DCIT 9(2)(1), MUMBAI V. M/S B. CHOPDA CONSTRUCTION P. LTD. , MUMBAI

ITA 1513/MUM/2020

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 8403 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 16-03-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MOHAN TANDON
• Keywords: Bogus purchase; Principle of natural justice; Question of law; Corroborative evidences; Onus to prove; Sham transactions
• Section: 131; 68; 142(1); 133(6); 250; 274; 143(2); 48

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE PRAMOD KUMAR, VP AND SHRI AMARJIT SINGH, JM आयकर अपील सं/ I.T.A. No. 1513/Mum/2020 (निर्धारण वर्ा / Assessment Year: 2011-12) DCIT-9(2)(1) Room No.665A, 6 th Floor, Aayakar Bhavan, Churchgate, Mumbai- 400020. बिधम/ Vs. M/s. B. Chopda Construction Pvt. Ltd. A-208, Sagar Tech Plaza, Sakinaka Junction, Andheri, Mumbai-400072. स्थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AACCB4214G (अपीलाथी /Appellant) .. (प्रत्यथी / Respondent) सुनवाई की तारीख / Date of Hearing: 14/12/2021 घोषणा की तारीख /Date of Pronouncement: 22/02/2022 आदेश / O R D E R PER AMARJIT SINGH, JM: The revenue has filed the present appeal against the order dated 27.12.2019 passed by the Commissioner of Income Tax (Appeals) -16, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2011- 12. 2. The revenue has raised the following grounds: - “11. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in restricting the suppressed profit to the extent of 12.50% of bogus purchases, when the assessee could not produce any parties or evidence that the said goods were purchased Assessee by: Shri Mohan Tandon Revenue by: Shri Himanshu Sharma (Sr. AR) ITA No. 474/Mum/2021 A.Y.2012-13 2 and the onus of proving genuineness of purchases was not discharged by the assessee. 2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting the addition made on account of bogus transaction without appreciating the fact that the assessee could not establish the one to one correlation between item of purchase and sale. 3. Whether the Ld. CIT(A) has ignored the judgement of the Hon’ble Apex Court in the case of M/s. N.K. Proteins Vs. DCIT SLP Nos. 769 of 2017 dated 16-1-2017 wherein the Supreme court has dismissed the SLP filed by the tax payer and confirmed the decision of the Hon’ble High Court for addition of entire income is to be made on account of bogus purchase as against the ITAT’s decision restricting it 25% 4. The appellant craves leave to amend or alter any grounds(s) or add a new grounds(s).” 3. The brief facts of the case are that the assessee filed its return of income on 29.09.2011 declaring total income to the tune of Rs.88,41,100/- for the A.Y.2011-12. Thereafter, the case of the assessee was reopened on the basis of information received from the Sales Tax(VAT) Department, State of Maharashtra in which it was conveyed that the assessee has taken the bogus purchase entry from the following four parties: - Sr. No. Name of hawala party Amount (Rs.) 1 Deep Enterprises 292229 ITA No. 474/Mum/2021 A.Y.2012-13 3 2 Real Traders 972694 3 Om Traders 369221 4 Mana Traders 3048405 Total 4682549 Thereafter, the case of the assessee was reopened u/s 147/148 of the Act. Necessary notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. Thereafter, the notice u/s 133(6) of the Act was issued to the concerned parties which was received back unserved. Thereafter, the AO raised the addition of bogus purchase to the tune of Rs.46,82,549/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who restricted the addition to the extent of 12.5% but the revenue was not satisfied, therefore, the revenue has filed the present appeal before us. ISSUE NO.1 4. Under this issue the revenue has challenged the restriction of the addition to the extent of 12.5% of the bogus purchase. Before going further, we deem it necessary to advert the finding of the CIT(A) on record: “6.2.1 I have carefully gone through the assessment order, submission of the AR of the appellant and the facts of the case. The Ld. AO made the addition on the basis of information received from the Sales Tax Authorities. The Sales Tax (VAT) department, State of Maharashtra had recorded the statements of certain hawala dealers who have confirmed to have given bogus bills to certain assessees including the appellant company. The appellant company was asked ITA No. 474/Mum/2021 A.Y.2012-13 4 to submit the details of purported purchases made from these parties and a show cause was issued asking the appellant why the same should not be disallowed as bogus purchases. The appellant had filed their reply stating that purchases were made from regular parties supported by proper bills and the accounting entries. The payments were made by account payee cheques. The Ld. AO was not in agreement with the submissions of the appellant and observed that the appellant failed to furnish the supporting documentary evidence to support that the purchases were actually made by them. The Investigation Wing of Mumbai had provided a list of hawala bill racketeers who were involved in issuing bills and also the list of beneficiaries. The Sales Tax Department of Mumbai had investigated all these cases thoroughly and prepared a list of such hawala operators and their beneficiaries which had been uploaded in their website. The Ld. AO observed the purchases amounting to Rs. 46,82,549/- to be non-genuine and treated the same as bogus purchases " and added back to the total income of the appellant. 