TaxTMI 
TaxTMI 
2020 (11) TMI 816
X X X X Extracts X X X X
X X X X Extracts X X X X
....sales of Rs. 5,56,39,544/- and purchase of Rs. 5,39,91,884/- whereas the sundry creditors are shown at Rs. 6,71,74,832/- . The AO asked the assessee vide query No.8 of his first notice u/s 142(1) dated 19.04.2016 to furnish the list of sundry creditors and debtors and their ledger accounts with confirmation containing PAN and latest address. 4. However, the assessee vide her letter dated 05.07.2016 submitted only the names of sundry creditors and amounts outstanding as on 31.03.2014. The other details called for by the AO were not furnished. Therefore, the AO vide order sheet entry dated 05.07.2016 asked the assessee to justify/reconcile/confirm the CASS reasons with respect to assessee's ITR. 5. In response to this, 7 confirmations were filed vide letter dated 19.07.2016 and 6 confirmations were filed on 26.07.2016 but without any supporting documents i.e. even without mentioning PAN No. of the party from whom confirmation has been taken. Therefore, the AO vide order sheet entry dated 26.07.2016 asked the AR to produce the creditors. 6. The AO observed from the documentary evidences filed before him that the confirmations filed bear signature of some person whose iden....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., statement of Sh. Ovais Khan, Mohd. Younus, Sh. Shakeel were recorded on oath and vide order sheet entry dated 26.12.2016, copy of their statements were shown to the AR of the assessee and Sh. Keshav Dutt Sharma, husband of the assessee who were present there for confrontation/ cross examination of the persons whose statements have been recorded. However, no confrontation/ cross-examination of these parties were done by them. Finally, vide order sheet entry dated 26.12.2016, the assessee's AR was asked to produce the remaining 3 creditors for verification namely Sh. Riyazuddin, Sh. Irshad Khan and Sh. Lalmiyan on 28.12.2016 at 11.00 AM with supporting documents mentioned in summons u/s 131 dated 21.12.2016. 11. The AO vide final show cause notice dated 29.12.2016 again giving the brief facts of the case and thereafter, highlighting the non- verification of sundry creditors, asked to assessee to show cause as to why the balance amount shown outstanding against the name of these 6 creditors amounting to Rs. 3,20,92,833/- be not added back and the case was fixed for hearing on 30.12.2016 at 11.00 AM. 12. In spite of being allowed opportunity to produce the 6 creditors afresh fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....131 of the Act could not be served on him as per above inspector report and the assessee has also failed to produce the creditor for personal deposition as asked for vide note sheet entry dated 26.12.2016 and show cause dated 29.12.2016. The Husband and A.R. of the assessee also did not produce the creditor for personal examination on oath and also did not submit any bill/voucher and details of documents as asked for vide show cause dated 29.12.2016 to prove the genuineness of the transaction as asked for vide note sheet entry dated 26.12.2016 and show cause dated 29.12.2016. Hence, in the absence of examination/verification, the identity, genuineness of transactions and creditworthiness of the creditor is not proved as per section 68 of the Act by the assessee. 3. Irshad Khan-Rs. 65,31,250/- summons u/s 131 of the Act could not be served on him as per above inspector report and also no compliance/reply has been received from him vide this office summons dated 21.12.2016 sent to- him by speed post no. ED070048711IN. The husband and AR of the assessee also did not produce the creditor for personal examination on oath and also did not submit any bill/voucher and details of d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wever, no bank detail for A.Y. 2014-15, bills/invoices has been submitted for the verification of payments in cash to Ovais Khan in subsequent years as revealed from their ledger a/c. Hence, it is not certain whether these payments have been actually paid to Ovais Khan or not or that any transaction of purchase and sale has been carried out. Also Mohd. Younus did not give any bill to its customers. Therefore, I treat that 50% of these purchases in F.Y.2013-14 as unverifiable/ bogus. Section 68 of the Act states that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year. In view of the above enquiries and verification conducted by this office in respect of the above creditors and also after giving the assessee an opportunity of being heard from time to time it has been found that these creditors are either bogus or the liability shown by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gh (2017) 85 taxmann.com 104 (Del); xi) Papneja Traders vs. CIT (2012) 20 taxmann.com 752 (P&H); xii) T.P. Abdulla vs. ACIT, Central Cir (Kozhikode) (2012) 20 taxmann.com 402 (Ker); xiii) Mukesh Shaw vs. ITO (2012) 18 taxmann.com 18 (Jharkhand); xiv) Acron Finance (P) Ltd. vs. CIT (2011) 13 taxmann.com 69 (P&H); xv) Pr. CIT (Central-1) vs. NRA Iron & Steel (P) Ltd. (2019) 103 taxmann.com 48 (SC); 15. Aggrieved with such order of the ld.CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds:- "1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in passing a completely non-speaking order, without adjudicating the grounds of appeal as raised before him and without even making reference to 664 pages of evidence as before him. 2. On the facts and in the circumstances of the case and in law, the CIT( A) erred in not examining the issues in appeal and simply copy pasting parts of the Remand Report dated 24.11.2017 and thereafter making sundry references to case law. 3. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rs could not be paid. He submitted that after receipt from the debtors belatedly, the creditors were subsequently paid much before the completion of the assessment. Although such details were filed before the AO, however, the AO did not take all these things into account and made addition u/s 68 of the Act. 18. The ld. Counsel submitted that the AO has not rejected the books of account of the assessee and the sales has been accepted. He accordingly submitted that once the sales has been accepted and the assessee has filed the quantitative details of all purchases, sales, opening stock and closing stock item-wise and quantitywise and the items were exported out of the country, therefore, merely because certain creditors, who are illiterate persons not knowing the intricacies of the tax laws, has made some adverse statements or expressed their ignorance about the various entries, the same cannot be a ground to make huge addition by disregarding the purchases. He submitted that without purchases there cannot be any sales. He further submitted that the entire goods are exported out of the country after thorough inspection by the competent authorities. 19. Referring to the decisio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Revenue, the Hon'ble High Court dismissed the appeal of the Revenue holding that since conclusion arrived at by the Tribunal was based upon a finding of fact that there was corresponding sales in respect of alleged bogus purchases, the order of the Tribunal could not be said to give rise to any substantial question of law warranting interference. 21. Referring to the decision of the Hon'ble Delhi High Court in the case of CIT vs. Sunrise Tooling System (P) Ltd., 47 taxmann.com 20, he submitted that the AO in that case made addition to assessee's total income on the basis of statement of Director of Company that certain amount represented non-existent or bogus transaction. In appeal, the Tribunal took note of statement of 'D' and retraction made later on. It was also noted that said statement was recorded in course of survey under section 133A and, consequently, did not have any evidentiary value. The Tribunal, thus, deleted the addition made by the authorities below. The Hon'ble High Court, while dismissing the appeal filed by the Revenue, upheld the order of the Tribunal. It held that the Tribunal has passed the order after taking note of materials before Revenue authoritie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd purchase of Rs. 5.40 crores. The AO has made the addition on account of bogus liability against sundry creditors because the assessee could not substantiate the identity and credit worthiness of the sundry creditors and genuineness of the transactions. He submitted that while deciding the issue we should go to the substance of the case and not the form of the case. The AO in the instant case has made extensive enquiries and made the additions which has been sustained by the CIT(A) after obtaining a remand report from the AO. He submitted that the assessee has miserably failed to substantiate the purchases from the six creditors to the tune of Rs. 3.05 crores and, therefore, the addition made by the AO and sustained by the CIT(A) is fully justified. He further submitted that even though the assessee was given opportunity to cross-examine three of the sundry creditors, however, the assessee did not avail of the opportunity and, therefore, the assessee cannot make any plea that she was not given the opportunity to cross-examine. 25. The ld. Counsel, in his rejoinder, drew the attention of the Bench to the copy of the remand report and submitted that the AO himself has accepted i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e through various inspections by the Customs Department and the sales have been accepted by the AO himself. Further, the books of account of the assessee have not been rejected. The assessee has made the payments to the above parties in the subsequent assessment years which has been acknowledged by the AO in the remand report. Further, the assessee has produced three of the six creditors before the AO. Therefore, under the circumstances, the addition u/s 68 of the Act in respect of the trade creditors is not justified. 27. We find some force in the above argument of the ld. Counsel. It has been an undisputed fact that the books of account of the assessee have not been rejected and the sales of the assessee has been accepted. The assessee, in the instant case is maintaining stock register giving item-wise and quantity-wise items purchased, sold, opening stock and closing stock. Further, out of the six creditors, the assessee has produced three creditors, namely, S/Shri Ovais Khan, Mohd. Younus and Shakeel, whose statements were recorded u/s 131 of the IT Act. Although the statements recorded during the course of assessment proceedings from the above three creditors are not in fav....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t, no payments have been made to those parties during the impugned assessment year and the assessee was unable to produce the above six parties before the AO during remand proceedings although three of them were produced before the AO during assessment proceedings. Under these circumstances, it is to be seen as to whether addition can be made of the whole of the amount or profit embedded in these purchases can be added to the total income of the assessee. 29. We find, somewhat identical issue had come up before the Hon'ble Bombay High Court in the case of PCIT vs. Jakharia Fabric (P) Ltd., 118 taxmann.com 406. In that case, information was received by the AO to the effect that eight parties from whom purchases were made by the assessee were hawala dealers who had issued bogus bills and the AO treated the aforesaid purchases as bogus purchases and accordingly addition was made to the total income of the assessee. The CIT (A) noted that without purchase of materials, it was not possible for the assessee to complete job work of dyeing and, thus, the entire purchases could not be added as bogus and profit element embedded in such transaction had to be added to the total income of....