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TMI Blog2016 (7) TMI 686X X X X Extracts X X X X X X X X Extracts X X X X ..... rate comes to 83 per cent. which cannot be there in the assessee's business. 4. That the Commissioner of Income-tax (Appeals) has failed to give any finding on ground No. 1 taken before herewith regard to the fact that the Assessing Officer has exceeded the limit of assessing under the scheme of selection through CASS which he could not have and departed from the jurisdiction envisaged under the scrutiny through CASS selection of the cases as clarified in E. No. 225/26/ 2006-ITA.II (Pt.)." 3. At the time of hearing of the appeal, Shri Sudhir Sehgal, learned counsel for the assessee, did not press for ground No. 4 of the appeal and, hence, we dismiss the same as not pressed. 4. As regards ground Nos. 1 to 3 of the appeal, the relevant facts are that the assessee submitted its return of income on September 30, 2009, declaring a total income at Rs. 5,410. The assessee carries on wholesale cloth business. The only source of income was shown to be the business income. The return was processed under section 143(1) of the Income-tax Act, 1961 (in short "the Act"). Subsequently, the case was selected for scrutiny and statutory notices were issued to the assessee. During the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sales could be made. He further contended that if the purchases are to be excluded, as proposed, corresponding sales are also to be decreased, which will mean no effect on the gross profit worked out in the trading account, if redrafted. Shri Sudhir Sehgal, the learned counsel for the assessee, also submitted that as per the Assessing Officer's assumption redrafting of the trading account vis-a-vis decreasing the purchase and working out the profit by increasing the same to that extent, is highly objected to as the rate of profit will work out to 83 per cent. which is normally impossible/ unbelievable being unimaginable and, hence, cannot be there at all in all probabilities, looking to the market conditions of this line of business. According to the learned counsel for the assessee, if purchases are disbelieved, the sales are also to be reduced as the sales cannot be there without purchases. Shri Sudhir Sehgal, learned counsel for the assessee vehemently argued that the Assessing Officer has not brought out any material on record to justify the profit rate of 83 per cent. deemed to be adopted. He, therefore, submitted that impugned addition deserves to be deleted. Reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tock 50,03,757 Less alleged bogus purchases 330795467 93,91,487 1,18,27,052 Total To gross profit 3,35,11,080 4,53,38,132 4,53,38,132 10. Comparative chart of gross profit for the earlier years and the year under consideration are as under : Comparative chart Assessment year Sales Gross profit (Rs.) G. Percentage 2009-10 (under appeal) 4,03,34,375 27,15,613 6.73% 2008-09 2,17,93,383 15,62,193 7.17% 2007-08 3,71,17,054 26,00,948 7.00% 2006-07 (u/s 143(3)) 2,89,70,626 20,34,973 7.02% 2005-06 (u/s 143(3)) 1,86,70,806 13,93,478 7.46% From the combined reading of the above, it is clear that gross profit margin of the assessee comes to 6.73 per cent., if purchases of Rs. 3,07,95,467 are treated as bogus and the same is added to the gross profit then the gross profit works out at 83 per cent., which is unbelievable and unimaginary as sales cannot be the profits. In our opinion, the whole trading results would present a distorted picture, if the Assessing Officer's version is accepted, which, in our opinion, is not possible in the assessee's line of business. At this stage, we ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these parties have bank accounts and payments were made through account payee cheques. Evidence of material having been received by the assessee, has been filed. 14.3. As regards the fact that the assessee was not able to produce the parties, we agree with the contentions of the assessee that non- production of the parties cannot be a ground of disallowance of all the purchases for the following reasons : (i) The persons from whom purchases are made could not always be in the control of the assessee, specifically when they are unrelated parties. (ii) The volume and quality of evidence produced by the assessee is such that non-production of the party from whom the assessee purchased cannot lead to a conclusion that the purchases are not genuine. The learned Commissioner of Income-tax (Appeals) at paragraph 4.4 held as follows. '4.4. It is also seen that during the course of assessment proceed ings the assessee had filed various evidences (which have been filed in the paper book) of the purchases made from the said parties in the shape of copies of bills, purchase vouchers, material receipt notes, as well as the copies of bank statement of the assessee-company evidencin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in such circumstances. I am in agreement with the contentions of the learned authorised representative that the action of the Assessing Officer in simply brushing aside the evidences before him was highly unjustified in the facts and circumstances of the case.' These findings of the learned Commissioner of Income-tax (Appeals) could not be controverted by the learned Departmental representative. We find no infirmity in the same. (iii) The other aspects are that the value of work certified, the value of closing stock have been accepted by the Assessing Officer. Both these cannot be independent of the value of purchases. The purchases either form part of work certified or closing stock. When both these are accepted and not disturbed, the question of disallow ing the purchases debited in the profit and loss account does not arise. (iv) The learned Commissioner of Income-tax (Appeals) has rightly analysed that if this disallowance of purchases is upheld then the gross profit rate of the assessee would be abnormal at 67 per cent. (v) The hon'ble Calcutta High Court in Diagnostics v. CIT reported in [2011] 334 ITR 111 (Cal) ; [2012] 20 taxmann.com 692 (Cal) at paragraph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y are unrelated parties. (ii) Non-production of the parties from whom the assessee purchased materials cannot lead to the conclusion that the purchases are not genuine." 12. In our opinion, the decision of the Income-tax Appellate Tribunal, Delhi Bench referred to above is squarely applicable to the facts of the present case, and, therefore, we hold that in this case also, there is no justification in making the disallowance of Rs. 3,07,95,467 on account of bogus purchases. In this case, the Assessing Officer had treated purchases worth Rs. 3,07,95,467 from certain parties as bogus one, however, sales made out of such purchases were not disputed or questioned and the resultant profit on such sales has been accepted in toto by the Assessing Officer and the Commissioner of Income-tax (Appeals). The account books of the assessee were never rejected by the Assessing Officer, in the case of CIT v. Bholanath Poly Fab P. Ltd. [2013] 355 ITR 290 (Guj), the hon'ble High Court held as under (page 293) : "Having come to such a conclusion, however, the Tribunal was of the opinion that the purchases may have been made from bogus parties, nevertheless, the purchases themselves were not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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