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TMI Blog2018 (2) TMI 266X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed to make additions to the income by estimating profits embedded in the said alleged bogus purchases which profits the assessee gained by obtaining material from grey market at lower rate while obtaining bills from these parties namely AVI Exports and Rajiv Impex to reconcile records and books of accounts. The profits estimated by the learned CIT(A) appears to be reasonable keeping in view factual matrix of the case and in such type of cases, fair estimation of profits is required to be made which requires some guess work and in our considered view, the estimation made by learned CIT(A) is reasonable and fair as it could not be said to be arbitrary or excessive to call for interference by us and more-so estimation made by learned CIT-A is backed by judicial precedence as is found mentioned in learned CIT(A) appellate order. CIT(A) has rightly relied upon the orders of the Hon’ble Courts as is contained in his appellate orders wherein estimation of embedded profits in the case of alleged bogus purchases were upheld by Hon’ble Courts. - I.T.A. No.1441/Mum/2016 And I.T.A. No. 3133/Mum/2016 - - - Dated:- 1-2-2018 - SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in the circumstances of the case and in law the learned CIT(A) erred in confirming the assessment order even when the Assessing Officer has not followed the procedure laid down by the hon'ble Supreme Court in the case of GKN driveshaft. (India) Ltd. 259 ITR 19 (SC). 3. Wrong addition on account of unexplained expenditure u/s 69C of the Act amounting to ₹ 77,70, 765/- : 3.1. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the addition of ₹ 77,70,765/- on account of unexplained expenditure u/s 69C of the Act particularly when the entire purchases from M/s Avi Exports have been recorded in the books of account. 3.2. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the treatment of the purchases of ₹ 77,70,765/- as non-genuine by the Ld. Assessing Officer without appreciating the fact that the payments were made through account payee cheque. 3.3 On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the addition even when notice u/s 133 (6) of the act was issued to M/s Avi Exports was respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) has erred in not considering that the addition was made on the basis of information received from the DIT(Inv.) and Sales Tax Department, Maharashtra with regard to bogus purchases made by the assessee from dealers without supply of actual goods. (iii) On the facts and in the circumstances of the case and in law the Ld. CIT (A) has erred in not considering that the hawala dealers have admitted on oath before the Sales Tax Authorities that they have not sold any material to anybody. (iv) On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in not considering that the assessee could not prove the genuineness and creditworthiness of the purchase transactions during the course of assessment proceedings. (v) On the facts and circumstances of the case and in law the Ld. CIT (A) has erred in estimating the profit at 12.5% on the total alleged bogus purchases from hawala dealers. (vi) On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in not appreciating that purchases were made from some other parties which were not recorded in the books of accounts and only accommodation bills were obtained from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion received from DGIT(Inv.), Mumbai that the assessee is also beneficiary who has obtained accommodation entries to the tune of ₹ 77,70,765/- through M/s. AVI Exports , one of the group concerns of Shri. Rajendra Jain Group, during the impugned assessment year under consideration. The AO invoked provisions of Section 147/148 after recording reasons to reopen the assessment as the income had allegedly escaped assessment. The notice dated 24-3-2014 u/s 148 was issued by the AO which was beyond four years from the end of the assessment year but however originally return of income was processed u/s 143(1) and no scrutiny assessment was framed by the Revenue u/s 143(2) r.w.s. 143(3). The assessee did not raised any objection to the reopening of the concluded assessment. The AO issued notices u/s. 133(6) to M/s. AVI Exports who in response submitted copies of ledger account of the assessee, books of accounts for the relevant period , copies of bank statement, copy of PAN card, copy of sale bill and copy of confirmation. The assessee was show-caused by the AO to substantiate that the transactions with AVI Exports were genuine in view of incriminating information in the possession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on these disputed transactions GP ratio is 14.3% and the tax auditor has not made any adverse comments on the transactions entered into by the assessee and the books of accounts maintained by it. It was submitted that if additions as were made by the AO are sustained then it will lead to unrealistic G.P ratio of 63.68% and net profit ratio of 53.9% which is unrealistic and impossible to achieve. It was submitted that goods were purchased based upon H Form issued from Sales Tax Department and were meant for export only . it was also submitted that purchases and consequent export of the said material was duly confirmed , appraised and attested by custom for which remittance were received through proper banking channel from overseas and there was one to one co-relation between the purchase and the sale for which complete details were submitted . It was submitted that the AO did not found any purchases outside books of account. It was submitted