DCIT 13(1)(1), MUMBAI V. NIHAR EQUIPMENT PVT. LTD., MUMBAI

ITA 3790/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7728 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2007-2008
• Appeal Filed On: 18-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Bogus purchase; Unexplained investment; Business expenditure; Question of law; Corroborative evidences; Retraction
• Section: 69C; 40A(3); 143(3); 133A; 234B; 133(6); 69

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNNAL MUMBAI BENCH I, MUMBAI BEFORE SHRI D.T. GARASIA (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA ( ACCOUNT MEMBER) I.T.A.NOS. 3020 TO 3024/MUM/2015 ( ASSESSMENT YEARS : 2007-08 TO 2011-12 ) NIHAR EQUIPMENT PVT LTD 117, CD GOVERNMENT INDUSTRIAL ESTATE, HINDUSTAN NAKA, CHARKOP, KANDIVLI (W), MUMBAI- 67 V/S DCIT, 13(1)(1) [ERSTWHILE DCIT-9(2)] MUMBAI PAN : AABCN9153N APPELLANT RESPONDENT I.T.A.NOS. 3790 TO 3794/MUM/2015 ( ASSESSMENT YEARS : 2007-08 TO 2011-12 ) DCIT, 13(1)(1), MUMBAI V/S NIHAR EQUIPMENT PVT LTD 117, CD GOVERNMENT INDUSTRIAL ESTATE, HINDUSTAN NAKA, CHARKOP, KANDIVLI (W), MUMBAI-67 APPELLANT RESPONDENT ASSESSEE BY SHRI HIRO RAI REVENUE BY SHRI SAURABHKUMAR RAI DATE OF HEARING 29-03-2017 DATE OF ORDER 29.03.2017 O R D E R 2 PER BENCH:- THESE CROSS APPEALS PERTAIN TO SAME ASSESSEE INVOLV ING IDENTICAL ISSUES IN DIFFERENT YEARS, THEREFORE, THESE WERE HEARD TOG ETHER AND ARE DISPOSED OF BY THIS COMMON ORDER. 2. FIRST, WE SHALL TAKE UP APPEAL FILED BY THE ASSESSE E FOR A.Y. 2007-08 IN ITA NO.3020/MUM/2015 FILED BY THE ASSESSEE ON THE FOLLO WING GROUNDS:- 1 UNDER THE FACTS AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX APPEAL ERRED IN CONFIRMING ADDITION OF RS. 1,47 6,642/- BEING 12.5% OF THE ALLEGED BOGUS PURCHASES OF RS 11,813,1 36. 1.01 THE LEARNED COMMISSIONER OF INCOME TAX APPEAL FAILED TO APPRECIATE THE FACT THAT PURCHASES ALLEGED TO BE BO GUS HAVE BEEN DULY CONSUMED IN THE BUSINESS OF THE APPELLANT. 1.02 THE LEARNED COMMISSIONER OF INCOME TAX APPEALS ERRED IN STATING THAT THE APPELLANT MIGHT HAVE PURCHASED GOO DS FROM OTHER PARTIES AND ONLY BILLS HAVE BEEN OBTAINED FROM THE PARTIES WHOSE PURCHASES HAVE BEEN ALLEGED TO BE BOGUS. 1.03 THE ADDITION 12.5% ON ACCOUNT OF ALLEGED ADD ITIONAL PROFIT IS MADE SOLELY ON THE BASIS OF PRESUMPTION, SURMISES A ND CONJECTURE, SPECIFICALLY WHEN THE BOOKS OF ACCOUNTS HAVE BEEN A CCEPTED BY THE ASSESSING OFFICER 2. UNDER THE FACTS AND IN LAW, THE LEARNED COMMISSI ONER OF INCOME TAX APPEALS FAILED TO ADJUDICATE ON THE GROU ND RAISED REGARDING INCORRECT LEVY OF INTEREST U/S 234B OF TH E INCOME TAX ACT, 1961. 2.01 THE LEARNED CIT (A) ERRED IN STATING THAT INTE REST U/S 234B IS CONSEQUENTIAL IN NATURE AND THERE IS NO NEED TO GIV E ANY GENERAL DIRECTION. 2.02 THE LEARNED CIT (A) FAILED TO APPRECIATE THE F ACT THAT THE APPELLANT HAS RAISED SPECIFIC GROUND REGARDING INCO RRECT LEVY OF INTEREST U/S 234B OF THE INCOME TAX ACT, 1961. 3 2.03 THE LEARNED CIT (A) FAILED TO APPRECIATE THE F ACT THAT IN CASE OF REOPENING OF ASSESSMENT U/S 147, WHERE RETU RN OF INCOME HAS ALREADY BEEN PROCESSED U/S 143(1) OR 143 (3) OF THE ACT, INTEREST U/S 234B OUGHT TO HAVE BEEN CALCULATED ON ADDITIONAL TAX DEMAND RAISED FROM THE DATE OF PROCESSING U/S 143(1 ) OR 143(3) AND NOT FROM THE FIRST DAY OF ASSESSMENT YEAR. SIMILARLY, THE REVENUE HAS ALSO FILED APPEAL ON IDE NTICAL GROUNDS AGITATING THE PART RELIEF GRANTED BY CIT(A), ON THE FOLLOWING GRO UNDS IN ITA NO.3790/MUM/2015:- 1. WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE ID. CIT(A) WAS RIGHT IN RESTRICTING THE ADDITION OF RS.1,18,13,136/- MADE ON ACCOUNT OF NON-GENUINE PUR CHASES TO RS.14,76,642/-, WHICH IS 12.5% OF SUCH PURCHASES WITHOUT APPRECIATING THE FACT THAT VITAL INFORMATION / DOCU MENTS VIZ. DELIVERY CHALLANS, INWARD / OUTWARD REGISTERS AND D OCUMENTS SHOWING GENUINENESS OF THE PURCHASES WERE NOT FOUND AND THE DIRECTOR OF THE COMPANY HAD ADMITTED TO THE NON-GEN UINE NATURE OF THE SAID PURCHASES DURING SURVEY PROCEEDI NGS? 2. WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE ID. CIT(A) WAS RIGHT IN DELETING TH E ADDITION WITHOUT APPRECIATING THE FACT THAT THE ADDITION WAS NOT ONLY MADE ON THE BASIS OF ADMISSION MADE BY THE DIRECTOR OF THE COMPANY BUT ALSO ON THE BASIS OF ADMISSIONS MADE BY THE NON-GENUINE PARTIES AND ON THE BASIS OF MATERIAL/INFORMATION GATHERED DURING THE COURSE OF SURVEY? 3. WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE ID. CIT(A) WAS THE RIGHT IN DELETING THE ADDITIONS/DISALLOWANCE WITHOUT APPRECIATING THE FAC T THAT THE DATA IN RESPECT OF THE PURCHASES IN QUESTION WERE F OUND TO BE NOT MAINTAINED ON THE ERP SOFTWARE WHEN OTHER PURCHASES WERE SO MAINTAINED, DURING THE COURSE OF SURVEY? 4. WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE ID. CIT(A) WAS RIGHT IN DELETING TH E ADDITIONS/DISALLOWANCE WITHOUT APPRECIATING THE FAC T THAT EVEN THOUGH AMPLE OPPORTUNITY WAS GIVEN TO THE ASSE SSEE, THE 4 ASSESSES DID NOT PRODUCE THE PARTIES FROM WHOM THE PURCHASES IN QUESTION WERE MADE? 5. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSIN G OFFICER BE RESTORED. 3. THE BRIEF BACKGROUND IN THIS CASE IS THAT SURVEY AC TION U/S 133A WAS CARRIED OUT AT THE BUSINESS PREMISES OF THE ASSESSE E. THE SURVEY PARTY NOTICED THAT IN SOME OF THE PURCHASES MADE BY THE ASSESSEE PAYMENT OF SALES-TAX AND VALUE ADDED TAX WAS NOT MADE. FURTHER, THE ASSESSE E WAS NOT ABLE TO SATISFY THE SURVEY PARTY ABOUT MAINTENANCE OF RECORDS OF IN VENTORY. ACCORDINGLY, STATEMENT OF THE DIRECTOR WAS RECORDED WHEREIN HE M ADE A DISCLOSURE AGGREGATING TO RS.13,35,18,837 SPREADING TO DIFFERE NT ASSESSMENT YEARS. THE DIRECTORS, HOWEVER, SUBSEQUENTLY RETRACTED THE STAT EMENT ON THE GROUND THAT THE SAME WAS MADE ON THE BASIS OF INCORRECT UNDERST ANDING OF FACTS AND LAW. IT WAS SUBMITTED IN THE RETRACTION STATEMENT THAT PURC HASES WERE BONAFIDE AND WERE USED IN MANUFACTURING OF THE PRODUCTS SOLD BY THE ASSESSEE. HOWEVER, IN ORDER TO VERIFY THE AUTHENTICITY OF THE RETRACTION STATEMENT, THE AO MADE VERIFICATION FROM DIFFERENT PARTIES U/S 133(6) OF T HE ACT. HE ALSO ASKED THE ASSESSEE TO FURNISH THE DETAILS, VIZ. NATURE OF TRA NSACTIONS, AMOUNT INVOLVED, TRANSACTION DATE, INVOICE NO., CHALLAN NO., INWARD AND OUTWARD REGISTER NO. ALONGWITH DOCUMENTARY EVIDENCES. THE AO WAS NOT SA TISFIED WITH THE RESPONSE GIVEN BY THE ASSESSEE AND, THEREFORE, ENTIRE AMOUNT OF PURCHASES AGGREGATING TO RS.1,18,134,136 WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF BOGUS PURCHASES. AGGRIEVED, ASSESSEE CARRIED TH E MATTER TO CIT(A) AND FURNISHED DETAILED SUBMISSIONS. IT WAS SUBMITTED I N DETAIL WITH THE HELP OF DOCUMENTARY EVIDENCES THAT PURCHASES MADE BY THE AS SESSEE WERE USED IN THE COURSE OF MANUFACTURING. VARIOUS EVIDENCES FOR MAI NTENANCE OF INVENTORY AND REQUISITE RECONCILIATION STATEMENT IN THIS REGARD W ERE ALSO FURNISHED. LD.CIT(A) 5 MADE DETAILED EXAMINATION OF EVIDENCES BROUGHT ON R ECORD BY THE ASSESSEE AND WAS SATISFIED WITH THE SUBMISSIONS OF THE ASSES SEE AND FOUND THAT THE PURCHASES MADE BY THE ASSESSEE WERE UTILISED FOR MA NUFACTURING OF PRODUCTS SOLD BY THE ASSESSEE. HOWEVER, HE WAS ALSO OF THE VIEW THAT SINCE THE AMOUNT OF PURCHASES COULD NOT BE FULLY SUBSTANTIATED BY TH E ASSESSEE, THE POSSIBILITY OF INFLATION IN THE AMOUNT OF PURCHASES COULD NOT BE R ULED OUT. UNDER THESE CIRCUMSTANCES, RELYING UPON THE JUDGEMENT OF HONBL E GUJARAT HIGH COURT IN THE CASE OF CIT VS POLYFAB PVT LTD (2013 355 ITR 29 0 (GUJ) SUSTAINED THE DISALLOWANCE TO THE EXTENT OF 12.5% AND DELETED THE BALANCE DISALLOWANCE AFTER MAKING FOLLOWING OBSERVATIONS:- 5.1 I HAVE CIRCUMSPECTED THE ENTIRE FACTS AND CIRC UMSTANCES COVERING THE ISSUE UNDER REFERENCE AND HAVE CAREFUL LY CONSIDERED THE OUTCOME OF SURVEY U/ 33A, FINDING OF THE ASSESSING OFICER AND RIVAL SUBMISSIONS OF THE APPELLANT. THE APPELLANT IS A PR IVATE LIMITED COMPANY CONSTITUTED MUCH EARLIER IN 2004 IT 'AS REN AMED AS PARCHEMETS ENGINEERING PVT LTD. AGAIN NAME OF THE C OMPANY WAS CHANGED AS NEWTRONICS EQUIPMENTS COMPANY PVT. LTD IN THE YEAR 2005. FURTHER IN JUNE 2012 AS STATED BY THE DIRECTO RS, COMPANY WAS. RENAMED AS 'NIHAAR EQUIPMENT PVT. LTD.' IN THIS CAS E, ON 09.01.2013 SURVEY WAS CONDUCTED U/S.133A AND DURING THE SURVEY , IN HIS STATEMENT, DIRECTOR, SHRI NILESH M. MEHTA HAD STATE D THAT COMPANY HAS MERELY OBTAINED, PURCHASE BILLS FROM SEVEN PART IES NAMELY GOODLUCK INDUSTRIES, GOODLUCK METALS, MAHALAXMI STE EL INDIA, NAVRATNA IMPEX, UDAY STEEL, VICKESH METALS PVT LTD. AND JAI AMBE STEEL CORPORATION, AND NO GOODS WERE RECEIVED FROM THEM. THEREAFTER, BY AFFIDAVIT DATED 05.03.2011 DIRECTOR OF THE COMPANY, SHRI NILESH M. MEHTA HAS RETRACTED THE STATEMENT GI VEN ON 09.01.2013 ON THE GROUND THAT BECAUSE OF INCORRECT UNDERSTANDING OF THE FACT AND LAW AND BECAUSE OF DISTURBED FRAME OF MIND AS HIS MOTHER LCHHABEN M. MEHTA WAS HOSPITALIZED AND WAS I N ICU ON THE SAME DAY OF SURVEY, HE HAD PUT HIS SIGNATURE OVER T HE STATEMENT. HOWEVER, WHILE MAKING THE ASSESSMENT LD. ASSESSING OFFICER, HAS DISCARDED THE RETRACTION AND HAS PROCEEDED FOR ASSE SSMENT ON THE BASIS OF STATEMENT OF THE DIRECTOR OF THE COMPANY A ND ON THE BASIS OF NON SERVICE OF NOTICES ON SELLERS. OBVIOUSLY, ASSE SSING OFFICER HAS NOT 6 DONE TARGETED INVESTIGATION NOR HAS ANALYZED MANUFA CTURING ACCOUNT. NEVERTHELESS, SOME PART OF THE STATEMENT IS OBVIOUS LY VERY RELEVANT FOR ASSESSMENT. IT IS, PERTINENT TO MENTION THAT SI NCE ASSESSING OFFICER IS NOT A COURT, IT IS OPEN TO HER TO CONSIDER EVIDE NCE AND DRAW INFERENCES WHICH MAY NOT BE JUSTIFIED BY OR ADMISSI BLE, IN THE INDIAN EVIDENCE ACT, 1872, VIDE DAKESHWARI COTTON MILLS LI D. V. CIT AIR 1955 SC 65 : (1954) 26 1TR 175. 