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TMI Blog2023 (8) TMI 446X X X X Extracts X X X X X X X X Extracts X X X X ..... g the year) i.e. 0.53% of the total purchases and thus, set-aside the part-rejection/rejection of the books of account u/s.145(3) of the assessee by the lower authorities. As observed by us hereinabove, the A.O had made certain independent additions/disallowances, viz. addition of unaccounted railway rack booking charges, disallowance of unverifiable labour expenses, disallowance of unverifiable hamali expenses and disallowance out of office expenses, car and vehicles which thereafter, were telescoped by the CIT(Appeals) by applying the NP rate (average) of 1.45% to his total turnover for the year under consideration. As we have set-aside the aforesaid methodology adopted by the CIT(A) for computing the assessee s income, therefore, as a consequence thereto the aforesaid issue is also restored to the file of the A.O for fresh adjudication. Appeal of the assessee is partly allowed for statistical purposes - Shri Ravish Sood, Judicial Member And Shri Arun Khodpia, Accountant Member For the Assessee : Shri R.B Doshi, CA For the Revenue : Shri Satya Prakash Sharma, Sr. DR ORDER PER RAVISH SOOD, JM: The present appeal filed by the assessee is directed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im as regards substantiating the authenticity of the aforesaid purchase transactions in question by placing on record supporting documentary evidence, viz. gate entry pass, proof of transportation, delivery challans of goods, entry in purchase and stock register, confirmation of the party etc., therefore, the A.O rejected his claim of having made genuine purchases from the aforementioned party and dubbed the same as bogus purchases. 4. The A.O further in the course of the assessment proceedings observed that survey operations u/s.133A of the Act were conducted at the business premises of Shri Sanjay Sharma, Hanuman market, Raipur and Shri Kamlesh Kesharwani, commission Agent, Ramsagarpara, Raipur on 15.03.2016 which revealed that certain rice millers would procure bogus bills from brokers/entry operators without any actual purchase of goods. It was observed by the A.O that substantial incriminating material evidencing the aforesaid fact were found in the course of the survey proceedings. The A.O also noticed that survey action was carried out in the case of Nagarik Sahakari Bank, Raipur where some of the brokers/entry operators maintained their bank accounts. It was further obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Addition of unaccounted railway rack booking charges Rs. 3,55,319/- Disallowance out of labour expenses (on ad-hoc basis) Rs. 1,00,000/- Disallowance out of hamali expenses (on ad-hoc basis) Rs. 2,00,000/- Disallowance out of office expenses, car and vehicle expenses (on ad-hoc basis) Rs. 40,000/- On the basis of his aforesaid deliberations the A.O vide his order passed u/s. 143(3), dated 20.12.2016 determined the income of the assessee at Rs. 79,44,900/-. 6. Aggrieved the assessee carried the matter in appeal before the CIT(Appeals). It was observed by the CIT(Appeals) that the claim of the assessee company that the payments to the supplier were made through account payee cheques could not be treated as sacrosanct to justify the authenticity of the purchase transactions in question. Also, it was observed by him that the assessee neither in the course of assessment proceedings nor before him could substantiate on the basis of supporting delivery challans, weighbridge bills and receipts the authenticity of his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade and buy product produced as part of regular books of accounts, maintenance and as part of working papers and files their audit. 6.7. Assessee has produced nothing of this sort during assessment proceedings as well as appellate proceedings. The fact that assessing officer did not verify Sales does not amount to alleged claim of matching of quantity of sales, consumption and purchase quantity of material. In view of these discrepancies, assessee himself had offered 10% profit on these bogus purchases during statement recorded during assessment proceedings. 6.8. In respect of disallowances made of milling, wages, expenses, transportation and Hamali expenses and office expenses, assessee has just mentioned that once books of accounts are rejected, there cannot be addition based on figures contained in those ledgers. However, assessee has not submitted any supporting bills and vouchers or other evidences to prove these expenses specially in the context of Discrepancies found out by AO as mentioned in assessment order. 6.9. In view of findings of survey action and above-mentioned discrepancies and lack of supporting evidences for the expenses claimed by the assessee; assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted by the Ld. AR that there was no basis either for the A.O to disallow 25% of the value of such bogus purchases or for the CIT(Appeals) to scale down the same to 1.45% of the total turnover. Alternatively, it was submitted by the Ld. AR that the disallowance could have been restricted only to the extent of the profit which the assessee would have made by procuring the goods at a discounted value from the open/grey market as against the inflated value at which the same were allegedly booked on the basis of bogus bills in his books of account. Ld. AR in support of his aforesaid contention had relied on the judgment of the Hon ble High Court of Bombay in the case of Pr. Commissioner of Income Tax-17 Vs. M/s. Mohhomad Haji Adam Company, ITA No1004 of 2016, dated 11.02.2019. 9. Per contra, the Ld. Departmental Representative (for short DR ) relied on the orders of the lower authorities. It was vehemently submitted by the Ld. DR that as the assessee had failed to discharge the primary onus that was cast upon him as regards proving the authenticity of his claim of having made genuine purchases from the aforementioned tainted party, therefore, the A.O had in all fairness disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification of the profit which the assessee would have made by procuring the goods under consideration at a discounted value from the open/grey market as against the inflated value at which the same had been booked by him on the basis of bogus bills in his books of account. 14. On a careful perusal of the order of the A.O, it transpires that he has not given any cogent reason for working out the disallowance @25% of the value of the impugned bogus/unsubstantiated purchases. In fact, the only reason which can be gathered from a perusal of the assessment order is the reliance placed by the A.O on the order of the ITAT, Ahmedabad in the case of Vijay Proteins Ltd. (1996) 58 ITD 428 (Ahd.). Also, we are not impressed with the applying of the average NP rate of preceding three years i.e. of 1.45% on the total turnover of Rs. 62.21 crore (supra) of the assessee company by the CIT(Appeals). We, say so, for the reason that for unverified purchases of Rs. 31 lacs (out of total purchases of Rs. 58.13 crore made by the assessee during the year under consideration) i.e. 0.53% of the total purchases, there appears to be not much of justification for the CIT(Appeals) to have approved the rejec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sale declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trade. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case of N.K. Industries Ltd. (supra) cannot be applied without reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and observed as under- So far as the question regarding addition of Rs. 3,70,78,125/- as gross profit on sales of Rs. 37.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6 % gross profit is taken into account, the correspondin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the remaining expenses, viz. labour expenses, hamali expenses and office/vehicle expenses. On appeal, the CIT(Appeals) was of the view that once the A.O had rejected the assessee s books of account u/s.145(3) of the Act, then he was precluded from relying upon the same books for carrying out disallowance of ledger head expenses by referring to the said rejected books of accounts. Although, we are principally in agreement with the aforesaid view of the CIT(Appeals), i.e. once the books of account of the assessee had been rejected by the A.O u/s.145(3) of the Act, then, he could not have thereafter relied upon the said rejected books of accounts for making additions by separately disallowing any part of the ledger head expenses, but at the same time, are unable to persuade ourselves to subscribe to the part-rejection/rejection of the books of account of the assessee by the lower authorities for the standalone reason that the assessee could not verify/substantiate to the hilt the purchases of Rs. 31 lacs (out of total purchases of Rs. 58.13 crore made during the year) i.e. 0.53% of the total purchases and thus, set-aside the part-rejection/rejection of the books of account u/s.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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