KAVIRAJ CONSTRUCTION, MUMBAI V. ACIT 16(3), MUMBAI

ITA 1327/MUM/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0617 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 14-08-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 05-03-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SAURABH DESH
• Keywords: Bogus purchase; Principle of natural justice; Question of law; Initiation of penalty proceedings; Avoidance of tax; Onus to prove; Sham transactions
• Section: 69C; 142(1); 133(6); 131; 68; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI G.S. PANNU , AM AND SHRI AMARJIT SINGH , JM I.T.A. NOS . 1326/M/2015 & 1327/M/2015, ASSESSMENT YEARS : 2009 - 10 & 2010 - 11 KAVIRAJ CONSTRUCTION 10ATUL NIWAS, 1 ST FLOOR, R.NO. 20/21 7 TH FLOOR, KHETWADI LANE, MUMBAI . PIN: 400004 VS. ACIT 16(3) MUMBAI ./ ./ PAN/GIR NO. : AAAFK 3860 C (APPELLANT ) .. (RESPONDENT ) I.T.A. NO S . 1190 /M/ 20 15 & 1191 /M/2015, ASSESSMENT YEAR S : 2009 - 10 & 2010 - 11 ACIT 16(3) MUMBAI VS. KAVIRAJ CONSTRUCTION 10ATUL NIWAS, 1 ST FLOOR, R.NO. 20/21 7 TH FLOOR, KHETWADI LANE, MUMBAI . PIN: 400004 ./ ./ PAN/GIR NO. : AAAFK 3860 C ( APPELLANT ) .. ( RESPONDENT ) DATE OF HEARING : 09 .0 2.2018 DATE OF PRONOUNCEMENT : 09 . 02 .201 8 O R D E R ASSESSEE BY: SHRI ADITYA AJGAONKAR (AR) DEPARTMENT BY: SHRI SAURABH DESHPANDE (DR) ITA. NO. 1326, 1327/M/2015 A.Y. 2009 - 10& 2010 - 11 2 PER AMARJIT SINGH, JM: THE ASSESSEE AS WELL AS THE REVENUE HAVE FILED THE ABOVE MENTIONED APPEA LS AGAINST THE DIFFERENT ORDER PASSED BY THE COMMIS S IONER OF INCOME TAX (APPEALS) - 30 , MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE ASSESSMENT YEAR S 2009 - 10 & 2010 - 11 . ITA NO.1326 /M/201 5 & 1190/M/2015 : - 2. THE ASSESSEE AND REVENUE HAVE FILED THE PRESENT A PPEAL S AGAINST THE ORDER DATED 23 . 12 .201 4 PASSED BY THE COMMISS IONER OF INCOME TAX (APPEALS) - 30 MUMBAI, [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE ASSESSMENT YEARS 20 09 - 10 . 3 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1 . THE LD. CIT(A) FAILED TO APPRECIATE THAT ALL PURCHASES OF THE APPELLANT WERE GENUINE, AND HENCE, ADDITION AT GROSS PROFIT RATE OF 12.5% IS NOT JUSTIFIED. 2. THE LD. CIT(A) FAILED TO APPRECIATE THAT NON - SERVICE OF NOTICE U/S 133(6) WAS IRRELEVANT AS THE APPELLANT HAD FURNISHED ALL DOCUMENTARY EVIDENCE IN SUPPORT OF PROVING ITS PURCHASES. 3 . THE APPELLANT CRAVES LEAVE TO ALLOW TO ADD/ALTER OR DELETE ANY OF THE ABOVE GROUND OF APPEAL. 4. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: - 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED BY SUSTAINING THE ADDITION TO THE EXTENT OF 12.5% OF ADDITION MADE BY AO IN SPITE OF ITA. NO. 1326, 1327/M/2015 A.Y. 2009 - 10& 2010 - 11 3 CONCLUDING THAT THE PARTIES FROM WHOM THE ASSESSEE HAD SHOWN PURCHASES WERE BOGUS PARTIES AND DISREGARDING THE FINDING OF FACT THAT OL Y BOGUS BILLS WERE SUPPLIED WITHOUT DELIVERING OR GOODS AS STATED IN THE AFFIDAVIT BY THE SUPPLIERS BEFORE THE MAHARASHTRA SALES TAX AUTHORITY. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN RELYING ON THE SUBMISSION OF THE ASSESSEE THAT THE MATERIAL ALLEGED TO BE PROCURED FROM THE TAINTED PARTIES WAS USED FOR BMC CONSTRUCTION WORK WITHOUT UNDERSTANDING THE NEED AND USAGE OF THESE MATERIAL I THE ACTUAL CONTRACT WORK CARRIED OUT BY THE ASSESSEE FOR BMC AND W ITHOUT THERE BEING ANY EVIDENCE IN THIS REGARD AND ALSO THAT ANY MATERIAL IN EXCESS OF THAT ACCOUNTED FOR IN THE BOOKS OF THEASSESSEE WAS USED?. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN LIMITING THE DISALLOWANCE TO THE EXTENT OF 12.5% OF THE TOTAL ALLEGED PURCHASES WITHOUT VERIFYING AND CONFIRMING THE QUANTITATIVE DATA OF THE MATERIAL SOURCED AND ITS SUBSEQUENT MOVEMENT DURING THE YEAR.? 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN LIMITING THE DISALLOWANCE TO THE EXTENT OF 12.5% OF THE TOTAL ALLEGED PURCHASES WITHOUT ANALYZING THE INPUT OUTPUT RATIO FOR THESE PURCHASES, PARTICULARLY WHEN THESE PURCHASES WERE NOT TRADED BUT USED IN CONTRACT WORK F OR BMC. 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE A \ ND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE PROFIT ELEMENT EMBEDDED AND SUPPRESSED IN THE ALLEGED URCHASE WERE TO THE EXTENT OF 12.5% RELYING ON DECISION IN THE CASE OF CIT VS. SIMIT P . SHETH 2013 38 TAXMANN 385 (GUJ) WITHOUT APPRECIATING THAT, UNLIKE IN THE CASE OF SIMIT SHETH (SUPRA), THERE WAS NO FINDING IN THE INSTANT CASE OF THE ASSESSEE THAT THE ASSESSEE HAD INDEED PURCHASED THOUGH NOT FROM THE NAMED PARTIES BUT OTHER PARTIES FROM GREY MARKET.? 6. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. ITA. NO. 1326, 1327/M/2015 A.Y. 2009 - 10& 2010 - 11 4 4 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED HIS RETURN OF INCOME ON 29.09.2009 DECLARING TOTAL INCOME TO THE TUNE OF RS.24 ,90,670/ - . THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT. SUBSEQUENTLY AN INTIMATION WAS RECEIVED FROM THE DIRECTOR GENERAL OF INCOME TAX (INV.), MUMBAI WHEREIN IT WAS MENTIONED THAT THE DETAIL OF INFORMATION WAS RECEIVED FROM SALES TAX DEPARTMENT, GOVERNM ENT OF MAHARASHTRA REGARDING CASE INVOLVING BOGUS PURCHASE/HAWALA TRANSACTION. THE DIRECTOR GENERAL OF INCOME TAX (INV.), MUMBAI HAS PASSED ON THE LIST OF BENEFICIARIES WHO HAS TAKEN BOGUS PURCHASES. ON EXAMINATION , THE ASSESSEE WAS FOUND TO PURCHASE THE M ATERIAL FROM SIX PARTIES DURING THE F.Y. 2008 - 09 BY TAKING BOGUS BILLS WITHOUT DELIVERY OF GOODS. THE NAME OF THE PARTIES ARE HEREBY MENTIONED BELOW.: - SR. NO. NAME OF THE PARTIES HAWALA TIN AMOUNT INVOLVED (RS.) 1 CARBON ENTERPRISES 27490507134V 12,02,479 2 ANSHU MERCANTILE PVT. LTD. 27540680106V 13,58,240 3 DHIREN MERCANTILE PVT. LTD. 27450680107V 16,42,550 4 PARADISE CORPORATION 27930024996V 34,466 5 SIDDHIVINAYAK CORPORATION 27130558742V 10,00,027 6 NOVAM METAL CORPORATION 27380661764V 14,90,112 TOTAL 67,27,874 ON RECEI PT OF THIS INFORMATION , THE NOTICE U/S 148 OF THE ACT DATED 26.03.2014 WAS ISSUED AND SERVED UPON THE ASSESSEE ON 29.03.2014. ITA. NO. 1326, 1327/M/2015 A.Y. 2009 - 10& 2010 - 11 5 THEREAFTER, THE NOTICE U/S 142(1) OF THE ACT WAS ALSO ISSUED AND SERVED UPON THE ASSESSEE. THE BOGUS PURCHASE FROM THE ABOVE MENTIONED SIX PARTIES WAS BROUGHT INTO T HE NOTICE OF ASSESSEE AND EXPLANATION WAS CALLED AND AFTER CONSIDERING THE REPLY AND ON ACCOUNT OF NON - PROVI NG THE GENUINENESS OF THE CLAIM, T HE AMOUNT TO THE TUNE OF RS.67,27,874/ - WAS DISALLOWED IN VIEW OF THE PROVISIONS U/S 69C OF THE ACT AND ADDED TO T HE INCOME OF THE ASSESSEE. THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) WHO RESTRICTED THE ADDITION TO THE EXTENT OF RS.12.5% OF THE BOGUS PURCHASE. SINCE, THE ASSESSEE AS WELL THE REVENUE W ERE NOT SATISFIED , THEREFORE, BOTH THE PARTIES FILED AN APPEAL B EFORE US. ISSUE NO.1 & 2 AND C.O. BY REVENUE : - 5 . UNDER THESE ISSUES THE ASSESSEE HAS CHALLENGED THE ADDITION AT G.P. RATE @ 12.5% OF THE BOGUS PURCHASE WHEREAS R EVENUE HAS CHALLENGED THE RELIEF ALLOWED BY THE CIT(A) . IT IS ARGUED THAT THE NON - SERVICE OF NOTICE U/S 133(6) OF THE ACT IS NOT THE GROUND TO RAISE THE ADDITION , THEREFORE, THE ADDITION @ 12.5% OF THE BOGUS PURCHASE IS WRONG AGAINST LAW AND FACTS AND IS LIABLE TO BE SET ASIDE. CONTRARY TO IT, THE LD. REPRESENTATIVE OF THE R EVENUE HAS ARGUED THAT WHOLE BOGUS PURCHASE IS LIABLE TO BE ADDED TO THE INCOME OF ASSESSEE . BEFORE GOING FURTHER , IT IS NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD.: - THEY WERE ENTITLED TO TOOK IN TO THE SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALITY OF THE RECI TALS MADE IN THOSE DOCUMENTS. 