Rajeshri Avas Developers Pvt Ltd., Ahmedabad V. The ITO, Ward-3(1)(3), Ahmedabad

ITA 1105/AHD/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 6866 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 02-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S SHUKLA
• Assessee Lawyers: M K PATEL
• Keywords: Bogus purchase; Opportunity of cross examination; Question of law; Third party statement; Set aside
• Section: 40A(3); 143(3); 113; 13; 119; 131; 132

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, AHMEDABAD (CONDUCTED THROUGH VIRTUAL COURT AT AHMEDABAD) BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ASSESSEE BY : SHRI M.K. PATEL, A.R REVENUE BY : SHRI S.S. SHUKLA, SR.D.R /DATE OF HEARING : 20/07/2021 /DATE OF PRONOUNCEMENT: 06/08/2021 SL. NO(S) ITA NO(S) ASSET. YEAR(S) APPEAL(S) BY APPELLANT VS. RESPONDENT APPELLANT RESPONDENT 1. 1105/AHD/2018 2013 - 14 RAJESHRI AVAS DEVELOPERS PVT. LTD., A-9. ANUPAM COLONY, OPP. CHIRAG DIAMOND, L.B.S. ROAD, BAPUNAGAR, AHMEDABAD-382350. PAN: AAACR9139G INCOME TAX OFFICER, WARD 3(1)(3), AHMEDABAD. 2. 1106/AHD/2018 2013 - 14 RACHNA ORGANISERS PVT. LTD., A-9. ANUPAM COLONY, OPP. CHIRAG DIAMOND, L.B.S. ROAD, BAPUNAGAR, AHMEDABAD-382350. PAN: AADCR9047A INCOME TAX OFFICER, WARD 3(1)(3), AHMEDABAD. 3. 1107/AHD/2018 2013 - 14 POOJA INFRASTRUCTURE LTD., A-9. ANUPAM COLONY, OPP. CHIRAG DIAMOND, L.B.S. ROAD, BAPUNAGAR, AHMEDABAD-382350. PAN: AADCP5123D INCOME TAX OFFICER, WARD-3(1)(3), AHMEDABAD. (APPLICANT) (RESPONDENT) ITA NO.1105AHD/2018 & TWO OTHERS ASSTT. YEAR 2013-14 2 /O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEALS HAVE BEEN FILED AT THE INSTANCE OF DIFFERENT ASSESSEE AGAINST THE SEPARATE ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AHMEDABAD ARISING IN THE MATTER OF ASSESSMENT ORDER PASSED UNDER S. 143(3) OF THE INCOME TAX ACT, 1961 (HERE-IN-AFTER REFERRED TO AS 'THE ACT') RELEVANT TO THE ASSESSMENT YEAR 2013-2014. 2. FIRST WE TAKE UP ITA NO.1105/AHD/2018 FOR A.Y. 2013-14 FOR THE PURPOSE OF ADJUDICATION. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT ON FACTS AND IN LAW, THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN CONFIRMING THE ADDITION IN RESPECT OF PURCHASES HELD TO BE BOGUS, WITHOUT PROVIDING THE ADVERSE MATERIAL/STATEMENTS RELIED UPON, AND ALSO WITHOUT PROVIDING AN OPPORTUNITY TO CROSS-EXAMINE THE CONCERNED DEPONENTS. 2. THAT THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN LAW, AND ON FACTS, IN CONFIRMING THE ADDITION OF RS.97,28,955/- BEING 25% PROFIT OF THE ALLEGED BOGUS PURCHASES TO THE TUNE OF RS.3,89,15,820/- 3. THAT THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS.2,91,86,865/- U/S.40A(3) OF THE ACT, IGNORING THE FACT THAT NO PURCHASES ARE MADE IN CASH, AND HENCE THE PROVISIONS OF SECTION 40A(3) OF THE ACT ARE NOT APPLICABLE AT ALL. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND ANY GROUND OF APPEAL. 3. THE INTERCONNECTED ISSUED RAISED BY THE ASSESSEE IN ALL THE GROUNDS OF APPEAL IS THAT THE LD.CIT(A) ERRED IN CONFIRMING ADDITION OF RS. 97,28,955/- BEING 25% OF THE BOGUS PURCHASES AND MAKING THE ADDITION OF RS. 2,91,86,865/- UNDER THE PROVISION OF SECTION 40A(3) OF THE ACT. 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A PRIVATE LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF DEVELOPING OF COMMERCIAL COMPLEXES. THERE WAS A SEARCH OPERATION U/S 132 OF THE ACT CARRIED OUT AT THE PREMISES OF THIRD PARTY NAMELY M/S TRICON CONSTRUCTION, AHMEDABAD DATED 05/12/2012. IN THE COURSE ITA NO.1105AHD/2018 & TWO OTHERS ASSTT. YEAR 2013-14 3 OF SEARCH IT WAS FOUND THAT M/S TRICON CONSTRUCTION IS OBTAINING BOGUS PURCHASE BILLS FOR ITS MATERIAL CONSUMPTION. 4.1 THE POST SEARCH INVESTIGATION FURTHER REVEALED THAT THERE WERE THREE INDIVIDUALS WHO WERE ENGAGED IN ISSUING THE BOGUS BILLS AND M/S. TRICON CONSTRUCTION HAS OBTAINED BOGUS PURCHASES BILLS FROM THESE INDIVIDUALS. THE DETAILS OF THESE INDIVIDUALS STANDS AS UNDER. SR.NO. NAME NAME OF PROPRIETORSHIP CONCERN AMOUNT 1. SHRI A.A PATEL RIYA ENTERPRISES 1,81,89,144/- 2. SHRI BHAVESH R. PATEL AKSHAR ENTERPRISES 22,32,600/- 3. SHRI RAHUL V. PATEL VAISHVI TRADERS 1,81,94,076/- 4.2 SHRI BHAVESH R. PATEL HAS ALSO ADMITTED IN THE STATEMENT FURNISHED U/S 131 OF THE ACT THAT HE WAS NOT CARRYING OUT ANY ACTUAL TRADING ACTIVITIES, RATHER HE WAS ENGAGED ONLY IN ISSUING THE BOGUS BILL AGAINST THE COMMISSION. IT WAS ALSO ADMITTED THAT HE WAS NOT MAINTAINING ANY BOOKS OF ACCOUNTS. 