TaxTMI 
TaxTMI 
2017 (9) TMI 651
X X X X Extracts X X X X
X X X X Extracts X X X X
....in the circumstances of the case and in law, the Ld. CIT(A) is erred in holding that the suppressed profit on account of bogus transaction was to be estimated at 12.5% of the net purchases ignoring the fact that the assessee was a manufacture 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 purchase is not valid in such cases. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the ITO-9(1 )(4) be restored." 3. The brief facts of the case are that the assessee company is engaged in the business of manufacturing and selling of pavar blocks and tiles. The return of income was e-filed by the assessee u/s 139 on 23.11.2010 declaring total income at Rs. 24,60,664/- , which was processed by Revenue u/s 143(1) of the Act. Subsequently the case of the assessee was selected for framing scrutiny assessment by issue of notice u/s 143(2) of the Act dated 25.08.2011 by the AO and assessment was framed by the AO u/s 143(3) ,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....06 Great International 27680504653V 1,940,537 23.12.2005 TOTAL 47,17,888 3. It is further, noticed that the Maharashtra sales tax department has also declared above parties as Hawala traders. The TINs allotted to these parties have also been cancelled by the Sales tax department. 4. Further, an information has been received from the office of the DGIT vide letter dated No. Corr. Field/DGIT (Inv) dt. 26.12.2013 stating that M/s AUTOMATIC TILES AND MARBLE INDUSTRIES PVT LTD has made bogus purchase through above parties. It is further intimated that Shri Tejas Shah of M/s Relcon Infra Project Ltd has admitted in the statement recorded by DDIT to have entered into bogus transaction with above concerns. The parties also failed to produce any supporting evidence to prove the purchase transactions. 5. From the above facts, it is clear that the assessee has booked bogus purchases in its books of account to the tune of Rs. 47,17,888/- and has failed to disclose fully and truly all material facts in respect of these purchases necessary for its assessment for the A. Y. 2009-10. In view of the above,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....um declaration and statements filed by these hawala dealers before MVAT authorities , wherein these alleged hawala dealers have confessed that they have only issues bogus bills without supplying any material/goods. The assessee was also asked to respond to the same. However, the assessee did not furnish any details/confirmations or whereabouts of the aforesaid parties. The assessee although submitted its bank statement and submitted that the payments have been made by account payee cheques against purchases made from these parties. The details of purchases made from these parties were submitted by the assessee before the AO. The enquiries with banks revealed that there were dealing of these hawala dealers with other bogus hawala dealers and cheques deposited were encashed regularly in cash immediately after encashments. The assessee was confronted with the same. The assessee submitted copies of purchase bills, delivery challans and copy of stock register before the A.O. and complete statement of stock summary with respect to the parties from whom these purchases were made. The assessee also submitted quantitative stock statement of the items dealt with these four parties namely ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....NP ratio for the year were fairly comparable. It was submitted that the parties were not bogus. The parties had addresses which was duly verified by the VAT department while issuing registration to these parties under VAT. The assessee submitted that parties had given affidavit/statement before the VAT department which clearly shows that the parties were very much available and in existence, hence, the parties were not bogus. The A.O. rejected the contention of the assessee and held that the assessee could not substantiate its claim of purchases from the aforesaid parties with the help of books of accounts, the stock statements are not tallying, the bills issued by these parties are not proper, the assessee could not substantiate details of use and yield of such material , there is no mentioning of maintenance of stock records as per tax audit report , GP ratio has fallen from 27% to 23%, NP ratio has fallen from 3% to 1% and the assessee could not controvert the statements made by these parties before MVAT authorities and also could not produce the parties before the AO, and accordingly the A.O. made the addition of Rs. 47,17,888/- as the purchases were found to be not genuine, vi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....T(A) observed that the parties could not be located by the assessee and it is admitted by the assessee that these parties could not be produced before the Revenue. The learned CIT(A) observed that notices u/s 133(6) of the Act were issued by the AO to all the afore-said parties but the same were returned un-served. Thus, the learned CIT(A) observed that the onus cast on the assessee did not stand discharged as these purchases are appearing in the books of the assessee and these dealers have confessed before MVAT authorities that they were engaged in issuing bogus bills without supplying material physically, and the assessee could not produce these parties before Revenue. The learned CIT(A) observed that the A.O. has not doubted the genuineness of the sales as well consumption/sales, the motive behind obtaining bills from these parties appears to be inflation of purchase prices so as to suppress true profits. The ld. CIT(A) observed that the suppressed profit embedded in purchases which the assessee would have made from these bogus dealers need to be brought to tax. The ld. CIT(A) after considering the facts of the case, estimated the suppressed profit to the extent of 12.5% of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....received by the Revenue that the assessee had obtained bogus purchase bills from certain parties, which are Hawala dealers as per the list of suspicious dealers prepared by the Maharashtra Sales Tax (VAT) Department. The assessee had allegedly made bogus purchases from the following four parties , amounting to Rs. 47,17,888/-. Name TIN PAN Amount Tin cancelled Naman Enterprises 27450524228V AQEPK5024G 10,816 01.04.2007 Navdeep Trading Corpn. 27540616280V AAAPV4487A 2,752,535 26.06.2007 Manishi Traders 27260523120V AAIHP5622D 14,000 13,04,2006 Great International 27680504653V 1,940,537 23.12.2005 TOTAL 47,17,888 The said hawala dealers were engaged in issue of bogus bills without any supply of material as per their statements/affidavits filed by these bogus dealers before MVAT authorities. The assessee's case was reopened by the A.O. u/s 147 and notices u/s 148 of the Act was issued on 3rd March, 2014 , which was duly served upon the assessee , and the said reopening u/s 147 was within four years from the end of the assessment year. The reasons r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erely to reduce profits, which disallowance has been restricted to 12.5% of the alleged bogus purchases by the ld. CIT(A) on the grounds that utilization/material consumption stood proved, sales are not doubted but the assessee could not discharge its burden of producing the parties in the midst of statements/affidavits by these alleged hawala dealers that they have only issued bogus bills without supplying any material physically which led CIT(A) to conclude that the assessee has obtained material from some other parties and bills were obtained from these parties at inflated prices to suppress profits. We have observed that the assessee has duly explained the consumption/utilization of material and the assessee is also maintaining excise record and is subject to excise scrutiny/audit. There was minor difference in the stock reconciliation submitted by the assessee before the AO which the assessee rectified before CIT(A) and explained the same due to clerical error/cut and paste errors. The ld. CIT(A) has also gone through the consumption patterns and no adverse comments have been made. It is also a fact that the assessee could not produce the parties before the authorities below a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 5. Thereafter, the books of account of the assessee were rejected by the Assessing Officer and he resorted to best judgment assessment under section 144 of the Income-tax Act. The Assessing Officer in the assessment order mentioned some comparable cases and was of the view that the case of the assessee is more or less having similar facts as that of M/s. Gem Plaza where the Gross Profit has been taken as 35.48 per cent. The Assessing Officer estimated the Gross Profit of the assessee as 40 per cent. 6. The Assessing Officer further held that the assessee has shown bogus purchases in order to reduce the Gross Profits. 7. In appeal, the Commissioner of Income-tax (Appeals) upheld most of the findings of the Assessing Officer, but reduced the Gross Profit from 40 per cent to 35 per cent. 8. In further appeal, the Tribunal had given further relief to the assessee and reduced the Gross Profit rate to 30 per cent. 9. The counsel for the assessee has submitted before us that the income- tax authorities wrongly held that appellant has shown bogus purchases, and the books of account were wrongly rejected. 10. In our opinion, whether there were b....