TaxTMI 
TaxTMI 
2018 (2) TMI 2147
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....FIT rate of 12.5% is not justified. 2. The Ld. CIT (A) failed to appreciate that non-service of notice u/s 133(6) was irrelevant as the Appellant had furnished all documentary evidence in support of proving its purchases. 3. The appellant craves leave to allow to add/alter or delete any of the above ground of appeal. 4. The revenue has raised the following grounds:- "1. Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) was justified by sustaining the addition to the extent of 12.5% of addition made by AO in spite of concluding that the parties from whom the assessee had shown purchases were bogus parties and disregarding the finding of fact that only bogus bills were supplied without delivering or goods as stated in the affidavit by the suppliers before the Maharashtra Sales Tax Authority. 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) was justified in relying on the submission of the assessee that the material alleged to be procured from the tainted parties was used for BMC construction work without understanding the need and usage of these material I the actual contract work car....
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....7134V 12,02,479 2 Anshu Mercantile Pvt. Ltd. 27540680106V 13,58,240 3 Dhiren Mercantile Pvt. Ltd. 27450680107V 16,42,550 4 Paradise Corporation 27930024996V 34,466 5 Siddhivinayak Corporation 27130558742V 10,00,027 6 Novam Metal Corporation 27380661764V 14,90,112 Total 67,27,874 On receipt of this information, the notice u/s 148 of the Act dated 26.03.2014 was issued and served upon the assessee on 29.03.2014. Thereafter, the notice u/s 142(1) of the Act was also issued and served upon the assessee. The bogus purchase from the above mentioned six parties was brought into the notice of assessee and explanation was called and after considering the reply and on account of non-proving the genuineness of the claim, the amount to the tune of Rs. 67,27,874/- was disallowed in view of the provisions u/s 69C of the Act and added to the income of the assessee. The assessee filed an appeal before the CIT (A) who restricted the addition to the extent of Rs. 12.5% of the bogus purchase. Since, the assessee as well the revenue were not satisfied, therefore, both the parties filed an appeal befor....
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....ted out by Master Sheatroft in 18 Modern Law Review 209) by some of the members in the country being involved in the perpetual war waged between the tax payer and his expert team of advisors, and accountants on the one side and the tax gatherer and his perhaps not so successful advisors on the other side. Hon'ble Court further held that it was for the Court to take stock to determine the nature of new and sophisticated legal devices to avoid tax and consider whether the situation created by the devices would be related to the existing legislation with the aid of emerging techniques of interpretation as was done in Ramsay, Burmah Oil and Dawson to expose the devices for what they really are and to refuse to give judicial benediction. 2.57 The onus to prove that apparent, is not the real one, is on the party who claims it to be so, as held by the Hon'ble Supreme Court in the case of CIT v. Daulat Ram Rawatmull [19731 87 ITR 349 and CIT v. Durga Prasad More (supra). In the latter case, it has been held by the Apex Court that though an apparent statement must be considered real until it was shown that there were reasons to believe that apparent was not the real, in a case ....
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....y u/s. 24 of F.No.(2) Act 1965 held that the immunity provided cannot be invoked in assessment proceedings relevant to any person other than the person making declaration under the Act. In that case, the firm Jamnaprasad Kanhaiyalal had shown cash credits in the names of 5 sons of Kanhaiyalal who had made voluntary disclosure under the Voluntary Disclosure Scheme of 1965 but the Ld. A, 0. had not found the explanation satisfactory regarding the creditworthiness of the parties and the same came to be confirmed by the Hon'ble Supreme Court. If against such strict terms of immunity, the Hon'ble Supreme Court could confirm the rejection of explanation of cash credit in the instant case the appellant has failed to even corroborate the claim before the Ld. A.O. 2.5.6 Reliance is also placed on the judgement of Hon'ble Supreme Court in the case of Sri Meenakshi Mills Ltd 63 ITR 609 where it was held that the 13. Authorities are entitled to pierce the veil of Corporate Entity and to look into reality of transaction. In the case of McDowell & Co. 154 ITR 148(SC) it was stated that implications of tax avoidance are manifold. First, there is substantial loss of much needed pu....
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....where, either there is no evidence on either side, or where it is equally worthless or where it is equally balanced. It is imperative to mention here that where such is not the case and all available evidence is considered, without reference to the onus and without relying on the circumstances that onus lies on a particular party, the issue is determined on facts and the onus cannot be said to have influenced the decisions. However, in the instant case, the appellant has miserably failed to lead evidence and hence, onus is a determining factor. 2.5.9 The Hon'ble Supreme Court, in the case of Chuharmal v. CIT [19881 172 JTR 250 138 Taxman 190 highlighted the fact that the principle of evidence Jaw are not to be ignored by the authorities, but at the same time, human probability has to be the guiding principle since the AO is not fettered, by technical rules of evidence, as held by the Hon'ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd v CIT (1954) 26 ITR 775. The Hon'ble Supreme Court, in the case of Chuharmal (supra) held that what vs meant by saying that Evidence Act did not apply to the proceedings under Income-tax Act, 1961, was that the rigour....
