TaxTMI 
TaxTMI 
2017 (12) TMI 52
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....einafter called "the tribunal") in ITA no. 4133/Mum/2016, read as under:- " The Honourable Commissioner of Income Tax (Appeals) has erred in confirming the addition of Rs. 53,54,962/- @ 3% of alleged bogus purchases of Rs. 17,84,98,737/- against addition of Rs. 1,42,79,899/- @ 8% of the said alleged bogus purchase made by the AO without considering the facts and merit of the case. The Hon'ble CIT (Appeals) has also erred in not considering the explanations, affidavit, confirmations and other relevant documents submitted during assessment and appeal proceedings in support of being genuineness of the alleged bogus purchases without understanding the merits and value of the said documents. The Appellant craves leave to submit at the time of hearing such further facts, information, clarification, documents etc. as may be necessary for the purpose of deciding the issues in the appeal. The appellant craves leave to add, alter, amend or modify the aforesaid grounds of appeal." 3. The grounds of appeal raised by the Revenue in the memo of appeal filed with the tribunal in ITA No. 4383/Mum/2016 read as under:- "1. On the facts and circumstances of ....
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....om these parties were genuine and duly entered in the books of accounts maintained by the assessee. It was explained that payments have been made for purchases from these parties through cheques only. The A.O observed that the assessee has only furnished stock register entry, cheque payments, custom appraisal report in respect to export sale but no other document such as delivery challans were produced by the assessee during the course of assessment proceedings , which led A.O to believe that these purchases shown by the assessee from these firms are bogus. The A.O concluded that since the assessee has provided stock statement wherein the entries of these purchases were made , the only conclusion as per AO can be drawn is that the assessee has purchased these items from open markets either directly or through brokers from some parties known to the assessee. The AO concluded that the assessee was beneficiary of the accommodation bills issued by these parties. The AO observed that the assessee has claimed sales to be genuine , it is proved that the assessee was actually in possession of the goods as there cannot be sales without purchases. It was concluded by the AO that purchases we....
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....ies from whom the imports have been made in the respective concerns, he was unable to comment on the same. He admitted of not having any personal contact with any of the importers either through phone or email. He also admitted of not having visited any foreign country for the purpose of business. h. The assessee was also asked to produce the above suppliers for verification but he failed to produce them before the undersigned. When expenditure (Purchase) is claimed to have been incurred, the initial burden will be on the assessee to prove the genuineness of the purchase. In case the parties have shifted, the assessee is expected to know their current address as the onus is on the assessee (legal heir) to prove that the purchases were genuine. Reliance is placed on judgment of the Gujarat High Court reported in CIT Vs Chandra Vilas Hotel (1987) 164 ITR 102 (Guj.). This onus has not been discharged by the assessee. Thus the A.O observed in such situation when stock has been reconciled , it could be concluded that the assessee has obtained accommodation bills from concerns/entities controlled by Sh. Bhanwarlal Jain Group while actual purchases were made from grey market i....
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....that is now being adopted for purchases made in cash from the grey market and for which the bills are procured from the Bhawarlal Jain group concerns. Accordingly, the addition to the total income of the assessee is computed to the amount of Rs. 14279899/- (Rs. 178498737/- *8%). Penalty proceedings u/s 271(1)(c) are hereby initiated separately for filing inaccurate particulars and concealment of income" Thus in nutshell AO made additions to the tune of Rs. 1,42,29,899/- at the rate of 8% of the alleged bogus purchases of Rs. 17,84,98,737/- , vide assessment order dated 27-03-2015 passed by the AO u/s 143(3). 5. Aggrieved by the assessment order dated 27-03-2015 passed by the AO u/s 143(3), the assessee filed first appeal before the learned CIT(A), who after considering the submissions of the assessee restricted the addition to 3% of the said total alleged bogus purchases of Rs. 17,84,98,737/- , by holding as under vide appellate orders dated 28-03-2016 passed by learned CIT(A):- " 5. I have given my careful consideration to the rival submissions, perused the material on record and duly considered the factual matrix of the case as well as the applicable legal position....