that purchases and sales were properly recorded in the books of accounts . It was submitted that proper books of accounts were maintained by the assessee including purchase register, sale register, stock register, ledger, day book , bank book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons without any evidence on record . It was submitted that merely because one of the parties namely M/s. Rajeev Impex from whom purchases were made to whom notices u/s. 133(6) were issued by the AO has not replied to the said notice , the books of accounts were erroneously rejected u/s. 145(3) . It was submitted that no addition can be sustained and prayer is made by learned counsel for the assessee for deletion of the additions as were sustained by learned CIT(A). The Ld. DR on the other hand relied upon the order of the A.O and the pressed for sustaining the additions to the tune of 100% of the alleged bogus purchases as were made by the A.O.. 8. We have considered rival contentions and perused the material on record including orders of authorities below . We have observed that the assessee is in the business of trading and exports of diamonds . It is observed that the assessee filed return of income originally u/s. 139(1) on 21.10.2007 with Revenue declaring total income of ₹ 16,16,550/-, which return of income was originally processed by Revenue u/s. 143(1) . The Revenue did not frame scrutiny assessment u/s 143(3) r.w.s. 143(2) so far as return of income filed u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned accommodation bills towards purchases without actually getting the material physically . The assessee had conceded the legal ground so far as challenge to reopening of the assessment u/s 147 is concerned. The A.O issued notices u/s. 133(6) to AVI Exports as well as Rajeev Impex from whom the assessee had allegedly made purchases . AVI Exports submitted replies along with the copy of the ledger account of the assessee in its books , books of accounts, copy of PAN card, copy of sale bill, confirmation but M/s Rajeev Impex never replied to the notices issued by the AO u/s. 133(6). The assessee could not produce the parties before the A.O and the AO rejected books of accounts u/s 145(3) and made the additions to the tune of 100% of the alleged bogus purchases which was reduced to 12.5% by learned CIT-A by estimating profits embedded in such alleged bogus purchases by relying on several decisions of the Courts under similar circumstances which found mentioned in the appellate order of learned CIT(A), as under:- 6. Ground Nos. 3 4 are in relation with addition on account of unexplained expenditure u/s. 69 C after rejection of books of accounts u/s. 145 of the Act. For the sak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s power under section are not arbitrary and he must exercise his discretion and judgement judicially. A clear finding is necessary before invoking the provision sec.145(3) of the I T Act. The Assessing officer has not been able to point out any defect or mistake or error in the books of accounts. He accepted the sales receipts. The Assessing officer has to bring on record the material on the basis of which he has arrived at the conclusion with regard correctness or completeness of the accounts of the assessee or the method of accounting employed by it. The Assessing officer has simply rejected on the basis of noncompliance with the 133(6) and failure to produce the suppliers before Assessing officer after 3 years from the date of purchase. The Assessing officer in appellant's own case has accepted the books of accounts on similar facts for the A.Y.2010-11. In the case of ACIT vs. ITD Cementation India Ltd (2014) 146 ITD 59 /160 TTJ Mumbai, it has been held that where books of account of assessee were audited and auditor had not given adverse comments on maintenance of books of account or stock register, it was apparent that assessee's books of account are genuine and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so made reference to the decision in the case of Vijaya Protein v. CIT 58 ITD 428 (Ahd.). On appeal by the department the Hon'ble HC of Gujarat, dismissed the appeal. The head note is as under: Income from undisclosed sources - Assessment - Assessee trading in finished fabrics - Whether purchases themselves bogus -Whether parties from whom such purchases were made bogus-questions of fact - Tribunal finding assessee did purchase cloth and sell finished fabrics - Not entire purchase price but profit element embedded in purchases liable to tax- Income tax Act, 1961. The assessee for the assessment year 2005-06 was engaged in the business of trading in finished fabrics. The assessing officer held that purchases worth ₹ 40,69,546/- were unexplained and disallowed the expenditure claimed by the assessee and computed the total income of ₹ 41,10,187/-. In so far as the question of bogus purchases was concerned the Tribunal concurred with the Revenue's views that such purchases were allegedly made. Such notices were returned unserved by the postal authorities with the remark that the addresses were incomplete. The inspector deputed but the Income Tax Departm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t modification of the order on the ground that the tribunal had failed to consider various pieces of evidence enumerated by it in the application. The Tribunal rejected the application holding that there was no apparent error or record which would permit the Tribunal to undertake review of its own order. On a reference to the High Court Held that the finding of the Assessing Officer had been accepted by the Commissioner (Appeals) an the Tribunal that the apparent sellers who had issued sale bills were not