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TMI Blog2012 (11) TMI 808X X X X Extracts X X X X X X X X Extracts X X X X ..... to be sham the AO would be justified in disallowing not only the purchase price but also related transaction charges and it was held that such was a finding of fact and no question of law arose against such. Accordingly AO's action making disallowance of 6% of purchase price at Rs.14,49,190/- being justified and reasonable is hereby confirmed - against assessee. Addition made for unexplained peak investment - set off allowed by the CIT(A) in respect of 6 % of addition of profit out of peak credit - Held that:- Addition on account of disallowance of 6 % on purchases made from Kothari Group which was allowed as set off by CIT(A) against the addition of peak investment made in respect of alternative purchases made by the assessee, it is found that the AO has disallowed 6% of total purchases made during the entire year from Kothari group, whereas addition has been made with respect to peak unexplained investment worked out as on a particular date in respect of alternative purchases made by the assessee, and not in respect of entire alternate purchases made by assessee - Under these facts and circumstances & agreeing with the contention of DR that the order of CIT(A) is not correct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , he concluded that the assessee has not purchased the goods sold from the parties declared in the books of account. As per the Assessing Officer, the assessee has debited the value of purchases in his trading account at his sweet will and it was for the assessee to prove the existence of the fact as recorded in the books. By observing that payments of purchases from alternative source were made in cash only, disallowance u/s 40A(3) was also made. Addition was also made on account of investment in purchases from undisclosed sources. As the facts of all the assessees are same, we are dealing herewith the lease case of M/s. Shree Steels, Indore, wherein, the ld. CIT(A) deleted the disallowance made u/s 40A(3) after having the following observations :- 4.3 Third ground of appeal is directed against disallowance 20% of purchase price as per aforesaid bogus bills u/s 40A(3) at Rs.48.30,637/-. The AO has discussed this issue in para 5.2 of the order. The AO, in furtherance to his findings in the matter of rejection of book result u/s 145(3) and disallowance of 6% of purchase price as aforesaid, has further made disallowance u/s 40A(3) of the Act with the finding that alternate purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no basis left for invoking provisions of section 40A(3). Thus it was summed up that whichever way the issue was looked at there was no case for disallowance u/s 40A(3) making one after another presumption. In other. connected cases reliance has also been placed in support of such grounds on the decision of Hon'ble M.P. High court in the case of CIT Vs. Purushottamlal Tamrakar reported In. 270-ITR 314( MP). 4.3.4 The appellant's contentions and the AO's finding and the judicial decisions relied by both sides are very carefully taken into consideration. It will be appropriate to take note of the following judicial decisions and relevant findings contained therein: (1) CIT vs. Banwari. Lal Banshidar 229 ITR 229 (All.): Held, affirming the decision of the Tribunal, that no disallowance could be made in view of the provisions of section 40A(3) read with rule 6DD(J) of the Income-tax Rules, 1962, as no deduction was allowed to and claimed by the assessee. When the gross profit rate was applied, that would take care of everything and there was no need for the Assessing Officer to make scrutiny of the amount incurred on the purchases' made by the assessee." (2) CIT vs. PURSHOTTA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action of extension of the provision of section 40A(3) is not apparently authorized by law and disallowance can be considered by AO only in respect of expenditure for which deduction has been actually claimed by appellant. In these facts the decision of Hon'ble Gujarat High court in the case of Hynop Food Oil Industries (supra) is not applicable as in that case evidences of cash payment in respect of unrecorded sales transactions was found in course of search and seizure operation whereas facts of the case as noticed above are totally different and distinguishable. It may also be referred that even on the similar facts prevailing, as noticed in the case of Hynop Food Oil Industries (supra) the Hon'ble A.P. High. court in its earlier decision in the case of Venkata Subbo Rao , 173 ITR 340 (AP) has taken a contrary view. Thus in view of above discussion disallowance made by AO u/s 40A (3) at Rs. 4830637/- is hereby deleted. 4. By the impugned order, the ld. CIT(A) confirmed the reopening of assessment u/s 147 after having the following observations :- In the case of Rajesh Jhaveri (supra) , Hon'ble Supreme Court categorically dealt with re-opening of assessment with regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is a reason to believe that there is escapement of income. In the instant case before us, the return was processed u/s 143(1) and no assessment was framed by issue of notice u/s 143(2). Under these facts and circumstances, the proposition of law laid down by the Hon'ble Supreme Court in the case of Rajesh Jhaveri is clearly applicable. It is pertinent to mention here that Section 147 authorizes the AO to assess or reassess income chargeable to tax, when, he has reason to believe that income for any assessment year has escaped assessment. In the instant case, the observation of the AO to the effect that by claiming the returned income under wrong head, the assessee has claimed excess depreciation, which is not permissible in case of income is assessable under the head " Income from House property". This is sufficient reason to believe that income of the assessee has escaped assessment, which is sufficient to empower the AO to reopen the assessment by issue of notice u/s 148. Hon'ble Supreme Court in the case of Rajesh Jhaveri has further observed that under the earlier provisions of Section 147(a), two conditions were required to be satisfied, firstly, the AO must have reason to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d No. 1 is thus rejected. 5. Rejection of books of account by the Assessing Officer u/s 147 was also upheld by the ld.CIT(A) by observing as under :- 4.2.1 First, the issue of rejection of book results is taken up for consideration. The AO has brought necessary and relevant details and findings on record wherefrom it is clearly established that substantial part of appellant's purchases aggregating Rs.241.53 lakhs were supported by bogus bills supplied by bill providers on commission basis. Such bill providers have categorically admitted in the statements recorded and further confirmed through affidavit filed that they have engaged themselves in providing bogus bills accommodating entries for which they were entitled to fixed commission only. Thus in these facts when substantial part of appellant's purchases are neither supported by genuine purchase bills nor the appellant could lead any evidence or details of transportation of such goods from seller/supplier to the appellant's business premises, both in assessment as well as in appellate proceedings (despite specific opportunity given) and further failed to produce any details and evidence of payment of such aforesaid transpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s rests on the appellant to establish any claim of expenditure to the satisfaction of Assessing Officer. Hence, on over all consideration of facts and circumstances of the case, considering the nature of commodity purchased being iron steel involving high rotation and thin profit margin, the disallowance of 6 % of the purchase value as made by AO for inflation in purchase price is considered to be justified and accordingly the disallowance is confirmed. It may be observed, that incidentally higher disallowance @ 12.5% of pursuance price was confirmed by ITAT Ahmadabad Bench, in the case of Sachet Steel Traders Pop: Zenith School Vadodara vs. ITO, Ward-5(1) Vadodara (ITA No. 2801 and 2937/Ahd/2008 for AY: 2004-05) decided on 20.05.11 as relied by appellant. 4.2.4 Reliance is placed on -the decision of Hon'ble ITAT, Ahmedabad Bench, Ahmedabad in the case of Vijay Proteins Ltd. v. JCIT 55 TTJ 76 (Ahd.) where such disallowance of purchase price upto 25% was confirmed. Reference is also made to the decision of Hon'ble Gujarat High Court in the case of CIT v. Sanjay Oil Cake Industries 197 CTR 520 [Guj.] where similar findings in. the case of another appellant were approved by Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that there may be number of presumptions such as payments have been made as and when appropriated by Bharat Kothari group. Thus, in absence of any evidence presumption of initial investment should not be applied. The reply of the assessee is not acceptable. The assessee has not even cared to give complete name and address of parties from whom the alternative purchases were made and how the payments for purchases were made. The onus is on the assessee to establish that the cash was first received from Kothari Group of concerns, against cheques payment for bogus bill issued, and the same was utilized for making payments for corresponding unrecorded purchases but the assessee has not 'categorically admitted that purchases from Kothari Group of concerns were bogus. Further details and evidence has not been provided to explain the source of investment in alternative purchases. Hence the contention of the assessee is rejected having no merit. For cash purchases the assessee certainly made some investment. The case laws relied by the assessee are not applicable in the case of the assessee as the facts of the case are different from the relied cases. However, in view of the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntions advanced by appellant and AO's findings are further examined in view of findings arrived on other grounds of appeal above, whereby disallowance of purchase price to the extent of 6% of purchase price amounting to Rs.14,49,190/- has been confirmed. It is again clearly admitted position on record that no evidences or details of alternate purchases and further details of date(s) of payment are available on record. Hence, it has to be necessarily accepted that there is sufficient merit in the ' alternate contentions of the appellant that the profit estimation/ excess price disallowed out of purchases effected from bogus bill providers should be considered in arriving at the addition of peak credit for an unexplained investment. 