Kashish Silk Mills Pvt.Ltd., Surat V. The Income tax Officer,Ward-2(2), Surat

ITA 3111/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6277 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 09-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 20-11-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRAKASH DUBEY SRDR
• Assessee Lawyers: VIRAL M LOKHANDWALA
• Keywords: Bogus purchase; Gross profit estimation; Business income; Onus to prove

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD A BENCH BEFORE SHRI G.D. AGARWAL, HONBLE VICE-PRESIDENT (AZ) AND SHRI D.K. TYAGI, HONBLE JUDICIAL MEMBER ITA NO.3111 & 3127/AHD/2009 ASSESSMENT YEAR:2006-07 DATE OF HEARING: 9.6.11 DRAFTED:22.6.11 KASHISH SILK MILLS, A-2335, SURAT TEXTILE MARKET, RING ROAD, SURAT PAN NO.AACFK8511E INCOME TAX OFFICER, WARD-2(2), ROOM NO.117, AAYKAR BHAVAN, MAJURA GATE, SURAT V/S . V/S . INCOME TAX OFFICER, WARD-2(2), SURAT M/S KASHISH SILK MILLS, A/2335 SURAT TEXTILE MARKET, RING ROAD, SURAT (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI VIRAL M LOKHANDWALA, AR REVENUE BY:- SHRI PRAKASH DUBEY SR-DR O R D E R PER D.K. TYAGI, JUDICIAL MEMBER:- THESE ARE CROSS-APPEALS AGAINST THE ORDER OF COMMI SSIONER OF INCOME-TAX (APPEALS)-II, SURAT IN APPEAL NO.CAS/II/ 496/08-09 FOR THE ASSESSMENT YEAR 2006-07. ITA NO.3111 & 3127/AHD/2009 A.Y. 2006-07 M/S. KASHISH SILK MILLS V. ITO WD-2(2) SRT PAGE 2 2. GROUND NO.1 OF ASSESSEES APPEAL AND GROUND NO.1 OF THE REVENUES APPEAL RELATED TO GROSS PROFIT ADDITION M ADE BY ASSESSING OFFICER OF RS.22,11,602/- WHICH HAS BEEN RESTRICTED BY LD. CIT(APPEALS) TO RS.15,25,451/-. THE ASSESSEE IS AGGRIEVED BY THE ADDITION SUSTAINED BY THE LD. CIT(APPEALS) WHILE REVENUE IS AGGRIEVED BY RELIEF GIVEN TO THE ASSESSEE BY HIM. 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF TRADING OF FINISHED FABR ICS. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERV ED THAT ASSESSEE HAD SHOWN THE GP RATIO OF 6.76% ON TOTAL SALES OF R S.1,73,92,336/- AS AGAINST THE GP RATIO OF 7.55% ON TOTAL SALES OF RS. 1,13,15,465/- IN THE IMMEDIATELY PRECEDING YEAR. THE ASSESSING OFFICER I SSUED A DETAILED SHOW-CAUSE NOTICE TO THE ASSESSEE ASKING THE ASSESS EE TO EXPLAIN THE REASONS FOR THE FALL IN THE GP RATIO AND WHY ADDITI ON SHOULD NOT BE MADE ON ACCOUNT OF BOGUS PURCHASES AND UNSECURED LOAN. I N RESPONSE TO THE SHOW-CAUSE NOTICE, THE ASSESSEE SUBMITTED AN EQUALL Y DETAILED REPLY ON ALL THE POINTS RAISED IN THE NOTICE. THE SHOW-CAUSE NOTICE AND THE REPLY THEREOF HAS BEEN REPRODUCED BY AO IN HIS ASSESSMENT ORDER. THE AO REJECTED THE ASSESSEES SUBMISSION