JCIT 9(1)(2), MUMBAI V. APEX INFRA TECH P LTD, MUMBAI

ITA 3370/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9818 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 13-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V VIDHYADHAR
• Keywords: Bogus purchase; Unexplained investment; Business income; Principle of natural justice; Opportunity of cross examination; Question of law; Tangible material; Corroborative evidences; Avoidance of tax; Accommodation entries; Onus to prove; Sham transactions; Reassessment proceedings
• Section: 69C; 40A(3); 143(3); 133(6); 131; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN , JM ITA NO. 3370 / MUM/201 6 & ITA NO.3371/MUM/2016 ( ASSESSMENT YEAR : 2009 - 10 & 2011 - 12 ) JCIT 9(1)(2) R.NO.260A, 2 ND FLOOR AAYAKAR BHAVAN, M.K.R OAD, MUMBAI 400 020 VS. M/S. APEX INFRA TECH PVT. LTD., 102, HARSHA II RAHEJA COMPLEX, VERSOVA, ANDHERI WEST, MUMBAI 400 061 PAN/GIR NO. AAECA7178G APPELLANT ) .. RESPONDENT ) ITA NO.2910/MUM/2016 & ITA NO.2912/MUM/2016 ( ASSES SMENT YEAR :2009 - 10 & 2011 - 12 ) M/S. APEX INFRA TECH PVT. LTD., 102, HARSHA II RAHEJA COMPLEX, VERSOVA, ANDHERI WEST, MUMBAI 400 061 VS. JCIT 9(1)(2) R.NO.260A, 2 ND FLOOR AAYAKAR BHAVAN, M.K.ROAD, MUMBAI 400 020 PAN/GIR NO. AAECA7178G APPELLANT ) .. RESPONDENT ) REVENUE BY SHRI V. VIDHYADHAR ASSESSEE BY SHRI DHAVAL SHAH DATE OF HEARING 02/08/2017 DATE OF PRONOUNCEMENT 23 / 08 /201 7 / O R D E R PER BENCH THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE AGAINST THE ORDER OF CIT(A) - 16, MUMBAI DATED 15/02/2016 FOR THE ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 2 A.Y.2009 - 10 AND 2011 - 12 IN THE MATTER OF ORDER PASSED U/S. 143(3) R.W.S. 147 OF THE IT ACT. 2. SOCI ETY G RIEVANCE OF BOTH ASSESSEE AND REVENUE IN ALL THE YEARS UNDER CONSIDERATION RELATES TO ADDITION MADE / DELETED IN RESPECT OF BOGUS PURCHASES. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME FOR A.Y.2009 - 10 ON 27.09.2009 DECLARING TOTAL INCOME OF RS.40,22,193/ - . THEREAFTER, ON THE BASIS OF INFORMATION RECEIVED FROM SALES TAX (VAT) DEPARTMENT, STATE OF MAHARASHTRA THE CASE WAS RE - OPENED U/S.147 OF THE I.T. AC T AND AN ORDER U/S.143(3) R.W.S.147 OF THE INCOME TAX ACT, 1961 WAS PASSED ON 11.03.2015 WHEREBY THE PURCHASES FOR AN AMOUNT OF RS.38,75,431/ - WERE DISALLOWED BY THE A.O BY TREATING THEM AS BOGUS PURCHASES. 5. BY THE IMPUGNED ORDER, CIT(A) CONFIRMED THE AD DITION OF 12.5% IN RESPECT OF SUCH PURCHASES AFTER OBSERVING AS UNDER: - 24. IN THE REASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAD RAISED QUERIES REGARDING PURCHASES MADE BY THE APPELLANT. IT WAS INFORMED BY HIM THAT CERTAIN INFORMATION WAS RECEI VED BY HIM TO SHOW THAT THE PURCHASES TO THE TUNE OF RS. 38,75,431/ - WERE FOUND TO BE BOGUS. THE DETAILS OF THE SAID PURCHASES IS GIVEN BELOW: PARTY NAME AMOUNT (RS.) NATURE OF ITEMS PURCHASED R.K. TRADERS 75,676 METAL SHRADHHA TRADING CO. 6,49,9 77 METAL SUN ENTERPRISES 6,70,012 METAL M R CORPORATION 7,25,612 METAL MAHALAXMI CORPORATION 5,28,750 LDO VIDHI AND VRUSHTI TRADE PVT. LTD. 9,98,325 BITUMEN UDAY ENTERPRISES 2,27,079 METAL ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 3 TOTAL... 38,75,431 25. IF IS SUBM ITTED THAT IN RESPECT OF THE ALLEGED BOGUS PURCHASES, THE APPELLANT FILED SEVERAL DETAILS, INFORMATION AND EVIDENCES BY WAY OF LEDGER COPIES OF THE PARTIES, BILLS FROM THE SAID PARTIES, NEXUS OF PURCHASES WITH ULTIMATE CONSUMPTION. HOWEVER, WITHOUT APPRECI ATING THESE SUBMISSIONS, ENTIRE PURCHASES TO THE TUNE OF RS. 38,75,431/ - WERE DISALLOWED AND ADDED AS INCOME OF THE APPELLANT. 26. THE REASONS FOR DISALLO W ING PURCHASES OF RS. 38,75,431/ - BY THE ASSESSING OFFICER ARE AS UNDER : I. INFORMATION WAS RECEIVED FROM THE SALES TAX DEPARTMENT THAT THE APPELLANT HAD TAKEN BOGUS BILLS AMOUNTING TO RS. 38,75,431/ - . II. NOTICE U/S 233(6) OF THE ACT WAS ISSUED TO PARTIES WHICH RETURNED UN - SERVED AND THE APPELLANT ALSO FAILED TO PRODUCE PARTIES BEFORE THE AS SESSING OFFICER. WITH RESPECT TO ONE OF THE PARTIES VIZ. VIDHI AND VRUSHTI TRADE PVT. LTD., RELIANCE WAS PLACED ON THE STATEMENT RECORDED BY SALES TAX AUTHORITIES OF DIRECTOR OF THE COMPANY AND THE BANK STATEMENT OF THE PARTY TO STATE THAT NO TRANSACTION W AS CARRIED OUT BETWEEN THE APPELLANT AND THE SAID PARTY. 27. THE APPELLANT SUBMITS THAT THE REASONS GIVEN BY THE ASSESSING OFFICER ART INCORRECT AND CONSEQUENTIAL DISALLOWANCE IS UNJUSTIFIED. PROPOSITIONS OF THE APPELLANT ASSESSING OFFICER'S OBJE CTION - INFORMATION RECEIVED FROM THE SALES TAX DEPARTMENT THAT THE PURCHASES OF THE APPELLANT WERE BOGUS. 28. IT IS SUBMITTED THAT THE ASSESSING OFFICER HAS RELIED UPON CERTAIN INFORMATION RECEIVED REGARDING BOGUS PURCHASES AS IS EVIDENT FROM THE A SSESSMENT ORDER AS WELL AS REASONS RECORDED. DURING THE REASSESSMENT PROCEEDINGS, THE APPELLANT HAS ALSO MADE REQUEST TO THE ASSESSING OFFICER TO PROVIDE THE RELEVANT INFORMATION RELIED UPON SO THAT THE CORRECTNESS OF THE INFORMATION CAN BE VERIFIED. FURTH ER, THE ASSESSING OFFICER HAS RELIED ON THE STATEMENT RECORDED OF PRADEEP JETHALA BABRIA, DIRECTOR OF VIDHI & VRUSHTI TRADE PVT. LTD. AS WELL AS THE BANK STATEMENT OF THE SAID PARTY TO CONCLUDE THAT THE SAID PARTY IS A BOGUS PARTY. HOWEVER, THE SAID INFORM ATION WAS NOT PROVIDED TO US. WE THEREFORE PRAY THAT THE ASSESSING OFFICER MAY KINDLY BE DIRECTED TO PROVIDE SAID DETAILS AND EVIDENCES WHICH JUSTIFY PURCHASES MADE BY THE APPELLANT TO BE BOGUS SO AS TO ENABLE US TO REPRESENT THE CASE. 29. IN ANY CA SE AND WITHOUT PREJUDICE, THE SANCTITY OF THE INFORMATION RECEIVED BY THE ASSESSING OFFICER IS ALSO IN DOUBT AND CANNOT BE ACCEPTED WITHOUT INDEPENDENT ENQUIRY AND VERIFICATION. IN EFFECT, THE ASSESSING OFFICER HAS NEITHER EXAMINED NOR BROUGHT THE EVIDENCE S ON RECORD WHICH CAN PROVE THAT THE PURCHASES MADE BY THE ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 4 APPELLANT ARE BOGUS. FURTHER, THESE BEING WITNESS AND EVIDENCES OF THE DEPARTMENT, THE APPELLANT ALSO DESIRE THE CROSS - EXAMINATION OF THE PERSONS WHO HAVE ALLEGED THE PURCHASES AS BOGUS. IT IS THUS REQUESTED TO YOUR HONOUR TO KINDLY DIRECT THE ASSESSING OFFICER TO ALLOW THE APPELLANT TO CROSS - VERIFY THE PERSONS WHO HAVE ALLEGED THE PURCHASES AS BOGUS AND ALSO CROSS - VERIFY ALL MATERIALS USED BY THE ASSESSING OFFICER IN DERIVING CONCLUSION THAT THE SA ID PURCHASES WERE BOGUS IN NATURE. 30. IN ANY CASE, THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER HAS FAILED TO TAKE COGNIZANCE OF THE FACT THAT THESE PURCHASES WERE FULLY BACKED BY THE AUTHENTICATED INVOICES ISSUED BY THE SELLERS WHICH REVEAL DE TAILS LIKE NATURE OF GOODS, QUANTITY OF GOODS, RATE, VALUE, AND THE VAT CHARGED. THESE BILLS CONSIST OF THE VALID TIN NOS. ISSUED BY THE CONCERNED AUTHORITIES. FURTHER, BANK STATEMENTS ALSO SHOW THAT THE APPELLANT HAS MADE THE PAYMENTS FOR THESE PURCHASES BY CHEQUE AND THAT THE PAYMENTS HAVE ALSO GOT CLEARED IN THE BANK ACCOUNT. ALL THE ABOVE EVIDENCES WERE MORE THAN SUFFICIENT TO PROVE SAID PURCHASES AS GENUINE. THE COPIES OF THE LEDGER ACCOUNTS, PURCHASE INVOICES, NEXUS OF THE SAID PURCHASE WITH ULTIMATE CONSUMPTION AND JUSTIFICATION OF CLOSING STOCK OF GOODS ALONG WITH THE RELEVANT PAGES OF THE BANK STATEMENTS ARE FOR YOUR HONOUR'S REFERENCE. 31. WE SUBMIT THAT IN SPITE OF AMPLE EVIDENCES PLACED ON RECORD, THE ASSESSING OFFICER HAS NOT BEEN ABLE TO PROVE HOW THE PURCHASES MADE BY THE APPELLANT ARE NOT GENUINE. THE ASSESSING OFFICER HAS NOT EXAMINED ANY OF THE EVIDENCES FILED BY THE APPELLANT TO RAISE EVEN A DOUBT ON THE GENUINENESS 0} PURCHASES. HE HAS MERELY EMPHASIZED AND MADE ADDITION THE GROUND THAT ( I) THE INFORMATION WAS RECEIVED FROM SALES TAX DEPARTMENT ABOUT BOGUS PURCHASES AND (II) THAT THESE PARTIES WERE NOT PRODUCED BY THE APPELLANT FOR VERIFICATION. 32. IT IS SUBMITTED THAT INFORMATION FROM THE SALES TAX DEPARTMENT COULD ONLY BE A START ING POINT FOR VERIFYING ABOUT THE GENUINENESS OF PURCHASES. HOWEVER, THE SAME CANNOT BE THE REASONS FOR CONCLUDING THAT PURCHASES ARE NOT GENUINE. THE APPELLANT HAD ALSO FILED DETAILS OF SALES MADE DURING THE YEAR. THE DETAILS OF CLOSING STOCK - IN - TRADE ARE ALSO AVAILABLE ON RECORD. HOWEVER, THESE DETAILS AND INFORMATION HAVE NOT BEEN DOUBTED. IN SUCH CASE, WITHOUT ANY FURTHER EVIDENCE, THE ASSESSING OFFICER COULD NOT HAVE TREATED THE PURCHASES AS BOGUS. 33. THE ASSESSING OFFICER HAS ALSO NOT BROUGHT O N RECORD ANY EVIDENCE TO PROVE THAT THE CHEQUE ISSUED BY THE APPELLANT AND DEPOSITED IN THE BANK ACCOUNT OF THE SUPPLIERS WAS LATER WITHDRAWN BY CASH AND RECEIVED BACK BY THE APPELLANT, WHICH CAN RAISE CERTAIN DOUBTS AS TO THE NATURE OF PAYMENTS. 34. FURTHER, THE ASSESSING OFFICER HAS RELIED ON THE STATEMENT OF SHRI PRADEEP JETHALA BABRIA, DIRECTOR OF VIDHI & VRUSTHI TRADE P. LTD. ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 5 RECORDED BY THE SALES TAX AUTHORITIES ON 23.08.2011 WHEREIN IT IS ALLEGEDLY STATED THAT THE SAID PARTY HAS NOT CARRIED OU T ANY TRANSACTION OF SALES, PURCHASES ETC. THE ASSESSING OFFICER ALSO ISSUED NOTICE U/S. 133(6) WAS ISSUED TO INDUSLND BANK FOR A COPY OF THE BANK STATEMENT. THE ASSESSING OFFICER HAS OBSERVED THAT A PERUSAL OF THE BANK STATEMENT REFLECTS CHEQUES ISSUED TO OTHER PARTIES WHICH HAVE BEEN DECLARED AS BOGUS PARTIES BY THE SALES TAX DEPARTMENT, MAHARASHTRA. THEREFORE, THE ASSESSING OFFICER HAS CONCLUDED THAT VIDHI & VRUSTHI TRADE P. LTD. IS A BOGUS PARTY AND THEREFORE THE TRANSACTION OF THE APPELLANT WITH THE SA ID PARTY IS ALSO BOGUS. 35. AT THE OUTSET, THE APPELLANT SUBMITS THAT NEITHER THE STATEMENT OF THE DIRECTOR OF THE PARTY NOR THE BANK STATEMENT WAS PROVIDED TO THE APPELLANT FOR CROSS - EXAMINATION AND VERIFICATION AND THUS THE ACTION OF THE ASSESSING OFFICER IN MAKING THE ADDITION ON THE BASIS OF THE SAID STATEMENT IS A GROSS VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE AND THE ADDITION DESERVES TO BE DELETED ON THIS COUNT ITSELF. 