ITO 19(2)(1), MUMBAI V. JUGRAJ R. JAIN, MUMBAI

ITA 2571/MUM/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0537 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 07-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAHUL K SHADIJA
• Assessee Lawyers: POOJA SWAROOP
• Keywords: Bogus purchase; Unexplained expenditure; Peak credit; Question of law; Onus to prove; Reassessment proceedings
• Section: 69C; 143(3); 133(6); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN , JM ITA NO. 2571/ MUM/20 1 6 & ITA NO.2572/MUM/2016 ( ASSESSMENT YEAR : 2009 - 10 & 2011 - 12 ) ITO 19(2)(1) 2 ND FLOOR, MATRU MANDIR TARDEO ROAD, MUMB AI 400 007 VS. JUGRAJ R. JAIN 194, TRIMBAK PARSHURAM STREET, L.P. WADI 6 TH KUMBHARWADA, MUMBAI 400 004 PAN/GIR NO. ABPPJ6403J APPELLANT ) .. RESPONDENT ) REVENUE BY MS. POOJA SWAROOP REVENUE BY SHRI RAHUL K. SHADIJA DATE OF HEARING 01 / 08 /201 7 DATE OF PRONOUNCEME NT 02 / 08 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THESE ARE THE APPEALS FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) - 30, MUMBAI DATED 20/01/2016 FOR THE A.Y.2009 - 10 AND 2011 - 12 IN THE MATT ER OF ORDER PASSED U/S.143(3) R.W.S. 147 AND SECTION 143(3) OF THE IT ACT RESPECTFULLY. 2. COMMON GRIEVANCE OF ASSESSEE IN BOTH THE YEARS RELATE TO CIT(A)S ACTION FOR ESTIMATING NET PROFIT MARGIN OF 1 2 .5% IN RESPECT OF BOGUS PURCHASES. 3. RIVAL CONTENTION S HAVE BEEN HEARD AND RECORD PERUSED. 4. FACTS IN BRIEF ARE THAT T HE ASSESSEE IS AN INDIVIDUAL AND IS ENGAGED IN THE BUSINESS OF TRADING IN FERROUS & NON FERROUS METAL, UNDER THE PROPRIETARY CONCERN ITA NO S . 2571/MUM/2016 & 2572/MUM/2016 JUGRAJ R. JAIN 2 BY NAME M/S PALGOTTA METAL INDUSTRIES. THE RETURN OF INCO ME FOR A.Y. 2009 - 10 WAS 4 FILED ON 29 - 09 - 2009 DECLARING TOTAL INCOME OF RS. 7,54,600/ - . SUBSEQUENTLY THE ASSESSMENT WAS REOPENED U/S 147 OF THE ACT BY ISSUING A NOTICE U/S 148 OF THE ACT. ASSESSMENT U/S 143(3) WAS COMPLETED BY THE LD. AO ON 28 - 03 - 2014 DETERM INING THE TOTAL INCOME OF RS. 1,23,50,530/ - . DURING THE COURSE OF REASSESSMENT PROCEEDINGS, IN ORDER TO VERIFY THE GENUINENESS OF PURCHASES, NOTICE U/S 133(6) OF THE ACT ISSUED TO THE PARTIES AT THE ADDRESSES PROVIDED BY THE ASSESSEE . IN RESPECT OF FIVE PAR TIES THE NOTICES COULD NOT BE SERVED AND RETURNED BACK BY THE POSTAL AUTHORITIES WITH REMARKS 'NOT KNOWN', OR 'LEFT' ETC., AO ALSO NOTICED THAT THE SALES TAX DEPARTMENT PUBLICLY DISPLAYED A LIST OF NEARLY PERSONS ON THEIR WEBSITE WHO HAVE ADMITTED, ISSUING BOGUS PURCHASE BILLS. AO ISSUED SHO W CAUSE NOTICE FOR VERIFYING THE GENUINENESS OF THE FIVE PARTIES AND ALSO TO PRODUCE THE PARTIES ALONG WITH THEIR BOOKS OF ACCOUNT . THE ASSESSEE FURNISHED THE LEDGER ACCOUNTS, XEROX