6.2.2 During appellate proceedings once again the appellant was requested to produce the parties from which alleged bogus purchases were made. In response to it, the appellant submitted that all the payments were made by cheque. Necessary evidence regarding transportation and consumption of the material purchased were also produced but it was categorically admitted that they were not in a position to produce the parties for verification about the genuineness of the purchases. 6.2.3. The A.O. has pointed out that necessary supporting evidences in support of its claim were not produced by the appellant. The supplier was in fact the appellant's witness and the Ld. A.O was not required ITA No. 474/Mum/2021 A.Y.2012-13 5 to force its attendance. It was for the appellant to produce it as per Civil Procedure Code which applies to the income-tax proceedings also. It is trite that once a transaction is shown to be of the nature of income, the onus shifts to the assessee to show that the same was not taxable. It can thus be safely assumed that the appellant has grossly failed in its duty to mitigate the burden cast upon it in so far as proving the genuineness of the transaction from the said parties is concerned. 6.2.4 In this regard it is also pertinent to mention that while dealing with the concept of burden of proof, onus of proving is always on the person who makes the claim and not on the Revenue as being made out by the Ld. AR in his submission. While dealing with the issue of deciding the burden of proof, Hon’ble Supreme Court in the cases of CIT Vs. Durgaprasad More 82 ITR 540 and Sumati Dayal Vs. CIT 214 ITR 801 has held that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not real and that taxing authorities are entitled to look into surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities. The Hon’ble court also held that, it is no doubt, true that in all cases in which a receipt is sought to be taxed as income, the burden lies on the department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden to prove that it is not taxable because it falls within exemption provided by the Act, lies upon the assessee. In the case of Durgaprasad More (Supra), the Hon'ble Court went on to add that a party who relies on a recital in a Deed has to establish the truth of this recital, otherwise it will be very to make self-serving statements in documents either executed or taken ITA No. 474/Mum/2021 A.Y.2012-13 6 by a part who relied on those recitals, if all that an assessee who wants to evade tax has to have some recitals made in a document either executed by him or executed in his favour the, the door will be left wide open to evade tax. The Hon’ble Court further held that the Taxing Authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look in to the surrounding circumstances to find out the reality of the recitals made in those documents. 6.2.5 In yet another case of casting of onus viz. Jamnaprasad Kanhaiyalal Vs. CIT 130 ITR 244(SC), Hon’ble 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 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 disclosure under the Voluntary Disclosure Scheme of 1965 but the Ld. A.O. had not found the explanation satisfactory regarding the credit worthiness of the parties and the same came to be confirmed by the Hon’ble 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 appellant has failed to even corroborate the claim before the Ld. A.O. 6.2.6 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 I.T. 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 ITA No. 474/Mum/2021 A.Y.2012-13 7 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 Sheatcroft 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 whether 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 judicial benediction. 6.2.7 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 Hon'ble Supreme Court in the case of CIT v. Daulat Ram Rawatmull [1973] 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 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 establish the proof of those recitals; the taxing authorities were entitled to look into the surrounding circumstances to find out reality of such recitals. 6.2.8 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 ITA No. 474/Mum/2021 A.Y.2012-13 8 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 only 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 equally 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. 6.2.9 The Hon'ble Supreme Court, in the case of Chuharmal v. CIT [1988] 172 ITR 250 90 highlighted the fact that the principle of evidence law is not to be ignored by the authorities, but at the same time, human probability has to be guiding principle, since the A0 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 was 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 ITA No. 474/Mum/2021 A.Y.2012-13 9 authorities were desirous of invoking the principles 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 110 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 attracted to a set of circumstances that satisfies its conditions and was applicable to taxing proceedings. 6.2.10 In such type of cases, reliance is often placed on a number of decisions including those in the cases of Nikunj Eximp in ITA No. 5604 of 2010 (Bombay High Court); Balaji Textiles 49 ITD 177 (Bom) to suggest that no addition could be made on account of disallowance of purchases. 6.2.11 Having gone through the above case laws, it is seen that in none of those cases so much of investigation was done including those by another Government authority, Viz., Maharashtra Sales Tax authority before whom affidavit was filed stating that only bogus bills were supplied without delivery of goods. Further, no vehicle numbers 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 by them. 6.2.12 In the case before the Hon'ble Bombay High Court in Nikunj Eximp (supra), the suppliers had not appeared before the Assessing Officer and from the judgment it appears that it was not a case of the suppliers being non-existent. However, in the present case in appeal, ITA No. 474/Mum/2021 A.Y.2012-13 10 the alleged suppliers have been found to be non-existent. This is not merely a case where the supplier has failed to appear before the Assessing Officer. Hence, the judgment of the Hon'ble Bombay High Court would also be of no help to it. 6.2.13 Further, assessee also rely on the decision of Hon’ble ITAT Mumbai Bench in the case of Rajeev G. Kalathil in ITA Nos. 6727/Mum/2012 and CO No. 06/M um/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 Hon'ble ITAT is based on the peculiar facts of the case as in that case, goods received by the assessee, from the supplier was admitted to have been transported by the transporter. However, in the present case, no such proof of 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 G. Kalathil (supra) cannot be said to be applicable in this case. Similarly, decision of the Hon'ble 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 Nikuni Eximp (2014) 48 Taxmann.com 20 (Bom), Hon'ble Bombay High Court on the very same issue of obtaining bogus bills dismissed the assessee's Writ Petition filed against notice u/s. 148. 6.2.14 Hon'ble Bombay High Court in the case of Killick Nixon Ltd. v. Deputy Commissioner of Income-tax [2012] 20 taxmann.com 703 (Bom.) was similarly faced with the question of sham transactions and it inter alia, held as under: ITA No. 474/Mum/2021 A.Y.2012-13 11 "Section 254 of the Income-tax Act, 1961, read with rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963 - Appellate Tribunal - 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 on 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 - Commissioner (Appeals) confirmed order of Assessing Officer – Tribunal also confirmed order of Assessing Officer, and while doing so, referred to a Supreme Court in case of Sumati Dayal v. CIT (1995) 214 ITR 801 /80 Taxman 89 to held that evidence produced must be analyzed by applying theory of surrounding circumstances and human probabilities Assesse 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 - Held, 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 questions 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 (In favour of revenue). ITA No. 474/Mum/2021 A.Y.2012-13 12 14. So far as the principle laid down in the matter of Omar Salay Mohamed Sait (supra) is concerned there can be no dispute about the proposition laid down therein. Howeve,r 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 book 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 Holdings B.V. v. Union of India (2012] 204 Taxman 408 / 17 taxmann.com 202 is concerned, the Court considered its decisions in the matters of Mc Dowell& Co. Ltd. v. 'Commercial Tax Officer (1985] 154 ITR 48/22 Taxman 11 (SC), Union of India v. Azadi Bachao Andolan (2004] 10 SCC 1 and the Mathuram Agarwal v. State of Madhya Pradesh (1999) 8 SC 667 and concluded that where the transaction is not genuine but a colourable 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 law" (para-45). In the latter part of para 45, held-that colourable device 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 observations should be read with para 46 where the majority holds "on this aspect one of us, Chinappa Reddy, I. has proposed a separate opinion with which we agree". The words "this aspect" express the majority's agreement with the judgment of ITA No. 474/Mum/2021 A.Y.2012-13 13 Reddy, I. only in relation to tax evasion through the use of colourable devices and by resorting to dubious methods and subterfuges. Thus, cannot be said that all tax planning illegal/illegitimate/impermissible. Moreover, Reddy, I. himself says that he agrees with the majority. In the judgment of Reddy, I. 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 regarding the need to depart from the "Westminster" and tax 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 tax 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 (supra), 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 authorities came to a finding that the same was not genuine. So far as the question Nos. (ii), (iii) (iv) and (v) 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 for this Court to interfere. ITA No. 474/Mum/2021 A.Y.2012-13 14 6.2.15 Hon’ble Allahabad High Court while dealing with the issue of bogus purchase in the case of Sri Ganesh Rice Mills. 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 has been introduced and Tribunal upheld such finding, addition on account of disallowance of such purchases was justified [Assessment year 1984. 