TaxTMI 
TaxTMI 
2021 (11) TMI 998
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.... providing the adverse material/statements relied upon, and also without providing an opportunity to cross-examine the concerned deponents. 2. That the learned CIT(A) has grievously erred in law, and on facts, in confirming the addition of Rs. 97,28,955/- being 25% profit of the alleged bogus purchases to the tune of Rs. 3,89,15,820/- 3. That the learned CIT(A) has grievously erred in law and on facts in confirming the addition of Rs. 2,91,86,865/- u/s.40A(3) of the Act, ignoring the fact that no purchases are made in cash, and hence the provisions of section 40A(3) of the Act are not applicable at all. 4. The appellant craves leave to add, alter, amend any ground of appeal. 3. The interconnected issued raised by the assessee in all the grounds of appeal is that the Ld.CIT(A) erred in confirming addition of Rs. 97,28,955/- being 25% of the bogus purchases and making the addition of Rs. 2,91,86,865/- under the provision of section 40A(3) of the Act. 4. The facts in brief are that the assessee in the present case is a private limited company and engaged in the business of Developing of Commercial Complexes. There was a search operation u/s 132 of the ....
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....been engaged in the activities of development of the projects and all the purchases were made on behalf of the principal which were transferred to his account. Accordingly there was no purchases expenses debited in the profit and loss account. 4.8 However, the AO was dis-satisfied with the contention of the assessee for the reasons as detailed below: i. The opportunity of cross examination was extended to the assessee and suppliers two times but on both the occasion none of the party came forward for such cross examination. ii. There was the cash withdrawal from the bank account of the parties upon receiving the payment from the assessee. Thus it seems that the payment shown by the assessee against the purchases was retuned back to it. iii. The assessee against the bogus purchases has shown consumption in the books of accounts which indicates that assessee has purchased materials from unregistered parties in cash and to regularize such purchases the assessee has procured the bogus bills from the parties as discussed above. Accordingly it can be inferred that the assessee has made the purchase against the cash payment from the unregistered parties which....
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....ment for purchase of goods in cheque, it has submitted PAN details to the AO alongwith confirmatory letters. Further, appellant has mentioned that its books of account were audited by independent Chartered Accountant and no remarks were made by the said Auditor. Appellant also submitted that it is the finding of A.O that goods have been received by the appellant although payments have been made to unregistered dealer through cash. It has submitted that entire amount of bogus purchases should not be disallowed and it must be granted deduction of reasonable amount of purchase price since receipt of material by the appellant were supported by stock register. It has relied upon various case laws including that of judgment in the case of Vijay Proteins v/s. ACIT 58 !TD 428. it is a matter of fact that Riya Enterprise, Akshar Enterprises and Vaishvi Traders have not supplied the goods to the appellant. It is a matter of fact that cash was returned back by these three concerns to the appellant. Further, it is also a matter of fact that appellant had received the goods from unregistered persons by making payments in cash. It is a fact that cash payments were made for receipt of goods that ....
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.... have shown the bogus purchases (purchases only on papers) amounting to Rs. 3,89,15,820/- from certain parties as discussed above. Admittedly, there were proper records of such bogus purchases such as stock registers, bills from the parties, confirmation from the parties and the bank payment. But the AO disbelieved all the details furnished by the assessee in support of bogus purchases. The reasons for treating the purchases as bogus have already been elaborated in the preceding paragraph. The AO also observed that the assessee has originally purchase the materials from the unregistered parties in cash which is the violation of the provisions of section 40A(3) of the Act. As per the AO, the amount of purchases were also to be disallowed on account of the violation of the provisions of section 40A(3) of the Act. As such the AO has made the disallowance of the entire purchases amounting to Rs. 3,89,15,820/- and added to the total income of the assessee. However, the learned CIT (A) was of the view that the entire purchases shown by the assessee cannot be disallowed as the assessee has shown sales against such purchases. Accordingly, he held that the amount of profit embedded in su....