4.4.3 It may be further observed that there is certain merit in the other contentions of the appellant also that funds received: back from Bharat Kothari group of concerns were available for making payment for such alternate purchases, which has in a way broadly accepted by Assessing Officer also, as he has made addition for peak credit only and the entire addition made for unrecorded purchases has not been made But in all cases, even the payment by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essees in the cross appeals are also common, in case of all the assessees. Precise ground taken by the assessee in case of Shree Steels reads as under : 1. The ld. CIT(A) has erred in holding that the reopening of the assessment was valid and as such the assessment framed is legal. 1.1 The assessment framed is bad in law since it could not have been reopened as there was no material to show that the assessee has not purchased the material. 2. The ld. CIT(A) has erred in holding that the rejection of the books is proper and the additions made by the ld. Assessing Officer was correct. The application of Section 145(3) is not proper since proper books of accounts are maintained and no defect is found. 3. The ld. CIT(A) has erred in maintaining the disallowance of 6 % of purchase value is proper. The assessee has already offered the gross profit on the sales. The additions of Rs. 1,14,285/- may please be deleted. 4. It was proved before the ld. CIT(A) and the ld. Assessing Officer by examining one of the persons that the purchases were made and there are no bogus purchases. 5. The ld. CIT(A) has erred in maintaining addition on account of investment in the purchases. 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empower the Assessing Officer to reopen the assessment u/s 147, when there is a reason to believe that there is escapement of income. In the instant case before us, returns of asses were processed u/s 143(1) and no assessments were made u/s 143(3). Under these facts and circumstances, the proposition of law laid down by the Hon'ble Supreme Court in the case of Rajesh Jhaveri is clearly applicable. On the basis of material collected during course of search at Bharat Kothari Group, it is clear that there is escapement of income in the hands of present assessee in so far as purchases were made by these assessees from Bharat Kothari Group. In view of the above, we confirm the action of CIT(A) for upholding the validity of reassessment proceedings. So far as rejection of books of account by the Assessing Officer is concerned, we found that purchases made from Bharat Kothari Group cases was found to be false, the rejection of books of account by the Assessing Officer was perfectly justified. Both Assessing Officer and CIT(A) have discussed the burden casted on the assessee. Under these facts and circumstances and after giving detailed finding reached to the conclusion that rejection of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 171, wherein it was held that when a net profit rate is applied, there remains no scope for further disallowance of any expenditure. The ld. CIT(A) also held that the Assessing Officer was not justified in law in extending the provisions of Section 40A(3) in respect of deemed purchases, which are neither recorded in the books of accounts and for which any claim or deduction has been made. 15. On considering totality of facts and circumstances of the case, we found that the Assessing Officer has already disregarded the purchases made from Kothari Group and have estimated extra profit of 6 % in respect of such purchases, at the same time, he has also disallowed 20% of the purchase price paid in respect of such quantity of goods purchased by the assessee. It is not in dispute that estimation of profit by the Assessing Officer and disallowance of 20% by the Assessing Officer was in respect of the same quantity of purchase shown by the assessee. In view of detailed finding and justification given by the ld.CIT(A), we uphold his action for deleting disallowance made u/s 40A(3), wherein he has upheld the action of Assessing Officer for estimating 6 % profit on such purchases. 16. Wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances, we are inclined to agree with the contention of ld. Sr. DR, Shri R. A. Verma that the order of CIT(A) is not correct to the extent of allowing setting off entire 6% of profit which was added in respect of entire purchases made from Kothari Group against peak unexplained investment worked out on a particular date. We, therefore, modify the order of the CIT(A) and direct the Assessing Officer to recompute the addition/disallowance made on account of purchases made from Kothari Group up till the date of working out unexplained investment on such purchases. To the extent of 6 % of disallowance made on the purchase up till date of working out peak unexplained investment, is to be set off against the addition made for unexplained peak investment. To this limited extent, we restore the matter back to the file of the Assessing Officer to re-work out the profit on such purchases up till date of unexplained investment, and to allow the set off of same against the addition made by Assessing Officer for such unexplained investment. 18. In the result, the appeals filed by the Revenue are allowed in part, whereas the cross objections filed by the assessee are dismissed. This ..... X X X X Extracts X X X X X X X X Extracts X X X X
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