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.... which indicates the: place of delivery of goods, ledger confirmations, IT returns, balance sheets and Profit & Loss accounts of the alleged parties, bank statements showing the payments made through RTGS mode, affidavits from those parties affirming the transactions were furnished before the AO. It is stated that purchases were recorded in the books of accounts and were included in the stock records and mainly 99% of the sales are export sales. Statement given by a third party cannot be a reason for doubting the genuineness of purchases and the appellant do not know Shri Bhanwarlal Jain. All the parties are available at the given addresses and they have also given affidavits confirming the sale made to the appellant and in view of the same, statement of the third party has no evidentiary value. All the purchases and sales are duly entered in the books of accounts. The AO, when in doubt with regard to the genuineness of the transaction would have called the parties for verification under the powers vested with him u/s 133(6)/ 131 of the Act. All the invoices are clearly stating the place of delivery of the goods hence delivery challans haven not been separately issued and attached ....
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....arguments, it is also argued that AO made 'addition' of 8% as the gross profit on the said purchases and since the appellant has already declared gross profit of 7.69% the addition should be restricted to 0.31% being the difference thereof on the said alleged purchases. 6.3 On perusal of the rival contentions and the material on record, I have found that in the appellant's case, Ld. A.O has not made independent verifications nor he has attempted to issue notice u/s: 133(6)/ 131 of the I.T. Act, but the fact remains that there was an overwhelming evidence in the form of sworn statements recorded from the alleged suppliers given before the Investigation Wing, Mumbai that they are only name sake proprietors/ partners / directors of the concerns and the actual management & control is by Shri Bhanwarlal Jain& his family members. Shri Bhanwarlal Jain also admitted that they are only giving accommodation entries to several parties and the appellant is one among them. 6.4 After weighing the evidence pro and con, I am of the opinion that onus is always on the appellant to prove as to how the material purchased was firstly obtained when the suppliers themselves ....
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....it is not taxable because it falls within exemption provided by the Act, lies upon the assessee. In the case of Durga Prasad More (Supra), the Hon'ble Court went on to add that a party who relies on a recital in a Deed has to establish the truth of this recital, otherwise it will be very easy to make self serving statements in documents either executed or taken by a party who relied on those recitals. If all that an assessee who wants to evade tax has to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. The Hon'ble Court further held that the Taxing Authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents. 6.6 Reliance is also placed on the judgement of Hon'ble supreme Court in the case of Sri Meenakshi Mills Ltd 63 ITR 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 ITR 148(SC) it ....
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.... 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. 6.9 The Ld. AR has relied on a number of decisions with regard to the evidentiary value of a statement taken during survey and argued that the statements of Shri Bhanwarlal Jain does not have any evidentiary value. However in the said case, search and survey actions were conducted simultaneously and the statements were recorded during the course of search and seizure proceedings and post search investigations. In view of the same, the arguments of the appellant and cases cited do not come to the rescue of the appellant on this issue. 6.10 The appellant contends that the AO did not make any independent inquiries on his own. However in this case the investigation wing of the Income Tax Department conducted several inquiries in the post searc....
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....he fact held that whether purchases themselves were bogus or whether parties from whom such purchases were made were bogus, is essentially a question of fact and the Tribunal having examined the evidence on record and concluded that the assessee did produce cloth and sell finished goods, the entire amount covered under such purchase would not be subjected to tax and only the profit element embedded therein was to be taxed. While coming to the above conclusion, the Hon'ble High Court also relied on the decision in the case of Sanjay Oil Cake Ind. 316 ITR 27(Guj). 6.12 In Sanjay Oilcake Industries Vs Commissioner of Income-tax [2009] 316 ITR 274 (Guj), it was held as under: "12. Thus, it is apparent that both the Commissioner (A) and the Tribunal have concurrently accepted the finding of the Assessing Officer that the apparent sellers who had issued sale bills were not traceable. That goods were received from the parties other than the persons who had issued bills for such goods. Though the purchases are shown to have been made by making payment thereof by account payee cheques. the cheques have been deposited in hank accounts ostensibly in the name of the appar....