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....ases. The relevant extract of the profit and loss account as on 31 March 2013 is available on record which is placed on page 11of the paper book. 9.4 We have also perused the purchase ledger placed on pages 113 to 119 of the paper book where the assessee has shown purchases amounting to Rs. 8,69,58,323/- only. This purchase ledger shows that the entire amount of purchases has been transferred to the account of the principal being M/s Kailashpati Property Holders Pvt. Ltd. The relevant extract of the purchase ledger as on 31 March 2013 is reproduced as under: Brought Forward 8,35,84,962.00 23-3-2013 To Shree Datt Glass Purchase 84 3,450.00 25-3-2013 To Shreeji marketing(hardware Saman) Purchase 502 23,387.00 To Arasuri Enterprise Purchase 379 6,61,500.00 26-3-2013 To Mahavir Sales corporation Purchase 270 6,66,770.00 29-3-2013 To Vaishvi Traders Purchase 344 6,34,452.00 To Arasuri Enterprise Purchase 383 4,98,960.00 30-3-2013 To Shreeji ....
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....5/- 3. That the learned CIT9A) has grievously erred in law and on facts in confirming the addition of Rs. 1,76,32,242/- u/s. 40A(3) of the Act, ignoring the fact the no purchases are made in cash, and hence the provisions of section 40A(3) of the Act are not applicable at all. 4. The appellant craves leave to add, alter, amend any grounds of appeal. 11. At the outset we note that similar ground was raised by the assessee in the case of Rajeshri Avas Developers Pvt. Ltd. bearing ITA No.1105/Ahd/2018 corresponding to A.Y. 2013-14 which has been decided in favour of assessee vide paragraph No.9 of this order. For detailed discussion please refer the above mentioned paragraph number of this order. Accordingly we hold that finding given in above paragraphs with regard to ITA No.1105/Ahd/2018 will mutatis mutandis apply here in this case also. 11.1 In the result, the appeal of the assessee is allowed. Coming to the ITA No.1107/Ahd/2018 for A.Y. 2013-14 in the case of Pooja Infrastructure Ltd. 12. The assessee has raised the followings grounds of appeal: 1. That on facts and in law, the learned CIT(A) has grievously erred in confirming the addition i....
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.... us contended that the percentage of profit @ 8% on such bogus purchases should be added on the bogus purchase. Furthermore, there was no evidence that the payment for the bogus purchases have been made in cash. Thus there cannot be any disallowance to under section 40A(3) of the Act. 18. On the other hand the learned DR before us relied on the order of authorities below. 19. We have heard the rival contentions of both the parties and perused the materials available on record. The 1st issue that arises for our consideration is whether the transaction of purchase shown by the assessee is bogus in nature. In this regard, we note that the primary onus lies upon the assessee to justify the transaction of the purchase based on the documentary evidence. Admittedly, the assessee in support of its purchase transactions has filed the ledger copies of the parties along with their confirmation, stock/consumption register, bills of the parties and the details of the projects where the impugned material purchase were utilized. Undeniably, the payment for the purchases were made through the banking channel. Likewise, there was no evidence brought on record suggesting that there was the exc....
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....diately. It is for the reason that the supplier, supplying the goods to the assessee, has also procured the goods from the 3rd party and such supplier was under the obligation to make the payment to such 3rd party through banking channel. Therefore, this observation of the AO also goes against the assessee. 19.2 In view of the above, we are of the view that the transaction of the purchases shown by the assessee is not free from the doubts. Thus we hold that, the assessee to regularize its purchases from the unregistered parties has shown the purchases from the parties as discussed above only on papers. 19.3 The next controversy arises for our consideration whether the entire bogus purchase should be added to the income of the assessee without considering corresponding sale or only the element of profit embedded in such bogus transaction of purchases and sales ? It is well settled law that the income tax can be levied on the real income of the assessee and not on the income merely shown in papers despite the fact that the assessee has indulged in the bogus activity. In other words, the element of profit embedded in such bogus activity should be brought to tax. In this regard w....
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....carried out by the assessee. Some element of guesswork is required to determine the income of the assessee which is embedded in the bogus activities carried out by the assessee. It is also pertinent to note that the assessee has already disclosed the income in its income tax return for Rs. 77,07,990.00 which is inclusive of the income earned by the assessee with respect to its bogus purchases. Accordingly, in the interest of justice and fair play, we are inclined to estimate the gross profit at the rate of 8% of such bogus purchases as discussed above. Accordingly, we set aside the order of the learned CIT (A) and direct the AO to estimate the gross profit on the purchases at the rate of 8% of the purchases. 19.6 Now coming to the next allegation framed by the learned CIT (A) i.e. violation of the provisions of section 40A(3) of the Act. Before going into the mater it is pertinent to refer the provision of section 40A(3) of the Act which reads as under: (3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, excee....