TaxTMI 
TaxTMI 
2018 (12) TMI 1659
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....ion 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. (d) Statement showing quantitative details of purchase from....
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....e 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. ACIT (ITA No.2826/Mum/2013) 7. The assessee also submitted that he could not produce the parties, since the purchases we....
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....her 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 they have been classified as hawala dealers. He further submitted that the suppliers cannot be considered as witness of assess....
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....ssee 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 matter. 15. We have heard rival contentions and perused the record. We notice that the assessing officer has made the impugned add....
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....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 AO has also invoked the provisions of sec.69C of the Act. A perusal of provisions of sec.69C would show that the said section shall ap....
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....he 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 prove the identity and credit worthiness of the creditors and genuineness of transactions. Accordingly the assessee objected to the proposal of the AO. Howe....
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....ion 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 mention of any particular statement from any particular person was reproduced in the order. It is also mentioned that books of accounts, were found at one place. However, the AO has not mentioned anything about the incriminating ....
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.... [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 the assessee, it is open to the revenue to hold that it is the income of the assessee and no further burden lies on the revenue to show that the income is from any particular source [Roshan Di Hatti v. CIT[1977] 107ITR 938 (SC)]. 7.3.7 The initial burden to prove the ge....
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....t 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 assessee and creditor and it is not the business of the assessee to find out the source of money of his creditor or of genuineness of transaction which took place between the creditor and sub-creditor and/or the creditworthiness of the sub-creditors. 7.3.13 Hence, it is to be inferred that in a case where the ....
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.... 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 of the Act. On the contrary, the Ld A.R submitted that the assessing officer has made the impugned addition u/s 68 of the Act. He submitted that the initial burden placed upon the assessee under the provisions of sec.68 of the Act is to prove the identity and credit worthiness of lender and genuineness of transactions. He submitted that the assessee has furnis....