36. IN ANY CASE, THE APPELLANT SUBMITS THAT THE ALLEGED STATEM ENT OF THE DIRECTOR OF THE SAID PARTY IS OF NO EVIDENTIARY VALUE AS IT HAS BEEN RECORDED ON 23.08.2011 WHICH IS NOT RELEVANT FOR THE YEAR UNDER APPEAL I.E. AY. 2009 - 10. FURTHER, THE MANNER IN WHICH THE REFERENCE HAS BEEN MADE TO THE SAID DOCUMENTS SHOW THA T NOWHERE IN THE INFORMATION RECEIVED BY THE ASSESSING OFFICER, THERE WOULD BE ANY MENTION ABOUT THE NAME OF THE APPELLANT AND THE REFERENCE THAT THE PARTY HAD PROVIDED BOGUS BILLS TO THE APPELLANT. THE ASSESSING OFFICER HAS SUMMARILY CONCLUDED THAT THE TR ANSACTION BETWEEN THE APPELLANT AND THE SAID PARTY IS BOGUS WITHOUT BRINGING ON RECORD ANY COGENT EVIDENCE TO SHOW THAT THE PURCHASES MADE BY THE APPELLANT FROM THE SAID PARTY IS BOGUS. MOREOVER, THE BOOKS OF ACCOUNT OF THE APPELLANT, MORE PARTICULARLY, T HE FIGURES SALES AND CLOSING STOCK HAVE NOT BEEN DISPUTED BY THE ASSESSING OFFICER IN IS ASSESSMENT ORDER. MOREOVER, THESE BOOKS OF ACCOUNT HAVE ALSO NOT BEEN REJECTED BY THE ASSESSING OFFICER. APART FROM THE SAME, THE APPELLANT HAS ALSO E XPLAINED THAT T HE GOODS PURCHASED DURING THE YEAR HAVE BEEN UT I LISED AND EVENTUALLY SOLD. THE DETAILED CHART SHOWING QUANTITATIVE PURCHASE AND SALE OF GOODS PROVE THAT THE GOODS HAVE BEEN RECEIVED AND UTILIZED FOR SALE. UNDER THESE CIRCUMSTANCES, IT IS NOT CORRECT ON THE PART OF THE ASSESSING OFFICER TO DRAW A CONCLUSION THAT THE PURCHASES MADE BY THE APPELLANT ARE NOT GENUINE. 38. ON THIS ISSUE, RELIANCE IS PLACED ON THE DECISION IN THE CASE O/DCIT V. RAJEEV G. KALATHIL [51 TAXMANN.COM 514 (MUM)] WHEREIN, ON SIMIL AR FACTS, IT WAS HELD AS UNDER: ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 6 '2.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT AO HAD MADE THE ADDITION AS ONE OF THE SUPPLIER WAS DECLARED A HAWALA DEALER BY THE VAT DEPARTMENT. WE AGREE THAT IT WAS A GOOD START ING POINT FOR MAKING FURTHER INVESTIGATION AND TAKE IT TO LOGICAL END. BUT, HE LEFT THE JOB AT INITIAL POINT ITSELF. SUSPICION OF HIGHEST DEGREE CANNOT TAKE PLACE OF EVIDENCE. HE COULD HAVE CALLED FOR THE DETAILS OF THE BANK ACCOUNTS OF THE SUPPLIERS TO FI ND OUT AS WHETHER THERE WAS ANY IMMEDIATE CASH WITHDRAWAL FROM THEIR ACCOUNT. WE FIND THAT NO SUCH EXERCISE WAS DONE. TRANSPORTATION OF GOOD TO THE SITE IS ONE OF THE DECIDING FACTOR TO BE CONSIDERED FOR RESOLVING THE ISSUE. THE FAA HAS GIVEN A FINDING OF FACT THAT . PART OF THE GOODS RECEIVED BY THE ASSESSEE WAS FORMING PART OF CLOSING STOCK. AS FAR AS THE CASE OF WESTERN EXTRUSION INDUSTRIES, (SUPRA) IS CONCERNED, WE FIND THAT IN THAT MATTER CASH WAS IMMEDIATELY WITHDRAWN BY THE SUPPLIER AND THERE WAS NO EVIDENCE OF MOVEMENT OF GOODS. BUT, IN THE CASE BEFORE US, THERE IS NOTHING, IN THE ORDER OF THE AO, ABOUT THE CASH TRAIL. SECONDLY, PROOF OF MOVEMENT OF GOODS IS NOT IN DOUBT. THEREFORE, CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE UNDER A PPEAL, WE ARE OF THE OPINION THAT THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL INFIRMITY AND THERE ARE NOT SUFFICIENT EVIDENCE ON FILE TO ENDORSE THE VIEW TAKEN BY THE AO. SO, CONFIRMING THE ORDER OF THE FAA, WE DECIDE GROUND NO.L AGAINST THE AO.' . 39. FOLLOWING THE ABOVE MENTIONED DECISION, VERY RECENTLY, HON'BLE MUMBAI TRIBUNAL IN THE CASE OF ITO V. PARESH ARVIND GANDHI [ITA NO. 5706/MUM/2013] DATED 13.05.2015 HAD ALSO DELETED SIMILAR DISALLOWANCES. 40. FURTHER, RELIANCE IS ALSO PLACE D ON THE ORDER OF HON'BLE MUMBAI TRIBUNAL IN THE CASE OF ITO V. SMT PRITI BANSIDHAR MEHTA [ ITA NO. 6798/MUM/20I4] DATED 02.06.2015, RELEVANT EXTRACT OF WHICH IS REPRODUCED UNDER: 5.3. 'A. C AR E FUL PERUSAL OF THE ORDER OF THE AUTHORITIES BELOW WITH THE DOC UMENTARY EVIDENCES BROUGHT ON RECORD IN THE FORM OF A PAPER BOOK, WE FIND THAT ALL THE PAYMENTS HAVE BEEN MADE THROUGH CHEQUE, WHICH HAVE BEEN DULY CERTIFIED BY BI BANK. THE CERTIFICATE IS PLACED AT PAGES 40 & 41 OF THE PAPER BOOK. WE SO FIND THAT THE AO H AS NOT BROUGHT ANYTHING ON RECORD TO DISBELIEVE THE EXPLANATION OF THE ASSESSEE. THE ONLY EVIDENCE/REFERENCE MADE BY THE AO IS THAT THE ASSESSEE HAS NOT PROVIDED PAN NO. OF THE PARTIES. THIS CANNOT BE THE SOLE REASON FOR DISBELIEVING THE EXPLANATION OF THE ASSESSEE, WHEN THE PAYMENTS HAVE BEEN MADE BY CHEQUE DULY REFLECTED IN THE BANK STATEMENT OF THE ASSESSEE, THE CLAIM OF EXPENDITURE CANNOT BE BRUSHED ASIDE LIGHTLY. WE, THEREFORE, DECLINE TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). APPEAL FILED BY T HE REVENUE IS DISMISSED.' 41. EVEN IN THE ABOVE CASE, THE COURT HAS HELD THAT, AS THE PAYMENTS HAVE BEEN MADE THROUGH BANKING CHANNEL AND THERE ARE NO EVIDENCES TO ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 7 DISBELIEVE THE EXPLANATION OF THE APPELLANT, NO ADDITIONS CAN BE MADE ON ACCOUNT OF BO GUS PURCHASES. 42. RELIANCE IS NEXT PLACED ON THE DECISION IN THE CASE OF CIT V. M. K. BROTHERS [163 ITR 249 (GUJ.)] WHEREIN THE ISSUE INVOLVED BEFORE THE HON'BLE COURT WAS WHETHER THE PURCHASES MADE BY THE APPELLANT WERE GENUINE IN LIGHT OF THE FACT THAT CERTAIN ENQUIRIES REVEALED THAT THE SELLERS HAD GIVEN STATEMENT IN THE CONCERNED PROCEEDINGS THAT THE SALES MADE BY THEM WERE NOT GENUINE. ON THESE FACTS, THE HON'BLE COURT OBSERVED AS UNDER: 'ON A PERUSAL OF THE ORDER OF THE TRIBUNAL, IT CLEARLY APP EARS THAT WHETHER THE SAID TRANSACTIONS WERE BOGUS OR NOT WAS A QUESTION OF FACT. THE TRIBUNAL HAS ALSO POINTED OUT THAT NOTHING IS SHOWN TO INDICATE THAT ANY PART OF THE FUND GIVEN BY THE ASSESSEE TO THESE PARTIES CAME BACK TO THE ASSESSEE IN ANY FORM. IT IS FURTHER OBSERVED BY THE TRIBUNAL THAT THERE IS NO EVIDENCE ANYWHERE THAT THESE CONCERNS GAVE VOUCHERS TO THE ASSESSEE. EVEN THE TWO STATEMENTS DO NOT IMPLICATE THE TRANSACTIONS WITH THE ASSESSEE IN ANY WAY. WITH THESE OBSERVATIONS, THE TRIBUNAL ULTIMAT ELY HAS OBSERVED THAT THERE ARE CERTAIN DOUBTFUL FEATURES, BUT THE EVIDENCE IS NOT ADEQUATE TO CONCLUDE THAT THE PURCHASES MADE BY THE ASSESSEE FROM THESE PARTIES WERE BOGUS. IT MAY BE STATED THAT THE ASSESSEE WAS GIVEN CREDIT FACILITIES FOR A SHORT DURA TION AND THE PAYMENTS WERE GIVEN BY CHEQUES. WHEN THAT IS SO, IT CANNOT BE SAID THAT THE ENTRIES FOR THE PURCHASES OF THE GOODS MADE IN THE BOOKS OF ACCOUNT WERE BOGUS ENTRIES. WE, THEREFORE, DO NOT FIND THAT THE CONCLUSION ARRIVED AT BY THE TRIBUNAL IS AG AINST THE WEIGHT OF EVIDENCE. IN THAT VIEW OF THE MATTER, WE ANSWER THE QUESTION IN THE AFFIRMATIVE, THAT IS, IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ACCORDINGLY, THE REFERENCE STANDS DISPOSED OF WITH NO ORDER AS TO COSTS.' 43. THUS ON THE BASIS OF ABOVE BINDING SUBMISSIONS AND DECISIONS, IT IS SUBMITTED THAT NO ADDITIONS CAN BE MADE BY ASSESSING OFFICER WITHOUT ANY SUFFICIENT EVIDENCES BEFORE HAND AND MERELY ON THE BASIS OF SOME INFORMATION RECEIVED BY THIRD PARTY. 44. THE HON'BLE M UMBAI TRIBUNAL IN THE CASE OF VIDEOCON INDUSTRIES LTD. VS. ADDL. CIT [ITA NO. 1728/MUM/2014] DATED 06.02.2015 HELD AS UNDER: 10.8. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENTIONS HAVE CAREFULLY BEEN CONSIDERED. IT IS ONE OF THE CONTENTIONS OF THE ASS ESSEE THAT IN VIEW OF THE FILED BY THE ASSESSEE TO SUPPORT THE PURCHASES THE ADDITION COULD NOT BE MADE. IT IS ALSO THE CONTENTION OF THE ASSESSEE THAT ADDITIONS COULD NOT BE MADE MERELY ON THE STATEMENTS MADE BY THE CONCERNED PARTIES BEFORE SALES TAX AUTH ORITIES. IT IS ALSO THE CONTENTION OF THE ASSESSEE THAT ASSESSEE HAS NOT BEEN PROVIDED WITH THE OPPORTUNITY TO REBUT THE STATEMENT OF THE OWNERS OF THE CONCERN AND IN ABSENCE OF SUCH OPPORTUNITY OF CROSS EXAMINATION ADDITION COULD NOT BE FOUND MADE OR SUS TAINED. WE FOUND SUBSTANCE IN SUCH CONTENTION OF THE ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 8 ASSESSEE THAT ASSESSEE IS REQUIRED TO BE PROVIDED WITH REASONABLE AND SUFFICIENT OPPORTUNITY TO REBUT THE EVIDENCE IN THE POSSESSION OF ME DEPARTMENT O N THE BASIS OF WHICH IT IS THE CASE OF THE REVENUE T HAT ASSESSEE DID NOT MAKE PURCHASES FROM THESE PARTIES. THIS IN OUR OPINION IS NECESSARY IN VIEW OF THE FACT THAT ACCORDING TO THE FACTS EVIDENCE FILED BY THE ASSESSEE CAN BE SAID TO BE SUFFICIENT TO DISCHARGE THE PRIMARY ONUS AS ASSESSEE HAS PRODUCED INVO ICES OF PURCHASES AND PAYMENTS HAVE ALSO BEEN MADE THROUGH ACCOUNT PAYEE CHEQUES/RTGS. IT IS ONLY ON THE BASIS OF PRESUMPTION, IT IS THE CASE OF AO THAT THE SAID AMOUNT WHICH IS DEPOSITED IN THE BANK ACCOUNT OF THE SELLERS HAVE COME BACK TO THE COFFERS OF THE ASSESSEE. FOR RAISING SUCH PRESUMPTION THERE SHOULD BE MATERIAL ON RECORD TO SUGGEST THAT THE AMOUNT PAID BY THE APPELLANT HAS AGAIN CAME BACK TO THE COFFERS OF THE ASSESSEE. 45. FURTHER, HON'BLE MUMBAI ITAT IN THE CASE OF RAMESH KUMAR & CO V. A CIT IITA NO, 2959/MUM/20U] DATED 24.11.2014 HAS HELD THAT ADDITIONS CANNOT BE MADE SOLELY ON THE BASIS OF SOME INFORMATION RECEIVED BY SALES TAX DEPARTMENT, MORE PARTICULARLY WHEN APPELLANT HAS BROUGHT ON RECORD SUFFICIENT EVIDENCES BY WAY OF BILLS, BANK S TATEMENTS ETC TO PROVE GENUINENESS OF THE TRANSACTIONS. RELEVANT EXTRACTS OF THE ORDER IS REPRODUCED AS UNDER: '8. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE RELEVANT DOCUMENTARY EVIDENCES BROUGHT BEFORE US. WE FIND THAT THE AO HAS MADE THE ADDITION AS SOME OF THE SUPPLIERS OF THE ASSESSEE WERE DECLARED HAWALA DEALER BY THE SALES TAX DEPARTMENT. THIS MAY BE A GOOD REASON FOR MAKING FURTHER INVESTIGATION BUT THE AO DID NOT MAKE ANY FURTHER INVESTIGATION AND MERELY COMPLETED THE AS SESSMENT ON SUSPICION. ONCE THE ASSESSEE HAS BROUGHT ON RECORD THE DETAILS OF PAYMENTS BY ACCOUNT PAYEE CHEQUE, IT WAS INCUMBENT ON THE AO TO HAVE VERIFIED THE PAYMENT DETAILS FROM THE HANK OF THE ASSESSEE AND ALSO FROM THE BANK OF THE SUPPLIERS TO VERIFY WHETHER THERE WAS ANY IMMEDIATE CASH WITHDRAWAL FROM THEIR ACCOUNT. NO SUCH EXERCISE HAS BEEN DONE. THE LD. CIT(A) HAS ALSO CONFIRMED THE ADDITION MADE BY THE AO BY GOING ON THE SUSPICION AND THE BELIEF THAT THE SUPPLIERS OF THE ASSESSEE ARE HAWALA TRADERS . WE ALSO FIND THAT NO EFFORT HAS BEEN MADE TO VERIFY THE WORK DONE BY THE ASSESSEE FROM THE MUNICIPAL CORPORATION OF GREATER MUMBAI. WE AGREE WITH THE SUBMISSIONS OF THE LD. COUNSEL THAT IF THERE WERE NO PURCHASES, THE ASSESSEE WOULD NOT HAVE BEEN IN A PO SITION TO COMPLETE THE CIVIL WORK.' 8.2...... IN OUR CONSIDERED OPINION, THE PURCHASES ARE SUPPORTED BY PROPER INVOICES DULY REFLECTED IN THE BOOKS OF ACCOUNT T HE PAYMENTS HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUE WHICH ARE DULY REFLECTED IN THE BANK STATEME NT OF THE ASSESSEE. THERE IS NO EVIDENCE TO SHOW THAT THE ASSESSEE HAS RECEIVED CASH BOOK FROM THE SUPPLIERS. THE ADDITIONS HAVE BEEN MADE MERELY ON THE REPORT OF THE SALES TAX DEPARTMENT BUT AT ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 9 THE SAME TIME IT CANNOT BE SAID THAT PURCHASES ARE BOGUS. WE, THEREFORE, SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION OF RS. 4,98,80,892/ - .' '46. RELIANCE IS ALSO PLACED ON THE DECISION IN THE CASE OF BABULAL C. BORANA V. 3RD ITO [282 ITR 251 (BOM)] WHEREIN IT HAS BEEN HELD THAT THE ADDITION CANNOT BE MADE ON ACCOUNT OF UNEXPLAINED INVESTMENTS IF THE PURCHASER IS IDENTIFIED. 