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....ioned in books of accounts, only the profit element embedded in such purchases could be added to the assessees income and as such no question of law arose in such estimation. The tribunal for arriving the profit-embedded in the transactions @ 12.5% held as under: "Having-heard the submissions of both sides, we have been informed that the malpractice of bogus purchase is mainly to save 10% sales tax etc.; It has also been informed that in this industry about 2.5% is the profit margin. Therefore respectfully following the decisions of the co-ordinate bench pronounced on identical circumstances, we hereby direct that the disallowance is required to be sustained at 12.5% of the purchase from those parties. With these directions, we hereby decide the grounds of the rival parties which are partly allowed." 6.14 As narrated earlier, the Ld. A.O. in this case has himself held that the purchases were not bogus though the party from whom the purchases were made by the appellant was found to be bogus and that is the reason for which AO considered the profit element embedded on such purchases which is estimated @ 8% of the total purchases. The motive behind obtaining bogus bi....
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....1.75% to 3%. It is also brought to my notice that the AOs are also adopting 3% on the purchases made from Bhanwarlal group concerns, as the profit element embedded, in the subsequent assessments finalised on the similar set of facts. In view of the same and also since the profit margin is lesser in this sector, adopting 8% by the AO, is not based on correct footing. Considering the lesser profit margin in this sector i.e. around 2 to 3 percent and the taxes saved is around 1 % and also on purchases made from places like Surat, there is no levy of tax, I am of the considered opinion that if the addition is sustained to the extent of 3% of the purchases made as the profit element embedded in such purchases from the sixteen parties belonging to the Bhanwarlal Group concerns, the same will meet the ends of justice. Accordingly I direct the AO to restrict the addition @3% on the total purchases of Rs. 17,84,98,737/- from the sixteen parties, which works out to Rs. 53,54,962/-. Grounds raised on this issue are partly allowed." 6. Aggrieved by the appellate order dated 28-03-2016 passed by learned CIT(A), both assessee and Revenue are in appeal before the tribunal. Ld. Counsel for t....
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....em. Our attention was also drawn to page no. 32 to 35 wherein reconciliation of stocks as to purchases made from these 16 parties were submitted before the A.O. It was submitted total sales were to the tune of Rs. 86 crores and it was submitted that purchases to the tune of Rs. 17,84,98,737/- were made from these 16 parties allegedly belonging to Sh. Bhanwarlal Jain group. It was submitted that these sixteen parties have confirmed that they have sold the material to the assessee. Our attention was also drawn to page no. 14 of the learned CIT(A) appellate order wherein vide appellate decision the learned CIT(A) computed additional income being embedded profit of 3% of the said alleged bogus purchases which was brought to tax , while the A.O estimated additional profit embedded in these purchases to the tune of 8% which was brought to tax by the AO. Our attention was also drawn to page no. 36 of the paper book wherein affidavit executed on 24-03-2015 by one of the said supplier (Prime Star) is placed . Our attention was also drawn to page no. 37 of the paper book wherein confirmation from Prime Star is placed . Our attention was also drawn to page 40 of the paper book wherein the inc....
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....tally before the Assessing Officer reconciling the purchases with sales. It is also a fact that the Assessing Officer has not disputed the sales effected by the assessee. As against the evidences brought on record by the assessee, the Assessing Officer has relied upon some adverse material neither confronting them to the assessee nor allowing the assessee to cross examine the persons whose statement was relied upon by the Assessing Officer. Therefore, the addition on peak basis cannot be sustained. Moreover, while estimating the profit suppressed on alleged bogus purchases @ 6%, the learned Commissioner (Appeals) has relied upon the CBDT instructions no.2/2008 dated 22nd February 2008. That being the case, we do not find any infirmity in the order of the learned Commissioner (Appeals) on this issue. Accordingly, grounds raised are dismissed. 8. In the result, Revenue's appeal is dismissed." It was also submitted that quantitative reconciliation of the stock were duly submitted before the authorities below (page no. 32 to 35 /paper book) and it was submitted that the diamonds were purchased and exported . Our attention was also drawn to page no. 24 of the paper book to c....
