TaxTMI 
TaxTMI 
2021 (5) TMI 297
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....Hon'ble ITAT Delhi Bench in the case of DCIT Vs Smt Phoolwati Devi (2009) 314 ITR AT1 (Delhi) wherein the Hon tie Tribunal has hold that despite the documentation supporting the claim of the assessee superficially, the evidence could not be accepted in view of the surrounding circumstances and human probabilities? 2. "Whether on the facts and in the circumstances of the case and in law, was Ld. CIT(A) justified in restricting the suppressed profit to the extent of 12.5% of the purchases made from the bogus entities, without appreciating the fact that, during the course of assessment proceedings patties claimed to the ones the assessee made purchases from were never proven genuine during the course of assessment proceedings?" 3. "Whether on the facts and circumstances of the case and in law, was the Ld. Cl T(A) justified in allowing bogus purchases at 12.5% of the value of the aggregate purchases claimed by the assessee ignoring the decision of Hon tie Supreme Court dated 16/01/2017 in the case of NK Proteins Ltd. Vs. DCIT (2017-TIOL-23-SC-IT)?" 4. 'Whether on the facts and circumstances of the case and in law, was the Ld. CIT(A) justified in restricti....
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....ble, hence, is liable to be set aside. Before going further, we deem it necessary to advert the finding of the CIT(A) on record: - "5.2 Decision: I have carefully gone through the assessment order, submission of the AR of the appellant and the facts of the case. The Ld. AO made the addition: on the basis of information received from the Sales Tax Authorities. The Sales Tax (VAT) department, State of Maharashtra had recorded the statements of certain hawala operators who have confirmed to have given bogus bills to certain assessees including the appellant company. The appellant company was asked to submit the details of purported purchases made from these parties and a show cause was issued asking the appellant why the same should not be disallowed as bogus purchases. The appellant had filed their reply stating that purchases were made from regular parties supported by proper bills and the accounting entries. The payments were made by account payee cheques The Ld. AO was not m agreement with the submissions of the appellant and observed that the appellant failed to furnish the supporting documentary evidence to support that the purchases were actu....
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....ying the test of human probabilities. The Hon‟ble court also held that, it is no doubt, true that in all cases in which a receipt is sought to be taxed as income, the burden lies on the department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden to prove that it is not taxable because it falls within exemption provided by the Act, lies upon the assessee. In the case of durgaprasad More (Supra), the Hon‟ble Court went on to add that a party who relies on a recital in a Deed has to establish the truth of this recital, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party who relied on those recitals. If all that an assessee who wants to evade tax has to have some recitals made in a document either executed by him or executed in his favor then the door will be left wide open to evade tax. The Hon‟ble Court further held that the Taxing Authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look in to the surrounding circumstances to find out the reality of the recitals made in those docume....
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....at apparent, is not the real one, is on the party who claims it to be so, as held by the Hon'ble Supreme Court in the case of CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 and CIT v. Durga Prasad More (supra). In the latter case, it has been held by the Apex Court that though an apparent statement must be considered real until it was shown that there were reasons to believe that apparent was not the real, in a case where an authority relied on self serving recitals in documents, it was for the party to establish the proof of those recitals; the taxing authorities were entitled to look into the surrounding circumstances to find out reality of such recitals. 5.2.7 It is also a settled legal proposition that if no evidence is given by the party on whom the burden is cast, the issue must be found against him. Therefore, onus is always on a person who asserts a proposition or fact, which is not self evident. The onus, as a determining factor of the whole case can only arise if the Tribunal, which is vested with the authority to determine, finally all questions of fact, finds the evidence pro & con, so evenly balanced that it can come to no conclusion, then, the onus will de....
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....n account of disallowance of purchases. 5.2.10 Having gone through the above case laws, it is seen that in none of cases so much of investigation was done including those by another Government authority, viz., Maharashtra Sales Tax authority before whom affidavit was filed stating that only bogus bills were supplied without delivery of gods. Further, no vehicle numbers have been given in so far as delivery of the purchases are concerned and therefore, it is certain that no such purchases were actually made from the parties from whom bills were, procured and hence, no delivery could have been made by them. 5.2.11 In the case before the Hon‟ble Bombay High Court in NikunjExim, {supra}, the suppliers had not appeared before the Assessing Officer ang from the judgment it appears that it was not a case of the suppliers being non-existent. However, in the present case in appeal, the alleged suppliers have been found to be non-existent. This is not merely a case where the supplier has failed to appear before the Assessing Officer. Hence, the judgment of the Hon‟ble Bombay High Court would also be of no help to it. 5.2.12 Further, assessee also rely o....
