AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (5) TMI 632
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.... in deleting the disallowance of Rs. 1,83,17,200/- on account of loss on bogus trading?." "4. Whether in law and on facts and circumstances of the case, the learned CIT(A) has erred in deleting the disallowance of Rs. 5,27,641/- made by the AO on account of interest paid to Hawala operators?" 3. We shall adjudicate the issues ground wise as under: Grounds No. 1 & 2 ( disallowance of Rs. 8,04,00,979/-) 4. The Assessing Officer in assessment order held that purchases made from Colourshop Trading Co. Pvt. Ltd. and M/s Induja Traders Pvt. Ltd. are bogus. The total such purchases from Colourshop Trading Co. Pvt. Ltd. and M/s Induja Traders Pvt. Ltd. Is to the tune of Rs. 8,04,00,979/-. For holding that the purchases from Colourshop Trading Co. Pvt. Ltd. and M/s Induja Traders Pvt. Ltd. are bogus, the Assessing Officer relied on the information received from sales tax authorities of Maharashtra. The sales tax authorities of Maharashtra had informed that the above two entities are only commission agents and they have admitted having not made any sales. The Assessing Officer, therefore, added an amount of Rs. 8,04,00,979/- as bogus purchases in the hands of the assessee. 4.1 Aggrie....
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....of 2009 [Gujarat High Court] 2. CIT Vs. Simit Sheth TAXAP/553/2012 dated 16.1.2013 3. Ganesh Rice Mills, Banda Vs. CIT [All] ref 84 of 1990 [2005] RD AH 581 3.1 The Id. AR strongly supported the first appellate order and reiterated the written submissions filed before us. 4. On careful consideration of the above noted rival submissions, we are of the view that the Id. CIT(A) after calling remand report from the A.O dated 27.6.2013 and rejoinder to the remand report filed by the assessee dated 4.7.2013 concluded the case in favour of the assessee with the following observations and findings: "3.6 Looking to the counter claims regarding genuineness of the transactions and non-service of notice on the seller, the appellant was required to produce the concerned persons. In reply, the appellant has produced Shri Sanjay Jain S/o. Shri Babulal Jain, R/o A-104, Raj Umang-ll Shiv Vallabh Cross Road, Ashokavan, Dahisar (East), Mumbai, one of the directors of CTCPL and ITPL. His statement was recorded, wherein he has confirmed the transactions with the appellant on the ground that the same were undertaken in the regular course of business. All the transactions were duly support....
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....The facts in the case of appellant are that it derives income from manufacturing and trading activities. It has shown to have made purchases of PVC Combine, HOPE Granules, Sulphur and DAP from CTCPL (Colourshop Trading Co. Pvt. Ltd.). The Sales Tax Authorities have made verification in respect to the transaction made by CTCPL with reference to the Electro Therm (India) Pvt. Ltd and have concluded that said company was indulged in providing accommodation entries without supplying goods. The Ex-Director of such company has in his statement before Sales Tax Authorities of Maharashtra admitted that company was indulged in providing accommodation bills and did not maintain any books of account and they are working on commission. The aforesaid statement was given during the course of verification of transaction between CTCPL and Electro Therm (India) Pvt. Ltd. The aforesaid person has given affidavit to the Sales Tax Authorities affirming the statement given to the Sales Tax Authorities. The A.O. on the basis of this background has treated the purchases claimed to have been made from CTCPL by the present appellant as bogus. In order to support the findings, the A.O. has made detailed obs....
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....There is no reference to the transaction of appellant with CTCPL in the aforesaid statement and affidavit. The appellant was not allowed to cross examine the said deponent at that point of time. It is settled proposition of law that a statement which has not been tested on cross-examination has to be either excluded for consideration or not to be used against the opposite party. However, in the course of appeal proceedings, Shri Sanjay A. Jain has appeared and confirmed the transactions with the appellant company and delivery of goods. The A.O. has also cross examined the said deponent but nothing adverse was brought on record. The statement of Shri Sanjay B. Jain reinforces the appellant's contention. Under these circumstances, and looking to the legal position decided in various case laws relied upon by the appellant, specifically in the cases of Jagdamba Trading Company (supra) and M.K. Brothers (supra), I am of the considered opinion that the addition made by the A.O. is not sustainable and accordingly, the same is deleted. This ground of appeal is, therefore, allow" 5. First of all, we note that the assessee filed qualitative details of purchases, purchase invoice....
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.... certified by the Government Authority and for executing his work he has to incur expenditure on consumable stores as well as for maintenance of machinery. 4. His accounts are audited u/s. 44AB of the Income Tax Act, 1961 and the same have not been rejected by the Assessing Officer while framing his impugned Assessment Order. 5. His gross profit and net profits have been consistently growing year after year and for the year under review he has declared a gross profit of 16.97% on his turnover which is higher by 4.21% as compared to the earlier year. This itself eliminates the possibility of bogus purchases being debited to Profit and Loss Account of the Appellant. 6. If the action of the assessing officer of treating the purchases of Rs. 1,19,80,841/- is upheld on the ground that the alleged purchases were bogus, his gross profit would work out to 21.99% which is not tenable especially keeping in mind that he is a contractor for Government where such margins are not available in the tendered contracts. 7. However, the facts also remains that the above alleged bogus purchases are not fully verifiable and the parties were not produced for verification. In view of the a....
