TaxTMI 
TaxTMI 
2021 (12) TMI 202
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the assessment under section 147 based on suspicion and surmises without any tangible material showing escapement of income and as such, the re-opening is bad-in-law and liable to be quashed. 2. That on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of A.O. in disallowing a sum of Rs. 58,86,189, on account of alleged bogus purchase, despite furnishing all documentary evidences in support of the same. 3. That on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in making enhancement u/s 251 to total income by disallowing 100% of alleged bogus purchase amounting to Rs. 4,70,89,512. 4. Without prejudice to above grounds, the learned CIT(A) erred in not allowing the decision of the Hon'ble Bombay High Court in the case of Mohd. Haji Adam & Co. wherein Bombay High Court has held that the addition needs to be restricted to gross profit rate of other genuine purchases." 3. The first issue raised by the assessee is with regard to re-opening of assessment under section 147 of the Act. 4. The second issue which arose out of the aforesaid grounds of appeal is, wh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....genuine purchases of Rs. 4,70,89,512 by reopening of the assessment. 5.2.1 The relevant extract of the Assessing Officer is reproduced as under:- "...... 3. In respect of the above mentioned parties, information was received from Maharashtra Sales Tax Department that its name was appearing in the list of dealers, who had issued bogus bills without delivery of goods. Moreover, inquiries were conducted in the list of cases by the Sales Tax Authorities and it was reported that either these parties were not traceable or wherever these were found, it was stated by them that no business was done by them and they were engaged only in providing bills. 4. In view of the above, the undersigned had reason to believe that a part of the income of the assessee for AY 20110-11 has escaped assessment which resulted under-assessment. Accordingly, the case was reopened uls. 147 of the I.T. Act 1961 and accordingly notice u/s. 148 was issued on 16.09.2014 and duty served. A notice u/s 142(1) was issued on 08.07.2015 along with Jurisdiction of the assessee was changed vide order of the JCIT Range 19(1) dated 15.11.2014 due to the restructuring in the department in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (ii) The assessee could not produce any evidence during the course of hearing also that the assessee did not accept the findings of the Sales Tax Department and that the Sales Tax Authority has accepted the objection made by the Assessee. (iii) Independent enquiries/investigations have been carried out by this office under section 133(6) of LT Act. But ill the cases the notice returned unserved with the remark, either "left", "not treaceable, "not known", etc The assessee was duly confronted with the same. (iv) The assessee was asked to produce the said the parties from whom such purchases have damned to have been made r examination. But the assessee failed to do so. 'Thus, in the books of accounts of the assessee, the purchases to tin' extent made from the above mentioned parties remained unverifiable. Thus, it transpire that the assessee had adopted a modus operand! to reduce his true profits by inflating his expenses by taking accommodation entries from in such parties. (v) The assessee could not file the vital documents such as delivery challans, transport receipts, goods inward register maintained at godown. Whatever documents tiled by the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s as against the addition made by the A() of 12.5 % of the bogus purchases. It was pointed out that there was failure to produce parties from whom purchases were made (Para 8 (iv) of the assessment order) vital documents like delivery challans, transport receipt, goods inward register maintained at the godown etc. were not furnished (Para 8 (v) of the assessment order). There was no compliance to this notice of enhancement u/s 271(1)(c). 6.1 The impugned purchases are to the extent of Rs. 4,70,89,512/- and these purchases are from 35 parties. These purchases of Rs. 4,70,89,512/- have been claimed by the assessee appellant as expenditure, in the P & L account. This claim of expenditure has to he substantiated by the claimant i.e. the assessee appellant. As pointed out above, the burden of proof lies with the person making the claim. In the case of a trader, purchase of goods would normally have to be substantiated with proof of purchase through purchase invoice, delivery challan, transportation receipt, proof of payment, proof of sale of the said goods purchased, stock register, confirmation from supplier etc. 6.2 The assessee appellant has not been able to produce....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ne, in Kolte Path, in ITA Nos.1411 to 1415/PN/2013 for A. Vs 2003-04, 2005-06 & 2007-08 to 2009-10 and ITA Nos.1478 to 1483/PN/2013 for AY 200405 to 2009-10 held that, where suppliers have been unable to produce even the primary evidence to show movement of goods from supplier to assessee or any other form of evidence of delivery, even though payment was made through cheques and purchases are evidenced by suppliers bills, the purchases are liable to be disallowed in toto. 6.6 Reliance is also placed on Sumati Dayal (214 ITR 801 SC) and Durga Prasad More ((1971) 82 ITR 540 SC) to state that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real and that the taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities. It is not probable that a purchaser could he unable to furnish requisite information with respect to purchases made by it. 6.7 Initial burden to prove genuineness of purchases is on assessee. The Hon'ble High Court of Calcutta has held so in CIT v. Korlay Trading Co. L....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion. If the assessee fails to satisfy any of these tests, the expenditure claimed is not allowable. The Hon'ble Bombay HC held so in the case of Ramanand Sagar (256 ITR 134). 6.11 The argument that the sales could not have been made without purchases is addressed below. The onus is on the appellant to establish the purchases. When this onus is not discharged, the purchases are disallowed to the extent these are not substantiated. It is not for the Department to doubt sales. The premise as per the IT Act in Sec 37(l) read with the Indian Evidence Act, Sec 101 and 103 is that the burden of proof with respect to claim of expenditure, in this case towards purchases, is on the assessee-appellant. When the burden is not discharged, the claim is liable to be disallowed. It is reiterated that it is not for the Department to reconcile the Sales claimed by the appellant. Every argument in logic has a structure that is premises and conclusion. Premises are statements which give evidence for, or reasons for accepting the conclusion and conclusion is a statement which is purported to he established or affirmed on the basis of other statements, that is the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....blish which of the sales are bogus. A bald claim that the sales have not been doubted by Department cannot be advanced as all to hold unsubstantiated purchases per Sec. 37(1) as an expenditure. It is pertinent to note that the oft cited I Hon'ble Gujarat high Court decision in the case of Simit P. Sheth ((2013) 356 ITR 451) is based on the fact that where purchases were made from grey market, only profit element embedded in such purchase could be added to assessee's income and accordingly upheld ITAT's estimation of profit @' 15 % of bogus purchases. 6.12 The facts in the recent decision of the Hon'ble Bombay high Court in the case of M/s Mohommad Haji Adam & Co. dt. 11.02.2019, were that the l,d. AO added the entire sum on account of goods never being supplied to the assessee; the CIT(A) compared the purchases and sales statement 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 could not be sales and restricted the addition to 10% of the purchase amount and directed the 110 to make all to the extent of difference between the GP rate as per t....