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TMI Blog2017 (11) TMI 375X X X X Extracts X X X X X X X X Extracts X X X X ..... - Dated:- 24-10-2017 - SHRI R.C.SHARMA, AM And SHRI SANDEEP GOSAIN, JM For The Revenue : Ms. Arju Garodia For The Assessee : Shri A.T.Jain ORDER PER R.C.SHARMA (A.M): These are the cross appeals filed by assessee and revenue against the order of CIT(A)-2, Thane for the A.Y.2009-10 in the matte rof order passed u/s.143(3) r.w.s. 147 of the IT Act. 2. Rival contentions have been heard and record perused. Briefly stated facts of the case are that in this case the return of income, declaring total income at ₹ 3,86,912/- was e-filed and the same was processed u/s.143(1) of the Act, on 14/10/2010. The assessee is an HUF and proprietor of M/s. Shri Darshan Pipes, engaged in the business of manufacturing and trading of H.D.P.E. Pipes and Fittings. The re-assessment proceedings u/s.143(3) r.w.s. 147 of the Act, was finalised on 20/03/2014, at total income of ₹ 71,95,610/- after making an addition of ₹ 68,08,698/-, on account of bogus purchases. 3. By the impugned order, CIT(A) restricted the addition to the extent of 12.5% of such purchases after observing as under:- 10. I have carefully considered the facts of the case, findings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fidavit that after deducting their due commission i.e. approximately 1%, they have refunded back the balance cash to the buyers. b. It is the duty of the appellant to justify the genuineness of purchases, by furnishing necessary supporting documents, bank statement, confirmation, delivery challan, transport receipts etc. and produce the parties for examination. Even during the course of appellate proceedings, the appellant, number of times, was asked to file above details and produce parties for examination, but failed to do so. No transport / octroi receipts were filed to justify genuineness of purchases. c. As regards the appellant's claim that there cannot be any sales without there being corresponding purchases, is also not tenable as the appellant could not reconcile the quantity wise details of purchases from these hawala parties vis. a vis. sales thereof. The Ld AR was also not able to reconcile the stock. . : : d. The perusal of hawala bills reveals that these are plain bills without any marking or signature of either of receipt clerk or of cashier, who has issued the payment. In the case of regular bills / parties, the payments have been made on regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the purchases claimed by him are genuine and wholly exclusively for the purpose of business. For this purpose, the assessee has to lead the evidence to show that the expenditure has actually been incurred by it and the same is for genuine business needs. Here, if the assessee claims that purchases are made from the alleged bogus party then it is the responsibility of the assessee to establish that (a) party is in existence (bl party is capable of supply of goods and (c) party has actually supplied the goods (d) goods so received had actually used for business and declared as part of sale for the year. If the assessee is asked to produce the parties for verification, then it is the duty of the assessee to do so to establish the genuineness of the claim of the expense. In these cases, the assessee has tried to claim that they have discharged their onus by doing the following: (i) By submitting the name, address, PAN. (ii) By claiming that payments were through banking channels (iii) By claiming that the purchases are reflected in the books of accounts. Considering the facts of the cases under consideration, it can safely be concluded that assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... produced, or not found existent at the address provided by the assessee or they admitted to the fact of issuance of bogus bills against charging some nominal commission, without actually supplying any goods. Payments made by A/c Payee cheques - The Hawala parties accept that after deducting their nominal commission, the balance amount was refunded by cash. Name, address PAN of parties given - Assessee claimed it as sufficient compliance discharge of onus of proving the expenditure, is not acceptable as these parties were not found on given addresses / noi traceable, hence purchases not proved. In the absence of the required details, the AO could not verify the genuineness of purchases. Assessee was asked to produce the so-called hawala parties from whom bills were obtained - However failed to do so - sufficient opportunities were given during assessment proceedings as well as during appeal notices issued u/s. 133(6) - None appeared or could not be served because of defective address. The assessee could not furnish current mailing addresses nor produce any party for examination. j. Estimation of income - Best Judgement assessment - It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made to the extent of the purchases found to be fictitious. The consideration that the gross profit disclosed bv the assessee compares favourably as compared to the earlier years is wholly irrelevant. To neutralize the effect of inflation in purchases, the only course open to the Income-tax Officer is to add back that amount to the income irrespective of the fact whether the rate of gross profit goes up and whether the resultant gross profit is higher than the gross profit normally shown in the earlier years. 