4.3 THE AO DURING THE ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSEE HAS PURCHASED MATERIALS FROM THE PARTIES AS DISCUSSED ABOVE. ACCORDINGLY THE AO SOUGHT CLARIFICATION FROM THE ASSESSEE FOR TREATING THE PURCHASES AS BOGUS IN NATURE. 4.4 THE ASSESSEE IN RESPONSE TO THE SHOW CAUSE NOTICE CONTENDED THAT ALL THE PURCHASES FROM THE AFORESAID PARTIES WERE GENUINE PURCHASES AND AGAINST THE PAYMENTS THROUGH THE BANKING CHANNEL. THE ASSESSE IN SUPPORT OF ITS CONTENTION FILED LEDGER ACCOUNTS OF THE PARTIES, THEIR CONFIRMATIONS, ALL THE COPIES OF THE BILLS, STOCK REGISTER (INWARD & OUTWARD). IT WAS ALSO CONTENDED THAT THE BOOKS OF ACCOUNTS WERE DULY AUDITED BY THE QUALIFIED CHARTERED ACCOUNTANT AND NO DISCREPANCY OF WHATSOEVER WAS POINTED OUT BY HIM (THE AUDITOR). 4.5 THE ASSESSE ALSO SUBMITTED THAT THERE CANNOT BE ANY ADDITION MERELY ON THE BASIS OF THE STATEMENT RECORDED OF SHRI BHAVESH R. PATEL IN SEARCH PROCEEDINGS ITA NO.1105AHD/2018 & TWO OTHERS ASSTT. YEAR 2013-14 4 CARRIED OUT WITH RESPECT TO THE THIRD PARTY NAMELY M/S TRICON CONSTRUCTION. THE ASSESSEE ALSO REQUESTED THE AO FOR CROSS EXAMINATION OF THE PARTIES WHOSE STATEMENT WAS RELIED UPON. 4.6 IT WAS POINTED OUT THAT THE ASSESSEE HAS NO RELATION OF WHATSOEVER WITH THE THIRD PARTY WHERE THE SEARCH WAS CONDUCTED U/S 132 OF THE ACT, DATED 05/12/2012. 4.7 THE ASSESSEE ALSO MADE THE SUBMISSION THAT IT HAS BEEN ENGAGED IN THE ACTIVITIES OF DEVELOPMENT OF THE PROJECTS AND ALL THE PURCHASES WERE MADE ON BEHALF OF THE PRINCIPAL WHICH WERE TRANSFERRED TO HIS ACCOUNT. ACCORDINGLY THERE WAS NO PURCHASES EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT. 4.8 HOWEVER, THE AO WAS DIS-SATISFIED WITH THE CONTENTION OF THE ASSESSEE FOR THE REASONS AS DETAILED BELOW: I. THE OPPORTUNITY OF CROSS EXAMINATION WAS EXTENDED TO THE ASSESSEE AND SUPPLIERS TWO TIMES BUT ON BOTH THE OCCASION NONE OF THE PARTY CAME FORWARD FOR SUCH CROSS EXAMINATION. II. THERE WAS THE CASH WITHDRAWAL FROM THE BANK ACCOUNT OF THE PARTIES UPON RECEIVING THE PAYMENT FROM THE ASSESSEE. THUS IT SEEMS THAT THE PAYMENT SHOWN BY THE ASSESSEE AGAINST THE PURCHASES WAS RETUNED BACK TO IT. III. THE ASSESSEE AGAINST THE BOGUS PURCHASES HAS SHOWN CONSUMPTION IN THE BOOKS OF ACCOUNTS WHICH INDICATES THAT ASSESSEE HAS PURCHASED MATERIALS FROM UNREGISTERED PARTIES IN CASH AND TO REGULARIZE SUCH PURCHASES THE ASSESSEE HAS PROCURED THE BOGUS BILLS FROM THE PARTIES AS DISCUSSED ABOVE. ACCORDINGLY IT CAN BE INFERRED THAT THE ASSESSEE HAS MADE THE PURCHASE AGAINST THE CASH PAYMENT FROM THE UNREGISTERED PARTIES WHICH IS THE VIOLATION OF THE PROVISION OF SECTION 40A(3) OF THE ACT, THEREFORE ITA NO.1105AHD/2018 & TWO OTHERS ASSTT. YEAR 2013-14 5 SUCH PURCHASES CAN ALSO NOT BE ALLOWED AS DEDUCTION U/S 40A(3) OF THE ACT. IV. THE ASSESSEE HAS NOT FURNISHED ANY DOCUMENTARY EVIDENCE TO JUSTIFY THAT IT MADE PURCHASES ON BEHALF OF THE PRINCIPAL AND IT HAS NOT DEBITED SUCH PURCHASES IN THE PROFIT AND LOSS ACCOUNTS. 4.9 IN VIEW OF THE ABOVE, THE AO DISALLOWED THE PURCHASES AMOUNTING TO RS. 3,89,15,820/- BY TREATING THEM AS BOGUS/NON-GENUINE AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LD.CIT(A). 5.1 THE ASSESSEE BEFORE THE LD. CIT(A) REITERATED THE SUBMISSION MADE BEFORE THE AO AND FURTHER SUBMITTED THAT THERE WAS NO DOUBT RAISED BY THE AO ABOUT THE MATERIALS CONSUMED BY IT IN DEVELOPMENT WORKS. AS SUCH THE AO ACCEPTED THE CONSUMPTION OF THE MATERIALS IN THE PROJECT. 5.2 LIKEWISE, THERE WAS NO DEFECT POINTED OUT IN THE DOCUMENTS FURNISHED BY THE ASSESSEE IN RESPECT OF ITS PURCHASES. THUS THERE CANNOT BE ANY ADDITION MERELY ON THE BASIS OF THIRD PARTY STATEMENT. 5.3 REGARDING THE PURCHASES FROM THE UNREGISTERED PARTIES, THE ASSESSEE SUBMITTED THAT THERE IS NO EVIDENCE ON RECORD TO JUSTIFY THAT IT HAS PURCHASED THE MATERIALS FROM THE UNREGISTERED PARTIES AND THAT TOO IN CASH. ALL THE PURCHASES HAVE BEEN MADE AGAINST THE PAYMENT THROUGH BANKING CHANNEL AND THEREFORE IT CANNOT BE ALLEGED THAT THERE WAS THE VIOLATION OF PROVISION OF 40A(3) OF THE ACT. 6. HOWEVER, THE LD. CIT(A) HELD THAT THE ENTIRE AMOUNT OF PURCHASE CANNOT BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE CONSIDERING THEM AS BOGUS/NON GENUINE. THE CONSIDERATION OF IMPUGNED PURCHASES HAS NOT BEEN DOUBTED BY THE AO. ITA NO.1105AHD/2018 & TWO OTHERS ASSTT. YEAR 2013-14 6 THEREFORE THE LD. CIT(A) WAS OF THE VIEW THAT THE 100% AMOUNT OF PURCHASE CANNOT BE TREATED AS BOGUS EXPENSES. AS SUCH THE ELEMENT OF PROFIT EMBEDDED IN SUCH PURCHASE CAN ONLY BE BROUGHT TO TAX. ACCORDINGLY THE LD. CIT(A) TREATED THE AMOUNT OF RS.97,28,955/- BEING 25% OF ALLEGED BOGUS PURCHASE AS INCOME OF THE ASSESSEE. 