COPIES OF SALE INVOICES, DELIVERY CHAL LANS ETC., ALONG WITH SUBMISSIONS. AO, AFTER EXAMINING THE SUBMISSIONS AND CONTENTIONS OF THE A SSESSEE , CONCLUDED THAT THE A SSESSEE DID NOT .PURCHASE ANY GOODS, FROM THE ABOVE PARTIES AND HENCE TOTAL ACCOMMODATION BILLS AMOUNTING TO RS.1,15,95,928/ - WA S TR EATED AS BOGUS PURCHASES IN ORDER TO INFLATE THE PURCHASES AND / OR EXPENSES, SOURCES FOR WHICH IS NOT EXPLAINED TO THE DEPARTMENT. THEREFORE THE ENTIRE AMOUNT OF RS.1,15,95,928/ - WA S ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE AS UNEXPLAINED EXPENDITUR E WITHIN THE MEANING OF SECTION 69C OF THE ACT . 5. BY THE IMPUGNED ORDER, CIT(A) RESTRICTED THE ADDITION TO THE EXTENT OF 12 .5% AFTER OBSERVING AS UNDER: - ITA NO S . 2571/MUM/2016 & 2572/MUM/2016 JUGRAJ R. JAIN 3 5 CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED TH E FACTUAL MATRIX OF THE CASE AS WELL AS THE APPLICABLE LEGAL POSITION FOR ARRIVING THE FOLLOWING DECISION. . 6. THERE ARE THREE GROUNDS IN THE APPEAL. MAIN GROUND I.E. GROUND NO. 1 THOUGH SUB - DIVIDED INTO GROUNDS I) TO VI), ALL SUCH SUB - GROUNDS DEALS WITH THE MAIN ISSUE. I.E. ADDITION MADE U/S 69C OF THE ACT TOWARDS UNEXPLAINED PURCHASES. AS PER THE GROUNDS, INVOKING SECTION 69C OF THE ACT AND ADDING THE PURCHASES OF RS. 1,15,95,928/ - IS GROSS ERRING IN LAW AND FACTS ON THE PART OF THE AO. THE PURCHASES MAD E ARE GENUINE PURCHASES AND THE ADDITION IS MADE ON THE BASIS OF OBSERVATIONS MADE BY THE SALES TAX DEPARTMENT. THERE CANNOT BE ANY SALES WITHOUT PURCHASES AND THE INFORMATION CALLED FOR DURING THE ASSESSMENT PROCEEDINGS IS NOT IN THE POSSESSION OF THE APP ELLANT AND IT IS NOT POSSIBLE FOR THE APPELLANT TO ARRANGE FOR THE SAME. THE APPELLANT HAS DISCHARGED HIS ONUS CAST ON HIM BY MAINTAINING THE REQUISITE INFORMATION IN SUPPORT OF THE EXPENDITURE - CLAIMED IN THE PROFIT & LOSS ACCOUNT. 6.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, LD. AO ISSUED NOTICES U/S. 133(6) OF THE ACT TO VARIOUS PARTIES FROM WHOM THE APPELLANT HAD PURPORTEDLY MADE PURCHASES. HOWEVER, THE SAID NOTICES WERE RETURNED BY THE POSTAL AUTHORITIES WITH THE REMARKS V NOT KNOWN', LEFT'. THE AP PELLANT WAS ACCORDED SUFFICIENT OPPORTUNITIES TO PROVE THE GENUINENESS OF THE PARTIES BY PRODUCING THEM ALONG WITH THE BOOKS OF ACCOUNTS. HOWEVER, HE FAILED TO DO SO AND MERELY RELIED ON THE PROPOSITION THAT THE GOODS WERE PURCHASED ON PAYMENT BY CHEQUES A ND THAT NO SALES COULD BE EFFECTED WITHOUT RESPONDING PURCHASES. HOWEVER, LD. AO WAS NOT SATISFIED WITH THE EXPLANATION FURNISHED AND WENT ON TO HOLD THAT THE MATERIAL WAS NOT RECEIVED FROM THESE PARTIES AND MUST HAVE BEEN PURCHASED IN CASH TO REGULARISE P URCHASES AND SALES. IT WAS FURTHER HELD BY THE AO THAT FROM WHOM SUCH GOODS WERE .PURCHASED IN CASH WAS WITHIN THE - EXCLUSIVE KNOWLEDGE OF THE APPELLANT AND THEREFORE, TOTAL AMOUNT OF SUCH PURCHASES HAD TO BE ADDED AS UNEXPLAINED EXPENDITURE U/S 69C OF TH E ACT, SINCE THE EXPENDITURE WAS NOT VERIFIABLE, IS THE CONTENTION OF THE AO FOR CONSIDERING THE ADDITION. 