TaxTMI 
TaxTMI 
2017 (11) TMI 1602
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....ounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") in ITA no. 6056/Mum/2016 for AY 2010-11, read as under:- "1. The Ld. Commissioner of Income Tax (Appeals) [hereinafter referred to as "Ld. CIT(A)"] erred in passing the order dated 14.07.2016 upholding the order dated 27.03.2015 passed by the Ld. Assessing Officer disallowing an amount of Rs. 59,73,566/- under Section 69C of the Income Tax Act, 1961 without appreciating the facts and circumstances of the case. The disallowance of the amount under Section 69C of the Act is not justified and the same may be deleted. 2. The Ld. CIT(A) erred in treating various purchases amounting to Rs. 59,73,566/- as unexplained expenditure under Section 69C of the Act, and not taking into consideration the submissions given by the Appellant. The said disallowance of Rs. 59,73,566/- is not justified and the same may be deleted. 3. The Ld. CIT(A) failed to appreciate that all the payments for the said purchases have been made through proper banking channels, and that there was no direct evidence with the Ld. Assessing Officer p....
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....n four years from the end of the assessment year. It is also pertinent to mention that originally no scrutiny assessment was framed by the Revenue u/s 143(3) of the Act. The gross receipt of assessee declared during the year was of Rs. 8,55,96,725/- and gross profits declared was Rs. 1,91,12,173/- and net profit declared was Rs. 26,79,293/- . The information was received by Revenue from Sales Tax Department, Maharashtra that the assessee is beneficiary of the bogus purchases made from the following parties wherein only bogus bills were issued by these parties without supplying any material to the assessee: SI. No Name VAT .N0. Amount I Mls SAILEELA TRADING PVT LTD 27660591 188V 3498600 2 Mls NAVPAD EXPORTS PVT.LTD 27430616389V - -- 381056 3 Mls DEV ENTERPRlSES 27450526556V 1659112 4 Mls ABHILASHA SALES PVT LTD 27450723466V 434798 ( TOTAL 59,73,566/- Notices u/s. 133(3) was issued by the AO to the aforesaid parties on the given addresses but the letters were returned back un-served by the postal authorities with the remarks „not known'. The assessee was asked to explain why the purchases m....
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....ed the delivery challans, purchase registers, ledger accounts of the creditors, bank statements and stock statements but the same could not be verified from the books of accounts . The AO made additions to the tune of Rs. 59,73,566/- towards bogus purchases being unexplained expenditure under section 69C on the allegation that the assessee has obtained accommodation bills for introducing unaccounted goods into the accounted streams, vide assessment order dated 27-03-2015 passed by the AO u/s 143(3) r.w.s. 147. 4. Aggrieved by the assessment order dated 27-03-2015 passed by the AO u/s 143(3) r.w.s. 147, the assessee carried the matter in appeal before the learned CIT(A), who dismissed the appeal of the assessee by holding as under:- "6. I have carefully considered the facts of the case, findings of the AO in the assessment order, submissions of the Ld. AR and material placed on record. The appellant, instead of justifying the genuineness of purchases made from the alleged hawala parties, by filing confirmation, current mailing addresses, Q. tally, other related details, etc., it has merely reiterated the fact that the items so purchased have already been sold and that th....
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....P, GP rate, NP & NP rate for the hawala year last 2 years & subsequent 2 years & also furnish similar details after addition of purchase for the year -and last 2 years and subsequent 2 years and justify the account w.r.t the provision of section 145(3) of the Act, in view of the above facts, Furnish the qualitative/quantitative details i.e. a.s., Purchases, total sales, C.S, item- wise/party- wise, on month to month basis, in the following format for hawala parties Name of the Party- Date of Purchase Amount Date of payment Amount Mode of payment till date Quantitative tally with HP & without HP- MATERIAL PURCHASED & SOLD/CONSUMED Opening Stock Purchase Total Consumption Closing Stock Quantity I Value Quantity I Value Quantity I Value Quantity I Value Quantity I Value FINISHED GOODS Opening Stock (Quantity) Production (Quantity) Total (Quantity) Sale (Quantity) Closing Stock: (Quantity) A. Yr (As applicable) Turnover &nb....
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....hawala parties, for examination in person. Considering these facts, the contention of the Ld. AR, is not tenable, hence rejected in view of the following reasons/ facts/defects: a. The appellant's claim that the payments to the hawala parties have been made through banking channels, is not tenable as hawala parties have duly admitted in their statement / affidavit, on oath before the responsible Government authority, that after deducting their due commission i.e. approximately 1 %, they have refunded back the balance cash to the buyers. b. It is the duty of the appellant to justify the genuineness of purchases, by furnishing necessary supporting documents, bank statement, confirmation, delivery challan, transport receipts etc. and produce the parties for examination. Even during the course of appellate proceedings, the appellant, number of times, was asked to file above details and produce parties for examination, but failed to do so. No transport / octroi receipts were filed to justify the genuineness of purchases. c. As regards the appellant's claim that there cannot be any sales without there being corresponding purchases, is also not tenable, as the a....
