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TMI Blog2018 (12) TMI 1659X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Sandeep Gosain, JM For the Revenue : S/Shri R.Manjunatha Swamy, CIT-DR D.G.Pansari, Sr.AR For the Assessee : Shri Sanjiv M.Shah ORDER Per B.R.Baskaran (AM) : These cross appeals are directed against the orders passed by Ld CIT(A)-30, Mumbai and they relate to the assessment years 2011-12 and 2012-13. Since common issues are urged in these appeals, they were heard together and are being disposed of by this common order, for the sake of convenience. 2. In both the years, the Ld CIT(A) has granted partial relief to the assessee in respect of addition relating to bogus purchases. The revenue is aggrieved by the relief granted, while the assessee is seeking further relief. In AY 2012-13, the revenue is also aggrieved by the decision of Ld CIT(A) in deleting the addition made u/s 68 of the Act. 3. We shall first take up the issue of addition relating to bogus purchases. The facts as discussed by the AO in AY 2011-12 are discussed here. The assessee is engaged in the business of trading in ferrous and non-ferrous metals through his proprietary concern named M/s M.M. Metals. During the course of assessment pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... embedded in purchases. The AO also took support of the decision rendered by Hon ble Supreme Court in the case of Kachwala Gems vs. JCIT (288 ITR 10)(SC) to observe that the question whether there were bogus purchases or not is a finding of fact. He also took support of the decision rendered in the case of Attar Singh Gurmukh Singh (1991)(191 ITR 667)(SC), wherein it was held that the purchases would also covered by the word expenditure . Accordingly he held that the entire bogus purchases are unexplained expenditure in terms of sec.69C of the Act. However, the AO assessed the peak credit of purchases amounting to ₹ 3165.79 lakhs as income of the assessee. 6. Before Ld CIT(A), the assessee reiterated the contentions urged before the AO. It was also submitted that the suppliers have been classified as suspicious dealers only for the reason that they have failed to deposit the VAT tax collected by them. It was contended that the assessee could not have sold the goods without purchasing it. It was further submitted that the AO has made addition of peak credit of purchases u/s 69C presuming that the assessee would have paid cash for purchases to some undisclosed partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the purchases with the sales but the same has not been done properly. The learned CIT(A) has also observed that the suppliers are witnesses of the assessee and hence the Assessing Officer was not required to force their attendance. The learned DR said that the learned CIT(A), having observed so, however proceeded to estimate the profit element embedded in such purchases at the rate of 12.5% instead of sustaining the entire addition made by the Assessing Officer. The learned DR submitted that the Hon ble Delhi High Court in the case of Jansampark Advertising Marketing Ltd (ITA 525/2014) has held that the appellate authorities are duty bound to correct the mistakes made by the Assessing Officer. The learned DR also placed reliance on the decision rendered by the Mumbai Bench of the Tribunal in the case of Shoreline Hotel (P) Ltd. v. CIT [ITA No.964/Mum/2015 dated 19.06.2015] wherein the co-ordinate Bench has upheld the revision order passed by the learned CIT directing the Assessing Officer to make addition of 100% of value of bogus purchases. He further submitted that the order so passed by the Tribunal has since been upheld by the Hon ble Bombay High Court in the case of Shorel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T (ITA No.2826/Mum/2013 dated 5.11.2014). The Ld A.R also placed his reliance on the decisions rendered by Hon ble Bombay High Court in the case of CIT vs. Hariram Bhambhani (2015)(92 CCH 0046) and CIT vs. Nikunj Eximp Enterprises (P) Ltd (372 ITR 619). 12. The Ld A.R further submitted that the decision rendered in the case of Shoreline Hotels was related to validity of proceedings u/s 263 of the Act and the prameters considered for determining validity of revision proceedings u/s 263 of the Act is different from normal assessment proceedings. He submitted that the revision proceedings are in the nature of supervisory jurisdiction and the criteria taken into consideration is whether the assessment order is erroneous and prejudicial to the interests of revenue. The Ld A.R submitted that the decision rendered by Hon ble Delhi High Court in the case of Jansampark advertising (supra) is not applicable to the facts of the present case, as there is no gap to be filled in. 13. The Ld A.R further submitted that the Gross profit rate and net profit rate declared by the assessee over the years is consistent, i.e., the average rate of G.P declared by the assessee was 1.97% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve sold the goods without purchasing the materials. Under these facts, as per the decision rendered by Hon ble Gujarat High Court in the case of Simit P Sheth (supra), the profit element embedded in such purchases may be assessed to tax. Since the suppliers have been branded as hawala dealers providing only accommodation bills without actually supplying materials, it is for the assessee to prove that the purchases were actually made from those suppliers only. In the instant case, the assessee has failed to prove the same, as he has taken the stand that he has purchased goods through brokers. In these set of facts, one of the possibilities is that the assessee could have purchased materials from one source and could have obtained accommodation bills from these hawala dealers. In these kind of situations, there is also a possibility that the assessee could have made profit on purchases in the form of savings by way of VAT tax and also by way of discounts. We have noticed that the Ld CIT(A) has followed the decision rendered by Hon ble Gujarat High Court in the case of Simit P sheth (supra), wherein the profit rate was determined at 12.50% and the hence the Ld CIT(A) has also sustaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. This is for the reason that the VAT rate applicable to the products dealt in by the assessee was only 4%. We have earlier observed that the assessee, at the most, could have made savings by way of VAT tax and obtained discount. The assessee could have also incurred expenses in getting the accommodation bills. Considering these facts, the profit that could have made by the assessee in the impugned purchases, in our view, may be determined @ 5%. Hence, we have held that the estimate of 12.50% made by the AO is on the higher side. Accordingly we modify the order passed by Ld CIT(A) on this issue and direct the AO to restrict the addition to 5% of the value of alleged bogus purchases. 