TaxTMI 
TaxTMI 
2020 (12) TMI 501
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the genuine bona fide purchases as bogus purchases without appreciating that all of our purchases are genuine and bona fide real purchases and that the appellant has adduced various evidences, none of which have been belied or disproved by the AO. The said addition made by the AO and sustained by the CIT (A) may therefore be deleted. 2) On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in sustaining partly the addition made by the AO, on the basis of materials / information, if any, collected behind the back, without giving opportunity to cross examine the witnesses and to rebut the same. The impugned order is therefore against the principles of natural justice and hence void on this score alone. The impugned order may therefore be declared void and / or the addition made / sustained thereby may by deleted. 3) On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in sustaining partly the addition made by the AO, ignoring the fact that the appellant has produced all and every details, documents and records proving genuineness of his impugned purchases and that too without pointing out any infi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 4. Briefly stated, the facts of the case are that the assessee filed its return of income for the assessment year (AY) 2011-12 on 29.09.2011 showing total income of Rs. 24,02,437/-. During the course of assessment proceedings, the AO received information from the Sales Tax Department, Government of Maharashtra that the assessee had obtained bogus purchase bills from the following entry providers: S. No. Name of the entry provider Amount in the bills taken by the assessee in Rs. 1 Ashtavinayak Sales Agency 13,22,210 2 Adinath Trading Company 15,30,123 3 Nisha Entgrprise 95,737 4 Choksi Brothers 20,12,843 5. Kamalnayan Exim Private Limited 14,03,761 6. Polaris Sales Agency Private Limited 20,61,382 7. BSR Multitrade Trading Private Limited 13,39,735 8. Anshu Mercantile Pvt. Ltd 4,41,369 1,02,07,160 Noting that the Proprietors/Partners of the above entry providers have also filed affidavits before the Sales Tax Authorities stating that they have issued only sale bills and no real transaction has taken place, the AO asked the assessee to prove the purchases from the above 8 pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of purchases made from the said entry providers, by filing confirmation, current mailing address etc., has merely reiterated the fact that payment to these parties were made in cheques, the material purchased has been used for manufacturing/packing the goods and corresponding sales have been recorded, (ii) the assessee failed to establish the genuineness of those purchases by furnishing credible documents along with confirmation of ledger accounts and also failed to produce those parties for examination in persons. Keeping in mind, the observation of the Hon'ble Delhi High Court in the case of CIT v. Jansampark Advertising & Marketing (P.) Ltd. that "it was also the obligation of the first appellate authority, as indeed of ITAT, to have ensured that effective inquiry was carried", the Ld. CIT(A) provided a fresh opportunity to the assessee to establish the genuineness of those purchases by furnishing the following information : "Keeping in view the above facts and submissions of the Ld. AR. the appellant was requested to establish the genuineness of these purchases, affording a fresh opportunity by furnishing the information as under: Please furnish current ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Vs. Jansampark Advertising and Marketing (P) Ltd. it is also an obligation on the part of the first appellate authority to ensure that the effective enquiry is carried out to arrive at logical conclusion. Therefore, to understand the impact of booking of hawala purchases on the profit of the year, the Ld AR was required to furnish the comparative details of GP/NP and GP/NP rates for hawala years, preceding two years and subsequent two years. In compliance, the appellant has submitted the details, as under :- A Yr Sales GP % of GP to T/O NP % age of NP to T/O 2009-10 9,94,11,179 4615181 4.64 1107004 1.11 2010-11 14,07,22,110 6632260 4.71 1377429 0.98 2011-12 19,19,29,209 8513330 4.44 2402434 1.25 2012-13 18,84,92,010 8678937 4.60 2737800 1.45 2013-14 18,03,16,961 11296727 6.26 (-)554514 (-)0.31 5.14 From the above chart, it is noticed that the gross profit rate has gone down from 6.26% in A Yr 2013-14 (non-hawala purchase year) to 4.44% in A Y 2011-12, the year in which the alleged hawala purchases were booked, for which the appellant could not offer any valid explan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the light of the decisions Hon'ble Gujarat High Court in the case of Vijay Proteins 58 ITD 428 and Sanjay Oil Cake Industries 316 ITR 274, if the analogy of disallowance @ 25% of the bogus purchases i.e. Rs. 25,51,790/- (1,02,07,160 x 25/100) is considered, which is also worked out almost at par to the suppressed GP of Rs. 34,93,111/-. This squarely establishes the fact that the appellant had suppressed its profits by inflating its purchases. 5.16 By booking alleged bogus purchases, as compared to the A.Y. 2013-14. The appellant has suppressed its profit by Rs. 34,93,111/-. In compliance, the Ld. AR could not offer any valid reasons for fall in the GP rate. Considering the facts in entirety and relying on decisions in the case of M/s. Kanchwala Gems Pvt. Ltd. V/s JCIT 288 ITR 10 (SC), etc. as quoted above, in my considered opinion, the estimation of GP @ 6.26% will be justified. Therefore, the disallowance to the extent of Rs. 34,93,111/-, out of hawala purchases of Rs. 1,02,07,160/-, is sustained and balance amount of Rs. 67,14,049/- (Rs. 1,02,07,160/- Less Rs. 34,93,111/-) is hereby deleted. All the grounds of appeal, as raised above, are partly allowed." 6. Befor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ced that the assessee had shown purchases of fabrics worth Rs. 29.41 lakhs from three group concerns, namely M/s Manoj Mills, M/s Astha Silk Industries and M/s Shri Ram Sales and Synthetics. On the basis of statement recorded during such survey operations, the AO concluded that the selling parties were engaged only in supplying the bogus bills, that the goods in question were never supplied to the assessee, and therefore, the purchases were bogus. He, therefore, added the entire sum in the hands of the assessee as its additional income. The assessee carried the matter in appeal before the CIT(A), who accepted the factum of purchases being bogus. However, he compared the purchases and sales statements of the assessee and observed that the Department had accepted the sale, and therefore, there was no reason to reject the purchases, because without purchases there cannot be sales. He, therefore, held that under these circumstances the AO was not correct in adding the entire amount of purchases as the assessee's income. He, therefore, deleted the addition restricting it to 10% of the purchase amount. He also directed the AO to make addition to the extent of difference between the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as under " So far as the question regarding addition of Rs. 3,70,78,125/- as gross profit on sales of Rs. 37.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6 % gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66 %. Therefore, considering 5.66 % of Rs. 3,70,78,125/- which comes to Rs. 20,98,621.88 we think it fit to direct the revenue to add Rs. 20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue." 7. On the other hand, the Ld. Departmental Representative (DR) submits that as the assessee failed to file before the Ld. CIT(A) the details in the prescribed format, item-wise/party-wise [page 13 of the CIT(A)'s order]; failed to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... The assessee inter-alia questioned the correctness of the statements of the aforesaid two witnesses and demanded right to cross-examine them. The Tribunal rejected the plea of the assessee to cross-examine the dealers whose statements were relied upon by the AO on the basis that cross-examination would not help the assessee as it would not bring out any material which would not already be in the possession of the appellant themselves. The Hon'ble Supreme Court has held that not allowing the assessee to cross-examine the witnesses by the AO though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity in as much as it amounted to violation of principles of natural justice because of which the assessee was adversely affected; the Tribunal simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellants themselves to explain as to why their ex-factory prices remain static; it was not for the Tribunal to guess as to for what purposes the appellant wanted to cross-examine those dealers and what information the appellant wanted to extra....