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....ut bringing said case to notice of parties, revenue had caused prejudice to its case; all in violation of principles of natural justice and of rule 11 - Whether since decision of Supreme Court in SumatiDayal case (supra) was cited by Tribunal only for purpose of reiterating well settled and established position of law, it could not be said to have caused prejudice to assessee - Held, yes - Whether when a transaction is sham and not genuine as in instant case, then it could not be considered to be a part of tax planning or legitimate avoidance of tax lability - Held, yes - Whether further since issues in instant case were purely questions of facts on which there were concurrent findings of authorities below, it was to be held that there was no question of law to be considered - Held, yes [In favour of revenue]. 14. So far as the principle laid down in the matter of Omar Salay Mohamed Sait (supra) is concerned there can be no dispute about the proposition laid down therein. However, we have not been shown how the Tribunal was in breach of the same. We find that the Tribunal has considered the evidence of purchase and sale of shares to book long term and short term losses and....
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....Officer - Tribunal also confirmed order of Assessing Officer, and while doing so, referred to a decision of Supreme Court in case of SumatiDayal uv. CIT [1995] 214 ITR 801 / 80 Taxman 89 to held that evidence produced must be analysed by applying theory of surrounding circumstances and human probabilities - Assessee alleged that without bringing said case to notice of parties, revenue had caused prejudice to its case; all in violation of principles of natural justice and of rule 11 - Whether since decision of Supreme Court in SumatiDayal case (supra) was cited by Tribunal only for purpose of reiterating well settled and established position of law, it could not be said to have caused prejudice to assessee - Held, yes - Whether when a transaction is sham and not genuine as in instant case, then it could not be considered to be a part of tax planning or legitimate avoidance of tax lability - Held, yes - Whether further since issues in instant case were purely questions of facts on which there were concurrent findings of authorities below, it was to be held that there was no question of law to be considered - Held, yes [In favour of revenue]. 14. So far as the principle laid ....
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....d." 5.2.15 Similarly, in the case of Khandelwal Trading Co. V. Assistant Commissioner Of Income-Tax [1996] 55 TTJ 261 (JP.), it was observed and held as under : "7. We take up the first contention of Shri Singhui. It was contended that only gross profit rate should have been applied and the addition should have been to that extent only. 8. Let us assume that the impugned purchases in this case are bogus what can be the causes and effects? Either corresponding bogus sales have to be accounted for, or, the closing stock to that extent have to be increased. But if either is done, the very purpose of entering bogus' purchases is defeated. What can be the purpose to enter a bogus purchase in the books, obviously to show lesser profit than actually earned. This in turn could be to bring the gross profit rate to near about the earlier years‟ performance in order to avoid a deeper probe by the taxing authorities and/or to avoid paying higher taxes. Thus, when once bogus purchase is entered in the books without a corresponding sales or increase in stocks, the obvious result would be lowering of g.p. rate. If these bogus purchases are removed, the g.p. ra....
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.... stock register but the same has been test-checked by the Assessing Officer. There is no specific discussion or finding as regards quantitative tally. However, when in substance the transactions have been proved to be bogus the unverified quantitative tally cannot lead us to conclude otherwise. Under the circumstances of this case, we are not inclined to give much weightage to this contention of the assessee." 5.2.16 Further, in Deoria Oxygen Company v. Commissioner of Income tax [2007] 160 TAXMAN 427 (ALL.), it was observed and held as under: "40. This leaves us to the question as to whether the Tribunal should have given due regard to the legitimate outgoings in the form of the entire purchases of gas cylinders or not. The principle regarding making of a best judgment assessment has been well settled by the Apex Court in the case of Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 wherein the Apex Court has held as follows : "As regards the second contention, we are in entire agreement with the learned Solicitor-General when he says that the Income-tax Officer is not fettered by technical rules of evidence and pleadings, and that, he is entitled to....
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....sonal statements, has nowhere stated that the surrender was made on behalf of the assessee-company. We also find that even in the return filed in response to a notice under section 148, the assessee-company did not include the said amount of bogus purchases. The assessee-company has not placed any material as to show that the said purchases, in fact, belong to Shri Mahesh Toshniwal and not the assessee-company. Under these circumstances, we do not find any merit in the plea of the learned authorised representative that since the said amount of purchases has been added in the hands of Shri Mahesh Toshniwal, no addition can be made in the hands of the assessee company. It is a settled law that the tax has to be levied on the real person. Under these circumstances and keeping in view the decision of the hon'ble Delhi High Court as relied on by the learned Departmental representative in the case of CIT v. La Medica [2001] 250 ITR 575, we are of the view that the assessee-company has debited bogus purchases in its books of account which the assessee-company could not substantiate and, accordingly, the Commissioner of Income-tax (Appeals) was not justified in deleting the addition of....
