TaxTMI 
TaxTMI 
2023 (7) TMI 162
X X X X Extracts X X X X
X X X X Extracts X X X X
....is consolidated order to avoid the conflicting decision. For appreciation of facts, both the parties agreed to treat the facts for A.Y. 2011-12 as a "lead case". The assessee in its appeal has raised following grounds of appeal: "1. On the facts and circumstances of the case as well as law on the subject, the ld. CIT(A) has erred in confirming the action of Assessing Officer in rejecting books of account u/s 145(3) r.w.s. 144 of the I.T. Act. 2. On the facts and circumstances of the case as well as law on the subject, the ld. CIT(A) has erred in confirming the action of Assessing Officer in making above addition in the order u/s 153A when there was no new incriminating material found in the course of search and when the assessment was already completed u/s 143(3). 3. On the facts and circumstances of the case as well as law on the subject, the ld. CIT(A) has erred in partly confirming the action of Assessing Officer by sustaining the addition of Rs. 1,30,09,514/- out of total addition of Rs. 4,68,34,249/- on account of alleged bogus purchase by estimation of profit at the rate of 5% of alleged bogus purchase. 4. It is therefore prayed that additi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urchases from particular company but he is expressed his ignorance about the signature of the person who signed on inward register. 3. The assessing officer recorded that during the investigation, statement of various persons was recorded under Section 131 of the Act. Statement of Mr. Babulal P. Sarashwar was recorded, who allegedly stated that proprietory concerns M/s Jai Matadi Fashion and M/s Jai Durga Silk Mills were issuing only sale bills to M/s Delta Tex Trade Pvt. Ltd. without actual delivery of goods. During the F.Y. 2013-14, the proprietory concern M/s Jay Matadi Fashion made bogus sales bills to M/s Delta Tex Trade Pvt. Ltd. of Rs. 91,78,238/-. During the F.Y. 2012- 13, the proprietory concerned of her cousin M/s Jai Durga Silk Mills made bogus sales to M/s Delta Tex Trade Pvt. Ltd. the Assessing Officer recorded that in reply to question about the return of account against issuing bogus sale bills to Delta Tex Trade Pvt. Ltd., he stated that he returned the amount in cash after withdrawal from the bank and sales of goods in cash to Mr. Ashok K. Varshney, Director of M/s Delta Tex Trade Pvt. Ltd. Except M/s Delta Tex Trade Pvt. Ltd., remaining five companies were base....
X X X X Extracts X X X X
X X X X Extracts X X X X
....why purchases from these six companies should not be treated as bogus and why books of account should not be rejected under Section 145 of the Act vide notice dated 19/01/2016. The assessee filed its reply on 27/01/2016. The crux of reply is recorded in para 8 of assessment order. The assessee contended that all the purchases are genuine and bonafide. The purchases from certain companies were suspected as bogus during the course of search and detailed enquiry and investigation was carried out at our factory, residence and supplier parties about the genuinenity of the purchases. After conclusion of search, the Investigation Wing did find anything contrary. The investigation wing carried out deep investigation about the allegation of bogus purchases but not a single document/fact was found which indicates that the purchases were bogus. The show cause notice is based on presumption and without any basis. About the discrepancies in the inward register, the assessee explained that there was certain discrepancies pointed out in the inward register at security point. The assessee explained that there was multiple entry in the factory premises. The factory premises have two entry gates, on....
X X X X Extracts X X X X
X X X X Extracts X X X X
....26 of the assessment order. The assessee stated that no discrepancies were found in physical stock during the course of search proceedings. If purchases were bogus, there must have been difference in physical stock and stock register. No discrepancies were found in the physical stock and book result during search proceedings. Sales of assessee was accepted as genuine and true. It is impossible to make the sale without corresponding purchases. All suppliers are genuine and existing and have confirmed the sales. The assessee also furnished the gross profit ratio, net profit ratio from A.Y. 2009-10 to 2014-15 and submitted that the gross profit ratio is almost consistent as 17.84% in 2009-10, 18.15% in 2010-11, 18.52% in 2011-12, 17.38% in 2012-13, 16.26% in 2013-14 and 16.58% in 2014-15. Similarly, the net profit/NP is almost consistent in all years. The assessee also given comparable instances of profit of other concerns. All such details are recorded in para 12.11 by the Assessing Officer in assessment order. On the basis of comparable instances, the assessee submitted that the comparable comparison clearly demonstrates that there is no tax evasion/avoidable by the assessee company....