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.... decisions cited by Id, DR and AR during the course of hearing before us in the context of factual matrix of the case. From the record we found that by relying on the official website of the Sales Tax Department, Government of Maharashtra regarding suspicion parities providing accommodation entries, the AO has made an addition. In response to the show cause notice issued by the AO, the assessee has supplied copy of bills, cop of the bank statement to prove that payment made for purchases, and copy of ledger accounts of all eight parties. The assessee is an individual carrying on a proprietary business in the name of M/s Noble Construction Company, undertaking construction work of dams and canals on behalf of Government of Maharashtra in the interior part of the State. In the interior parts the goods are not available easily. The Government contracts are time barring contract and the work is required to be completed on time. Accordingly, when the material is required in emergency the telephonic orders are placed upon the parties who supply the materials at site. The corresponding consumption of materials in respect of which the purchases were affected by the assessee firm have not b....
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....re sales in case of assessee is made to the Government. 10. Hon'ble Chandigarh Tribunal in the case of ITO vs Arora Alloys Ltd (2012) (12 ITR (Trib) 263). This decision has been affirmed by the Punjab & Haryana High Court in 370 ITR 372, wherein it was held as under: Section 69C of the Income-tax Act, 1961 - Unexplained expenditure - Assessment year 2004-05 - Where addition on account of unexplained expenditure incurred for purchase of raw material was solely based on information received from Central Excise department, same could not be sustained In favour of assessee. 11. The decision of Hon'bie Bombay High Court in the case of Babulal C. Borana v. Third Income-tax Officer [2005] 144 TAXMAN 674 (Bom) also supports our contention. 12. Furthermore, the Hon'bie Gujarat High Court in the case of Commissioner of Income-tax v. M.K. Brothers (Gujarat High Court) (163 ITR 249), held as under:- [Section 69 of the Income-tax Act, 1961 - Unexplained investments - In relevant assessment year assessee made certain purchases from some parties and made payment through cheques - ITO found that parties were not available to crossexamine and that though purchases were cl....
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....g of his statement by the sales tax authorities on 5.1.2012 he was neither director nor authorized person of Colourshop to make any statement on behalf of Colourshop this statements and affidavit any other corroborative positive evidence cannot be taken as stand alone basis for disputing purchases and making addition. We also note that the case in hand is of 2009-10 i.e. A.Y 2010-11 and during this period Shri Salecha was not a director of Colourshop and most important fact emerged from his affidavit is that the said affidavit states about the transactions with Electro Therm [India] Pvt Ltd and there is no whisper or reference about any transaction with the present assessee. We also note that the A.O has accepted sales make to the assessee by Induja Traders wherein Shri Salecha was also a director but disputed the sales df Colourshop without any basis which is not a justified approach. We also observe that he assessee was not granted opportunity to cross examine Shri Salecha and there was no other positive evidence with the A.O, except this affidavit for making disallowance of purchases that too that without pointing out any defect or mistake in the evidence filed by the assessee. ....
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....T Vs. Pawanraj B. Bokadia [supra] is not available for s the Revenue as in that case amount of purchase was paid back to the assessee by way of transfer entries though the bank which is not an allegation of the A.O in the present case. In the case of Ganesh Rice Mills Vs. CIT [supra] the Hon'ble Allahabad High Court for the confirming addition observed that the purchase were made by the assessee from non existing firms and bills have been prepared by the Munim of the application which is not the fact of the present case. 10. Thus we reach to a logical conclusion that the A.O made addition without any basis and the Id. CIT(A) after proper consideration of facts and circumstances and after allowing opportunity to present their respective stands to the A.O as well as to the assessee dismissed the disallowance and there was no reason to disallow interest to the companies from whom the purchases were made. Consequently, we are unable to seen any ambiguity, perversity or any other valid reason to interfere with the impugned order and thus we uphold the same, zcordingly, Ground Nos. 1 and 2 of the Revenue being devoid of merits are dismissed." 4.4 The facts considered by the T....
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.... accordingly. Therefore, the finding of the CIT(A) is upheld. 5.4. In the result Ground No.3 is rejected. Ground No.4 (disallowance of Rs. 5,27,641/- of interest paid) 6. The Assessing Officer had made an addition of Rs. 5,27,641/- out of the total interest paid during the relevant assessment year. The Assessing Officer had observed that interest paid to following four parties are not genuine, since, they are only providing accommodation entries: Name of the Party Interest Paid (a) Colourshop Trading Co. Pvt. Ltd. Rs.70,890.00 (b) Induja Traders Pvt. Ltd. Rs.2,49,298.00 (c) Pearl Enterprises Rs.1,39,891.00 (d) Priya Exim Pvt. Ltd. Rs.67,562.00 Total Interest paid Rs.5,27,641.00 6.1 The CIT(A) deleted the disallowance by observing as under: "5.1 This ground of appeal is identical to Ground No.3 raised in appeal for preceding assessment year. The observations of the A.O. and submissions of the learned A.R. are similar to that covered under the said ground. Therefore, after considering the facts and circumstances of the case, the appeal for the said assessment year was allowed vide order in "Appeal No.69/13- 14 dated 30.08.2013. There being no change in t....