47. ON IDENTICAL FACTS, THE DISALLOWANCE IS DELETED IN FOLLOWING CASES ALSO: A) ITO V. SHRI RAJKUMAR AGARWAL [ITA NO. 5233/MUM/2013] DATED 10. 04.2015. B) ACIT V. SHRI RAMILA PRAVIN SHAH [ITA O. 5246/MUM/2013] DATED 25.03.2015. 48. IT IS THUS SUBMITTED THAT WHERE ALL THE DETAILS WERE PROVIDED BY WAY OF LEDGER ACCOUNTS OF THE PARTIES, PURCHASE BILLS, BANK STATEMENTS SHOWING TRANSACTI ONS AND NEXUS BETWEEN PURCHASES AND CONSUMPTION, THE APPELLANT HAD VERY WELL DISCHARGED IT'S ONUS TO PROVE GENUINENESS OF THE TRANSACTION. 49. AT THIS JUNCTURE, IN RESPECT OF DISCHARGING PRIMARY ONUS OF THE APPELLANT, REFERENCE MAY BE ALSO BE INVITED TO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT V. DAULAT RAM RAWATMULL [87 ITR 349] WHEREIN THE HON'BLE COURT LAID DOWN THE RATIO THAT THE BURDEN OF PROVING THAT APPARENT IS NOT REAL IS ON THE PARTY WHO CLAIMS TO BE IT SO AND FAILING WHICH IT IS TO BE PRESUMED THAT APPARENT IS REAL. 50. THUS, IN LIGHT OF THE ABOVE SUBMISSION AND ABOVE BINDING PRECEDENTS, A CASE WHERE THE IDENTITY OF THE PARTIES HAVE BEEN CLEARLY ESTABLISHED AND THAT THE APPELLANT HAS DISCHARGED THE INITIAL ONUS OF PROVI NG THE GENUINENESS OF THE TRANSACTIONS BY WAY OF A. LEDGER ACCOUNTS IN THE BOOKS OF THE APPELLANT B. PURCHASE BILLS C. BANK STATEMENTS D. NEXUS BETWEEN PURCHASE OF GOODS AND ULTIMATE USAGE, THE DISALLOWANCES OF ALLEGED BOGUS PUR CHASES OUGHT TO BE DELETED. ASSESSING OFFICER'S OBJECTION - THE APPELLANT HAS NOT PRODUCED THE PARTIES: 51. IF IS NEXT SUBMITTED THAT THE ASSESSING OFFICER HAS CONSIDERED THE PURCHASES AS BOGUS AS THE APPELLANT COULD NOT PRODUCE THE PARTIES BEFORE THE ASSESSING OFFICER. IT IS SUBMITTED THAT THE APPELLANT WAS GRANTED A VERY SHORT TIME TO PRODUCE THE PARTIES. IT IS STATED IN THE ASSESSMENT ORDER THAT THE ASSESSING OFFICER HAD ISSUED NOTICES U/S ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 10 133(6) OF THE ACT TO VARIOUS PARTIES AND THAT NO RESPONSE WAS RECEIVED FROM THEM. ACCORDINGLY, THE PURCHASES WERE ADDED AS UNEXPLAINED. 52. WE SUBMIT THAT THE ASSESSING OFFICER CANNOT TREAT THE PURCHASES AS BOGUS MERELY BECAUSE NO REPLY WAS RECEIVED FROM THE PARTIES OR THAT THE PARTIES WERE NOT PR ODUCED BEFORE THE ASSESSING OFFICER. 53. DURING THE COURSE OF THE REASSESSMENT PROCEEDINGS, THE APPELLANT HAD TRIED TO ACT THE PARTIES. HOWEVER, THE APPELLANT DID NOT HAVE THE CURRENT ADDRESS HENCE THESE PARTIES COULD NOT BE TRACED. THIS IN ANY CASE, CA NNOT BE THE GROUND TO TREAT THE PURCHASES AS BOGUS. THE ASSESSING OFFICER HAD POWERS U/S. 131 OF THE ACT WHEREIN THE PARTIES ARE REQUIRED TO DEPOSE ON OATH. MOREOVER, THE ASSESSING OFFICER COULD HAVE ADDRESSED ENQUIRIES THROUGH SALE TAX DEPARTMENT WHO HA D PROVIDED THE INFORMATION ABOUT THESE PARTIES. EVEN THE INVESTIGATION WING OF THE INCOME TAX DEPARTMENT, WHO HAD SENT INFORMATION TO ASSESSING OFFICER, WOULD HAVE ALL THE DETAILS OF THE PARTIES. HOWEVER, INSTEAD OF RESORTING TO THESE ENQUIRIES, THE ASSESS ING OFFICER SUMMARILY CONCLUDED THAT THE PARTIES ARE NOT PRODUCED BEFORE HIM AND HENCE, PURCHASES ARE BOGUS. 54. IN THIS REGARD, RELIANCE IS PLACED ON THE DECISION OFHON'BLE BOMBAY HIGH COURT IN CASE OF CIT V. NIKUNJ EXIMP ENTERPRISES PVT LTD. [372 ITR 619] IVHEREIN IT WAS HELD THAT MERELY SUPPLIERS DID NOT APPEAR BEFORE ASSESSING OFFICER OR CIT(A), ONE CANNOT CONCLUDE THAT THE PURCHASES WERE NOT MADE BY THE APPELLANT AT ALL THE RELEVANT EXTRACT OF THE SAME IS REPRODUCED BELOW: '7. WE HAVE CONSIDERE D THE SUBMISSION ON BEHALF OF THE REVENUE. HOWEVER, FROM THE ORDER OF THE TRIBUNAL DATED 30.04.2010, WE FIND THAT THE TRIBUNAL HAS DELETED THE ADDITIONS ON ACCOUNT OF BOGUS PURCHASES NOT ONLY ON THE BASIS OF . STOCK STATEMENT I.E. RECONCILIATION STATEMENT, BUT ALSO IN VIEW OF THE OTHER FACTS. THE TRIBUNAL RECORDS THAT THE BOOKS OF ACCOUNTS OF THE RESPONDENT ASSESSES HAVE NOT BEEN REJECTED. SIMILARLY, THE SALES HAVE NOT BEEN DOUBTED AND IT IS AN ADMITTED POSITION THAT SUBSTANTIAL AMOUNT OF SALES HAVE BEEN MA DE TO THE GOVERNMENT DEPARTMENT I.E. DEFENCE RESEARCH AND DEVELOPMENT LABORATORY,, HYDERABAD. FURTHER, THERE WERE CONFIRMATION LETTERS FILED BY THE SUPPLIERS, COPIES OF INVOICES FOR PURCHASES AS WELL AS COPIES OF BANK STATEMENT ALL OF WHICH WOULD INDICATE THAT THE PURCHASES WERE IN FACT MADE. IN OUR VIEW, MERELY BECAUSE THE SUPPLIERS HAVE NOT APPEARED BEFORE THE ASSESSING OFFICER OR THE CIT(A), ONE CANNOT CONCLUDE THAT THE PURCHASES WERE NOT MADE BY THE RESPONDENT ASSESSEE. THE ASSESSING OFFICER AS WELL AS CIT (A) HAS DISALLOWED THE DEDUCTION OF RS.1.33 CRORES ON ACCOUNT OF PURCHASES MERELY ON THE BASIS OF SUSPICION BECAUSE THE SELLERS AND THE CANVASSING AGENTS HAVE NOT BEEN PRODUCED BEFORE THEM. WE FIND THAT THE ORDER OF THE TRIBUNAL IS WELL A REASONED ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 11 ORDE R TAKING INTO ACCOUNT ALL THE FACTS BEFORE CONCLUDING THAT THE PURCHASES OF RS.1.33 CRORES WAS NOT BOGUS. NO FAULT CAN BE FOUND WITH THE ORDER DATED 30.04.2010 OF THE TRIBUNAL.' 55. RELIANCE IS NEXT PLACED ON THE DECISION OF HON'BLE GUJARAT HIGH CO URT IN THE CASE OF CIT V, NANGALIA FABRICS PVT. LTD. [TAX APPEAL NO. 689 OF 2010] DATED 22.04.2013 WHEREIN ON SIMILAR ISSUE IT WAS HELD AS UNDER: '2. WE HAVE HEARD LEARNED COUNSEL MR. MEHTA FOR THE REVENUE AND LEARNED SENIOR COUNSEL, MR. SOPARKAR FOR THE ASSESSEE - RESPONDENT. THE FIRST QUESTION PERTAINS TO THE ADDITION MADE BY THE ASSESSING OFFICER AND REDUCED BY 5% FROM THE TOTAL AMOUNT OF RS. 1,27 CRORES (ROUNDED OFF) BY THE CIT AND DELETED IN ITS ENTIRETY BY THE TRIBUNAL. 3. THE QUESTION PERTAINS TO T HE PURCHASES MADE BY THE ASSESSEE - RESPONDENT. ON ACCOUNT OF UNVERIFIABLE PURCHASES, THE ASSESSING OFFICER MADE ADDITIONS TO THE TUNE OF RS. 1.27 CRORES. HE WAS OF THE OPINION THAT NONE OF THE PARTIES COULD BE LOCATED AND THEREFORE, SUCH PURCHASES WERE HELD TO BE BOGUS. WHEN IT WAS CHALLENGED BEFORE THE CIT(A), THE CIT(A) WAS OF THE OPINION THAT THEY COULD NOT BE HELD BOGUS AS THE CORRESPONDING SALES HAD BEEN EFFECTED BY THE RESPONDENT IN THE NEXT YEAR. IN SUBSEQUENT YEAR ALSO AND IN THE PAST, SUCH PURCHASES WERE MADE WHICH WERE NEVER QUESTIONED. WHEN CHALLENGED BEFORE THE TRIBUNAL ON THE BASIS OF THE FACTS PRESENTED BEFORE US, IT HELD THAT THESE PURCHASES COULD NOT BE HELD BOGUS BY HOLDING THUS: '13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIA LS PLACED ON RECORD. THE PURCHASES ARE SUPPORTED BY BILLS, ENTRIES IN THE BOOKS OF ACCOUNT, PAYMENT BY CHEQUE AND QUANTITATIVE DETAILS. ASSESSING OFFICER DID NOT FIND ANY INFLATION IN PURCHASE PRICE OR INFLATION IN CONSUMPTION OR SUPPRESSION THE PRODUCTION . THE ADDITION HAD BEEN MADE ONLY ON THE GROUND THAT THE PARTIES ARE NOT TRACEABLE. ASSESSEE HAD MADE PAYMENT THROUGH CROSSED CHEQUES AND ASSESSING OFFICER DID NOT FIND THAT PAYMENT MADE CAME BACK TO ASSESSEE. ASSESSING OFFICER HAS MADE ADDITION IN RESPECT TO THE OUTSTANDING AMOUNT NS ON 313.2001 WHICH HAS BEEN CLEARED IN THE SUCCEEDING YEARS. THE RATIO OF THE CREDITOR TO THE PURCHASES IS NORMAL CONSIDERING THE PAST RECORDS OF THE ASSESSEE. THE CREDITORS IVERE OUTSTANDING OWING TO LIQUIDITY AS ASSESSEE IS A LSO REQUIRED TO GET CREDIT IN RESPECT OF SALES ALSO. EVEN OTHEWISE PROVISION OF SECTION 68 IS NOT ATTRACTED TO AMOUNTS REPRESENTING PURCHASES MADE ON CREDIT AS HELD IN THE CASE OF PANCHAN DASS JAIN CITED SUPRA. THE ADDITION FOR BOGUS PURCHASES CANNOT ALSO BE SUSTAINED IN FULL OR IN PART IN VIEW OF THE VARIOUS CASES LAWS CITED BY THE ASSESSEE AND IN VIEW OF THE FACTS THAT THE DECISION OF VIJAY PROTEINS LTD. AND SANJAY OIL CAKE INDUSTRIES ARE NOT APPLICABLE TO THE FACTS OF THE ASSESSEE'S CASE. ASSESSEE'S CASE IS COVERED BY THE DECISION OF HON'BLE GUJARAT HIGH COURT IN CASE OF KASHIRAM TEXTILE MILLS. IN VIEW OF THE ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 12 MATTER, ADDITION MADE BY THE ASSESSING OFFICER IS DELETED. GROUND NO.L OF ASSESSEE'S APPEAL IS ALLOWED AND GROUND NO.L OF REVENUE'S APPEAL IS DISMI SSED.' 4. THE ISSUE IS ESSENTIALLY BASED ON FACTS. THE TRIBUNAL, HAVING BEEN SATISFIED BY GENUINENESS OF THE PURCHASES AS ALSO SPECIALLY CONSIDERING THE PAYMENTS MADE THROUGH THE CHEQUES, WAS OF THE OPINION THAT SUCH ADDITION COULD NOT BE SUSTAINED . ISSUE, ESSENTIALLY AND PRE - DOMINANTLY BASED ON FACTS, REQUIRES NO CONSIDERATION AS NO QUESTION OF LAW ARISES.' 56. RELIANCE IS NEXT PLACED ON THE DECISION OF HON'BLE MUMBAI TRIBUNAL IN THE CASE OF SHRI GANPATRAJ A. SANGHVI V. AC1T [ITA NO. 2826/MUM /2013] DATED 05.11.2014 WHEREIN IT HAS BEEN HELD AS UNDER : '7. A PERUSAL OF THE ORDERS PASSED BY THE TAX AUTHORITIES WOULD SHOW THAT THEY HAVE SUSPECTED THE GENUINENESS OF THE PURCHASES ONLY FOR THE REASON THAT THE ABOVE SAID FIVE PARTIES WERE NOT AVAILA BLE IN THE GIVEN ADDRESSES. IT IS PERTINENT TO NOTE THAT THE AO HIMSELF, DURING THE COURSE OF REMAND PROCEEDINGS, HAVE OBTAINED THE BANK STATEMENTS OF THE ABOVE SAID FIVE PARTIES. IT IS IN THE COMMON KNOWLEDGE OF EVERYBODY THAT THE BANK ACCOUNT, NOW A DAYS , COULD BE OPENED ONLY ON SUBMISSION OF PROPER DOCUMENTS, FURTHER THE ASSESSEE HAS FURNISHED THE SALES TAX DOCUMENTS OF THE ABOVE SAID FIVE PARTIES AND ALSO THEIR INCOME TAX DETAILS TO PROVE THEIR EXISTENCE. THUS, IT IS SEEN THAT THE ASSESSEE HAS FURNISHED MANY DOCUMENTS TO PROVE THE EXISTENCE OF THE PARTIES AND THEY HAVE NOT BEEN CONTROVERTED BY THE ASSESSING OFFICER. 