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TMI Blog2019 (11) TMI 1030X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue of correctness of disallowance of assessee's entire purchases (supra) to the extent of the profit element only in the CIT(A) separate orders under challenge. Both the learned representatives take us to the CIT(A)'s identical discussion to this effect in former assessment year 2013-14 reading as under: "Ground No - 2 and 3 The grounds of appeal as raised by the assessee against the order of the assessing officer are as under:- For that on the facts and I the circumstances of the cases Ld. A.O was not justified in making addition of Rs. 56002792/- on account of alleged bogus purchase. Without prejudice to the above ground, the Ld. A.O ought to have applied gross profit on alleged bogus purchase instead of adding the entire alleged bogus purchase of Rs. 56002792/- The AR of the appellant during the appellate proceedings, furnished written submissions as under:- In regards to the above grounds, it is submitted before your honour that the central excise department had earlier made enquiries on 14 suppliers of the appellant and had concluded that purchases made by the appellant had escaped payment of central excise duties as the summons sent to the suppliers returned uns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been cancelled or were about to be cancelled in this regard it is submitted on the date on which transaction has been made, the VAT registration of the suppliers were valid and they were active fillers of VAT return therefore same cannot be a valid reason for treating the purchases. Copy of documents related to their vat registration numbers are enclosed(A- 4) from which there identity on the date of transition can be verified. In the above circumstances, the Ld. Assessing Officer had erred in adding the entire purchases of the appellant because the sales were never suspected. The Ld. Assessing Officer should have estimated the income of the appellant by taking average gross profit of-the appellant and then he should have estimated the income by applying gross profit percentage on the purchases which has been disallowed. On true accounting wisdom, every purchase has a corresponding sale and since we have established that goods were available for sale, the entire purchases cannot be added when the sale of the appellant has not been suspected. We would like to mention that average gross profit of last three years should be taken in to account for calculation of concealed income. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgements in favor of the appellant: - Ishwin Purshotam Bajai vs. ITO (ITAT Mumbai) (I.T.A. No. 4736/Mum/2014) Though S 133(6) notices were returned unserved and the assessee could not produce the alleged bogus hawala suppliers, the entire purchases cannot be added as undisclosed income. The addition has to be restricted by estimating Gross Profit ratio on the purchases from the alleged accommodation entry providers. ACIT vs. Jaybharat Textiles & Real Estate Ltd (ITAT Mumbai)(ITA 5163/mum/2013) Purchases cannot be treated as bogus where (i) assessee has furnished quantitative reconciliation, (ii) Gross Profit rate is comparable to earlier & subsequent years, (iii) suppliers are income-tax assessees and their sales have not been treated as bogus by their AOs, (iv) payments are by account payee cheques and other documentary evidences are available. In the matter of Nikuni Exim Enterprises Pvt. Ltd. (2013 (1) TMI 88- BOMBAY HIGH COURT), the Hon'ble Bombay High Court has specifically held that in a case where sales are considered genuine, no addition, on account of bogus purchases, can be made. Furthermore, the rejection of such purchases will bring the G.P. of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply the average GP of last 3 years on the accounted purchase/sales of the appellant rather than disallowing entire purchases made by it. I have considered the submissions of the authorized representative of the appellant as well as the assessment order framed in the light of the materials available on record before the assessing officer during the assessment proceedings. The AO has mentioned that the central excise department had earlier made enquiries on 14 suppliers of the appellant and had concluded that purchases made by the appellant had escaped payment of central excise duties as the summons sent to the suppliers returned unserved and accordingly the Assessing Officer was informed the same by way of letter dated 21.04.2014. Further, the Assessing Officer also issued summons to 6 other parties but the said summons also returned unserved. Accordingly, during the assessment proceedings, the director of the appellant company was asked to provide the details of such purchases. The director produced the ledger of the suppliers and relevant bank statements but Assessing Officer was not contented with the paper. The addition was confirmed on the basis of the letter of the central e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d since it has established that goods were available for sale, the entire purchases cannot be added when the sale of the appellant has not been suspected. The average gross profit of last three years should be taken in to account for calculation of concealed income. Furthermore, the rejection of such purchases will bring the G.P. of the assessee astronomically high which is impossible to earn in this line of trade and by no way compares with the past history of the assessee's own case. The AR also placed his reliance on various case laws as mentioned in the submission of the appellate as above. The finding of these case are as under;- * That AO cannot reach to a conclusion that the purchases are "bogus" merely on ground of information from Sales Tax Department and non-production of Suppliers before him when the assessee had produced all the relevant materials before him to prove the genuineness of the transaction. * That addition under section 69 was not justified merely because suppliers could not be located and were not produced for examination. * That when purchases were recorded in the regular books of account maintained. The purchased are supported by proper bills/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven rise to any question of law for the consideration of this Court, this Tax Appeal requires no further meritorious consideration, and is therefore, dismissed." I have also gone through the show cause cum demand notice as issue by the central excise department which is annexed as annexure 1 with the assessment order passed by the assessing officer. The commissioner Central excise, Kolkata V Commissionerate come the conclusion that the so called suppliers to the appellate did not exist and some of them are registered with Sale department for other purpose or for different nature of trade. It means that appellate did not purchase them as he claimed to have purchased from them. The Commissioner has further come to the conclusion that from the reasons as mentioned in his notices, none of the vendors is found physically or otherwise present on the given address, it is obvious that all the purchases documents, in relation to the so called trading goods, were not genuine. The materials could not have been supplied by these vendors as they are non-existent and these must have manufactured in the factory premises or on behalf of the appellate in some other places. The Commissioner has f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the profit element only. His case therefore is that since the assessee could not prove its purchases since the suppliers in issue did not exist as per the central excise department's enquires, the impugned disallowances deserve to be restored in entirety. 4. Learned AR strongly supports the CIT(A)'s action in Revenue's appeals that the impugned purchase disallowances has rightly been restricted the only to the extent of profit element therein. He further pleads as per the assessee's sole grievance in its two cross-appeals that income ought to have been adopted in the nature of net profits after reducing the operative costs than gross profits only. 5. We find no merit in either party's grievances. Coming to the Revenue's pleadings, we find that the department itself has been fair enough in not disputing the assessee's corresponding sales in electrical equipments supplied to M/s Coal India Ltd. and its subsidiaries. It thus appears to be an instance of assessee's purchases made from unregistered dealers. Hon'ble Bombay high court's recent decision in PCIT vs. Mohammad Haji Adam; IT Appeal No.1004 of 2016 dated 11.02.2019; after taking into consideration hon'ble apex court's dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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