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....ppellate Tribunal orders of assessment year 2001-02 - Assessee transferred certain land to bank - Assessee claimed to have incurred long-term and short- term capital losses on share trading transactions Accordingly, it set off said losses against capital gain earned on sale of land Assessing Officer found that assessee entered into sham and bogus share trading transactions resulting in capital loss with purpose to reduce tax liability arose on capital gain - Assessing Officer, therefore, discarded capital losses - Commissioner (Appeals) confirmed order of Assessing Officer - Tribunal also confirmed order of Assessing Officer, and while doing so, referred to a decision of Supreme Court in case of Sumati Dayal v. CIT [1995] 214 ITR 801 / 80 Taxman 89 to held that evidence produced must be analysed by applying theory of surrounding circumstances and human probabilities - Assessee alleged that without bringing said case to notice of parties, revenue had caused prejudice to its case; all in violation of principles of natural justice and of rule 11 - Whether since decision of Supreme Court in Sumati Dayal case (supra) was cited by Tribunal only for purpose of reiterating well settled and....
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....eddy, J. only in relation to tax evasion through the use of colourable devices and by resorting to dubious methods and subterfuges. Thus, it cannot be said that all tax planning is illegal/illegitimate/impermissible. Moreover, Reddy, J. himself says that he agrees with the majority. In the judgment of Reddy, J. there are repeated references to schemes and devices in contradistinction to legitimate avoidance of tax liability (Paras 7-10, 17 and 18). In our view. although Chinnappa Reddy, J. makes a number of observations regarding the need to depart from the 'Westminster' and lax avoidance- these are clearly only in the context of artificial and colourable devices. Reading McDowell, in the manner indicated hereinabove, in cases of treaty shopping and/or (avoidance, there is no conflict between McDowell and Azadi Bachao or between McDowell and Mathuram Agarwal. 15. The aforesaid observations of the Supreme Court makes it very clear that a colourable device cannot be a part of tax planning. Therefore, where a transaction is sham and not genuine as in the present case then it cannot be considered to be a part of tax planning or legitimate avoidance of tax liability. Th....
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....nvoices had been prepared by the munim of the applicant. Merely because the applicant had been dealing with the firm, that would not make the purchases of chunibhusi genuine when there was sufficient evidence to the contrary So far as the question of deduction of purchases from the corresponding sales was concerned, the assessee being a manufacturer of chuni-bhusi and purchases having been found to be bogus and as (here were no other purchases of chuni-bhusi, the bine fit of deduction of such purchases had rightly been disallowed." 25.14 Similarly, in the case of KHANDELWAL TRADING CO. V ASSISTANT COMMISSIONER OF INCOME-TAX [1996] 55 TTJ 261 (JP), it was observed and held as under: 7. We take up the first contention of Shri Singhvi. It was contended that only gross profit rate should have been applied and the addition should have been to that extent only. a Let us assume that the impugned purchases in this case are bogus-what can be the causes and effects? Either corresponding bogus sales have to be accounted for, or, the closing stock to that extent have to be increased. But if either is done, the very purpose of entering bogus' purchases is defeated....
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.... tallied? In the instant case the assessee has maintained the stack register but the same has been test-checked by the Assessing Officer. There is no specific discussion or finding as regards quantitative tally. However, when in substance the transactions have been proved to be bogus the unverified quantitative tally cannot lead us to conclude otherwise. Under the circumstances of this case, we are not inclined to give much weightage to this contention of the assessee. 2.5.15 Further, in Dooria Oxygen Company vs. Commissioner of Income- tax [20071 160 TAXMAN 427 (ALL.), it was observed and held as under: This leaves us to the question as to whether the Tribunal Should have given due regard to the legitimate outgoings in the form of the entire purchases of gas cylinders or not The principle regarding making of a best judgment assessment has been well settled by the Apex Court in the case of Dhakeswari Cotton Mills Ltd. v. CIT [19541 26 ITR 775 wherein the Apex Court has held as follows:- 'As regards the second contention, we are in entire agreement with' the /earned Solicitor-General when he says that the Income-tax Officer Is not fettered by technical rule....
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....Shri Mahesh Toshniwal in his personal statements, has ted that the surrender was made on behalf of the assessee-company. We also find that even in the return filed in response to a notice u/s 148, the assessee-company did not include the said amount of bogus purchases. The assessee-company has not placed any material as to show that the said purchases, in fact, belong to Shri Mahesh Toshniwal and not the assessee-company. Under these circumstances, we do not find any merit in the plea of the learned authorised representative that since the said amount of purchases has been added in the hands of Mahesh Toshniwal, no addition can be made in the hands of the assessee-company. It is a settled law that the tax has to be levied on the real person. Under these circumstances and keeping in view the decision of the Hon'ble Delhi High Court as relied on by the learned Departmental representative in the case of CIT v. La Medica (2001) 250 ITR 575, we are of the view that the assessee-company has debited bogus purchases in its books of account which the assessee-company could not substantiate and, accordingly, the Commissioner of Income-tax (Appeals) was not justified in deleting the addition ....