8. BE THAT AS IT MAY, ANOTHER IMPORTANT FACTOR THE BANK ACCOUNT COPIES COLLECTED BY THE ASSESSING OFFICER SHOWS THAT THE ASSESSEE HAD MADE T HE PAYMENTS TO THE ABOVE SAID PARTIES BY WAY OF ACCOUNT PAYEE CHEQUES. THUS, IT IS SEEN THAT THE TRANSACTIONS HAVE BEEN ROUTED THROUGH THE BANK ACCOUNTS. FURTHER, IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE ASSESSEE HAS INDULGED IN ACCOUNTING OF B OGUS PURCHASES. WHEN THE ASSESSEE SUBMITTED THAT HE COULD NOT HAVE EFFECTED THE SALES WITHOUT MAKING CORRESPONDING PURCHASES, THE AO HAS TAKEN THE VIEW THAT THE ASSESSEE COULD HAVE EFFECTED PURCHASES IN THE GREY MARKET, WHICH CONCLUSION IS, IN FACT, NOT SUPPORTED BY ANY MATERIAL. UNDER THIS IMPRESSION ONLY, THE AO HAS FURTHER EXPRESSED THE VIEW THAT THE ASSESSEE WOULD HAVE PURCHASED THE MATERIALS BY PAYING CASH THUS VIOLATING THE PROVISIONS OF SEC. 40A(3) OF THE ACT, WHICH IS AGAIN BASED ON ONLY SURMISES. IN THE ABSENCE OF ANY MATERIAL TO SUPPORT THE SAID VIEW, WE ARE, UNABLE TO AGREE WITH THE VIEW TAKEN BY THE TAX AUTHORITIES THAT THE PURCHASES AMOUNT IS LIABLE TO BE DISALLOWED U/S 40A(3) OF THE ACT. ON THE SAME IMPRESSION ONLY, THE AO HAS EXPRESSED THE V IEW IN THE REMAND REPORT THAT THE PURCHASES AMOUNT IS ALSO LIABLE TO ASSESSED U/S 69C OF THE ACT AS THE SOURCE OF PURCHASES WERE NOT PROVED. AGAIN THE SAID CONCLUSION IS BASED UPON ONLY SURMISES, WHICH COULD NOT BE ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 13 SUSTAINED. THUS, IT IS SEEN THAT THE ASSE SSING OFFICER HAS ACCEPTED THE FACT THAT THE QUANTITY DETAILS OF PURCHASES AND SALES HAVE BEEN RECONCILED BY THE ASSESSEE. FURTHER, VARIOUS CASE LAW RELIED UPON BY THE ASSESSEE ALSO SUPPORTS HIS CASE. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THE L D CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF PURCHASES. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE DISALLOWANCE OF PURCHASES.' 57. IN VIEW OF THE ABOVE DECISIONS, WE SUBMIT THAT NO DI SALLOWANCE CAN BE MADE MERELY BECAUSE THE PARTIES WERE NOT PRODUCED BEFORE THE ASSESSING OFFICER. 58. THEREFORE, IN A CASE WHERE, A) NO ADVERSE EVIDENCES WERE FOUND BY THE ASSESSING OFFICER AGAINST THE APPELLANT. B) ADDITION WAS MADE W ITHOUT JUSTIFICATION AND EVIDENCES AND SOLELY ON THE BASIS OF INFORMATION RECEIVED FROM INVESTIGATION RUING. C) SUFFICIENT EVIDENCES ALREADY PLACED ON RECORD WHICH IS NOT CONSIDERED BY THE ASSESSING OFFICER. NO DISALLOWANCE OF ALLEGED BOGUS PURCHASE S CAN BE MADE IN THE HANDS OF THE APPELLANT. * WITHOUT PREJUDICE, THE PURCHASES CANNOT BE HELD TO BE BOGUS AS THE GOODS HAVE BEEN RECEIVED AND UTILIZED/SOLD. 59. IT IS SUBMITTED THAT THE DISALLOWANCE OF PURCHASE IS ALSO UNJUSTIFIED CONSIDERIN G THE OTHER CIRCUMSTANTIAL EVIDENCES AND EVENTS. IT IS BROUGHT TO THE NOTICE OF YOUR HONOUR THAT THE PURCHASES MADE FROM THE SAID SUPPLIERS HAVE BEEN UTILIZED FOR MANUFACTURING PREMIX AND SELLING THE SAME. THE APPELLANT HAS GIVEN DETAILS OF USAGE OF ALLEGE D BOGUS PURCHASES AND ITS ULTIMATE USE. THESE RECONCILIATION STATEMENTS SHOWING NEXUS BETWEEN THE PURCHASE AND ULTIMATE USAGE IS ENCLOSED HEREWITH FOR YOUR HONOUR'S REFERENCE. THE ENTIRE PROCESS OF MANUFACTURE OF PREMIX ASPHALT IS DIAGRAMMATICALLY DEPICTED AS UNDER: RUBBLES (RAW MATERIAL) RUBBLES ARE CRUSHED IN A CRUSHER TO CONVERT THEM INTO SMALLER STONES KNOWN AS AGGREGATES BITUMEN AGGREGATES AGGREGATES ARE MIXED WITH BITUMEN IN FIXED PROPORTION AND THE HOT MIXTURE CALLED AS PREMIX IS SUPPLIED TO BUYER, FOR LAYING DOWN FOR MAKING ROADS AND BRIDGES PREMIX ASPHALT ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 14 61. FURTHER, THE PREMIX ASPHALT USED FOR CONSTRUCTION OF ROADS IN INDIA ARE GOVERNED BY THE SPECIFICATION LAID DOWN BY MOST. THE GUIDELINES GIVEN BY MOST ARE MANDATORY FOR ANY INFRASTRUCTURE DEVELOPMENT IN INDIA. IF THE MIXTURE IS NOT AS PER THE PROPORTION GIVEN IN SAID GUIDELINES, THE ENGINEERING WILL FAIL. DURING THE COURSE OF INFRASTRUCTURE DEVELOPMENT, THE QUANTITY OF MATERIAL IS STRICTLY EXAMINED BY THE ENGINEERS. THIS IS ALSO PERIODICALL Y , EXAMINED AND APPROVED. THE ULTIMATE OUTPUT IN THE PRESENT CASE WAS AS PER THE REQUIREMENTS OF THE SAID MINISTRY AND HAS ALSO NOT BEEN DOUBTED BY THE ASSESSING OFFICER, THIS SHOWS THAT REQUISITE QUANTITY OF MATERIAL, INCLUDING THE QUANTITY OF BITUMEN AN D AGGREGATES IN THE ALLEGED BOGUS BILLS, HAVE BEEN UTILIZED BY THE APPELLANT. THUS, ON THIS COUNT ALSO NO ADDITIONS ON ACCOUNT OF ALLEGED BOGUS PURCHASES CAN BE MADE IN THE HANDS OF THE APPELLANT. 62. FURTHER, THE SAID PROCESS OF MIXING OF AGGREGATES WITH BITUMEN FOR PRODUCTION OF PRE - MIX ASPHALT IS DONE WITH THE HELP OF LDO, WHICH IS A KIND OF FUEL. IT IS FURTHER SUBMITTED THAT LDO IS ALSO USED AS FUEL ON PLANT AND CLEANING ALL MACHINERIES AND TOOLS. THUS, LDO HAS GENERAL AS WELL AS SPECIFIC USAGE. SO, IT CANNOT BE MEASURED WITH PRODUCTION OR SALES ONLY. THE QUANTITY OF LDO USED IN THE CURRENT YEAR CAN BE COMPARED WITH THE FIGURES OF THE EARLIER YEARS WHICH WOULD FIND THAT THE AMOUNT OF LDO USED IN THE PROCESS IS REASONABLE AND BARE MINIMUM REQUIRED. 63. TH US, EVEN PRESUMING WITHOUT ADMITTING THAT THE SUPPLIERS HAD ISSUED BOGUS BILLS THE PURCHASES WERE CERTAINLY MADE BY THE APPELLANT AND THAT IT IS POSSIBLE THAT SUCH SUPPLIERS MIGHT HAVE ARRANGED THE DELIVERY OF GOODS THROUGH SOME OTHER PARTIES. IN THE EVENT , MERELY BECAUSE THE SAID OTHER SUPPLIER WHO HAD ACTUALLY DELIVERED THE GOODS IS NOT KNOWN, IT CANNOT BE SAID THAT THE PURCHASES OF THE APPELLANT ARE NOT GENUINE AND THAT THE APPELLANT IS NOT ENTITLED TO DEDUCTION OF PURCHASES. HENCE, EVEN IN SUCH CIRCUMS TANCES, THE PURCHASES CANNOT BE DISPUTED SINCE THE GOODS MIGHT HAVE BEEN DELIVERED BY THE PARTIES WHICH MAY BE DIFFERENT FROM PARTIES ISSUING BILLS, THE SALES MADE THE PARTIES APPELLANT BEING NOT IN DISPUTE. 64. THUS, IT IS SUBMITTED THAT EVEN IF IT IS PRESUMED THAT PURCHASES WERE MADE FROM SOME OTHER PARTIES TO EVADE SALES TAX, AT THE MOST WHAT CAN BE ADDED TO THE TOTAL INCOME IS THE GROSS PROFIT REDUCED ON SUCH PURCHASES AND THE AMOUNT OF SALES TAX ALLEGED TO BE EVADED. 65. RELIANCE IN THIS RE GARD IS ALSO PLACED ON THE DECISION IN THE CASE OF J.H. METALS V. ITO [77 ITD 71 (TM) (ASR.)] WHEREIN THE IDENTICAL ISSUE WAS INVOLVED. THE HON'BLE THIRD MEMBER OBSERVED AS UNDER: 'ON CAREFUL CONSIDERATION OF THE RIVAL SUBMISSIONS IN THE LIGHT OF THE MATE RIAL ON RECORD, I AM OF THE VIEW THAT NO ADDITION IS CALLED FOR IN THIS REGARD, FIRSTLY, THERE IS NO DOUBT ABOUT THE SOURCE OF MONEY USED FOR THE PURCHASE OF THESE GOODS. THE AO ALSO DID NOT DISPUTE THE FACT THAT THIS ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 15 ALLEGED BOGUS PURCHASE FORMED PART OF THE STOCK OF THE ASSESSEE WHICH WAS DISPOSED OF DURING THE YEAR. IF THE INVESTMENT IN THE PURCHASE OF THESE ITEMS IS NOT DOUBTED AND THE ITEMS PURCHASED WERE INCLUDED IN THE TURNOVER, THE ONLY ISSUE THAT REMAINS FOR CONSIDERATION IS IN REGARD TO THE RATE O F PROFIT. THE ASSESSEE TABULATED THE RATE OF PROFIT FROM ASST. YRS. 1985 - 86 TO 1991 - 92 AS REPRODUCED IN THE ORDER OF THE LEARNED J.M. THE RATE OF G.P. RANGES FROM 5.6 TO 6,7 DURING THESE ASSESSMENT YEARS. THE ASSESSEE DURING THE YEAR DISCLOSED A G.P. RATE OF 6 PER CENT. THE SAME APPEARS TO BE REASONABLE IN VIEW OF THE PREVAILING RATE OF PROFIT FROM YEAR TO YEAR AS THE TURNOVER DURING THE YEAR IS TWO TIMES OF ASST. YR. 1985 - 86 WHERE THE RATE OF PROFIT WAS 5.9. IT IS ALSO SEEN THAT IN THE ASST. YR. 1988 - 89, T HE AO MADE ADDITION OF RS. 27/694 ON ACCOUNT OF UNVOUCHED PURCHASES. WHEN THE MATTER CAME UP TO THE TRIBUNAL, THE TRIBUNAL (WHEREIN THE LEARNED A.M. HIMSELF IS THE AUTHOR) FOUND THAT THE G.P. RATE OF 6.7 PER CENT ON SALE OF RS. 50,74,569 AS COMPARED TO 5.2 PER CENT SHOWN ON TOTAL SALES OF RS. 43,70,724 IN THE CASE OF THE ASSESSEE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR IS QUITE REASONABLE AND NO ADDITION WAS CALLED FOR. IT IS ALSO SEEN THAT THE AO HIMSELF ACCEPTED G.P. RATE OF 5.8 PER CENT FOR ASST. YR . 1991 - 92. IN THAT VIEW OF THE MATTER ALSO, THERE IS NO REASON FOR MAKING ANY ADDITION. I, THEREFORE, CONCUR WITH THE VIEW TAKEN BY THE LEARNED J.M.' 66. IN THIS CONNECTION, RELIANCE IS PLACED UPON THE ORDER OF THE HON'BLE MUMBAI IN THE CASE OF FREE INDIA ASSURANCE SERVICES LTD. V. DCIT [132 60 (MUM)]. IN THIS CASE, WHILE COMPLETING THE ASSESSMENT FOR A.Y, 2002 - , THE ASSESSING OFFICER DISBELIEVED THE CLAIM FOR EXPENDITURE INCURRED ON CASH PURCHASES AMOUNTING TO RS. 30,80,730/ - IN ENTIRETY. IN APPEAL, THE HON'BLE CIT (A) HELD THAT SO LONG AS THE STOCK WAS REFLECTED IN THE BOOKS OF ACCOUNT, TO THAT EXTENT CREDIT OUGHT TO BE GIVEN AND SINCE THE APPELLANT HAD MADE CASH PURCHASES FROM THE GREY MARKET THE PROVISIONS OF S. 40A(3) WERE ATTRACTED. FOR THESE REASON S, THE HON'BLE C/T (A) RESTRICTED THE DISALLOWANCE TO RS, 6,16,346/ - BEING 20% OF RS. 30,80,730/ - . AGAINST THE DISALLOWANCE SUSTAINED THE APPELLANT, AND FEELING AGGRIEVED WITH THE RELIEF GRANTED, THE REVENUE HAD FILED APPEALS BEFORE THE HON'BLE TRIBUNAL. IN RESOLVING THE DISPUTE IN FAVOUR OF THE APPELLANT, THE HANDLE TRIBUNAL HELD AS UNDER: '18. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THERE IS NO DISPUTE THAT THE ASSESSEE HAS MADE PAYMENTS OF RS. 30,80,730/ - BY CHEQUES TO M/S. HIRA CLOTH AGENCIES AND M/S. SHREERAM SALES & SYNTHETICS. DURING THE COURSE OF SEARCH, THE STATEMENT WAS ALSO RECORDED OF SHRI ASHISH MEHTA ON 20 - 6 - 2003 WHEREIN HE HAS STATED THAT AGAINST THE CHEQUE TRAN SACTIONS, CASH HAS BEEN RECEIVED WHICH IS FOUND RECORDED AT PAGE NO. 152 OF THE ASSESSEE'S PAPER BOOK. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS STATED BY THE ASSESSEE THAT THE SAID CASH, AGAINST CHEQUE PAYMENTS WAS UTILIZED TO PURCHASE CLOTH FRO M THE GREY MARKET AND IN SUPPORT, THE ASSESSEE HAS ALSO FILED DETAILS OF ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 16 CLOSING STOCK AS ON 32 - 3 - 2003 APPEARING AT PAGE 143 OF THE ASSESSEE'S PAPER BOOK WHEREIN FABRIC CLOTH TOTALLING TO RS. 30,80,730/ - IS APPEARING AS CLOSING STOCK. IN THE ABSENCE OF ANY MATERIAL TO SHOW THAT NO SUCH CHEQUE PAYMENTS WERE MADE BY THE ASSESSEE OR CASH AMOUNT RECEIVED BY THE ASSESSEE AGAINST THE CHEQUE PAYMENTS WAS UTILIZED BY THE ASSESSEE OTHER THAN PURCHASES OR THE ENTRY RECORDED IN THE CLOSING STOCK AMOUNTING TO RS. 30,80 ,730/ - IS FOUND TO BE FICTITIOUS OR FALSE OR NO SUCH CLOSING STOCK WAS FOUND DURING THE COURSE OF SEARCH, WE ARE OF THE VIEW THAT THE ASSESSEE HAS MADE CASH PURCHASES OF RS.30,80,730/ - WHICH UNDISPUTEDLY FOUND RECORDED IN THE INVENTORY OF CLOSING STOCK, TH EREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN TREATING THE SAID PURCHASES OF RS. 30,80,730/ - AS BOGUS PURCHASES. 