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TMI Blog2022 (8) TMI 782X X X X Extracts X X X X X X X X Extracts X X X X ..... s. As for confirmation/receipts from dealers receiving gift items, the same we have noted, was examined by the AO who had contended that the veracity of the said documents was not verifiable since they did not bear any address of the recipient. He also pointed out that even the nature of the article gifted was not mentioned in the said receipt. The details of MR's who distributed the gifts also therefore does not establish the fact of gift having been actually distributed by the assessee. These are only self serving documents and no cognizance of the same can be taken for finding whether the assessee had in fact distributed gift articles to its customers/clients. The bills being found bogus by the Ld. CIT(A) which finding has remained unchallenged before us, the stock record being a self serving document, the receipts from recipients of gifts not mentioning the goods received, there is nothing to even suggest what was actually purchased and distributed by the assessee as gift. There is no way to establish in this case that what was purchased was distributed by the assessee as gift. It is impossible to apply any profit theory in this situation, to restrict the disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s incurred by the assessee. It was pointed out that the said disallowances was made in identical set of facts and circumstances finding the expenses to be bogus and the Ld. CIT(A) had granted identical relief to the assessee in all the cases by restricting the disallowance to the extent of 12.5% of the expenditure incurred. Considering the admitted identity of issue involved in all the impugned appeals before us, they were all taken up together for hearing and being adjudicated upon by this common consolidated order. 3. Both the parties agreed that the appeal of the Revenue for A.Y. 2011-12 in ITA No. 1477/Ahd/2016 in proceedings relating to regular assessment framed u/s. 143(3) of the Act, be treated as the lead year as the decision of the Ld. CIT(A) in this year was followed in subsequent years also. Therefore we shall be dealing with the facts in the appeal of the Revenue for A.Y. 2011-12 in ITA No. 1477/Ahd/2016 and our decision rendered therein will apply mutatis mundis to the rest of the appeals also.. ITA No. 1477/Ahd/2016 for A.Y. 2011-12 (Revenue's appeal) 4. Ld. DR pointed out that in the impugned year the AO had disallowed sales promotion expenses amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Court in the case of N.K. Proteins Ltd. Vs. DCIT [2017] 250 taxmann.com 22 (SC) and of the ITAT Mumbai Bench in the case of Pratibha Structural Ltd. Vs. DCIT Central Circle-27 25 Mumbai in ITA No. 3874/Mum/2015 and Ors, dated 10-04-2019 in this regard. Copies of all the orders was placed before us. 7. He further contended that in any case disallowance of bogus expenses was restricted to profits in circumstances where the expenses related to purchases made in the course of trading or manufacturing activity of the assessee and corresponding sale had been booked. He pointed out that courts in such cases had held that where the sale relatable to these purchases is not doubted then it cannot be said that no purchases have been made by the assessee and at best the assessee can be said to have purchased in the grey market at lower prices avoiding payment of taxes and duties thereon and to that extent estimated addition on account of profits so earned can be made only and not entire expenses/purchases disallowed. He contended that in the present case the expenses disallowed was not that of purchases against which sales were booked by the assessee, but were of expenses of sales promo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s promotion expenses made with the said parties, more particularly when enquiries conducted by him repeatedly revealed no such party existing and the assessee had neither produced them before the A.O. nor furnished any copy of bank account, balance sheet or profit and loss account to prove their genuineness. 9. Ld. D.R. thereafter pointed out that in appellate proceedings, the assessee filed additional evidences by way of copies of bills issued by the said parties to the assessee and their confirmations, as also copies of receipts issued by recipient of the gifts articles purchased as sales promotion expenses. He pointed out that the same were forwarded by the ld. CIT(A) to the A.O. for verification and investigation, who in turn issued summons to the proprietor of one of the parties, M/s. Gajanand Traders, Shri Shripal Shah u/s. 131 of the Act and recorded his statement on oath u/s. 131 wherein on being asked as to whether he had supplied any gift articles to the assessee, he categorically denied any such transaction with the assessee and on the contrary stated that these were bogus entries given to the assessee in return of commission of 25 paise against each said bill issued. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire facts and circumstances relating to the investigation conducted at various stages regarding the genuineness of purchase made by the assessee from these two parties and implicit admission by the assessee that purchases with these parties was bogus, the ld. CIT(A) concurred with the findings of the A.O. that the purchases were bogus at para 8.2 of his order as under: 8.2 The reasons for making additions and the contentions of the appellant have been carefully considered. The AO has proved beyond doubt that the appellant could not prove the genuineness of the purchases of sales promotions material from these two parties, as shown in the appellant's books of accounts. The notice issued to these vendors u/s. 133(6) returned unserved, they were not found at the address given during the field enquiries made by the Inspector and statement of the appellant that he merely issued bills by charging some commission and no material was supplied by them are sufficient to establish that purchases shown from these persons are not genuine. 14. The ld. D.R. contended that the assessee has not challenged these findings of the ld. CIT(A) that the impugned purchases were bogus and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble High Court in the case of Pawanraj B. Bokadia in Tax Appeal No. 3245 of 2009 dated 29/09/2011. 2. Issue pertains to bogus trade made by the respondent-assessee. Assessee is in the business of trading in iron and steel. For the Assessment Year 2003-2004, during the reassessment proceedings, it was found that the purchases worth Rs. 61.40 Lacs (rounded off) were not supported by sufficient evidence. The assessee's claim of having purchased such goods from various suppliers was verified, but was not found genuine. It was found that such parties had never supplied the goods as named by the assessee. On such basis, the Assessing Officer made addition of entire amount of purchase of Rs. 61.40 Lacs (rounded off). The assessee carried the matter in appeal and CIT (Appeals) partly allowed the appeal. It was found that though the purchases were not made from the parties from whom the assessee claimed, there was complete quantitative tally of material purchased and sold. In that view of the matter, CIT (Appeals) was of the view that such materials were purchased from the open market incurring cash payment and bills were procured from various sources. Resultantly, Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was in business of manufacturing and exports of de-oiled cake, starch, glucose and cotton yarn -Assessing Officer examined various purchases made by assessee and noted that entire purchases made from one 'V were bogus and added entire amount to total income of assessee - Commissioner (Appeals) was of opinion that purchases were not bogus, he however taxed 25 per cent of amount - Tribunal noted that GP rate and net profit rate of year under consideration were better than previous year, stock register was properly maintained and purchases in question were reflected in such stock register - Tribunal thus reduced addition to 5 per cent of amount -Whether when assessee could produce before authorities precise rate at which purchases were made from 'V and other suppliers to demonstrate that purchases made on same day carried same price, it could not be said that purchase price was artificially inflated - Held, yes - Whether since Tribunal's finding were based on parameters such as higher net and gross profit rates of present year compared to earlier years of recent past, Tribunal committed no error so as to give rise to any question of law - Held, yes [Para 12][In favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o question of law arises. Tax Appeal was therefore dismissed. (c) Commissioner of Income-tax-1 v. Nangalia Fabrics (P.) Ltd. [2013] 40 taxmann.com 206 (Gujarat) 1. Section 68 of the Income-tax Act, 1961 - Cash credit [Unverifiable purchases] -Assessing Officer found that purchases made by assessee could not be verified as parties were untraceable -Accordingly, he made audition to assessee's income -However, Tribunal held that since purchases were supported by bills, entries were made in books of account and payment was made by cheque, addition should have to be deleted - Whether issue being based on facts, required no consideration - Held, yes [Para 4] [In favour of assessee] (d) Mayank Diamonds P. Ltd. vs ITO in TA No. 200 of 2003 1. Being aggrieved and dissatisfied with the impugned judgement and order dated 18.10.2002 passed by the Income Tax Appellate Tribunal, 'B' Bench (Tribunal) in Income Tax Appeal No. 341/Ahd/2002 for the assessment year 1997-98, the revenue has preferred the present tax appeal with the following substantial question of law: Whether the Tribunal was right in estimating the gross profit of 12.5% against the gross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned order and submitted that the Tribunal has rightly observed that addition at the rate of 12.5% is applicable in the present case because the appellant company has siphoned off large amount by snowing bogus and fictitious addresses. He submitted that the present appeal lacks merits and therefore deserves to be dismissed. 5. We have heard learned advocates for both the sides and perused the orders passed by the CIT as well as the Tribunal. As a result of hearing and perusal of records, it is borne out that the average profit which has been considered for this industry is around 3 to 7%. The Tribunal in the instant case has directed addition at the rate of 12.5% which in our opinion is on the higher side. Learned advocate for the appellant has fairly conceded that excess 7% is on higher side and that at the most 3% may be applied. In that view of the matter, going by the peculiar facts of the present case we are of the view that ends of justice will be met by taking mean of maximum and minimum of the profit rate which comes to 5%. Therefore, we think it fit to direct the Assessing Officer to apply 5% G.P rate as the rate of 12.5% is drastically higher and 1.03% is drasti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the gross profit element in the said purchases, considering the fact that the corresponding sales made therefrom was not found bogus and therefore finding that purchases must have been made from some other parties, in the gray market at discounted rates and bills of higher rates only procured from different parties. In the present case, the said proposition would have applied, only if the purchase of items for sales promotion from the said two parties was established as a fact to have been distributed by the assessee for sales promotion purposes. We find that the Ld. CIT(A) has very loosely recorded his finding to this effect stating that actual purchases of items for sales promotion purposes must have been made by the assessee from some other parties though definitely not from those recorded in the Books of the assessee and accordingly found to be bogus by both the AO and the Ld. CIT(A).He has based his finding on the stock register maintained by the assessee in CD, which he states establishes the factum of gift articles being distributed by the assessee to various persons and on certain receipts issued by recipient of gift items. We do not find any substance in the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the same can be taken for finding whether the assessee had in fact distributed gift articles to its customers/clients. 23. The bills being found bogus by the Ld. CIT(A) which finding has remained unchallenged before us, the stock record being a self serving document, the receipts from recipients of gifts not mentioning the goods received, there is nothing to even suggest what was actually purchased and distributed by the assessee as gift. There is no way to establish in this case that what was purchased was distributed by the assessee as gift. It is impossible to apply any profit theory in this situation, to restrict the disallowance to profit earned thereon, which theory, we have noted from the orders of the Hon'ble High Courts rests on the premise that the sale from the alleged bogus purchases being admitted, the purchases must have been made though from the grey market at comparatively lower rates saving taxes and duties thereon and hence earning extra profits in the process not disclosed in the books. 24. The reasoning of the ld. CIT(A) therefore for restricting the disallowance to the extent of 12.5% of the total expenses is therefore we hold flawed, illogical and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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