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....er Chapter III or under Chapter VI-A of the Income-tax Act; (vi) where there is information regarding escapement of income. E. The rate of profit as a percentage of turnovers would be reviewed annually on the basis of revenue generation and results of scrutiny assessments, searches and surveys made during the year. 2. The above instruction is issued under section 119(1) of the Income-tax Act, 1961 and would be applicable for assessments made during financial year 2008-09. The instruction may be brought to the notice of all concerned in your Region." It was again reiterated that no inquiry was made by the A.O with respect to these purchasing parties. On being asked by the Bench, the learned counsel for the assessee after taking instructions from the representatives of the assessee who were present in the Court during the course of hearing stated before the Bench that no inquiry has been initiated by any Government Department such as CBI, ED, Customs, Income-Tax etc. against the assessee w.r.t. its business activities in the field of manufacturing and trading of diamonds. Ld. DR on the other hand submitted that as per paper book itself ass....
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....maintained by the assessee. It was explained that payments have been made for purchases from these parties through cheques only. The A.O observed that the assessee has only furnished stock register entry, cheque payments, custom appraisal report in respect to export sale but no other document such as delivery challans were produced by the assessee during the course of assessment proceedings , which led A.O to believe that these purchases shown by the assessee from these firms are bogus. The A.O concluded that since the assessee has provided stock statement wherein the entries of these purchases were made , the only conclusion as per AO can be drawn is that the assessee has purchased these items from open/grey markets either directly or through brokers from some parties known to the assessee in cash without bills and to justify the same invoices were obtained from these sixteen suppliers who have merely issued paper invoices without supplying any material . The AO concluded that the assessee was beneficiary of the accommodation bills issued by these parties. The AO observed that the assessee has claimed sales to be genuine , it is proved that the assessee was actually in possession ....
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....rder dated 27-03-2015 framed by the AO u/s 143(3). The A.O made the additions to the tune of 8% of the alleged bogus purchases towards embedded profits from such purchases vide assessment order dated 27-03-2015 passed u/s 143(3). It is a fact that the AO did not made any enquiry w.r.t. these sixteen parties by issuing notices/summons u/s 133(6)/131 and he relied on the incriminating statement recorded of Sh. Bhanwarlal Jain before DGIT(Inv.), Mumbai which was recorded at the back of the assessee as is emerging from records as well copies of such statement was also not furnished to the assessee. It was claimed by the assessee before learned CIT(A) that all documents such as affidavits, tax returns including financial statements, confirmations from said parties were submitted before the AO but the same were not looked into by the AO. The learned CIT(A), however restricted the additions to the tune of 3% of alleged bogus purchases. The learned CIT(A) whose powers are co-terminus with the powers of the A.O entered into blame game by alleging that the A.O has not undertaken the enquiry etc. instead of getting the enquiry done by himself or directing the AO to do the necessary enquiry as....
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....e assessee has relied on the decision of Ratnalaya Diamonds Private Limited(supra) of which both of us were party to the said order, however, in the said case the assessee has before the tribunal given concession to be assessed at an additional income computed at the rate of 6% of the alleged bogus purchases accepting CBDT circular no. 2/2008 dated 22-02-2008 for benign assessment procedure in the case of diamond sector and under the said factual matrix , the tribunal upheld the appellate order of learned CIT(A) upholding additions to the tune of 6% of the alleged bogus purchases. The assessee in the instant case has challenged the appellate order of learned CIT(A) and seeking deletion of the additions so made by authorities below. The purchases are appearing in the books of the assessee and the assessee is seeking benefit of deduction of these purchases against its income , hence primary onus is on the assessee to prove that purchases are genuine and that too in the midst of incriminating statements of Sh Bhanwarlal Jain as well investigations conducted by DGIT(Inv.). We have also gone through the replies dated 25-03-2015 submitted by the assessee before the AO (page 29-303/pb) wh....