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TMI Blog2016 (7) TMI 836X X X X Extracts X X X X X X X X Extracts X X X X ..... stantiate his case. The addition for 1% of the impugned purchases (u/s. 69C) is, in any case, confirmed. Further, lest one considers us as having travelled outside the scope of the appeal, we may advert to the decisions, inter alia, in the case of Kapurchand Shrimal v. CIT [1981 (8) TMI 2 - SUPREME Court ] and Ahmedabad Electricity Co. Ltd. v. CIT [1992 (4) TMI 29 - BOMBAY High Court ] - I.T.A. Nos.7644 & 7645/Mum/2013, I.T.A. Nos.6581 & 6582/Mum/2013 - - - Dated:- 11-7-2016 - SHRI SANJAY ARORA, AM AND SHRI PAWAN SINGH, JM For The Revenue : Shri Jeevan Lal Lavidya For The Assessee : Shri Deepak Tralshwala ORDER Per Sanjay Arora, A. M.: This is a set of cross Appeals, i.e., by the Assessee and the Revenue, for two consecutive years, being Assessment Years (A.Ys.) 2004-05 and 2005-06, preferred u/s. 253 of the Income Tax Act, 1961 ( the Act hereinafter). The issues arising being common, the same were listed for hearing, and were accordingly heard together the facts and circumstances as well as the respective cases of the parties being also the same, and are being disposed of vide a common, consolidated order. 2. The issue arising in these appeals is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33A of Shri Rakeshkumar M. Gupta dated 13/14.2.2009 stand reproduced in the assessment orders. These facts were subsequently confirmed by him vide statements on oath u/s. 131 on 23.2.2009 and 03.3.2009. The assessee s books reflecting purchases from the three concerns aforementioned subject to survey u/s. 133A, at ₹ 44,48,242/- and ₹ 29,88,033/- for the two consecutive years under reference respectively, its assessments for the said two years were reopened u/s. 147 of the Act on 28.3.2011 and 27.3.2012 respectively after obtaining approval from the competent authority, duly conveying the reasons recorded to the assessee. In the assessment proceedings, it was found by the Assessing Officer (A.O.) that the purchases from these parties were not reflected in the stock register . There was, further, no evidence of transportation of goods to the assessee s premises/godown. The assessee had merely booked purchases , inflating the expenses . The same was inferred to be a colorable device to cover up purchases made outside books, attracting section 69 of the Act. He accordingly effected addition to the returned income toward investment in the impugned purchases u/s. 69 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue against the deletion qua the impugned purchases (to the extent of 90% thereof) and the assessee against its restriction at 10%. 4. Before us, the ld. AR relied on the orders by the Tribunal in Goolamally Hasanjee vs. ITO (in ITA Nos. 3740 3741/Mum/2012 dated 10.6.2014) and Dy. CIT vs. Rajeev G. Kalathil (in ITA No. 6727/Mum/2012 CO No. 06/Mum/2014 dated 20.8.2014), as well as by the Hon'ble jurisdictional High Court in CIT vs. Nikunj Eximp Enterprises Pvt. Ltd. [2015] 372 ITR 619 (Bom). The tribunal had clarified that though suspicion could be a good starting point (of investigation), it cannot itself substitute evidence, and no disallowance could be made on that basis. The very fact that the sales had been made implies that the purchases from whatever source had also been made. The availability of stock reconciliation excluded the possibility of inflation (in terms of quantity) in purchases. The Hon'ble jurisdictional High Court had, in fact, approved of this algorithm/rationale in Nikunj Eximp Enterprises Pvt. Ltd. (supra), wherein the question before the Hon ble Court covered the instant fact-situation, further stating that in-as-much as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock register, i.e., of actual goods bought and sold, in the absence of which the theory of goods being purchased from the grey market is only presumptuous, not backed by any material. Why should the assessee, in fact, engage in such an exercise, and which behavior is totally unexplained. Further, even assuming so, the same cannot be without motive or objective of gain. The assessment of the same by the ld. CIT(A) at 10% (of the purchases taken at the same value) is without basis. Clearly, thus, the case has two components: a) Whether there is scope for any addition qua the impugned purchases u/s. 69/69A or, for that matter, u/s. 69C, toward unexplained source of payment for purchases in the facts and circumstances of the case; and b) Whether there is any basis for restricting the allowance qua the impugned purchases to 90% thereof in the absence of any evidence on the rate at which the goods from the grey market, inferably made in lieu of the impugned purchases, have been made. The first issue that therefore confronts us is whether section 69/69A of the Act is applicable in the facts and circumstances of the case, which aspect, despite being pointed out by the B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not removed from or de hors the other findings of survey, and is thus to be considered in conjunction therewith, viz., the absence of any incidents of business or trade being found during survey; the tell tale signs in the form of bank accounts of the seller firms exhibiting withdrawals of the sale proceeds in cash; the blank purchase bill books of, again, nonexistent and/or bogus parties, etc., found during survey. The same is thus not to be considered independent of or on a stand-alone basis, but as corroborative, to all of which the statutory presumption of truthfulness u/s. 292-C shall apply. However, even so, the question remains as to how the provision of s. 69, or s. 69A for that matter, the two being para materia , would apply. The money (cash) provided by the bill provider would go to finance such purchases - save to the extent of 1% not returned by the seller, to which extent, therefore, the addition becomes justified. In other words, the actual purchases are paid only out of the capital/sources per the assessee s books, albeit indirectly in-as-much as the same are against cash provided (to the assessee) by the hawala operator on encashing the funds released (r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nents, i.e., that pertaining to genuine purchases and that corresponding to the impugned (non-genuine) purchases the assessee s case being of having made, in lieu thereof, equivalent purchases from the grey market. This segregation may be done adopting a reasonable, as (say) FIFO, basis/method. To the extent it relates to genuine purchases, it (the stock) could either be paid up or unpaid (i.e., financed by unpaid purchases/credit there-against), or even partly by one and partly by another. The same in fact is not in question. It is only the stock corresponding to the impugned (non-genuine) purchases that we are concerned with in-as-much as the same, being backed by, as claimed, purchases (of the same quantity) from the grey market, cannot be regarded as unpaid, particularly in the absence of any material being led toward financing the same. As such, the stock to that extent is only paid-up, and it is the source of capital invested (blocked) therein that is under question in-as-much as the same cannot, in view of the corresponding (stated) parties being bogus, explained with reference to the assessee s books of account. To this extent the Revenue has a case for addition u/s. 69/6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses could not be added (except for 1% thereof, retained in cash by the seller ). This is as the cash available with the assessee for alternate purchases (from the grey market) is only at 99% of the purchase value, so that to the extent of 1% the source of the alternate purchases, assuming so, is unexplained, and is accordingly liable to be added. In other words, the presumption of alternate purchase (from the grey market) is valid up to 99% of the purchases booked and claimed . The moot question in this regard, however, is: Why would the assessee indulge in such an exercise, suffering, rather, a loss of 1% in value, unless of course the same is remunerative, i.e., there is a concomitant benefit ? That is, it gives rise to a strong inference of the assessee s alternate purchase (from the grey market) being at a lower rate. One may be quick to castigate this as presumptuous. True, no disallowance (or addition) could be made without evidence, but the fact of the matter and which forms the cornerstone of the assessee s case , is that the goods have been purchased from the grey market, which are readily available in the open market as well, being in fact sold thus by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ward which the assessee is being sought to be charged with, impugning his book results. The question then boils down to the extent of such gain, which cannot be the matter of presumption, as at 10% (of the purchase amount) by the ld. CIT(A). Of course no standard could be laid down, and which (gain) may itself vary from year to year, and is to be based on the evidence/material on record. The matter, accordingly, would require being restored to the file of the AO for the purpose. This answers the question posted at (b) above. In sum 6. The survey by the Revenue at the business premises of firms, purchases from whom are under reference, and the consequent findings, including the admission by the proprietor, proves there being not an iota of evidence of any actual transactions, the impugned purchases as not genuine. Why, the assessee itself makes no bones about it choosing not to cross-examine the supplier firm/s, and it s case rests on the purchases its books reflecting actual sales as well as quantitative tally of goods bought and sold, being made from an equivalent source, so that it cannot be denied deduction for the full amount thereof, a premise accepted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase of goods in lieu of the impugned purchases, i.e., from the grey market, as unpaid. This, rather, we consider as the only addition sustainable u/s. 69/69A qua the said purchases, which the Revenue extends to the entire such purchases, i.e., except where the stock register itself reflects negative stock (stock deficiency) on any date/s of the year, in-as-much as the same is a contradiction in terms. This, rather, is a species of the addition qua unexplained source of stock. In this regard, it may be clarified that while the ld. CIT(A) states of the assessee having furnished a quantitative reconciliation, the AO is categorical in stating that no stock register stands furnished. The two are not equivalent. A stock tally/quantitative reconciliation signifies a matching - on an aggregate, so that if X quantity of goods is sold, it is only the cost of the said quantity that is set off there-against in arriving at the trading profit. The assessee being engaged in, besides trading, processing (of cloth) as well, and which generally involves change of form as well as process loss, in practice it implies the equivalent input quantity worked out on the basis of appropriate conve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f business and common sense. What is there, in any case, to show that the equivalent (grey market) purchases cost the same, i.e., as the impugned purchases ? Then there could be tax considerations at play, yielding a pay off. This gain would though require being assessed, indica for which could be in terms of the tax benefit and/or the lower purchase price in the grey market, etc., which, however, do not limit the possibilities in which the gain could arise or manifest itself. Conclusion 7. The issue, in view of the foregoing, would require a restoration to the file of the assessing authority for a consideration of these aspects of the matter, i.e., the stock availability on each date; the capital invested in such an exercise; and the profit associated with the procurement of goods from other than the established sources (euphemistically called grey market ), while procuring bills of goods . We direct accordingly. He shall decide by issuing definite findings of fact, and after allowing the assessee due opportunity to explain and substantiate its case. The onus for the gain associated with the procurement of bills (and purchase of goods from the grey market), we may ad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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