cash purcahses disallowed, Income Tax

[ramesh malik]

during the assessment proceedings, the perusal of ledger account and cash book of the assessee showed cash purchase of Rs. 4248003/-. the assessing (officer-verified the cash purchase from bills and his observations are as under:

"nothing except "cash" has been mentioned in the bills of purchase. however, in few bill books, some names have been mentioned, but no address or other identity has been written. the assessee's counsel was confronted on this issue that the purchases were made in cash and there is neither any name 'or address or any other identity through which the purchases can be verified. this issue was spacifically discussed with the assessee's counsel.the details of these bill books are given as under:-

bill book no. description of purchases
no.1 kamaljeet, mohali-18.4.06-rs. 4481/-
no.2, raiiv-19.4.06-rs. 18, 000/-
no.3, fortis health care-2i.6.06-rs. 19701/-
no. 101 to 200 - cash
no. 201 to 300 - cash
no. 301 fo 400 - cash
no. 401 to 500 - cash
no. 501 to 600 - cash
no. 601 to 610 - cash
no. 611 - blank
no. 612-promilla ji -4.11.06 Rs. 1222/-

the assessee was confronted vide order sheet entry dated 26-11-2009 regaraing these cash purchases made by the assessee and was also asked to get these purchases verified even he was also asked to produce few persons.from whom these purchases have been made. the onus was on the part of the assessee to get the purchases verified.no explanation/submissions were made by the assessee on this issue. no person was produced in support of the purchases made. therefore. it is clear that the assessee has nothing to say on this issue. these purchases are bogus/unverifiablepurchases and have been made just to reduce the profits of the firm. no documentary evidence is produced by the assessee to verify these cash purchases. in the absence of any address and name, no third party enquiry is possible. no person was also produced from whom these purchases were made to verify the genuineness of these purchases. therefore these purchases are not
genuine purchases and thus held to be bogus purchases.in view of above discussion. an amount of Rs. 42,48,003/- is hereby disallowed on account of bogus purchases entered in the books during the year
and therefore the amount of r Rs. 42,48,003/- is added back to the total income of assessee, '"

during the appellate proceedings, the appellant submitted as under :

"during the year under consideration had made purchases in cash amounting to Rs. 42,58,003/- since the purchases of old silver were made by the assessee during the year under its scheme to promote the sales as such the same were made from the individual persons and in token of having ;made such purchases a purchase bill was prepared by the assessee in the normal course of its business. further perusal of the record would reveal that such purchases were made in small quantities through the regular bill books prepared by the assessee the entries of which are duly recorded both in stock registered as well as in the regular books of accounts. further perusal of the record of assessment would reveal that the assessing officer has duly mentioned in the order of assessment that in some of the cases the name of the person from whom tne purchases have been made have also been mentioned the assessing officer vide completing the assessment has disallowed an amount of Rs. 42,48,003/- holding the said purchases as bogus purchases during the year under consideration. the raw material so purchased by the assessee has been sold after re-building the same by way of undertaking the job work for which the job charges has duly been paid. the assessing officer while completing the assessment has examined the books of accounts of the assessee and has no where held in the order of assessment that he doubts the books of account maintain by the assessee more so 'when there are audited one and the report of audit forms part and parcel of the assessment records. a photocopy of the purchase account maintained by [he assessee is being enclosed for your perusal and record. the assessing officer has examined the books of account and has accepted the sales account as 'well as the books results with regard to the profits derived by the assessee. the assessing officer has not rejected the books of accounts and while making the addition has simply made this addition stating to the said purchases to be bogus one, which is not in accordance with the provisions of law. the assessing officer has no where held that the sole of the assessee are also bogus one. the perusal of the above figures would reveal that the assessing officer has accepted the book results and the profit which is more than the previous year as is evident from the perusal of the figures details given in the above paras the assessing officer has not given the finding as to how the sales are correct if the purchases are bogus. since he has accepted sales as such the purchases cannot be treated as non genuine or bogus one and thus the addition made on this account is uncalled for”

having considered rival contentions , i find that during the assessment proceedings, no person was produced in support of purchases made. as per appellant's version at appellate stage, cash purchases of Rs. 4248003/- mainly consisted of purchases of old silver out of total purchases of Rs. 5575822.47 during the relevant year. appellant further incurred expenses of Rs. 1462928.03. the direct expenses consists of the following :

discount account group- 24326.59
packing material-6339339.00
engraving charges-64673.00
gem testing expenses- 600.00
labour paid- 269539.00
post & parcel expenses-4364.25
sales tax paid-460964.00
vat out station purchases 4522.19

from the perusal of the above direct expenses, it can be inferred that on the old silver of Rs. 4248003/- for making them saleable, the labour charges are Rs. 269539/- which seems to be on the lower side. in jewellery trade, the labour is the major expense since the metal is sold at prevalent rates only. since the appellant purchased the silver during revelant year itself, the question of earning profit on variation of prices does not arise. if old silver to such huge extend was bought, labour charges could not have been so low.

in absence of any name & address of purchasers, no enquiry is possible. i hold that the appellant failed to discharge the burden of providing sufficient evidence to prove genuineness of purchases. the assessing officer has rightly held the purchases to be bogus. the addition so made is confirmed. dismissing assessee’s plea on this groung.

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[Rama Krishana]

A recent decision of Kolkata high court may be pertinent to note:

M/s. Diagnostics Versus Commissioner of Income Tax, Kolkata-XX & Anr. = 2011 -TMI - 202601 - CALCUTTA HIGH COURT