6.2 ' BRIEF SUMMARY OF THE SUBMISSIONS OF THE APPELLANT IN SUPPORT OF THE GROUNDS OF APPEAL ARE THAT HE IS IN THE BUSINESS, OF LAST 20 YEARS AND IS A LAW ABIDING CITIZEN AND THE BUSINESS AFFAIRS REPLICATE TRUE AND FAIR PICTURE, AO WITHOUT CONSIDERING THE SUBMISSIONS OF THE APPELLANT DISALLOWED THE ENTIRE PURCHASES AND IF NO PURCHASES ARE MADE THERE CANNOT BE ANY SALES. AO NEVER DISPUTED THE SALES IT IS NOT PRACTICAL TO PRODUCE THE DETAILS OF THE SELLER, APPELLANT DISCHARGED HIS PRIMARY ONUS BY SUBMITTING ALL DOCUMENTARY EVIDENCES SUCH AS BILLS AND INVOICES DURING THE ASSESSMENT PROCEEDINGS, THAT THE GP RATE IS COMPARABLE FROM YEAR TO YEAR, AND ADDITIO N IS MADE BY THE AO WITH THE ONLY REASON THAT NOTICES ARE RETURNED UNSERVED. FOR THE SAID REASON THE APPELLANT REQUESTED TO DELETE THE ADDITION MADE BY THE AO U/S 69C OF THE ACT TAKING THE PEAK CREDIT OF THE PURCHASES MADE FROM ITA NO S . 2571/MUM/2016 & 2572/MUM/2016 JUGRAJ R. JAIN 4 THE 5 PARTIES. APPELLANT REL IED ON CASE LAWS OF CIT - I VS. SIMITH P SHETH OF GUJARAT HIGH COURT AND BHOLANATH POLY FAB PVT. LTD & VIJAYA PROTIENS PVT. LTD. VS. CIT. IN THE SUBMISSIONS DATED 18 - 01 - 2016 ALSO THE APPELLANT REITERATED THE SAME SUBMISSIONS AND ADDED FEW MORE CASE LAWS IN S UPPORT OF HIS CASE AND REQUESTED TO DELETE THE ADDITION MADE TOWARDS THE BOGUS PURCHASES. 6.3 PERUSED THE RIVAL CONTENTIONS ON THE ISSUE ON HAND. THE APPELLANT IN HIS SUBMISSION STATED THAT IN THE REOPENING PROCEEDINGS HE HAS DISCHARGED HIS PRIMARY ONUS B Y FURNISHING THE DETAILS. HOWEVER, THE NOTICES SENT WERE RETURNED UNSERVED AND WHEN THE AO ASKED THE APPELLANT TO PRODUCE THE PARTIES FOR VERIFICATION THE APPELLANT FAILED TO DO SO. IN THIS REGARD IT IS PERTINENT TO MENTION THAT WHILE DEALING WITH THE CONC EPT OF BURDEN OF PROOF, ONUS OF PROVING IS ALWAYS ON THE PERSON WHO MAKES THE CLAIM AND NOT ON THE REVENUE. 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 CI T V. DAULAT RAM RAWATMUM [1973] 87 ITR 349 AND CIT V.DURGA PRASAD MORE. IN THE LATTER CASE, IT HAS BEEN HELD BY THE APEX COURT THAT THOUGH AN APPARENT STATERS - MUST BE CONSIDERED REAL, UNTIL IT WAS SHOWN THAT THERE WERE REASONS TO BELIEVE TRR. 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. 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 AND .IN THE INSTANT CAS E, THE APPELLANT HAS MISERABLY FAILED TO LEAD EVIDENCE. 6.4 COMING TO THE MAIN ISSUE, IT IS OBSERVED FROM THE ASSESSMENT PROCEEDINGS THAT, DESPITE PROVIDING ADEQUATE OPPORTUNITY BY THE AO, THE APPELLANT HAS FAILED TO PRODUCE KEY EVIDENCES LIKE PURCHASE O RDER, TRANSPORTATION BILL, OCTROI RECEIPT, WEIGHING BILL, GOODS RECEIPT NOTES (CRN), ETC., DETAILS. WHEN THE SALES TAX DEPARTMENT HAS CLASSIFIED THE FIVE PARTIES AS HAWALA DEALERS AND HAS SUBSEQUENTLY FORWARDED THE INFORMATION TO THE INCOME TAX DEPARTMENT THAT THE APPELLANT IS ONE OF THE BENEFICIARIES, ONUS OF VERY HIGH DEGREE IS ON THE APPELLANT TO PROVE WITH INFALLIBLE EVIDENCE THAT THE PURCHASES ARE GENUINE AND THE MATERIAL WAS RECEIVED BY THE APPELLANT FROM THESE PARTIES. BUT, THE APPELLANT IS NOT ABLE TO PRODUCE ANY EVIDENCE WHATSOEVER TO PROVE THAT THE GOODS IN TERMS OF QUANTITY AND QUALITY FROM THE ABOVE SAID PARTIES WERE ACTUALLY RECEIVED BY THE APPELLANT. THE APPELLANT HAS NOT PRODUCED COPIES OF THE CONSIGNMENTS, IF ANY, RECEIVED FROM THE TRANSPORT CONTRACTOR SHOWING THAT THE MATERIAL PURCHASED FROM THE CONSIGNORS WAS ACTUALLY DELIVERED TO THE APPELLANT AND FREIGHT HAS BEEN PAID THEREON. THE APPELLANT IS ALSO NOT ABLE TO PROVIDE COPIES OF THE CRN EVIDENCING THE RECEIPT/DELIVERY OF THE GOODS ALONG WIT H THE RELEVANT PURCHASE ORDERS IN RESPECT OF IMPUGNED PURCHASES. THE APPELLANT IS ALSO NOT ABLE TO PRODUCE GOODS CONSIGNMENT NOTE, ITA NO S . 2571/MUM/2016 & 2572/MUM/2016 JUGRAJ R. JAIN 5 TRANSPORT BILLS OR OCTROI RECEIPTS ISSUED TO SUBSTANTIATE DELIVERY OF GOODS TO THE APPELLANT. THUS, THE APPELLANT HAS NOT BRO UGHT ON RECORD ANY INDEPENDENT AND RELIABLE EVIDENCE TO PROVE COMPLETE TRAIL IN SO FAR AS MOVEMENT OF CONSIGNMENT FROM THE SAID PARTIES TO THE PLACE OF THE APPELLANT IS CONCERNED..THUS, THE APPELLANT IS NOT ABLE TO PROVE AT ALL THE MOVEMENT OF CONSIGNMENT FROM THE CONSIGNORS AND DELIVERY OF GOODS TO THE APPELLANT IN: CASE OF ALLEGED PURCHASES FROM THE PARTIES. IN SUCH CIRCUMSTANCES MERELY BECAUSE THE - PAYMENT TOWARDS THE IMPUGNED PURCHASES WERE MADE BY ACCOUNT PAYEE CHEQUES IT DOES; NOT ESTABLISH THAT THE T RANSACTIONS AND THE PURCHASES ARE GENUINE AND THE APPELLANT, RECEIVED DELIVERY OF THE GOODS. 6.5 THE APPELLANT IN HIS SUBMISSION STATED THAT BY FURNISHING THE DETAILS ABOUT THE PURCHASES, HE HAS DISCHARGED HIS PRIMARY ONUS. ON PERUSAL OF THE DETAILS SUBM ITTED CONTAINING THE DETAILS OF THE BILLS/INVOICES INDICATE THAT .THE COLUMN FOR VEHICLE NUMBER WAS LEFT BLANK IN EACH OF THE DELIVERY CHALLAN/INVOICE. THE SUPPLIER OF THE GOODS WAS IN FACT THE APPELLANT'S WITNESS AND THE LD. AO WAS NOT REQUIRED TO FORCE T HEIR ATTENDANCE. IT WAS FOR THE APPELLANT TO PRODUCE THEM 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 HIS DUTY TO MITIGATE THE BURDEN CAST UPON HIM IN SO FAR AS PROVING THE GENUINENESS OF THE TRANSACTION FROM THE SAID PARTIES ARE CONCERNED. IT IS ALREADY MENTI ONED IN THE ABOVE PARAGRAPHS 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. 