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2015 (6) TMI 71 - AT - Income TaxAddition on account of bogus purchases - Deduction of loss of goods by fire - Penalty u/s 271(1)(c) of the Income Tax Act, 1961 - Held that - We are of the view that the fact of damage of goods by fire was not denied in this case. That loss was stated to be the reason of big financial loss suffered by the Assessee. Although, this should not be the reason for proving the genuineness of the purchases but loss due to fire could lead to one possible conclusion that the assessee was not having sufficient evidence to support its claim of purchases. Undisputedly, he was going through hardship and therefore the correct factual position could not be demonstrated. In the compilation, the assessee has placed before us the purchase bills of Pirth Trade Link along with delivery challans. The compilation also consist the purchase bills of Sydney Sales Corporation along with the delivery challans. The Assessee has also placed on record the evidence of transportation of goods from Panch Mahal Transport Company. All these documents were stated to be filed before the AO as well. In addition to these evidences, the Assessee has also placed on record the audited financial statement for the year under consideration to demonstrate that without these purchases there was no possibility to execute the sales. There was no allegation of the Revenue Department that the sales have also not tallied with the corresponding purchases as shown by the Assessee. However contrary to this; payments have been seriously doubted, although it was made through cheques but to some other party. It is also held by several courts that mere payment by cheque do not establish genuineness if not corroborated. Be that as it was, as also to settle the issues; we hereby accept the alternate submission of learned AR not to assess the entire purchases but to assess a reasonable amount of profit earned from those purchases. For this reason, we hereby follow the decision of the Respected Co-ordinate Bench pronounced in the case of M/s. Baldiwala Brothers 2013 (8) TMI 515 - ITAT AHMEDABAD wherein the profit @ 12.5% was directed to be assessed in respect of alleged bogus purchases. We direct accordingly. Both the lower authorities have merely adopted an estimated figure of value of the stock. The AO was expected to arrive at the justified conclusion of valuing the cost of closing stock. Merely by applying a gross profit rate, the AO has adopted an estimated figure of cost of closing stock which cannot be approved in the eyes of law. We, therefore, hold that in the absence of any corroborative evidence placed from the side of the Revenue to justify the change in the valuation of the closing stock we hereby dismiss such estimation. In the result the addition made merely on suspicion is hereby reversed. - Decided partly in favour of assessee. Penalty u/s 271(1)(c) of the Income Tax Act, 1961 - On perusal of the orders of the authorities below, we have noted that the assessee has furnished the books of accounts and relevant details. The fact about the purchases from those two concerns was duly disclosed. On the basis of those facts and the information available on record, the AO has initiated certain inquiries. Therefore, it is not a case that the facts about the purchases were concealed by the Assessee. However, the question still to be examined that whether these facts were true or not? As far as the Assessee is concern, he has explained that the purchases were made from those parties in the regular course of business as is proved by producing delivery challans and confirmation of transporters for transportation of goods. It has also been pleaded that the accounts were duly audited and there was no adverse remark by the auditor. It has also been pleaded that the sales were duly recorded in the books of accounts which were not disturbed by the AO. Therefore, the argument was that there was no possibility of execution of sales if the corresponding purchases have not been made. In addition to these facts, one more aspect is that we have now directed to assess the income by applying 12.5% of profit. Meaning thereby the total purchases amount has not been added but an estimated figure of profit is now to be assessed in the hands of the Assessee. In such situation, when an estimation is made by this Court then the issue of concealment has come under the cloud of suspicion. Merely on the ground of suspicion as also considering the total facts it is hereby held that concealment penalty need not to be levied. We, therefore, direct to delete the penalty. - Decided in favour of assessee.
Issues Involved:
1. Addition on account of bogus purchases. 2. Addition on account of excess claim of loss of goods due to fire. 3. Levy of penalty under Section 271(1)(c). Detailed Analysis: 1. Addition on account of bogus purchases: The primary issue was the addition of Rs. 66,14,400/- on account of bogus purchases. The Assessee declared a loss of Rs. 82,93,500/- and claimed that goods purchased from Pirth Trade Link and Sydney Sales Corporation, amounting to Rs. 33,69,600/- and Rs. 32,44,800/- respectively, were lost due to a fire at the factory premises. The Assessing Officer (AO) conducted an inquiry and found that the Assessee had not purchased goods from these parties either before or after September 2004. The AO noted discrepancies in transportation charges and bills, and delayed payments, concluding that the purchases were not genuine. The First Appellate Authority upheld the AO's decision, citing the Assessee's failure to provide cogent evidence to support the purchases. The Assessee argued that payments were made through account payee cheques, referencing the Gujarat High Court's decision in CIT Vs. Nagali Fabrics, which held that such payments could not be deemed bogus. The Assessee also suggested that only the profit component of the purchases should be taxed. The Tribunal acknowledged the fire incident and the Assessee's hardship in proving the purchases. Despite the Assessee presenting purchase bills, delivery challans, and transportation evidence, the Tribunal found the payments dubious. To settle the issue, the Tribunal followed the precedent set in M/s. Baldiwala Brothers, directing the AO to assess a 12.5% profit on the impugned purchases instead of the entire amount. Thus, the ground was partly allowed. 2. Addition on account of excess claim of loss of goods due to fire: The AO disallowed Rs. 14,66,000/- of the claimed stock loss, valuing the damaged stock at Rs. 45.19 lacs instead of Rs. 59.85 lacs, based on the previous year's gross profit rate. The First Appellate Authority upheld this decision, noting the Assessee's failure to provide explanations. The Tribunal found that both lower authorities had merely estimated the stock value without corroborative evidence. It held that the AO should have justified the valuation change with concrete evidence. Therefore, the Tribunal reversed the addition made on suspicion, allowing this ground in favor of the Assessee. 3. Levy of penalty under Section 271(1)(c): The AO levied a penalty of Rs. 24,20,374/- for concealing and furnishing inaccurate particulars of purchases amounting to Rs. 66,14,400/-. The First Appellate Authority confirmed the penalty, agreeing with the AO's reasoning and the Assessee's failure to provide evidence. The Tribunal noted that the Assessee had disclosed the purchases and provided relevant details, which the AO then investigated. It found that the Assessee had not concealed facts but questioned the truthfulness of the purchases. Given that the Tribunal directed an estimation of profit at 12.5%, it concluded that the concealment penalty was based on suspicion. Therefore, the Tribunal directed the deletion of the penalty, allowing the Assessee's appeal. Conclusion: - ITA No.1742/Ahd/2010 was partly allowed, directing the AO to assess a 12.5% profit on the disputed purchases and reversing the addition for excess claim of stock loss. - ITA No.1743/Ahd/2010 was allowed, deleting the penalty under Section 271(1)(c).
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