2.5.5 IN YET ANOTHER CASE OF CASTING OF ONUS VIZ. JAMNAPRASAD KANHAIYALAL VS.CIT 130 ITR 244(SC), HON1BLE APEX COURT WHILE ITA. NO. 1326, 1327/M/2015 A.Y. 2009 - 10& 2010 - 11 6 CONSIDERING THE SCOPE OF IMMUNITY U/S. 24 OF F. NO. (2) ACT 1965 HELD THAT THE IMMUNITY PROVIDED CANNOT BE INVOKED IN ASSESSMENT PROCEEDINGS RELEVANT TO ANY PERSON OTHER THAN THE PERSON MAKING DECLARATION UNDER THE ACT. IN THAT CASE, THE FIRM JAMNAPRASAD KANHAIYALAL HAD SHOWN CASH CREDITS IN THE NAMES OF 5 SONS OF KANHAIYALAL WHO HAD MADE VOLUNTARY DISCLOSU RE UNDER THE VOLUNTARY DISCLOSURE SCHEME OF 1965 BUT THE LD. A, 0. HAD NOT FOUND THE EXPLANATION SATISFACTORY REGARDING THE CREDITWORTHINESS OF THE PARTIES AND THE SAME CAME TO BE CONFIRMED BY THE HONBLE SUPREME COURT. IF AGAINST SUCH STRICT TERMS OF IMMU NITY, THE HON'BLE SUPREME COURT COULD CONFIRM THE REJECTION OF EXPLANATION OF CASH CREDIT IN THE INSTANT CASE THE APPELLANT HAS FAILED TO EVEN CORROBORATE THE CLAIM BEFORE THE LD. A.O. 2.5.6 RELIANCE IS ALSO PLACED ON THE JUDGEMENT OF HON'BLE SUPREME COURT IN THE CASE OF SRI MEENAKSHI MILLS LTD 63 ITR 609 WHERE IT WAS HELD THAT THE 13. AUTHORITIES ARE ENTITLED TO PIERCE THE VEIL OF CORPORATE ENTITY AND TO LOOK INTO REALITY OF TRANSACTION. IN THE CASE OF MCDOWELL & CO. 154 ITR 148(SC) IT WAS STATED THAT IMPL ICATIONS OF TAX AVOIDANCE ARE MANIFOLD. FIRST, THERE IS SUBSTANTIAL LOSS OF MUCH NEEDED PUBLIC REVENUE. NEXT, THERE IS SERIOUS DISTURBANCE CAUSED TO THE ECONOMY OF THE COUNTRY DUE TO PILING OF MOUNTAINS OF BLACK MONEY, CAUSING INFLATION. THUS, THERE IS 'TH E LARGE HIDDEN LOSS' TO THE COMMUNITY (AS POINTED OUT BY MASTER SHEATROFT IN 18 MODERN LAW REVIEW 209) BY SOME OF THE MEMBERS IN THE COUNTRY BEING INVOLVED IN THE PERPETUAL WAR WAGED BETWEEN THE TAX PAYER AND HIS EXPERT TEAM OF ADVISORS, AND ACCOUNTANTS ON THE ONE SIDE AND THE TAX GATHERER AND HIS PERHAPS NOT SO SUCCESSFUL ADVISORS ON THE OTHER SIDE. HON'BLE COURT FURTHER HELD THAT IT WAS FOR THE COURT TO TAKE STOCK TO DETERMINE THE NATURE OF NEW AND SOPHISTICATED LEGAL DEVICES TO AVOID TAX AND CONSIDER WHE THER THE SITUATION CREATED BY THE DEVICES WOULD BE RELATED TO THE EXISTING LEGISLATION WITH THE AID OF EMERGING TECHNIQUES OF INTERPRETATION AS WAS DONE IN RAMSAY, BURMAH OIL AND DAWSON TO EXPOSE THE DEVICES FOR WHAT THEY REALLY ARE AND TO REFUSE TO GIVE J UDICIAL BENEDICTION. 2.57 THE ONUS TO PROVE THAT APPARENT, IS NOT THE REAL ONE, IS ON THE PARTY WHO CLAIMS IT TO BE SO, AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF CIT V. DAULAT RAM RAWATMULL [19731 87 ITR 349 AND CIT V. DURGA PRASAD MORE (SUPRA). IN THE LATTER CASE, IT HAS BEEN HELD BY THE APEX COURT THAT THOUGH AN APPARENT STATEMENT MUST BE CONSIDERED REAL UNTIL IT WAS SHOWN THAT THERE WERE REASONS ITA. NO. 1326, 1327/M/2015 A.Y. 2009 - 10& 2010 - 11 7 TO BELIEVE THAT APPARENT WAS NOT THE REAL, IN A CASE WHERE AN AUTHORITY RELIED ON SELF - SERVING RECI TALS IN DOCUMENTS, IT WAS FOR THE PARTY TO ESTABLISH THE PROOF OF THOSE RECITALS; THE TAXING AUTHORITIES WERE ENTITLED TO LOOK INTO THE SURROUNDING CIRCUMSTANCES TO FIND OUT REALITY OF SUCH RECITALS. 2.5.8 IT IS ALSO A SETTLED LEGAL PROPOSITION THAT IF NO EVIDENCE IS GIVEN BY THE PARTY ON WHOM THE BURDEN IS CAST, THE ISSUE MUST BE FOUND AGAINST HIM. THEREFORE, ONUS IS ALWAYS ON A PERSON WHO ASSERTS A PROPOSITION OR FACT, WHICH IS NOT SELF - EVIDENT. THE ONUS, AS A DETERMINING FACTOR OF THE WHOLE CASE CAN ONL Y ARISE IF THE TRIBUNAL, WHICH IS VESTED WITH THE AUTHORITY TO DETERMINE, FINALLY ALL QUESTIONS OF FACT, FINDS THE EVIDENCE PRO & CON, SO EVENLY BALANCED THAT IT CAN COME TO NO CONCLUSION, THEN, THE ONUS WILL DETERMINE THE MATTER. NEEDLESS TO SAY THAT THE ONUS IS HEAVY OR LIGHT, DEPENDING ON THE FACTS AND CIRCUMSTANCES OF EACH CASE. THERE CANNOT BE ANY DOUBT THAT ONUS AS A DETERMINING FACTOR COMES INTO PLAY WHERE, EITHER THERE IS NO EVIDENCE ON EITHER SIDE, OR WHERE IT IS EQUALLY WORTHLESS OR WHERE IT IS EQ UALLY BALANCED. IT IS IMPERATIVE TO MENTION HERE THAT WHERE SUCH IS NOT THE CASE AND ALL AVAILABLE EVIDENCE IS CONSIDERED, WITHOUT REFERENCE TO THE ONUS AND WITHOUT RELYING ON THE CIRCUMSTANCES THAT ONUS LIES ON A PARTICULAR PARTY, THE ISSUE IS DETERMINED ON FACTS AND THE ONUS CANNOT BE SAID TO HAVE INFLUENCED THE DECISIONS. HOWEVER, IN THE INSTANT CASE, THE APPELLANT HAS MISERABLY FAILED TO LEAD EVIDENCE AND HENCE, ONUS IS A DETERMINING FACTOR. 2.5.9 THE HON'BLE SUPREME COURT, IN THE CASE OF CHUHARMAL V. CIT [19881 172 JTR 250 138 TAXMAN 190 HIGHLIGHTED THE FACT THAT THE PRINCIPLE OF EVIDENCE JAW ARE NOT TO BE IGNORED BY THE AUTHORITIES, BUT AT THE SAME TIME, HUMAN PROBABILITY HAS TO BE THE GUIDI NG PRINCIPLE SINCE THE AO IS NOT FETTERED, BY TECHNICAL RULES OF EVIDENCE, AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF DHAKESWARI COTTON MILLS LTD V CIT (1954) 26 ITR 775. THE HON'BLE SUPREME COURT, IN THE CASE OF CHUHARMAL (SUPRA) HELD THAT WHAT V S MEANT BY SAYING THAT EVIDENCE ACT DID NOT THEY WERE ENTITLED TO TOOK IN TO THE SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALITY OF THE RECITALS MADE IN THOSE DOCUMENTS. 2.5.5 IN YET ANOTHER CA SE OF CASTING OF ONUS VIZ. JAMNAPRASAD KANHAI YALAL VS.CIT 130 ITR 244(SC), HON1BLE APEX COURT WHILE CONSIDERING THE SCOPE OF IMMUNITY U/S. 24 OF F.NO.(2) ACT 1965 HELD THAT THE IMMUNITY PROVIDED CANNOT BE INVOKED IN ASSESSMENT PROCEEDINGS RELEVANT TO ANY PERSON OTHER THAN THE PERSON ITA. NO. 1326, 1327/M/2015 A.Y. 2009 - 10& 2010 - 11 8 MAKING DECLARATION UNDER THE ACT. IN THAT CASE, THE FIRM JAMNAPRASAD KANHAIYAL AL HAD SHOWN CASH CREDITS IN THE NAMES OF 5 SONS OF KANHAI YALAL WHO HAD MADE VOLUNTARY DISCLOSURE UNDER THE VOLUNTARY DISCLOSURE SCHEME OF 1965 BUT THE LD. A, 0. HAD NOT FOUND THE EXPLANATION SATISFACTORY REGARD ING THE CREDITWORTHINESS OF THE PARTIES AND THE SAME CA ME TO BE CONFIRMED BY THE HONBLE SUPREME COURT. IF AGAINST SUCH STRICT TERMS OF IMMUNITY, THE HON'BLE SUPREME COURT COULD CONFIRM THE REJECTION OF EXPLANATION OF CASH CREDIT IN THE INSTANT CASE THE AP PELLANT HAS FAILED TO EVEN CORROBORATE THE CLAIM BEFORE THE LD. A.O. 2.5.6 RELIANCE IS ALSO PLACED ON THE JUDGEMENT OF HON'BLE SUPREME COURT IN THE CASE OF SRI ME ENAKSHI MILLS LTD 63 ITR 609 WHERE IT WAS HELD THAT THE 13. AUTHORITIES ARE ENTITLED TO PIERCE THE VEIL OF CORPORATE ENTITY AND TO LOOK INTO REALITY OF TRANSACTION. IN THE CASE OF MCDOWELL & CO. 154 ITR 148(SC) IT WAS STATED THAT IMPLICATIONS OF TAX AVOIDANCE ARE MANIFOLD. FIRST, THERE IS SUBSTANTIAL LOSS OF MUCH NEEDED PUBLIC REVENUE. NEXT, THERE IS SERIOUS DISTURBANCE CAUSED TO THE ECONOMY OF THE COUNTRY DUE TO PILING OF MOUNTAINS OF BLACK MONEY, CAUSING INFLATION. THUS, THERE IS 'THE LARGE HIDDEN LOSS' TO THE COMMUNITY (AS POINTED OUT BY MASTER SHEAT ROFT IN 18 MODERN LAW REVIEW 209) BY SOME OF TH E MEMBERS IN THE COUNTRY BEING INVOLVED IN THE PERPETUAL WAR WAGED BETWEEN THE TAX PAYER AND HIS EXPERT TEAM OF ADVISORS, AND ACCOUNTANTS ON THE ONE SIDE AND THE TAX GATHERER AND HIS PERHAPS NOT SO SUCCESSFUL ADVISORS ON THE OTHER SIDE. HON'BLE COURT FURTH ER HELD THAT IT WAS FOR THE COURT TO TAKE STOCK TO DETERMINE THE NATURE OF NEW AND SOPHISTICATED LEGAL DEVICES TO AVOID TAX AND CONSIDER WHETHER THE SITUATION CREATED BY THE DEVICES WOULD BE RELATED TO THE EXISTING LEGISLATION WITH THE AID OF EMERGING TECH NIQUES O F INTERPRETATION AS WAS DONE IN RAMSAY, BURMAH OIL AND DAWSON TO EXPOSE THE DEVICES FOR WHAT THEY REALLY ARE AND TO REFUSE TO GIVE JUDICIAL BENEDIC T I ON . 