AND EXPLANATION. ACCORDING TO AO THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE TO BE REJ ECTED NOT ONLY BECAUSE OF NON-PRODUCTION BEFORE HIM, BUT FOR THE V ARIOUS DISCREPANCIES FOUND IN SALES, PURCHASES AND STOCK. THE SALES SHOW N IN THE AUDIT REPORT WERE RS.1,73,92,336/-, WHEREAS THE ACTUAL SALES AS PER THE CERTIFICATE GIVEN TO THE BANKER WAS RS.1,88,16,000/-. THERE WER E ALSO DIFFERENCE IN THE MONTHLY SALES FIGURES AND THE CLOSING STOCK AS SHOWN BY THE ASSESSEE IN THE AUDIT REPORT AND WHAT WAS GIVEN TO THE BANK. THE AO ALSO NOTED THAT THERE WERE DIFFERENCE IN THE COST O F GREY CLOTH AND THE JOB CHARGES SHOWN BY THE ASSESSEE. IN THE ABSENCE OF AN Y PRIMARY ITA NO.3111 & 3127/AHD/2009 A.Y. 2006-07 M/S. KASHISH SILK MILLS V. ITO WD-2(2) SRT PAGE 3 REGISTERS, RECORDS AND ORIGINAL BILLS THE AO TOOK T HE FIGURES SUBMITTED BY ASSESSEE TO THE BANK AS CORRECT. THE AO NOTED THAT WHILE THE ASSESSEE HAD SHOWN A FALL OF 0.79% IN THE GP RATIO AS COMPAR ED TO THE PRECEDING YEAR SEVERAL ASSESSEE ASSESSED IN THE SAME WARD A ND HAVING SIMILAR TURNOVER HAD SHOWN GP RATIO HIGHER THAN 7.55%. PLAC ING RELIANCE ON VARIOUS CASE LAWS AND ON THE PROVISIONS OF SECTION 145(3) OF THE ACT THE AO REJECTED THE BOOKS OF ACCOUNT OF ASSESSEE AND ES TIMATED THE GP RATIO @ 18% AND APPLIED THE SAME TO THE TOTAL SALE OF RS.1,88,16,000/- THEREBY MAKING AN ADDITION OF A SUM OF RS.22,11,602 /- TO THE ASSESSEES TOTAL INCOME. 4. BEFORE LD. CIT(APPEALS) IT WAS ARGUED ON BEHALF OF THE ASSESSEE THAT ALL THE BOOKS OF ACCOUNT, SUPPORTING DOCUMENTS AND VOUCHERS HAVE BEEN DESTROYED IN THE FLOOD, WHICH WAS BEYOND THE C ONTROL OF THE ASSESSEE. IN SUPPORT OF SUCH CLAIM, PHOTOGRAPHS ALO NG WITH COPIES OF LETTER WRITTEN TO THE CHIEF POLICE INSPECTOR AND OF FIRST INFORMATION REPORT WERE FURNISHED. IT WAS THE CONTENTION OF THE ASSESS EE THAT EVEN THOUGH THE ENTIRE MATERIAL/RECORDS WERE DESTROYED COMPUTER IZED BOOKS OF ACCOUNT WERE REPRINTED AND PRODUCED BEFORE AO, WHIC H COULD HAVE ENABLED HIM TO VERIFY THE AUTHENTICITY OF THE ACCOU NT. REGARDING THE DIFFERENCES IN FIGURES AS SHOWN IN THE AUDIT REPORT AND WHAT WAS GIVEN TO THE BANK, IT WAS SUBMITTED THAT FIGURES GIVEN TO TH E BANK WERE BASED ON ESTIMATES OF TURNOVER AND THE INVENTORY IN A PARTIC ULAR METHOD. THE AO HAD NOT TAKEN INTO ACCOUNT THE SPECIFICITY OF THE W ORD ESTIMATE. WITH REGARD TO THE ADDITION ON ACCOUNT OF LOW GP ON THE GROUND THAT THE ASSESSEE HAS TAKEN INCORRECT FIGURES, IT WAS THE CO NTENTION OF THE ASSESSEE THAT FIRSTLY THE FIGURES GIVEN TO THE BANK WERE ON ESTIMATE AND SECONDLY THE ENTIRE QUANTITATIVE AND QUALITATIVE