782 (SC) SETH GURMUKH SI NGH V. CIT (1944) 12 ITR 393. 416,425 (LAH), LAL MOHAN KRISHNA LAL PA UL V. CIT (1944) 12 ITR 441, 449 (CAL.). ASSESSING OFFICER HAS TO LOOK INTO THE FACTS AND CIRCUMSTANCES OF THE CASE. 5.2 I FIND THAT ADDITION MADE BY THE ASSESSING OFFI CER FOR, THE PURCHASES FROM THREE PARTIES TO THE TUNE OF RS.1.18 ,13,136/- ON THE BASIS OF STATEMENT OF DIRECTOR MR. NILESH M. MEHTA, IS NOT FULLY APPROVABLE NOR IS THE COUNTER ARGUMENT AND REASONIN G ADVANCED BY- THE LD. A.R. FOR DELETION OF SUCH ENTIRE ADDITION A CCEPTABLE. I ARRIVE AT THIS FINDING AFTER FACTUAL-VERIFICATION OF EVIDENCE S GIVEN IN PAPER BOOK AND CONSIDERING THE STATEMENT OF DIRECTOR AND VARIO US DECISIONS OF THE HON'BLE ITAT, HIGH COURT AND HON'BLE SUPREME CO URT. IT IS A FACT THAT DIRECTOR OF THE COMPANY HAS ADMITTED THE PROCU REMENT OF MERELY, PURCHASE BILLS FROM THESE PARTIES BUT SIMUL TANEOUSLY IT ALSO TRANSPIRES FROM THE EVIDENCE ON RECORD THAT SUCH PU RCHASES WERE MADE AND GOODS WERE UTILIZED FOR MANUFACTURING OF V ARIOUS ITEMS. 5.3 AS EVIDENT LD ASSESSING OFFICER HAS MADE ADDIT IONS SOLELY ON THE BASIS OF STATEMENT GIVEN BY THE DIRECTORS OF THE CO MPANY DURING THE COURSE OF SURVEY PROCEEDINGS IGNORING VARIOUS. EXPL ANATIONS AND EVIDENCES SUBMITTED BY THE APPELLANT IT IS ALSO VER Y EVIDENT FROM THE ASSESSMENT ORDER ITSELF THAT LD ASSESSING OFFICER H AS NOT MADE CONSEQUENTIAL INVESTIGATION AND NOR HAS CAUSED EFFO RTS TO DISAPPROVE THE STATEMENT RETRACTED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. NEVERTHELESS, SOME OF THE FINDINGS BASED ON FACTUAL ADMISSION BY THE DIRECTOR OF THE COMPANY, I S TENABLE. SAME WILL BE DISCUSSED LATER ON. 5.4 OF COURSE, I FIND FORCE IN THE SUBMISSION OF L D A R THAT IN PLETHORA OF JUDGEMENT, IT HAS BEEN HELD BY THE HON' BLE COURTS THAT IT IS THE TRITE POSITION OF THE LAW THAT STATEMENT REC ORDED DURING THE COURSE OF SURVEY CANNOT BE HELD AS A 'SOLE, BASIS' FOR MAKING THE ADDITION SPECIALLY WHEN THERE IS NOTHING INCRIMINAT ING OR ANY 7 UNDISCLOSED MATERIAL UNEARTHED DURING THE COURSE OF SURVEY PROCEEDING U/S.133A OF THE LT.ACT VIDE DCIT VS. AMR APALI HOMES. 1.T.A.NO.4 779 / DELHI /2009 AND HON'BLE MUMBAI ITA T'S DECISION IN THE CASE OF DCIT VS. PREM SONS (2010) 130 TTJ 159. MAHESH OHRI VS. ACIT (2013) 35 TAXMANN.COM 201 (DELHI). 5.5 HOWEVER SOME OF THE FINDINGS OF THE ASSESSING O FFICER, BASED ON STATEMENT GIVEN BY THE DIRECTOR CANNOT BE LIGHTLY D ISCARDED BECAUSE THE APPELLANT THROUGH ITS DIRECTORS HAS REPEATEDLY ADMITTED IN HIS STATEMENT DATED 09.01.2013 THAT GOODS WERE NO RECEI VED FROM THE SEVEN PARTIES. IT MEANS GOODS I.E. S.S. SHEETS. S. S. ANGLES, S. S. PIPES ETC. MIGHT HAVE BEEN RECEIVED FROM OTHER PARTIES. H ERE, IT IS RELEVANT TO REFER TO THE ANSWER TO Q. NO. 10 OF STATEMENT WH ICH IS AS UNDER: - 'Q.10 ON PERUSAL OF THE PURCHASE BILL PRODUCED IF I S SEEN THAT MANY OF THE BILLS ARE NOT ACCOMPANIED WITH DELIVERY CHALLAN . PLEASE PRODUCE ANY DOCUMENTARY EVIDENCE WITH RESPECT TO RECEIPT OF GOODS PURCHASED AGAINST THESE BILLS. ANS. ALL THE PURCHASES MADE AND GOODS RECEIVED ARE ENTERED IN THE COMPUTER IN ERP SOFTWARE - FURTHER BILLS AND CHALLA N ARE AVAILABLE ARE PRODUCED. 5.6 IT IS VERY IMPORTANT TO, NOTE THAT DURING THE C OURSE OF ASSESSMENT PROCEEDINGS, APPELLANT BY LETTER DATED 1 7-10-20134, HAS CLARIFIED THAT STATEMENT WAS GIVEN BY MISUNDERSTAND ING OF THE FACT WHERE COMPANY HAS MAINTAINED REGULAR BOOKS OF ACCOU NTS WHICH IS DULY AUDITED BY THE AUDITOR. FURTHER, BY THIS LETTE R, APPELLANT HAS SUBMITTED BEFORE THE ASSESSING OFFICER AS UNDER:- WE SUBMIT THAT THE SAID PURCHASES ARE IN FACT BONAF IDE PURCHASE OF THE GOODS AND SAME ARE CONSUMED IN THE PROCESS OF MANUFACTURING. IN SUPPORT OF THE SAME WE HOLD ALL THE SUPPORTING EVIDENCES, REQUIRED UNDER THE PR OVISIONS OF THE ACT. WE SUBMIT THAT WE HAVE SOLD FINISHED PRODUCT TO VAR IOUS COMPANIES, WHO ARE IDENTIFIABLE AND ARE BIG PHARMAC EUTICAL COMPANIES WHICH ARE INCORPORATED UNDER THE PROVISIO N OF THE COMPANIES ACT. THESE SALES (100%). ARE VERIFIAB LE AND PAYMENT ARE RECEIVED BY ACCOUNT PAYEE CHEQUE.'' 8 5.7 HERE IT IS TO BE NOTED THAT APPELLANT IS ENGAGE D IN THE BUSINESS OF MANUFACTURING / FABRICATION OF HUMIDITY CONTROL OVE N MACHINES WHICH ARE USED MAINLY IN PHARMACEUTICALS LABORATORI ES FOR TESTING THE LIFESPAN OF VARIOUS PRODUCTS. SUCH PRODUCTION PROCE SS INVOLVES FABRICATION OF THE BODY OF CHAMBER. OVEN, FITTING I T WITH ELECTRONIC ITEMS FOR CONTROL OF TEMPERATURE HUMIDITY. FURTHER, SUCH PRODUCT HAS TO GO THROUGH TESTING VALIDATION OF CONTROL SET OF COMPUTER SOFTWARE. AMONGST OTHER ITEMS, STEEL IS AN IMPORTANT RAW MATE RIAL UTILIZED FOR MANUFACTURING OF SUCH GOODS. THE PRODUCTS OF THE CO MPANY, AS HAS BEEN DEMONSTRATED BY THE APPELLANT BY BROUCHERE ARE A. STABILITY CHAMBERS . B. BOD INCUBATORS C. COOLING INCUBATORS D. PHOTO STABILITY CHAMBERS E. LABORATORY OVENS F. LABORATORY INCUBATORS G. DEEP FREEZERS H. ULTRA LOW COOLING CABINETS I. WALK-IN COOLING CHAMBERS J. WALK-IN STABILITY CHAMBERS K. WALK-IN INCUBATORS ALL THESE PRODUCTS CANNOT BE POSSIBLE WITHOUT THE U SE OF SUCH RAW. MATERIALS. THE QUANTITATIVE DETAILS OF INPUT AND OU TPUT OF RAW MATERIAL AND FINISHED PRODUCTS WAS ALSO GIVEN BY TH E APPELLANT DURING ASSESSMENT PROCEEDINGS TO THE ASSESSING OFFICER AND COPY OF THE SAME HAS ALSO BEEN SUBMITTED ALONGWITH PAPER BOOK, PAGE NO.97 TO 136. THE GENUINENESS OF SUCH INPUT AND OUTPUT DETAI LS HAS NOT BEEN DENIED OR DOUBTED BY THE ASSESSING OFFICER, HENCE S UCH VITAL EVIDENCE CORROBORATING THE STAND OF THE APPELLANT CANNOT BE BRUSHED ASIDE. LD. ASSESSING OFFICER 'HAS SIMPLY IGNORED, THE VITAL. E VIDNCES AND 'FACTS BROUGHT TO HER NOTICE, DURING THE COURSE, OF ASSESS MENT PROCEEDINGS ITSELF, THEREFORE MERELY' ON, THE BASIS OF SUCH STA TEMENT, SUCH 'CORROBORATIVE' AND 'MATERIAL EVIDENCES' CANNOT BE IGNORED. IN THE CASE OF CIT VS. S. KHADER KHAN SON -(2012) 25 TAXMA NN 413 (SC) IT HAS BEEN HELD THAT STATEMENT RECORDED U/S.133A HAS NO E VIDENTIARY VALUE AND ANY ADMISSION MADE DURING SUCH STATEMENT CANNOT BE MADE BASIS OF ADDITION. SIMILAR IS THE PROPOSITION IN TH E CASE OF PAUL MATHEWS AND SONS VS. CIT (2003) 129 TAXMANN 416(KER ALA). 9 5.8 DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT SELF ASSESSEE HAS FILED FOLLOWING EVIDENCES - A. COPY OF INVOICES OF THE PURCHASES FROM THE ABOVE PARTIES H. BANK STATEMENT HIGHLIGHTING PAYMENT MADE BY ACCO UNT PAYEE CHEQUE C. LEDGER COPIES OF ACCOUNTS OF PARTIES D. BANK CERTIFICATE OF CLEARANCE OF CHEQUES ISSUED TO THE PARTIES E. QUANTITY / ITEM WISE DETAILS OF PURCHASES. CONSU MPTION AND CLOSING STOCK OF THE MATERIALS. THE DETAILS CON TAINED DATEWISE, MONTHWISE PURCHASES AND CONSUMPTION F. THE MANUFACTURING PRODUCT TO WHOM SOLD WAS ALSO FILED 5.9 IT CAN BE SEEN FROM THE ASSESSMENT ORDER AS POI NTED OUT BY LD. A.R. THAT LD. ASSESSING OFFICER HAS IGNORED ALL THE SE EVIDENCES. THE CONTENTION OF THE ASSESSING OFFICER, THAT NO PURCHA SES WERE MADE OR NO GOODS HAVE COME IN, CANNOT BE ACCEPTED AT ALL, A S THERE CANNOT HE ANY OUTFLOW WITHOUT INFLOW/ PURCHASE, AND THERE CAN NOT BE ANY CORRESPONDING SALES WITHOUT SUCH OUTFLOW OF GOODS. THIS CLEARLY ESTABLISHES THE FACT THAT WHEN THE ASSESSEE HAS SHO WN SALES, PURCHASES CANNOT BE DENIED AS THERE CANNOT BE ANY S ALES WITHOUT THE PURCHASES. THE APPELLANT FIND SUPPORT FROM THE DECI SION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. M . K. BROS. (163 ITR 249). IN THIS CASE THE HONBLE COURT HELD THAT IF PA YMENTS FOR PURCHASES ARE MADE BY ACCOUNT PAYEE CHEQUES AND THE SAME HAS NOT BEEN RECEIVED BACK IN ANY FORM, EVEN IF SELLER OF G OODS DECLARES THAT HE HAS SIMPLY ISSUED BILLS AND HE HAS NOT SOLD GOOD S, STILL NOTHING CAN BE ADDED IN THE CASE OF THE ASSESSEE. 6.1 THE RELEVANT PART OF THE IMPORTANT OTHER CASES RELIED UPON BY LD. A.R. REPRODUCED HEREIN BELOW:- IN THE CASE OF: ITO VS. PERMANAND 25 SOT 11 ITAT J ODHPUR HAS HELD AS UNDER:- IN THE INSTANT CASE, THE ADDITION RESTED MAINLY ONL Y ON THE OBSERVATION OF THE SALES LAX DEPARTMENT THE ASSESSE E WAS NEVER ASSOCIATED WITH THE ENQUIRIES MADE BY THE SAL ES-TAX TO THAT EXTENT. THE SATISFACTION OF THE ASSESSING O FFICER HIMSELF WHILE ASSESSMENT OF AN INCOME AND THESE DUT IES SATISFACTION OF SOMEONE ELSE. THE ASSESSEE DID PAY FOR THE HE MADE FROM THE ABOVE TWO THROUGH AS WAS EVIDENT F ROM THE RECORD. THE STATEMENTS OR EVEN THE AFFIDAVITS O F THE 10 SELLERS COULD NOT BE UTILIZED AGAINST TILE ASSESSEE UNLESS AN OPPORTUNITY WAS GIVEN TO HIM TO CONFRONT THE SAID STATEMENT WAY .ETC. ADMITTEDLY, NO SUCH WAS TO TILE ASSESSEE TO CONFRONT THE ABOVE SELLERS IN THE INSTA NT CASE. THE ASSESSEE HAD ALSO THE ONUS CAST ON HIM .BY SECT ION 69 BY SHOWING THE PURCHASES;. THEIR ENTRIES IN THE BOOKS OF ACCOUNT, PAYMENTS WA Y OF ACCOUNT PAYEE CHEQUES AND PRODUCING (HE VOUCHERS OF SALES OF THE GOODS. THE ASSESSING OFFICER HAD MISERABLY F AILED TO BRING ON RECORD ANY CLINCHING EVIDENCE TO PROVE THA T THESE ALLEGED PURCHASES WERE BOGUS AND NOT GENUINE. FURTH ER. THE ASSESSING OFFICER DID NOT MAKE REQUISITE INVESTIGATION, AGAINST THE TWO SELLERS. THEREFORE , THE. COMMISSIONER APPEALS HAD RIGHTLY HELD THAT THE ADDI TION MADE BY THE ASSESSING OFFICER MERELY ON THE BASIS O F OBSERVATIONS OF SALE TAX DEPARTMENT WITHOUT CONDUCT ING INDEPENDENT ENQUIRIES WAS NOT JUSTIFIED.' 6.2 IN CASE OF JAGDAMBA TRADING COMPANY VS. ITO THE HON'BLE TRIBUNAL HELD AS UNDER :- 'IN THE INSTANT CASE. IT WAS A CRYSTAL CLEAR FINDIN G OF FACT THAT THERE WAS NO PROOF ON RECORD THAT THE AMOUNT' OF RS. 2.20 ,000 WAS DEPOSITED IN THE ACCOUNT OF THE ASSESSEE THIS WAS A MPLY VERIFIED BY THE DEPARTMENT AND THE ASSESSING OFFICER COULD NOT MAKE A CLEAR-CUT FINDING IN THAT REGARD. II WAS ALSO EVIDENTLY CLEAR FROM THE AVAILABLE EVIDENCE THAT THE IMPUGNED ADDITION OF RS 2,20 000 WAS MADE ONLY OR; ACCOUNT OF WE CONTRA ENTRY NARRATION MADE ON TI LE BACKSIDE OF THE CHEQUE IN QUESTION EXCEPT THIS CONTRA ENTRY ON THE BACKSIDE OF THE CHEQUE THERE WAS NO OTHER EVIDENCE ON RECORD TO CON NECT THE ASSESSEE WITH THE ALLEGATION THAT IT HAD RECEIVED B ACK THE SAID MONEY. NO DOUBT THE CONTRA ENTRY ON THE BACKSIDE OF THE CH EQUE MIGHT GIVE RISE TO A DOUBT AGAINST THE ASSESSEE BUT A DOUBT, H OWSOEVER, STRONG IT MIGHT BE COULD NOT TAKE PLACE OF A PROOF OF A FACT. IN CASE THE SELLER STATED IN HIS AFFIDAVIT THAT HE DID NOT MAKE ANY SA LES DURING THE RELEVANT YEAR THAT 100 IN SALES-TAX PROCEEDINGS AND PARTICULARLY WHEN AN OPPORTUNITY OF CROSS-EXAMINATION WAS NOT GIVEN TO THE ASSESSEE. IT WAS HARDLY JUSTIFIED TO HEAVILY RELY UPON THE SA ME. FURTHER THESE AFFLDAVITS WERE FILED DURING SALES-TAX PROCEEDING O F THE SELLER WHICH DID NOT HAVE ANY CONCERN WITH THE INCOME-TAX PROCEE DING OF THE ASSESSEE AND HAD NO VALUE AGAINST THE ASSESSEE. FUR THER WHEN THE ASSESSING OFFICER HAD NOT DISPUTED THE PURCHASE IN QUESTION AND HE 11 HAD ONLY DISPUTED THE PURCHASE FROM THE PARTICULAR PARTY. IT WAS HARDLY A CASE OF UNEXPLAINED INVESTMENT. TIE ASSESS ES HAD CLEARLY SHOWN AND EXPLAINED THE ALLEGED INVESTMENT. IN CASE THE SELLER DID NOT PAY SALES-TAX AND MANDI TAX THE PURCHASE IN QUESTIO N COULD NOT BE TAKEN AS BOGUS. THE ASSESSING OFFICER, TOOK THE PUR CHASES MADE BY THE ASSESSEE FROM THESE PARTIES AS FICTITIOUS AND B OGUS MAINLY ON THE STRENGTH OF THE TOE AFFIDAVITS OF THESE PARTIES TEN DERED BEFORE THE SALES-TAX AUTHORITIES. THESE AFFIDAVITS 01 EVEN STA TEMENT OF THE ASSISTANT MANAGER OF THE BANK WERE SUBJECT MATTER O F CROSS- EXAMINATION BY THE ASSESSEE. THEREFORE, THE PURCHA SE IN QUESTION COULD NOT BE HELD TO BE BOGUS. THEREFORE, THE ADDI TION MADE TO THE INCOME OF THE ASSESSEE UNDER SECTION 69 ON ACCOUNT OF PURCHASE OF NARMA WAS JUSTIFIED AND REQUIRED TO BE DELETED. IN CASE OF CIT VS M.K. BROTHERS, THE HONBLE GUJAR AT HIGH COURT HAS HELD AS UNDER:- IT WAS CLEAR FROM THE TRIBUNAL'S ORDER THAT WHETHER THE SAID TRANSANCTION WHERE BOGUS OR NOT WAS A QUESTION OF F ACT. THE ASSESSEE WAS GIVEN CREDIT FACILITIES FOR A SHO RT DURATION AND THY PAYMENTS WERE GIVEN BY CHEQUES. WHEN THAT W AS SO IT COULD NOT BE SAID THAT THE ENTRIES FOR THE PU RCHASES OF THE GOODS MADE IN THE BOOKS OF THE ACCOUNT WERE BOG US ENTRIES. THUS THE CONCLUSION ARRIVED AT BY THE TRIB UNAL WAS NOT AGAINST THE WEIGHT OF EVIDENCE. THE TRIBUNAL WA S THEREFORE JUSTIFIED IN DELETING THE ADDITION TO THE INCOME OF THE ASSESSEE. BESIDES THESE JUDICIAL DECISIONS RELIED ON BY THE A R, THE GISTS; OF THE OTHER DECISIONS RELIED ON BY THE AR W HICH ARE RELEVANT TO THE FACTS OF THE PRESENT CASE ARE REPR ODUCED AS UNDER :-- 6.4 IN CASE OF UMACHARAN SHAW AND BROS VS. CIT (195 9)37 ITR 271(SC) HONBLE SUPREME CUR HAS HELD AS UNDER:- TAKING INTO CONSIDERATION THE ENTIRE CIRCUMSTANCES OF THE CASE WE ARE SATISFIED THAT THERE WAS NO MATERIAL ON WHICH THE ITO COULD COME TO CONCLUSION THAT THE FIRM WAS NOT GENUINE. THERE ARE MANY SURMISES AND CONJECTURES AN D THE CONCLUSION IS THE RESULT OF THE SUSPICION WHICH CAN NOT TAKE THE PLACE OF PROOF IN THESE MATTERS. 6.5 IN THE CASE OF LALCHAND BHAQAT AMOICA RAM VS. CIT (1959) 37 ITR 288 (SC) HONBLE SUPREME COURT HAS HELD AS UNDE R :- 12 WHEN A COURT OF FACT ARRIVES ITS DECISION BY CONSID ERING MATERIAL WHICH IS IRRELEVANT TO TILE ENQUIRY OR ACT S ON MATERIAL PARTY RELEVANT AND PARTLY RELEVANT WHERE I T IS IMPOSSIBLE TO SAY TO WHAT EXTENT THE MIND OF THE CO URT WAS AFFECTED BY THE IRRELEVANT MATERIAL USED BY IT IN A RRIVING AT ITS DECISION A QUESTION OF LAW ARISES. WHETHER THE FINDING OF THE COURT OF FACT IS NOT VIT IATED BY REASON OF ITS HAVING RELIED UPON CONJECTURES. SURMI SES AND SUSPICIONS NOT SUPPORTED BY ANY EVIDENCE ON RECORD OR PARTLY UPON EVIDENCE AND PARTLY UPON INADMISSIBLE M AT TRIAL. AN ASSESSMENT SO MADE WITHOUT DISCLOSING TO THE ASSESSEE THE INFORMATION SUPPLIED BY THE DEPARTMENT AL REPRESENTATIVE AND WITHOUT GIVING ANY OPPORTUNITY T O THE ASSESSEE TO REBUT THE INFORMATION SO SUPPLIED AND D ECLINING TO TAKE INTO CONSIDERATION ALL MATERIALS WHICH THE ASSESSEE WANTED 10 PRODUCE IN SUPPORT OF THE CASE CONSTITUTE D A VIOLATION OF THE FUNDAMENTAL RULES OF JUSTICE AND C ALLED FOR INTERFERENCE. THE CONCLUSIONS BASED ON FACTS PROVED OR ADMITTED MAY BE CONCLUSIONS OF FACT BUT WHETHER A PARTICULAR INFERENCE CAN LEGITIMATELY BE DRAWN FROM SUCH CONCLUSIONS MAY BE A QUESTION OF LAW. WHERE HOWEVER THE FACT 5NDING AUTHORITY TIES ACTED WITHOUT ANY EVIDEN CE OR UPON A VIEW OF THE FACTS WHICH COULD NOT REASONABLY BE ENTERTAINED OR THE FACTS FOUND WERE SUCH THAT NO PE RSON ACTING JUDICIALLY AND PROPERLY INSTRUCTED AS TO THE RELEVANT LAW COULD HAVE FOUND THE COURT IS ENTITLED TO INTER FERE. A FINDING ON A QUESTION OF FACT IS OPEN TO ATTACK UND ER S 66(1) AS ERRONEOUS IN LAW WHEN THERE IS NO EVIDENCE TO SU PPORT IT OR IF IT IS PERVERSE. 