produce it as per Civil Procedure Code which applies on all fours to the income-tax proceedings. It is trite that once a transaction is shown to be of the nature of income, the onus shifts to the assessee to show that the same was not taxable. It can thus be safely assumed that the appellant has grossly failed in its duty to mitigate the burden cast upon it in so far as proving the genuineness of the transaction from the said parties is concerned. 7.6 In this regard it is also pertinent to mention that while dealing with the concept of burden of proof, onus of proving is always on the person who makes the claim and not on the Revenue. While dealing with the issue of deciding the burden of proof, Hon'ble Supreme Court in the cases of CIT Vs. Durgaprasad More 82 ITR 540 and Sumati Dayal Vs.....
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....rroborate the claim before the Ld. A.O. 7.8 Reliance is also placed on the judgement of Hon'ble Supreme Court in the case of Sri Meenakshi Mills Ltd 63 1TR 609 where it was held that the I.T. Authorities are entitled to pierce the veil of Corporate Entity and to look into reality of transaction. In the case of McDowell & Co. 154 1TR 148(SC) it was stated that implications of tax avoidance are manifold. First, there is substantial loss of much needed public revenue. Next, there is serious disturbance caused to the economy of the country due to piling of mountains of black money, causing inflation. Thus, there is "the large hidden loss" to the community (as pointed out by Master Sheatcroft in 18 Modern Law Review 209) by some of the members in the country being involved in the perpetual war waged between the tax payer and his expert team of advisors, and accountants on the one side and the tax gatherer and his perhaps not so successful advisors on the other side. Hon'ble Court further held that it was for the Court to take stock to determine the nature of new and sophisticated legal devices to avoid tax and consider whether the situation created by the devices would ....
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.... doing so. It was further held by the Hon'ble, Apex Court that all that Section 110 of the Evidence Act, 1872 did, was to embody a salutary principle of common law jurisprudence viz, where a person was found in possession of anything, the onus of proving that he was not its owner, was on that person. Thus. this principle could be attracted to a set of circumstances that satisfies its conditions and was applicable to taxing proceedings. 7.11 The Ld. AR has relied on a number of decisions where reference has been made to those in the cases of Nikunj Eximp in ITA No. 5604 of 2010 (Bombay High Court); to suggest that no addition could be made on account of disallowance of purchases. 7.12. Having gone through the above case law, it is seen that in none of those cases so much of investigation was done including those by another Government authority, viz., Maharashtra Sales Tax authority before whom affidavit was filed stating that only bogus bills were supplied without delivery of goods. If at all the evidences point to the fact that no actual goods were supplied by the parties concerned, therefore, it is certain that no such purchases were actually made from the pa....
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....e incurred long-term and short-term capital losses on share trading transactions - Accordingly, it set off said losses against capital gain earned on sale of land - Assessing Officer found that assessee entered into sham and bogus share trading transactions resulting in capital loss with purpose to reduce tax liability arose on capital gain - Assessing Officer, therefore, discarded capital losses - Commissioner (Appeals) confirmed order of Assessing Officer - Tribunal also confirmed order of Assessing Officer, and while doing so, referred to a decision of Supreme Court in case of Sumati Dayal v. CIT [1995] 214 ITR 801 / 80 Taxman 89 to held that evidence produced must be analysed by applying theory of surrounding circumstances and human probabilities - Assessee alleged that without bringing said case to notice of parties, revenue had caused prejudice to its case; all in violation of principles of natural justice and of rule 11 - Whether since decision of Supreme Court in Sumati Dayal case (supra) was cited by Tribunal only for purpose of reiterating well settled and established position of law, it could not be said to have caused prejudice to assessee - Held, yes Whether when a tra....
