2019 (2) TMI 458

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....he assessee claimed that the readymade garments were exported and claimed drawback amounts from the concerned authorities. After enquiry, the AO was of the opinion that the amounts claimed towards purchase of the raw materials were bogus. In para 3.3 of the AO's orders, the AO detailed the nature of the particulars provided by the assessee with respect to the entities/firms from whom purchases were made. 3. The assessee's claim was disallowed and the entire sum of Rs. 6.77 crores was brought to tax under Section 68. The assessee appealed to the Commissioner, and the Appellate Commissioner considered its submissions as well as the relevant case laws. The CIT(A) also noted that the assesee's partner one Mr. Inderpal Singh Wadhawan when confronted with a similar situation, had approached the Settlement Commission resulting in a favourable order. The CIT(A), accordingly, enquired further into the matter as is evident from the discussion in the appellate order. The CIT(A) thereafter noted as follows:- "5.5 I have carefully considered the facts of the case and submission of the appellant. I have perused the material available on the record. Further, on specific query raised by m....

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....t satisfied with the assessee's explanation and proceeded to treat them as unexplained credits under Section 68. The CIT[A] however held that since the larger sum of Rs. 6.77 crores was brought to tax, this amount i.e. Rs. 6,18,35,598/- could be subsumed. 5. The ITAT to whom the assessee appealed, allowed and accepted the assessee's plea while affirming the finding with respect to rejection of the books of accounts of the assessee. However, it adopted the strange reasoning that the amounts were taxed on gross profit basis and applied a rate of 6.05%, having regard to the past year's income and profit reported. The findings of the ITAT are as follows:- 20. In view of the above we are inclined to hold that the addition of 30% of total purchases made by the AO which also includes alleged sundry creditors pertaining to same purchase cannot be held as sustainable specially in the event of rejection of books of account u/s 145(3) of the Act. On the basis of above discussion we reach to a logical conclusion that when the books and trading results of the assessee have been rejected by the AO then no addition on account of bogus purchases or unexplained sundry trade creditors, who are....

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..... 6.77 crores was brought to tax concurrently, under Section 68, ITAT could not have apply GP Ratio as in this case. Learned counsel for the assessee, on the other hand, submits that during the course of the assessment proceedings the materials which it possessed by way of names and identity of the suppliers had been duly furnished. It was further stated that the assessee had regular transactions with those suppliers and in these circumstances the entire amounts would not have been disallowed. 7. The AO as well as CIT[A] had relied upon the decision of this Court in Commissioner of Income Tax, Delhi-III, New Delhi vs. La Medica, Delhi (2001) 250 ITR 575. In that judgment the Court had dealt with a somewhat similar situation where the claim of expenditure was suspected. The relevant discussion is as follows:- "Though essentially the conclusion of the Tribunal have the colour of factual findings, still we find that the Tribunal has not taken into consideration relevant materials and has also acted on irrelevant materials. The fact that the alleged sellers have been found to be persons with no means to effect purchases or to carry on business is a factor which does not appear to....

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....re real and not fictitious as claimed by the Revenue. As observed in Omar Salay Mohamed Sait v. commissioner of Income-tax (1959) 37 ITR 151 (SC), a question of law arises of a finding of fact is arrived at by the Tribunal after improperly rejecting evidence. A question of fact becomes a question of law if the finding is not founded on any evidence or material, or if it is contrary to evidence. Similar is the position if it is perverse or there is no direct nexus or link between conclusion of fact and the primary fact upon which that conclusion is based. Where Tribunal acts on partly relevant and partly irrelevant materials, and it is not possible to say as to what extent latter has influenced its mind, the finding is vitiated because of use of irrelevant material. That given rises to a question of law. This position has been succinctly stated by the Apex Court in Dhirajlal Girdharilal v. Commissioner of Income-tax, (1954) 26 ITR 736(SC), Commissioner of Income-tax v. Daulat Ram Rawatmull, (1973) 87 ITR 349 (SC). Where the Tribunal misdirects itself in law in basing its conclusions on some evidence ignoring other essential materials on record, a question of law arises. (See: Commis....