6.6 HONBLE APEX COURT IN THE CASE OF KISHINCHAND C HELLARAM VS. CIT (1980) 125 ITR 713 HELD THAT- THE ONLY EVIDENCE ON WHICH THE TRIBUNAL COULD RELY FOR THE PURPOSE OF ARRIVING AT THIS FINDING WAS THE LETTER OF 18TH FEB. 1955 SAID TO HAVE BEEN ADDRESSED BY THE MANAGE R OF THE PUNJAB NATIONAL BANK LTD TO THE ITO. NOW, IT IS DIFFICULT TO SEE HOW LETTER COULD AT ALL BE RELIED UPON BY TH E TRIBUNAL AS A MATERIAL PIECE OF EVIDENCE SUPPORTIVE OF ITS F INDING. IN THE FIRST PLACE, THIS LETTER WAS NOT DISCLOSED TO T HE ASSESSEE 13 BY THE ITO AND EVEN THOUGH THE AAC REPRODUCED AN EXTRACTED FROM IT IN HIS ORDER HE DID NOT CARE TO P RODUCE IT BEFORE THE ASSESSEE OR GIVE A COPY OF IT, TO THE AS SESSEE. THE SAME POSITION OBTAINED ALSO BEFORE THE TRIBUNAL AND THE HIGH COURT AND IT WAS ONLY WHEN A SUPPLEMENTAL STATEMENT OF THE CASE WAS CALLED FOR BY THIS COURT BY ITS ORDER DT. 16TH AUG. 1979 THAT ACCORDING TO THE ITO THIS LETTER WAS TRACED BY HIM AND EVEN THEN IT WAS NOT S HOWN BY HIM TO THE ASSESSEE BUT IT WAS FORWARDED TO THE TRI BUNAL AND IT WAS FOR THE FIRST TIME AT THE HEARING BEFORE THE TRIBUNAL IN REGARD TO THE PREPARATION OF THE SUPPLE MENTAL STATEMENT OF THE CASE THAT THIS LETTER WAS SHOWN TO THE ASSESSEE. IT WILL, THEREFORE BE SEEN THAT EVEN IF W E ASSUME THAT THIS LETTER WAS IN FACT ADDRESSED BY THE MANAG ER OF THE PUNJAB NATIONAL BANK LTD TO THE ITO. NO RELIANCE C OULD BE PLACED UPON IT SINCE IT WAS NOT SHOWN TO ASSESSEE U NTIL AT THE STAGE OF PREPARATION OF THE SUPPLEMENTAL STATEM ENT OF THE CASE AND NO OPPORTUNITY TO CROSS- EXAMINE THE M ANAGER OF THE BANK COULD IN THE CIRCUMSTANCES BE SOUGHT OR AVAILED OF BY THE ASSESSEE. IT IS TRUE THAT THE PROCEEDING S UNDER THE INCOME-TAX LAW ARE NOT GOVERNED BY THE STRICT RULES OF EVIDENCE AND THEREFORE, IT MIGHT BE SAID THAT EVEN WITHOUT CALLING THE MANAGER OF THE BANK IN EVIDENCE TO PROV E THIS LETTER, IT COULD BE TAKEN INTO ACCOUNT AS EVIDENCE. BUT BEFORE THE IT AUTHORITIES COULD RELY UPON IT, THEY WERE FO UND TO PRODUCE IT BEFORE THE ASSESSEE SO THAT THE ASSESSEE COULD COCONTROVERT THE STATEMENTS CONTAINED IN IT BY ASKI NG FOR AN OPPORTUNITY TO CROSS EXAMINE THE MANAGER OF THE BAN K WITH REFERENCE TO THE STATEMENTS MADE BY HIM: 6.7 IN CASE OF RAJESH P SONI VS ACIT (2006) 100 TTJ 892 (AHD) IT WAS HELD THAT- PURCHASES WERE RECORDED IN THE REGULAR BOOKS OF ACC OUNT MAINTAINED. THE PURCHASES ARE SUPPORTED BY PROPER B ILLS N/ VOUCHERS. THE ASSESSEE FILED THE NECESSARY DETAILS REGARDING NAME ADDRESS SALES-TAX NUMBER. THE PAYMENTS WERE MA DE THROUGH BANKING CHANNEL- THUS, THE SALE AGAINST THE PURCHASES IS NOT DOUBTED IT IS NOT THE CASE OF AO T HAT AMOUNTS PAID FOR PURCHASES HAD COME BACK TO THE ASS ESSEE. THE AO HAD MADE ADDITION MERELY ON FILE GROUND THAT THE 14 SUPPLIERS ARE NOT LOCATED AND THEY WERE NOT PRODUCE D FOR EXAMINATION. AFTER CONSIDERING THE FACTS OF THE CASE WHEN PURCHASES ARE SUPPORTED WITH AUHENTICATED PURCHASE BILLS HAVING SALES-TAX NUMBERS AND PAYMENT THROUGH CHEQUE S THE ADDITION CANNOT BE MADE URDER 69 OR 69A. IN TH E LIGHT OF THE ABOVE DISCUSSION, THE ADDITION IS NOT WARRAN TED. 6.8 IN CASE OF CIT VS HI LUX AUTOMOTIVE PVT LTD (20 09) 23 DTR (DEL) 3855, FACT AND DISCUSSIONS ARE AS UNDER:- BUSINESS EXPENDITURE ALLOWABILITY - GENUINENESS OF PURCHASES - AO INITIALLY - ASSESSING OFFICER ,HAS A LLOWED TILE PAYMENTS MADE TO TWO PARTIES ON THE BASES THAT THE PAYMENTS WERE MADE TYO THEM BY MEANS OF ACCOUNT PAYEE CHEQUES AND THE SAME WERE ACTUALLY CREDITED I N THEIR BANK ACCOUNTS EVEN THOUGH THEY WERE NOT MAINTAINING BOOKS OF ACCOUNT - PROPRIETORS OF BE AN D SS HAVE CONFIRMED THAT THEY HAD RECEIVED THE PAYMENTS BY MEANS OF ACCOUNT PAYEE CHEQUES AND SPECIFICALLY AFF IRMED THAT THEY HAD BEEN SUPPLYING GOODS / RAW MATERIAL TO THE ASSESSEE- ASSESSEE PRODUCED THE BANK STATEMENTS OF THESE PARTIES WHICH CLEARLY SHOW THAT THE PAYMENTS MADE B Y THE ASSESSEE WERE DULY CREDITED IN THE BANK ACCOUNTS OF THE SAID SUPPLIERS - THUS, THESE TWO CASES ARE AT PAR WITH THOSE IN WHICH THE PAYMENTS HAVE BEEN ALLOWED AND H ENCE THE PAYMENTS COULD NOT BE DISALLOWED DISALLOWANCE OF PAYMENTS MADE TO THE REMAINING PARTIES FOR THE REA SON THAT THEY AID NOT APPEAR