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.... to dubious methods and subterfuges. Thus, it cannot he said that all lax planning is illegal/illegitimate/impermissible. Morover, Redd'y, J. himself says that he agrees with the majority. In the judgment of Reddy, J. there are repeated references to schemes and devices in contradistinction to "legitimate avoidance of' tax liability (Paras 7-10, 17 and 18,). In our view, although Chinnappa Reddy, J. makes a number of' observations regarding the need to depart from the "Westminster" and tax avoidance- these are clearly only in the context of artificial and colourable devices. Reading McDowell, in the manner indicated hereinabove, in cases of treaty shopping and/or tax avoidance, there is no conflict between McDowell and Azadi Bachao or between McDowell and Mathuram Agarwal". 15. The aforesaid observations of the Supreme Court makes it very clear that a colourable device cannot be a part of tax planning. Therefore where a transaction is sham and not genuine as in the present case then it cannot he considered to be a part of tax planning or legitimate avoidance of tax liability. The Supreme Court in fact concluded that there is no conflict between its decisions in....
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....rt and not a science. 10. The point we are trying to drive home is that when a bogus entry is found in accounts, there cannot be a better solution than to remove that entry. The legitimate way of removing the entry would be, as every student of accountancy would agree, is to do what has been omitted to be done or undo what has been wrongly done. 11. Now, so far we were only assuming that the purchases are bogus. Coming to the facts of the case, were the purchases worth Rs. 86,500 really bogus? There is no doubt about it. The investigations got done by the Assessing Officer leave hardly any doubt about it. The failure on the part of the assessee to show cause strengthens the Department's case. This stoic silence of the assessee also blunts the assessee's argument that Shri Hukamchand's statement was recorded at its back. It may have been recorded at its back, but the results thereof were informed to the assessee and that is what the assessee was asked to explain and failed to do so. Thus, now we are not assuming but are concluding that the purchases of Rs. 86,500 were in fact bogus. In case of bogus entries, in our opinion, what could be the best remedy....
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.... that the Commissioner of Income-tax (Appeals) as also the Tribunal has recorded a categorical, finding of fact that the applicant did not make purchases to the extent he has shown. The purchases in question have conclusively been provided to be bogus. If the purchases of the gas cylinders have not been made and on the other hand have been found to be bogus by all the authorities including the Tribunal, the question of legitimate outgoings in the form of purchases of the gas cylinders would not arise. Therefore, the Tribunal was justified in not giving benefit of the alleged amount spent towards the purchases of gas cylinders." 7.18. In Samurai Software (P.) Ltd. v. Commissioner of Income- tax [2008] 299 1TR 324 (RAJ.), it was held as under: "8. The Tribunal considered the matter in paragraph 6 of its order thus: "6. We have carefully considered the rival submissions of the parties, perused the material available on record and the decision relied upon, by the learned Departmental representative. We find that as a result of search on the assessee-company, the purchases totalling to Rs. 4,37,048 were not fund recorded in the seized books of account of the a....
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.... in paragraph 6 of its order. The addition of the amount of Rs. 4,37,048 in the hands of the appellant-company cannot be said to be unjustified. ". 7.19. In the case of Indian Woollen Carpet Factory vs. Income- tax Appellate Tribunal [2002] 125 TAXMAN 763 (RAJ.) it was held as under: "If the transactions were genuine and if the parties had migrated somewhere else, their latest addresses should have been supplied and burden was on the assessee to prove the genuineness of the transactions, when the assessee claimed that the purchases were genuine. It was true that no loan had been taken from those parties. The case before the Assessing Officer was that the assessee claimed some purchases from some parties, whom he could not produce or those parties were not available when the summon under section 131 was issued. Therefore, the initial dispute was with regard to genuineness of the transaction regarding purchase of wool from the parties, the assessee had failed to discharge the onus to prove the genuineness of the transactions, mere mentioning of Section 68 did not affect the addition made when transactions were found bogus." 7.20. In Sanjay Oilcake Industrie....
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....nated by the assessee-firm. In the case of Homi Jehangir Gheesta vs. CIT (1961) 41 ITR 135 (SC) the apex Court held that while deciding an issue, the Tribunal can consider probabilities properly arising from the facts alleged or proved and by doing so the Tribunal does not indulge in conjectures, surmises or suspicions. The apex Court expressed a similar view in the case of Summati Dayal vs. CIT (1995) 125 CTR (SC) 124 : (1995) 214 ITR 801 (SC) and held that the decision of an adjudicating body based on surrounding circumstances and human probabilities is not bad in law and deserves to be upheld. In the case of McDowell & Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC), the apex Court held that colourable devices are not part of legitimate tax planning. Going by the ratio of these decisions, we are of the view that the assessee-firm cannot be dissociated from the scheme of declaration of gold under the Amnesty Scheme in the names of the family members of the partners of the assessee- firm, as different individuals could not have hit upon the same idea of acquiring gold in the year of account relevant for the asst. yr. 1978-79 and declaring such gold under the Amne....
