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TMI Blog2025 (3) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... n the genuineness of the purchases was confirmed by the CIT (A).
Before the Tribunal, assessee has not canvassed any submission on the genuineness of the purchases but only pleaded for an estimation of a certain percentage of such bogus purchases to be added.
Therefore, assessee has not proved the genuineness of the purchases, which inter alia include the source of making the payment for such purchases. Today before this Court assessee's submissions that they have discharged the onus cast upon them to prove the genuineness of the purchases, including the source cannot be accepted.
Appeal of the appellant-revenue is allowed by answering the question in favour of the appellant-revenue and against the respondent-assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... ith Section 147 of the Act came to be passed. In the said order Rs. 20,06,80,150/- was added on account of bogus purchases since the genuineness of the purchases could not be verified. The Assessing Officer (AO) issued notices under Section 133 (6) of the Act at the address of the persons from whom the respondent-assessee had purchased the goods but same were returned "unserved". The details of these suppliers were made available by the Sales Tax Department. Since the respondent-assessee did not appear before the AO during the course of the reassessment proceedings and the respondent-assessee failed to prove genuineness of the purchases, the AO made the additions of Rs. 20,06,80,150/- on account of bogus purchases. Proceedings before CIT (A) : 5. The respondent-assessee filed an appeal before the Commissioner of Income-tax [CIT (A)] against the order passed under Section 144 read with Section 147 of the Act. It is important to note that the address mentioned in the assessment order of the respondent-assessee by the AO is the same address which the respondent-assessee has mentioned in his Form No. 35 which is a Form for filing of an appeal to the CIT (A). 6. On 28 August 2016, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Tribunal, which were heard on 13 June 2019 and the impugned order was pronounced on 26 June 2019. The revenue before the Tribunal took a specific ground that the CIT (A) erred in considering the GP at 12.5% on alleged bogus purchases instead of adding 100% as the AO did. The assessee challenged the findings of the CIT (A) on whether the addition of 12.5% could at all be made. 10. In paragraph 6 of its order, the Tribunal merely relied upon the decision of the Co-ordinate Bench of this Court in the case of Pr. CIT-17 Vs Mohammad Haji Adam & Co. (2019) 103 taxmann.com 459 (Bom.) and dismissed the revenue's appeal. It directed the AO to restrict the additions to the extent of bringing the GP rate of disputed purchases to the same rate as that of other genuine purchasers. Against this backdrop, the appellant-revenue is in appeal before this Court. The respondent-assessee has not challenged the order of the Tribunal by filing any appeal before this Court. Submissions of the appellant-revenue : 11. Mr. Suresh Kumar, learned counsel for the appellant-revenue submitted that the respondent-assessee failed to prove the genuineness of the purchases and, therefore, the additions m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 January 2025 of this very bench. Mr. Subramaniam, learned counsel for the respondent-assessee did not make any other submissions other than what is recorded hereinabove. Analysis & Conclusion:- 13. The short issue which requires adjudication in this appeal is whether additions of Rs. 20,06,80,150/- made by the AO on account of the failure of the respondent-assessee to prove the genuineness of the purchases can be said to be valid. 14. Before we adjudicate the issue, it is relevant to understand the concept of accommodation entry by an example. Mr. A has unaccounted cash, which he uses to buy goods for selling. However, the sales are made by cheque. Since the goods are purchased with unaccounted money, they cannot be recorded in the books of account. Therefore, the modus operandi to bring such purchases into the books of account is that Mr A will contact Mr B, an accommodation entry provider. Mr B would issue a paper invoice in the name of Mr A, and Mr A would issue a cheque to Mr B to show that the purchases have been made by cheque from Mr B. After deducting certain commission, Mr B would then withdraw the money from his bank account and return the cash so withdrawn to Mr A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they were not served with the notices has been negatived by the Appellate Authority and the same has not been challenged. Therefore, the respondent-assessee in the present case has failed to prove the purchases of which the claim for deduction was made before the AO. 18. The CIT (A) has also given a finding against the respondent-assessee in paragraph 5.2.1, stating that the respondent-assessee failed to prove the genuineness and source of the purchases and confirmed its involvement in the modus operandi. In our view, CIT (A) was not justified after giving such a finding that the additions should be restricted only to 12.5% of such purchases and not entire purchases. The issue before the CIT (A) was not whether the profit disclosed by the respondent-assessee was low so as to justify the estimation of the profit of 12.5%. The issue before CIT (A) was whether the purchases had been proved and the CIT (A), having observed against the respondent-assessee on this issue, ought to have confirmed the additions of the entire purchases. In our view, the CIT (A) misdirected himself by estimating a profit of 12.5%. 