25% disallowance of bogus / unverifiable purchases had been upheld in following cases (1) Sanjay Oil Cake Industries Vs CIT (2008) 316 ITR 274 (Guj) . (2) Vijay Proteins Ltd Vs ACIT 58 ITD 428 (Abad) (3) M/s Nand Kishore Meghraj Jewellers, Jaipur CO. No. 105/JP/09 arising out ofITANo.433/JP/2009byITATJaipur (4) M/s. Trident Jewellers ITAT Jaipur ITA No. 552/JP/2013 Disallowance (a), 25% out of Bogus purchases, held as a reasonable in the case of Viiav Proteins Ltd., in view of the fact that the savings occurred to the suppliers on account of sales tax, duties and Income-tax (having MMR of 30%), bv buying the goods from grey market at lower rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber of court decisions, as referred above, wherein the 100% disallowance of bogus purchases, have been upheld. 10.4 As regards other aspects such as payment through banking channels, justification for purchases made from hawala parties as genuine, sales made against such purchases, etc., I would like to place the reliance on finding of the Hon'ble Supreme Court, in the case of Lachminarayan Madan Lal v. CIT (1972) 86 ITR 439 (SC), wherein it is held that even if there is an agreement, between the assessee and its agents for payments of certain amounts as commission, assuming there was such payment, that does not bind the Income-tax Officer to hold that the payment was made exclusively and wholly for the purposes of the assessee's business. In this case, the Supreme Court observed as under Although there might be such an agreement in existence and the payments might have been made, it is still open to the Income-tax Officer to consider the relevant factors and determine for himself whether the commission said to have been paid is properly deductible. In this case absolutely no material on record has been brought by the assessee to suggest that the commission a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nerate the cash, for the purpose, which is well known in the trade, in the form of parallel economy/ for illegal activities. This scam was going on in the market, in the name of persons / employees (who are not man of means), who do not have lent establishment in the city/operating from rented premises, therefore, run away their permanent establishment in the city/operating from rented premises, therefore, run away from the scene, hence not traceable. In view of these facts, in my considered opinion, this type of scam should not be legalized, by restricting the disallowance of bogus purchases to a certain percentage, unless and until it is proved that the appellant had affected, the certain purchases from grey markets due to compelling circumstances, as the same were not available in the regular market, as has been held in the case of M/s. Kanchwala Gems Pvt. Ltd. vs. JCIT 288 ITR 10 (SC). 10.8 Keeping in view the facts in entirely, as discussed above and appellants failure to furnish the confirmed copy of ledger account/current mailing addresses of the hawala parties, item wise quantitative tally's etc. the books of the appellant are not tenable as per provisions of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8641928 11740215 9118196 3544442 3811152 3892857 Net Profit 199157 289667 7300499 10622918 7470029 924109 944280 845061 Gross Profit Ratio 9.11 6.7 31.05 30.31 18.52 5.27 6.80 7.58 Net Profit Ratio 1.9 1.32 26.23 27.42 15.17 1.37 1.68 1.65 10.9 The scrutiny of the above details, it is noticed that the appellant had affected the purchases of raw-material of ₹ 68,08,698/-, from hawala parties, out of total raw-material of ₹ 82,20,967/-, made during the year, for manufacturing activities, carried out by the appellant, for manufacturing HDPE pipes. The appellant is also engaged in the activity of trading of same items. During the year the appellant had made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. AR could not offer any valid explanation. This clearly establish the fact that the appellant had suppressed its profit by 2.52% (9.11 - 6.59) i.e. ₹ 7,01,2657- (turnover*suppressed GP/100- 2,78,27,955*2.52/100). On the other hand, if the disallowance is restricted @ 12.50% of the disputed purchases, which work out at ₹ 8,51,087/- (12.50% of ₹ 68,08,698/-), which is almost equal to the suppressed GP, in my considered opinion, it would be appropriate in the appellant case, to meet the end of the justice. Such disallowance would effectively plug any revenue loss that may have occasioned due to inflation of purchases. 10.13 Since the disallowance at 12.50% of the hawala purchases is more that the suppress GP, therefore, the disallowance of ₹ 8,51,087/-, out of hawala purchases of ₹ 68,08,698/-, is hereby sustained and balance amount of ₹ 59,57,611/- is deleted. This ground of appeal is decided accordingly. 4. Against the above order of CIT(A) both assessee and revenue are in further appeal before us. 5. We have considered rival contentions and carefully gone through the orders of the authorities below and found form record tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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