6.1 THE LD. CIT(A) TREATED THE BALANCE AMOUNT OF PURCHASE OF RS.2,91,86,865/- IN CASH AGAINST THE PROVISION OF SECTION 40A(3) OF THE ACT AND ACCORDINGLY DISALLOWED THE SAME. THE RELEVANT EXTRACT OF THE ORDER OF LD. CIT(A) IS REPRODUCED AS UNDER: DURING THE APPELLATE PROCEEDINGS APPELLANT HAS CONTINUED THE STAND TAKEN BEFORE THE A.O THAT IT HAS MADE PAYMENT FOR PURCHASE OF GOODS IN CHEQUE, IT HAS SUBMITTED PAN DETAILS TO THE AO ALONGWITH CONFIRMATORY LETTERS. FURTHER, APPELLANT HAS MENTIONED THAT ITS BOOKS OF ACCOUNT WERE AUDITED BY INDEPENDENT CHARTERED ACCOUNTANT AND NO REMARKS WERE MADE BY THE SAID AUDITOR. APPELLANT ALSO SUBMITTED THAT IT IS THE FINDING OF A.O THAT GOODS HAVE BEEN RECEIVED BY THE APPELLANT ALTHOUGH PAYMENTS HAVE BEEN MADE TO UNREGISTERED DEALER THROUGH CASH. IT HAS SUBMITTED THAT ENTIRE AMOUNT OF BOGUS PURCHASES SHOULD NOT BE DISALLOWED AND IT MUST BE GRANTED DEDUCTION OF REASONABLE AMOUNT OF PURCHASE PRICE SINCE RECEIPT OF MATERIAL BY THE APPELLANT WERE SUPPORTED BY STOCK REGISTER. IT HAS RELIED UPON VARIOUS CASE LAWS INCLUDING THAT OF JUDGMENT IN THE CASE OF VIJAY PROTEINS V/S. ACIT 58 !TD 428. IT IS A MATTER OF FACT THAT RIYA ENTERPRISE, AKSHAR ENTERPRISES AND VAISHVI TRADERS HAVE NOT SUPPLIED THE GOODS TO THE APPELLANT. IT IS A MATTER OF FACT THAT CASH WAS RETURNED BACK BY THESE THREE CONCERNS TO THE APPELLANT. FURTHER, IT IS ALSO A MATTER OF FACT THAT APPELLANT HAD RECEIVED THE GOODS FROM UNREGISTERED PERSONS BY MAKING PAYMENTS IN CASH. IT IS A FACT THAT CASH PAYMENTS WERE MADE FOR RECEIPT OF GOODS THAT HAVE BEEN REFLECTED IN THE BOOKS OF ACCOUNT. IN THE LIGHT OF ABOVE, I AM OF THE CONSIDERED OPINION THAT RELYING ON THE JUDGMENT OF N.K. PROTEINS LTD. AND VIJAY PROTEINS ETC. WHEREIN HON'BIE TRIBUNAL HAS HELD 25% AS REASONABLE RATE OF PROFIT ON PURCHASES MADE IN CASH FROM THE UNREGISTERED DEALERS AS COMPARED TO THE QUANTUM OF PURCHASES MADE FROM THE BOGUS BILLERS. THEREFORE. A.O. IS DIRECTED TO CONSIDER 25% OF RS.3,89,15.820/- I.E. RS.97,28,955/- AS THE PROFIT DERIVED BY RESORTING TO OBTAIN BOGUS BITTS FROM BOGUS BILLERS AND THEREAFTER PURCHASING THE SAME GOODS IN CASH FROM UNREGISTERED PERSONS FOR LESSER AMOUNT. AFTER REDUCING 25% FROM THE TOTAL OF RS.3,89.15,820/- THE AMOUNT OF RS.2,91 ,86,865/~ IS THE AMOUNT WHICH REFLECTS QUANTUM OF CASH PURCHASES MADE BY THE APPELLANT. ON THESE CASH PURCHASES, SECTION 40A(3) OF THE ACT WOULD BE APPLICABLE. THEREFORE, I HEREBY CONFIRM THE ADDITION OF RS.2,91,86,865/- U/S.40A(3) OF THE ACT. IN THE END THE ADDITION OF RS.3,89,15 S 820/- MADE BY THE A.O. STANDS CONFIRMED ON THE GROUNDS AS DISCUSSED ABOVE. ACCORDINGLY, THE GROUND IS HEREBY DISMISSED. 7. THE LD. AR BEFORE US FILED A PAPER BOOK RUNNING FROM PAGES 1 TO 39 AND CONTENDED THAT THE ASSESSEE HAS FURNISHED ALL THE DOCUMENTARY EVIDENCES SUCH AS PURCHASE BILLS, CONFIRMATIONS, BANK STATEMENT AND PURCHASE LEDGER TO JUSTIFY THAT THE PURCHASES SHOWN BY THE ASSESSEE ARE GENUINE AND THERE WAS NO DEFECT POINTED BY THE AUTHORITIES BELOW IN THE DOCUMENT FILED BEFORE THEM. ITA NO.1105AHD/2018 & TWO OTHERS ASSTT. YEAR 2013-14 7 7.1 IF THE IMPUGNED PURCHASE ARE TREATED AS BOGUS THEN ONLY THE ELEMENT OF PROFIT EMBEDDED IN SUCH PURCHASES SHOULD ONLY BE BROUGHT TO TAX AND THEREFORE ENTIRE PURCHASES CANNOT BE MADE SUBJECT TO THE ADDITION. ACCORDINGLY THE LD. AR AGREED TO OFFER 8% OF THE AMOUNT OF PURCHASES AS NON-GENUINE. 7.2 THE LD. AR ALSO CONTENDED THAT SINCE ALL THE PURCHASES HAVE BEEN MADE AGAINST THE BANK PAYMENT. THEREFORE THE PROVISIONS OF SECTION 40A(3) OF ACT, CANNOT BE INVOKED. 8. ON THE OTHER HAND THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 9. WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED THE ORDER OF THE AUTHORITIES BELOW AND OTHER MATERIALS AVAILABLE ON RECORD. IN THE PRESENT CASE, THE ASSESSEE WAS ALLEGED TO HAVE PURCHASED THE MATERIALS FROM UNREGISTERED PARTIES AND OUTSIDE THE BOOKS OF ACCOUNTS. THEREAFTER, THE ASSESSEE TO REGULARIZE SUCH PURCHASES FROM THE UNREGISTERED PARTIES HAVE SHOWN THE BOGUS PURCHASES (PURCHASES ONLY ON PAPERS) AMOUNTING TO RS. 3,89,15,820/- FROM CERTAIN PARTIES AS DISCUSSED ABOVE. ADMITTEDLY, THERE WERE PROPER RECORDS OF SUCH BOGUS PURCHASES SUCH AS STOCK REGISTERS, BILLS FROM THE PARTIES, CONFIRMATION FROM THE PARTIES AND THE BANK PAYMENT. BUT THE AO DISBELIEVED ALL THE DETAILS FURNISHED BY THE ASSESSEE IN SUPPORT OF BOGUS PURCHASES. THE REASONS FOR TREATING THE