TaxTMI 
TaxTMI 
2017 (9) TMI 375
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....e facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding the suppressed profit on account of bogus transactions was to be estimated at 12.5% of the net purchases ignoring the fact that the assessee was a engaged in the business of manufacturing and selling pharmaceutical products who consumes the purchases made by it in the course of its business; that one to one co-relation between item of purchase and sale cannot be established in such case; and therefore, the total income arrived on the basis of estimation of profit attributable to such bogus purchases is not valid in such case?" The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the ACIT-9(2)(2) be restored." 3. The brief facts of the case are that the assessee is engaged in the business as manufacturer, seller and exporter of pharmaceutical products. The assessee had filed its return of income for the subject A.Y. 2009-10 on 29th September, 2009, which was later revised on 14th November, 2010 and the assessment was completed by the AO u/s 143(3) of the Act on 9th May, 2011. Subsequently, information was received by Revenue that the assessee....
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....that the assessee had failed to prove the delivery of goods from whom the purchases were made by the assessee with respect to the lorry numbers, lorry receipt number and other transport details. The AO observed that the assessee has also failed to produce the stock register before the AO for verification. The AO observed that no records have been produced by the assessee with respect to the consumption/utilization of such material for manufacturing of the finished goods dealt in by the assessee. The A.O. has relied upon certain judicial decisions which are enumerated in the assessment order to come to conclusion that onus is on the assessee to prove genuineness of purchases which the assessee failed to prove. The assessee however submitted copies of invoices for said purchases, ledger account and payment details for having made payment through bank for these purchases. The assessee however could not produce these parties before the AO and notices sent by the AO u/s 133(6) to these parties returned un-served. The A.O. accordingly disallowed an amount of Rs. 4,37,04,949/- treating the same as bogus purchases from hawala parties as an unexplained expenditure and added the same to the ....
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....only after such declaration by the sales tax department. Likewise, without independently verifying the admissions of the concerned persons of the impugned parties and applying his mind thereto, the Id. DCIT cannot have any reason to believe, as required u/s148, that appellant was also a beneficiary of hawala sales bills issued by the impugned parties without supplying good simply on the basis of communication of DGIT (Inv). ii. In absence of * any material in his possession showing that the appellant was a beneficiary of hawala sales bills issued by the impugned parties without supplying goods * having in his possession actual statements of the concerned persons of the said parties that they were merely involved in issuing hawala sales bills without supplying goods, * any documentary evidence in his possession showing purchases were made by the appellant after cancellation of TINs of the said parties no belief of income escaping assessment can be formed by the Id. DCIT as required u/s 148. On the above propositions the appellant relies upon the following decisions: * Bir Bahadur Singh Sijwali v/s ITO in ITA No 3814/Del/11 dt 20/01/2015 w....
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....Tarapur & the other at Palghar.lt also carries on trading.lt is holding Drug licenses issued by Food & Drug Administration (FDA) Maharashtra State being DL No. KD-74 & KD-80 for Tarapur and KD-456 & KD 656 for Palghar. Its sales for the year amounted to Rs. 55,73,68,343 out of which export sales amounted to Rs. 17,24,42,715 i.e. about 31% of total sales. b. In case of a pharmaceutical manufacturer, under the Drugs & Cosmetics Act (D&C Act) & the Rules thereunder, a manufacturer has to mandatorily maintain elaborate records of purchases & consumption of materials and manufacture & sale of finished goods. Further, under the said Act & Rules materials purchased are required to be analysed before use and records identifying their use are also required to be maintained. c. The appellant therefore maintains inventory of all materials used in manufacture in "cardex" from giving necessary particulars. The said cardex contains opening stock of the relevant item, purchases, issues made for manufacture, closing stock and other particulars. d. During the year under consideration the appellant made purchases inter alia from the following parties:- Sr No Name ....
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..... All of them were registered with sales tax department having valid Tax Identification Nos (TINs) none of which was cancelled up to the financial year under consideration (PB pages 55 to 59). 2. They were having PANs as mentioned in the reasons recorded u/s 148 (PB page 54). 3. Unit VII - (3) of the Directorate of Income Tax (Investigation), Mumbai had made inquiries with concerned persons of the said parties as stated in para 4 of the recorded reasons (PB page 54). 4. One of the parties, Applause, being a corporate entity, its existence is unquestionable, 5. 2 parties namely, Applause & Fair-Chemapart from having having TIN & PAN are also holding Drug License issued by FDA (PB page 110 & 112). The Drug License is issued by FDA after carrying out necessary inspection as mandated under D&C Act and the Rules there under. As such the identity and existence of Drug License holders can never be in question/doubt. 6. During assessment neither the appellant was called upon to produce any of the said parties nor were the copies of returned envelopes showing postal remarks for nondelivery of notices u/s 133(6) were placed on record. 7. ....