DE TAILS I.E. OPENING STOCK + PURCHASE SALES = CLOSING STOCK DID NOT REVEAL A NY LACUNA OR ITA NO.3111 & 3127/AHD/2009 A.Y. 2006-07 M/S. KASHISH SILK MILLS V. ITO WD-2(2) SRT PAGE 4 DISCREPANCY. THE ASSESSEE HAD PRODUCED ACCOUNT CONF IRMATIONS FROM SEVERAL DEBTORS ALSO. THE AO HAD NO EVIDENCE TO SUP PORT HIS CLAIM THAT ASSESSEE HAD SUPPRESSED SALES. SINCE THE ASSESSEE W AS ENGAGED IN THE BUSINESS OF TRADING IN FINISHED FABRICS. THE AS SESSEE HAD SUCCEEDED IN ESTABLISHING ONE-TO-ONE CORRELATION BETWEEN INPU T AND OUTPUT. THE QUANTITATIVE FURNISHED BY THE ASSESSEE DID NOT REVE AL ANY DISCREPANCY OR ANY IN CONGRUENCY. THE AO THUS WAS NOT JUSTIFIED IN ESTIMATING THE SAME. IT WAS FURTHER SUBMITTED THAT ASSESSEE HAD PAID JOB CHARGES TO ASSOCIATE CONCERN AT PREVAILING MARKET RATES AND THE REQUISIT ES TAX HAD BEEN DEDUCTED AT SOURCE. IT WAS THE SUBMISSION OF THE AS SESSEE THAT THE BOOKS OF ACCOUNT WERE DULY AUDITED BY THE AUDITORS U/S.44AB AND THE ENTIRE SET IN THE FORM OF COMPUTER PRINT OUTS HAD B EEN PRODUCED BEFORE AO. THE ACCOUNTS HAD BEEN PREPARED AND MAINTAINED O N THE SAME METHOD AS IN THE EARLIER YEARS, WHICH HAD BEEN ACCE PTED BY THE DEPARTMENT. THE REJECTION OF THE BOOK RESULTS WAS T HEREFORE TOTALLY UNWARRANTED. WITH REGARD TO THE APPLICATION OF THE GP RATIO @ 18% IT WAS STATED ON BEHALF OF THE ASSESSEE THAT THE GP DI SCLOSED DURING THE YEAR WAS 6.76% AS AGAINST 7.55% IN THE IMMEDIATELY PRECEDING YEAR. THERE WAS THUS A FALL BY ONLY 0.79%. THE AO APPLIED THE GP RATIO OF 18% BY BASING HIMSELF ON THE CALCULATION IN PARA-15 OF HIS ORDER. IT WAS ARGUED THAT AO'S CALCULATION WAS TOTALLY ERRONEOUS AND IT WAS BASED ON THE ESTIMATES FURNISHED BY THE ASSESSEE TO THE BA NK. WITH REGARD TO FALL OF THE GP RATIO BY 0.79% IT WAS EXPLAINED THAT THIS WAS BECAUSE OF SEVERE COMPETITION IN THE MARKET. EVEN THOUGH THE S ELLING RATE OF FABRIC PER METER HAD INCREASED YET IT COULD NOT MATCH THE INCREASE COST OF INPUTS. THE GP PER METER HAD REDUCED FROM RS.1.44 T O RS.1.32. THE AVERAGE RATE OF JOB EXPENSES HAD INCREASED FROM RS. 5.90 TO RS.6/- PER METER WHICH HAS RESULTED IN THE MINOR REDUCTION IN THE GP MARGIN. ITA NO.3111 & 3127/AHD/2009 A.Y. 2006-07 M/S. KASHISH SILK MILLS V. ITO WD-2(2) SRT PAGE 5 5. TAKING INTO CONSIDERATION THIS SUBMISSION OF THE ASSESSEE LD. CIT(APPEALS) RESTRICTED THIS ADDITION TO RS.12,25,4 51/- BY OBSERVING AS UNDER:- I HAVE CAREFULLY CONSIDERED THE DETAILED FINDINGS AND CONCLUSIONS OF THE AO AS CONTAINED IN THE BODY OF THE ASSESSMEN T ORDER AND HIS REMAND REPORT ON ONE HAND, AND ON THE ORDER, TH E WRITTEN SUBMISSIONS OF THE AR AS ALSO