PURCHASES AS BOGUS HAVE ALREADY BEEN ELABORATED IN THE PRECEDING PARAGRAPH. THE AO ALSO OBSERVED THAT THE ASSESSEE HAS ORIGINALLY PURCHASE THE MATERIALS FROM THE UNREGISTERED PARTIES IN CASH WHICH IS THE VIOLATION OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT. AS PER THE AO, THE AMOUNT OF PURCHASES WERE ALSO TO BE DISALLOWED ON ACCOUNT OF THE VIOLATION OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT. AS SUCH THE AO HAS MADE THE DISALLOWANCE OF THE ENTIRE PURCHASES AMOUNTING TO RS. 3,89,15,820/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. ITA NO.1105AHD/2018 & TWO OTHERS ASSTT. YEAR 2013-14 8 HOWEVER, THE LEARNED CIT (A) WAS OF THE VIEW THAT THE ENTIRE PURCHASES SHOWN BY THE ASSESSEE CANNOT BE DISALLOWED AS THE ASSESSEE HAS SHOWN SALES AGAINST SUCH PURCHASES. ACCORDINGLY, HE HELD THAT THE AMOUNT OF PROFIT EMBEDDED IN SUCH PURCHASES SHOULD ONLY BE BROUGHT TO TAX. CONSEQUENTLY, THE LEARNED CIT (A) RESTRICTED THE DISALLOWANCE TO THE EXTENT OF 25% OF THE PURCHASES AMOUNTING TO RS. 97,28,955/-. NEVERTHELESS, THE LEARNED CIT (A) TREATED THE BALANCE AMOUNT OF PURCHASES AMOUNTING TO RS. 2,91,86,865/- IN CASH WHICH IS THE VIOLATION OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT. THUS, THE LEARNED CIT (A) MADE THE DISALLOWANCE OF RS. 2,91,86,865/- UNDER THE PROVISIONS OF SECTION 40A(3) OF THE ACT. 9.1 THE LEARNED AR BEFORE US HAS ASSAILED THE ORDER OF THE AUTHORITIES BELOW FOR VARIOUS REASONS. BEFORE WE PROCEED TO TAKE UP THE ARGUMENTS ADVANCED BY THE LEARNED AR FOR THE ASSESSEE, IT IS PERTINENT TO NOTE THAT THE ASSESSEE HAS SHOWN PURCHASES IN THE YEAR UNDER CONSIDERATION AMOUNTING TO RS. 8,69,58,323/-. THIS CAN BE VERIFIED FROM THE COPY OF THE PURCHASE LEDGER PLACED ON PAGES 113 TO 119 OF THE PAPER BOOK. THE ASSESSEE BEFORE THE AUTHORITIES BELOW HAVE CONTENDED THAT THE ABOVE AMOUNT OF PURCHASES WERE MADE ON BEHALF OF THE PRINCIPAL AND THEREFORE THE SAME WERE NOT DEBITED IN PROFIT AND LOSS ACCOUNT. THIS CONTENTION OF THE ASSESSEE WAS ADJUDICATED BY THE AO BY OBSERVING AS UNDER: THE ASSESSEE HAS STATED THAT IT IS MERELY A DEVELOPER OF THE SCHEME. AS PER THE CONTRACT WITH THE PRINCIPAL THE ASSESSEE IS AUTHORIZED TO MAKE PURCHASE AND INCUR ALL EXPENSES FOR COMPLETION OF PROJECT. ALL THE PURCHASE MADE BY THE ASSESSEE IS TRANSFERRED TO THE PRINCIPALS ACCOUNT AND THUS NO PURCHASE HAS BEEN DEBITED IN THE BOOKS OF ACCOUNT OF ASSESSEE. THE ASSESSEE ORDERED THE MATERIAL ON BEHALF OF THE PRINCIPAL AND SUCH MATERIAL HAS BEEN DIRECTLY RECEIVED BY THE PRINCIPAL. AS PER THE CONTRACT THE ASSESSEE REQUIRED TO MAINTAIN THE INWARD REGISTER, STOCK REGISTER, CONSUMPTION REGISTER WHICH IS ALSO BEEN MAINTAINED. HOWEVER, IN SUPPORT OF SUCH CLAIM THE ASSESSEE HAS NOT FILED ANY DETAIL OR DOCUMENT DURING THE ASSESSMENT PROCEEDINGS. 9.2 AS PER THE AO, THE ASSESSEE IN SUPPORT OF HIS CONTENTION THAT THE PURCHASES WERE MADE ON THE ACCOUNT OF PRINCIPAL HAS NOT FURNISHED THE NECESSARY DETAILS. 9.3 IN THE BACKDROP OF THE ABOVE STATED DISCUSSION, WE PERUSED THE AUDITED BALANCE SHEET AND PROFIT & LOSS ACCOUNT OF THE ASSESSEE PLACED ON PAGES 11 AND 12 OF THE PAPER BOOK. ON PERUSAL OF THE PROFIT AND LOSS ACCOUNT, WE NOTE THAT THE ITA NO.1105AHD/2018 & TWO OTHERS ASSTT. YEAR 2013-14 9 ASSESSEE HAS NOT DEBITED ITS PROFIT AND LOSS ACCOUNT ON ACCOUNT OF PURCHASES. THE RELEVANT EXTRACT OF THE PROFIT AND LOSS ACCOUNT AS ON 31 MARCH 2013 IS AVAILABLE ON RECORD WHICH IS PLACED ON PAGE 11OF THE PAPER BOOK. 9.4 WE HAVE ALSO PERUSED THE PURCHASE LEDGER PLACED ON PAGES 113 TO 119 OF THE PAPER BOOK WHERE THE ASSESSEE HAS SHOWN PURCHASES AMOUNTING TO RS. 8,69,58,323/- ONLY. THIS PURCHASE LEDGER SHOWS THAT THE ENTIRE AMOUNT OF PURCHASES HAS BEEN TRANSFERRED TO THE ACCOUNT OF THE PRINCIPAL BEING M/S KAILASHPATI PROPERTY HOLDERS PVT. LTD. THE RELEVANT EXTRACT OF THE PURCHASE LEDGER AS ON 31 MARCH 2013 IS REPRODUCED AS UNDER: BROUGHT FORWARD 8,35,84,962.00 23-3-2013 TO SHREE DATT GLASS PURCHASE 84 3,450.00 25-3-2013 TO SHREEJI MARKETING(HARDWARE SAMAN) PURCHASE 502 23,387.00 TO ARASURI ENTERPRISE PURCHASE 379 6,61,500.00 26-3-2013 TO MAHAVIR SALES CORPORATION PURCHASE 270 6,66,770.00 29-3-2013 TO VAISHVI TRADERS PURCHASE 344 6,34,452.00 TO ARASURI ENTERPRISE PURCHASE 383 4,98,960.00 30-3-2013 TO SHREEJI MARKETING (HARDWARE SAMAN) PURCHASE 506 28,667.00 TO MAHAVIR SALES CORPORATION PURCHASE 275 8,44,675.00 31-3-2013 TO CHAMUNDA BRICKS PURCHASE 95 10,000.00 TO C.G. TRADING PURCHASE 142 1,500.00 BY KAILASHPATI PROPERTY HOLDERS PVT LTD (DEBTOR) JOURNAL 8,69,58,323.00 8,69,58,323.00 8,69,58,323.00 9.5 FROM THE ABOVE DETAILS, THERE REMAINS NO AMBIGUITY TO THE FACT THAT THE ASSESSEE HAS NOT DEBITED ANY PURCHASES IN ITS PROFIT AND LOSS ACCOUNT. ADMITTEDLY, THE AUDITED FINANCIAL STATEMENTS WERE AVAILABLE BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS. THUS, THE FINDING OF THE AO THAT THE ASSESSEE HAS NOT FURNISHED ANY SUPPORTING DOCUMENTS TO JUSTIFY ITS (THE ASSESSEE) CONTENTION, IS CONTRARY TO THE FACTS AVAILABLE ON RECORD. ONCE, IT IS ESTABLISHED BEYOND DOUBT THAT THE ASSESSEE HAS NOT DEBITED THE PURCHASES IN THE PROFIT AND LOSS ACCOUNT, THE QUESTION OF MAKING ANY DISALLOWANCE EITHER TREATING THEM AS BOGUS OR AGAINST THE ITA NO.1105AHD/2018 & TWO OTHERS ASSTT. YEAR 2013-14 10 VIOLATION OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT DOES NOT ARISE. ON THIS COUNT ONLY, THE ASSESSEE SUCCEEDS IN ITS APPEAL. 9.6 AT THE TIME OF HEARING, THERE WERE VARIOUS ARGUMENTS WHICH WERE ADVANCED BY BOTH THE SIDES BEING THE LEARNED AR AND THE DR. HOWEVER, WE DO NOT FIND ANY REASON TO ENTERTAIN THE ARGUMENT OF BOTH SIDES FOR THE REASON THAT THE ASSESSEE HAS NOT MADE CLAIM OF EXPENDITURE ON ACCOUNT OF PURCHASES IN ITS AUDITED FINANCIAL STATEMENT. THUS THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 9.7 IN THE RESULT, THE GROUND OF APPEAL OF THE ASSESSE IS ALLOWED. COMING TO THE ITA NO.1106/AHD/2018 FOR A.Y. 2013-14 IN THE CASE OF RACHNA ORGANISERS PVT. LTD. 10. THE ASSESSEE HAS RAISED THE FOLLOWINGS GROUNDS OF APPEAL: 1. THAT ON FACTS AND IN LAW, THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN CONFIRMING THE ADDITION IN RESPECT OF PURCHASES HELD TO BE BOGUS, WITHOUT PROVIDING THE ADVERSE MATERIAL/STATEMENTS RELIED UPON, AND ALSO WITHOUT PROVIDING AN OPPORTUNITY TO CROSS-EXAMINE THE CONCERNED DEPONENTS. 2. THAT THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN LAW, AND ON FACTS, IN CONFIRMING THE ADDITION OF RS.58,77,413 BEING 25% PROFIT OF THE ALLEGED BOGUS PURCHASES TO THE TUNE OF RS.2,35,09,655/- 3. THAT THE LEARNED CIT9A) HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS.1,76,32,242/- U/S. 40A(3) OF THE ACT, IGNORING THE FACT THE NO PURCHASES ARE MADE IN CASH, AND HENCE THE PROVISIONS OF SECTION 40A(3) OF THE ACT ARE NOT APPLICABLE AT ALL. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND ANY GROUNDS OF APPEAL. 11. AT THE OUTSET WE NOTE THAT SIMILAR GROUND WAS RAISED BY THE ASSESSEE IN THE CASE OF RAJESHRI AVAS DEVELOPERS PVT. LTD . BEARING ITA NO.1105/AHD/2018 CORRESPONDING TO A.Y. 2013-14 WHICH HAS BEEN DECIDED IN FAVOUR OF ASSESSEE VIDE PARAGRAPH NO.9 OF THIS ORDER. FOR DETAILED DISCUSSION PLEASE REFER THE ABOVE MENTIONED PARAGRAPH NUMBER OF THIS ORDER. ACCORDINGLY WE HOLD THAT FINDING GIVEN IN ABOVE PARAGRAPHS WITH REGARD TO ITA NO.1105/AHD/2018 WILL MUTATIS MUTANDIS APPLY HERE IN THIS CASE ALSO. ITA NO.1105AHD/2018 & TWO OTHERS ASSTT. YEAR 2013-14 11 11.1 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. COMING TO THE ITA NO.1107/AHD/2018 FOR A.Y. 2013-14 IN THE CASE OF POOJA INFRASTRUCTURE LTD. 12. THE ASSESSEE HAS RAISED THE FOLLOWINGS GROUNDS OF APPEAL: 1. THAT ON FACTS AND IN LAW, THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN CONFIRMING THE ADDITION IN RESPECT OF PURCHASES HELD TO BE BOGUS, WITHOUT PROVIDING THE ADVERSE MATERIAL/STATEMENTS RELIED UPON, AND ALSO WITHOUT PROVIDING AN OPPORTUNITY TO CROSS-EXAMINE THE CONCERNED DEPONENTS. 2. THAT THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN LAW, AND ON FACTS, IN CONFIRMING THE ADDITION OF RS.1,23,55,355/- BEING 25% PROFIT OF THE ALLEGED BOGUS PURCHASES TO THE TUNE OF RS.4,94,21,418/- 3. THAT THE LEARNED CIT9A) HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS.3,70,66,063/- U/S. 40A(3) OF THE ACT, IGNORING THE FACT THE NO PURCHASES ARE MADE IN CASH, AND HENCE THE PROVISIONS OF SECTION 40A(3) OF THE ACT ARE NOT APPLICABLE AT ALL. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND ANY GROUNDS OF APPEAL. 13. THE INTERCONNECTED ISSUE RAISED BY THE ASSESSEE IS THAT THE LEARNED CIT (A) ERRED IN CONFIRMING THE ADDITION MADE BY THE AO BY RS. 4,94,21,418/- ON ACCOUNT OF BOGUS PURCHASES AND VIOLATION OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT. 14. THE AO DURING THE ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSEE TO REGULARIZE ITS PURCHASES FROM THE UNREGISTERED PARTIES HAS SHOWN BOGUS PURCHASES AMOUNTING TO RS. 4,94,21,418/- ONLY. AS PER THE AO, SUCH AMOUNT OF PURCHASES WERE TO BE DISALLOWED ON 2 ACCOUNTS. FIRSTLY THE AMOUNT OF PURCHASES BEING BOGUS IN NATURE AND SECONDLY AGAINST THE PROVISIONS OF SECTION 40A(3) OF THE ACT. THUS THE AMOUNT OF DISALLOWANCE OF RS. 4,94,21,418/- WAS MADE BY THE AO BY ADDING TO THE TOTAL INCOME OF THE ASSESSEE. 15. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARNED CIT (A) WHO WAS PLEASED TO HOLD THAT ENTIRE PURCHASES SHOWN BY THE ASSESSEE CANNOT BE DISALLOWED ITA NO.1105AHD/2018 & TWO OTHERS ASSTT. YEAR 2013-14 12 AS THE ASSESSEE HAS SHOWN SALES AGAINST SUCH PURCHASES. ACCORDINGLY, HE HELD THAT THE AMOUNT OF PROFIT EMBEDDED IN SUCH PURCHASES SHOULD ONLY BE BROUGHT TO TAX. CONSEQUENTLY, THE LEARNED CIT (A) RESTRICTED THE DISALLOWANCE TO THE EXTENT OF 25% OF THE PURCHASES AMOUNTING TO RS. 1,23,55,355/- ONLY. NEVERTHELESS, THE LEARNED CIT (A) TREATED THE BALANCE AMOUNT OF PURCHASES AMOUNTING TO RS. 3,70,66,063/- IN CASH WHICH IS THE VIOLATION OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT. THUS, THE LEARNED CIT (A) MADE THE DISALLOWANCE OF RS. 3,70,66,063/- UNDER THE PROVISIONS OF SECTION 40A(3) OF THE ACT. 16. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US. 17. THE LEARNED AR BEFORE US CONTENDED THAT THE PERCENTAGE OF PROFIT @ 8% ON SUCH BOGUS PURCHASES SHOULD BE ADDED ON THE BOGUS PURCHASE. FURTHERMORE, THERE WAS NO EVIDENCE THAT THE PAYMENT FOR THE BOGUS PURCHASES HAVE BEEN MADE IN CASH. THUS THERE CANNOT BE ANY DISALLOWANCE TO UNDER SECTION 40A(3) OF THE ACT. 18. ON THE OTHER HAND THE LEARNED DR BEFORE US RELIED ON THE ORDER OF AUTHORITIES BELOW. 19. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE 1 ST ISSUE THAT ARISES FOR OUR CONSIDERATION IS WHETHER THE TRANSACTION OF PURCHASE SHOWN BY THE ASSESSEE IS BOGUS IN NATURE. IN THIS REGARD, WE NOTE THAT THE PRIMARY ONUS LIES UPON THE ASSESSEE TO JUSTIFY THE TRANSACTION OF THE PURCHASE BASED ON THE DOCUMENTARY EVIDENCE. ADMITTEDLY, THE ASSESSEE IN SUPPORT OF ITS PURCHASE TRANSACTIONS HAS FILED THE LEDGER COPIES OF THE PARTIES ALONG WITH THEIR CONFIRMATION, STOCK/CONSUMPTION REGISTER, BILLS OF THE PARTIES AND THE DETAILS OF THE PROJECTS WHERE THE IMPUGNED MATERIAL PURCHASE WERE UTILIZED. UNDENIABLY, THE PAYMENT FOR THE PURCHASES WERE MADE THROUGH THE BANKING CHANNEL. LIKEWISE, THERE WAS NO EVIDENCE BROUGHT ON RECORD SUGGESTING THAT THERE WAS THE EXCHANGE OF CASH BETWEEN THE ASSESSEE AND THE PARTIES AGAINST SUCH ITA NO.1105AHD/2018 & TWO OTHERS ASSTT. YEAR 2013-14 13 PURCHASES WHICH WAS ALLEGEDLY BASED ON PAPERS ONLY. SIMILARLY, THE ASSESSEE HAS MADE SALES AGAINST THE PURCHASES. ONCE THE SALES HAS BEEN ADMITTED, THEN THE CORRESPONDING PURCHASES CANNOT BE DENIED. INDEED, ALL THESE FACTS AS DISCUSSED ABOVE SUPPORT THE CONTENTION OF THE ASSESSEE. HOWEVER, ALL THESE FACTS HAVE TO BE EVALUATED IN THE LIGHT OF THE ALLEGATIONS FRAMED BY THE AO DURING THE ASSESSMENT PROCEEDINGS WHICH ARE DETAILED AS UNDER: I. THE PARTIES SUPPLYING THE GOODS TO THE ASSESSEE HAVE ADMITTED IN THE STATEMENT RECORDED UNDER SECTION 131(1) OF THE ACT BEFORE THE INVESTIGATION DIRECTORATE THAT THEY WERE ENGAGED IN THE ACTIVITY OF ISSUING BOGUS BILLS AGAINST THE COMMISSION. AT THE SAME TIME, THESE SUPPLIERS WERE NOT MAINTAINING ANY BOOKS OF ACCOUNTS. II. THE AO HAS GIVEN AN OPPORTUNITY FOR CROSS-EXAMINATION BY ISSUING NOTICE UNDER SECTION 131 OF THE ACT TO THE SUPPLIER AND ASSESSEE FOR 2 TIMES. BUT NEITHER THE SUPPLIER NOR THE ASSESSEE ATTENDED THE OFFICE ON GIVEN DATE. III. THERE WAS CASH WITHDRAWAL FROM THE BANK ACCOUNT OF THE SUPPLIER IMMEDIATELY AFTER RECEIVING THE PAYMENT FROM THE ASSESSEE. 19.1 NOW WE PROCEED TO ANALYZE THE FACTS FURNISHED BY THE ASSESSEE IN SUPPORT OF ITS TRANSACTION OF PURCHASES AND THE ALLEGATIONS FRAMED BY THE AO AGAINST THE PURCHASES SHOWN BY THE ASSESSEE. ADMITTEDLY, THE SUPPLIERS HAVE FURNISHED THEIR STATEMENT UNDER SECTION 131 OF THE ACT IN A PROCEEDING CONNECTED TO A 3 RD PARTY WHICH HAS NO RELATION EITHER DIRECTLY OR INDIRECTLY WITH THE ASSESSEE. BUT IT IS A PIECE OF INFORMATION WHICH IS VERY VITAL. IT IS BECAUSE THE ENTIRE BASIS OF TREATING THE PURCHASES SHOWN BY THE ASSESSEE FROM THESE PARTIES WAS BASED ON SUCH STATEMENTS. HOWEVER, THE ASSESSEE WAS AFFORDED THE OPPORTUNITY FOR THE CROSS VERIFICATION 2 TIMES BUT IT FAILED TO AVAIL THE SAME. NON-AVAILING THE OPPORTUNITY OF CROSS- EXAMINATION GOES AGAINST THE ASSESSEE. AT THE TIME OF HEARING, THE LEARNED AR HAS ALSO NOT BROUGHT ANYTHING ON RECORD CONTRARY TO THE FINDING OF THE AUTHORITIES BELOW. ITA NO.1105AHD/2018 & TWO OTHERS ASSTT. YEAR 2013-14 14 BESIDES THIS, THE OBSERVATION OF THE AO THAT THERE WAS IMMEDIATE CASH WITHDRAWAL FROM THE BANK ACCOUNT OF THE SUPPLIERS AFTER RECEIVING THE PAYMENT FROM THE ASSESSEE IS ALSO VERY ALARMING. IN A SITUATION WHERE THE PARTY IS ACTUALLY CARRYING ON THE BUSINESS, HE WILL NOT WITHDRAW THE MONEY IMMEDIATELY. IT IS FOR THE REASON THAT THE SUPPLIER, SUPPLYING THE GOODS TO THE ASSESSEE, HAS ALSO PROCURED THE GOODS FROM THE 3 RD PARTY AND SUCH SUPPLIER WAS UNDER THE OBLIGATION TO MAKE THE PAYMENT TO SUCH 3 RD PARTY THROUGH BANKING CHANNEL. THEREFORE, THIS OBSERVATION OF THE AO ALSO GOES AGAINST THE ASSESSEE. 