6.6 IN SAN JAY OILCAKE INDUSTR IES VS. COMMISSIONER OF INCOME - TAX [2009] 316 ITR 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 APPARENT SELLER S 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, TH E 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 ACCOUNT S. 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 INFLAT ED CANNOT BE RULED OUT AND ITA NO S . 2571/MUM/2016 & 2572/MUM/2016 JUGRAJ R. JAIN 6 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 ASSESSES IS REFLECTED AS RECEIPTS BY THE RECIPIENTS. THE ASSESSES 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 ASSES SEE NAVE 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 IS SUE OF LAW.' 6.7. IN BHOLANATH POLYFAB PVT. LTD. 355 ITR 290 (GUJ), THE FACTS OF THE CASE WERE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING IN FINISHED FABRICS. FOR THE A.Y. 2005 - 06, THE ASSESSING OFFICER HELD THAT THE PURCHASES WORTH RS.40,6 9,546/ - WERE 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 ASSE SSEE WENT IN FURTHER APPEAL BEFORE THE HON'BLE TRIBUNAL. THE HON'BLE TRIBUNAL SUBSTANTIALLY ALLOWED THE ASSESSEE'S APPEAL. IN SO FAR AS THE GUEST/ON OF BOGUS PURCHASE IS CONCERNED, THE HON'BLE 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 PURCHASES WERE ALLEGEDLY MADE. SUCH NOTICES WERE RETURNED UNSERVED BY THE POSTAL AUTHORITIES WITH THE REMARK THAT THE ADDRESS WAS I NCOMPLETE. 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 ANY CONFIRMATION FROM ANY OF THE PARTIES. THOUGH THE ASSESSEE HAD CLAIMED TO HAVE MADE PAYMENT BY ACCOUNT PAYEE CHEQUES, UPON VERIFICATION IT WAS FOUND CHEQUES WERE ENCASHED BY SOME OTHER PARTIES AND NOT BY THE SUPPOSED SELLERS. HAVING COME TO SUCH A CONCLUSION, HOWEVER, THE TRIBUNAL WAS OF THE OPINION THAT THE PURCHASES MAY HAVE BEEN MADE FROM BOGUS PARTIES, NEVERTHELESS, THE PURCHASES 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 YEA R UNDER CONSIDERATION WERE SOLD BY THE ASSESSEE, THE PURCHASES OF THE ENTIRE 1,02,514 METERS OF CLOTH WERE SOLD DURING THE YEAR UNDER CONSIDERATION. THE HON'BLE TRIBUNAL, THEREFORE, ACCEPTED THE ASSESSEE F S CONTENTION THAT THE FINISHED GOODS WERE PURCHASE D 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 T AX. 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 TRIBUNAL'S DECISION IN THE CASE OF VIJAY PROTEINS LTD. VS. ASSTT.CIT [1996] 58 ITD 428 (AHD) . ON APPEAL BY THE DEPARTMENT, THE HON'BLE GUJARAT HIGH COURT HELD AS FOLLOWS: ITA NO S . 