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TMI Blog2012 (8) TMI 737X X X X Extracts X X X X X X X X Extracts X X X X ..... t possible for us to endorse the view of the lower authorities that the entire such purchases objected to by them should be treated as bogus At the same time, it is also not possible to accept the entire contentions advanced by the assessee, since confirmations have been received only during remand proceedings. Hence, an addition on account of alleged bogus purchases is called for, however with moderation – Decided partly in favor of assessee - I.T.A. No. 1973/Mds/2011 - - - Dated:- 12-6-2012 - Dr. O.K. NARAYANAN, AND SHRI VIKAS AWASTHY, JJ. Appellant by : Shri T. Banusekar, FCA Respondent by : Shri Vikramaditya, IRS, JCIT O R D E R PER Dr. O.K.NARAYANAN, VICE PRESIDENT This appeal filed by the assessee relates to the assessment year 2006-07. The appeal is directed against the order of the Commissioner of Income-tax (Appeals)-IV at Chennai dated 15.11.2011 and arises out of the assessment completed under sec.143(3] of the Income-tax Act, 1961. 2. The assessee is dealing in trading of hosiery goods. The assessee filed the return on a total income of Rs.1,75,750/-. In the course of assessment proceedings, the Assessing Officer found that the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed in the accounts of persons other than the creditors to whom cheques were issued by the assessee. The Income-tax Officer in his remand report has mentioned details of 36 such cases. 8. In the light of the remand report and other details, the Commissioner of Income-tax(Appeals) has held that cheques issued by the assessee were encashed by different parties other than the parties whose names were mentioned in the purchase bills and in whose names the cheques were issued. Even the confirmation letters filed in the course of remand proceedings were hand written and stereo typed ones, which did not generate any confidence. He also observed that the assessee has not explained the circumstances in which persons other than creditors have encashed the cheques issued by the assessee . As there is no satisfactory explanation forthcoming on the above stated points, he held that the Assessing Officer was justified in making the addition towards bogus purchases. He also found the fact that some persons other than the parties to whom cheques or bearer drafts were issued by the assessee have encashed the same, which in fact, violated the provisions of sec.40(A)(3). Even though the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,39,637/- out of purchases b. Delete the disallowance of Rs.2,54,053/- out of expenses c. Pass such other orders as the Hon ble Tribunal may deem fit. 11. Shri T. Banusekar, the learned Chartered Accountant appeared for the assessee and argued the case at length. He stated that the purchases were confirmed by the creditors in the remand proceedings. They have sent confirmation letters to the remand officer as well as they have stated that they had received the cheques issued against those purchases. He, therefore, contended that the onus cast on the assessee is discharged. If the cheques were later on encashed by parties other than the creditors, it is not for the assessee to examine those issues as: those matter are beyond the control of the assessee. The assessee had purchased goods from those parties; purchases are supported by the purchase bills; purchases are reflected in the regular books of account; payments were made by cheques; such payments are reflected in the bank statements and in the above circumstances, there is nothing more to show that the assessee had made such purchases. 12. The learned Chartered Accountant further contended that the Assessing Officer ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Officer has issued notices to the creditors and they were answered by them. The creditors sent confirmation letters to the Income-tax Officer and they also confirmed the receipt of cheques on account. But the enquiries made with the banks showed that the cheques were ultimately encashed by persons other than creditors to whom the assessee had issued cheques. The cheques were encashed by third parties, that too, at different places. With these details, the remand report was submitted before the Commissioner of Income-tax(Appeals). Even though, the creditors have confirmed sales and receipt of cheques, the Commissioner of Incometax( Appeals) did not accept the contentions of the assessee at that point, mainly for the reason that the cheques were ultimately encashed in third parties accounts. The Commissioner of Income-tax(Appeals) also made the observation that the assessee might have issued bearer cheques or drafts, which in fact, facilitated negotiability of the instruments issued by the assessee enabling third parties to realise the instruments in their accounts. As these matters were not satisfactorily explained by the assessee, the Commissioner of Income-tax(Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en proved in respect of their movements to their logical end. As there are a number of loopholes visible in the explanations made by the assessee, it is not possible for us either to accept that the entire purchases have to be treated as deductible in computing the income. 20. Therefore, to be fair and reasonable, a via media is justified. We find that an addition on account of alleged bogus purchases is called for, but not to the extent of Rs.79,39,637/- made by the assessing authority and confirmed by the Commissioner of Income-tax(Appeals). We have to draw a line of moderation. 21. In the facts and circumstances of the case, we sustain an addition of Rs.40 lakhs towards bogus purchases and delete the balance of Rs.39,39,637/-. The addition sustained by the Tribunal will also take care of the probable disallowance liable under sec.40A(3) of the Income-tax Act, 1961, as pointed out by the Commissioner of Income-tax(Appeals) in his order. 22. Regarding the disallowance of expenditure to the extent of Rs.2,54,503/-, we find that the disallowance has been made for want of details and the quantum of disallowance is reasonable. 23. In result, this appeal filed by the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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