22. IN THE ABSENCE OF ANY DISTINGUISHING FEATURES BROUGHT ON RECORD BY THE REVENUE, WE RESPECTFULLY FOLLOWING THE AFORESAID DECISION S AND FOR THE REASONS AS DISCUSSED ABOVE HOLD THAT THE ID. CIT (A) WAS NOT JUSTIFIED IN SUSTAINING THE ADDITION OF RS. 6,16,346/ - BEING 20 PERCENT OF TOTAL PURCHASE OF RS. 30,80,730/ - AND ACCORDINGLY WE DELETE THE ENTIRE ADDITION OF RS. 30,80,730. THE GROU ND TAKEN BY THE ASSESSEE IS THEREFORE ALLOWED AND THE GROUND TAKEN BY THE REVENUE IS DISMISSED.' 67. IN LIGHT OF THE SAME, ENTIRE DISALLOWANCE CANNOT BE MADE AND THE DISALLOWANCE MADE BY THE ASSESSING OFFICER DESERVES TO BE DELETED. 68. WITHOUT PREJUDICE, IT CAN AT THE HIGHEST BE HELD THAT BY PURCHASING GOODS FROM CERTAIN PARTIES AND INTRODUCING THE PURCHASES IN THE BOOKS FROM THE PARTIES WHO DID NOT SUPPLY GOODS, THE APPELLANT CAN BE SAID TO HAVE INFLATED THE PURCHASES TO SAVE VAT. HENCE, ONLY S UCH VAT AND THE GROSS PROFIT EARNED BY THE APPELLANT COULD BE DISALLOWED. IT IS RELEVANT TO NOTE THAT THE OBSERVATION OF , HON'BLE AHMEDABAD TRIBUNAL IN CASE OF SIMIT P. SHETH V. ITO [ITA NO 3238&3293/AH4/2009] DATED 24.02.2012 WHEREIN ON IDENTICAL FACTS, IT IS HELD AS UNDER: 7. HAVING HEARD THE SUBMISSIONS OF BOTH SIDES, WE HAVE BEEN INFORMED THAT MALPRACTICE OF BOGUS PURCHASE IS MAINLY TO SAVE 10% SALES TAX ETC. IT HAS BEEN INFORMED THAT IN THIS INDUSTRY ABOUT 2.5% IS THE PROFIT MARGIN RESPECTFULLY FOLLO WING THE DECISIONS OF THE CO - ORDINATE BENCH 'PRONOUNCED ON IDENTICAL CIRCUMSTANCES, WE HEREBY DIRECT THAT THE DISALLOWANCE IS REQUIRED TO BE SUSTAINED AT 12.5% OF THE PURCHASES FROM THOSE PARTIES. WITH THESE DIRECTIONS, WE HEREBY DECIDE. THE GROUNDS OF THE RIVAL PARTIES WHICH ARE PARTLY ALLOWED. 69. THE STUD DECISION OF HONBLE TRIBUNAL WAS UPHELD BY, THE GUJARAT HIGH COURT IN THE CASE OF SIMIT P. SHETH [356 TTR 451J WHEREIN IT HELD AS FOLLOWS: '5. WE ARE BROADLY IN AGREEMENT WITH THE REASONING ADOPTED B Y COMMISSIONER (APPEALS) WITH RESPECT TO THE NATURE OF DISPUTED PURCHASES STEEL. IT MAY BE THAT THE THREE SUPPLIERS FROM WHOM THE ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 17 ASSESSEE CLAIMED TO HAVE PURCHASED THE STEEL DID NOT OWN UP TO SUCH SALES. HOWEVER, VITAL QUESTION WHILE CONSIDERING WHETHER T HE ENTIRE AMOUNT OF PURCHASES SHOULD BE ADDED BACK TO THE INCOME OF THE ASSESSEE OR ONLY THE PROFIT ELEMENT EMBEDDED THEREIN WAS TO ASCERTAIN WHETHER THE PURCHASES THEMSELVES WERE COMPLETELY BOGUS AND NON EXISTENT OR THAT THE PURCHASES WERE ACTUALLY MADE B UT NOT FROM THE PARTIES FROM WHOM IT WAS CLAIMED TO HAVE BEEN MADE AND INSTEAD MAY HAVE BEEN PURCHASED FROM GREY MARKET WITHOUT PROPER BILLING OR DOCUMENTATION. 6. IN THE PRESENT CASE, CIT BELIEVED THAT WHEN AS A TRADER IN STEEL THE ASSESSEE SOLD CE RTAIN QUANTITY OF STEEL, LIE WOULD HAVE PURCHASED THE SAME QUANTITY FROM SOME SOURCE. WHEN THE TOTAL SALE IS ACCEPTED BY THE ASSESSING OFFICER, HE COULD NOT HAVE QUESTIONED THE VERY BASIS OF THE PURCHASES. IN ESSENCE THEREFORE, THE COMMISSIONER (APPEALS) B ELIEVED ASSESSEE S THEORY THAT THE PURCHASES WERE NOT BOGUS BUT WERE MADE FROM THE PARTIES OTHER THAN THOSE MENTIONED IN THE BOOKS OF ACCOUNTS. 7. THAT BEING THE POSITION, NOT THE ENTIRE PURCHASE PRICE BUT ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHA SES CAN BE ADDED TO THE INCOME OF THE ASSESSEE. SO MUCH IS CLEAR BY DECISION OF THIS COURT. IN PARTICULAR, COURT HAS ALSO TAKEN A SIMILAR VIEW IN CASE OF COMMISSIONER OF INCOME TAX - IV VS. VIJAY M MISTRY CONSTRUCTION LTD. VIDE ORDER DATED 30.02.2031 PASSED IN TAX APPEAL NO. 1090 OF 2009 AND IN CASE OF COMMISSIONER OF INCOME TAX - L VS. BHOLANATH POLY FAB PVT. LTD. VIDE ORDER DATED 23.10.2032 PASSED IN TAX APPEAL NO. 63 OF 2012. THE VIEW TAKEN BY THE TRIBUNAL IN CASE OF VIJAY PROTEINS PVT. LTD. VS. CIT REPORTED IN 58 ITD 428 CAME TO BE APPROVED. F. IF THE ENTIRE PURCHASES WERE WHOLLY BOGUS AND THERE WAS FINDING OF FACT ON RECORD THAT NO PURCHASE WERE MADE AT ALL, COUNSEL FOR THE REVENUE WOULD BE JUSTIFIED IN ARGUING THAT THE ENTIRE AMOUNT OF SUCH BOGUS PU RCHASES SHOULD BE ADDED BACK TO THE INCOME OF THE ASSESSEE. SUCH WERE THE FACTS IN CASE OF ACIT WARD 5(3) NADIAD VS. PAWANRAJ B BOKADIA (SUPRA). 9. THIS BEING THE POSITION, THE ONLY QUESTION THAT SURVIVES IS WHAT SHOULD BE THE FAIR PROFIT RATE OUT OF THE BOGUS PURCHASES WHICH SHOULD BE ADDED BACK TO THE INCOME OF THE ASSESSEE. THE COMMISSIONER ADOPTED RATIO OF 30% OF SUCH TOTAL SALES. THE TRIBUNAL, HOWEVER, SCALED DOWN TO 12.5%. WE MAY NOTICE THAT IN THE IMMEDIATELY PRECEDING YEAR TO THE ASSESSMENT YEA R UNDER CONSIDERATION THE ASSESSEE HAD DECLARED GROSS PROFIT @ 3.56% OF THE TOTAL TURNOVER. IF THE YARDSTICK OF 30%, AS ADOPTED BY THE COMMISSIONER, IS ACCEPTED GP RATE WILL BE MUCH HIGHER. IN ESSENCE, THE TRIBUNAL ONLY ESTIMATED THE POSSIBLE PROFIT OUT OF PURCHASES MADE THROUGH NON - GENUINE PARTIES. NO QUESTION OF LAW IN SUCH ESTIMATION WOULD ARISE. THE ESTIMATION OF RATE OF PROFIT RETURN MUST NECESSARILY VARY WITH THE NATURE OF BUSINESS AND NO UNIFORM YARDSTICK CAN BE ADOPTED.' ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 18 70. FURTHER, ATTENTION IS INVITED TO DECISION OF HON'BLE MUMBAI TRIBUNAL IN CASE OF SHRI MADHUKANT GANDHI V. ITO [ITA NO 1950 / MUM / 2009] DATED 23.02.2010 WHEREIN, ON SIMILAR FACTS, IT WAS REPRODUCED AS UNDER: 'AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVAN T MATERIAL ON RECORD WE FIND FROM THE TRADING AND PROFIT AND LOSS ACCOUNT OF THE ASSESSEE FOR THE YEAR ENDED 31ST MARCH, 2005 RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, COPY PLACED AT PAGE 18 OF THE PAPER BOOK, THAT THE OPENING STOCK AND CLOSING STOCK WAS SHOWN AT RS.3.55 LAKHS AND RS.12,37 LAKHS RESPECTIVELY. PURCHASES WORTH RS.67.53 LAKHS WERE MADE AGAINST WHICH THE SALES OF RS.66,45 LAKHS WERE REFLECTED. PAGE 52 ONWARDS IS A QUANTITATIVE TALLY OF THE OPENING STOCK, PURCHASE, SALE AND CLOSING ST OCK. WHEN WE CONSIDER THE QUANTUM OF THE PURCHASES HELD BY THE AO TO BE BOGUS VIS - A - VIS THE TOTAL QUANTITY OF SALES AND CLOSING STOCK, IT BECOMES CLEAR THAT SOME GOODS WERE IN FACT PURCHASED BY THE ASSESSEE WHICH WERE SUBSEQUENTLY SOLD, AS BUT FOR THE INCL USION OF SUCH QUANTITY PURCHASED THE SALE OF THE QUANTITY DECLARED IS NOT POSSIBLE. AT THE SAME TIME THE ASSESSING OFFICER ALSO BROUGHT THE INQUIRY TO THE LOGICAL CONCLUSION THAT THE PURCHASES FROM THESE THREE PARTIES WERE BOGUS. IT IS SIMPLE AND PLAIN THA T UNLESS SOME PURCHASES ARE MADE THERE CANNOT BE CORRESPONDING SALE. THE ONLY POSSIBILITY WHICH EXISTS IN SUCH A SITUATION IS THAT ASSESSEE MADE THE ENTRIES FOR BOGUS PURCHASES AT INFLATED RATES WHILE KEEPING THE ACTUAL PURCHASES AT LOWER RATES OUTSIDE THE BOOKS OF ACCOUNT. IN SUCH A SCENARIO IF WE APPROVE THE VIEW TAKEN BY THE LOWER AUTHORITIES THAT THE PURCHASES FROM THESE THREE PARTIES TOTALING TO RS.42.99 LAKHS WERE BOGUS, THEN THE CORRESPONDING SALE WOULD ALSO HAVE TO BE DECLARED AS BO GUS, WHICH IS NOT THE CASE OF THE REVENUE IN AS MUCH AS THE FIGURE OF SALES HAS BEEN ACCEPTED BY THE AO, AT THE SAME TIME THE FIGURES OF PURCHASES FROM THESE PARTIES CANNOT BE EQUALLY ACCEPTED. IT IS SEEN THAT THE ASSESSEE HAD SHOWN NET PROFIT RATE AT 2.13 %. PROM THE IMPUGNED ORDER IT IS SEEN THAT THE RATE OF NET PROFIT FROM ASSESSMENT YEAR 2001 - 2002 TO ASSESSMENT YEAR 2005 - 2006 RANGED BETWEEN 2.13 TO 3.40%. IN VIEW OF THE FACT THAT IT HAS BEEN AMPLY ESTABLISHED THAT THE PURCHASES RECORDED IN THE BOOKS OF A CCOUNT FROM THESE THREE PARTIES WERE BOGUS WITH A VIEW TO SUPPRESS THE PROFIT, NOW NEED TO ZERO IN ON THE CORRECT RATE OF NET PROFIT WHICH COULD BE APPLIED UNDER THESE CIRCUMSTANCES. SECTION 44AF, THOUGH NOT STRICTLY APPLICABLE IN THIS CASE, PROVIDES FOR 5 % NET PROFIT RATE ON THE TOTAL TURNOVER. IN OUR CONSIDERED OPINION, IT WILL BE JUST AND FAIR IF THE NET PROFIT RATE OF 5% IS APPLIED ON THE GOODS SOLD WHICH WERE ALLEGEDLY PURCHASED THROUGH THESE PARTIES. ON THE CONCLUSION OF THE HEARING IN THIS CASE, A PR OPOSAL TO THIS EFFECT WAS MADE FROM THE BENCH. BOTH THE SIDES FINALLY AGREED TO IT. WE HOLD THAT THE NET PROFIT RATE OF 5% BE APPLIED. ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 19 71. THUS, IN LIGHT OF THE ABOVE FACTUAL MATRIX OF THE CASE AND BINDING PRECEDENTS, MOREOVER WHEN NO EVIDENCES WERE FOUND AGAINST THE APPELLANT AND UNIMPEACHABLE CONTEMPORARY EVIDENCES PROVIDED BY THE APPELLANT, IT IS PRAYED TO YOUR HONOUR TO KINDLY CONSIDER THE SAID PURCHASES AS GENUINE IN NATURE AND THEREBY DELETE THE DISALLOWANCES AMOUNTING TO RS.38,75,431/ - MADE ON ACCOUNT OF ALLEGED BOGUS PURCHASES. 72. IN GROUND OF APPEAL NO4, THE APPEALLANT HAS CHALLENGED THE ACTION OF THE ASSESSING OFFICER IN MAKING FOE ADDITION OF INCOME OF RS.38,75,431/ - UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. THIS GROUND IS NOT PRESSE D.' 6. I HAVE CAREFULLY PERUSED THE ASSESSMENT ORDER OF THE AO AND THE SUBMISSICR.5 MADE BY THE AR IN SUPPORT OF HIS ARGUMENTS. AFTER TAKING INTO CONSIDERATION, THE A.O R FINDINGS AND THE APPELLANT'S ORAL AND WRITTEN SUBMISSIONS MADE DURING THE COURSE OF H EARING AS WELL AS FACTS OF THE CASE, DECISION ON VARIOUS GROUNDS ARE ADJUDICATED AS UNDER: .' 6.1 GROUND NOS.L & 2 6.1.1 VIDE THIS GROUND, THE APPELLANT HAS CHALLENGED THE VALIDITY OF NOTICE ISSUED U/S.148 OF THE I.T. ACT BY THE A.O. THE APPELLANT FILED ITS RETURN OF INCOME FOR A.Y.2009 - 10 ON 27.09.2009 DECLARING TOTAL INCOME OF RS.40,22,193/ - . SUBSEQUENTLY, THE CASE WAS RE - OPENED U/S.147 OF THE I.T. ACT BY ISSUING A NOTICE U/S.148 OF THE I.T. ACT DATED 26.03.2014. BEFORE ISSUING OF NOTICE U/S.148 T HE A.O. RECORDED PROPER REASONS. THE COPY OF THE REASONS RECORDED WAS FILED BY THE APPELLANT DURING THE COURSE OF APPELLATE PROCEEDINGS. DURING APPELLATE PROCEEDINGS NO SPECIFIC ARGUMENTS WERE MADE ALTHOUGH WRITTEN SUBMISSIONS WERE FILED. IN PARA 1.3 AT PA GE 2 OF THE ASSESSMENT ORDER, THE LD. A.O. HAD REPRODUCED THE REASONS RECORDED FOR RE - OPENING THE ASSESSMENT. 6.1.2 THE INFORMATION WAS RECEIVED REGARDING TAKING OF BOGUS PURCHASE ENTRIES FROM HAWALA DEALERS WITHOUT ACTUAL DELIVERY OF MATERIALS FROM THE SALES TAX DEPARTMENT. REOPENING WAS BASED ON TANGIBLE MATERIAL WHICH WAS PROVIDED AFTER PROPER VERIFICATION AND INQUIRIES BY SALES TAX / VAT DEPARTMENT GOVT. OF MAHARASHTRA. FROM PARA 4 OF THE REASONS RECORDED IT IS CLEAR THAT A.O. HAS CONSIDERED THE MATE RIAL RECEIVED FROM SALES TAX / VAT DEPARTMENT GOVT. OF MAHARASHTRA AND AFTER CONSIDERING THE INFORMATION RECEIVED FROM SALES TAX / VAT DEPARTMENT, A.O. MADE HIS BELIEF REGARDING ESCAPEMENT OF INCOME. THE HON'BLE APEX COURT IN THE CASE OF ITO VS. LAKHMANI M EWAL DAS (SC) 103 ITR 437, PHOOL CHAND BAJRANG LAL & ANOTHER VS. ITO & ANR.