traceable. The goods were received from the parties other than the persons who had issued bills for such goods. Though the purchases were shown to have been made by making payment therefore by account payee cheques and the cheques had been deposited in bank accounts ostensibly in the name of the apparent sellers, thereafter the entire amounts had been withdrawn by bearer cheques and there was no trace or identity of the person withdrawing the amount from the bank accounts. Both the Commissioner (Appeals) and the Tribunal had come to the conclusion that in such circumstances the likelihood of the purchase price being inflated could not be ruled out and there was no material to di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... twelve and half percent of the disputed purchases should be retained in the hands of the assessee as business profits. On appeal to the High Court : Held dismissing the appeal that the Commissioner (Appeals) believed that the purchases were not bogus but were made from the parties other than those mentioned in the books of account. That being the position, not the entire purchase price but only the profit element embedded in such purchases could be added to the income of the assessee. In essence the Tribunal only estimated the possible profit out of purchases made through non genuine parties. The estimation of rate of profit return must necessarily vary with the nature of business and no uniform yardstick could be adopted. 6.9 On consideration of the facts available on record that Shri Rajendra Jain found to be engaged in accommodation entries, where purchase is held as bogus then the corresponding sales must also be held bogus as without the material being purchased, sales are not possible. Therefore, without the corresponding sales being held bogus, it cannot be a case of bogus purchases. In other words, in a case where the purchase is shown being bogus and it is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppliers. Merely because the suppliers did not appear before the AO or some confirmation letters were not furnished, one cannot conclude that the purchases were not made by the assessee. This view is supported by the decision of Nikunj Eximp Enterprises vs. CIT 216 Taxman 171 (Born). To this extent I am in view with the appellant, if appellant has fulfilled its onus making the payment by cheque and has supplied the addresses of the sellers then it cannot be presumed that supplier were bogus simply because the sellers have not appeared before the A.O. or not complied with the notice u/s.133(6) of the Act. There is a considerable time gap between the period of purchase transaction and period of scrutiny proceedings. The AO has not brought any material on record to show that there is suppression of sales. It is basic rule of accountancy as well as of taxation laws that profit from business cannot be ascertained without deducting cost of purchase from sales. Estimation of profit ranging from 12.5% to 15% has been upheld by the Hon'ble Gujarat High Court in the case of CIT vs. Simit P. Sheth 356 ITR 451 (Guj) depending upon the nature of business. 6.13 Considering the totality ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m these parties namely AVI Exports and Rajiv Impex to reconcile records and books of accounts. The profits estimated by the learned CIT(A) appears to be reasonable keeping in view factual matrix of the case and in such type of cases, fair estimation of profits is required to be made which requires some guess work and in our considered view, the estimation made by learned CIT(A) is reasonable and fair as it could not be said to be arbitrary or excessive to call for interference by us and more-so estimation made by learned CIT-A is backed by judicial precedence as is found mentioned in learned CIT(A) appellate order . The learned CIT(A) has rightly relied upon the orders of the Hon ble Courts as is contained in his appellate orders wherein estimation of embedded profits in the case of alleged bogus purchases were upheld by Hon ble Courts. Reference is also drawn to decision of Hon'ble Supreme Court in the case of Kachwala Gems v. Jt. CIT [2007] 288 ITR 10/158 Taxman 71 (SC), wherein Hon'ble Lordships held as under : 4. The facts of the case are in a short compass. The appellant-assessee deals in precious and semi-precious stones. In the course of assessment, the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther there were bogus purchases or not, is a finding of fact, and we cannot interfere with the same in this appeal. As regards the rejection of the books of account, cogent reasons have been given by the income-tax authorities for doing so, and we see no reason to take a different view. 11. It is well-settled that in a best judgment assessment, there is always a certain degree of guess work. No doubt the authorities concerned should try to make an honest and fair estimate of the income even in a best judgment assessment, and should not act totally arbitrarily, but there is necessarily some amount of guess work involved in a best judgment assessment, and it is the assessee himself who is to blame as he did not submit proper accounts. In our opinion, there was no arbitrariness in the present case on the part of the income-tax authorities. Thus, there is no force in this appeal, and it is dismissed accordingly. No costs. In our considered view , the well reasoned appellate order of learned CIT-A need to be confirmed which we uphold/sustain. Thus, both the appeals of the Revenue and the assessee stood dismissed. We order accordingly. 9. In the result both the appeals of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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