TaxTMI 
TaxTMI 
2018 (12) TMI 1659
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.... 3. We shall first take up the issue of addition relating to bogus purchases. The facts as discussed by the AO in AY 2011-12 are discussed here. The assessee is engaged in the business of trading in ferrous and non-ferrous metals through his proprietary concern named M/s M.M. Metals. During the course of assessment proceedings, the AO issued notices u/s 133(6) of the Act to the suppliers of materials to the assessee, in order to verify the genuineness of purchases. The notices were returned back unserved by the postal department with the remark "Not known", "left" etc. The AO also noticed that six of the suppliers were identified as hawala parties by the Sales tax department of Government of Maharashtra, i.e., they were providing only accommodation bills without actually supplying the materials. Accordingly, the AO proposed to disallow the purchases. 4. The assessee furnished following documentary evidences to prove the genuineness of purchases:- (a) Ledger account of purchase parties (b) Copies of purchase bills and delivery challans (c) Copies of bank statements evidencing payments made through proper banking channels by issuing account payee cheques....
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....lected by them. It was contended that the assessee could not have sold the goods without purchasing it. It was further submitted that the AO has made addition of peak credit of purchases u/s 69C presuming that the assessee would have paid cash for purchases to some undisclosed parties. It was submitted that the same is only presumption not supported by any facts, as the assessee has made payment through banking channels by way of account payee cheques. It was submitted that the AO has not showed that there was flow back of cash against payments made by cheque. Accordingly it was submitted that the addition made u/s 69C of the Act is not correct. The assessee placed his reliance on the following case laws to support his various contentions:- (a) M/s Balaji Textile Industries P Ltd vs. ITO (49 ITD 177) (b) CIT vs. M/s S.M. Omer (201 ITR 608)(Cal) (c) M/s Vijay Proteins Ltd (58 ITD 428) (d) ITO vs. Premanand (ITAT, Jodhpur) (e) Jagdamba Trading Co. Vs. ITO (ITAT, Jodhpur) (f) CIT vs. Leaders Valves (P) Ltd (P & H)(285 ITR 435) (g) Nikunj Eximp Enterprises P Ltd (Bom)(216 Taxmann 171) (h) Ganpatraj A Sanghavi vs. A....
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....rder passed by the learned CIT directing the Assessing Officer to make addition of 100% of value of bogus purchases. He further submitted that the order so passed by the Tribunal has since been upheld by the Hon'ble Bombay High Court in the case of Shoreline Hotel (P) Ltd. v. CIT [(2018) 98 taxmann.com 234 (Bombay)]. Accordingly the learned DR submitted that the order passed by the learned CIT(A) on this issue should be reversed and the addition made by the Assessing Officer should be sustained. 10. The Ld A.R, on the contrary, submitted that the assessee has reconciled the purchases and sales, meaning thereby, the assessee could not have sold the goods without purchasing them. He submitted that the assessee has furnished all the documents available with it in order to prove the genuineness of purchases. He submitted that the assessee did not have direct contact with the suppliers, since the goods were purchased through the brokers. Hence the assessee was not aware of present address of the suppliers and also could not produce them before the AO. He further submitted that the impugned suppliers have failed to pay VAT tax collected by them to the sales tax authorities and hence t....
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.... no gap to be filled in. 13. The Ld A.R further submitted that the Gross profit rate and net profit rate declared by the assessee over the years is consistent, i.e., the average rate of G.P declared by the assessee was 1.97% and the average rate of N.P declared by the assessee was 0.76%. Accordingly the Ld A.R submitted the G.P rate and N.P rate would have gone down, had the assessee accounted for bogus purchases, as alleged by the AO. Accordingly, the Ld A.R submitted that the entire addition should be deleted. 14. In the rejoinder, the Ld D.R submitted that the Ld CIT(A) has recorded a finding that the assessee has not done one to one reconciliation of purchases and sales, i.e., the assessee has only shown that the aggregate quantity of purchases made from the hawala dealers have been sold. In the absence of one to one reconciliation, it cannot be said that the assessee has sold the very same goods. The Ld D.R submitted that the Tribunal has confirmed additions at higher rates also in many cases. Accordingly he submitted that the decision rendered by the Tribunal would depend upon the facts prevailing in that case and hence no standard parameter can be prescribed in the mat....
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....d CIT(A) has followed the decision rendered by Hon'ble Gujarat High Court in the case of Simit P sheth (supra), wherein the profit rate was determined at 12.50% and the hence the Ld CIT(A) has also sustained addition to the extent of 12.50% in the instant cases also. For the reasons discussed in the ensuing paragraphs, we are of the view that the profit rate of 12.50% determined by the Ld CIT(A) is on the higher side. 17. Before addressing the issue relating to rate of profit, we prefer to address the view taken by the AO. We have noticed that the assessing officer has assessed peak amount of purchases. We have earlier noticed that the assessing officer has accepted the sales and the assessee could not have sold the goods without purchasing them. Hence the Hon'ble Gujarat High Court has held that the profit element embedded in such purchases alone should be brought to tax. Hence the approach of the assessing officer to assess the peak credit of purchases cannot be sustained for the above said reason and also for the reason that the AO himself has accepted that the assessee has reconciled the quantity of purchases with quantity of sales. 18. Further, we have noticed that the A....