X X X X Extracts X X X X
X X X X Extracts X X X X
....red by the assessee about the genuineness of purchases is not plausible. The purchases are not genuine. The purchase register found at the time of search was doctored. Several persons were examined during the search, who admitted that they have provided bogus bills. The assessee procured bogus bills to reduce the profit. Merely there is no cash withdrawal or payments were made through cheques, the surrounding circumstances of bogus purchases cannot be ignored. The books of assessee was rejected under Section 145(3) of the Act and the Assessing Officer estimated the addition of such alleged purchases @ 18%. The Assessing Officer prepared the summary of purchases shown from all these parties as recorded in last sub para of para 11 at page No. 39 and worked out the aggregate purchase from these six parties of Rs. 26.01 crores and disallowed 18% thereof thereby worked out the addition of Rs. 4.68 crores in the assessment order dated 15/02/2016. 8. Aggrieved by the additions in the assessment order, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee again filed detailed written submissions. The submissions of assessee are recorded in para 4 on page N....
X X X X Extracts X X X X
X X X X Extracts X X X X
....not accepted the reply of assessee and rejected the books of account and made assessment as best judgement assessment under Section 144 of the Act. 10. The Assessing Officer rejected the books of account in a casual manner without pointing out any defect in the books of account. All bills and vouchers were found at the time of search were recorded in the books of assessee. Up to date books of accounts were maintained till the date of search. No bills or vouchers were found which was not recorded in the books of account. The assessee maintained complete stock alongwith quantitative details as mentioned in audit report. The sales of assessee was not disputed. Sale is not possible in absence of purchases. The assessee submitted the basis of rejecting books of accounts by the Assessing Officer i.e. (i) he may proceed to reject the books of account if he is not satisfied about the correctness or completeness of the books of account or (ii) where method of accounting cash or mercantile not been followed regularly or (iii) accounting standard notified by the Central Government have not been regularly followed by the assessee. Thus, for rejecting the books of account, the Assessing Offi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Director of the said company also confirmed that the sales made to assessee in his statement recorded under Section 132(4) of the Act. On the observation of Assessing Officer that a survey action under Section 133A was conducted at Kolkata and no survey could be conducted as none of the parties were found at such address. The assessee explained that common Director in all five purchase parties appeared in the post search investigation. Common Director, Ashok Varshney appeared before the authorised officer in the course of investigation proceedings and his statement under Section 131 of the Act was recorded on 23/05/2014. He confirmed about the sales made to the assessee. Notice issued to all the suppliers parties under Section 133(6) were duly complied. The Assessing Officer issued show cause notice for disallowance of purchases. The assessee filed detailed reply to such show cause notice. Alongwith reply, the assessee furnished factory map showing two gates and explained the procedure of recording various goods at various gates, the assessee furnished inward sheets, stock statement filed with the banks, sample invoices of another concerned in standard format as used by assessee. T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....guity or confusion about the genuineness of purchases from such companies. 13. The assessee again submitted that all the purchases are entered in inward sales received in the factory. Stock register properly maintained and purchases are reflected. The assessee also furnished summary of grey stock for A.Y. 2009-10 to 2014-15 and summary of finished stock for A.Y. 2009-10 to 2014-15. The copy of stock statements was forwarded to the bank from time to time, copy of such report was filed. The Assessing Officer not found any discrepancy in the stock during the course of assessment. The sales of assessee was not disputed. 14. The assessee in its without prejudice submission submitted that even if, it is presumed that alleged purchases are bogus and are removed from the purchase register, their closing stock will become negative which is impossible. The assessee submitted that sale of assessee was never disputed. Sale is not possible in absence of purchase. The assessee has also shown one to one correlation of all sales and purchases. Sale is accepted as true. The assessee again furnished the comparison of profit of comparable companies and submitted that profit margin of assessee i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inating material for concluded assessment was found, the ld. CIT(A) held that at the time of search, purchase bills were found which cumulatively considered. The search party found defects in the purchase bills and the manner in which the bills were kept together with the peculiarities vis-a vis normal bills found during the course of search are incriminating material. Thus, ld CIT(A) thus dismissed the corresponding ground. 