(SC) 203 ITR 456, RAYMOND WOOLLEN MILLS VS. ITO (SC) 236 ITR 34 HAS HELD THAT SUFFICIENCY OF REASON IS NOT OPEN TO QUESTION IN A COURT OF LAW BUT THE EXISTENCE OF BELIEF CAN BE CHAL LENGED. IN THIS CASE INFORMATION WAS RECEIVED FROM GOVERNMENT DEPARTMENT AND IT WAS SUFFICIENT TO MAKE A BELIEF REGARDING ESCAPEMENT OF INCOME. AS MENTIONED IN THE FOREGOING PARAGRAPHS, THE AO MADE A BELIEF REGARDING ESCAPEMENT OF INCOME BEFORE ISSUING N OTICE U/S.148 OF THE IT ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 20 ACT. THE HONBLE MADRAS HIGH COURT IN THE CASE OF STERLITE INDUSTRIES LTD., VS. ACIT 302 ITR 275 HAS HELD THAT INFORMATION RECEIVED FROM ENFORCEMENT DIRECTORATE SHOWING POSSIBLE INFLATION OF PURCHASES IS SUFFICIENT INFORMATION FOR I SSUING NOTICE FE OF THE I.T. ACT. SIMILARLY IN AGR INVESTMENTS LTD. VS. ADDL.CIT (DEL) AND SHALIMAR BUILDCON (P) LTD. VS. ITO (ITAT JAIPUR) 136 TTJ 701 , THE HON'BLE DELHI HIGH COURT AND HON'BLE ITAT JAIPUR HAS HELD THAT NOTICE CAN BE ISSUED U/S.148 ON T HE BASIS OF INFORMATION RECEIVED FROM THE INVESTIGATION WING OF INCOME TAX DEPARTMENT. IN THE INSTANT CASE, INFORMATION WAS RECEIVED FROM SALES TAX / VAT DEPARTMENT WHICH WAS ALSO VERIFIED BY THE INVESTIGATION WING OF THE DEPARTMENT. THEREFORE, FACTS OF TH E APPELLANT ARE COVERED BY THE JUDGEMENT OF HON'BLE MADRAS HIGH COURT IN STERLITE INDUSTRIES (I) LTD. (SUPRA) AND HON'BLE DELHI COURT IN AGR INVESTMENTS LTD. (SUPRA). IN VIEW OF IT, GROUND NOS.L & 2 ARE DISMISSED. 7.1 GROUND NOS.3 & 4 ' 7.1.1 VI DE THIS GROUND APPELLANT HAS AGITATED AGAINST ADDITION ON ACCOUNT OF ALLEGED BOGUS PURCHASES AMOUNTING TO RS.38,75,431/ - FROM FOLLOWING ENTITIES : S.NO. PARTY NAME AMOUNT (RS.) 1 R.K. TRADERS 75,676 2 SHRADHHA TRADING CO. 6,49,977 3 SUN ENTER PRISES 6,70,012 4 M.R, CORPORATION 7,25,612 5 MAHALAXMI CORPORATION 5,28,750 6 VIDHI AND VRUSHTI TRADE P. LTD. 9,98,325 7 UDAY ENTERPRISES 2,27,079 TOTAL 38,75,431 BRIEFLY STATED, THE APPELLANT IS ENGAGED IN THE BUSINESS OF RUNNING H OT MIX PLANT AND EXECUTION OF ROAD CONSTRUCTION CONTRACTS. THE LD. AO MADE THE ADDITION ON THE BASIS OF INFORMATION RECEIVED FROM THE INVESTIGATION WING OF THE INCOME TAX DEPARTMENT, MUMBAI. THE SALES TAX (VAT) DEPARTMENT, STATE OF MAHARASHTRA HAD RECORDED THE STATEMENTS OF CERTAIN HAWALA OPERATORS WHO HAVE CONFIRMED TO HAVE GIVEN BOGUS BILLS TO CERTAIN ASSESSEES INCLUDING THE APPELLANT COMPANY. THE APPELLANT COMPANY WAS ASKED TO SUBMIT THE DETAILS OF PURPORTED PURCHASES MADE FROM THESE PARTIES AND A SHOW C AUSE WAS ISSUED ASKING ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 21 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 INVE STIGATION 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 THAT HAWALA OPERATORS WERE PROVIDING ONLY ACCOMMODATION ENTRIES AND THE APPELLANT WAS ALSO IN THE LIST OF BENEFICIARIES. ACCORDINGLY, THE LD. AO TREATED THE A MOUNT OF RS.38,75,431/ - AS BOGUS PURCHASES AND ADDED BACK TO THE TOTAL INCOME OF THE APPELLANT. 7.1.2 DURING APPELLATE PROCEEDINGS ONCE AGAIN THE APPELLANT WAS REQUESTED TO PRODUCE THE PARTIES FROM WHICH ALLEGED BOGUS PURCHASES WERE MADE. IN RESPONSE TO I T, 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. 7.1.3 THE A.O. HAS POINTED OUT THAT NECESSARY SUPPORTING EVIDENCES IN SUPPORT OF ITS CLAIM WERE NOT PRODUCED BY THE APPELLANT. EVEN BEFORE THE UNDERSIGNED, DURING APPELLATE STAGE IT WAS ADM ITTED THAT PARTIES FROM WHICH PURCHASES WERE MADE, COULD NOT BE PRODUCED. THE SUPPLIER WAS IN FACT THE APPELLANT'S WITNESS AND THE LD.A.O WAS NOT REQUIRED TO FORCE ITS ATTENDANCE. IT WAS FOR THE APPELLANT TO PRODUCE IT AS PER CIVIL PROCEDURE CODE WHICH APP LIES 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. 7.1.4 IN THIS REGARD IT IS ALSO PERTINENT TO MENTION THAT WHILE DEALING WITH THE CONCEPT OF BURDEN OF PROOF, ONU S 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 ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 22 SHOWN THAT THERE ARE REASONS TO BELIEVE THAT THE APPARENT IS NOT REAL AND THAT TAXING AUTHORITIES ARE ENTITLED TO LOOK INTO SURROUNDING CIRCUMSTA NCES 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 T HE 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 DURGAPRAS AD 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 EASY TO MAKE SELF SERVING STATEMENTS IN DOCUMENTS EITHER EXECUTED OR TAKEN BY A PARTY WHO RELIED IN 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 THEN 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. 7.1.5 IN YET AN OTHER CASE OF CASTING OF ONUS VIZ, JAMNAPRASAD KANHAIYALAL VS.CIT 130 ITR 244(80), 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 196 5 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 T HE REJECTION OF EXPLANATION OF CASH CREDIT, IN THE INSTANT CASE THE APPELLANT HAS FAILED TO EVEN CORROBORATE THE CLAIM BEFORE THE LD. A.O. 7.1.6 RELIANCE IS ALSO PLACED ON THE JUDGEMENT OF HON'BLE SUPREME COURT IN THE CASE OF SRI MEENAKSHI MILLS LTD 63 I TR 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 TAX AVOIDANCE ARE MANIFOLD. F IRST, 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 ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 23 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 DEVI CES 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. 7.1.7. THE ONUS TO PROVE THAT APPARENT, IS NOT THE REAL ONE, IS ON THE PARTY WHO CLAIMS IT TO BE SO, AS HELD BY HONBLE 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. 7.1.8 IT IS ALSO A SETTLED LEGAL PROPOSITION THAT IF NO EVIDENCE IS GIVEN BY THE PART) - ON WHOM THE BURDEN IS CAST, THE ISSUE MUST BE FOUND AGAINST HIM. THEREFORE, ONUS IS ALWAYS ON A PERSON WHO ASSERTS A PROPOSITION OR FACT, WHICH IS NOT SELF EVIDENT. THE ONUS, AS A DETERMINING FACTOR OF THE WHOLE CASE CAN 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 MENT ION 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. 7.1.9 THE HON'BLE SUPREME COURT, IN THE CASE OF CHUHARMAL V. CIT [1988] 172 ITR 250 / 38 TAXMAN 190 HI GHLIGHTED THE FACT THAT THE PRINCIPLE OF EVIDENCE LAW ARE NOT TO BE IGNORED BY THE AUTHORITIES, BUT AT THE SAME TIME, HUMAN PROBABILITY HAS TO BE THE GUIDING PRINCIPLE, SINCE THE AO IS NOT FETTERED, BY TECHNICAL RULES OF EVIDENCE, AS HELD BY THE HON'BLE SU PREME 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, W AS ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 24 THAT THE RIGOURS OF RULES OF EVIDENCE, CONTAINED IN THE EVIDENCE ACT WAS NOT APPLICABLE; BUT THAT DID NOT MEAN THAT WHEN THE TAXING AUTHORITIES WERE DESIROUS OF INVOKING THE PRINCIPLES OF EVIDENCE ACT, IN PROCEEDINGS BEFORE THEM, THEY WERE PREVENTED FRO M 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, 11 THE ONUS OF PROVIN G 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 APPLICABLE TO TAXING PROCEEDINGS. 7.1.10. 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. 7.1.11 HAVING GONE THROUGH THE ABOVE CAS E 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 DELI VERY 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 COU LD HAVE BEEN MADE BY THEM. 7.1.12 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 - EXIST ENT. HOWEVER, IN THE PRESENT CASE IN APPEAL, 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 WOUL D ALSO BE OF NO HELP TO IT. 7.1.13 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/MUM/2014 WHERE VIDE ORDER DATED 20 - 08 - 2014, THE ADDITION M ADE 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 SAI D 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 ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 25 WHETHER ANY SUBSTANTIAL QUESTION OF LAW WAS INVOLVED IN THAT CASE. IN FACT, IN A LATER DECISION IN NIKUNJ EXIMP (2014) 48 TAXMANN.COM 20 (BOM), HON'BLE BOMBAY HIGH COURT ON THE VERY SAME ISSUE OF BOGUS BILLS DISMISSED THE ASSESSEE'S WRIT PETITION FILED AGAINST NOTICE U/S. 148. 7.1.14. HON'BLE BOMBAY HIGH COURT IN THE CASE OF KILLICK NIXON LTD. V. DE PUTY COMMISSIONER OF INCOME - TAX [20121 20 TAXMANN.COM 703 (BOM.) WAS SIMILARLY FACED WITH THE QUESTION OF SHAM TRANSACTIONS AND IT INTER ALIA, HELD AS UNDER : 'SECTION 254 OF THE INCOME - TAX ACT, 1961, READ WITH RULE 11 OF THE INCOME - TAX (APPELLATE TRIBUNA L) 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 LO SSES 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, THEREF ORE, DISCARDED CAPITAL LOSSES - COMMISSIONER (APPEALS) CONFIRMED ORDER OF ASSESSING OFFICER - TRIBUNAL ALSO CONFIRMED ORDER OF ASSESSING OFFICER, AND WHILE DOING SO, RE/ERRED TO A DECISION OF SUPREME COURT IN CASE OF SUMATI DAYAL V. CIT [1995] 214 ITR 801 / 80 TAXMAN 89 TO HELD THAT EVIDENCE PRODUCED MUST BE ANALYSED BY APPLYING THEORY OF SURROUNDING CIRCUMSTANCES AND HUMAN PROBABILITIES - ASSESSEE ALLEGED THAT WITHOUT BRINGING SAID CASE TO NOTICE OF PARTIES, REVENUE HAD CAUSED PREJUDICE TO ITS CASE; ALL IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE AND OF RULE 11 - WLIETHER 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 H AVE 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]. 14. SO FAR AS THE PRINCIPLE LAID DO WN IN THE MATTER OF OMAR SALAY MOHAMED SAIL (SUPRA) IS CONCERNED THERE CAN BE NO DISPUTE ABOUT THE PROPOSITION LAID DOWN THEREIN. HOWEVER WE HAVE NOT BEEN SHOWN HOW THE TRIBUNAL WAS IN BREACH OF THE SAME. WE FIND THAT THE TRIBUNAL HAS CONSIDERED THE EVIDEN CE 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 SUPR EME 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 ME DOWELL & CO. LTD. V. COMMERCIAL TAX OFFICER [1985] 154 ITR 48/22 TAXMAN 11 (SC), ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 26 UNION OF INDIA V. AZADI BACHAO ANDOLAN [2004] 10 SCC 1 AND THE MATHURAM AGARWAL V. STATE OF MADHYA PRADESH [1999] 8 SCC 667 AND CONCLUDED THAT INHERE THE TRANSACTION IS NOT GENUINE BUT A COLOURABLE DEVICE THERE COULD BE NO QUESTION OF TAX PLANNING. T HE SUPREME COURT IN THE AFORESAID CASE AFTER CONSIDERING 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, IT IS HELD THAT COLOURABLE DEVICE CANNOT BE A PART OF TAX PLANNING AND IT IS WRONG TO 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 SUBTE RFUGES. THE ABOVE OBSERVATIONS SHOULD BE READ WITH PARA 46 WHERE THE MAJORITY HOLDS' ON THIS ASPECT ONE OF US, CHINAPPA REDDY, J. HAS PROPOSED A SEPARATE OPINION WITH WHICH WE AGREE'. THE WORDS 'THIS ASPECT' EXPRESS THE MAJORITY'S AGREEMENT WITH THE JUDGME NT OF REDDY, J. ONLY IN RELATION TO TAX EVASION THROUGH THE USE OF COLOURABLE DEVICES AND BY RESORTING TO DUBIOUS METHODS AND SUBTERFUGES. THUS, IT CANNOT BE SAID THAT ALL TAX PLANNING IS ILLEGAL/ILLEGITIMATE/IMPERMISSIBLE. MOREOVER, REDDY, J. HIMSELF SAYS THAT HE AGREES WITH THE MAJORITY. IN THE JUDGMENT OF REDDY, J, THERE ARE REPEATED REFERENCES TO SCHEMES AND DEVICES IN CONTRADISTINCTION TO 'LEGITIMATE AVOIDANCE OF TAX LIABILITY (PARAS 7 - W, 17 AND 18). IN OUR VIEW, ALTHOUGH CHINNAPPA REDDY, J. MAKES A NU MBER 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/O R TAX AVOIDANCE, THERE IS NO CONFLICT BETWEEN MCDOWELL AND AZADI BACHAO OR BETWEEN MCDOWELL AND MATHURAM AGANVAL.' 