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....f purchases, consumption there from for particular batch of final product, the final product, closing balance, if any for the following items purchased during the year namely:- * Fractionated Coconut Oil * Ascorbic Acid ( Vitamin C) Plain * Bromophenol Blue AR * D. Biotin BP * Latanoprast * Betamethasone- Velerate * 4-Formyl Phenyl Boronic Acid As aforesaid the appellant produces herewith cardex for all items of materials purchased and consumed during the year. iii. The Id. DCIT, drew adverse inference, inter alia on the ground that in case of purchases from impugned parties there were no purchase orders or lorry receipt or other transport details. This statement of Id. DCIT does not take in to account that:- 1. In appellant's business, except in case of suppliers who are corporate bodies, purchase orders are not mandatory and are generally verbally placed. In any case, merely because written purchase orders are not issued would not mean that purchases were not made when the materials so purchased are consumed for manufacturing as can be verified from relevant cardex. 2. Likewise,....
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....nPlain, Fair-Chemhas collected Packing & Forwarding charges in its Bill (PB Pages 144 to 147), meaning thereby that freight is in all these 6 transactions is incurred by it. 6. Out of 7 transactions of purchases of Bromophenol Blue AR from Fair-Chem, it has charged freight only in 1 transaction meaning thereby that freight is incurred by it only in l out of 7 transactions (PB Pages 121 to 127). 7. In case of remaining 96 transactions of purchases of manufacturing materials from Fair-Chem, about 62 transactions were for materials upto 5 Kgs / 5 Ltrs which did not require any transportation as they were either manually lifted or received though courier. (PB Pages 150 to 152). 8. In case of remaining manufacturing materials as aforesaid, the same were lifted through the delivery van of its said associate concern Ambica Pharma Sales. 9. In case of all purchases from Fair-Chem, the cardex maintained by the appellant shows consumption of materials and hence there is no question of non-receipt of materials purchased from it at the appellant's premises. 10 Fair-chem has confirmed its account in the books of appellant, copy of which was also ....
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....nt's income, for any reason whatsoever, then the corresponding sales of Rs. 1,87,93,992 made to Secunderabad & Erica by the appellant as well as sales of Rs.l,89,50,937 made to Jasmine itself also need to be reduced from its income. 6. Without prejudice to the forgoing, since Secunderabad & Erica have included their respective purchases and sales in their respective books of account which are not disputed the corresponding sales and purchases of Jasmine too cannot be disputed. (v) Nothing is there on record to show that TINs of the impugned parties were ever cancelled by the sales tax department, much less before purchases were made from them. In fact all of them have filed returns with sales tax department as can be seen from the dealers profile as tabulated hereunder :- Party Return filed up to FY PB pages Ritesh 2011-12 55 Krishana 2008-09 56 Applause 2012-13 57 Fair-chem 2010-11 58 Jasmine 2011-12 59 It would be seen that out of 5 dealers,4 of them have filed sales tax returns beyond the year under consideration and Ritesh has filed sales tax return upto the year under consideration. ....
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....g the submission of the assessee concluded that the assessee has not produced the parties before the A.O. but the assessee has during appellate proceedings produced evidences regarding the transportation and consumption of the material for manufacturing of the finished goods. The learned CIT(A) observed that the Maharashtra VAT authorities have conducted investigations before whom these dealers have filed affidavits/statements that they only issued bogus bills without supplying any material. The ld. CIT(A) observed that the assessee could not prove the genuineness of the purchases made from these parties and in-fact no purchases were made wherein these parties merely issued bills without supplying any material physically. The learned CIT(A) observed that the parties are non-existent and no purchases were made from these parties and merely bogus bills were obtained. The ld. CIT(A) observed that the motive behind obtaining bogus bills from these parties appears to be inflation of purchase price so as to suppress the true profits and accordingly the ld. CIT(A) estimated the suppressed profit to the extent of 12.5% of the purchases made by the assessee from the hawala dealers as the su....
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....hna Trading Co 22360 3 Applause Chemicals P. Ltd. 242190 4 Jasmine Health Care 18766638 5 Faire Chem 24633981 TOTAL 43704949 It is observed that notices u/s 133(6) of the Act were issued by the AO to all these parties who were alleged hawala dealers which returned un-served. These parties have confessed before the Maharashtra Sales Authorities that they were engaged in issuing bogus accommodation bills to the entities without supplying any material. The assessee could not produce the parties before the A.O. . Before the A.O. the assessee could not produce the documentary proof with regard to the consumption / utilization of material for manufacturing of finished goods dealt within or having received the material in the premises of the assessee. The assessee did not produce the stock register before the AO. The assessee also could not prove the delivery of goods said to have been purchased from these parties as no details of lorry, lorry receipt number, transport details etc. Thus in nut-shell, the assessee could not prove the genuineness of these purchases which led to the additions to the tune of 100% of these purchases by the AO wh....