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.... h. Onus on the assessee to prove the claim of expenses -The assessee has debited the purchases in Trading Account (including the bogus/ unverified purchases) and claimed the deduction for expenses. Since the expenditure has been claimed by the assessee and the primary facts are in appellant's knowledge, the "primary onus" lies on the assessee to pro e that the purchases claimed by him are genuine and wholly & exclusively for the purpose of business. For this purpose, the assessee has to lead the clinching evidences to show that the expenditure has actually been incurred by it and the same is for genuine bu in needs. Here, if the assessee claims that purchases are made from the alleged bogus party then it i the responsibility of the assessee to establish that (a) party is in existence (b) party' is capable of supply of goods and (c) party has actually supplied the goods (d) goods so received had actual been used for business and declared as art of sale for the year. If the assessee is asked to produced the parties for verification, then it is the duty of the assessee to do so to establish the genuineness of the claim of the expense. In these cases, the assessee has tried t....
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.... terms of section 114 of the Evidence Act, 1872, had to be drawn to the effect that, had those documents been produced, they would have gone against the interest of the assessee. i. Defects in maintaining books of account led to rejection u/s. 145(3) No quantitative day to day/Inward/Outward Stock register, is maintained with time wise specification, quality and their values, or not furnished in the manner in which called for. * Bogus bill provider either not produced, or not found existent at the address provided by the assessee or they admitted to the fact of issuance of bogus bills against charging some nominal commission, without actually supplying any goods. * Payments made by A/c Payee cheques - The Hawala parties accept that after deducting their nominal commission, the balance amount was refunded by cash. * Name, address & PAN of parties given - Assessee claimed it as sufficient compliance & discharge of onus of proving the expenditure, is not acceptable as these parties were not found on given addresses / not traceable, hence purchases not proved. In the absence of the required details, the AO could not verify the genuineness of purchase....
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....ound that the purchases were bogus, addition has to be made to the extent of the purchases found to be fictitious. The consideration that the gross profit disclosed by the assessee compares favourably as compared to the earlier years is wholly irrelevant. To neutralize the effect of inflation in purchases, the only course open to the Income-tax Officer is to add back that amount to the income irrespective of the fact whether the rate of gross profit goes up and whether the resultant gross profit is higher than the gross profit normally shown in the earlier years." 25% disallowance of bogus /unverifiable purchases had been upheld in following cases (1) Sanjay Oil Cake Industries Vs CIT (2008) 316 ITR 274 (Guj) (2) Vijay Proteins Ltd Vs ACIT 58 ITD 428 (Abad) (3) M/s Nand Kishore Meghraj Jewellers, Jaipur CO. No. 10S/JP/09 arising out of ITA No.'433/JP/2009 by ITAT Jaipur (4) M/s. Trident Jewellers ITAT Jaipur ITA 552/JP/2013. Disallowance @ 25% out of Bogus purchases, held as a reasonable in the case of Viiay Proteins Ltd., in view of the fact that the savings occurred to the suppliers on account of sales tax, duties and Income-tax (havin....
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....ellant has squarely failed to do so, hence, the facts of the above cases are not exactly same to the facts of the case under appeal. Moreover, in the case of Nikunj Eximp Enterprises Pvt. Ltd, the sales were made to Government Department i.e. Defence, hence sales to such parties can't be doubted. 6.7 Since the hawala parties have run away from their original addresses and the appellant is not in a position to furnish the current verifiable addresses, therefore, the department is also not in a position to enquire the genuineness of these purchases, mainly due to failure on the part of the appellant. In view of these facts, the question of cross verification cannot be allowed to the appellant, mainly on account of its failure in providing the current mailing addresses. There are a number of court decisions, as referred above, wherein the 100% disallowance of bogus purchases, have been upheld. 6.8. As regards other aspects such as payment through banking channels, justification for purchases made from hawala parties as genuine, sales made against such purchases? etc., are concerned, in this regard I would like to place the reliance on finding of the Hon "ble Supreme ....
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.... mention that on account of survey! enquiry action of the S T Department, generally genuine parties will never run away from their locations. by leaving aside their business set-up and other trading items. It is pertinent to mention here that on account of above action of the S T Department; all such bogus parties have run away from their sites. It is surprise to note that out of thousands of such hawala parties, not even a single hawala party, could be located, after action of the S T Department and in other cases also neither of the appellant could furnish the verifiable addresses of these hawala parties. Not even singly entity was found having any trading stock as their sites, during the course of closure of the business. This clearly establish the fact that in the market, the seam of hawala billing was going on, in a systematic manner, to generate the cash, for the purpose, which is well known in the trade, in the form of' parallel economy for illegal activities. This seam was going on in the market, in the name of persons / employees (who are not man of means), who do not have their permanent establishment in the city/operating from rented premises, therefore, run awa....