20. The facts relating to the issue of bogus purchases is identical in AY 2012-13 also. Following the decision taken by us in the preceding paragraphs for AY 2011-12, we modify the order passed by Ld CIT(A) and direct the AO to restrict the addition to 5% of the value of alleged bogus purchases. 21. The revenue has taken one more ground in AY 2012-13 regarding the addition of cash credits made u/s 68 of the Act., i.e., the revenue is aggrieved by the decision of Ld CIT(A) in deletin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal salaries. b. Through the said benami concerns, hawala of two types were being given - (1) hawala for purchase of diamonds; and (2) hawala for unsecured loans. c. In his statement, made under section 132(4), Shri Bhanwarlal Jain have admitted to the said hawala racket and also the existence of dummy / benami entities, through which the said racket was being run. d. Dummy Directors / Partners / Proprietors had also admitted to being part of the hawala racket run by Shri Bhanwarlal Jain Group. e. M/s Sankhala Properties Pvt. Ltd. And M/s. Sonam Gems Pvt. Ltd. , from whom the impugned loan of ₹ 40,00,000/- and 35,00,000/-was shown to have been obtained by the appellant, figured in the data base of entities and entries compiled by the Investigation Wing, therefore, this loan, the appellant had shown in its books of account, was suspect. f. Though the appellant*had provided confirmations and other supporting evidence in respect of the impugned credits, in view of the findings of, the Investigation Wing, the impugned loan was treated as non-genuine and the loan amount was added u/s 68 to the computation of total income of the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d cash in its books of account, no specific material has been brought on record to show that creditor is entry provider ^nd that entries for the loan in question has actually been obtained against payment made by the appellant in cash outside regular books of account. All this goes to support the contentions of the appellant that Assessing Officer has passed the order on the basis of mere conjectures and surmises, without bothering to bring any concrete material on record. 7.3.4 Absence of material to show that the Loan Entry is Unexplained : From the forgoing, it is obvious that there is no scope for arriving at a conclusion that the appellant had taken hawala entry in the form of loan, to introduce the unaccounted cash in its books of account. Hence, the only issue that remains to be seen is whether on the basis of facts brought on record the impugned loan could be treated as unexplained within the fore-corners of section 68 of the Act. At the outset, it will necessary to look at some legal precedents with regard to the intent and application of section 68 of the Act. It needs no elaboration that through a catena of decisions the Courts have laid down the fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the borrower prior to the issuance of such cheques, the loans and interest paid on such loans were not includible in the total income of the assessee u/s.68 of the Act. 7.3.10 In the case of ITO v. Anant Shelters (P) Ltd. [2012] 051 SOT 0234, the Hon ble 1TAT (Mumbai) held that in matters regarding cash credit the onus of proof was not a static one. As per the provisions of the section 68, the initial burden of proof lies on assessee. Amount appearing in books of accounts of the assessee was considered a proof against him. He can prove the identity of the creditors by either furnishing their PANs or assessment orders. Similarly, genuineness of transaction could be proved by showing that money was received by an account payee cheque or by draft. Credit worthiness of the lender could be established by attending circumstances. Once assessee produces evidences about identity, genuineness and credit worthiness of the lender, onus of proof shifts to revenue. Therefore, it was held that assessee had furnished all the details regarding genuineness of cash credit, i.e., he had discharged his burden of proof. AO did not make any attempt to discharge his burden of proof to rebut t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Loss Account of parties V. Affidavits given by the Directors of both the companies confirming the loans given to appellant and explaining the source of giving loan VI. Copy of affidavit filed by Bhanwarlal Jain to the Deputy Director of Income Tax, Unit IX, Mumbai retracting the statements given by him at the time of search conducted on his premises. 7.3.15 As such, in so far as the appellant is concerned, they have provided all possible documentary evidence to prove identity of the creditors from whom the impugned loan of ₹ 75,00,000/- was obtained. The evidences also proves creditworthiness of the creditors and the genuineness of the transactions. From this it has to be said that the appellant had done everything in its power to prove the three ingredients required to prove the satisfactory nature of the loan transactions. In these circumstances, the onus had shifted to the Assessing Officer. Further, if the Assessing Officer was not satisfied with what had been given to him by the appellant, he was duty bound to specify what more material he wanted the appellant to furnish. The Assessing Officer never asked for any further material, which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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