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TMI Blog2018 (2) TMI 2121X X X X Extracts X X X X X X X X Extracts X X X X ..... SAIN, JUDICIAL MEMBER: The present Appeal filed by the assessee is against the order of Commissioner of Income Tax (Appeals)-1, Mumbai dated 22.02.17 for AY 2010-11 on the ground mentioned herein below:- (1) On the facts circumstances and in law the learned CIT(A) - 1, Aurangabad [CIT(A)] erred in confirming the total addition of Rs.84,18,995/- as unsubstantiated purchases from MIs. Shreeji Commercial of Rs. 20,96,640/-, M/s. Dev Enterprises of Rs. 46,80,000/- and M/s. Shreekrupa Enterprises of Rs. 16,42,355/- merely on the basis of suspicion, surmises or conjecture. (2) On the facts and circumstances and in law and in the interest of justice, the learned CIT(A) erred in confirming the alleged addition in absence of any independent finding and merely on the basis of some affidavits of the alleged suppliers given to the Sales Tax Department that too, without providing the relevant material and without giving any opportunity to confront the alleged hawala dealers. (3) On the facts and circumstances your Appellant prays that the alleged addition may be deleted. (4) Your Appellant craves leave to add, amend, alter and/or delete any of the above grounds of appeal. 2. As per the facts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that once the assessee received good quality of material as required by the assessee, then it would be presumed that the same was used in the manufacturing activities of the assessee without bothering about their whereabouts. Ld. AR challenged the order of revenue authorities on the ground that the transaction of purchases by way of regular sale bills and subsequent payments proved that the assessee had discharged the onus with regard to the genuineness of purchases. It was also argued that the payment through banking channel was the essence of transaction so as to decide the genuineness. It was further submitted that the purchases in the hands of the assessee could not at all be doubted, in view of the decision of the Hon ble Gujrat High Court in the case of CIT Vrs. M. K. Brothers (163 ITR 249), whereinthe Hon ble Gujrat High Court stated that the purchases could not be disallowed if the payments were made through cheques even when the sellers were held to be bogus by the Sales Tax Authorities. Ld. AR further submitted that merely because of parties from whom the material was purchased was not available, did not warrant additions. In this respect, Ld. AR relied upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained in para no. 5 and 5.1 of its order and the same is reproduced below:- 5. I have duly considered the submissions of the appellant. The AO had noted on pages 2 to 4 of the reassessment order that the appellant company had made purchases of Rs.84,18,995/- from M/s. Shreeji Commercial Corporation, Dev Enterprises Shreekrupa Enterprises which were in the nature of hawala transactions or accommodation entries. The Sales Tax Department had conducted enquiries in respect of the various entry providers and it came to light that impugned purchases of Rs.84,18,995/- made by the assessee from MIS. Shreeji Commercial Corporation, Dev Enterprises Shreekrupa Enterprises were found to be in the nature of accommodation bifis/Hawala transactions. The said suppliers had also filed affidavits wherein they also admitted that no realbusiness was conducted by them and no physical delivery of goods was ever given. After receipts of cheques, equivalent cash was given back after deducting commissieAO then directed the assessee company to substantiate these purchases but in vain. The AO also directed the assessee company to substantiate the alleged purchases with documentary evidences such as the confi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In these circumstances, these documents do not inspire any confidence. The bills of alleged transporters were also not furnished. Accordingly the movement of goods was in doubt. The relevant information from the Sales Tax Department and non availability of the lorry receipts, bills of transporters, octroi receipts quantitative details itself speak about the genuineness of the transactions in question. It is well settled law that strict rules of evidence do not apply to income-tax proceedings and conclusive proof is also not necessary to arrive at any conclusion or to establish a fact. The AU is entitled to arrive at a conclusion on appreciation of a number of facts, the cumulative effect whereof may be considered to judge the soundness of the conclusion. It was conceivable that a mere denial by the assessee was not sufficient to rebut the circumstantial evidence which considered alongwith the conduct of the assessee had led to the inescapable conclusion that the assessee company had taken accommodation entries and alleged purchases were not genuine. 5.1 it is a settled law that Income Tax authorities are entitled to look into the surrounding circumstances to find out the reality ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irmed by High Courts. It was held that after invocation of provisions of section 145(3), the Assessing Officer acquired the mandate even to add the whole amount of purchases found as bogus to the total income of the assessee. One such case was Sri Ganesh Rice Mills Vs. CIT 294 ITR 316 (All) where the entire amount of bogus purchases, from 5 parties, was disallowed and same was upheld. The relevant portion of the order of the Tribunal as confirmed by High Court of Allahabad is reproduced, here as under: Once it is found that the purchases were bogus, addition has to be made to the extent of the purchases found to be fictitious. The consideration that the gross profit disclosed by the assessee compares favourably as compared to the earlier years is wholly irrelevant. To neutralize the effect of inflation in purchases, the only course open to the Income-tax Officer is to add back that amount to the income irrespective of the fact whether the rate of gross profit goes up and whether the resultant gross profit is higher than the gross profit normally shown in the earlier years. After having gone through the facts of the present case, submissions of both the parties as well as judgment c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y High Court in case of Nikunj Eximp Enterprises Pvt. Ltd. Vs. CIT. The other decision in the case of YEC projects Pvt. Ltd. Vs. DCIT (46 DTR 496) (Delhi) (Tribunal) also supported the above view. In the above mentioned cases, it was held that the AO was not justified in making disallowance of purchases merely due to non filing of confirmation from suppliers especially when the assessee had filed certificate from bank indicating that the cheques issued by it were cleared and no defects in the books of account were pointed out. In the case of Hi Lux Automotive Pvt. Ltd. Vs. DCIT (183 Taxman 260) (Delhi HC), the assessee had produced sufficient material, furnished bank statement, payment was made by account payee cheque, confirmations and quantitative tally had been filed. Merely because parties were not available when notices were sent to them did not warrant addition. In the case of Deepak Popatlal Gala (TS 168 ITAT 2015) the Mumbai ITAT upheld CIT(A)'s order and deleted addition U/s 69C for unexplained purchases. It was observed that the AO merely relied on inquiries conducted by Sales Tax Department without conducting any other investigation. It also upheld CIT(A)'s relia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 125 ITR 713 (SC) and the observation of third party cannot be the basis of addition. In this respect, we placed reliance in the case of ITO Vrs. Permanand (2008) 25 SOT 11. In the case of Mather Platt (India) Ltd Vrs. CIT 168 ITR 493 Cal. wherein it was held that if the payments were made by account payee cheques then this fact would overshadow all other shortcomings. Be that as it may, while relying upon the following judgments:- 1) ClT vs Bholanath Poly Fab Ltd. (2013) 355 ITR 290 (Guj). (HC), 2. CIT v Simit D, Sheth (2013) 356 ITR 451 (Guj)-(HC) and 3. CIT vs. Sanjay Oil Cake Industries (2009) 316 ITR 274 (Guj) (1C) and taking into consideration the facts of the present case, and to account for the profit element embedded in these purchase transactions to factorize profit earned by assessee against purchase of material in the grey market and undue benefit of VAT against bogus purchases, we are of the considered view that the ends of justice would be met in case the additions are restricted @ 12.5% of the bogus purchases. Consequently orders passed by Ld. CIT(A) are set aside and AO is directed to restrict the additions accordingly. Hence these grounds raised by the assessee are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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