25. 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 TH E 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 SHA M. THEREFORE AUTHORITIES CAME TO A FINDING THAT THE SAME WAS NOT GENUINE. SO FAR AS THE QUESTION NOS. (II), (IN) (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 QUE STION OF LAW ARISES FAR THIS COURT TO INTERFERE.' ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 27 7.1.15 HON'BLE ALLAHABAD HIGH COURT WHILE DEALING WITH THE ISSUE OF BOGUS PURCHASE IN THE CASE OF SRI GANESH RICE MILLS V. COMMISSIONER OF INCOME - TAX [2007J 294 ITR 316 (ALL.), HELD AS UNDER : 'WHERE ASSE SSING OFFICER HAD RECORDED A FINDING THAT IN ORDER TO LOWER PROFITS, BOGUS PURCHASES HAD BEEN INTRODUCED AND TRIBUNAL UPHELD SUCH FINDING, ADDITION ON ACCOUNT OF DISALLOWANCE OF SUCH PURCHASES WAS JUSTIFIED [ASSESSMENT YEAR 1984 - 85] THE ASSESSEE WAS ENGAGE D 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 THEREFORE, MADE ADDITION. THE TR IBUNAL ALSO HELD THAT THE PURCHASES WERE 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, ALSO GOT MANUFACTURED AS A BY - PRODUCT. IT WAS NOT THE CASE OF THE ASSESSEE IT H AD 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 CAS E, THE FINDINGS RECORDED BY THE TRIBUNAL COULD NOT BE SAID TO BE BASED ON IRRELEVANT MATERIAL AND CONSIDERATION. THE ASSESSEE BEING A MANUFACTURER OF CHUNI - BHUSI HAD NOT BEEN ABLE TO ESTABLISH THE PURCHASES IN QUESTION WHICH HAD BEEN MADE FROM THE NO N - EXISTENT FIRMS. FURTHER, THE TWO FIRMS OWNED BY THE BROTHERS OF THE PARTNERS OF THE ASSESSEE - FIRM WERE SAID TO HAVE PURCHASED THE GOODS FROM THE NON - EXISTENT FIRMS AND EVEN THE INVOICES / BILLS HAD BEEN PREPARED BY THE MUNIM OF THE APPLICANT. MERELY BECA USE THE APPELLANT HAD BEEN DEALING WITH FIRM, THAT WOULD NOT MAKE THE PURCHASES OF CHUNI - BHUSI GENUINE WHEN THERE WAS SUFFICIENT EVIDENCE TO THE CONTRARY. SO FAR AS THE QUESTION C* DEDUCTION OF PURCHASES FROM THE CORRESPONDING SALES WAS CONCERNED, THE ASSE SSEE BEING A MANUFACTURER OF CHUM - BHUSI AND PURCHASES HAVING BEEN FOUND TO BE BOGUS AND AS THERE WERE NO OTHER PURCHASES OF CHUM - BHUSI, THE BENEFIT OF DEDUCTION OF SUCH PURCHASES HAD RIGHTLY BEEN DISALLOWED.' 7.1.16 SIMILARLY, IN THE CASE OF KHANDELWAL TR ADING CO. V. ASSISTANT COMMISSIONER OF INCOME - TAX [1996] 55 TTJ 261 (JP.), IT WAS OBSERVED AND HELD AS UNDER: '7. WE TAKE UP THE FIRST CONTENTION OF SHRI SINGHVI. IT WAS CONTENDED THAT ONLY GROSS PROFIT RATE SHOULD HAVE BEEN APPLIED AND THE ADDITION SHOUL D HAVE BEEN TO THAT EXTENT ONLY. 8. LET US ASSUME THAT THE IMPUGNED PURCHASES IN THIS CASE ARE BOGUS WHAT CAN BE THE CAUSES AND EFFECTS ? EITFIER CORRESPONDING BOGUS SALES HAVE TO BE ACCOUNTED FOR, OR, THE CLOSING STOCK TO THAT EXTENT HAVE TO BE ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 28 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 SHOW LESSER PROFIT THAN ACTUALLY EARNED. THIS IN TURN COULD BE TO BRING THE GROSS PROFIT RATE T O NEAR ABOUT THE EARLIER YEARS' PERFORMANCE IN ORDER TO AVOID A DEEPER PROBE BY THE TAXING AUTHORITIES AND/OR TO AVOID PAYING HIGHER TAXES. TIMS, WHEN ONCE BOGUS PURCHASE IS ENTERED IN THE BOOKS WITHOUT A CORRESPONDING SALES OR INCREASE IN STOCKS, THE OBVI OUS RESULT WOULD BE LOWERING OF G.P. RATE. IF THESE BOGUS PURCHASES ARE REMOVED, THE G.P. RATE WOULD AUTOMATICALLY GO UP. UNDER THE ASSUMPTION THAT THE PURCHASES ARE BOGUS, ONE SITUATION VISUALISED IS THAT THERE ARE NO CORRESPONDING SALES, THEN ADDITION AT WHAT RATE 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 SALES ALSO, AND SINCE BOTH ARE BOGUS, THE GP RATE IS OBVIOUSLY MA NIPULATED TO AFFECT THE OVERALL RESULT. THEN, ACCEPTING SHRI SANGHVI'S CONTENTION WOULD FURTHER MAKE THE ACCOUNTS BOGUS. SIMILARLY, THERE MAY BE MANY SUCH SITUATIONS BECAUSE, ACCOUNTANCY IS ESSENTIALLY AN ART AND NOT A SCIENCE. 10. THE POINT WE ARE TRYING TO DRIVE HOME IS THAT - WHEN A BOGUS ENTRY IS FOUND IN ACCOUNTS, THERE CANNOT BE A BETTER SOLUTION THAN TO REMOVE THAT ENTRY. THE LEGITIMATE WAY OF REMOVING THE ENTRY WOULD BE, AS EVERY STUDENT OF ACCOUNTANCY WOULD AGREE, IS TO DO WHAT HAS BEEN OMITTED TO BE DONE OR UNDO WHAT HAS BEEN WRONGLY DONE. 11. NOW, SO FAR WE WERE ONLY ASSUMING THAT THE PURCHASES ARE BOGUS. COMING TO THE FACTS OF THE CASE, WERE THE PURCHASES WORTH RS. 86,500 REALLY BOGUS? THERE IS NO DOUBT/LABOUT IT. THE INVESTIGATIONS GOT DONE BY T HE ASSESSING OFFICER LEAVE Y DOUBT ABOUT IT. THE FAILURE ON THE PART OF THE ASSESSEE TO SHOW STRENGTHENS THE DEPARTMENT'S CASE. THIS STOIC SILENCE OF THE ASSESSEE ALSO BLUNTS THE ASSESSEES 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 ASSESSEE AND THAT IS WHAT THE ASSESSEE WAS ASKED TO EXPLAIN AND FAILED TO DO SO. THIS, NOW WE ARE NOT ASSUMING BUT ARE CONCLUDING THAT THE PURCHASES OF RS. 8 6,500 WERE IN FACT BOGUS. IN CASE OF BOGUS ENTRIES, IN OUR OPINION, WHAT COULD BE THE BEST REMEDY, HAS BEEN DISCUSSED ABOVE. THE ASSESSING OFFICER HAS SIMPLY DONE THAT. WE ARE UNABLE TO APPRECIATE SHN SINGHVI'S CONTENTION. HAD THERE BEEN SUPPRESSION ON SAL ES, 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 QUANT ITATIVE 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. ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 29 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 OTHENVISE. UNDER THE CIRCUMSTANCES OF THIS CASE, WE ARE NOT INCLINED TO GIVE MUCH WEIGHT AGE TO THIS CONTENTION OF THE ASSESSEE.' 7.1.17 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 OUTGOIN GS IN THE FORM OF THE ENTIRE PURCHASES OF GAS CYLINDERS OR NOT. THE PRINCIPLE REGARDING MAKING OF A BEST JUDGMENT ASSESSMENT HAS BEEN WELL SETTLED BY THE APEX COURT IN THE CASE OF DHAKESWARI COTTON MILLS LTD. V. CIT [1954] 26 ITR 775 WHEREIN THE APEX COURT HAS HELD AS FOLLOWS : - 'AS REGARDS THE SECOND CONTENTION, WE 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 AC T ON MATERIAL WHICH MAY NOT BE ACCEPTED AS EVIDENCE IN A COURT OF LAW, BUT THERE TFYE AGREEMENT ENDS; BECAUSE IT IS EQUALLY CLEAR THAT IN MAKING THE ASSESSMENT UNDER SUB - SECTION (3) OF SECTION 23 OF THE ACT, THE INCOME - TAX OFFICER IS NOT ENTITLED TO MAKE A PURE GUESS AND MAKE AN ASSESSMENT WITHOUT REFERENCE TO ANY EVIDENCE OR ANY MATERIAL AT ALL. THERE MUST BE SOMETHING MORE THAN BARE SUSPICION TO SUPPORT THE ASSESSMENT UNDER SECTION 23(3). THE RULE OF LAW ON THIS SUBJECT HAS, IN OUR OPINION, BEEN FAIRLY AN D 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, FINDING OF FA CT THAT THE APPLICANT DID NOT MAKE PURCHASES TO THE EXTENT HE HAS SHOWN. THE PURCHASES IN QUESTION HAVE CONCLUSIVELY BEEN PROVIDED TO BE BOGUS. IF THE PURCHASES OF THE GAS CYLINDERS HAVE NOT BEEN MADE AND ON THE OTHER HAND HAVE BEEN FOUND TO BE BOGUS BY AL L 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 TOWARDS THE PURCHASES OF GAS CYL INDERS.' 7.1.18. IN SAMURAI SOFTWARE (P.) LTD. V. COMMISSIONER OF INCOME - TAX [2008] 299.), 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 , ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 30 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 BOO KS OF ACCOUNT OF THE ASSESSEE - COMPANY. NO SURRENDER WAS MADE ON BEHALF OF THE COMPANY BY ANY OF THE DIRECTORS OF THE ASSESSEE - COMPANY. THE SURRENDER WAS MADE BY SHRI MAHESH TOSHNIWAL, ONE OF THE DIRECTORS OF THE COMPANY IN HIS INDIVIDUAL CAPACITY AND NOT O N BEHALF OF THE ASSESSEE - COMPANY AND THE SAME WAS CONSIDERED IN HIS PERSONAL ASSESSMENT. UNDER THE LAW, THE COMPANY IS A SEPARATE JURIDICAL PERSON. THE SURRENDER MADE BY SHRI MAHESH TOSHNIWAL, IN HIS INDIVIDUAL CAPACITY IS NOT BINDING ON THE ASSESSEE - COMPA NY. SHRI MAHESH TOSHNIWAL IN HIS PERSONAL STATEMENTS, HAS NOWHERE STATED THAT THE SURRENDER WAS MADE ON BEHALF OF THE ASSESSEE - COMPANY. WE ALSO FIND THAT EVEN IN THE RETURN FILED IN RESPONSE TO A NOTICE UNDER SECTION 148, THE ASSESSEE - COMPANY DID NOT INCLU DE 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 PL EA OF THE LEARNED AUTHORISED REPRESENTATIVE THAT SINCE THE SAID AMOUNT OF 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 HONBLE DELHI HIGH COURT AS RELIED ON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE IN THE CASE OF CIT V. LA MEDICA [2001] 250 ITR 575, WE ARE OF THE VIEW THAT THE ASSESSEE - COMP ANY HAS DEBITED BOGUS PURCHASES IN ITS BOOKS OF ACCOUNT WHICH THE ASSESSEE - COMPANY COULD NOT SUBSTANTIATE AND, ACCORDINGLY, TLTE COMMISSIONER OF INCOME - TAX (APPEALS) WAS NOT JUSTIFIED IN DELETING THE ADDITION OFRS. 4,37,048, WHICH IS DIRECTED TO BE REVERSE D AND ADDED IN THE INCOME OF THE ASSESSEE - COMPANY. CONSEQUENTLY, THE ADDITION MADE BY THE ASSESSING OFFICER AMOUNTING TO RS. 4,37,048 IS UPHELD. THE GROUND TAKEN BY THE REVENUE, IS THEREFORE, ALLOWED.' 9. TH E TRIBUNAL, THUS, BY ITS ORDER DATED JUNE 10, 200 2, 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 APPEL LANT 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 RELIANT - COMPANY CANNOT BE SAID TO BE UNJUSTIFIED.' 7.1.19 IN THE CASE OF INDIAN WOOLLEN CARPET FACTORY VS. INCOME - TAX APPELLATE TRIBUNAL [2002] 125 TAXMAN 763 (RAJ.) IT WAS HELD AS UNDER: ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 31 F 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 NO LOAN HAD BEEN TAKEN FROM THOSE PARTIES. THE CASE BEFORE THE ASSESSING OFFICER WAS THAT THE ASSESSEE CLAIMED SOME PURCH ASES FROM SOME PARTIES, WHOM HE COULD NOT PRODUCE OR THOSE PARTIES WERE NOT AVAILABLE WHEN THE SUMMON UNDER SECTION 131 WAS ISSUED. THEREFORE, THE INITIAL DISPUTE WAS WITH REGARD TO GENUINENESS OF THE 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.' 