19.2 IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT THE TRANSACTION OF THE PURCHASES SHOWN BY THE ASSESSEE IS NOT FREE FROM THE DOUBTS. THUS WE HOLD THAT, THE ASSESSEE TO REGULARIZE ITS PURCHASES FROM THE UNREGISTERED PARTIES HAS SHOWN THE PURCHASES FROM THE PARTIES AS DISCUSSED ABOVE ONLY ON PAPERS. 19.3 THE NEXT CONTROVERSY ARISES FOR OUR CONSIDERATION WHETHER THE ENTIRE BOGUS PURCHASE SHOULD BE ADDED TO THE INCOME OF THE ASSESSEE WITHOUT CONSIDERING CORRESPONDING SALE OR ONLY THE ELEMENT OF PROFIT EMBEDDED IN SUCH BOGUS TRANSACTION OF PURCHASES AND SALES ? IT IS WELL SETTLED LAW THAT THE INCOME TAX CAN BE LEVIED ON THE REAL INCOME OF THE ASSESSEE AND NOT ON THE INCOME MERELY SHOWN IN PAPERS DESPITE THE FACT THAT THE ASSESSEE HAS INDULGED IN THE BOGUS ACTIVITY. IN OTHER WORDS, THE ELEMENT OF PROFIT EMBEDDED IN SUCH BOGUS ACTIVITY SHOULD BE BROUGHT TO TAX. IN THIS REGARD WE DRAW SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN CASE OF CIT VS. SIMIT P.SETH REPORTED IN 38 TAXMANN.COM 385 WHERE IT WAS HELD AS UNDER: 8. IF THE ENTIRE PURCHASES WERE WHOLLY BOGUS AND THERE WAS A FINDING OF FACT ON RECORD THAT NO PURCHASES WERE MADE AT ALL, COUNSEL FOR THE REVENUE WOULD BE JUSTIFIED IN ARGUING THAT THE ENTIRE AMOUNT OF SUCH BOGUS PURCHASES SHOULD BE ADDED BACK TO THE INCOME OF THE ASSESSEE. SUCH WERE THE FACTS IN THE CASE OF PAWANRAJ B. BOKADIA (SUPRA). 9. THIS BEING THE POSITION, THE ONLY QUESTION THAT SURVIVES IS WHAT SHOULD BE THE FAIR PROFIT RATE OUT OF THE BOGUS PURCHASES WHICH SHOULD BE ADDED BACK TO THE INCOME OF THE ASSESSEE. THE COMMISSIONER ADOPTED THE RATIO OF 30 PER CENT OF SUCH TOTAL SALES. THE TRIBUNAL, HOWEVER, SCALED DOWN TO 12.5 PER CENT. WE MAY NOTICE THAT IN THE IMMEDIATELY PRECEDING YEAR TO THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE HAD DECLARED THE GROSS PROFIT AT 3.56 PER CENT OF THE TOTAL TURNOVER. IF THE YARDSTICK OF 30 PER CENT, AS ADOPTED BY THE COMMISSIONER (APPEALS), IS ACCEPTED THE GROSS PROFIT RATE WILL BE MUCH HIGHER. IN ESSENCE, THE TRIBUNAL ONLY ESTIMATED THE POSSIBLE PROFIT OUT OF PURCHASES MADE THROUGH NON-GENUINE ITA NO.1105AHD/2018 & TWO OTHERS ASSTT. YEAR 2013-14 15 PARTIES. NO QUESTION OF LAW IN SUCH ESTIMATION WOULD ARISE. THE ESTIMATION OF RATE OF PROFIT RETURN MUST NECESSARILY VARY WITH THE NATURE OF BUSINESS AND NO UNIFORM YARDSTICK CAN BE ADOPTED. 19.4 WE ALSO DRAW SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN CASE OF VIJAY TRADING CO. VS. ITO REPORTED IN 76 TAXMANN.COM 366, WHERE THE HONBLE COURT HELD AS UNDER: WE ARE OF THE OPINION THAT THE ASSESSING OFFICER'S ACTION IN TREATING THE PURCHASES AS BOGUS AND ADDING THE ENTIRE COST OF PURCHASES IN THE ASSESSMENT OUGHT NOT TO HAVE BEEN RESTORED BY THE TRIBUNAL. THE VIEW TAKEN BY THE TRIBUNAL IN THE CASE OF VIJAY PROTEINS LTD. V. CIT [1996] 58 ITD 428 (AHD.) HAS BEEN APPROVED. IN THAT VIEW OF THE MATTER, KEEPING IN MIND THE FACT THAT NOT THE ENTIRE AMOUNT COVERED UNDER SUCH PURCHASE, BUT THE PROFIT ELEMENT EMBEDDED THEREIN WOULD BE SUBJECT TO TAX, 19.5 IN THE LIGHT OF THE ABOVE STATED DISCUSSION, NOW IT HAS TO BE SEEN THE INCOME WHICH HAS BEEN GENERATED TO THE ASSESSEE OUT OF SUCH BOGUS TRANSACTION OF PURCHASE AND SALES. THERE IS NO STANDARD JACKET FORMULA TO WORK-OUT THE INCOME FROM THE BOGUS ACTIVITY CARRIED OUT BY THE ASSESSEE. SOME ELEMENT OF GUESSWORK IS REQUIRED TO DETERMINE THE INCOME OF THE ASSESSEE WHICH IS EMBEDDED IN THE BOGUS ACTIVITIES CARRIED OUT BY THE ASSESSEE. IT IS ALSO PERTINENT TO NOTE THAT THE ASSESSEE HAS ALREADY DISCLOSED THE INCOME IN ITS INCOME TAX RETURN FOR RS. 77,07,990.00 WHICH IS INCLUSIVE OF THE INCOME EARNED BY THE ASSESSEE WITH RESPECT TO ITS BOGUS PURCHASES. ACCORDINGLY, IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE ARE INCLINED TO ESTIMATE THE GROSS PROFIT AT THE RATE OF 8% OF SUCH BOGUS PURCHASES AS DISCUSSED ABOVE. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LEARNED CIT (A) AND DIRECT THE AO TO ESTIMATE THE GROSS PROFIT ON THE PURCHASES AT THE RATE OF 8% OF THE PURCHASES. 19.6 NOW COMING TO THE NEXT ALLEGATION FRAMED BY THE LEARNED CIT (A) I.E. VIOLATION OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT. BEFORE GOING INTO THE MATER IT IS PERTINENT TO REFER THE PROVISION OF SECTION 40A(3) OF THE ACT WHICH READS AS UNDER: (3) WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEEDS TWENTY THOUSAND RUPEES, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF SUCH EXPENDITURE. 19.7 ON PERUSAL OF THE PROVISION IT REVEALED THAT, IF CASH PAYMENT IS MADE IN A DAY IN EXCESS RS. 20,000/- THEN SUCH AMOUNT OF EXPENDITURE WILL NOT BE ALLOWED. COMING ITA NO.1105AHD/2018 & TWO OTHERS ASSTT. YEAR 2013-14 16 TO THE CASE ON HAND, THE AO HAS CONCLUDED BASED ON BOGUS PURCHASES BILLS THAT THE ASSESSEE ACTUALLY HAVE PURCHASED GOODS OUTSIDE THE BOOKS AND THAT TOO IN CASH. BUT THERE IN CONCLUSIVE EVIDENCE THAT CASH WERE PAID IN VIOLATION SECTION 40A(3) I.E. CASH PAYMENT ABOVE RS. 20,000/- WAS MADE IN A DAY TO A PARTICULAR SUPPLIER. FURTHER THE AO HAS DOUBTED THE GENUINENESS OF THE PURCHASE. IN THIS SCENARIO WE ARE OF THE VIEW THAT ONCE THE GENUINENESS OF TRANSACTION IS DOUBTED THEN ONLY PROFIT EMBEDDED UNDER SUCH TRANSACTION SHOULD BE BROUGHT TO TAX. IN HOLDING SO WE DRAW SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN CASE OF VIJAY PROTEIN LTD. VS. CIT REPORTED IN 58 TAXMANN.COM 44 WHERE THE HONBLE COURT HELD AS UNDER: 13. THE QUESTION WHICH THEN ARISES FOR CONSIDERATION IS AS TO WHETHER THE ENTIRE AMOUNT OF THE SAID BOGUS PURCHASES AND FREIGHT PAYMENTS MADE IN RELATION THERETO SHOULD HAVE BEEN DISALLOWED OR THE ASSESSEE SHOULD HAVE BEEN HELD TO BE ELIGIBLE FOR GRANT OF DEDUCTION OF A REASONABLE AMOUNT OF PURCHASE PRICE OF THE OIL CAKES IN QUESTION IN VIEW OF THE FACT THAT RECEIPTS OF THE MATERIALS IN QUESTION BY THE ASSESSEE WERE SUPPORTED BY VARIOUS REGISTERS AND BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE, WHICH THE REVENUE HAS NOT DISPUTED. THE REVENUE HAS ALSO NOT DISPUTED THE GENUINENESS OF SAID DOCUMENTS. 14. ON THE BASIS OF THE ENTRIES RECORDED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE, THE PROVISIONS OF SECTION 40A(3) OF THE ACT WOULD NOT BE APPLICABLE AS SUCH PAYMENTS WERE SHOWN TO HAVE BEEN MADE BY 'CROSSED CHEQUES'. IF THESE ENTRIES ARE IGNORED, THE BOOKS OF ACCOUNT STAND REJECTED U/S.145(2) AND THEN THE INCOME WILL HAVE TO BE ESTIMATED ON THE BASIS OF BEST JUDGMENT. 15. IT IS BY NOW WELL SETTLED THAT IN ORDER TO DECIDE AS TO WHETHER A PARTICULAR PAYMENT FOR EXPENDITURE WOULD BE COVERED UNDER THE EXCEPTIONS PROVIDED IN RULE 6DD(J) OR NOT WILL DEPEND ON THE PECULIAR FACTS AND CIRCUMSTANCES OF EACH CASE. IN THE PRESENT CASE, FOR REASONS RECORDED HEREIN ABOVE, THE PROVISIONS OF SECTION 40A(3) WOULD NOT BE APPLICABLE AND EVEN IF THEY ARE HELD TO BE APPLICABLE, THE EXPENDITURE WOULD BE COVERED BY THE EXCEPTIONS PROVIDED IN RULE 6DD(J) OF THE RULES. 19.8 WE ALSO DRAW AND SUPPORT FROM THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN CASE OF VIJAY PROTEIN LTD. VS. CIT REPORTED IN 58 TAXMANN.COM 44 WHERE THE HONBLE COURT HELD AS UNDER: 8. WE ARE BROADLY IN AGREEMENT WITH THE VIEW OF THE COMMISSIONER OF INCOME TAX (APPEALS) AS CONFIRMED BY THE TRIBUNAL. WHEN THE ASSESSING OFFICER HAD DOUBTED THE GENUINENESS OF THE EXPENDITURE, HE WOULD REQUIRE BRINGING TO TAX THE PROFIT ELEMENT SO AVOIDED BY THE ASSESSEE. AS NOTED, THE COMMISSIONER OF INCOME TAX (APPEALS) WHILE LIMITING THE ADDITIONS, BROUGHT THE ASSESSEE'S DECLARED GROSS PROFIT RATIO AT THE SAME RATE AS IN THE PREVIOUS YEAR WHICH WAS EVEN OTHERWISE IN TUNE WITH THE PERCENTAGE OF THE ASSESSEE'S DOUBTFUL PURCHASES. ITA NO.1105AHD/2018 & TWO OTHERS ASSTT. YEAR 2013-14 17 19.9 IN VIEW OF THE ABOVE AND AFTER CONSIDERING THE FACTS TOTALITY, WE SET ASIDE THE ORDER OF THE LEARNED CIT (A) WITH THE DIRECTION TO THE AO TO CONFIRM THE ADDITION TO THE EXTENT OF 6% OF THE PURCHASES AS DISCUSSED ABOVE. 19.10 HENCE, THE GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 20. IN THE COMBINED RESULTS, THE APPEALS FILED BY THE DIFFERENT ASSESSEE BEARING ITA NOS. 1105/AHD/2018 AND NO.1106/AHD/2018 FOR A.Y. 2013-14 ARE ALLOWED WHEREAS ITA NO.1107/AHD/2018 FOR A.Y. 2013-14 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 06/08/2021 AT AHMEDABAD. SD/- SD/- (MAHAVIR PRASAD) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (TRUE COPY) (TRUE COPY) AHMEDABAD; DATED 06/08/2021 MANISH