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....turnover, the appellant has shown NP quite at lower side ranging from 0.92% to 3.13%, hence the same is liable to be re-estimated by rejecting the accounts. In this regard, I would like to place my reliance on the ratio laid down by the following courts- it is held by the Hon'ble Supreme Court in the case of H M Esufali H M Abdulla 90 ITR 271 (SC) that if the estimation made by the Assessing Authority is a bonafide estimate and based on a rationable basis, the fact that there is no good proof in support of that estimate is immaterial. Apex court has further held in the case of M/s. Kanchwala Gems Pvt. Ltd. vs JCIT 288 ITR 10 (Se) that it is well settled that in a best judgment assessment, there is always a certain amount of "guess work'. The Hon'ble Supreme Court, in the case of CIT v. Calcutta Agency Ltd. (SC) 19 ITR 191 and Lakshimaratan Cotton Mills Co. Ltd. v. CIT (SC) 73 ITR 634, has held that in order to claim that an expenditure falls U/S 37(1) of the Act, the burden of proving the necessary facts in that connection is on the assessee and not on the Department. Similarly, the Apex Court, in the case of Lakshminarayan Madan Lal v. CIT (Se) 86 ITR 439 and in the case of Swades....
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....t offer any valid reasons for fall in the GP rate. In compliance, the Ld. AR could not offer any valid reasons for fall in the GP rate. Considering the facts in entirety I the appellant being manufacturer and exporter of chemicals and relying on decisions in the case of M/s. Kanchwala Gems Pvt. Ltd. Vis JCIT 288 ITR 1~(SC), as quoted above, in my considered opinion, as the suppressed GP of Rs. 31,10,6121- is more than the hawala purchases of Rs. 18,61,3 72/- therefore, the entire disallowance of Rs. 18,61 372/- made by the AO, is required to be upheld. All the grounds of appeal arc hereby dismissed. 6.15 As per details submitted by the Ld. AR, as above, the quantum of alleged hawala purchases has been worked out at Rs. 23,51,076/-, Rs. 32,66,406/- & Rs. 13,53,467/-, by the Ld. AR, whereas the AO had disallowed the above amount at Rs. 1,9301-, Rs. 59,73,566/- & Rs. 18,61,372/ ... In the respective years. Since, the suppressed GP is more than disallowances of hawala purchases, which have been sustained in toto, in all three years, therefore, this variation will not be make any difference, in the taxable income of the appellant. However, the A.O may examine this aspect, accor....
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....month of January, February and March, 2010 are placed . Our attention was drawn to para 6.3 of learned CIT(A) to contend that the statements as desired by learned CIT(A) were submitted . Our attention was drawn to paper book/page 242-253 wherein details were submitted wherein quantitative details were submitted. It was submitted that learned CIT(A) was not justified in rejecting the books of accounts . Ld. Counsel for the assessee also make attempt to distinguish the decision of the Hon'ble Supreme Court in the case of N. K Proteins(supra) as the facts in his opinion in N K Proteins were different wherein there was search and incriminating documents were seized which led the Courts to uphold additions to the tune of 100% of bogus purchases . It was submitted that there are no evidence with learned A.O/CIT(A) that the said purchases are not genuine . It is also submitted that GP ratio of manufacturing concern can vary depending upon demand and obsolescence. It was submitted that the AO should make an independent enquiry & he cannot rely on the information received from third party. 6. We have considered rival contention and perused the material on record including orders of....
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....upport its claim. The assessee also submitted stock register showing stock movements during the year and also batch sheets showing the use of materials in the manufacturing process along with the product mix, production process and the process chart, depicting the manufacturing process . The assessee also produced books of accounts before the AO. The assessee also claimed that it is not brought on record by the Revenue that the said alleged amount has been re-routed back to the assessee. The A.O had made addition to the tune of 100% of the alleged bogus purchases, which was later confirmed by learned CIT(A) who made detail and elaborate analysis of the working and profits of the assessee by comparing profitability of the impugned year with AY 2012-13. The learned CIT(A) rejected the books of accounts of the assessee u/s 145(3) as the assessee, inter-alia, could not prove consumption/utilisation of the material allegedly purchased from these parties with reference to its books of accounts. However, the learned CIT-A compared the profits for AY 2010-11 and 2011-12 with subsequent year i.e. AY 2012-13 as the said profits were highest rather than comparing profits for impugned assessme....
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....on'ble Kachwala Gems(supra) is applicable. The learned CIT(A) has made detailed analysis and came to conclusion that disallowance @25% of the alleged bogus purchases is warranted but as differential between GP ratio of the year under consideration with GP ratio of AY 2012-13 which was the highest GP ratio in the last 5 years led learned CIT(A) to uphold additions to the tune of 100% of alleged bogus purchases. We have discussed anomaly in working of learned CIT(A) as he undertook cherry picking by choosing highest GP ration in all these five years as well chose for subsequent years without giving any basis/justification for such choice. We have observed that the tribunal in assessee's own case after considering entire factual matrix of the case has upheld addition to the tune of 12.50% of the alleged bogus purchases in an order dated 26-04-2017 for AY 2009-10 in ITA no. 6055/Mum/2016, by holding as under: "This appeal filed by the assessee on 10.10.2016 is against the order of the CIT(A)-2, Thane dated 14.07.2016 for the assessment year 2009-10. 2. In this appeal, assessee raised seven grounds in toto. The solitary and core issue raised in the appeal relates to th....