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TMI Blog2021 (2) TMI 939X X X X Extracts X X X X X X X X Extracts X X X X ..... 2/- has been earned by the assessee from these transactions and duly offered to tax. Under these circumstances, it cannot be said that the purchase have been bogus especially when the quantitative details have been tallied item wise and the sale proceeds have been taken into P L account and the profit earned on such transaction is offered to tax. They could not have been any sales without purchase of the items. Hence, we are unable to accept the contention of the revenue. The appeal of the assessee on this ground is allowed. Disallowance of interest on advance to Sister concerns - whether in relation to disallowance of interest made u/s.36(1)(iii) of the Act, the action of the AO is correct or not? - HELD THAT:- The issue of disallowance of interest has reached finality with the judgment of Hon ble Supreme Court in the case of Hero Cycles (P.) Ltd. Vs. CIT, Ludhiana[ 2015 (11) TMI 1314 - SUPREME COURT] is that where the assessee had sufficient own interest free funds along with interest bearing funds and had made or advanced sums for non business purposes without charging any interest, the presumption that would arise is that the investment had been made out of interest free ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her erred in law to confirm the addition of ₹ 375268811/- alleged as bogus purchase without support of any cogent reason. The reason given by CIT(A) not to agree with the submission of assessee are imaginary in nature and hypothetical and has no legs to stand the test of judicial scrutiny. That the impugned order passed by Ld. C.I.T. (A) confirming additions on account of alleged bogus purchases is arbitrary, illegal and violative of principles of natural justice and the well-established principles of laws. The conclusion drawn by C.I.T. (A) and confirmed for bogus purchase is totally illegal ignoring the vital facts the goods have moved; the payment has been through Banking channel. Value Added Tax under DVAT Act, 2004 had been paid by selling dealers and the said dealers had duly discharged their legal liability on said sales made to assessee and assessee too had been allowed input tax credit under DVAT Act on said purchases by their respective tax authorities under relevant DVAT Act/ CST Act. Thus the additions made and confirmed by CIT(A) of ₹ 375268811/- on account of allegedly bogus purchases is not tenable in law and is liable to be deleted in view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in law is not reducing the taxable income of the Assessee by ₹ 92715391/- as out of ₹ 210000000/- (the alleged figure of bogus purchases as stated by assessee to such case) the AO had determined the figure of bogus purchase in this year as ₹ 117284209/- and not 21 crore. This is evident from the assessment orders of the year in question and subsequent year and as such there is perversity of facts in the CIT order and for the same reason the order is liable to be quashed and assessee be held liable to refund of tax which has been wrongly paid by assessee. (vii) The Ld. CIT(A) order confirming charging of interest under sections 234A and 234B of the Act is also illegal and against the provision of law. 5. In IT A No. 5569 /Del/2012 for the AY 2010-11, following grounds have been raised by the assessee: (i) On the facts and circumstances of the case and in law the Ld. CIT (Appeals) had erred in law in confirming the additions for the reasons which are not supported in law. (ii) The Ld. CIT had grossly erred in law in rejecting the contention of assessee that assessment framed is bad in law and de hors any incriminating material. The Ld. CIT dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not pressed by the assessee, hence do not required to adjudicate. Issue of addition on account of bogus purchases: 7. Ground No. (iv) for AY 2008-09 of ₹ 37,52,68,811/-, the AO noted that in the list of parties from whom purchases had been made, certain names were appearing who had been considered as entities not dealing in actual business but only issuing bills to accommodate various parties like the assessee company M/s Golf Technologies Pvt. Ltd. 8. From the details of purchases, transaction with following parties had been considered as bogus by the AO in view of reply of Sh. Col. H.S. Bedi in his statement recorded under section 132(4) at the time of search under section 132 of the income tax act, on 25th September, 2009 and on the basis of investigation made during the search operation, post search investigation and during assessment proceedings. 9. In the course of assessment proceedings it had been held by the AO that purchases made from the following parties were not genuine. Out of the 17 entities/concerns mentioned below 5 are assessed by the same AO. It was held that these parties were not into genuine business activities and were only such entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pro Wireless Technologies Pvt. Ltd. M/s Pinewood Information System Pvt. Ltd. During the course of examining information filed on behalf of the companies in which declaration was made under, section 132(4) of the income tax act, 1961 it came to notice of the AO that these companies made substantial bogus purchases and included the amount of declaration. 11. Purchases made from the companies/entities as above were admitted as bogus during the search operation, post search investigation and assessment proceedings. Further a simultaneous action under section 133A was also carried out at the premises of M/s Jay Enn Infotech Pvt. Lid. M/s Aadhar Technologies Pvt. Ltd., and Unique Distributers, in which it was seen that these entities were nothing but only paper entities which were providing accommodation entries by issuing bogus sales bills on account of which the so called buyer (in whose names bill is issued) could inflate its expenditure and reduce profits. Therefore, in view of statement of Sh. Col. H.S. Bedi, CMD of Tulip group and information filed in the case of M/s golf Technologies Pvt. Ltd., purchases made by the assessee company from the entities/companies as above, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in the course of search statement of Col. U.S. Bedi, CMD of the appellant company was recorded and Sh. Bedi declared ₹ 75 Crore on account of bogus purchases in various group companies made from different entities. In his reply during the course of appellate proceedings the counsel of the appellant company submitted that the appellant has debited purchases in profit and loss account and goods purchase were sold to various party and sale consideration to this effect has been credited in the profit and loss account as well. The Counsel further stated that the AO has disallowed only purchases i.e. debit amount in the profit and loss account and not touched the sales credited in the profit and loss account. This contentions of the appellant is also not convincing as it cannot be verified with certainty that the items sold are not purchased from any other entity but only from these fictitious and paper entities. The appellant states that the purchases were made through banking channel and VAT paid. This is not a sound argument as these elements always exist in case of bogus purchases. When the supplier himself admitted accommodation transaction of bogus purchases and chief of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OUNT PARTICULARS AMOUNT To Bogus Purchases 37,52,68,811 By sales Against alleged Bogus Purchases 38,27,42,233 Profits 74,73,422 38,27,42,233 38,27,42,233 19. From above it is clear that if debit of ₹ 37,52,68,811/- to be disallowed on the ground of bogus purchases, then correspondingly credit of ₹ 38,27,42,233/- should also be disallowed, the preposition of which we are not inclined to accept. Further, it was argued that every item purchased is either sold or is in stock. The quantitative movement of all stock purchased during the year as INFLOW and OUTFLOW of the same stock when it is sold, the preposition of which we are considerate to accept. All the payments for purchases and sales are through banking channel. 20. It was argued that the observations of the revenue are wrong that the assessee has debited bogus purchases to reduce the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and also the receipts of sale out of such purchases and the profit earned thereof. 29. We find that the entire purchase from these parties is to the tune of ₹ 37,52,68,800/- whereas the sale receipts from that sales which have been duly accounted were to the tune of ₹ 38,27,42,200/-. We find that a profit of ₹ 74,37,422/- has been earned by the assessee from these transactions and duly offered to tax. Under these circumstances, it cannot be said that the purchase have been bogus especially when the quantitative details have been tallied item wise and the sale proceeds have been taken into P L account and the profit earned on such transaction is offered to tax. They could not have been any sales without purchase of the items. Hence, we are unable to accept the contention of the revenue. The appeal of the assessee on this ground is allowed. Disallowance of interest on advance to Sister concerns: Ground No. iv(a) for AY 2008-09 of ₹ 7,20,000/- 30. In the return of income filed for the assessment year 2008-09, the assessee company had debited interest amounting to ₹ 1,64,18,710/- in the profit and loss account of the financial year 2007- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DR namely CIT Vs Hero Cycles Ltd., CIT Vs Winsom Textiles, CIT Vs Abhishek Industries Ltd., CIT Vs Avon Cycles. 37. We have carefully considered the contentions of both the parties and have also gone through various case laws referred to before us. The issue to be adjudicated, as narrowed down from the arguments made before us by both the parties, is whether in relation to disallowance of interest made u/s.36(1)(iii) of the Act, the action of the AO is correct or not. The issue of disallowance of interest has reached finality with the judgment of Hon ble Supreme Court in the case of Hero Cycles (P.) Ltd. Vs. CIT, Ludhiana [2015] 379 ITR 347. The proposition laid down by the Hon ble Apex Court is that where the assessee had sufficient own interest free funds along with interest bearing funds and had made or advanced sums for non business purposes without charging any interest, the presumption that would arise is that the investment had been made out of interest free funds generated or available with the assessee, is still a good law in the light of the decision of the Hon ble Apex Court in the case of Hero Cycles Ltd. (supra). 38. The appeal of the assessee on this ground is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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