TaxTMI 
TaxTMI 
2017 (12) TMI 195
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.... at the fag end of the limitation date and filed few details which were kept on record by the AO. There was no compliance till 13.12.2011. The first compliance was made only on 14.12.2011. During the year under consideration, the assessee company derived income from property development and trading of textile items. The Assessing Officer observed from the profit and loss account and balance sheet that the assessee has shown following figures : Purchase Rs.35,11,19,546/- Sales Rs.35,12,58,126/- Sundry creditors Rs.34,99,19,546/- Loans and advances given Rs.35,00,00,000/- There was a meager margin of Rs. 1.38 lacs approximately from the above trading activities. During the course of assessment proceedings, the Assessing Officer asked the assessee for details of purchase and sales of fabrics, details of sundry creditors and the persons to whom loans and advances were given by the assessee company. In response, the assessee submitted the details of the purchases worth Rs. 35,11,19,546/- from 37 parties. The Assessing Officer observed from the purchase list that major purchases were made from few creditors and major sales were made to two parties, named Actif ....
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....rchase and sales invoices were the same in pattern and the confirmations filed were self serving documents. The AO relying on some case laws, observed that the transactions are not genuine business transactions and the transactions were rather entered to introduce unaccounted money of the assessee company in the books of account under the garb of purchase/sales of fabrics and its subsequent passing to the three companies as 'loans and advances' and the purchases and sales made of fabrics by the Assessing officer has been treated as sham transactions by the Assessing Officer. Therefore, he assessed the sales of Rs. 35,12,58,126/- as undisclosed income of the assessee introduced in the books of account in the garb of sale of fabrics. Aggrieved by the above additions, the assessee appealed before the first appellate authority, who after considering the submissions and the order of the Assessing Officer, allowed the appeal of the assessee observing as under : 5. I have gone through the appellant's submissions and considered the facts and evidences on record have perused the AO's order. It is seen that the AO has added the entire sales as undisclosed income. He has not ....
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....t of any funds at all and mere books entries are there. Therefore, in the facts of the case there is no colorable device to evade the taxes. However, in my view it is a fit case to initiate proceedings under section 269 SS and 269T in respect of the parties where by mutual agreement the "Debtors" have been converted as "Loan and Advance", "creditors for goods" have been treated as "unsecured loan" as it is a case of taking or accepting loans and deposits otherwise than by an account payee cheques / bank drafts. The AO in his order vide para 11 has given a finding to this effect and therefore he is again directed to ensure the compliance of same. In view of the above discussions, I am of view that when on one hand sales are duly been reflected in books of accounts, the additions of the like amount cannot be added to appellant's income as income from undisclosed sources when no evidence is available with the AO. 6. In the result, addition made by AO is deleted and in the result appeal is allowed." 3. Aggrieved by the order of ld. CIT(A), the Revenue is in appeal before the Tribunal. 4. During the course of hearing, the ld. DR relied on the order of the Ass....
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....cable. 2.6 It is a simple matter of error on part of CIT(A) that the CIT(A) did not understand the preposition that by the purchases are bogus. 3.1 It is a simple matter of error on part of CIT(A) that the CIT(A) did not understand the preposition that by the device adopted by the assessee it is able to create a smoke screen to show that it has advanced loan of Rs. 35,12,58,71,216/-. 3.2 It is a simple matter of error on part of CIT(A) that the CIT(A) did not consider the matter in light of human probabilities. The CIT(A) ignored squarely applicable ratio of Hon'ble SC in case of Sumati Dayal Vs. Commissioner of Income-tax [1995] 80 TAXMAN 89 (SC) which states as under : "...that the taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities....." 4. Hon'ble Delhi High Court in case of Siddho Mal & Sons Vs. Commissioner of Income-tax [1980] 3 Taxman 1 (Delhi) held that the appreciation of evidence of circumstance, attaching to a transaction, is wholly a question of fact and not of law.(ref. para 21). 5.....