85] The assessee was engaged in the production of gram, pulses, rice chunni-bhusi, etc. The Assessing Officer treated five purchases as bogus. That was done after making enquiries wherein he found that the parties mentioned at item Nos. 4 and 5 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 the assessee that it had made the purchases of chuni-bhusi from other persons also. The Assessing Officer had recorded a finding that in order to lower the profits, the bogus purchases had been introduced. Taking into consideration the entire facts and circumstances of the case, the findings recorded by the Tribunal could not be said to be based on irrelevant material and consideration. The assessee being 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 ITA No. 474/Mum/2021 A.Y.2012-13 15 invoices/bills 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, the assessee being a manufacturer of chuni-bhusi and purchases having been found to be bogus and as there were no other purchases of chuni-bhusi, the benefit of deduction of such purchases had rightly been disallowed. 6.2.16 Similarly, in the case of Khandelwal Trading Cov. Assistant Commissioner Of Income Tax 119961 55 TT1 261 (IP.), it was observed and held as under: 7. We take up the first contention of Shri Singhvi. It teas contended that only gross prof rate should have been applied and the addition Should have been to that extent only. 8. Let us assume that the impugned purchases in this case are bogus that can 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 to enter a bogus purchase in the books, obviously to shot lesser profit than actually earned. This in turn could be to bring the gross profit rate to near about the earlier years' performance in order to avoid a deeper probe by the taxing authorities and/or to avoid rating higher taxes, Thus, when Once bogus purchase is entered in the books without a corresponding sales or increase in stocks, the obvious result would be lowering of pip. mate. If these bogus purchases are removed, the g.p, ITA No. 474/Mum/2021 A.Y.2012-13 16 rate would automatically go up. Under the assumption that the purchases are bogus, one situation visualised is that there are no corresponding sales can be more justifiable than by the bogus purchase itself? 9. Likewise, there can be another situation also. The purchase may be bogus and correspondingly there may be a bogus sale also, and since both are bogus, the GP rate is obviously manipulated to affect the overall result. Then, accepting Shri Sanghvi's contention would further make the accounts bogus. Similarly, there 10. The point we are trying to drive home is that when a bogus entry is entry. The legitimate way of removing the entry would be, as every student of accountancy would have is to do that has been omitted to be dome or undo that has been wrongly done. 11. Now, so far we were only assuming that the purchases are bogus. Coming to the facts of the case, were the purchases worth 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 assessee to show cause strengthens the Department's case. This stoic silence of the assessee also blunts the assessee's argument that Shri Hukamchand's statement was recorded at its back. It may have been recorded at its back, but the results thereof were informed to the assessce and that is what the assessee was asked to explain and failed to do so. Thus, not we are not assuming but are concluding that the purchases of Rs.6,500 were in fact bogus. In case of bogus entries, in our opinion, that could be the best remedy, has been discussed above. The Assessing Officer has simply done that. We are unable to appreciate Shri Singhvi's ITA No. 474/Mum/2021 A.Y.2012-13 17 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 stock 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 cannot lead us to conclude otherwise. Under the circumstances of this case, we are not inclined to give much weightage to this contention of the assessee. 6.2.17 Further, in Deoria Oxygen Company v. Commissioner of Income-tax(2007] 160 TAXMAN 427 (ALL.), it was observed and held as under: "40. This leaves us to the question as to whether the Tribunal should have given due regard to the legitimate outgoings in the form of the entire purchases of gas cylinders ag not. The principle regarding making of a best judgment assessment has been well settled by the Apex Court in the case of Dhakeswari Cotton Mills Ltd. D. CIT (1954) 26 ITR 775 wherein the Apex Court has held as follows : - "As regards the second contention, toe are in entire agreement with the learned solicitor-General when he says that the Income-tax Officer is not fettered 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 "gleement ends; because it is equally clear that in making the assessment under sub-section (3) of ITA No. 474/Mum/2021 A.Y.2012-13 18 section 23 of the Act, the Income-tax Officer is not entitled to make a pure quess 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 section 23(3). 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 (1944) 12 ITR 393 .......(782) 41. In the present case we find that the Commissioner of Income-tax (Appeals) as also the Tribunal has recorded a categorical, findings of fact that the applicant did not made purchases 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 been made and on the other hand have been found to be bogus by all the authorities 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 giving benefit of the alleged amount spent towards the purchases of gas cylinders." 