17. On the estimation of addition, the ld. CIT(A) in para-6.4 of his conclusion held that evidence suggest that the purchase parties may be bogus but purchases are not bogus. Thereafter, ld CIT(A) after referring various decisions of Jurisdictional High Court and Tribunal held that the factual matrix of the case indicates that the assessee made purchases from grey market which means that the assessee purchased goods from "X" who did not issue bills to the assessee and the assessee obtained bills from "Y" who did not deliver the goods to the assessee in real. So far as quantification of profit element in such unsubstantiated purchases, the ld. CIT(A) held that only profit element embedded in such purchases can be brought to tax. The ld. CIT(A) accepted that t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... books, payments were made through account payee cheques, stock was up to date. No documents during the search was found which was unaccounted. The search party has not pointed out any deficiency in the books of account at any point of time. Books of assessee was rejected without any basis. The Assessing Officer has not disputed the sale of assessee. The sale is not possible in absence of purchases. There is no allegation or finding of Assessing Officer that the assessee is beneficiary of accommodation entry provider. The assessee furnished comparative chart of similar situated companies who is engaged in similar business and proof before the Assessing Officer that the gross profit and the net profit shown by the assessee is highest. The gross profit shown by the assessee is ranging from 17.80% to 16.58% which is higher than the other comparable instances like Bahubali Prints Pvt. Ltd., Divya Fashion Pvt. Ltd., Jinnam Dresses Pvt. Ltd., Sakabari Silk Mills P Ltd. and Garden Silk Mills Pvt. The rejection of books of account was absolutely baseless and not in accordance with the provisions of Section 145(3) of the Act. 21. The ld. AR submits that all the suppliers confirmed about ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as disputed, the purchases cannot be disallowed. When the assessee has offered income from sales, sales are not possible in absence of purchases, therefore, no addition in absence of dispute of sales can be made. The assessee furnished one to one correlation of purchase and sales, therefore, no addition on the allegation of alleged bogus purchases was warranted against the assessee. To support his submission, the ld. AR of the assessee relied upon the decision of Hon'ble Gujarat High Court in Pr. CIT Vs Tejua Rohitkumar Kapadia in ITA No. 691/2017 dated 18/09/2017. 23. The ld. AR of the assessee submits that during the search action, statement of one of the Director namely Shri Rakesh Govind Sarawagi made disclosure of Rs. 15.00 crores out of which Rs. 1.00 crore was offered for A.Y. 2012-13, Rs. 1.00 crore for A.Y. 2013-14 and Rs. 13.00 crores for A.Y. 2014-15. The assessee has not withdrawn or retracted from their statement and honestly paid the due tax on the business income disclosed during the search action. Despite honouring the disclosure, the Assessing Officer made further addition in A.Y. 2012-13, 2013-14 and 2014-15. The assessee has disclosed gross profit of 17.38% an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ew there was a minor discrepancy in the inward register for certain purchases. Though, all purchases were duly recorded in the stock and purchase register which was ultimately sold and the sale proceed was offered to tax which are not disputed rather the ld. CIT(A) accepted such fact, therefore, addition even to the extent of 5% is not sustainable. 24. To support various contentions, the ld AR for the assessee relied on all the case laws filed before ld CIT(A). In addition to the ld AR for the assessee also relied on the following case laws; (A) On the issue of impugned bogus purchases, • ACIT Vs Vardhman Export (Tax Appeal No. 265 of 2008 Gujarat High Court) • ACIT Vs Akruti Dying & Printing Mills Private Limited (Tax Appeal No. 997 of 2008 Gujarat High Court) • CIT Vs Nangilia Fabrics Private Limited (40 taxmann.com 206) Gujarat High Court, • ITO Vs Totaram B Sharma (Tax Appeal No. 1344 of 2008- Gujarat High Court) • DCIT Vs Adinath Industries (2001) 252 ITR 0476 Gujarat), • CIT Vs Kashiram Textile Mills P Limited (2007) 160 Taxman 4- Gujarat, • CIT Vs Nikunj Eximp Enterprises Private....
X X X X Extracts X X X X
X X X X Extracts X X X X
....de Pvt. Ltd. before Assessing officer, (xxi) Statement of Shri Ashok Keshavdev Varshney recorded u/s 132(4) of the Act. (xxii) Statement of suppliers of Delta Tex Trade Pvt. Ltd. recorded under Section 131 of the Act i.e. Dinesh Dhankani, Gopilal Sohanalal Garuwa, Revatram Megharam Jat, Gordhanlal Sharma, Hanuman Parlad Sarswa, Pushpa Sharma, Omprakash Sharma, Sampatram Lalaram Sharma, Tolaram Sharma, Kanhaiyalal Prabhudayal Ojha, Gordhanlal Sharma (Prop. of Khatushyam Textiles), Babulal Parlad Sarashwat (Prop. of Jai Mata Di Fashion), Babulal Parlad Sarashwat on behalf of Shardadevi Sarashwat (Prop. of Jai Durga textile Trading), (xxiii) Reply filed by various suppliers in response to notice issued u/s 133(6) in case of Delta Tex Trade Pvt. Ltd, (xxiv) Confirmations of accounts of various suppliers of Delta Tex Trade Pvt. Ltd., (xxv) Letters / reply -filed by Khatushayam textiles, Laxmi Silk Mills and Bhardwaj Syntax in response to summons issued u/s 131 in case of Delta Tex Trade Pvt. Ltd., (xxvi) Acknowledgement of return of income alongwith computation of income of Delta Tex Trade Pvt. Ltd. for A.Y. 2010-11 to 2014-15. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch entity was found, thus all supplier companies were non-existing companies. The assessee has shown purchases from such companies which were not existing. ON the rejection of books of account, the ld. CIT-DR submits that on the basis of various discrepancies recoded by the Investigation wing, the Assessing Officer found sufficient material for rejecting the books of account and estimating the addition @ 18% of the purchases shown from all such parties. The ld. CIT-DR for revenue submits that the Assessing Officer reasonably disallowed the percentage of disputed purchases @ 18% of the purchases. The ld. CIT(A) granted relief to the assessee without appreciating the evidence on record. The ld. CIT(A) restricted the addition to the extent of 5% of the disputed purchases which is on lower side. 27. On the submission of ld. AR of the assessee, no addition can be made in respect of completed assessment on the date of search, the ld. CITDR for the revenue submits that he relied upon the decision of Hon'ble Allahabad High Court in Pr. CIT Vs Mehandipur Balaji 447 ITR 5617 (All) wherein the Hon'ble Court has taken a contrary view that even in completed assessment (unabated assessment), ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Apex Court in PCIT Vs Abhisar Buildwell P Limited, the addition in AY 2010- 11 & 2011-12 on account of alleged bogus purchases made in absence of incriminating material (in unabated assessment) is set aside. In the result, the grounds of appeal raised by assessee in A.Y. 2011-12 are allowed and the grounds of appeal raised by revenue in its appeal for A.Y. 2011-12 are dismissed. 30. Considering the fact, we have allowed the appeal of assessee for A.Y. 2011-12 for the want of incriminating material in unabated assessment, therefore, taking consistent view that assessment for A.Y. 2010-11 was not pending (unabated assessment), at the time of search, thus, the additions made in this assessment year on account of alleged bogus purchases are also deleted with similar observation. 31. In the result, the appeal of assessee for AY 2010-11 and 2011-12 are allowed and the appeal of the revenue for AY 2011-12 has become infructuous and dismissed. 32. Now adverting to the facts of AY 2012-13 to 2014-15. As recorded earlier the facts leading to the addition of alleged bogus purchases in all the years are common, the ld CIT(A) restricted the addition to the extent of 5% of such disputed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at all the invoices were duly recorded in the books, payments were made through account payee cheques, stock was up to date. No documents during the search was found which was unaccounted. Further, search party has not pointed out any deficiency in the books of account at any point of time and that books of assessee was rejected without any basis. Further, the Assessing Officer has not disputed the sale of assessee. The sale is not possible in absence of purchases. There is no allegation or finding of Assessing Officer that the assessee is beneficiary of accommodation entry provider. The assessee furnished comparative chart of similar situated companies who is engaged in similar business and proof before the Assessing Officer that the gross profit and the net profit shown by the assessee is highest, therefore, the rejection of books is not justified. 36. Section 145(3) of Income Tax Act lays down that assessing officer can proceed to make best judgment assessment under section 144 only on the event of not being satisfy with the correctness of books of accounts produced by the assessee. It is matter or common knowledge that no specific method to be adopted is prescribed in the Ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tory premises. The assessee filed numerous evidence in support of purchase, however, no specific defect or discrepancy was pointed out by the assessing officer. In our view mere certain discrepancy at the entry gate cannot be a basis of rejection of entire books results for three assessment years, when no other incriminating evidence was find at the time of search. 37. The Hon'ble Orrisa High Court in a recent decision in Crescent Co. Vs CIT (2022) 137 taxmann.com 408 (Orrisa) also held that mere nonissuance of sale memos could not have been a ground to reject entire account books. The Hon'ble Apex Court in leading case law in Kachwala Gems Vs JCIT (2007) (158 Taxman71 / 288 ITR 10-SC) held that it is well-settled that in a best judgment assessment, there is always a certain degree of guess work. No doubt, the authorities concerned should try to make an honest and fair estimate of the income even in a best judgment assessment, and should not act totally arbitrarily, but there is necessarily some amount of guess work involved in a best judgment assessment. 38. Thus, in view of above factual and legal discussions, we do not approve the rejection of books of account. We find one....