7.1.20 IN 'SANJAY OILCAKE INDUSTRIES VS. COMMISSIONER OF INC OME - 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 SELLERS WHO HAD ISSUED S ALE 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 T HE 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 B ETWEEN 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 O UT 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 A SSESSEE 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 ACTUA LLY RECEIVED BY THE APPARENT SELLERS. HENCE, THE ESTIMATE MADE BY THE TWO APPELLATE AUTHORITIES DOES NOT WARRANT INTERFERENCE. EVEN OTHERWISE, WHETHER THE ESTIMATE SHOULD BE AT A PARTICULAR SUM OR AT A DIFFERENT SUM, CAN NEVER BE AN ISSUE OF LAW.' ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 32 7.1.21 IN THE CASE OF ASSISTANT COMMISSIONER OF INCOME - TAX V. TRIBHOVANDAS 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 IIM PURCHASES, HELD A S 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 AN ISSUE, THE TRIBUNAL CAN CONSIDER UNITIES 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 [1 985]154 ITR 148/22 TAXMAN 11, THE APEX COURT HELD THE COLOURABLE DEVICES ARE NOT PART OF LEGITIMATE TAX PLANNING. GOING BY THE RATIO OF THESE DECISIONS, WE ARE OF THE VIEW THAT THE ASSESSEE - FIRM CANNOT BE DISSOCIATED FROM THE SCHEME OF DECLARATION OF GOLD UNDER THE AMNESTY SCHEME IN T H E 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 VALUER BY THE SAME VALUER ON THE SAME DAY AND FILING THEIR RETURNS UNDER THE AMNESTY, SCHEME ON THE SAME DAY, I.E., 30 - 3 - 1987, AND SUBSEQUENTLY GETTING THE GOLD CONVERTED INTO ORNAMENTS THROUGH KARIG ARS ON MORE OR LESS THE SAME DAY AND SUBSEQUENTLY SELLING THE ORNAMENTS TO THE ASSESSEE - FIRM IN THE SAME YEAR OF ACCOUNT WITHOUT THE PLANNING, CONTROLLING AND COORDINATION OF A CENTRAL AGENCY AND THAT AGENCY IN THE SURROUNDING CIRCUMSTANCES APPEARS TO BE O NLY THE ASSESSEE - FIRM. THE APEX COURT HAS HELD IN THE CASE OF JAMNAPRASAD KANHAIYALAL (SUPRA) THAT THERE IS NO DOUBLE TAXATION IN TAXING THE PERSON TO WHOM THE INCOME ACTUALLY BELONGED WITH THE PERSONS WHO FALSELY DECLARED THEM IN THEIR RETURNS FILED UNDER THE VOLUNTARY DISCLOSURE SCHEME. THAT IS A RISK 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.' 7.1.22 AS REGARDS THE ISSUE OF CROSS - EXAMINATIO N, IN T. DEVASAHAYA NADAR V. CIT [1964] 51ITR 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 . - ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 33 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 W ITH 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 JTO 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 VIOLATION OF NATURAL JUSTICE WOULD DEPEND ON THE FACTS AND CIRCUMSTANCES OF THE CASE,' 7.1.23 THE SUPREME COURT HAD ALSO AN OCCASION TO CONSIDER THE APPLICABILITY OF THE PRINCIPLES OF NATURAL JUSTICE IN R.S. DASS V. UNION OF INDIA AIR 1967 SC 593. REFERRING TO THE SAME, THE SUPREME COURT IN CHAIRMAN, BOARD OF MINING EXAMINATION V.RM;M1977SC 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 BEING CONDITIONAL BY THE FACTS AND CIRCUMSTANCES OF SUCH IF 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....' 7.1.24 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 WITN ESS WHO MADE ADVERSE REPORT, IS NOT AN INVARIABLE ATTRIBUTE OF THE REQUIREMENT OF THE DICTUM, 'AUDI ALTERAM PARTEM'. THE PRINCIPLES OF NATURAL JUSTICE DO NOT REQUIRE FORMAL CROSS - EXAMINATION. FORMAL CROSS - EXAMINATION IS A PART OF 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 LAIN THAT THE REVENUE CANNOT RELY ON ANY EVIDENCE W HICH HAS NOT BEEN SUBJECTED TO CROSS - EXAMINATION. 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 ASSES SING OFFICER TO ALLOW CROSS - EXAMINATION, ADVERSE EVIDENCE AND MATERIAL, RELIED UPON IN THE ORDER, TO REACH THE FINALITY, SHOULD BE DISCLOSED TO THE ASSESSEE. BUT THIS RULE IS NOT APPLICABLE WHERE THE MATERIAL OR EVIDENCE USED IS OF COLLATERAL NATURE.' ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 34 7.1 .25 TO SUM UP, I WOULD LIKE TO QUOTE THE LANDMARK CASE OF STATE BANK OF INDIA V. S.K. SHARMA 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 WHICH DO NOT OCCASION FAILURE OF JUSTICE ARE NOT ALLOWED TO DEFEAT THE ENDS OF JUSTICE. PRINCIPLES OF NATURAL JUSTICE ARE BUT THE MEANS TO ACHIEVE THE END OF JUSTICE. THEY CANNOT BE PERVERTED TO ACHIEV E FROM OPPOSITE END.' 7.1.26 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 WOR TH RS.40,69,546/ - 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 WH ICH 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 HONBLE 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 TH E 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 ANY CONFIRMATION FROM ANY OF THE PARTIES. THOUGH THE ASSESSEE HAD CLAIM ED 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. 7.1.27 HAVING COME TO SUCH A CONCLUSION, HOWEVER, THE TRIBUNAL WAS OF THE OPINION THAT T HE 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 QUANTIT Y MANUFACTURED DURING THE YEAR 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'S CONTENTION THAT THE F INISHED 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 W OULD BE SUBJECTED TO TAX. THE ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 35 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 : 'WE ARE OF THE OPINION THAT TLIE 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 MATT ER, 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. C1T (2009) 316 ITR 274 (GUJ.J. SUCH D ECISION 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'. 7.1.28 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 AF TER 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 AND MADE ADDITION IN RESPECT OF THE ENTIRE PURCHASES AS IT WOULD LEAD TO ABSURD PROFITS . THUS, THE ISSUE WOULD BOIL DOWN TO FINDING OUT THE ELEMENT OF SUPPRESSED PROFIT EMBEDED IN PURCHASES WHICH THE APPELLANT WOULD HAVE MADE FROM SO ME UNKNOWN OR BOGUS ENTITIES. HENCE, FOLLOWING THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN BHOLANATH POLYFAB PVT. LTD. (SUPRA), THE ESTIMATED SUPPRESSED PROFIT MARGIN EMBEDDED IN SUCH AMOUNTS OF PURCHASES COULD ONLY BE DISALLOWED AND SUBJECTED TO TAX . 7.1.29 SIMILARLY, IN YET ANOTHER DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT SHETH (2013) 38 TAXMANN.COM 385 (GUJ), HON'BLE COURT WAS SEIZED WITH A SIMILAR ISSUE WHERE THE A.O. HAD FOUND THAT SOME OF THE ALLEGED SUPPLIERS OF STEE L 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 FO UND THAT 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 ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 36 ASSESSEE. THE TRIBUNAL HOWEVER, PARTLY SUSTAINED THE ADDITION. TAKING INTO ACCOUNT THE A BOVE 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. 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 DECISI ON OF AHMEDABAD BENCH, IT AT IN THE CASE OF VIJAY PROTEINS 58 ITD 428. 7.1.30 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 AUTHOR ITIES 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 GROVE THAT THE CROSS CHEQUES HAD NOT BEEN GIVEN TO PARTIES FROM WHOM SUPPLIES WERE ALLEGEDLY PROCURED BUT THESE WERE ENCASHED FROM A BANK ACCOUNT IN THE NAME OF ANOTHER 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 FRO M OPEN MARKET WITHOUT INSISTING FOR GENUINE BILLS, THE SUPPLIERS MAY BE WILLING TO SELL THE PRODUCT AT A MUCH LESS RATE AS COMPARED TO A RATE WHICH THEY MAY CHARGE IN WHICH THE DEALER HAS TO GIVE GENUINE SALE INVOICE IN RESPECT OF THAT SALE. KEEPING ALL SU CH 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. 7.1.31. AS NARRATED EARLIER, THE LD. A.O. IN THIS CASE HAS HELD THAT THE PARTIES F ROM WHOM 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, APPEA RS 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 PURCHASE 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. 8. IN THE RESULT, THE APPEAL OF THE APPELLANT IS PARTLY ALLOWED. 6. AGAINST TH E ABOVE ORDER OF CIT(A) BOTH ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 37 7. LEARNED AR PLACED ON RECORD FOLLOWING CHART SHOWING THE DETAILS OF GROSS PROFIT AND NET PROFIT FOR THE A.Y.2007 - 08 TO 2012 - 13. PARTICULARS AY 2007 - 08 AY 2008 - 09 AY 2009 - 10 A Y2010 - 11 AY 2011 - 12 AY 2012 - 13 AY 2013 - 14 SALES 47,019,871 89,768,022 122,277,007 166,817,329 130,354,366 126,791,427 139,742,465 LESS MATERIAL CONSUMED 29,361,526 59,399,339 86,302,307 117,102.328 81,820,494 106,757,982 125,118,773 DIRECT EXPENSES 14,915,763 24,123,989 24,989,561 34,715,602 32,247,916 2,922,612 5,446,497 TOTAL 44,277,289 83,523,328 111,291,868 151,817,930 114,068,410 109,680,594 130,565,270 GROSS PROFIT 2,742,582 6,244,694 10,985, 139 14,999,399 16,285,956 17,110,833 9,177,195 GROSS PROFIT RATIO 5.83% 6.96% 8.98% 8.99% 12.49% 13.50% 6.57% NET PROFIT 983,894 2,310,542 4,028,551 5,733,818 5,425,566 6,216,426 6,681,769 NET PROFIT RATIO 2.09% 2.57% 3.29% 3.44 % 4.16% 4.90% 4.78% 8. IN VIEW OF THE ABOVE, LEARNED AR CONTENDED THAT NO ADDITION IS WARRANTED. 9. ON THE OTHER HAND, LEARNED DR RELIED ON THE ORDER PASSED BY AO. 10. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF TH E AUTHORITIES BELOW. WE HAD ALSO DELIBERATED ON THE JUDICIAL PRONOUNCEMENTS REFERRED BY LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS IN THE CONTEXT OF FACTUAL MATRIX OF THE CASE. WE FOUND THAT CIT(A) AFTER HAVING DETAILED OBSERVATION AND FINDINGS REACHED T O THE CONCLUSION THAT UPHOLDING ADDITION OF 12.5% ON BOGUS PURCHASE WILL SERVE THE END OF JUSTICE. WE ALSO FOUND THAT DURING THE ASSESSMENT YEARS UNDER CONSIDERATION, THE ASSESSEE HAD SHOWN MUCH BETTER RATE OF GP AND NP WHICH IS CLEAR FROM THE ABOVE CHART . CONSIDERING THE TOTALITY OF FACTS AND ITA NO. 3370, 3371, 2910 & 2912/2016 M/S. APEX INFRA TECH PVT. LTD., 38 CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) UPHOLDING DISALLOWANCE / ADDITION OF 12.5% IN RESPECT OF BOGUS PURCHASES. 11. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE A ND REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23 / 08 /2017 S D/ - ( SANDEEP GOSAIN ) S D/ - (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED 23 / 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//