6.2.18 In Samurai Software (P.) Ltd. Commissioner of Income-tax [2008] 299 ITR 324 (RAJ.), it was held as under: "8. 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 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 tine directors of the assessee-company. The ITA No. 474/Mum/2021 A.Y.2012-13 19 surrender was made by Shri Mahesh Toshniul, 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 late, the company is a separate juridical person. The surrender made by Shri Mahesh Toshnital, in his individual capacity is not binding on the assessee-company. Shri Mahesh Toshnital in his personal statements, has nowhere stated that the surrender tas made on behalf of the assessee-company. We also find that even in the return filed in response to a notice under section 148, the assesse-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-company. Under these circumstances, we do not find any merit in the plea of the learned authorised representative that since the purchases has been added in the hands of Shri 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 hon' ble 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 assessee-company 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 be 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." ITA No. 474/Mum/2021 A.Y.2012-13 20 9.The 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 addition of Rs. 4,37,048 in the hands of the appellant company is concerned, we are satisfied with the reasons 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." 6.2.19 In the case of Indian Woollen Carpet Factory vs. Income-tax Appellate Tribunal (2002] 125 TAXMAN 763 (RA).) it was held as under: "If the transactions were genuine and if the parties had migrated somewhere else, their latest addresses 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 Mio loan had been taken from those parties, the case before the Assessing Officer was that the assessee claimed some purchases from some parties, whom he could not produce or those parties were not available when the section 131 was issued. Therefore, the initial dispute was with regard to genuineness of the transaction 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 not affect the addition made when transactions were found bogus. 6.2.20 In Sanjay Oilcake Industries vs. Commissioner of Income-tax (2009] 316 ITR 274 (Guj), it was held as under: ITA No. 474/Mum/2021 A.Y.2012-13 21 "12. Thus, it is apparent that both the Commissioner (Appeals) and the Tribunal have concurrently accepted the finding of the Assessing Officer that the apparent 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 cheques, 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 accounts. 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, come to the conclusion that in such circumstances, the likelihood of the purchase price being inflated cannot be ruled out and there is no material to dislodge such finding. The issue is not whether the purchase price reflected in the books of account matches the purchase price stated to have been paid to other persons. The issue is whether the purchase 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 ITA No. 474/Mum/2021 A.Y.2012-13 22 should be at a particular sum or at a different sum, can never be an issue of law." 6.2.21 In the case of Assistant Commissioner of Income-tax v. Tribhuvandas Bhimji Zaveri (2000] 74 ITD 92 (MUM.), Hon'ble Mumbai Bench of ITAT while dealing with the issue of bogus purchases where similar arguments were advanced to buttress 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 (1961] 41 ITR 135, the Apex Court held that while deciding on 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 similar 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 McDowell & Co. Ltd. v. CTO [1985] 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 decision, we are of the view that the assessee-firm cannot be dissociated from the scheme 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 valuer on the same day and filing their returns ITA No. 474/Mum/2021 A.Y.2012-13 23 under the amnesty scheme on the same day, ie., 30-3-1987, and subsequently getting the gold converted into ornaments through Karigars on more or less the same day and subsequently selling the ornaments to fix assessee-firm in the same year of account without the planning, controlling and coordination of a central agency and that agency in the surrounding circumstances appears to be only the assessee-firm. The Apex Court has held in the case of Jammaprasad 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 which 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. 