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.... taken one more ground in AY 2012-13 regarding the addition of cash credits made u/s 68 of the Act., i.e., the revenue is aggrieved by the decision of Ld CIT(A) in deleting the cash credit addition of Rs. 75.00 lakhs. The facts relating to the said issue are discussed in brief. The AO noticed that the assessee has taken loan from following two companies during the year relevant to AY 2012-13:- Sankhala Properties P Ltd - Rs. 45.00 lakhs Sonam Gems P Ltd - Rs. 30.00 lakhs Rs. 75.00 lakhs The AO further noticed that both the above said companies belong to Bhanwarlal Jain Group, which had been subjected to search and seizure operations. During the course of search operations, Shri Bhanwarlal Jain had admitted that his group consisting of about 70 concerns were only providing accommodation entries in the form of unsecured loans and purchase bills. The directors of various concerns were found to be employees of Bhanwarlal Jain and they have also admitted the same in their statement. Hence the AO proposed to assess the above said loans u/s 68 of the Act. 22. The assessee submitted that he has submitted all the documents to ....
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....e basic thrust of the case against the appellant, the impugned assessment order needs to be examined to figure out the quality of appellant-specific evidence if any available. A search for such an examination leads to the following questions: a. "What is the nature of evidence that has been brought on record to show that the lender parties, who advanced the impugned loans to the appellant, were benamis of Shri BhanwarlalJain Group? b. Is there any material that has been brought out by the Assessing Officer to show that the loans in question are paper entries purchased against payment of unaccounted cash?" 7.3.2 First of all, it would be worthwhile to examine the impugned assessment order with regard to material that shows that the hawala racket was run through benami entities of Shri Bhanwarlal Jain. In this regard it is mentioned in the assessment order, the Assessing Officer claims that in their respective statements, recorded u/s 132(4) all Directors / Proprietors / Partners of the alleged benami entities run by Shri Bhanwarlal Jain have admitted to being dummies, business in whose names was actually being run by Shri Bhanwarlal Jain. However no mentio....
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....blished to discharge the burden under section 68 of the Act: * Identity of the creditor * Creditworthiness of the creditor, and * Genuineness of the transaction. 7.3.5 The Hon'ble Supreme Court in case of CIT v. P. Mohanakala [2007] 291 JTR 278 / 161 Taxman 169 held that the expression "assessee offers no explanation" means where the assessee offers no proper, reasonable and acceptable explanation as regards the sum found credited in the books maintained by the assessee. It further held that the opinion of the AO for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material & other attending circumstances available on record. The opinion of the AO is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion. 7.3.6 The law is well-settled that the onus of proving the source of a sum of money found to have been received by an assessee is, on him and where the nature and source of a receipt, whether it be of money or other property, cannot be satisfactorily explained by th....
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....sustained. 7.3.11 In the case of CIT v. Jai Kumar Bakliwal [2014] 366 ITR 217 (Raj) it was held by the Rajasthan High Court that all the cash by the Rajasthan High Court that all the cash creditors were assessed to Income-tax and they provided a confirmation as well as their permanent account number. They had their own respective bank accounts which they had been operating and it was not the claim of the Assessing Officer that the assessee was operating their bank accounts. Most of the cash creditors appeared before the Assessing Officer and their statements under section 131 of the Income-tax-Act, 1961, were also recorded on oath. There was no clinching evidence nor had the Assessing Officer been able to prove that the money actually belonged to non but the assessee. The addition under section 68 was not justified. 7.3.12 The question whether an assessee is required to prove the source of source also has been answered by the Hon'ble Gauhati High Court in case of Nemi Chand Kothari v. CIT[2004] 136 Taxman 213. The High Court held that the assessee's burden is confined to proving the creditworthiness of creditor with reference to transaction between assesse....
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....ink of any further material to ask for and proceeded to reject the appellant's claim. The unequivocal conclusion is that all the three ingredients having been satisfied, the impugned loan of Rs. 75,00,000/- have to be treated as explained satisfactorily and the Assessing Officer was wrong in having disregarded overwhelmingly supportive evidence. No cogent material was adduced by him, to show that loans were unexplained. Therefore, the impugned addition of Rs. 75,00,000/-, made in the Assessment Order, fails on the count that evidence that is relied upon is totally inadequate and failure to recognise the satisfactory nature of the explanation/evidence tendered by the appellant to explain identity of creditors, creditworthiness of the creditors and the genuineness of the loan transactions. Hence, the impugned addition of Rs. 75,00,000/- is hereby deleted. Ground No. 2 is treated as 'Allowed'. 24. We heard the parties on this issue. The Ld D.R submitted that the lenders belong to Bhanwarlal Jain Group and it has admitted that they have provided only accommodation entries. Accordingly he submitted that the Ld CIT(A) was not justified in deleting the addition made u/s 68 ....