2.57 THE ONUS TO PROVE THAT APPARENT, IS NOT THE REAL ONE, IS ON THE PARTY WHO CLAIMS IT TO BE SO, AS HELD BY THE HONBLE SUPREME COURT IN THE CA SE OF CIT V. DAULAT RAM RAWATMULL [19731 87 ITR 349 AND CIT V. DURGA PRASAD MORE (SUPRA). IN THE LATTER CASE, IT HAS BEEN HELD BY THE APEX COURT THAT THOUGH AN APPARENT STATEMENT MUST BE CONSIDERED REAL UNT IL IT WAS SHOWN THAT THERE WERE REASONS TO BELIEVE THAT APPARENT WAS NOT THE REAL, IN A CASE WHERE AN AUTHORITY RELIED ON SELF - SERVING RECITALS IN DOCUMENTS, IT WAS FOR THE PARTY TO ESTABL ISH THE PROOF OF THOSE RECITALS; THE TAXING ITA. NO. 1326, 1327/M/2015 A.Y. 2009 - 10& 2010 - 11 9 AUTHORITIES WERE ENTITL ED TO LOOK INTO THE SURROUNDING CIRCUMSTANCES TO FIND OUT REALITY OF SUCH RECITALS. 2.5.8 IT IS ALSO A SETTLED LEGAL PROPOSITION THAT IF NO EVIDENCE IS GIVEN BY THE PARTY ON WHOM THE BURDEN IS CAST, THE ISSUE MUST BE FOUND AGAINST HIM. THEREFORE, ONUS IS A LWAYS ON A PERSON WHO ASSERTS A PROPOSITION OR FACT, WHICH IS NOT SELF - EVIDENT. THE ONUS, AS A DETERMINING FACTOR OF THE WHOLE CASE CAN ONLY ARISE IF THE TRIBUNAL, WHICH IS VESTED WITH THE AUTHORITY TO DETERMINE, FINALLY ALL QUESTIONS OF FACT, FINDS THE E VIDENCE PRO & CON, SO EVENLY BALANCED THAT IT CAN COME TO NO CONCLUSION, THEN, THE ONUS WILL DETERMINE THE MATTER. NEEDLESS TO SAY THAT THE ONUS IS HEAVY OR LIGHT, DEPENDING ON THE FACTS AND CIRCUMSTANCES OF EACH CASE. THERE CANNOT BE ANY DOUBT THAT ONUS A S A DETERMINING FACTOR COMES INTO PLAY WHERE, EITHER THERE IS NO EVIDENCE ON EITHER SIDE, OR WHERE IT IS EQUALLY WORTHLESS OR WHERE IT IS EQUALLY BALANCED. IT IS IMPERATIVE TO MENTION HERE THAT WHERE SUCH IS NOT THE CASE AND ALL AVAILABLE EVIDENCE IS CONSI DERED, WITHOUT REFERENCE TO THE ONUS AND WITHOUT RELYING ON THE CIRCUMSTANCES THAT ONUS LIES ON A PARTICULAR PARTY, THE ISSUE IS DETERMINED ON FACTS AND THE ONUS CANNOT BE SAID TO HAVE INFLUENCED THE DECISIONS. HOWEVER, IN THE INSTANT CASE, THE APPELLANT H AS MISERABLY FAILED TO LEAD EVIDENCE AND HENCE, ONUS IS A DETERMINING FACTOR. 2.5.9 THE HON'BLE SUPREME COURT, IN THE CASE OF CHUHARMAL V. CIT [19881 172 JTR 250 138 TAXMAN 190 HIGHLIGHTED THE FACT THAT THE PRINCIPLE OF EVIDENCE JAW ARE NOT TO BE IGNORED BY THE AUTHORITIES, BUT AT THE SAME TIME, HUMAN PROBABILITY HAS TO BE THE GUIDING PRINCIPLE SINCE THE AO IS NOT FETTERED, BY TECHNICAL RULES OF EVIDENCE, AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF DHAKESWA RI COTTON MILLS LTD V CIT (1954) 26 ITR 77 5. THE HON'BLE SUPREME COURT, IN TH E CASE OF CHUHARMAL (SUPRA) HELD THAT WHAT VS MEANT BY SAYING THAT EVIDENCE ACT DID NOT APPLY TO THE PROCEEDINGS UNDER INCOME - TAX ACT, 1961, WAS THAT THE RIGOURS OF RULES OF EVIDENCE, CONTAINED IN THE EVIDENCE ACT WAS NOT APPLICABLE BUT THAT DID NOT MEAN THAT WHEN THE TAXING AUTHORITIES WERE DE SIROUS OF INVOKING THE PRINCIPLE OF EVIDENCE ACT, IN PROCEEDINGS BEFORE THEM, THEY WERE PREVENTED FROM DOING SO. IT WAS FURTHER HELD BY THE HON'BLE APEX COURT THAT ALL THAT SECTION 11 0 OF THE EVIDENCE ACT, 1872 DID, WAS TO EMBODY A SALUTARY PRINCIPLE OF COMMON LAW JURISPRUDENCE VIZ, WHERE A PERSON WAS FOUND IN POSSESSION OF ANYTHING, THE ONUS OF PROVING THAT HE WAS NOT ITS OWNER, WAS ON THAT PERSON. THUS, THIS PRINCIPLE COULD BE ITA. NO. 1326, 1327/M/2015 A.Y. 2009 - 10& 2010 - 11 10 ATTRAC TED TO A SET OF CIRCUMSTANCES THAT SATISFIES ITS CONDITIONS AND WAS APPLICABLE TO TAXING PROCEEDINGS. 2.5.10 THE LD. AR HAS RELIED ON A NUMBER OF DECISIONS INCLUDING THOSE IN THE CASES OF NIKUNJ EXIRN 216 TAXMANN 171 (BORN); M..K.BROTHERS 30 TAXMANN 547 ( GUJ) AND RAJEEV C. KALATHIL (ITA NO, 6727/MUM12012 DATED 20 - 08 - 2014) TO SUGGEST THAT NO ADDITION COULD BE MADE ON ACCOUNT OF DISALLOWANCE OF PURCHASES. 2,5.11 HAVING GONE THROUGH THE ABOVE CASE LAWS, IT IS SEEN THAT IN NONE OF THOSE CASES SO MUCH OF INVES TIGATION WAS DONE INCLUDING THOSE BY ANOTHER GOVERNMENT AUTHORITY, VIZ., MAHARASHTRA SALES TAX AUTHORITY BEFORE WHOM AFFIDAVITS WERE FILED BY SOME OF THE SUPPLIERS STATING THAT ONLY BOGUS BILLS WERE SUPPLIED WITHOUT DELIVERY OF GOODS. FURTHER, NO VEHICLE N UMBERS HAVE BEEN GIVEN IN SO FAR AS DELIVERY OF THE PURCHASES ARE CONCERNED AND THEREFORE, IT IS CERTAIN THAT NO SUCH PURCHASES WERE ACTUALLY MADE FROM THE PARTIES FROM WHOM BILLS WERE PROCURED AND HENCE, NO DELIVERY COULD HAVE BEEN MADE. AS SEEN LATER, LD . A.O, HAS HIMSELF HELD THAT THE TRANSACTIONS ARE NOT GENUINE AS THE APPELLANT DID NOT PURCHASE THE GOODS FROM THOSE PARTIES BUT IS SILENT AS TO FROM WHOM THE PURCHASES WERE MADE. AS CONTRACT RECEIPTS OF MCGM HAVE NOT BEEN DOUBTED, THE NATURAL COROLLARY WO ULD MEAN THAT THE APPELLANT MUST HAVE PURCHASED THE GOODS FROM SOME UNKNOWN ENTITIES. 2.5.12 THEREFORE, IT MAY BE PRUDENT T O SEE HOW THE COURTS HAVE DEALT WITH SUCH SITUATIONS. HON'BLE BOMBAY H IGH COURT IN THE CASE OF KILLICK NIXON LTD. V. DEPUTY COMMISSI ONER OF INCOME - TAX [2012] 20 TA XMANN.COM 703 (BORN.) WAS SIMILARLY FACED WITH THE QUESTION OF SHAM TRANSACTIONS AND INTER ALIA, HELD AS UNDER: IF SECTION 25 OF THE INCOME - TAX ACT, 1961, READ WITH RULE 11 OF THE APPELLATE TRIBUNAL) RULES', 1963 APPELLATE TR IBUNAL ORDERS OF ASSESSMENT YEAR 2001 - 02 - ASSESSEE TRANSFERRED CERTAIN LAND TO BANK - ASSESSEE CLAIMED TO HAVE INCURRED LONG - TERM AND SHORT - TERM CAPITAL LOSSES ON SHARE TRADING TRANSACTIONS ACCORDINGLY, IT SET OFF SAID LOSSES AGAINST CAPITAL GAIN EARNED O N SALE OF LAND ASSESSING OFFICER FOUND THAT ASSESSEE ENTERED INTO SHAM AND BOGUS SHARE TRADING TRANSACTIONS RESULTING IN CAPITAL LOSS WITH PURPOSE TO REDUCE TAX LIABILITY AROSE ON CAPITAL GAIN - ASSESSING OFFICER, THEREFORE, DISCARDED CAPITAL LOSSES - COMM ISSIONER (APPEALS) CONFIRMED ORDER OF ASSESSING OFFICER - TRIBUNAL ALSO CONFIRMED ORDER OF ASSESSING OFFICER, AND WHILE DOING SO, REFERRED TO A DECISION OF SUPREME COURT IN CASE OF SUMATI DAYAL V. CIT [1995] 214 ITR 801 / 80 TAXMAN 89 TO HELD THAT EVIDENCE PRODUCED MUST BE ANALYSED BY ITA. NO. 1326, 1327/M/2015 A.Y. 2009 - 10& 2010 - 11 11 APPLYING THEORY OF SURROUNDING CIRCUMSTANCES AND HUMAN PROBABILITIES - ASSESSEE ALLEGED THAT WITHOUT BRINGING SAID CASE TO NOTICE OF PARTIES, REVENUE HAD CAUSED PREJUDICE TO ITS CASE; ALL IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE AND OF RULE 11 - WHETHER SINCE DECISION OF SUPREME COURT IN SUMATI DAYAL CASE (SUPRA) WAS CITED BY TRIBUNAL ONLY FOR PURPOSE OF REITERATING WELL SETTLED AND ESTABLISHED POSITION OF LAW, IT COULD NOT BE SAID TO HAVE CAUSED PREJUDICE TO ASSESSEE - HE LD, YES WHETHER WHEN A TRANSACTION IS SHAM AND NOT GENUINE AS IN INSTANT CASE, THEN IT COULD NOT BE CONSIDERED TO BE A PART OF TAX PLANNING OR LEGITIMATE AVOIDANCE OF TAX LIABILITY - HELD YES - WHETHER FURTHER SINCE ISSUES IN INSTANT CASE WERE PURELY QUEST IONS OF FACTS ON WHICH THERE WERE CONCURRENT FINDINGS OF AUTHORITIES BELOW, IT WAS TO BE HELD THAT THERE WAS NO QUESTION OF LAW TO BE CONSIDERED - HELD, YES FIN FAVOUR OF REVENUE]. 