6.2.22 As regards the issue of cross-examination, in T. Devasahaya Nadar v. CIT 1964 51 ITR 20 (Mad.), it was held: "It cannot be laid down as a general proposition of law that the Income-tax Department cannot rely upon any evidence which has not been subjected to cross-examination 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 giving 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 ITO refuses to produce an informant for cross- examination though if a witness is examined in the presence of the assessee, the assessee must be allowed to cross- examine him. The range of natural justice is wide and whether or not there has been ITA No. 474/Mum/2021 A.Y.2012-13 24 violation of natural justice would depend on the facts and circumstances of the case 6.223 The Supreme Court had also an occasion to consider the applicability of the principles of natural justice in IRS. Dass v. Union of India AIR 1967 SC 593, Referring to the same, the Supreme Court in Chairman, Board Mining Examination v. Ramice AIR 1977 SC 965, inter alia, held as follows: "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 against, the form, features and the fundamentals of such essential processual propriety being conditional by the facts and circumstances of such situation, no breach of natural justice can be complained of. Unnatural expansion of natural justice, without reference to the administrative realities and other factors of a given case, can be exasperating. We can neither be finical nor financial but should be flexible yet firm in this jurisdiction. 6.2.24 In GTC Industries Ltd. v. Assistant Commissioner of Income- tax (1998] 65 ITD 380 (BOM), it 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 parten. The principles of natural justice do not require formal cross-examination. Formal cross-examination is a part of procedural justice. It is governed by the rules 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 tum be to cross-examination. ITA No. 474/Mum/2021 A.Y.2012-13 25 However, if a witness has given directly incriminating statement and the addition in the assessment is based solely or mainly on the basis of such statement, in that eventuality it is incumbent on the Assessing Officer to 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 there the material or evidence used is of Collateral Nature. 6.2.25 To sum up, I would like to quote the landmark case of State Bank of India v. S.R. Shamma AIR 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 thick 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 of be perverted to achieve from opposite end. 6.2.26 In Bholanath Polyfab Pyt. Ltd. 335 ITR 290 (Guj), the facts of the case were that the assessee was engaged in the business of trading in finished fabrics. For the AY 2005-06, the Assessing Officer held that the purchases worth ₹40,09240/- unexplained. He, therefore, disallowed such expenditure claimed by the assessee and computed the total income of Rs.41,10,187/-. The issue was carried in appeal by the assessee before the Ld. CIT(A) who rejected the appeal, upon which the assessee went in further appeal before the Hon'ble Tribunal. The Hon’ble Tribunal substantially allowed the assessee's appeal. In so far as the question of bogus purchase is concerned. The Hon be Tribunal concurred with the Revenue's Views that such purchases were made from bogus parties. The Tribunal noted that the Assessing Officer had issued notice to all parties from whom such ITA No. 474/Mum/2021 A.Y.2012-13 26 purchases were allegedly made Such notices were returned unserved by the postal authorities with the remark that the address was incomplete The Inspector deputed by the Income-tax Department also could not find any of the parties available at the given addresses. The assessee was unable to produce and confirmation from any of the parties. Though the assessee had claimed to have made payment by account payee cheques, upon verification it was found that the cheques were encashed by some other parties and not by the supposed sellers. 6.2.27 Having come to such a conclusion, however, the Tribunal was of the opinion the purchases may have been made from bogus parties, nevertheless, the purchase themselves were not bogus. The Tribunal adverted to the facts and data on record and came to the conclusion that the entire quantity of opening stock, purchases and the quantity manufactured during the year under consideration were sold of the assessee. he purchases of the entire 1,02,514 meters of cloth were sold during the year under The Hon ble Tribunal, therefore, accepted the assessee's contention that the finished goods were purchased by the assessee, may be not from the parties shown in the accounts, but from other sources In that view of the matter, the Tribunal was of the opinion that not the entire amount, but the profit margin embedded in such amount would be subjected to tax The Tribunal relied on its earlier decision in the case of Sanket Steel Traders vs. ITO (IT appeal Nos. 2801 & 2937 (Ahd) of 2008, dated 20-05-2011 and also made reference to the Tribunals decision in the case of Vijay Proteins Lid. VS. Asstt.CIT (1996] 58 ITD 428 (Ahd). On appeal by the Department, the Hon ble Gujarat High Court held as follows: ITA No. 474/Mum/2021 A.Y.2012-13 27 "We are of the opinion that the Tribunal committed no error. Whether the purchases themselves were bogus or whether the parties from whom such purchases were allegedly made were bogus is essentially a question of fact. The Tribunal having examined the evidence on record came to the conclusion that the assessee did purchase the cloth and sell the finished goods. In that view of the matter, as natural corollary, not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax. This was the view of this Court in the case of Sanjay Oilcake Industries vs. CIT (2009) 316 ITR 274 (Guj.). Such decision is also followed by this Court in a judgment dated August 16, 2011, in Tax Appeal No. 679 of 2010 in the case of CIT vs. Kishor Amrutlal Patel. In the result, tax appeal is dismissed". 