2571/MUM/2016 & 2572/MUM/2016 JUGRAJ R. JAIN 7 '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 DOTH AND SELL THE FINISHED GOODS. IN 'THAT VIEW OF THE MATTER, AS NATURAL COROL LARY, 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. CFT (2009) 316 ITR 274 (GUJ.). SUCH DECISION IS ALSO FOLL OWED BY THIS COURT IN A JUDGMENT DATED AUGUST 16, 2011, IN TAX APPEAL NO. 679 OF 2010 IN THE CASE OF CIT VS. KISHORAMRUTLAL PATEL. IN THE RESULT, TAX APPEAL IS DISMISSED'. 6.8 THE FACTS IN THE PRESENT CASE ARE SIMILAR TO THE FACTS IN THE ABOVE MENTIONED C ASE. IN THE PRESENT CASE, THE LD. AO HAS SHOWN THAT THE FIVE PARTIES IN QUESTION WERE NON - EXISTENT. THE APPELLANT HAS NOT BEEN ABLE TO DISPROVE THE FINDINGS OF THE LD. AO REGARDING THE NON - EXISTENCE OF THE PARTIES. LD. AO HAS, AFTER EXAMINING THE EVIDENCES , FOUND THAT THE APPELLANT DID NOT PURCHASED THE GOODS FROM THE SAID PARTIES, AT THE SAME TIME SHE HAS NOT DISTURBED THE SALES OF THE GOODS AND INCOME OFFERED ON SUCH SALE OF 'GOODS. IN THIS CASE, LD. AO HAS NOT DISPUTED THE QUANTITATIVE DETAILS AND ALSO D AY TO DAY STOCK REGISTER MAINTAINED, THE APPELLANT BEING A TRADER OF GOODS; LD. A.O. NOT HAVING DOUBTED THE GENUINENESS OF SALES, COULD NOT HAVE GONE AHEAD AND MADE ADDITION IN RESPECT OF TOTAL AMOUNT OF SUCH PURCHASES. THUS, THE ISSUE WOULD BOIL DOWN TO F INDING OUT THE ELEMENT OF PROFIT EMBEDDED IN BOGUS PURCHASES WHICH THE APPELLANT WOULD HAVE MADE FROM SOME UNKNOWN ENTITIES. HENCE, RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF BHOLANATH POLYFAB PVT. LTD. (SUPRA), IT IS CONCLUDED THAT THE PROFIT MARGIN EMBEDDED IN SUCH AMOUNTS OF PURCHASES COULD ONLY BE DISALLOWED AND SUBJECTED TO TAX. 6.9 HAVING DECIDED THAT THE PROFIT MARGIN ONLY TO BE SUBJECTED TO TAX, NOW WE HAVE TO SEE WHAT IS THE PERCENTAGE TO BE. ADOPTED FOR T AXING, ESPECIALLY WHEN IT VARIES FROM TRADE TO TRADE. HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT SHETH (2013) 38 TAXMANN.COM 385 (GUJ), 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 ENTIRE AMOUNT OF PURCHASES TO GROSS PROFIT OF THE ASSESSEE. LD. CIT (A) HAVING FOUND THA T THE ASSESSEE HAD INDEED PURCHASED THOUGH NOT FROM NAMED PARTIES BUT OTHER 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 ACCO UNT 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 ASSESSEE' S INCOME AND AS SUCH NO QUESTION OF LAW AROSE IN SUCH ESTIMATION. ITA NO S . 2571/MUM/2016 & 2572/MUM/2016 JUGRAJ R. JAIN 8 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 OF AHMEDABAD BENCH, ITAT IN THE CASE OF VIJAY PROTEINS 58 ITD 428. IN THE CASE OF VIJAY PROTEINS, THE HON'BLE ITAT WAS SEIZED WITH A 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 SUPPLIES WERE ALLEGEDLY PROCURED BUT THESE WERE ENCASHED FROM A BANK ACC OUNT 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 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 ALLSUCH FACTORS IN MIND, THE TRIBUNAL ESTI MATED AN ELEMENT OF PROFIT PERCENTAGE OF THE OVERALL PURCHASE PRICE ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS THROUGH FICTITIOUS INVOICES 6.11 FURTHER, IN THE CASE OF M/S. SANKET STEEL TRADERS (ITA NO. 2801/AHD/ 2008 DATED 20 - 05 - 2011 IT WAS, INTER - A/LA, STAT ED AS UNDER : '3. AT THE TIME OF HEARING BEFORE US, IT IS SUBMITTED BY THE LEARNED COUNSEL THAT THE ADDITION SUSTAINED IS EXCESSIVE. IN SUPPORT OF THIS CONTENTION HE REFERRED TO THE DECISION OF THE TRIBUNAL IN THE CASE OF TTO VS. SUN STEEL 92 TTJ (AHD) 11 26 WHEREIN THE TRIBUNAL HAS SUSTAINED THE ADDITION OF RS. 50,000/ - ON ACCOUNT OF BOGUS PURCHASES. HOWEVER, WE FIND THAT THE FACTS IN THE ABOVE CASE WERE DIFFERENT. IN THE ABOVE CASE, THE ASSESSEE HAS SHOWN PURCHASES OF RS. 27,39,410/ - , SALE OF RS. 28,17,20 7/ - AND GROSS PROFIT AT RS. 94 F 740/ - . THE ASSESSING OFFICER MADE THE ADDITION OF RS. 27,39,407/ - FOR BOGUS PURCHASES. IF THE ABOVE SUM IS ADDED TO THE GROSS PROFIT, THE GROSS PROFIT WORKS OUT RS. 2,83,41,247/ - WHICH WAS MORE THAN THE SALE ITSELF. THE TRIBU NAL HELD THAT IT IS IMPOSSIBLE THAT THE GROSS PROFIT IS MORE THAN THE SALE ITSELF. THE TRIBUNAL ALSO FOUND THAT THE ASSESSEE HAS MAINTAINED THE QUANTITATIVE DETAILS IN RESPECT OF MATERIALS PURCHASED AND SOLD. CONSIDERING PECULIAR FACTS OF THAT CASE, THE TR IBUNAL ARRIVED AT THE CONCLUSION THAT IT WOULD BE FAIR AND REASONABLE TO ESTIMATE THE ADDITION AT RS. 50,000/ - AS AGAINST THE ADDITION OF RS. 27,39,407/ - MADE BY THE ASSESSING OFFICER. HOWEVER, THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) CONSIDERING T HE FACTS OF THE ASSESSEE'S CASE, HAS SUSTAINED THE ADDITION AT 12.5%. WHILE DOING SO, HE HAS ALSO RELIED UPON THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. VIJAY PROTEINS LTD. 55 TTJ (AHD) 76, IN THE CASE OF M/S. VIJAY PROTEINS LTD. THE TRIBUNAL HAS SU STAINED THE ADDITION OF 25% OF THE BOGUS PURCHASES. HOWEVER, CONSIDERING THE FACTS OF THE ASSESSEES CASE THE CIT (A) RESTRICTED THE DISALLOWANCE TO 12.5% AS AGAINST 25% MADE IN THE CASE OF M/S. VIJAY PROTEINS LTD. FROM THESE FACTS IT IS EVIDENT THAT THE CIT(A) HAS SUSTAINED THE ADDITION AT 12.5% OF THE NON - GENUINE PURCHASES CONSIDERING THE FACTS ITA NO S . 2571/MUM/2016 & 2572/MUM/2016 JUGRAJ R. JAIN 9 OF THE ASSESSEE'S CASE. WE, THEREFORE, DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE CFT (A) IN THIS REGARD. THE SAME IS SUSTAINED.' 