14. SO FAR AS THE PRINCIPLE LAID DOWN IN THE MATTER OF OMAR SALAY MOHAMED S ALT (SUPRA) IS CONCERNED THERE CAN BE NO DISPUTE ABOUT THE PROPOSITION LAID DOWN THEREIN. HOWEVER, WE HAVE NOT BEEN SHOWN HOW THE TRIBUNAL WAS IN BREACH OF THE SAME. WE FIND THAT THE TRIBUNAL HAS CONSIDERED THE EVIDENCE OF PURCHASE AND SALE OF SHARES TO BO OK LONG TERM AND SHORT TERM LOSSES AND TAKING ALL THE EVIDENCE TOGETHER INCLUDING THE SURROUNDING CIRCUMSTANCES REACHED A FINDING THAT THE PURCHASE AND SALE OF SHARES IS NOT GENUINE. SO FAR AS THE DECISION OF THE SUPREME COURT IN VODAFONE INTERNATIONAL HOL DINGS B. V. V. UNION OF INDIA [2012] 204 TAXMAN 408.1 17 TAXMANN.COM 202 IS CONCERNED, THE COURT CONSIDERED ITS DECISIONS IN THE MATTERS OF MC DOWEL) & CO. LTD V. COMMERCIAL TAX OFFICER [19 351 154 /TP 48/22 TAXMAN 11 (SC), UNION OF INDIA V. AZADI BACHAO A NDOLAN [2004] 10 SCC I AND THE MATHURAM AGARWAL V. STATE OF MADHYA PRADESH [1999] 8 SCC 667 AND CONCLUDED THAT WHERE THE TRANSACTION IS NOT GENUINE BUT A CO/CURABLE DEVICE THERE COULD BE NO QUESTION OF TAX PLANNING. THE SUPREME COURT IN THE AFORESAID CASE AFTER CONSIDERING THE AFORESAID TWO DECISIONS CONCLUDED AS FOLLOWS: THE MAJORITY JUDGMENT IN MCDOWELL HELD THAT TAX PLANNING MAY BE LEGITIMATE PROVIDED IT IS WITHIN THE FRAMEWORK OF FA' RA - 45). IN THE LATTER PART OF PARA 45, IT HELD THAT 'COLOURABLE. DEVI CE CANNOT BE A PART OF TAX PLANNING AND IT IS WRONG TO ENCOURAGE THE BELIEF THAT IT IS HONOURABLE TO AVOID PAYMENT OF TAX BY RESORTING TO DUBIOUS METHODS. IT IS THE OBLIGATION OF EVERY CITIZEN TO PAY THE TAXES WITHOUT RESORTING TO SUBTERFUGES. THE ABOVE OBS ERVATIONS SHOULD BE READ WITH PAM 46 WHERE THE MAJORITY HOLDS 'ON THIS ASPECT ONE OF ITA. NO. 1326, 1327/M/2015 A.Y. 2009 - 10& 2010 - 11 12 US, CHINAPPA REDDY, J. HAS PROPOSED A SEPARATE OPINION WITH WHICH WE AGREE'. THE WORDS 'THIS ASPECT' EXPRESS THE MAJORITY'S AGREEMENT WITH THE JUDGMENT OF REDDY, J. ONLY I N RELATION TO TAX EVASION THROUGH THE USE OF COLOURABLE DEVICES AND BY RESORTING TO DUBIOUS METHODS AND SUBTERFUGES. THUS, IT CANNOT BE SAID THAT ALL TAX PLANNING IS ILLEGAL/ILLEGITIMATE/IMPERMISSIBLE. MOREOVER, REDDY, J. HIMSELF SAYS THAT HE AGREES WITH T HE MAJORITY. IN THE JUDGMENT OF REDDY, J. THERE ARE REPEATED REFERENCES TO SCHEMES AND DEVICES IN CONTRADISTINCTION TO LEGITIMATE AVOIDANCE OF TAX LIABILITY (PARAS 7 - 10, 17 AND 18). IN OUR VIEW. ALTHOUGH CHINNAPPA REDDY, J. MAKES A NUMBER OF OBSERVATIONS R EGARDING THE NEED TO DEPART FROM THE 'WESTMINSTER' AND LAX AVOIDANCE - THESE ARE CLEARLY ONLY IN THE CONTEXT OF ARTIFICIAL AND COLOURABLE DEVICES. READING MCDOWELL, IN THE MANNER INDICATED HEREINABOVE, IN CASES OF TREATY SHOPPING AND/OR (AVOIDANCE, THERE IS NO CONFLICT BETWEEN MCDOWELL AND AZADI BACHAO OR BETWEEN MCDOWELL AND MATHURAM AGARWAL. 15. THE AFORESAID OBSERVATIONS OF THE SUPREME COURT MAKES IT VERY CLEAR THAT A COLOURABLE DEVICE CANNOT BE A PART OF TAX PLANNING. THEREFORE, WHERE A TRANSACTION IS SHAM AND NOT GENUINE AS IN THE PRESENT CASE THEN IT CANNOT BE CONSIDERED TO BE A PART OF TAX PLANNING OR LEGITIMATE AVOIDANCE OF TAX LIABILITY. THE SUPREME COURT IN FACT CONCLUDED THAT THERE IS NO CONFLICT BETWEEN ITS DECISIONS IN THE MATTER OF MCDOWELL (S UPRA). AZADI BACHAO (SUPRA) AND MATHURAM AGARWAL (SUPRA). IN THE PRESENT CASE THE PURCHASE AND SALE OF SHARES, SO AS TO TAKE LONG TERM AND SHORT TERM CAPITAL LOSS WAS FOUND AS A MATTER OF FACT BY ALL THE THREE AUTHORITIES TO BE A SHAM. THEREFORE, AUTHORITI ES CAME TO A FINDING THAT THE SAME WAS NOT GENUINE. SO FAR AS THE QUESTION NOS. (IS), (III) (IV) AND (4 ARE CONCERNED, WE HOLD THAT THESE ARE PURE QUESTIONS OF FACTS AND AS THERE ARE CONCURRENT FINDING OF THE AUTHORITIES BELOW, NO QUESTION OF LAW ARISES FO R THIS COURT TO INTERFERE.' 2.5.13 HONBLE ALLAHABAD HIGH COURT WHILE DEALING WITH THE ISSUE OF BOGUS PURCHASE IN THE CASE OF SRI GANESH RICE MILLS V. COMMISSIONER OF INCOME - TAX [2007] 294 ITR 316 (ALL.), HELD AS UNDER: WHERE ASSESSING OFFICER HAD RECORDED A FINDING THAT IN ORDER TO LOWER PROFITS, BOGUS PURCHASES HAD BEEN INTRODUCED AND TRIBUNAL UPHELD SUCH FINDING, ADDITION ON ACCOUNT OF DISALLOWANCE OF SUCH PURCHASES WAS JUSTIFIED [ASSESSMENT YEAR 1984 - 85 ITA. NO. 1326, 1327/M/2015 A.Y. 2009 - 10& 2010 - 11 13 THE ASSESSEE WAS ENGAGED IN THE PRODUCTION OF GRAM , PULSES, RICE CHUNNI BHUSI, ETC. THE ASSESSING OFFICER TREATED FIVE PURCHASES AS BOGUS AT WAS DONE AFTER MAKING ENQUIRIES WHEREIN HE FOUND THAT THE PARTIES MENTIONED AT ITEM NOS. 4 AND 3 NEVER, EXISTED. HE THEREFORE, MADE ADDITION. THE TRIBUNAL ALSO HELD THAT THE PURCHASES WERE BOGUS. HELD THAT IT WAS NOT THE CASE OF THE ASSESSEE THAT HE WAS A TRADER. ON THE OTHER HAND, THE ASSESSEE WAS A MANUFACTURER AND IN MANUFACTURING PROCESS, 'CHUNI - BHUSI ALSO GOT MANUFACTURED AS A BY - PRODUCT. IT WAS NOT THE CASE OF T HE ASSESSEE THAT IT HAD MADE THE PURCHASES OF CHUNI - BHUSI FROM OTHER PERSONS ALSO THE ASSESSING OFFICERHAD RECORDED A FINDING THAT IN ORDER TO LOWER THE PROFITS, THE BOGUS PURCHASES HAD BEEN INTRODUCED. TAKING INTO CONSIDERATION THE ENTIRE FACTS AND CIRCUM STANCES OF THE CASE, THE FINDINGS RECORDED BY THE TRIBUNAL COULD NOT BE SAID TO BE BASED ON IRRELEVANT MATERIAL AND CONSIDERATION. THE ASSESSEE BEING A MANUFACTURER OF CHUNI - BHUSI HAD NOT BEEN ABLE TO ESTABLISH THE PURCHASES IN QUESTION WHICH HAD BEEN MADE FROM THE NON - EXISTENT FIRMS. FURTHER, THE TWO FIRMS OWNED BY THE BROTHERS OF THE PARTNERS OF THE ASSESSEE - FIRM WERE SAID TO HAVE PURCHASED THE GOODS FROM THE NON - EXISTENT FIRMS AND EVEN THE INVOICES HAD BEEN PREPARED BY THE MUNIM OF THE APPLICANT. MERELY BECAUSE THE APPLICANT HAD BEEN DEALING WITH THE FIRM, THAT WOULD NOT MAKE THE PURCHASES OF CHUNI - BHUSI GENUINE WHEN THERE WAS SUFFICIENT EVIDENCE TO THE CONTRARY SO FAR AS THE QUESTION OF DEDUCTION OF PURCHASES FROM THE CORRESPONDING SALES WAS CONCERNED, T HE ASSESSEE BEING A MANUFACTURER OF CHUNI - BHUSI AND PURCHASES HAVING BEEN FOUND TO BE BOGUS AND AS (HERE WERE NO OTHER PURCHASES OF CHUNI - BHUSI, THE BINE FIT OF DEDUCTION OF SUCH PURCHASES HAD RIGHTLY BEEN DISALLOWED.' 25.14 SIMILARLY, IN THE CASE OF KHAND ELWAL TRADING CO. V ASSISTANT COMMISSIONER OF INCOME - TAX [1996] 55 TTJ 261 (JP), IT WAS OBSERVED AND HELD AS UNDER: 7. WE TAKE UP THE FIRST CONTENTION OF SHRI SINGHVI. IT WAS CONTENDED THAT ONLY GROSS PROFIT RATE SHOULD HAVE BEEN APPLIED AND THE ADDITION S HOULD HAVE BEEN TO THAT EXTENT ONLY. A LET US ASSUME THAT THE IMPUGNED PURCHASES IN THIS CASE ARE BOGUS WHAT CAN BE THE CAUSES AND EFFECTS? EITHER CORRESPONDING BOGUS SALES HAVE TO BE ACCOUNTED FOR, OR, THE CLOSING STOCK TO THAT EXTENT HAVE TO BE INCREASED . BUT IF EITHER IS DONE, THE VERY PURPOSE OF ENTERING BOGUS' PURCHASES IS DEFEATED. WHAT CAN BE THE PURPOSE ITA. NO. 1326, 1327/M/2015 A.Y. 2009 - 10& 2010 - 11 14 TO ENTER A BOGUS PURCHASE IN THE BOOKS, OBVIOUSLY TO SHOW LESSER PROFIT THAN ACTUALLY EARNED. THIS IN TURN COULD HE TO BRING THE GROSS PROFIT RATE T O NEAR ABOUT THE EARLIER YEARS' PERFORMANCE IN ORDER TO AVOID A DEEPER PROBE BY THE FAXING AUTHORITIES AND/OR TO AVOID PAYING HIGHER TAXES THUS, WHEN ONCE BOGUS PURCHASE IS ENTERED IN THE HOOKS WITHOUT A CORRESPONDING SALES OR INCREASE IN STOCKS, THE OBVIO US RESULT WOULD BE LOWERING OF G.P. RATE. IF THESE BOGUS PURCHASES ARE REMOVED, THE G.P. RATE WOULD AUTOMATICALLY GO UP. UNDER THE ASSUMPTION THAT THE PURCHASES AM BOGUS, OPTION VISUALISED IS THAT THERE ARE NO CORRESPONDING SALES THEN ADDITION AT WHAT RATE CAN HE MORE JUSTIFIABLE THAN BY THE BOGUS PURCHASE ITSELF? 