6.2.28 The facts in the present case are similar to the facts in the above mentioned case. In the present case, the Ld. AO has shown that the party in question was non-existent. The appellant has not been able to disprove the findings of the Ld. AO regarding the non- existence of the party. However, Ld. AO after examining the evidences did not give any adverse finding that the appellant had not shown consumption/ sales of the goods and that it had not offered the income on such sale of goods. In this case, Ld. A.O, not having doubted the genuineness of sales could not have gone ahead and made addition in respect of entire purchases as it would lead to absurd profits. Thus, the issue would boil down to finding out the element of suppressed profit embedded in purchases which the appellant would have made from some unknown or bogus entities. Hence, following the decision of the Hon'ble Gujarat High Court in Bholanath Polyfab Put. Ltd. ITA No. 474/Mum/2021 A.Y.2012-13 28 (supra), the estimated suppressed profit margin embedded in such amounts of purchases could only be disallowed and subjected to tax. 6.2.29 Similarly, in vet another decision of Hon'ble Gujarat High Court in the case of CIT Simit Sheth (2013) 33 Taxmann.com 385 (Gu)), Hon 'ble Court was seized with a similar issue where the A.O, had found that some of the alleged suppliers of steel to the not supplied an 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 entire 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 other parties rom grey market, partially sustained the addition as probable of the assessee. the Tribunal however, partly sustained the addition. axing into account the above tact, 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 clement embedded in such purchases could be added to such no question of law arose in such estimation. While arriving 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 Bench, ITAT in the case of Vijay Proteins 58 ITD 428. Ahmedabad 6.2.30 In the case of Vijay Proteins (supra), the Hon’ble ITAT was seized with a case of bogus suppliers of oil cakes where 33 parties were found to be bogus by the departmental authorities even though payments were made to the said parties by cross cheques and in fact the A.O. in that case had brought adequate material on record to Prove that the cross cheques had not been given to parties from whom ITA No. 474/Mum/2021 A.Y.2012-13 29 supplies were allegedly procured but these were encashed from a bank account in the name of another entity, possibly hawala dealer. Subsequently, the money deposited in that account was withdrawn in cash almost on the same day. The Tribunal however, held that are 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 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. 6.2.31 As narrated earlier, the La. A.O. in this case has held that the parties from which the purchases were made by the appellant were found to be bogus and that is the reason for which it was not produced during the assessment proceedings. Not having doubted the consumption/sales, the motive behind obtaining bogus bills thus, appears to be inflation of purchase price so as to suppress true profits. Considering the facts of the case as well as the various case laws cited (supra), I estimate the suppressed profit to the extent of 12.5% of the purchases made from the bogus entities, as the suppressed profit element embedded in such purchases. This estimation is in addition to the GP shown by the appellant. Accordingly, this ground of appeal is partly allowed. In the result, the appeal of the appellant is Partly Allowed.” 5. On appraisal of the above mentioned finding, we noticed that the CIT(A) has restricted the addition to the extent of 12.5% of the bogus purchase on the basis of the decision in the case of Bholanath Ployfab Pvt. ITA No. 474/Mum/2021 A.Y.2012-13 30 Ltd. 355 ITR 290 (Guj), Vijay Proteins 58 ITD 428 & CIT Vs. Simit P. Sheth (2013) 38 Taxmann.com 385 (Guj) etc., which have been discussed above while deciding the issue. The CIT(A) has also kept in mind about the profit embedded in the bogus purchase. The addition has been restricted on the basis of the above mentioned law which nowhere seems unjustifiable. Taking into account of all the facts and circumstances, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfered with at this appellate stage. Accordingly, we affirm the finding of the CIT(A) on this issue and decide this issue in favour of the assessee against the revenue. 7. In the result, the appeal filed by the revenue is hereby dismissed. Order pronounced in the open court on 22/02/2022 Sd/- Sd/- (PRAMOD KUMAR) (AMARJIT SINGH) उपधध्यक्ष / VICE PRESIDENT न्यधनिक सदस्य/JUDICIAL MEMBER मुंबई Mumbai; ददनांक Dated : 22/02/2022 Vijay Pal Singh (Sr. PS) ITA No. 474/Mum/2021 A.Y.2012-13 31 आदेश की प्रनिनिनप अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. दवभागीय प्रदतदनदध, आयकर अपीलीय अदधकरण, मुंबई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशधिुसधर/ BY ORDER, सत्यादपत प्रदत //True Copy// उप/सहधिक पंजीकधर /(Dy./Asstt. Registrar) आिकर अपीिीि अनर्करण, मुंबई / ITAT, Mumbai