19. It was nobody's case that both the sales and purchases are unaccounted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction under any head of income. In our view, if the approach of the CIT (A) and the Tribunal is accepted, then it would amount to endorsing outright conduct of illegality, contrary to the express provisions of Section 69C of the Act, which the Appellate Authorities have entirely ignored. In the above example, by estimating 10% and thereby impliedly giving a deduction of Rs. 90/-, in the teeth of the provisions of Section 69C of the Act, which expressly bars the allowability of unexplained expenditure. 24. Mr. Suresh Kumar, learned counsel for the appellant-revenue, is justified in relying upon the decision of the Gujarat High Court in the case of N.K. Industries Ltd. (supra). The Gujarat High Court observed that estimating a certain percentage of the bogus claim is against the principles of Sections 68 and 69C of the Act, and if the purchases are bogus, then it is not incumbent upon the Tribunal to restrict the disallowance only to confirm certain percentage of such purchases. In the instant case before us, the respondent-assessee has failed to prove the purchases including source of expenditure by not offering any explanation in the course of the re-assessment proceedings, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases made by the assessee were held to be non-genuine purchases even though the assessee had filed the documentary evidence. However, the AO based on the submissions made by the assessee added only 15% of such purchases as income. The CIT (A) invoked revisional jurisdiction under Section 263 of the Act and observed that the entire purchases ought to have been added and not only 15%. This finding and the revisional order of the CIT (A) was confirmed by the Tribunal. On an appeal by the assessee before this Court, the Co-ordinate Bench of this Court observed that the reasons assigned by the CIT (A) are cogent and satisfactory. The Court further observed that once the assessee could not produce any material nor he could ensure the presence of the suppliers before the AO, citing difficulties and agreeing to the additions of gross profit of the purchases would mean that the AO was expected to complete the exercise in accordance with law and there was no reason for the AO to accommodate the assessee in the manner done. The Hon'ble High Court therefore approved the reasoning of the CIT (A) that in case where the purchases are not proved, the entire purchases should have been added and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nderstand that the respondent-assessee having consciously and intentionally decided not to join the investigation, cannot now contend that the appellant-revenue should have given them all the details before making the addition. In our view, such a conduct of the respondent-assessee cannot be accepted. It was incumbent upon the respondent-assessee to have joined the re-assessment proceedings, discharge the initial onus of proving the purchases and seek details, if any. Having not joined the re-assessment proceedings, the contentions raised by the respondent-assessee on this issue are to be rejected. 31. The submission of Mr.Subramaniam, learned counsel for respondent-assessee that if this addition made by the AO is sustained, then profit rate would be exorbitant and therefore addition should be deleted is to be rejected. The fallacy of this argument is that the AO has not made the addition because of low profit. The addition was made because the respondent-assessee failed to prove genuineness of purchases because of allegation of purchases by accommodation entries as explained above. If contention of learned counsel is accepted, then every addition would have to be deleted if relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of gross profit by relying upon the decision in the case of Mohammad Haji Adam & Co. (supra). 35. In our view, the Tribunal was not justified in relying upon the decision in the case of Mohammad Haji Adam & Co. (supra). In that case, the assessee had participated in the assessment proceedings, and CIT (A) compared the purchases and sales statement, and there was a finding that the purchases cannot be rejected since there was a correlation between purchases and sales. The Coordinate Bench proceeded on this finding of fact recorded by the authorities and dismissed the revenue's appeal on the ground that no substantial question of law arises. The issue in the present appeal is on failure of discharging onus by the respondent as to purchases including the source of the purchases made by the respondent-assessee and which source has not been explained by the respondent-assessee. 36. The question of law admitted in this appeal states explicitly that neither of the Appellate Authorities has considered the provisions of Section 69C of the Act. Even the decision in the case of Mohammad Haji Adam & Co. (supra) is not a decision on the applicability of Section 69C of the Act, which is th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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