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....e been deposited in hank accounts ostensibly in the name of the apparent sellers, thereafter the entire amounts have been withdrawn by bearer cheques and there is no trace or identity of the person withdrawing the amount from the bank accounts. in the light of the aforesaid nature of evidence it is not possible to record a different conclusion, different from the one recorded by the Commissioner (Appeals) and the Tribunal concurrently holding that the apparent sellers were not genuine, or were acting as conduit between the assessee-firm and the actual sellers of the raw materials. Both the Commissioner (Appeals) and the Tribunal have, therefore, coma to the conclusion that in such circumstances, the likelihood of the purchase price being inflated cannot be ruled out and there is no material to dislodge such finding. The issue is not whether the purchase puce reflected in the books of account matches the purchase. price stated to have been paid to other persons. The issue is whether the purchase price paid by the assessee is reflected as receipts by the recipients. The assessee has, by set of evidence available on record, made It possible for the recipients not being traceable for t....
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....circumstances appears to be only the assessee-firm. The Apex Court has held in the case of Jamnaprasad Kanhaiyalal (supra) that there is no double taxation in taxing the person to whom the income actually belonged with the persons who falsely declared them in their returns filed under the Voluntary Disclosure Scheme. That is a risk winch an assessee resorting to unfair tax saving devices has necessarily to run and an assessee who has resorted to such devices has to thank himself for it." 2.5.20 As regards the issue of cross-examination, in T. bevasahaya Nadarv. CIT [1964 151 hR 20 (Mad.), it was held: "It cannot be laid down as a general proposition of law that the Income-fax Department cannot rely upon any evidence which has not been subjected to cross-examination. An ITO occupies the position of a quasi-judicial Tribunal and Is not bound by the rules of the Evidence Act, but he must act in consonance with natural justice, and one such rule is that he should not use any material against an assessee without giving the assessee an opportunity to meet it. He is not bound to divulge the source of his information. There is no denial of natural justice if the ....
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....e is not applicable where the material or evidence used is of Collateral Nature. (Emphasis supplied in all quotations) 25.23 To sum up, I would like to quote the landmark case of State bank of India v. S.K. Sharma AR 1996 SC 364 where the Hon'ble Apex Court observed. "Justice means justice between the parties. The interest of justice equally demand that the guilty should be punished and that technicalities and irregularities which do not occasion failure of justice are not allowed to defeat the ends of justice. Principles of natural justice are but the means to achieve the, end of justice. They cannot be perverted to achieve from opposite end." 2.5.24 In the facts and circumstances of the case, it is seen that the appellant has not proved the movement ousor1aton of its purchase by specifying the lorry number The notice u/s I 36) of the, Act 'o could not be served Thus, the burden cast on the assessee has not been discharged. Therefore, in view of the factual and legal analysis, I record a finding of fact that the appellant has failed to prove the genuineness of purchase transactions from the said party as noted by the td. AO. 25.25 How....
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....the purchases themselves were not bogus as the entire quantity of opening stock, purchases and sales were tallying and hence, only the profit margin embedded in such amount would be subjected -to tax. The Hon'ble Gujarat High Court taking cognizance of the fact held that whether purchases themselves were bogus or whether parties from whom such purchases were made were bogus, is essentially a question of fact and the Tribunal having examined the evidence on record and concluded that the assessee did produce cloth and sell finished goods, the entire amount covered under such purchase would not be subjected to tax and only the profit element embedded therein was to be taxed. While corning to the above conclusion, the Hon'ble High Court also relied on the decision in the case of Sanjay Oil Cake End. 316 ITR 214 (Gui). 2.5.27 Similarly, in yet another decision of Hon'ble Gujarat High Court in the case of CIT vs. Simit Sheth (2013) 38 Taxmann.com 385 (Guj), Hon'ble Court was seized with a similar issue where the A.O. had found that some of the alleged suppliers of steel to the assessee had not supplied any goods but had only provided sale bills and hence, purchases from ....
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....4(3)(2)/77/2011-12 dated 26-03-2012. ii) Shri Laxman Valecha, Appeal No. CIT(A)3212 1(1) (2)/IT-347/09 dated 29-10-2010 iii) M/s. Mohammed Haji Adam & Co., Appeal No. CIT(A)24/13(1)(2)/291/09-10 dated 30-04-2010 iv) M/s. Sheth Corporation Appeal No, CIT(A)25/IT-420/14(3)(3)/09/2010 dated 28.09.2012. 2.5.29 As narrated earlier, the Ld. A.O. in this case has himself held that the parties from whom the purchases were made by the appellant was found to be bogus and that is the reason for which they were not produced during the assessment proceedings. The motive behind obtaining bogus bills, thus, appears to be inflation of purchase price so as to suppress true profits. In order to estimate as to what could be the GP which the appellant has suppressed which was embedded in the alleged purchases, it is seen that the appellant has shown different GP % in different years thus, betraying any clear picture about the actual GP. Such a variation also points to the fact that the appellant has manipulated its accounts though Ld. AC has not doubted the receipts from consumption of products. Thus, in the facts and circumstances of the case and in view ....