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....f fairness is shown by the decision maker to the man proceeded against, the form, features and the fundamentals of such essential processual propriety being conditional by the facts and circumstances of such situation, no breach of natural justice can he complained of. Unnatural expansion of natural justice, without reference to the administrative realities and oilier factors of a given case, can he exasperating. We can neither be finicail nor financial but should he flexible yet firm in this jurisdiction...." 7.24. In GTC Industries Ltd. v. Assistant Commissioner of Income- tax [1998] 65 ITD 380 (BOM), it was held as under: "105. In our opinion right to cross-examine the witness who made adverse report, is not an invariable attribute of the requirement of the dictum, 'audi alteram partern'. The principles of natural justice do not require formal cross- examination. Formal cross-examination is a part of procedural justice. It is governed by the rules of evidence and is the creation of Court. It is part of legal and statutory justice and not a part of natural justice, therefore, it cannot be laid down as a general proposition of law that the revenue c....
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.... the parties. Though the assessee had claimed to have made payment by account payee cheques, upon verification it was found that the cheques were encashed by some other parties and not by the supposed sellers. 7.27. Having come to such a conclusion, however, the Tribunal was of the opinion that the purchases may have been made from bogus parties, nevertheless, the purchases themselves were not bogus. The Tribunal adverted to the facts and data on record and came to the conclusion that the entire quantity of opening stock, purchases and the quantity manufactured during the year under consideration were sold by the assessee. The purchases of the entire 1,02,5 14 meters of cloth were sold during the year under consideration. The Hon'ble Tribunal, therefore, accepted the assessee's contention that the finished goods were purchased the assessee, may be not from the parties shown in the accounts, but from other sources. In view of the matter, the Tribunal was of the opinion that not the entire amount, but the profit margin embedded in such amount would be subjected to tax. The Tribunal relied on its earlier decision in the case of Sanket Steel Traders vs. ITO [IT appeal ....
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....d the decision of Ahmedabad Bench, ITAT in the case of Vijay Proteins 58 ITD 428. 7.29. In the case of Vijay Proteins (supra), the Hon'ble ITAT was seized with a case of bogus suppliers of oil cakes where 33 parties were found to be bogus by the departmental authorities even though payments were made to the said parties by cross cheques and in fact the A.O. in that case had brought adequate material on record to prove that the cross cheques had not been given to parties from whom supplies were allegedly procured but these were encashed from a bank account in the name of another entity, possibly hawala dealer. Subsequently, the money deposited in that account was withdrawn in cash almost on the same day. The Tribunal however, held that if the purchases were made from open market without insisting for genuine bills, the suppliers may be willing to sell the product at a much less rate as compared to a rate which they may charge in which the dealer, has to give genuine sale invoice in respect of that sale. Keeping all such factors in mind, the Tribunal estimated an element of profit percentage of the overall purchase price accounted for in the books of accounts through fic....
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.... two parties. The Assessing Officer is directed to work out the disallowance accordingly" Since the facts of the assessee's case are identical, we respectfully following the above decision of the 1TAT, direct the Assessing Officer to disallow 12.5% of the purchases made during the year under consideration." 7.31. As narrated earlier, the Ld. A.O. in this case has held that the parties from whom the purchases were made by the appellant were found to be bogus and that is the reason for which it was not produced during the assessment proceedings. Not having doubted the consumption/sales, the motive behind obtaining bogus bills thus, appears to be inflation of purchase price so as to suppress true profits. As mentioned above, the AO had never disputed or examined the sales. Once sales are accepted, corresponding purchases have to be considered and cannot be disregarded in totality. Looking to the market trend, the appellant may have made purchases from other parties which were not recorded in the books, and took only bills from these parties as accommodation, to explain the purchases. The purchases themselves are not bogus but the purchase parties shown in books a....