THE STATEMENTS OF FAC TS APPENDED TO THE APPEAL MEMO. TO BEGIN WITH, I AM OF THE VIEW TH AT WHATEVER MAY HAVE BEEN THE REASON FOR NOT PRODUCING THE REGU LAR BOOKS OF ACCOUNT, IT WAS NOT POSSIBLE FOR THE AO TO VERIFY T HE CONTENTS OF THE RETURN OF INCOME INCLUDING THE PROFIT AND LOSS ACCO UNT, AND THE BALANCE SHEET AS ALSO THE VARIOUS SCHEDULES, WITHOU T EXAMINING THE BOOKS. THE ASSESSEE APPARENTLY HAD PRODUCED COM PUTERIZED PRINT-OUTS OF VARIOUS ACCOUNTS WHICH HOWEVER COULD NOT BE ACCEPTED AS AUTHENTIC SINCE THERE WAS NO EVIDENCE T HAT SUCH ACCOUNTS HAD BEEN AUDITED OR THAT THE AUDIT REPORT WAS BASED ON SUCH ACCOUNTS. THE AO HAS NOT ONLY REPRODUCED THE D ETAILED SHOW-CAUSE NOTICE ISSUED BY HIM, IN THE BODY OF THE ASSESSMENT ORDER, BUT HE HAS ALSO REPRODUCED THE EQUALLY DETAI LED SUBMISSIONS OF THE AR THAT WERE FURNISHED BEFORE HI M TIME TO TIME. THE AO HAS POINTED OUT AND RECORDED THE DEFECTS THA T HE FOUND IN THE ACCOUNTS PRODUCED BY THE ASSESSEE ON PAGES 16-1 7 AND 45 OF THE ASSESSMENT ORDER. HE HAS THEN PLACED RELIANCE O N SEVERAL CASE-LAWS WHICH HAVE BEEN DISCUSSED ON PAGES 18-23, 38, 45, 46 AND 47 OF THE ORDER. FROM THE DETAILED REASONS RECO RDED BY HIM, IT IS ABSOLUTELY CLEAR THAT THERE WAS SUFFICIENT GROUN D FOR HIM TO REJECT THE BOOK RESULTS U/S.145(3) OF THE IT ACT. HIS ACTI ON IS THEREFORE, SUSTAINED. 6.1 COMING TO THE APPLICATION OF GP RATIO OF 18%, I FIND THAT THERE IS SUBSTANTIAL MERIT IN WHAT HAS BEEN CONTENDED BY THE AR AGAINST THE CALCULATION/COMPUTATION RECORDED IN PARA-15, PA GES-14-25 OF THE ASSESSMENT, ON THE BASIS OF WHICH THE AO APPLIE D THE GP RATIO OF 18%. THERE ARE SEVERAL OTHER MISTAKES IN THE COM PUTATION WHICH HAVE BEEN REPRODUCED/DISCUSSED IN THE PRECEDING PAR AS. IN PARA- 28, THE AO REFERRED TO THE GP RATIOS OF SOME COMPAR ABLE CASES (PARA-28-PAGE-37). THE AR HAS ONLY SUBMITTED THAT S UCH COMPARISON WAS NOT JUSTIFIED. I AM OF THE VIEW THAT THERE WAS SOUND BASIS IN THE COMPARISON MADE BY THE AO SINCE, IT WAS NECESSARY TO VERIFY AND EXAMINE THE GP RATIO THAT W AS BEING DISCLOSED BY OTHER ASSESSEE IN THE SAME LINE OF BUS INESS. SUCH A ITA NO.3111 & 3127/AHD/2009 A.Y. 2006-07 M/S. KASHISH SILK MILLS V. ITO WD-2(2) SRT PAGE 6 METHOD HAS BEEN APPROVED AND HELD TO BE JUSTIFIED B Y SEVERAL COURTS AND TRIBUNALS AND THE DECISION IN MOST OF TH E CASES HAS BEEN REPRODUCED BY THE AO IN THE BODY OF THE ASSESS MENT ORDER AND RELIED UPON. THE HIGHEST GP RATIO SHOWN AMONGST THE FOUR PARTIES REFERRED TO BY THE AO IN PARA-28 OF THE ORD ER WAS 14.08%, AND THE LOWEST WAS 10.32%, THE AVERAGE BEING 12.14% . CONSIDERING THE FACT THAT THE WORKING OF 18% WAS SO MEWHAT FAULTY AND THE FACT THAT IN THE IMMEDIATELY PRECEDING YEAR , THE GP RATIO DISCLOSED BY THE ASSESSEE WAS 7.55%, I AM OF THE VI EW THAT IT WOULD MEET THE ENDS OF JUSTICE AND EQUITY IF THE GP RATIO OF 12% IS APPLIED TO THE TURNOVER DISCLOSED IN THE AUDIT REPO RT WHICH WAS RS.1,73,92,336. THE GROSS PROFIT THEREFORE WOULD WO RK OUT TO RS.21,11,429 AND, AFTER ADJUSTING THE GP OF RS.9,86 ,151. THE ASSESSEE WOULD THUS GET RELIEF OF RS.22,,11,602 R S.9,86,151 = RS.12,25,451. THE AO IS DIRECTED TO TAKE ACTION ACC ORDINGLY. 6. FURTHER AGGRIEVED NOW ASSESSEE IS IN APPEAL BEFO RE US AGAINST THE ADDITION OF RS.12,25,451/- SUSTAINED BY LD. CIT(APP EALS) WHILE REVENUE IS IN APPEAL FOR THE RELIEF OF RS.9,86,151/- GIVEN TO THE ASSESSEE. 7. AT THE TIME OF HEARING LD. COUNSEL FOR THE ASSES SEE REITERATED THE SAME SUBMISSION AS MADE BEFORE LD. CIT(APPEALS). PL ACING RELIANCE ON CHART FOR THE LAST THREE YEARS OF GP IT WAS FURTHER SUBMITTED THAT AVERAGE GP RATIO OF 6.95% BE ADOPTED FOR ESTIMATING THE INC OME OF THE ASSESSEE DURING THE YEAR. RELIANCE WAS ALSO PLACE ON DECISIO N OF THIS TRIBUNAL IN THE CASE OF M/S. J.B. EXPORTS V. ITO IN ITA NO.18/AHD/2007 DATED 02- 07-2010, WHEREIN ON SIMILAR FACTS THE ADDITION OF R S.24 LAKH MADE BY ASSESSING OFFICER WAS RESTRICTED TO RS.10 LAKH BY T HE TRIBUNAL. 8. LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAN D RELIED ON THE ORDER OF ASSESSING OFFICER AND SUBMITTED THAT IN TH E ABSENCE OF BOOKS OF ACCOUNT THE ASSESSING OFFICER WAS LEFT WITH NO OPTI ON BUT TO TAKE THE SALES FIGURES SHOWN BY THE ASSESSEE BEFORE THE BANK AND ADOPTED THE GP RATIO @ 18% ON THE BASIS OF GP RATIO SHOWN BY OT HER ASSESSEE IN ITA NO.3111 & 3127/AHD/2009 A.Y. 2006-07 M/S. KASHISH SILK MILLS V. ITO WD-2(2) SRT PAGE 7 THE SIMILAR LINE OF BUSINESS. HE THEREFORE PRAYED T HAT ORDER PASSED BY LD. CIT(A) MAY KINDLY BE REVERSED AND THAT OF AO BE RES TORED. 9. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT NO GROUND AGAINST THE REJECTION OF BOOK RESULT U/S. 145(3) OF THE ACT HAS BEEN TAKEN BY THE ASSESSEE. THEREFORE, NOW THE ONLY ISSUE TO BE DECIDED BY US IS THAT IN THE FACTS AND CIRCUMSTANCE S OF THE CASE, WHAT SHOULD BE THE REASONABLE GP RATIO WHICH SHOULD BE A PPLIED TO THE TURNOVER DISCLOSED BY THE ASSESSEE. WE FIND THAT AS SESSING OFFICER AFTER REJECTING THE BOOK RESULT OF THE ASSESSEE HAS ADOPT ED GP RATIO OF 18% BY REFERRING TO THE GP RATIO OF SOME COMPARABLE CAS ES IN THE SAME LINE OF BUSINESS. HOWEVER, LD. CIT(APPEALS) TAKING INTO CONSIDERATION THAT HIGHEST GP RATIO SHOWN AMONGST THE FOUR PARTIES REF ERRED TO BY THE ASSESSING OFFICER WAS 14.08% AND THE LOWEST WAS 10. 32%. THE AVERAGE BEING 12.14% ADOPTED THE GP RATIO OF 12% AND APPLIE D THE SAME TO THE TURNOVER DISCLOSED IN THE AUDIT REPORT BY THE ASSES SEE. THE ASSESSEE ON THE OTHER HAND VEHEMENTLY ARGUED THAT WHILE ESTIMAT ING THE INCOME OF THE ASSESSEE THE AVERAGE GP OF 6.95% FOR THE LAST T HREE YEARS SHOULD BE ADOPTED. THERE HAS NOT BEEN ANY SCRUTINY ASSESSMENT DURING THE EARLIER YEARS IN THE CASE OF THE ASSESSEE THEREFORE WE ARE NOT INCLINED TO ADOPT THE AVERAGE GP RATIO OF 6.95%. WE ARE OF THE CONSID ERED OPINION THAT IT WOULD MEET THE ENDS OF JUSTICE AND EQUITY IF GP RAT IO OF 10% IS APPLIED TO THE TURNOVER DISCLOSED BY ASSESSEE IN ITS AUDIT REP ORT. THE ASSESSING OFFICER IS DIRECTED TO RECALCULATE THE INCOME OF TH E ASSESSEE ACCORDINGLY. THIS GROUND OF ASSESSEES APPEAL IS PARTLY ALLOWED AND THAT OR REVENUES APPEAL IS DISMISSED. 10. THE ONLY OTHER GROUND OF ASSESSEES APPEAL READ S AS UNDER:- ITA NO.3111 & 3127/AHD/2009 A.Y. 2006-07 M/S. KASHISH SILK MILLS V. ITO WD-2(2) SRT PAGE 8 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT(A) HAS ERRED IN SUSTAINING DISALLOWANCE OF RS.1 ,59,065/- OUT OF DISALLOWANCE MADE BY THE LEARNED AO ON ALLEGATIONS OF BOGUS PURCHASES. 11. THE ASSESSING OFFICER DURING THE ASSESSMENT PRO CEEDINGS OBSERVED THAT ASSESSEE CLAIMED TO HAVE PURCHASED FI NISHED FABRIC FOR RS.50,60,806/-. HOWEVER, IN SUPPORT OF SUCH PURCHAS ES, THE ASSESSEE FURNISHED CONFIRMATION ONLY FROM ITS SISTER CONCERN FOR RS.17,00,129/-. THE ASSESSEE WAS ASKED TO PROVIDE CONFIRMATION AND DETAILS OF REMAINING PURCHASES TOTALING RS.33,06,747/-. THE AS SESSEE WAS UNABLE TO PRODUCE ANY SUCH CONFIRMATION. NOTICE U/S.133(6) WERE ISSUED TO 18 PARTIES WHICH RETURNED UNSERVED INDICATING THAT NO SUCH PARTY EXISTED. NEITHER THE PRESENT POSTAL ADDRESSES OF THE SAID PA RTIES WERE FURNISHED NOR ANY EVIDENCE WAS FURNISHED TO SUPPORT THE CLAIM THAT THE PAYMENTS SHOWN TO HAVE BEEN MADE WERE CREDITED TO THEIR RESP ECTIVE BANK ACCOUNTS. NO STOCK REGISTER WAS PRODUCED WHICH WOUL D SHOW THAT THE PURCHASES MADE HAD BEEN DULY RECORDED IN THEM. THE AO TOOK THE VIEW THAT THE ONUS TO PROVE THE GENUINENESS OF THE PURCH ASES TOTALING RS.33,06,747/- AND TO AVAIL THE DEDUCTION U/S.37(1) WAS ON THE ASSESSEE. PLACING RELIANCE ON THE CASE VIJAY PROTINS LTD. (1996) 58 ITD 528 (AHD) AND VARIOUS OTHER CASES LAWS, THE AO DISA LLOWED 25% OF THE TOTAL PURCHASE AND MADE THE ADDITION OF RS.8,26,686 /- TO THE TOTAL INCOME OF THE ASSESSEE. 12. BEFORE LD. CIT(APPEALS) IT WAS SUBMITTED THAT O UT OF PURCHASE OF RS.33,06,747/- CREDITORS OF ONLY RS.18,01,989/- WER E OUTSTANDING AS ON 31-03-2006. DURING THE SUBSEQUENT YEAR, MAJORITY OF THE CREDITORS HAD BEEN PAID OFF, LEAVING THE OUTSTANDING AMOUNT AT RS 1,12,146/-. ALL THE PAYMENTS HAD BEEN MADE BY CHEQUES AND ASSESSING OFF ICER HAD FAILED ITA NO.3111 & 3127/AHD/2009 A.Y. 2006-07 M/S. KASHISH SILK MILLS V. ITO WD-2(2) SRT PAGE 9 TO PROVE THAT THE CONSIDERATION PAID FOR THE PURCHA SES HAD NOT REACHED THE RESPECTIVE SUPPLIERS. THE ASSESSEE-FIRM COULD N OT PRODUCE THE SUPPLIERS AS IT DID NOT HAVE THEIR LATEST CONTRACT DETAILS. MAJORITY OF THE SALES HAD BEEN REALIZED THROUGH ACCOUNT PAYEE CHEQU E AND THERE WERE VERY FEW DEBTORS. IT WAS CONTENDED THAT WHEN THE SA LES REPORTED BY THE ASSESSEE WAS ACCEPTED WITH REGARD TO THE QUANTITY A ND VALUE, TO BE FAIR AND GENUINE, THEN THERE WAS NO REASON FOR THE PURCH ASES TO BE TREATED AS BOGUS AND NOT GENUINE. 13. DURING THE APPELLATE PROCEEDINGS BEFORE LD. CIT (A) ASSESSEES REPRESENTATIVE AND ASSESSING OFFICER WHO HAD PASSED ASSESSMENT ORDER WERE PRESENT AND DURING THAT PROCEEDINGS THE ASSESS EE SOUGHT FURTHER OPPORTUNITY FOR SUBSTANTIATING THE PURCHASE OF RS.3 3,06,747/- WITH THE HELP OF BANK STATEMENTS ETC. THE LD. CIT(A) REQUEST ED THE ASSESSING OFFICER TO EXAMINE THE BANK STATEMENT AND OTHER EVI DENCE WHICH THE ASSESSEE SOUGHT TO SUBMIT. THE AO FURNISHED THE REM AND REPORT THE COPY OF WHICH WAS HANDED OVER TO THE ASSESSEE WHO A LSO COMMENTED ON THE SAME. IN THE REMAND REPORT, THE AO SUBMITTED THAT PURCHASE OF RS.68,355/- FROM M/S. RIDDHI SIDDHI TEXTILES AND OF RS.1,74,310/- FROM M/S PARUL SYNTHETICS DID NOT APPEAR TO BE GENUINE. THE BANK ACCOUNT SHOWED PAYMENT OF RS.83,600/- TO M/S. PARUL SYNTHET ICS AND THE SAME SUM WAS ALSO REFLECTED IN THE LEDGER ACCOUNT. THE D IFFERENCE OF RS.90,710/- WAS NOT RECONCILABLE. AFTER VERIFYING T HE ASSESSEES BANK ACCOUNT WHICH THE AO OBTAINED DIRECTLY FROM THE CON CERNED BANK, HE OBSERVED THAT ASSESSEES CLAIM OF HAVING MADE THE P AYMENT TO ALL THE SUPPLIERS BY CHEQUES WAS FACTUALLY CORRECT. IN OTHE R WORDS, HE CONFIRMED THAT APART FROM PURCHASE OF RS.63,355/- FROM M/S RI DDHI SIDHI TEXTILES AND OF RS.90,710/- FROM M/S PARUL SYNTHETICS. THE R EMAINING PURCHASE OF RS.33,06,747/- - RS.1,59,065 = RS.31,47,682/- WE RE VERIFIABLE. ON THE ITA NO.3111 & 3127/AHD/2009 A.Y. 2006-07 M/S. KASHISH SILK MILLS V. ITO WD-2(2) SRT PAGE 10 BASIS OF THIS REMAND REPORT LD. CIT(A) RESTRICTED T HIS ADDITION TO RS.1,59,065/- BY OBSERVING AS UNDER:- I FIND THAT IN HIS WRITTEN REBUTTAL, THE AR HAS NO T REALLY BEEN ABLE TO COUNTER THE FINDINGS AND OBSERVATIONS OF THE AO AS CONTAINED IN THE REMAND REPORT. THUS, THE ALLEGED PURCHASES FROM M/S. RIDDHI SIDDHI TEXTILES OF RS.68,355 AND OF RS.90,710 FROM M/S/. PARUL SYNTHETICS ARE HELD TO BE UNVERIFIABLE AND HENCE, B OGUS. THE ADDITION THEREFORE WILL BE RESTRICTED TO THE SUM OF RS.68,355 + 90,710 = RS.1,59,065, WHICH MEANS THAT THE ASSESSEE WILL GET A RELIEF OF RS.6,67,521. THE AO IS DIRECTED TO TAKE A CTION ACCORDINGLY. 14. FURTHER AGGRIEVED NOW ASSESSEE IS IN APPEAL BE FORE US. 15. AT THE TIME OF HEARING LD. COUNSEL FOR THE ASSE SSEE REITERATED THE SAME SUBMISSION MADE BEFORE LD. CIT(A) THAT THE PUR CHASE BILLS OF FINISHED FABRIC HAVE BEEN DESTROYED IN THE FLOOD AN D THEREFORE THE SAME COULD NOT BE PRODUCED BEFORE LOWER AUTHORITIES. WHI LE RELEVANT DETAILS INCLUDING THE CHEQUE NO. THE DATE OF ISSUE OF CHEQU E, DATES OF CLEARING BY ORIENTAL BANK OF COMMERCE AND COPY OF THE BANK S TATEMENT SHOWING THE NAMES OF THE PARTIES TO WHOM THE CHEQUE HAD BEE N ISSUED ALONG WITH LEDGER ACCOUNT OF THE PARTIES WERE DULY SUBMIT TED WHICH SHOULD HAVE BEEN CONSIDERED AS SUFFICIENT EVIDENCE IN SUPP ORT OF ITS CLAIM OF PURCHASE IN THE FACTS AND CIRCUMSTANCES OF THE CASE . HE THEREFORE PRAYED THAT THE ADDITION OF RS.1,59,065/- SUSTAINED BY LD. CIT(APPEALS) MAY ALSO BE DELETED. 16. LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND RELIED ON THE ORDER OF LD. CIT(A). 17. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FEEL NO NEED TO INTERFERE WITH THE ORDER PASSED BY LD. CIT( A) ON THIS ISSUE AS HE ITA NO.3111 & 3127/AHD/2009 A.Y. 2006-07 M/S. KASHISH SILK MILLS V. ITO WD-2(2) SRT PAGE 11 HAS GIVEN AMPLE OPPORTUNITY TO THE ASSESSEE TO SUBS TANTIATE ITS CLAIM OF PURCHASE MADE BY HIM FROM THE TWO PARTIES NAMELY M/ S. RIDDHI SIDDHI TEXTILES TO THE TUNE OF RS.68,355/- AND OF RS.90,71 0/- FROM M/S. PARUL SYNTHETICS AND THE FINDING OF LD. CIT(A) THAT ASSES SEE HAS FAILED TO REBUT THE OBSERVATION OF THE ASSESSING OFFICER MADE BY HI M IN THE REMAND REPORT REMAINED UN-CONTROVERTED BY THE ASSESSEE AT THE TIME OF HEARING BEFORE US ALSO. THEREFORE, THE ORDER PASSED BY LD. CIT(A) IS HEREBY UPHELD. THIS GROUND OF ASSESSEES APPEAL IS DISMISS ED. 18. IN THE RESULT, APPEAL FILED BY ASSESSEE IS PARTLY A LLOWED AND THAT OF REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED ON THIS DAY OF 30 TH JUNE, 2011 SD/- SD/- ( G.D.AGARWAL ) ( D.K. TYAGI ) (VICE PRESIDENT) (JUDICIAL MEMBER) AHMEDABAD, DATED : 30/06/2011 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 4. THE CIT CONCERNS. 2. THE REVENUE. 5. THE DR, ITAT, AHMEDABAD 3. THE CIT(APPEALS)-II, SURAT 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD