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TMI Blog2017 (10) TMI 1255X X X X Extracts X X X X X X X X Extracts X X X X ..... al of the Revenue is partly allowed. - ITA NO.39/Mum/2017 - - - Dated:- 21-8-2017 - Shri Joginder Singh, Judicial Member And Shri N.K. Pradhan, Accountant Member For The Revenue : Shri Rajat Mittal -DR For The Assessee : Shri Ketan L. Vajani ORDER Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order dated 31/10/2016 of the First Appellate Authority, Mumbai, restricting the addition of ₹ 55,98,500/- made u/s 69 of the Income Tax Act, 1961 (hereinafter the Act) to ₹ 8,39,775/- at the rate of 15% of gross bogus purchases, thereby, allowing relief of ₹ 47,58,725/- to the assessee. 2. During hearing, Shri Rajat Mittal, ld. DR, strongly defended the assessment order by advancing arguments, which is identical to the ground raised by contending that the assessee is a manufacturer of engineering goods by asserting that the stock register and utilization of goods was never produced by the assessee. On the other hand, the Ld. counsel for the assessee, Shri Ketan L. Vajani, defended the impugned order by contending that the assessee has already declared gross profit at the rate of 20.49% and the Ld. Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nable and we accordingly confirm the finding of the Commis sioner of Income-tax (Appeals). 12. Thus, it is apparent that both the Commissioner (Appeals) and the Tribunal have concurrently accepted the finding of the Assessing Officer that the apparent sellers who had issued sale bills were not traceable. That goods were received from the parties other than the persons who had issued bills for such goods. Though the purchases are shown to have been made by making payment thereof by account payee cheques, the cheques have been deposited in bank accounts ostensibly in the name of the apparent sellers, thereafter the entire amounts have been withdrawn by bearer cheques and there is no trace or identity of the person withdrawing the amount from the bank accounts. In the light of the aforesaid nature of evidence it is not possible to record a different conclusion, different from the one recorded by the Commissioner (Appeals) and the Tribunal concurrently holding that the apparent sellers were not genuine, or were acting as conduit between the assessee-firm and the actual sellers of the raw materials. Both the Commissioner (Appeals) and the Tribunal have, therefore, come to the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be not from the parties shown in the accounts, but from other sources. In that view of the matter, the Tribunal was of the opinion that not the entire amount, but the profit margin embedded in such amount would be subjected to tax. The Tribunal relied on its earlier decision in the case of Sanket Steel Traders and also made reference to the Tribunal's decision in the case of Vijay Proteins Ltd. v. Asst. CIT [1996] 58 ITD 428 (Ahd). 6. We are of the opinion that the Tribunal committed no error. Whether the purchases themselves were bogus or whether the parties from whom such purchases were allegedly made were bogus is essentially a question of fact. The Tribunal having examined the evidence on record came to the conclusion that the assessee did purchase the cloth and sell the finished goods. In that view of the matter, as natural corollary, not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax. This was the view of this court in the case of Sanjay Oilcake Industries v. CIT [2009] 316 ITR 274 (Guj). Such decision is also followed by this court in a judgment dated August 16, 2011, in Tax Appeal No. 679 of 2010 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that MMTC was a partnership firm of Shri Nitin Gajjar along with his father and brother operating from Bhavnagar. A perusal of their transactions with the assessee indicated that there is some inflation of expenses as detailed in paragraph 6.1 of the assessment order. After considering the evidence on record, the Assessing Officer disallowed the amount ₹ 7,88,590 on account of payment made to MMTC. 11. The assessee preferred an appeal before the Commissioner (Appeals), who upon appreciation of the evidence on record found that the Assessing Officer had not rejected the genuineness of the purchases made from MMTC while making the disallowance. His observations were based on inflation of rates which were being charged from the assessee. According to the Commissioner (Appeals), though MMTC in some respect could be attributed to be associated with the assessee-company, still it could not be expected that MMTC was carrying out its business without any motive or profit. According to the Commissioner (Appeals), it was proved by the assessee that the rates charged by MMTC were comparable with the prevailing market rates, no such addition can stand. The Commissioner (Appeals) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew that the Assessing Officer has not appreciated the facts of the case properly and had made disallowance which was not permitted by the Income-tax Act. It was held that disallowance could only have been made in respect of expenses debited to the profit and loss account whereas in the present case the purchase of crane and spare parts of the crane and other machineries were in the nature of acquisition of capital asset. According to the Commissioner (Appeals), the disallowance could have been made on depreciation only if at all the Assessing Officer conclusively proved that the purchases of crane and other parts are bogus. Upon appreciation of the material on record the Commissioner (Appeals) found that the Assessing Officer has simply brushed aside all the evidence on account of technical infirmities and that the evidence such as octroi receipt ; hypothecation of the crane to the bank; existence of the crane even till date with the assessee conclusively proved that the crane was purchased and it was in use even as on date with the assessee. The Commissioner (Appeals) accordingly found that there was no scope for any disallowance and accordingly deleted the disallowance made on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansactions. The Tribunal has recorded a finding of fact that the assessee had disputed the correctness of the above statement and admittedly the assessee was not given any opportunity to cross examine the concerned Director of M/s. Thakkar Agro Industrial Chem Supplies P. Ltd. who had made the above statement. The appellate authority had sought remand report and even at that stage the genuineness of the statement has not been established by allowing cross examination of the person whose statement was relied upon by the revenue. In these circumstances, the decision of the Tribunal being based on the fact, no substantial question of law can be said to arise from the order of the Tribunal. The appeal is dismissed with no order as to costs. 2.5. The Hon'ble jurisdictional High Court in CIT vs Nikunj Exim Enterprises Pvt. Ltd. (2015) 372 ITR 619 (Bom.) held/observed as under:- 7. We have considered the submission on behalf of the Revenue. However, from the order of the Tribunal dated April 30, 2010, we find that the Tribunal has deleted the additions on account of bogus purchases not only on the basis of stock statement, i.e., reconciliation statement but also in view o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs that whether the said transactions were bogus or not was a question of fact. The Tribunal has also pointed out that nothing is shown to indicate that any part of the fund given by the assessee to these parties came back to the assessee in any form. It is further observed by the Tribunal that there is no evidence anywhere that these concerns gave vouchers to the assessee. Even the two statements do not implicate the transactions with the assessee in any way. With these observations, the Tribunal ultimately has observed that there are certain doubtful features, but the evidence is not adequate to conclude that the purchases made by the assessee from these parties were bogus. It may be stated that the assessee was given credit facilities for a short duration and the payments were given by cheques. When that is so, it cannot be said that the entries for the purchases of the goods made in the books of account were bogus entries. We, therefore, do not find that the conclusion arrived at by the Tribunal is against the weight of evidence. In that view of the matter, we answer the question in the affirmative, that is, in favour of the assessee and against the Revenue. Accordingly, the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock, that the transporter had admitted the transportation of goods to the site. He relied upon the case of Babula Borana (282 ITR251), Nikunj Eximp Enterprises (P) Ltd. (216Taxman171)delivered by the Hon ble Bombay High Court. 2.4. We have heard the rival submissions and perused the material before us. We find that AO had made the addition as one of the supplier was declared a hawala dealer by the VAT Department. We agree that it was a good starting point for making further investigation and take it to logical end. But, he left the job at initial point itself. Suspicion of highest degree cannot take place of evidence. He could have called for the details of the bank accounts of the suppliers to find out as whether there was any immediate cash withdrawal from their account. We find that no such exercise was done. Transportation of good to the site is one of the deciding factor to be considered for resolving the issue. The FAA has given a finding of fact that part of the goods received by the assessee was forming part of closing stock. As far as the case of Western Extrusion Industries. (supra)is concerned, we find that in that matter cash was immediately withdrawn by the suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 90 (Guj.) and various other decisions of the Tribunal and the decision of M/s Nikunj Eximp(supra) from Hon'ble jurisdictional High Court, wherein, the aggregate disallowance was restricted to 12.5%. Admittedly, there cannot be sale without purchases. The case of the Revenue is that there is bogus nature of purchases made from suppliers and the parties were not found existing at the given addresses. 2.11. Admittedly, in such type of cases, there is no option but to estimate the profit which depends upon the subjective approach of an individual and the material facts available on record. In the present appeal, the assessee is a partnership firm engaged in the business of manufacturing and supply of engineering goods, declared, income of ₹ 1,40,679/- in its return filed on 01/10/2010. The case of the assessee was selected for scrutiny, therefore, notices u/s 143(2) and 142(1) were served upon the assessee. The addition of ₹ 55,98,500/- was made by the Assessing Officer on the ground that the assessee made purchases from hawala parties, which are existing at the website of Sales Tax Department of the Maharashtra State. The Assessing Officer contested the addition by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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