TaxTMI 
TaxTMI 
2018 (3) TMI 2046
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.... under:- Ground I Addition on account of Unproved purchases of paintings: Rs. 1,74,37,500/- 1. On the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) - 38, Mumbai ("CIT(A") erred in upholding the order of the Deputy Commissioner of Income Tax, Central Circle 42, Mumbai ("AO") in making an addition to total income on account of purchases of paintings from different parties on the alleged ground that the same were bogus in nature. 2. In doing so, he erred in relying upon the statements of the parties from whom paintings were purchased which supports only one part of the transaction. 3. He failed to appreciate and ought to have held that: i. The purchases were genuine and department did not have any material on record to prove that purchases were bogus. ii. The paintings which were purchased during the year were either sold during the year or are lying in the closing stock of the Appellant and would therefore not affect the profits of the year. iii. The Appellant had produced Ledger, purchase Bill, payment proof & bank confirmation, and sales tax registration in sup....
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....4 Oswal Traders M.F. Hussain 6,187,500 Stock - - - 6,187,500 5 Mukta Sales Corp. Ram Kumar 6,862,500 Stock - - - 6,862,500 Total 16,875,000 1,687,500 562,500 17,437,500 3.1 The Assessing Officer noted that the aspect of effecting bogus purchase of paintings came to light in the course of search and the subsequent investigation carried out by the Investigation Wing. In particular, the Assessing Officer has referred to the statements recorded of the stated suppliers of the paintings by the Investigation Wing as referred in para-8 of the assessment order. In the course of hearing also, the Ld. Representative for the assessee as well as the Ld. Departmental Representative have taken us through a portion of such statements, copies of which have been placed in the Paper Book. The gist of the statements noted by the Assessing Officer in para-8, and which is in consonance with the reading of the statements made at the time of hearing, is that the said persons denied having supplied any paintings to the assessee company. However, the persons admitted having received payments through ....
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.... the entries of purchase of paintings reflected in the account books, qua the five paintings in question amounting to Rs. 1,68,75,000/-. The Assessing Officer, however, did not accept the submissions put-forth by the assessee. The Assessing Officer has based his stand primarily on the statement recorded from the issuers of purchase bills. The assessment order reveals that the assessee was asked to produce the parties from whom the paintings were claimed to be purchased; and that the summons under section 131 of the Act were also issued to such parties. The Assessing Officer records that in response to summons, only one Mr. Rashesh Shah appeared and confirmed that he had indeed sold the paintings mentioned at item-2&3 of the earlier tabulation. The said statement of Mr. Rashesh Shah was not given any credence by the Assessing Officer on the ground that he did not furnish his bank statement when asked for; and, secondly, for the reason that in an earlier deposition before the Investigation Wing on 30/05/2007, the said person had denied having sold any paintings to the assessee and refused to accept that the relevant bills were issued by him. For all the said reasons, the Assessing Of....
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.... the deposition made by the stated sellers of the paintings who had denied having issued the sale bills. The CIT(A) further notes that the result of investigations revealed that the persons shown as sellers of the paintings were not in the business of paintings and they have no idea or knowledge about the business of paintings and that such parties admitted that they have been carrying on cheque discounting business in the name of their several business entities. The CIT(A) also concluded that the statements of the sellers were reliable to conclude that cash corresponding to the value of the cheques issued minus the commission, has come back to the assessee through the broker. Thus, in sum and substance, the CIT(A) affirmed the conclusion of the Assessing Officer. In this background assessee is in further appeal before us. 5. Before us, the Ld. Representative for the assessee vehemently pointed out that the lower authorities have totally misdirected themselves in treating the purchases as unproved. It is sought to be canvassed that the factum of paintings being in the possession of the assessee is not doubted, inasmuch as, the paintings were physically found at the time of searc....
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.... the assessee relied upon the judgment of the Hon'ble Bombay High Court in the case of CIT vs. Nikunj Eximp Enterprises (P) Ltd.,(2013) 35 taxmann.com 384 (Bom). It is sought to be canvassed that where the sale of the purchased goods is not doubted, the purchases could not be treated as unexplained. It has been pointed out that so far as the sale of painting made to M/s. Oswal Traders of Rs. 16,87,500/- is concerned, the same has not been doubted and, therefore, qua the corresponding purchase of Rs. 11,25,000/-, no adverse view can be taken. In this manner, the addition has been sought to be assailed. 6. On the other hand, the Ld. Departmental Representative has primarily relied upon the stand of the authorities below, which we have already noted in some detail in earlier paras and is not being repeated for the sake of brevity. In nutshell, the Ld. Departmental Representative pointed out that the search proceedings revealed that assessee and its group concerns were in possession of valuable art works, whose source of acquisition could not be fully explained. It is pointed out that the statement of the sellers bring out that the transaction of purchase of paintings as claimed....
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....and adjustment transactions. It has also been pointed out that the stated suppliers/sellers are not in the business of paintings and therefore, the transaction of purchase as canvassed by the assessee is not proved. In this context, we find that there not enough material with the Revenue to establish that the purchase of paintings is per-se bogus, as our subsequent discussion would show. Pertinently, existence of the transaction between assessee and the stated suppliers/sellers cannot be doubted, inasmuch as, the consideration has flown from the assessee to such parties by account payee cheques, which stand cleared to the credit of the bank account of such suppliers. While we agree with the reasoning of the Ld. Departmental Representative that payment by account payee cheques by itself does not prove genuineness of the transaction but in the instant case more is required to prove that the transaction was bogus. We say so for the reason that in the present case, the existence of paintings in the possession of the assessee, of-course, except one which has been sold, is not in dispute. The statement of the stated suppliers/sellers does not prove that the consideration going out of the....