TaxTMI 
TaxTMI 
TaxTMI 
2018 (2) TMI 964
X X X X Extracts X X X X
X X X X Extracts X X X X
....ommodation entries from various entities, including Pramod Kumar Singh(PKS), Sidhi Vinayak Steel, Asian Steel, Chancal Tube Corporation and Suraj Tube Corporation. He directed the assessee to substantiate the purchases by producing Ledger confirmations, bills, Lorry receipts, delivery challans etc. After considering the explanation filed by the assessee, the AO held that sufficient evidences existed to show that the assessee had made bogus purchases, that the statements of PKS were recorded on 28/02/2011 wherein he had admitted that bogus bills were issued to various parties by him and his associated concerns, that assessee was one of the beneficiaries of bogus bills, that the sales tax Department had identified PKS as provider of bogus invoices, that enquiries were carried out by deputing the inspector in that regard, that the inspector had reported that the parties from whom purchases were shown to be made by the assessee were not available at the given addresses, that notices issued under section 133 (6) calling for information from those parties had been returned unserved in most cases, that the proprietor of one of the suppliers had admitted that the purchases shown by the gro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....us High Courts and the Tribunal. After logically analyzing the principles emerging from the judgments/orders, she applied them to the facts of the case. So, in our opinion, there is no defect in her approach. One of the basic and fundamental principal of accountancy and taxation jurisprudence is that without purchases there cannot be any sale. If sales are accepted by the AO or if the books of accounts are not rejected by him on account of non genuine sales, then existence of purchases cannot be denied. In such a situation, it becomes a case of 'purchase from bogus parties' and not a case of 'bogus purchases', as explained by the Hon'ble Gujarat High Court. We are now reproducing the facts of the case of Bholanath Poly Fab(supra). In that matter the assessee, for the AY. 2005-06, was found to be engaged in the business of trading in finished fabrics. The AO held that purchases worth Rs. 40, 69, 546/- were unexplained and disallowed the expenditure claimed by the assessee and computed the total income of Rs. 41, 10, 187/-. In so far as the question of bogus purchases was concerned, the Tribunal concurred with the Revenue's views that such purchases were made from bogus parties. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on. The AO concluded that the total purchase of Rs. 41, 04, 903/-cumulatively made from the three parties were bogus. He thus treated such purchases as bogus purchases and added the entire amount of Rs. 41, 04, 903/-to the gross profit of the assessee. He also rejected the books of account and estimated the assessee's business profits at Rs. 5 lakhs. The FAA held that the assessee had made purchases from other parties in the open market. Therefore, he retained 30% of the purchases cost as the probable profit of the assessee and educed the additions from Rs. 41, 04, 903/- to Rs. 12, 31, 471/- and deleted the balance of Rs. 28, 73, 432/-. While doing so, he deleted the addition of Rs. 5 lakhs as made by the AO, on the ground that the addition on account of bogus purchases had already been made. The Tribunal was of the opinion that 12. 5% of the disputed purchases should be retained in the hands of the assessee as business profits. On appeal, the Hon'ble High Court held as under: "....... the Commissioner (Appeals) believed that the purchases were not bogus but were made from the parties other than those mentioned in the books of account. That being the position, not the entire purc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....opinion that the FAA had rightly held that no ad hoc disallowance can be made without relying upon any cogent material. Confirming her order, we dismiss second ground, raised by the AO. 4. Last ground of appeal is about disallowance of Rs. 37. 70 lakhs, made under section 14A of the Act. While completing the assessment the AO asked the assessee as to why disallowance under section 14 A read with rule 8D of the Income Tax Rules, 1962(Rules) should not be made. After considering the submission of the assessee in that regard, the AO held that there were contradictions in the details of direct and indirect expenses incurred by the assessee during the year under consideration, that all the investments were not old investments, that it had made investment in unquoted shares of its associates sister concern, that it had incurred total financial cost, including interest, of Rs. 7. 59 crore in respect of the loans and advances borrowed from the financial institutions. Finally, he made a disallowance of movies 37, 70, 860/-(Rs. 5. 32 lakhs-expenditure directly related to earning of exempt income + Rs. 26. 72 lakhs-average value of total assets as appearing in the balance sheet of the assess....