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... work of dying the cloths on a contract basis. Estimation ranging from 12.5% to 25% has been upheld by the Hon'ble Gujarat High Court depending upon the nature of the business. As held in the case of Simit P. Sheth (supra) no uniform yardstick could be applied to estimate the rate of profit and it vary with the nature of business. Taking all the facts into consideration and the findings of the Hon'ble Courts on this issue, I am of the view that estimation of 17.5% of profit would meet the ends of justice. Therefore, I direct the AO to estimate profit of 17.5% on the total alleged bogus purchase which works out to Rs. 20,11,270(17.5% of Rs. 1,14,92,970/-). The appellant get the relief of the balance Rs. 94,81,700/-. The grounds raised are partly Allowed." 13. Thus as can be seen from the above, CIT (A) had relied upon the decision of the Gujarat High Court in Simit P. Sheth (Supra) and took the view that entire purchases from the eight parties could not be added as bogus but what needed to be added to the total income of the assessee was the profit element embedded in such transaction. CIT (A) noted that assessee carried out only the job work of de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rmation received from the Sales Tax Department or from the Investigation Wing of the Department to the assessee allowing the assessee to test the veracity of such information otherwise such information could not be relied upon. This court in the case of Principal Commissioner of Income Tax Vs. Vaman International Pvt. Ltd., Income Tax Appeal No.1940 of 2017, decided on January 29, 2020 held as under:- "17.1. Thus, from the above, it is seen that Tribunal had returned a finding of fact that the assessee had filed copies of purchase bills, copies of purchase/ sale invoices, challan cum tax invoices in respect of the purchases, extracts of stock ledger showing entry/exit of the materials purchased, copies of bank statements to show that payment for such purchases were made through regular banking channels, etc., to establish the genuineness of the purchases. Thereafter, Tribunal held that Assessing Officer could not bring on record any material evidence to show that the purchases were bogus. Mere reliance by the Assessing Officer on information obtained from the Sales Tax Department or the statements of two persons made before the Sales Tax Department would not be su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ded to the income of the assessee, Tribunal made further addition of 3% profit, thereby protecting the interest of the Revenue. We have also considered the two decisions relied upon by learned standing counsel and we find that facts of the present case are clearly distinguishable from the facts of those two cases to warrant application of the legal principles enunciated in the two cited decisions. 20. In Bholanath Polyfab Limited (supra), Gujarat High Court was also confronted with a similar issue. In that case Tribunal was of the opinion that the purchases might have been made from bogus parties but the purchases themselves were not bogus. Considering the fact situation, Tribunal was of the opinion that not the entire amount of purchases but the profit margin embedded in such amount would be subjected to tax. Gujarat High Court upheld the finding of the Tribunal. It was held that whether the purchases were bogus or whether the parties from whom such purchases were allegedly made were bogus was essentially a question of fact. When the Tribunal had concluded that the assessee did make the purchase, as a natural corollary not the entire amount covered by such purchase but th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....- that the income-tax authorities had not even rejected the books of the assessee even while finding the claim as genuine transaction to be bogus." 31. We find, the Hon'ble Gujarat High Court has also decided somewhat similar issue in the case of Principal Commissioner of Income Tax, Vadodara 2 vs. Synbiotics Ltd. (supra) In that case, the assessee was engaged in the business of manufacturing and marketing of various bulk drugs and pharmaceutical preparations. During that assessment year, the assessee incurred expenditure for purchase of chemicals for production of products. A search was carried out at the premises of one FHR in which it was found that the said party was running ten concerns which were mainly used for issuing bogus purchase bills and the assessee had also purchased chemicals from one of its concerns. The AO, invoking the provisions of section 69C, made addition to the total income of the assessee on account of bogus purchases. The CIT(A) noted that it was impossible to generate profit ratio of 107.95% and, thus, the assessee had produced goods by utilizing such bulk drugs purchased by it. In the light of the finding of fact, he restricted the addition on account....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Tribunal found that the parties from whom the purchases were shown to have been made were perhaps creation of the assessee itself for the purpose of banking purchases into books of account because the purchases with bills were not feasible. Thus, the said parties become conduit pipes between the assessee firm and the sellers of the raw materials. Under the circumstances, it was not impossible for the assessee to inflate the prices of raw materials. The Tribunal, accordingly, held that an addition of 25% for extra price paid by the assessee than over and above the prevalent price is fair and reasonable and, accordingly, confirmed the findings of the Commissioner (Appeals). This court concurred with the findings of the Commissioner (Appeals) and the Tribunal and held that the estimate made by the two appellate authorities did not warrant interference as even otherwise, whether the estimate should be at a particular sum or at a different sum, can never be an issue of law. 17. In the facts of the present case, the Tribunal, having concurrently found that there were corresponding sales in respect of the bogus purchases, was wholly justified in confirming the order passed by the....