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....eques have been deposited in hank accounts ostensibly in the name of the apparent sellers, thereafter the entire amounts have been withdrawn by bearer cheques and there is no trace or identity of the person withdrawing the amount from the bank accounts. In the light of the aforesaid nature of evidence it is not possible to record a different conclusion, different from the one recorded by the Commissioner (Appeals) and the Tribunal concurrently holding that the apparent sellers were not genuine, or were acting as conduit between the assessee-firm and the actual sellers of the raw materials. Both the Commissioner (Appeals) and the Tribunal have, therefore, come to the conclusion that in such circumstances, the likelihood of the purchase price being inflated cannot be ruled out and there is no material to dislodge such finding. The issue is not whether the purchase price reflected in the books of account matches the purchase price stated to have been paid to other persons. The issue is whether the purchase price paid by the assessee is reflected as receipts by the recipients. The assessee has, by set of evidence available on record, made it possible for the recipients not bei....
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....rrounding circumstances appears to be only the assessee-firm. The Apex Court has held in the case of JamnaprasadKanhaiyalal (supra) that there is no double taxation in taxing the person to whom the income actually belonged with the persons who falsely declared them in their returns filed under the Voluntary Disclosure Scheme. That is a risk which an assessee resorting to unfair tax saving devices has necessarily to run and an assessee who has resorted to such devices has to thank himself for it." 5.2.21 As regards the issue of cross-examination, in T. Devasahaya Nadar v. CIT [1964] 51 ITR 20 (Mad.), it was held: 'It cannot be laid down as a general proposition of law that the Income-tax Department cannot rely upon any evidence which has not been subjected to cross-examination. An ITO occupies the position of a quasi-judicial Tribunal and is not bound by the rules of the Evidence Act, but he must act in consonance with natural justice, and one such rule is that he should not use any material against an assessee without giving the assessee an opportunity to meet it. He is not bound to divulge the source of his information. There is no denial of natural justice if th....
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....ot applicable where the material or evidence used is of Collateral Nature." 5.2.24 To sum up, I would like to quote the landmark case of State Bank of India v. S.K. Sharma AIR 1996 SC 364 where the Hon‟ble Apex Court observed : 'Justice means justice between the parties. The interest of justice equally demand that the guilty should be punished and that technicalities and irregularities which do not occasion failure of justice are not allowed to defeat the ends of justice. Principles of natural justice are but the means to achieve the end of Justice. They cannot be perverted to achieve from opposite end." 5.2.25 In BholanathPolyfab Pvt. Ltd. 355 ITR 290 (Guj), the facts of the case were that the assessee was engaged in the business of trading in finished fabrics. For the A.Y. 2005-06, the Assessing Officer held that the purchases worth Rs. 40,69,546/were unexplained. He, therefore, disallowed such expenditure claimed by the assessee and computed the total income of Rs. 41,10,187/-. The issue was carried in appeal by the assessee before the Ld. CIT(A) who rejected the appeal, upon which the assessee went in further M/s. Samanta Urygunsen - - u/s. 143(....
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....made were bogus is essentially a question of fact. The Tribunal having examined the evidence on record came to the conclusion that the assessee did purchase the cloth and sell the finished goods. In that view of the matter, as natural corollary, not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax. This was the view of this Court in the case of Sanjay Oilcake Industries vs. CIT (2009) 316 ITR 274 (Guj.). Such decision is also followed by this Court in a judgment dated August 16, 2011, in Tax Appeal No. 679 of 2010 in the case of CIT us. KishorAmrutlal Patel. In the result, tax appeal is dismissed". 5.2.27 In the present case, the Ld. AO has shown that the party in question was non-existent. The appellant has not been able to disprove the findings of the Ld. AO regarding the non-existence of the party. However, Ld. AO after examining the evidences did not give any adverse finding that the appellant had not shown consumption/sales of the goods and that it had not offered the income on such sale of goods. In this case, Ld. A.O. not having doubted the genuineness of sales could not have gone ahead and made ....
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....bly hawala dealer. Subsequently, the money deposited in that account was withdrawn in cash almost on the same day. The Tribunal however, held that if the purchases were made from open market without insisting for genuine bills, the suppliers may be willing to sell the product at a much less rate as compared to a rate which they may charge in which the dealer has to give genuine sale invoice in respect of that sale. Keeping all such factors in mind, the Tribunal estimated an element of profit percentage of the overall purchase price accounted for in the books of accounts through fictitious invoices. 5.2.30 As narrated earlier, the Ld. A.O. in this case has held that the parties from which the purchases were made by the appellant were found to be and that is the reason for which it was not produced during the motive behind obtaining bogus bills thus, appears to be inflation of purchase price so as to suppress true profits. Considering the facts of the case as well as various case laws cited (supra), I estimate the suppressed profit to the 12.5% of the purchases made from the bogus entities, as the Suppressed profit element embedded in such purchases. This estimation is in ad....