10. THE POINT WE ARE TRYING TO DRIVE HOME IS THAT WHEN A BOGUS ENTRY IS FOUND IN ACCOUNTS, THERE CANNOT BE A BETTER SOLUTION THAN TO REMOVE THAT ENTRY. THE LEGITIMATE WAY OF REMOVING THE ENTRY WOULD BE, AS EVERY STUDENT OF ACCOUNTANCY WOULD AGREE, IS TO DO WHAT HAS BEEN OMITTED TO BE DONE OR UNDO WHAT HAS BEEN WRONGLY DONE. 11. NOW, SO FAR WE WERE ONLY ASSUMING THAT THE PURCHASES ARE BOGUS. CORNING TO THE FACTS OF THE CASE, WERE THE PURCHASES WO RTH RS. 86,500 REALLY BOGUS? THERE IS NO DOUBT ABOUT IT. THE INVESTIGATIONS GOT DONE BY THE ASSESSING OFFICER LEAVE, HARDLY ANY DOUBT ABOUT IT. THE FAILURE ON THE PART OF THE ASSESSES TO SHOW CAUSE STRENGTHENS THE DEPARTMENT'S CASE. THIS STOIC SILENCE OF T HE ASSESSEE ALSO BLUNTS THE ASSESSES ARGUMENT THAT SHN HUKAMCH AND'S STATEMENT WAS RECORDED AT ITS BACK. IT MAY HAVE BEEN RECORDED AT ITS HACK, BUT THE RESULTS THEREOF WERE INFORMED TO THE ASSESSEE AND THAT IS WHAT THE ASSESSEE WAS ASKED TO EXPLAIN AND FAI LED TO DO SO. THUS, NOW' WE ARE NOT ASSUMING BUT ARE CONCLUDING THAT THE PURCHASES OF RS. 86,500 WERE IN FACT BOGUS. IN CASE OF BOGUS ENTRIES, IN OUR OPINION, WHAT COULD BE THE BEST REMEDY, HAS BEEN DISCUSSED ABOVE. THE ASSESSING OFFICER HAS SIMPLY DONE TH AT. WE ARE UNABLE TO APPRECIATE SHRI SM GHVPS CONTENTION. HAD THERE BEEN SUPPRESSION OF SALES, PROBABLY, DEPENDING ON THE FACTS OF THE CASE, THE ADDITION TO THE EXTENT OF G.P. RATE WOULD HAVE BEEN SUFFICIENT. BUT IN CASE OF BOGUS PURCHASES WE DO NOT SEE A BETTER SOLUTION THAN THE ONE ADOPTED BY THE ASSESSING OFFICER. 12. BUT WHAT ABOUT THE QUANTITATIVE RECORD WHICH IS SAID TO HAVE TALLIED? IN THE INSTANT CASE THE ASSESSEE HAS MAINTAINED THE STACK REGISTER BUT THE SAME HAS BEEN TEST - CHECKED BY THE ASSESSING OFFICER. THERE IS NO SPECIFIC DISCUSSION OR FINDING AS REGARDS QUANTITATIVE TALLY. HOWEVER, WHEN IN SUBSTANCE THE TRANSACTIONS HAVE BEEN PROVED TO BE BOGUS THE UNVERIFIED QUANTITATIVE TALLY ITA. NO. 1326, 1327/M/2015 A.Y. 2009 - 10& 2010 - 11 15 CANNOT LEAD US TO CONCLUDE OTHERWISE. UNDER THE CIRCUMSTANCES OF T HIS CASE, WE ARE NOT INCLINED TO GIVE MUCH WEIGHTAGE TO THIS CONTENTION OF THE ASSESSEE. 2.5.15 FURTHER, IN DOORIA OXYGEN COMPANY VS. COMMISSIONER OF INCOME - TAX [20071 160.TAXMAN 427 (ALL.), IT WAS OBSERVED AND HELD AS UNDER: THIS LEAVES US TO THE QUESTIO N AS TO WHETHER THE TRIBUNAL SHOULD HAVE GIVEN DUE REGARD TO THE LEGITIMATE OUTGOINGS IN THE FORM OF THE ENTIRE PURCHASES OF GAS CYLINDERS OR NOT THE PRINCIPLE REGARDING MAKING OF A BEST JUDGMENT ASSESSMENT HAS BEEN WELL SETTLED BY THE APEX COURT IN THE CA SE OF DHAKESWARI COTTON MILLS LTD. V. CIT [19541 26 ITR775 WHEREIN THE APEX COURT HAS HELD AS FOLLOWS: - 'AS REGARDS THE SECOND CONTENTION, WE ARE IN ENTIRE AGREEMENT WITH' THE /EARNED SOLICITOR - GENERAL WHEN HE SAYS THAT THE INCOME - TAX OFFICER IS NOT FETTER ED BY TECHNICAL RULES OF EVIDENCE AND PLEADINGS, AND THAT, HE IS ENTITLED TO ACT ON MATERIAL WHICH MAY NOT BE ACCEPTED AS EVIDENCE IN A COURT OF LAW, BUT THERE THE AGREEMENT ENDS; BECAUSE IT IS EQUALLY CLEAR THAT IN MAKING THE ASSESSMENT UNDER SUB - SECTION (3) OF SECTION 23 OF THE - ACT, THE INCOME - FAX OFFICER IS NOT ENTITLED TO MAKE A PURE GUESS AND MAKE AN ASSESSMENT WITHOUT REFERENCE TO ANY EVIDENCE OR ANY MATERIAL AT ALL. THERE MUST BE SOMETHING MORE THAN BARE SUSPICION TO SUPPORT THE ASSESSMENT UNDER SEC TION 23T3, THE RULE OF LAW ON THIS SUBJECT HAS, IN OUR OPINION, BEEN FAIRLY AND RIGHTLY STATED BY THE LAHORE HIGH COURT IN THE CASE OF SETH GURMUKH SINGH V. CIT F1944J 12 ITR 393 41. IN THE PRESENT CASE WE FIND THAT THE COMMISSIONER OF INCOME - TAX (APPEALS) AS ALSO THE TRIBUNAL HAS RECORDED A CATEGORICAL, FINDING OF FACT THAT THE APPLICANT DID NOT MAKE PURCHASES TO THE EXTENT HE HAS SHOWN. THE PURCHASES IN QUESTION HAVE CONCLUSIVELY BEEN PROVIDED TO BE BOGUS - IF THE PURCHASES OF THE GAS CYLINDERS HAVE NOT BE EN MADE AND ON THE OTHER HAND HAVE BEEN FOUND TO BE BOGUS BY ALL THE AUTHOR/TIES INCLUDING THE TRIBUNAL, THE QUESTION OF LEGITIMATE OUTGOINGS IN 'THE FORM OF PURCHASES OF THE GAS CYLINDERS WOULD NOT ARISE. THEREFORE, THE TRIBUNAL WAS JUSTIFIED IN NOT GIVIN G BENEFIT OF THE ALLEGED AMOUNT SPENT TOWARDS THE PURCHASES OF GAS CYLINDERS. 2.5.16 IN SAMURAI SOFTWARE (P.) LTD. V. COMMISSIONER OF INCOME - TAX (2008) 299 ITR 324 (RAJ.), IT WAS HELD AS UNDER: THE TRIBUNAL CONSIDERED THE MATTER IN PARAGRAPH 6 OF ITS ORDER THUS: 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL, SUBMISSIONS OF THE PARTIES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND THE DECISION ITA. NO. 1326, 1327/M/2015 A.Y. 2009 - 10& 2010 - 11 16 RELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. WE FIND THAT AS A RESULT OF SEARCH ON THE ASSESSEE - COMPANY, THE PURCHASES TOTALLING TO RS. 4,37,048 WERE NOT FOUND RECORDED IN THE SEIZED BOOKS OF ACCOUNT OF THE ASSESSEE - COMPANY. NO SURRENDER WAS MADE ON BEHALF OF THE COMPANY BY ANY OF THE DIRECTORS OF THE ASSESSEE - COMPANY. THE SURRENDER WAS MADE BY SHRI MAHESH TOSHNI WAL, ONE OF THE DIRECTORS OF THE COMPANY IN HIS INDIVIDUAL CAPACITY AND NOT ON BEHALF OF THE ASSESSEE - COMPANY AND THE SAME WAS CONSIDERED IN HIS PERSONAL ASSESSMENT. UNDER THE LAW, THE COMPANY IS A SEPARATE JURIDICAL PERSON. THE SURRENDER MADE BY SHRI MAHE SH TOSHNIWAL, IN HIS INDIVIDUAL CAPACITY IS NOT BINDING ON THE ASSESSEE - COMPANY. SHRI MAHESH TOSHNIWAL IN HIS PERSONAL STATEMENTS, HAS TED THAT THE SURRENDER WAS MADE ON BEHALF OF THE ASSESSEE - COMPANY. WE ALSO FIND THAT EVEN IN THE RETURN FILED IN RESPONSE TO A NOTICE U/S 148, THE ASSESSEE - COMPANY DID NOT INCLUDE THE SAID AMOUNT OF BOGUS PURCHASES. THE ASSESSEE - COMPANY HAS NOT PLACED ANY MATERIAL AS TO SHOW THAT THE SAID PURCHASES, IN FACT, BELONG TO SHRI MAHESH TOSHNIWAL AND NOT THE ASSESSEE - COMP4ARIY. UND ER THESE CIRCUMSTANCES, WE DO NOT FIND ANY MERIT IN THE PLEA OF THE LEARNED AUTHORISED REPRESENTATIVE THAT SINCE THE SAID AMOUNT OF PURCHASES HAS BEEN ADDED IN THE HANDS OF MAHESH TOSHNIWAL, NO ADDITION CAN BE MADE IN THE HANDS OF THE ASSESSEE - COMPANY. IT IS A SETTLED LAW THAT THE TAX HAS TO BE LEVIED ON THE REAL PERSON. UNDER THESE CIRCUMSTANCES AND KEEPING IN VIEW THE DECISION OF THE HONBLE DELHI HIGH COURT AS RELIED ON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE IN THE CASE OF CIT V. LA MEDICA (2001) 250 ITR 575, WE ARE OF THE VIEW THAT THE ASSESSEECOMPANY HAS DEBITED BOGUS PURCHASES IN ITS BOOKS OF ACCOUNT WHICH THE ASSESSEE - COMPANY COULD NOT SUBSTANTIATE AND, ACCORDINGLY, THE COMMISSIONER OF INCOME - TAX (APPEALS) WAS NOT JUSTIFIED IN DELETING THE ADDITION OF RS. 4,37,048, WHICH IS DIRECTED TO HE REVERSED AND ADDED IN THE INCOME OF THE ASSESSEE - COMPANY. CONSEQUENTLY, THE ADDITION MADE BY THE ASSESSING OFFICER AMOUNTING TO RS. 4,37,048 IS UPHELD. THE GROUND TAKEN BY THE REVENUE, IS THEREFORE, ALLOWED.' 9. TH E TRIBUNAL, THUS, BY ITS ORDER DATED JUNE 10, 2002, SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) AND RESTORED THE ADDITION OF RS. 4,37,048 IN THE HANDS OF THE APPELLANT - COMPANY AS WAS DONE BY THE ASSESSING OFFICER. 10. IN SO FAR AS THE A DDITION OF RS. 4,37,048 IN THE HANDS OF THE APPELLANT COMPANY IS CONCERNED, WE ARE SATISFIED WITH THE REASONS ITA. NO. 1326, 1327/M/2015 A.Y. 2009 - 10& 2010 - 11 17 GIVEN BY THE TRIBUNAL IN PARAGRAPH 6 OF ITS ORDER. THE ADDITION OF THE AMOUNT OF RS. 4,37,048 IN THE HANDS OF THE APPELLANT - COMPANY CANNOT BE SAID TO BE UNJUSTIFIED. '. 2.5.17 IN THE CASE OF INDIAN WOOLLEN CARPET FACTORY Y. INCOME - TAX APPELLATE TRIBUNAL 2002J 125 TAXMAN 763 (RAJ..) IT WAS HELD AS UNDER: 'IF THE TRANSACTIONS WERE GENUINE AND IF THE PARTIES HAD MIGRATED SOMEWHERE ELSE, THEIR LATEST AD DRESSES SHOULD HAVE BEEN SUPPLIED AND BURDEN WAS ON THE ASSESSEE TO PROVE THE GENUINENESS OF THE TRANSACTIONS, WHEN THE ASSESSEE CLAIMED THAT THE PURCHASES WERE GENUINE. IT WAS TRUE THAT NO LOAN HAD BEEN TAKEN FROM THOSE PARTIES. THE CASE BEFORE THE ASSESS ING OFFICER WAS THAT THE ASSESSEE CLAIMED SOME PURCHASES FROM SOME PARTIES, WHOM HE COULD NOT PRODUCE OR THOSE PARTIES WERE NOT AVAILABLE WHEN THE SUMMON UNDER SECTION 131 WAS ISSUED. THEREFORE, THE INITIAL DISPUTE WAS WITH REGARD TO GENUINENESS OF THE TRA NSACTION REGARDING PURCHASE OF WOOL FROM THE PARTIES, THE ASSESSEE HAD FAILED TO DISCHARGE THE ONUS TO PROVE THE GENUINENESS OF THE TRANSACTIONS, MERE MENTIONING OF SECTION 68 DID EFFECT THE ADDITION MADE WHEN TRANSACTIONS WERE FOUND BOGUS.' 2.5.18 IN SANJ AY OILCAKE INDUSTRIES V. COMMISSIONER OF INCOME - TAX(2009) 316 (TR 274 (GUJ), IT WAS HELD AS UNDER: 12 THUS, IT IS APPARENT THAT BOTH THE COMMISSIONER (APPEALS) AND THE TRIBUNAL HAVE CONCURRENTLY ACCEPTED THE FINDING OF THE ASSESSING OFFICER THAT THE APPARE NT SELLERS WHO HAD ISSUED SALE BILLS WERE NOT TRACEABLE. THAT GOODS WERE RECEIVED FROM. THE PARTIES OTHER THAN THE PERSONS WHO HAD ISSUED BILLS FOR SUCH GOODS. THOUGH THE PURCHASES ARE SHOWN TO HAVE BEEN MADE BY MAKING PAYMENT THEREOF BY ACCOUNT PAYEE CHEQ UES THE CHEQUES HAVE BEEN DEPOSITED IN HANK ACCOUNTS OSTENSIBLY IN THE NAME OF THE APPARENT SELLERS, THEREAFTER THE ENTIRE AMOUNTS HAVE BEEN WITHDRAWN BY BEARER CHEQUES AND THERE IS NO TRACE OR IDENTITY OF THE PERSON WITHDRAWING THE AMOUNT FROM THE BANK AC COUNTS. IN THE LIGHT OF THE AFORESAID NATURE OF EVIDENCE IT IS NOT POSSIBLE TO RECORD A DIFFERENT CONCLUSION, DIFFERENT FROM THE ONE RECORDED BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL CONCURRENTLY HOLDING THAT THE APPARENT SELLERS WERE NOT GENUINE, OR WERE ACTING AS CONDUIT BETWEEN THE ASSESSEE - FIRM AND THE ACTUAL SELLERS OF THE RAW MATERIALS. BOTH THE COMMISSIONER (APPEALS) AND THE TRIBUNAL HAVE, THEREFORE, COMA TO THE CONCLUSION THAT IN SUCH CIRCUMSTANCES, THE LIKELIHOOD OF THE PURCHASE PRICE BEING I NFLATED CANNOT BE RULED OUT AND THERE IS NO ITA. NO. 1326, 1327/M/2015 A.Y. 2009 - 10& 2010 - 11 18 MATERIAL TO DISLODGE SUCH FINDING. THE ISSUE IS NOT WHETHER THE PURCHASE PUCE REFLECTED IN THE BOOKS OF ACCOUNT MATCHES THE PURCHASE. PRICE STATED TO HAVE BEEN PAID TO OTHER PERSONS. THE ISSUE IS WHETHER THE PURC HASE PRICE PAID BY THE ASSESSEE IS REFLECTED AS RECEIPTS BY THE RECIPIENTS. THE ASSESSEE HAS, BY SET OF EVIDENCE AVAILABLE ON RECORD, MADE IT POSSIBLE FOR THE RECIPIENTS NOT BEING TRACEABLE FOR THE PURPOSE OF INQUIRY AS TO WHETHER THE PAYMENTS MADE BY THE ASSESSEE HAVE BEEN ACTUALLY RECEIVED BY THE APPARENT SELLERS HENCE, THE ESTIMATE MADE BY THE' TWO APPELLATE AUTHORITIES DOES NOT WARRANT INTERFERENCE. EVEN OTHERWISE, WHETHER THE ESTIMATE SHOULD BE AT A PARTICULAR SUM OR AT A DIFFERENT SUM, CAN NEVER BE AN ISSUE OF LAW.' 2.519 IN THE CASE OF ASSISTANT COMMISSIONER OF INCOME - TAX V. TRIBHOVANDAS BHIMJI ZAVERI (2000) 74 ITD 92(MUM.), HONBLE MUMBAI BENCH OF TAT WHILE DEALING WITH THE ISSUE OF BOGUS PURCHASES WHERE SIMILAR ARGUMENTS WERE ADVANCED TO BETTER THE CLAIM OF PURCHASES, HELD AS UNDER: CONSIDERING THE NUMBER OF COINCIDENCES INVOLVED IN THE SCHEME, WE ARE OF THE VIEW THAT THE ENTIRE SCHEME HAS BEEN PLANNED AND COORDINATED BY THE ASSESSEE - FIRM. IN THE CASE OF HOMI JEHANGIR GHEESTA V. CIT [19613 41 ITR 135 , THE APEX COURT HELD THAT WHILE DECIDING AN ISSUE, THE TRIBUNAL CAN CONSIDER PROBABILITIES PROPERLY ARISING FROM THE FACTS ALLEGED OR PROVED AND BY DOING SO THE TRIBUNAL DOES NOT INDULGE IN CONJECTURES, SURMISES OR SUSPICIONS THE APEX COURT EXPRESSED A SI MILAR VIEW IN THE CASE OF SUMATI DAYAL V. CIT [1995] 214 ITR 801 /80 TAXMAN 89 (SC) AND HELD THAT THE DECISION OF AN ADJUDICATING BODY BASED ON SURROUNDING CIRCUMSTANCES AND HUMAN PROBABILITIES IS NOT BAD IN LAW AND DESERVES TO BE UPHELD. IN THE CASE OF MC DOWELL & CO. LTD. V. CTO (19853 154 ITR 148/22 TAXMAN 11 THE APEX COURT HELD THAT COLOURABLE DEVICES ARE NOT PART OF LEGITIMATE TAX PLANNING. GOING BY THE RATIO OF THESE DECISIONS WE ARE OF THE VIEW THAT THE ASSESSEE - FIRM CANNOT BE DISSOCIATED FROM THE SCH EME OF DECLARATION OF GOLD UNDER THE AMNESTY SCHEME IN THE NAMES OF THE FAMILY MEMBERS OF THE PARTNERS OF THE ASSESSEE - FIRM, AS DIFFERENT INDIVIDUALS COULD NOT HAVE HIT UPON THE SAME IDEA OF ACQUIRING GOLD IN THE YEAR OF ACCOUNT RELEVANT FOR THE ASSESSMENT YEAR 1978 - 79 AND DECLARING SUCH GOLD UNDER THE AMNESTY SCHEME AND GETTING THE GOLD VALUED BY THE SAME VALUE ON THE SAME DAY AND FILING THEIR RETURNS UNDER THE AMNESTY SCHEME ON THE SAME DAY, I.E '30 - 3 - 1987, AND ITA. NO. 1326, 1327/M/2015 A.Y. 2009 - 10& 2010 - 11 19 SUBSEQUENTLY GETTING THE GOLD CONVERTED INTO ORNAMENTS THROUGH KARIGARS ON MORE OR LESS THE SAME DAY AND SUBSEQUENTLY SELLING THE ORNAMENTS TO THE ASSESSEE - FIRM IN THE SAME YEAR OF' ACCOUNT WITHOUT THE PLANNING, CONTROLLING AND COORDINATION OF A CENTRAL AGENCY AND THAT AGENCY IN THE SURROUNDING CIRC UMSTANCES APPEARS TO BE ONLY THE ASSESSEE - FIRM. THE APEX COURT HAS HELD IN THE CASE OF JAMNAPRASAD KANHAIYALAL (SUPRA) THAT THERE IS NO DOUBLE TAXATION IN TAXING THE PERSON TO WHOM THE INCOME ACTUALLY BELONGED WITH THE PERSONS WHO FALSELY DECLARED THEM IN THEIR RETURNS FILED UNDER THE VOLUNTARY DISCLOSURE SCHEME. THAT IS A RISK WINCH AN ASSESSEE RESORTING TO UNFAIR TAX SAVING DEVICES HAS NECESSARILY TO RUN AND AN ASSESSEE WHO HAS RESORTED TO SUCH DEVICES HAS TO THANK HIMSELF FOR IT.' 2.5.20 AS REGARDS THE ISSUE OF CROSS - EXAMINATION, IN T. BEVASAHAYA NADARV. CIT [1964151 HR 20 (MAD.), IT WAS HELD: 'IT CANNOT BE LAID DOWN AS A GENERAL PROPOSITION OF LAW THAT THE INCOME - FAX DEPARTMENT CANNOT RELY UPON ANY EVIDENCE WHICH HAS NOT BEEN SUBJECTED TO CROSS - EXAMINAT ION. AN ITO OCCUPIES THE POSITION OF A QUASI - JUDICIAL TRIBUNAL AND IS NOT BOUND BY THE RULES OF THE EVIDENCE ACT, BUT HE MUST ACT IN CONSONANCE WITH NATURAL JUSTICE, AND ONE SUCH RULE IS THAT HE SHOULD NOT USE ANY MATERIAL AGAINST AN ASSESSEE WITHOUT GIVIN G THE ASSESSEE AN OPPORTUNITY TO MEET IT. HE IS NOT BOUND TO DIVULGE THE SOURCE OF HIS INFORMATION. THERE IS NO DENIAL OF NATURAL JUSTICE IF THE /TO REFUSES TO PRODUCE AN INFORMANT FOR CROSS - EXAMINATION THOUGH IF A WITNESS* IS EXAMINED IN THE PRESENCE OF T HE ASSESSEE, THE ASSESSEE MUST HE AL/OWED TO CROSS - EXAMINE HIM. THE RANGE OF NATURAL JUSTICE IS WIDE AND WHETHER OR NOT THERE HAS BEEN VIOLATION OF NATURAL JUSTICE WOULD DEPEND ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 2.5.21 THE SUPREME COURT HAD ALSO A N OCCASION TO CONSIDER THE APPLICABILITY OF THE PRINCIPLES OF NATURAL JUSTICE IN R.S. DASS V. UNION OF INDIA AIR 1967 SC 593. REFERRING TO THE SAME, THE SUPREME COURT IN CHAIRMAN, BOARD OF MINING EXAMINATION V. RAMJEE AIR 1977 SC 965, INTER ALIA, HELD AS F OLLOWS: NATURAL JUSTICE IS NO UNRULY HORSE, NO LURKING LAND MINE, NOR A JUDICIAL CURE ALL. IF FAIRNESS IS SHOWN BY THE DECISION MAKER TO THE MAN PROCEEDED AGAINS4 THE FORM, FEATURES AND THE FUNDAMENTALS OF SUCH ESSENTIAL PROCESSUAL PROPRIETY BEING CONDITIO NAL BY THE FACTS AND CIRCUMSTANCES OF SUCH SITUATION, NO BREACH OF NATURAL JUSTICE CAN BE COMPLAINED OF UNNATURAL EXPANSION OF NATURAL JUSTICE, ITA. NO. 1326, 1327/M/2015 A.Y. 2009 - 10& 2010 - 11 20 WITHOUT REFERENCE TO THE ADMINISTRATIVE REALITIES AND OTHER FACTORS OF A GIVEN CASE, CAN BE EXASPERATING. WE CAN NEITHER BE FINICAL NOR FINANCIAL BUT LET SHOULD BE FLEXIBLE YET FIRM IN THIS JURISDICTION. 2.5.22 IN GTC INDUSTRIES LTD. VS. ASSISTANT COMMISSIONER OF INCOME - TAX [1998] 65 ITD 380 (BOM), 'T WAS HELD AS UNDER: 105 IN OUR OPINION RIGHT TO CROSS - EXAMINE THE WITNESS WHO MADE ADVERSE REPORT, IS NOT AN INVARIABLE ATTRIBUTE OF THE REQUIREMENT OF THE DICTUM, 'AUDI ALTERAM PARTEM THE PRINCIPLES OF NATURAL JUSTICE DO NOT REQUIRE FORMAL CROSS - EXAMINATION. FORMAL CROSS - EXAMINATION IS A PART OF PRINCIPLE OF NATURAL JUS TICE. IT IS GOVERNED BY THE NIBS OF EVIDENCE, AND IS THE CREATION OF COURT. IT IS PART OF LEGAL AND STATUTORY JUSTICE, AND NOT A PART OF NATURAL JUSTICE, THEREFORE, IT CANNOT BE LAID DOWN AS A GENERAL PROPOSITION OF LAW THAT THE REVENUE CANNOT RELY ON ANY EVIDENCE WHICH HAS NOT BEEN SUBJECTED TO CROSS - EXAMINATION. HOWEVER, IF A WITNESS HAS GIVEN DIRECTLY INCRIMINATING STATEMENT AND THE ADDITION IN THE ASSESSMENT M BASED SOLELY OR MAINLY ON THE BASIS OF SUCH STATEMENT, IN THAT EVENTUALITY IT IS INCUMBENT ON THE ASSESSING OFFICER TO ALLOW CROSS - EXAMINATION. ADVERSE EVIDENCE AND MATERIAL, RELIED UPON IN THE ORDER, TO REACH THE FINALITY, SHOULD BE DISCLOSED TO THE ASSESSEE. BUT THIS RULE IS NOT APPLICABLE WHERE THE MATERIAL OR EVIDENCE USED IS OF COLLATERAL NATU RE. (EMPHASIS SUPPLIED IN ALL QUOTATIONS) 25.23 TO SUM UP, I WOULD LIKE TO QUOTE THE LANDMARK CASE OF STATE BANK OF INDIA V. S.K. SHARMA AR 1996 SC 364 WHERE THE HON'BLE APEX COURT OBSERVED. 'JUSTICE MEANS JUSTICE BETWEEN THE PARTIES. THE INTEREST OF JUSTICE EQUALLY DEMAND THAT THE GUILTY SHOULD BE PUNISHED AND THAT TECHNICALITIES AND IRREGULARITIES WHICH DO NOT OCCASION FAILURE OF JUSTICE ARE NOT ALLOWED TO DEFEAT THE ENDS OF JUSTICE. PRINCIPLES OF NATURAL JUSTICE ARE BUT THE MEANS TO ACHIEVE THE, END OF JUSTICE. THEY CANNOT BE PERVERTED TO ACHIEVE FROM OPPOSITE END.' 2.5.24 IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS SEEN THAT THE APPELLANT HAS NOT PROVED THE MOVEMENT OUSOR1ATON OF ITS PURCHASE BY SPECIFYING THE LORRY NUMBER THE NOTICE U/S I 36) OF THE, ACT 'O COULD NOT BE SERVED THUS, THE BURDEN CAST ON THE ASSESSEE HAS NOT BEEN DISCHARGED. THEREFORE, IN VIEW OF THE FACTUAL AND LEGAL ANALYSIS, I RECORD A FINDING OF FACT THAT THE APPELLANT HAS FAILED TO PROVE THE GENUINENESS OF PURCHASE TRANSACTI ONS FROM THE SAID PARTY AS NOTED BY THE TD. AO. ITA. NO. 1326, 1327/M/2015 A.Y. 2009 - 10& 2010 - 11 21 25.25 HOWEVER, IN THIS CASE, THE APPELLANT BEING A USER OF GOODS, LD. A. NOT HAVING DOUBTED THE GENUINENESS OF CONTRACT RECEIPTS FROM A GOVT. AGENCY, HE COULD NOT HAVE GONE AHEAD AND MADE ADDITION IN RESPECT OF ENTIRE PURCHASES ESPECIALLY WHEN HE HIMSELF RECORDED A FINDING THAT THE APPELLANT DID NOT MAKE THE PURCHASES FROM THE PARTY UNDER NOTICE BUT WITHOUT STATING AS TO HOW THE WORKS CONTRACT COULD BE EFFECTED WITHOUT THE GOODS IN QUESTION. IN EFFECT, THE APP ELLANT'S PURCHASES PER SE HAVE NOT BEEN DOUBTED BUT GENUINENESS OF THE SUPPLIER HAS BEEN NEGATED. THUS THE ISSUE WOULD BOIL DOWN TO FINDING OUT THE ELEMENT OF PROFIT EMBEDDED IN SUCH PURCHASES WHICH THE APPELLANT WOULD HAVE MADE FROM SOME UNKNOWN ENTITIES. 2.5.26 THE APPELLANT HAS ALSO RELIED ON LATEST DECISION OF HON1BLE ITAT MUMBAI BENCH IN THE CASE OF RAJEEV G. KALATHIL IN ITA NOS. 6727/MUM/2012 AND CO NO 06/MUM/2014 WHERE VIDE ORDER DATED 20 - 08 - 2014, THE ADDITION MADE ON ACCOUNT OF BOGUS PURCHASES WERE DELETED. HOWEVER, I FIND THAT THE FINDING OF THE HON1BLE [TAT IS BASED ON THE PECULIAR FACTS OF THE CASE AS IN THAT CASE, GOODS RECEIVED BY THE ASSES SEE., FROM THE SUPPLIER WAS ADMITTED TO HAVE BEEN TRANSPORTED BY THE TRANSPORTER. HOWEVER, IN THE PRESENT CASE, NO SUCH DELIVERY THROUGH A PARTICULAR LORRY NUMBER HAS BEEN PROVIDED AS FAR AS THE APPELLANT'S PURCHASE IS CONCERNED. THUS, THE DECISION RENDERED IN THE CASE OF RAJEEV C. KALATHIL (SUPRA) CANNOT BE SAID TO BE APPLICABLE IN THIS CASE. SIMILARLY, DECI SION OF THE HONBLE BOMBAY HIGH COURT IN NIKUNJ EXIMP (ITA NO. 5604 OF 2010) WAS RENDERED ON THE ISSUE WHETHER ANY SUBSTANTIAL QUESTION OF LAW WAS INVOLVED IN THAT CASE. IN FACT, IN A LATER DECISION IN NIKUNJ EXIMP (2014) 48 TAXMANN.COM 20 (BORN), HONBLE BOMBAY HIGH COURT ON THE VERY SAME ISSUE OF OBTAINING BOGUS BILLS DISMISSED THE ASSESSES WRIT PETITION FILED AGAINST NOTICE U/S. 148. IN THIS REGARD, IT IS APT TO REFER TO DECISION OF GUJARAT HIGH COURT IN THE CASE OF BHOLANATH POLY FAB PVT. LTD. 355 1TR 2 90 (GUJ) WHERE THE HONBLE COURT WAS SIMILARLY BATTLING WITH THE FINDING OF HON'BLE ITAT THAT PURCHASES WERE MADE FROM BOGUS PARTIES SINCE NOTICE ISSUED BY THE A.0. TO THESE PARTIES WERE ALLEGEDLY RECEIVED/UNSERVED AND THE ASSESSEE WAS UNABLE TO PRODUCE AN Y CONFIRMATION FROM THESE PARTIES. THE TRIBUNAL HAD HELD THAT THOUGH PURCHASES WERE MADE FROM BOGUS PARTIES, NEVERTHELESS, THE PURCHASES THEMSELVES WERE NOT BOGUS AS THE ENTIRE QUANTITY OF OPENING STOCK, PURCHASES AND SALES WERE TALLYING AND HENCE, ONLY TH E PROFIT MARGIN EMBEDDED IN SUCH AMOUNT WOULD BE ITA. NO. 1326, 1327/M/2015 A.Y. 2009 - 10& 2010 - 11 22 SUBJECTED - TO TAX. THE HON'BLE GUJARAT HIGH COURT TAKING COGNIZANCE OF THE FACT HELD THAT WHETHER PURCHASES THEMSELVES WERE BOGUS OR WHETHER PARTIES FROM WHOM SUCH PURCHASES WERE MADE WERE BOGUS, IS ESSENTIA LLY A QUESTION OF FACT AND THE TRIBUNAL HAVING EXAMINED THE EVIDENCE ON RECORD AND CONCLUDED THAT THE ASSESSEE DID PRODUCE CLOTH AND SELL FINISHED GOODS, THE ENTIRE AMOUNT COVERED UNDER SUCH PURCHASE WOULD NOT BE SUBJECTED TO TAX AND ONLY THE PROFIT ELEMEN T EMBEDDED THEREIN WAS TO BE TAXED. WHILE CORNING TO THE ABOVE CONCLUSION, THE HON'BLE HIGH COURT ALSO RELIED ON THE DECISION IN THE CASE OF SANJAY OIL CAKE END. 316 ITR 214 (GUI). 