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....e two parties are related or known to each; the manner or mode by which the parties approached each other, whether the transaction was entered into through written documentation to protect the investment, whether the investor professes and was an angel investor, the quantum of money, creditworthiness of the recipient, the object and purpose for which payment/investment was made etc. These facts are basically and primarily in knowledge of the assessee and it is difficult for revenue to prove and establish the negative. Certificate of incorporation of company, payment by banking channel, etc. cannot in all cases tantamount to satisfactory discharge of onus. The facts of the present case noticed above speak and are obvious. What is unmistakably visible and apparent, cannot be spurred by formal but unreliable pale evidence ignoring the patent and what is plain and writ large, "(emphasis supplied). 6. The CIT(A) has pointed out various mistakes of the AO but did precious little to bring necessary material on record. The CIT(A) has same powers which are available to the AO. The CIT(A) but has violated the spirit of judgment of jurisdictional High Court in case of CIT Vs. Jansamp....
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....ation in respect of 42,000 bottles out of the total number of bottles (5,46,000), by reason of the impugned judgment. That benefit is sought to be taken away by the Department, which is not permissible in law. This is the infirmity in the impugned judgment of the High Court and the Tribunal." 4. It has been held in a number of cases that the DR cannot be allowed to take up a new contention de hors the view taken by the AO as it would mean that DR is stepping in the shoes of Commissioner of Income Tax exercising jurisdiction u/s 263. As such the DR cannot be allowed to say that the addition should be upheld on account of disallowance of purchase, which is not the case of the AO as the AO has added the sales already declared by the assessee. Reliance is placed on the following decisions: * ACIT v. Ms. Aishwarya K. Rai [2010] 127 ITD 204 (Mumbai), the Mumbai ITAT at paragraph 4 held the following: "4. ...It is no doubt true that the learned D.R. can make any arguments in support of the stand taken by the Assessing Officer but there are certain inherent limits of his arguments inasmuch as he cannot transgress the boundaries made by the Assessing Officer. In o....
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..... To suggest that even a proceeding before the Tribunal is a continuation of assessment proceedings and, therefore, the A.O. can be allowed to make up for his deficiencies will amount to rendering all these time limits as nugatory and redundant. It is indeed not open for the Tribunal to take away the benefit given by the A.O. When the AO decided to grant deduction u/s 80-113(10) in respect of residential units it was well considered and conscious decision on his part to have granted the benefit of deduction. With the benefit of hindsight this benefit of deduction might have been little more generous than what is found to be admissible by the Tribunal, but then the decision of the Tribunal has not yet reached finality and it is not an end of the route so far as legal developments in that regard are concerned. It is not the scheme of the Act that entire assessment is open before the Tribunal and it must consider the same. Ground which was raised by the Revenue was confined to profits relatable to commercial units and therefore, it is not really open to the Tribunal to go beyond the said ground. Jeypore Timber & Veneer Mills (P.) Ltd. v. CIT[1982] 137 ITR 415/[19831 12 Taxman 191 (Gau....
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....ese transactions led to profit to the assessee, which was brought to tax. If sales have been effected out of purchases made from these parties, then, it cannot be said that the purchases were bogus. The finding of bogus sale can only lead to the inference that the corresponding amount should be deleted from the turnover of the assessee. The AO has also not rejected the books of account to estimate profit on these transactions in case it was a firm finding that purchases and sales were bogus" 6. The CIT(A) has rightly held that if the AO's approach is accepted that both the sales and purchases are bogus then there will be no taxable income of the assessee. No amount is paid by the assessee during the year under consideration and part of sundry debtors have been treated as loans and advances. No funds or assets have been introduced. The CIT(A) is right in holding that AO has failed to discharge the onus cast upon him that where he is disregarding the accounts of the assessee then how the value Is passed on to the person to whom the sales have been made and to whom the loan have been shown by conversion of sundry debtors. There is no movement of any funds and these are on....
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....se of NK Industries Ltd. v. DCIT [2016] 72 taxmann.com 289 (Guj) upheld the addition on account of bogus purchases and the SLP against the same was dismissed by the Supreme Court. In this respect our submission is as under: a. In the case of the present assessee, no addition has been made by the AO in respect of the purchases made. The addition by the AO is on account of sales made which is rightly deleted by the CIT(A). The benefit given by the AO cannot be taken away by the Tribunal. b. Without prejudice, the judgment of the Hon'ble Gujarat High Court in the case of NK Industries Ltd. v. DCIT (supra) is based on the fact that blank signed cheque books of the purchasing parties, endorsed in favour of NKPL were found during the search on NK Group of cases, whereas in the case of the assessee, the confirmation has been filed and no addition has been made by the AO on account of purchases made by the assessee. The judgment has to be read and understood with reference to issue involved in the case. No such material has been brought on record by the AO, in fact that is not the case of the AO in this case. Reliance is placed on Hon'ble Supreme Court's decis....
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....e creditors as well as not receiving consideration from the parties to whom the alleged sale of fabrics have been shown, i.e., debtors. Surprisingly, the sales returned to the assessee are directly debited to the account of the suppliers in the year. On examination of the whole transaction, the Ld. assessing officer was of the view that assessee has not incurred any direct or indirect expenses for entering into the turnover of the purchases and sales of such a huge magnitude. The assessee stated that the freight is directly paid by the seller of the goods to the assessee company. However, no such evidences were produced before the Assessing Officer as to how the goods have travelled either to the Godown of the assessee or straightway to the buyers of the goods from the assessee. The movement of goods was doubted by the Ld. Assessing Officer. It is further stated that no godown is maintained by the assessee company. All the purchase bills shown by the assessee are also bearing the similar style. On request for the examination of the buyer none of the buyer/ debtors appeared before the Ld. Assessing Officer. The Ld. Assessing Officer further noted that not a single party has made any....
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....the company has share capital of merely Rs. 1 lakh and therefore the provisions of section 269 SS and 269T also do not apply to the facts of the case. We are of the considered opinion that the Ld. CIT (A) has merely believed the submission made by the assessee before him without answering the many of the findings of the Ld. assessing officer. The Ld. CIT (A) did not answer that how it is possible for a company which is having a share capital of meager sum of Rs. 1 lakh and does not have any bank account, to clock the turnover of Rs. 35 crores consecutively for 3 to 4 years and that too in the 2nd year of the establishment of the company. Further, the Ld. CIT (A) has accepted the submission of the assessee that sales have already been recorded in the books of accounts in the profit and loss account and therefore there cannot be any undisclosed income. According to us, he has failed to understand that what is the regular source of income and what is the unknown source of income. In the present case the sales recorded by the assessee has been shown in the disguised manner as regular income of the assessee whereas it is not so, because the assessee has failed to prove the purchases of ....
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....nswered the fact that the parties who made purchases of Rs. 20 crores are existing at the address of the assessee company and the parties to whom the sales have been recorded of Rs. 28 crores also exist at the address of the company. This creates a doubt over the genuineness of the transaction for the reasons that when the buyer and seller both exists at the same address what is the reason of routing the transactions through assessee of such a huge magnitude. In view of the above facts, the Ld. assessing officer has alleged that above purchase and sale transactions of the fabrics are sham transactions, to which the Ld. CIT (A) has brushed aside by holding that the books of accounts are audited and the sales have been shown on the credit side of the profit and loss and already shown in the income. We are of the opinion that Ld. CIT (A) has miserably failed to look into the various allegations made by the Ld. assessing officer with respect to the various transactions recorded by the assessee. Furthermore, the Ld. assessing officer has also mentioned in Para No. 6.6 that the details have been filed by the assessee before him at the fag end of the time limit for completion of assessmen....