6.12. TH E MOTIVE BEHIND OBTAINING BOGUS BILLS THUS, APPEARS TO BE INFLATION OF PURCHASE PRICE SO AS TO SUPPRESS TRUE PROFITS. ESTIMATION RANGING FROM 12.5% TO 25% HAS BEEN UPHELD BY THE HON'BLE COURTS DEPENDING UPON THE NATURE OF THE BUSINESS. AS HELD IN THE CASE OF SIMIT P. SHETH (SUPRA) NO UNIFORM YARDSTICKS COULD BE APPLIED TO ESTIMATE THE RATE OF PROFIT AND IT VARIES WITH THE NATURE OF BUSINESS . TAKING ALL THE FACTS INTO CONSIDERATION AND THE ASSESSEE IS OFFERING REASONABLY GOOD PERCENTAGE OF AVERAGE GP OF ABOV E 5% AND ALSO TAKING INTO THE FINDINGS OF THE HON'BLE 'COURTS ON THIS ISSUE, I AM OF THE VIEW THAT ESTIMATION OF 17.5% OF PROFIT WOULD MEET THE ENDS OF JUSTICE. THEREFORE, I DIRECT THE AO TO ESTIMATE PROFIT OF 17.5% ON THE TOTAL ALLEGED BOGUS PURCHASES F ROM THE FIVE PARTIES AS THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES. WHILE ESTIMATING THE GP ON THE BOGUS PURCHASES, THE PERCENTAGE OF AVERAGE GP ALREADY OFFERED IN THE BOOKS OF ACCOUNT ON THE RELEVANT SALES OUT OF THE PURCHASES IS TO BE REDUCED FROM SUC H ESTIMATED PROFIT, SINCE THE SAME IS ALREADY OFFERED IN THE TOTAL PURCHASES. ACCORDINGLY, THE AO IS DIRECTED TO REDUCE 5% OF THE AVERAGE GP FROM THE ESTIMATED PROFIT OF 17.5% OF THE TOTAL BOGUS PURCHASES. THE NET ADDITION SUSTAINED IS 12.5% ON THE TOTAL A MOUNT OF PURCHASES OF RS. 1,15,95,928/ - WHICH IS ALSO IN TUNE WITH THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF SIMITH SHETH. ACCORDINGLY GROUND NO.1 OF THE APPEAL IS PARTLY ALLOWED. 6. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THR OUGH THE ORDERS OF THE AUTHORITIES BELOW. IN RESPECT OF THE ALLEGED BOGUS PURCHASES, CIT(A) OBSERVED THAT MOTIVE BEHIND BOGUS PURCHASE WAS TO INFLA TE THE PURCHASE PRICE SO AS TO SUPPRESS TRUE PROFITS . AFTER DISCUSSING VARIOUS JUDICIAL PRONOUNCEMENTS AND AP PLYING THE SAME TO THE FACTS OF INSTANT CASE, THE CIT(A) REACHED TO THE CONCLUSION THAT ESTIMATION OF PROFIT AT 17.5% WERE MEETING THE END OF JUSTICE, ACCORDINGLY AO WAS DIRECTED TO REDUCE 5% OF AVERAGE GP SHOWN BY ASSESSEE FROM THE ESTIMATED PROFIT OF 17. 5% OF TOTAL BOGUS PURCHASE. ACCORDINGLY, NET ADDITION SUSTAINED WAS TO THE TUNE OF 12.5% OF BOGUS PURCHASES. THE DETAILED FINDING SO RECORDED BY CIT(A ) ARE AS PER MATERIAL ON RECORD AND THE SAME WAS NOT CONTROVERTED BY LEARNED DR BY BRINGING ANY POSITIVE M ATERIAL ON RECORD. ITA NO S . 2571/MUM/2016 & 2572/MUM/2016 JUGRAJ R. JAIN 10 ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR UPHOLDING THE NET ADDITION OF 12.5%. 7 . FACTS AND CIRCUMSTANCES IN THE A.Y.2011 - 12 ARE SAME, FOLLOWING THE REASONING GIVEN HEREINABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). 8 . IN THE RESULT, BOTH THE APPEALS OF REVENUE ARE DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 02 / 08 /2017 S D/ - ( SANDEEP GOSAIN ) S D/ - ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 02 / 08 /201 7 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//