2.5.27 SIMILARLY, IN YET ANOTHER DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT SHETH (2013) 38 TAXMANN.COM 385 (GUJ), HONBLE COURT WAS SEIZED WITH A SIMILAR ISSUE WHERE THE A.O. HAD FOUND THAT SOME OF THE ALLEGED SUPPLIERS OF STEEL TO THE ASSESSEE HAD NOT SUPPLIED ANY GOODS BUT HAD ONLY PROVIDED SALE BILLS AND HENCE, PURCHASES FROM THE SAID PARTIES WERE HELD TO BE BOGUS. THE A.O. IN THAT CASE ADDED THE ENTICE AMOUNT OF PURCHASES TO GROSS PROFIT OF THE ASSESSEE. LD. CIT(A) HAVING FOUND THAT THE ASSESSEE HAD INDEED PURCHASED THOUGH NOT FROM NAMED PARTIES BUT O THER PARTIES FROM GREY MARKET, PARTIALLY SUSTAINED THE ADDITION AS PROBABLE PROFIT OF THE ASSESSEE. THE TRIBUNAL HOWEVER, SUSTAINED THE ADDITION TO THE EXTENT OF 12.5%. TAKING INTO ACCOUNT THE ABOVE FACTS, THE HON'BLE GUJARAT HIGH COURT HELD THAT SINCE THE PURCHASES WERE NOT BOGUS, BUT WERE MADE FROM PARTIES OTHER THAN THOSE MENTIONED IN BOOKS OF ACCOUNTS, ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES COULD BE ADDED TO THE ASSESSES INCOME AND AS SUCH NO QUESTION OF LAW AROSE IN SUCH ESTIMATION. WHITE A RRIVING AT THE ABOVE CONCLUSION, THE HON'BLE COURT ALSO RELIED ON THE DECISION IN THE CASE OF VIJAY M MISTRY CONSTRUCTION LTD. 355 ITR 498 (GUJ) AND FURTHER APPROVED THE DECISION OF AHMEDABAD BENCH, [TAT IN THE CASE OF VIJAY PROTEINS 58 ITD 428. IN THE CAS E OF VIJAY PROTEINS (SUPRA), THE HONBLE ITAT WAS SEIZED WITH A CASE OF BOGUS SUPPLIERS OF OIL CAKES WHERE 33 PARTIES BE BOGUS BY THE DEPARTMENTAL AUTHORITIES EVEN THOUGH PAYMENTS WERE MADE TO THE SAID PARTIES BY CROSS CHEQUES AND IN FACT THE A.0. IN THAT CASE HAD BROUGHT ADEQUATE MATERIAL ON RECORD TO PROVE THAT THE CROSS CHEQUES HAD NOT BEEN GIVEN TO PARTIES FROM WHOM SUPPLIES WERE ALLEGEDLY PROCURED BUT THESE WERE ENCASHED FROM A BANK ACCOUNT IN THE NAME OF ANOTHER EQUITY, POSSIBLY HAWALA DEALER. SUBSEQU ENTLY, THE MONEY DEPOSITED IN THAT ACCOUNT WAS WITHDRAWN IN CASH ALMOST ITA. NO. 1326, 1327/M/2015 A.Y. 2009 - 10& 2010 - 11 23 ON THE SAME DAY. THE TRIBUNAL HOWEVER, HELD THAT IF THE PURCHASES WERE MADE FROM OPEN MARKET WITHOUT INSISTING FOR GENUINE BILLS, THE SUPPLIERS MAY BE WILLING TO SELL THE PRODUCT AT A MUCH LESS RATE AS COMPARED TO A RATE WHICH THEY MAY CHARGE IN WHICH THE DEALER HAS TO GIVE GENUINE SALE INVOICE IN RESPECT OF THAT SALE. KEEPING ALL SUCH FACTORS IN MIND, THE TRIBUNAL ESTIMATED AN ELEMENT OF PROFIT PERCENTAGE OF THE OVERALL PURCHASE PRICE ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS THROUGH FICTITIOUS INVOICES. 2.5.28 LD. AR HAS ALSO ORALLY REFERRED TO A FEW DECISIONS BY OTHER CIT(A) IN MUMBAI IN SUPPORT OF AN ALTERNATE CONTENTION THAT ONLY A PERCENTAGE OF THE PURCHASES COULD AT BEST HAVE BEEN DI SALLOWED. SOME OF THEM ARE AS UNDER: I) MR. JITENDRA T. ADNANI, APPEAL NO. CIT(A)28/ITO 14(3)(2)/77/2011 - 12 DATED 26 - 03 - 2012. II) SHRI LAXMAN VALECHA, APPEAL NO. CIT(A)3212 1(1) )(2)/IT - 347/09 DATED 29 - 10 - 2010 ILL) M/S. MOHAMMED HAJI ADAM & CO., APPEAL NO. CIT(A)24/13(1)(2)/ 291/09 - 10 DATED 30 - 04 - 2010 IV) M/S. SHETH CORPORATION APPEAL NO, CIT(A)25/IT - 420/14(3)(3)/09/2010 DATED 28.09.2012. 2.5.29 AS NARRATED EARLIER, THE LD. A.O. IN THIS CASE HAS HIMSELF HELD THAT THE PARTIES FROM WHOM THE PURCHASES WERE MAD E BY THE APPELLANT WAS FOUND TO BE BOGUS AND THAT IS THE REASON FOR WHICH THEY WERE NOT PRODUCED DURING THE ASSESSMENT PROCEEDINGS. THE MOTIVE BEHIND OBTAINING BOGUS BILLS, THUS, APPEARS TO BE INFLATION OF PURCHASE PRICE SO AS TO SUPPRESS TRUE PROFITS. IN ORDER TO ESTIMATE AS TO WHAT COULD BE THE GP WHICH THE APPELLANT HAS SUPPRESSED WHICH WAS EMBEDDED IN THE ALLEGED PURCHASES, IT IS SEEN THAT THE APPELLANT HAS SHOWN DIFFERENT GP % IN DIFFERENT YEARS THUS, BETRAYING ANY CLEAR PICTURE ABOUT THE ACTUAL GP. SU CH A VARIATION ALSO POINTS TO THE FACT THAT THE APPELLANT HAS MANIPULATED ITS ACCOUNTS THOUGH LD. AC HAS NOT DOUBTED THE RECEIPTS FROM CONSUMPTION OF PRODUCTS. THUS, IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN VIEW OF CIT VS. SIMIT P. SHETH (SUPRA), I HOLD THAT THE PROFIT ELEMENT EMBEDDED AND SUPPRESSED IN THE ALLEGED PURCHASED WERE TO THE EXTENT OF 12.5 %. HENCE, ADDITION TO THE EXTENT OF 12.5% IS UPHELD AND BALANCE IS DELETED. ACCORDINGLY, THE GROUNDS RAISED IN THIS REGARD ARE PARTLY ALLOWED. 2.5.30 GROUND 4 IS AGAINST AN ADDITION TOWARDS BANK FDR INTEREST ON THE BASIS OF AIR INFORMATION. EVEN DURING THE COURSE OF THE ITA. NO. 1326, 1327/M/2015 A.Y. 2009 - 10& 2010 - 11 24 APPELLATE PROCEEDINGS, NOTHING HAS BEEN BROUGHT BEFORE ME TO TAKE ANY OTHER VIEW. ACCORDINGLY, THIS GROUND IS DISMISSED. 2.5.31. GROUN D NO. 5 IS AGAINST THE INITIATION OF PENALTY PROCEEDINGS U/S 271(1) (C) OF THE ACT. THIS BEING PREMATURE, THE GROUND RAISED HAS TO BE DISMISSED. 2.5.32. IN THE RESULT, THE APPEAL FOR A.Y. 2010 - 11 IS PARTLY ALLOWED. 6 . ON APPRAI SAL OF THE ABOVE SAID FINDING , WE NOTICED THAT THE AO RAISED THE ADDITION ON THE BASIS OF NON - PROVING THE GENUINESS OF THE PURCHASE FROM THE SIX PARTIES WHOSE NAME HAS BEEN MENTIONED ABOVE. NO DOUBT, THE NOTICE S U/S 133(6) OF THE ACT WERE NOT SERVED BUT IT IS IN C U MBENT UPON THE ASSESSEE TO PROVE THE TRANSACTION BY ADDUCING SUFFICIENT EVIDENCE O N RECORD WHO FAILED TO DO SO. IN THE APPEAL BEFORE THE CIT(A) , THE CIT(A) DECIDED THE CASE ON THE BASIS OF FINDING OF THE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT SHETH (2013) 38 TA XMANN.COM 385 (GUJ) . NO DISTINGUISHABLE MATERIAL HAS BEEN PRODUCED BEFORE US . THE FACTUAL POSITION IS THE SAME. CIT(A) HAS EXHAUSTIVELY DISCUSSED THE MATTER. THE REVENUE ALSO RAISED THE CONTENTIONS IN THE CROSS - APPEAL THAT ALL AMOUNT OF BOGUS PURCHASE IS REQUIRED TO BE ADDED BUT THE DECISION OF THE CIT(A) SEEMS TO BE JUSTIFIABLE IN VIEW OF THE LAW MENTIONED ABOVE SPECIFICALLY IN THE CIRCUMSTANCES WHEN BOOKS OF ACCOUNT HAS N OT BEEN REJECTED AND SALES DECLARED ARE NOT DE CLINED , AND THUS ONLY PROFIT ELEMENT IS TO BE ASSESSED AND NOT THE ENTIRE VALUE OF PURCHASES , T HEREFORE, IN THE SAID CIRCUMSTANCES WE ARE OF THE VIEW THAT THE CIT(A) HAS PASSED THE ORDER ITA. NO. 1326, 1327/M/2015 A.Y. 2009 - 10& 2010 - 11 25 JUDICIOUSLY AND CORRECTLY WHICH IS NOT LIABLE TO BE INTERFERE D WITH AT THIS APPELLATE STAGE. ACCORDINGLY, THE CROSS - APPEALS OF THE ASSESSEE AND R EVENUE ARE DISMISSED. I TA NO.1 327 /M/201 5 & 1191/M/2015 : - 8 . THE FACTS OF THE PRESENT CASE ARE QUITE SIMILAR TO THE FACTS OF THE CASE AS NARRATED ABOVE WHILE DECIDING TH E APPEAL IN ITA. NO.1326/M/2015, THEREFORE, THERE IS NO NEED TO REPEAT THE SAME. HOWEVER, THE FIGURE IS DIFFERENT. THE ASSESSEE CHALLENGED THE ADDITION OF 12.5% UPON THE BOGUS PURCHASE TO THE TUNE OF RS. 67,27,874/ - . HOWEVER, THE REVENUE HAS CHALLENGED THE DELETION OF ADDITION TO THE TUNE OF RS.67,27,874/ - ON ACCOUNT OF BOGUS PURCHASE IN VIEW OF THE PROVISION U/S 69C OF THE ACT. THE MATTER OF CONTROVERSY IS THE QUITE SIMILAR TO THE MATTER OF CONTROVERSY AS DECIDED BY US WHILE DECIDING AN APPEAL IN ITA. NO.1326/M/2015 IN WHICH WE HAVE CONFIRMED THE ADDITION TO THE EXTENT OF 12.5% UPON THE BOGUS PURCHASE. IN VIEW OF THE FINDING IN ITA. NO. 1326/M/2015 , WE DISMISSED THE ABOVE MENTIONED APPEALS UPHOLDING THE OR DER OF THE CIT(A) IN QUESTION . ITA. NO. 1326, 1327/M/2015 A.Y. 2009 - 10& 2010 - 11 26 9 . IN THE RESULT , APPEALS FILED BY THE REVENUE AS WELL AS AS SESSEE ARE HEREBY ORDERED TO BE D ISMISSED . ORDER P RONOUNCED IN THE OPEN COURT ON 09 . 02 . 201 8 SD/ - SD/ - ( G. S. PANNU ) (AMARJIT SINGH) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED : 09 .02 . 2018 V.P. SINGH / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI