TaxTMI 
TaxTMI 
2025 (6) TMI 1632
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.... Court of Bombay in the case of PCIT vs. S.V. Jiwani [2022] 145 taxmann.com 230 (Bombay) (supra) and the decision of Hon'ble High Court of Gujarat in the case of CIT vs. Simit Sheth (supra) ignoring the facts brought on record by the AO and without going into the merits of the case. (2) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred while deciding the appeal in favour of the appellant, failed to allude to relevant facts on record, misread the evidence and its probative value thereby giving rise to perversity in the order of Ld. CIT(A), which itself gives rise to Question of Law as held in several case laws including in the case of Sudarshan Silk and Sarees 300 ITR 205 (SC)?. (3) The order of the CIT(A) is erroneous both in law and on facts. (4) Any other ground which may be adduced at the time of hearing. 3. The brief facts of the case are that the assessee is a corporate entity, had filed its Return of Income (ROI) for AY 2018-19, declaring total income of Rs. 93,46,676/-. In the matter, the Ld. AO had possess the information that, in the year under consideration, the assessee had received accommodation ent....
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....modation entries and alleged purchases were not genuine. 5.2 The Hon'ble Gujarat High Court in the cases of M/s Sanjay Oil Cake Industries Vs. CIT (10 DTR 153) and Hon'ble Ahmedabad Tribunal in the case of M/s. Vijay Proteins Ltd. Vs. ACIT (58 ITD 428) has extensively dealt with this issue and came to conclusion that disallowance of 25% of impugned purchases would suffice the matter. Similarly, the Hon'ble Jaipur Tribunal in the case of Deepak Dalela Vs. ITO (50 DTR 502) had extensively dealt with this issue. However, in the Misc. Application filed before it, the Hon'ble Jaipur Tribunal in the case of Shri Anuj Kr. Varshney Vs. ITO & Ors. Revenue Authorities ITA 187/JP/2012 dated 22.10.14 sustained the addition to the extent of 15% after elaborate discussion and extensive findings instead of 25%. It is a settled law that Income Tax Authorities are entitled to look into the surrounding circumstances to find out the reality of the recitals made in documents. It is the duty of the authority to go behind the smokescreen and discover the true state of affairs. The authority is not to be satisfied with the form but with the substance of the transactions. Though the transactions ....
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....Officer acquired the mandate even to add the whole amount of purchases found as bogus to the total income of the assessee. One such case was Sri Ganesh Rice Mills Vs. CIT 294 ITR 316 (All) wherein the entire amount of bogus purchases, from 5 parties, was disallowed and same was also upheld. The relevant portion of the order of the Tribunal as confirmed by High Court of Allahabad is reproduced, here as under: "Once it is found that the purchases were bogus, addition has to be made to the extent of the purchases found to be fictitious. The consideration that the gross profit disclosed by the assessee compares favorably as compared to the earlier years is wholly irrelevant. To neutralize the effect of inflation in purchases, the only course open to the Income-tax Officer is to add back that amount to the income irrespective of the fact whether the rate of gross profit goes up and whether the resultant gross profit is higher than the gross profit normally shown in the earlier years." 5.4 25% disallowance of bogus/unverifiable purchases has been upheld in following cases:- 1. Sanjay Oil Cake Industries Vs. CIT (2008) 316 ITR 274 (Gujarat HC) 2. Vijay ....
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....d by Hon'ble Gujarat High Court in the case of CIT Vs. President Industries (258 ITR 654) and Hon'ble Madhya Pradesh High Court in the case of CIT Vs, Balchand Ajit Kumar (263 ITR 610). 5.8 Considering the above decisions, and a catena of recent decisions passed by the Tribunals relying on the aforesaid decisions, only the profits embodied on sale proceeds should be taxed instead of addition on account of entire purchases, Looking to the circumstantial evidence in the present case, it is evident that impugned purchases from the alleged supplier were not genuine and such purchases were made from open market One must consider the totality of facts, surrounding circumstances and human probability for arriving at such a conclusion. 5.9 Therefore, such purchases claimed by the assessee, could not be treated as genuine. In view of facts and circumstances in the present case, I hold that the appellant failed to prove the genuineness of purchases made from accommodation provider. Therefore, based on the facts and circumstances in the appellant's case, I believe the AO's decision to reject the books of account and making addition is justified. (emphasis sup....
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....nd in the circumstances of the case and in law, the Hon'ble ITAT erred in ignoring that the purchases from bogus parties are debited in P & L Account for which the assessee had not submitted any evidences, and the same was not allowable? 6.5 Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT erred in upholding the order of the Ld. CIT(A) who had limited and disallowance to the extent of 12.5% of the total alleged purchase without verification and confirmation of quantitative data of material sourced and its subsequent movement during the year?" 3. Briefly stated the material facts are as under: The Assessee undertakes civil contract works awarded mostly by Municipal Corporation of Greater Mumbai (MCGM). Return of income was fled for the assessment year 2009-10, declaring a total income of Rs. 92,36,071/-. The assessment was completed under section 143(3) of the Act, at a total income of Rs. 93,72,290/-. The case of the assessee was reopened on the basis of information received from Sales Tax Department through DGIT (Inv.), Mumbai, that the assessee had made purchases of Rs. 4,50,08,383/-, which seemed to be acco....
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.... We have gone through the well-reasoned order of the Tribunal, which has taken into account all relevant facts before passing the order impugned. In our opinion, the order does not warrant any interference. No substantial questions of law arise in the present appeal and the same is, accordingly, dismissed." (emphasis supplied) 5.11 In view of the matter, considering the factual matrix of the case, I am of the opinion that the ratio of the decision of the Hon'ble High Court of Bombay in the case of PCIT vs. S.V. Jiwani [2022] 145 taxmann.com 230 (Bombay) (supra), apart from the decision of Hon'ble High Court of Gujarat in the case of CIT vs. Simit Sheth (supra), is squarely applicable mutatis mutandis to the instant case. Accordingly, the AO is directed to restrict the addition to the extent of 12.5% of the non-genuine /suspicious/bogus purchases instead of disallowing 100% of the purchases in the assessment order. The ground of appeal 1 is partly allowed. 6.0 Ground No. 2 & 3 are general in nature and do not require any adjudication. In the result, the appeal is partly allowed. 5. Being dissatisfied with the aforesaid order by Ld. CIT(A) now....
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....al states explicitly that neither of the Appellate Authorities has considered the provisions of Section 69C of the Act. Even the decision in the case of Mohammad Haji Adam & Co. (supra) is not a decision on the applicability of Section 69C of the Act, which is the case before us. The only reference of Section 69C in the case of Mohammad Haji Adam & Co. (supra) is where there is an extraction of the Gujarat High Court decision in the case of N. K. Industries limited (supra). There was no question framed on Section 69C before the Coordinate Bench of this Court in the case of Mohammad Haji Adam & Co. (supra). We have already observed above, how provisions of Section 69C of the Act are attracted in the present case. 37. The learned counsel for the respondent-assessee has not made any submissions on the provisions of Section 69C of the Act, although the same were explicitly framed in the admission order and relied upon by the counsel for the appellant-revenue in the course of the hearing. Therefore, the only conclusion that can be arrived at is that the respondent-assessee does not dispute the applicability of the provisions of Section 69C of the Act to its facts. 38. ....
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....y High Court in the case of PCIT vs. S.V. Jiwani (2022) 145 taxmann.com 230 and the decision of Hon'ble Gujarat High Court in the case of Commissioner of Income-Tax-I vs. Simit P Sheth, Tax Appeal No. 553 of 2012 dated 16.01.2013, whereas looking to various judicial pronouncement on the issue of bogus purchase it is paramount to distinguish between the bogus purchase and untested purchases, and accordingly, it is required to decide as to whether (i) entire purchases are to be added back being bogus in nature, without any actual purchases to inflate the amount of purchases by obtaining bogus bills thereby making the payments but equivalent amount after reducing commission have been taken back in cash by the assessee or (ii) reasonably estimate the profit from such bogus purchases based on GP as per past history of the assessee or in accordance with the prevailing market rates. It was the contention of revenue that Ld. CIT(A) while deciding the issue had restricted the addition to the extent of 12.5% instead of 100% disallowance ignoring the facts brought on record by the Ld. AO. With such assertions it was the prayer that the order of Ld. CIT(A) is liable to be reversed, and the add....
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.... invoices, therefore, the purchases made from the M/s Shree Shyam Sales Corporation were bogus purchases as the said party was indulged in issuance of fake bills in respect of iron and steel against which no material were supplied and the assessee was one of the beneficiaries who had booked bogus purchase bills and availed fraudulent Input Tax Credit (ITC). The assessee was responsive during the assessment proceedings till the issuance of show cause notice and when the assessee came to know about that the proposed addition with detailed discussion of issues in the SCN, the assessee intentionally chosen not to respond. Further, Investigation team of two Departments GST and Income Tax have established that the referred entity was found indulged in issuance of fraudulent/fake GST invoices for passing irregular input tax credit to other business entities and for doing this they have also availed and utilized Input Tax Credit (ITC) against fake invoices issued by others. The said business entity was found to be a bogus entity having no existence at their declared places of business as well as the places where the consignments were purportedly received. Therefore, transactions made by th....
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....s of Sections 68 and 69C of the Income Tax Act. The entire purchases shown on the basis of fictitious invoices have been debited in the trading account since the transaction has been found to be bogus. The Tribunal having once come to a categorical finding that the amount of Rs. 2,92,93,2887- represented alleged purchases from bogus suppliers it was not incumbent on it to restrict the disallowance to only Rs. 73,23,327-." 3.7.4 In view of the facts of the case of the assessee and also keeping in view the ratio laid down by Hon'ble Supreme Court in the case of N K Proteins Ltd (Supra), addition of Rs. 76,21,830/- towards bogus purchases made from the afore-mentioned shell entity by invoking the provisions of section 69C of the Act is required to be made in this case. Unexplained expenditure, etc. "69C. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be th....
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....pply of actual goods. Therefore, transactions made by the entity were sham transactions and all the sales made by the entity are bogus sales. 4.2 Therefore, keeping in view the entire facts and circumstances of the case as discussed in the above paragraphs, an amount of Rs. 76,21,830/- debited under the head purchase is found to be bogus purchases booked for the purpose to inflate the expenses just to avoid declaration of true income. Accordingly, the same is hereby disallowed by invoking the provisions of section 69C of the Act thereby treating the same as bogus entries made under the head purchases is added back to the taxable income of the assessee. 11. On a thoughtful consideration to the aforesaid observations of Ld. AO along with conjoint perusal of the impugned appellate order of Ld. CIT(A), we observe that the decision granted by the Ld. CIT(A) found to be influenced under exceptional reliance on the judgments of Hon'ble High Courts, however, had squarely failed in considering the facts of the present case, without which the applicability of judicial pronouncements in generalize form had led towards a futile exercise, which does not commensurate with or fulfills....
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....s of purchases, on the other hand he is allowing the estimation of profit based on certain judgments without corelating the facts of present case to the facts of such judgments. The genuineness of transactions is a factual finding, which cannot be established without understanding the facts properly along with substantial corroborative evidence to support the same. Only after getting a clear depiction of the facts, the pertinence of judicial pronouncements would come into the play to justify their applicability under the given facts and circumstances, whereas in present case, on perusal of facts on records, the assessee was not able to substantiate the genuineness of transactions doubted by Ld. AO. 13. In view of the aforesaid facts and circumstances, we are of the considered view that the assessee is liable to substantiate that there are genuine purchases to achieve the turnover / sales declared by it in its Return of Income for the relevant year. Whereas the assessee squarely failed in offering any plausible explanation about the bogus purchases, nor was it able to justify that there was no inflation in the purchase expenses on account of such sham transactions. As all such fa....