WHEN THE NOTICES WARE SENT WAS NOT JUSTIFIED ASSESSEE HAS PRODUCED SUFFICIENT MA TERIAL NAMELY BANK ACCOUNT OF SUCH PARTIES TO SHOW THE PAYMENTS - THEREFORE THE FINDING OF FACT ARRIVED AT BY THE TRIBUNAL THAT THE SAID PARTIES WERE GENUINE SUPPLIE RS AND THAT THEY RECEIVE D PAYMENTS BY ACCOUNT PAYEE CHEQU ES IS PLAUSIBLE AND BASED ON EVIDENCE - NO QUESTION OF LA W ARISES FOR CONSIDERATION. THE HONBLE HIGH COURT HELD AS UNDER:- CONCLUSION ASSESSEE HAVING MADE PAYMENTS FOR PURCHA SE OF RAW MATERIAL BY MEANS OF ACCOUNT PAYEE CHEQUES A ND PRODUCED THE BANK SSTATEMENT OF THE SUPPLIER SHOWIN G THAT THE PAYMENTS WERE DULY CREDITED IN THE BANK AC COUNTS 15 OF THE SAID SUPPLIERS SAID PAYMENTS CANNOT BE DISAL LOWED MORE SO, THE AO HIMSELF HAS ALLOWD SUCH PAYMENTS MA DE TO OTHER TWO PARTIES ON SIMILAR FACTS AND CIRCUMSTA NCS. 6.9 JITENDRA HARSHADKUMAR TEXTILE VS ITO (ITAT MUM )(ITA NO.771 & 2211/MUM/2011 FOR 2007-08) DATED 21-11-2012 BRIE F FACTS O THE CASE ARE THAT THERE WAS A SURVEY ACTION ON THE GROU P CONCERN OF SHRI. RAKESH KUMAR GUPTA AND HIS FAMILY AND ON THE BASIS OF STATEMENT GIVEN BY SHRI RAKESH KUMAR GUPTA DURING SUCH SURVEY , PURCHASES MADE BY THE ASSESSEE FROM HIS. GROUP CONCERNS WERE TREATED AS BOGUS AND THUS. ADDITION OF RS. 15,38,792/- WAS MADE. ON APPEAL BY THE ASSESSEE TO CIT(A), SUCH ADDITION WAS RESTRICTED TO RS. 3,72,079/- ON THE GROUND THAT ENTIRE PURCHASES CANNOT BE ADDED BA CK AS UNEXPLAINED AS THE ASSESSEE HAS, ALREADY SHOWN THE SALE PROCEEDS AGAINST ALLEGED PURCHASES. ON FURTHER APPEAL TO ITA T, HONBLE ITAT HELD AS UNDER:- THERE IS NO MATERIAL ON RECORD TO SAY THAT THE PURC HASES MADE BY THE ASSESSEE FROM THE SAID CONCERN WERE BOG US EXCEPT THE GENERAL STATEMENT RECORDED BY THE DEPART MENT IN THE CASE SHRI RAKESH KUMAR GUPTA WHICH WAS LATE R ON RETRACTED IN ABSENCE OF ANY MATERIAL BROUGHT ON REC ORD AGAINST THE SUBMISSIONS MADE BY SHRI RAKESH KUMAR GUPTA IN HIS LETTER DATED 20.02. 2009 FILED BEFORE THE AO OF THE ASSESSEE THE ADDITION IF ANY MADE IN THE CASE O F THE ASSESSEE WILL BE BASED ON PRESUMPTION BESTS. THEREF ORE, KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE OPINION THAT ADDITION MADE BY THE AO DES ERVES TO BE DELETED IN ITS ENTIRETY. 6.10 IT IS ALSO SUBMITTED THAT IN THE CASE OF BABU LAL C. BORANA VS. ITO 282 ITR 251 (BOM). ITO VS. SURANA TRADING 92 LTD 21 2 (MUMBAI ITAT) SUPPORT THE APPELLANT. 6.11 RECENTLY, THE HONBLE ITAT IN THE CASE OF SHRI GANPATRAJ A SANGHAI VS ACIT 15(3) MUMBAI ITA NO 2825/MUM/2013 O RDER DATED 05.11.2014 HAS DELETED THE ADDITION OF RS.1,74,01, 436/- MADE ON ACCOUNT OF PRESUMING BOGUS PURCHASES. THE FINDING OF THE HONBLE ITAT IS AS UNDER A PERUSAL OF THE ORDERS PASSED BY THE TAX AUTHORITI ES WOULD SHOW THAT THEY HAVE SUSPECTED THE GENUINENESS OF TH E PURCHASES ONLY FOR THE REASON THAT THE ABOVE SAID F IVE 16 PARTIES WERE NOT AVAILABLE IN THE GIVEN ADDRESSES I F IS PERTINENT TO NOTE THAT THE AC HIMSELF, DURING THE C OURSE OF REMAND PROCEEDINGS HAVE OBTAINED THE BANK STATEMENT S OF THE ABOVE SAID FIVE PARTIES HIS IN THE COMMON KNOWLEDGE OF EVERYBODY THAT THE BANK ACCOUNT NOWADA YS COULD BE OPENED ONLY ON SUBMISSION OF PROPER DOCUME NTS FURTHER THE ASSESSEE HAS FURNISHED THE SALES TAX DOCUMENTS OF THE ABOVE SAID FIVE PARTIES AND ALSO T HEIR INCOME TAX DETAILS TO PROVE THEIR EXISTENCE THUS IT IS SEEN THAT THE ASSESSEE HAS FURNISHED MANY DOCUMENTS TO P ROVE THE EXISTENCE OF THE PARTIES AND THEY HAVE NOT BEEN CONTROVERTED BY THE ASSESSING OFFICER BE THAT AS IT MAY, ANOTHER IMPORTANT FACTOR THE BANK ACCOUNT COPIES COLLECTED BY THE ASSESSING OFFICER SHOWS THAT THE A SSESSEE HAD MADE THE 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 ACCO UNTS FURTHER IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE ASSESSEE HAS INDULGED AN ACCOUNTING OF BOGUS PURCHA SES WHEN THE ASSESSEE SUBMITTED THAT HE COULD NOT HAVE EFFECTED THE SALES WITHOUT MAKING CORRESPONDING PURCHASES THE AC HAS TAKEN THE VIEW THAT THE ASSESS EE COULD HAVE EFFECTED PURCHASES IN THE GREY MARKET WH ICH CONCLUSION IS IN FACT NOT SUPPORTED BY ANY MATERIAL . UNDER THIS IMPRESSION ONLY, THE AC HAS FURTHER EXPRESSED THE VIEW THAT THE ASSESSEE WOULD HAVE PURCHASED THE MATERIAL S BY PAYING CASH THUS VIOLATING THE PROVISIONS OF SEC 40 A(3) OF THE ACT WHICH IS AGAIN BASED ON ONLY SURMISES IN TH E ABSENCE OF ANY MATERIAL TO SUPPORT THE SAID VIEW, W E ARE UNABLE TO AGREE WITH THE VIEW TAKEN BY THE TAX AUTH ORITIES THAT THE PURCHASES AMOUNT IS LIABLE TO BE DISALLOWE D U/S 40A(3) OF THE ACT. ON THE SAME IMPRESSION ONLY. THE AO HAS EXPRESSED THE VIEW IN THE REMAND REPORT THAT TH E PURCHASES AMOUNT IS ALSO LIABLE TO ASSESSED U/S 69C OF THE ACT AS THE SOURCE OF PURCHASES WERE NOT PROVED. AGA IN THE SAID CONCLUSION IS BASED UPON ONLY SURMISES WHICH C OULD NOT BE SUSTAINED THUS IT IS SEEN THAT THE ASSESSING OFFICER HAS ACCEPTED THE FACT THAT THE QUANTITY DETAILS OF PURCHASES AND SALES HAVE BEEN RECONCILED BY THE ASS ESSEE. FURTHER, VARIOUS CASE LAW RELIED UPON BY THE ASSESS EE ALSO 17 SUPPORTS HIS CASE. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS RIOT JUSTIFIED IN CONFI RMING THE DISALLOWANCE OF PURCHASES. ACCORDINGLY WE SET ASIDE THE ORDER OF LD CL T(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE DISALLOWANCE OF PURCHASES' 6.12 FURTHER, HONBLE JURISDICTIONAL ITAT IN THE CA SE OF DCIT 25(3) VS. RAJEEV G. KALATHIL I.T.A.NO.6727/MUM/2012 ORDER DAT ED 20.08.2014 HAD DELETED THE ADDITION MADE BY THE ASSESSING OFFI CER. THE DECISION IS AS UNDER:- WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT ASSESSING OFFICER HAD MADE THE ADDITION AS ONE OF THE SUPPLIER WAS DECLAR ED A HAWALA DEALER BY THE VAT DEPARTMENT. WE AGREE THAT IT WAS A GOOD STARTING POINT FOR MAKING FURTHER INVEST IGATION AND TAKE IT TO LOGICAL END. BUT HE LEFT THE JOB AT INITIAL POINT ITSELF SUSPICION OF HIGHEST DEGREE CANNOT TAKE PLAC E OF EVIDENCE. HE COULD HAVE CALLED FOR THE DETAILS OF T HE BANK ACCOUNTS OF THE SUPPLIERS TO FIND OUT AS WHETHER TH ERE WAS ANY IMMEDIATE CASH WITHDRAWAL FROM THEIR ACCOUNT. W E FIND THAT NO SUCH EXERCISE WAS DONE. TRANSPORTATION OF GOOD TO THE SITE IS ONE OF THE DECIDING FACTOR TO BE CON SIDERED FOR RESOLVING THE ISSUE. THE FAA HAS GIVEN A FINDING OF FACT THAT PART OF THE GOODS RECEIVED BY THE ASSESSEE WAS FORM ING PART OF CLOSING STOCK. AS FAR AS THE CASE OF WESTERN EXT RUSION INDUSTRIES (SUPRA) IS CONCERNED, WE FIND THAT IN TH AT MAILER CASH WAS IMMEDIATELY WITHDRAWN BY THE SUPPLIER AND THERE WAS NO EVIDENCE OF MOVEMENT OF GOODS. BUT, IN 'HE C ASE BEFORE US, THERE IS NOTHING IN THE ORDER OF THE ASS ESSING OFFICER ABOUT THE CASH TRAIAL. SECONDLY, PROOF OF M OVEMENT OF GOODS IS NOT IN DOUBT. THEREFORE, CONSIDERING TH E PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE UNDER APPEAL, W E ARE OF THE OPINION THAT THE ORDER OF THE FAA DOES NOT SUFF ER FROM ANY LEGAL INFIRMITY AND THERE ARE NOT SUFFICIENT EV IDENCE ON FILE TO ENDORSE THE VIEW TAKEN BY THE ASSESSING OFF ICER, SO CONFIRMING THE ORDER OF THE FAA WE DECIDE GROUND NO .1 AGAINST THE ASSESSING OFFICER. 7.1 THUS FROM ABOVE JUDICIAL PRONOUNCEMENTS AND FIN DINGS IT CAN BE UNDERSTOOD THAT MERELY ON THE BASIS OF NON-SERVICE OF NOTICES U/S.133(6) OR SUMMON U/S.131 UPON SELLING PARTIES O R ONLY BECAUSE OF 18 THEIR NON-AVAILABILITY AT GIVEN ADDRESS, NO ADDITIO N COULD B MADE WHEN SUCH ASSESSEE FURNISHES PURCHASE BILLS, DELIVE RY CHALLANS, TRANSPORTATION BILLS AND DEMONSTRATE THAT PAYMENTS HAS BEEN MADE THROUGH ACCOUNT PAYEE CHEQUE. THEREFORE, UNLESS EVI DENCES PRODUCED BY SUCH ASSESSEE ARE PROVED BOGUS, FALSE OR UNRELIA BLE, NO ADDITION CAN BE MADE. HERE, IT IS. HOWEVER, IMPORTANT TO MEN TION THAT WHILE MAKING ASSESSMENT OF SUCH CASES, ASSESSING OFFICER IS ENTITLED TO LOOK INTO THE ENTIRE FACTS AND CIRCUMSTANCES. MATERIAL O R EVIDENCE ON WHICH TAXING AUTHORITIES MAY RELY UNDER I.T. ACT IS NOT CONFINED TO DIRECT TESTIMONY IN THE SHAPE OF STATEMENT MADE. VI DE. KANHAILAL UMRAO SINGH V/S. CIT (1941) 9 ITR 225 (OUDH). LALMO HAN KRISHNALAL PAUL VS. CIT (1944) 12 ITR 441 (CAL.), ABDULLABHAI ABDUL KADAR VS. CIT (1952) 22 ITR 241 (BOM). THUS. WHILE MAKING ASSESSM ENT. ASSESSING OFFICER HAS TO SEE 'MATERIAL', 'CIRCUMSTANCES', 'EV IDENCES' AND 'DIRECT TESTIMONY' AND THEREAFTER REACH TO THE CON CLUSION FOR QUANTIFICATION OF TAXABLE INCOME. 7.2 IT IS NOTEWORTHY THAT THIS CASE UNDER APPEAL I S NOT THAT PLAIN AS ABOVE REFERRED TO AND RELIED UPON CASES ARE. BEC AUSE DURING THE COURSE OF SURVEY, PROCEEDING. THE DIRECTOR OF THE C OMPANY HAS ADMITTED THAT ONLY BILLS FROM SEVEN PARTIES WERE OB TAINED' AND NOT THE GOODS, HENCE IT BECOMES VERY OBVIOUS THAT GOODS MIG HT HAVE BEEN PURCHASED FROM OTHER PARTIES. IN ANSWER TO Q. NO. 1 1. DIRECTORS HAS MENTIONED THAT DELIVERY CHALLAN HAVE NOT BEEN RECEI VED FROM SEVEN PARTIES, HENCE ENTRIES OF THE SAME ARE NOT AVAILABL E IN DATA MAINTAINED IN THE ERP SOFTWARE IN THE COMPUTER. THU S. IT IS VISIBLE FROM THE STATEMENT THAT GOODS UNDER REFERENCE MIGHT HAVE NOT BEEN RECEIVED FROM THE SEVEN PARTIES (IN THIS YEAR THREE PARTIES), BUT IT MIGHT HAVE BEEN RECEIVED FROM OTHER PARTIES BECAUSE DURING THE COURSE OF ASSESSMENT PROCEEDINGS APPELLANT HAS GIV EN THE QUANTITATIVE DETAILS OF CONSUMPTION OF RAW MATERIAL AND PRODUCTION OF FINISHED GOODS VIDE SUBMISSION DATED 17.03.2013. T HUS, THERE IS NO DENIAL OF THE FACT THAT MATERIAL PURCHASED FROM OPE N MARKET MIGHT HAVE BEEN USED AND (BILLS MIGHT HAVE BEEN OBTAINED FROM THESE PARTIES. THIS OBSERVATION IS BASED ON ANSWER TO QUE STION NO.12 OF STATEMENT OF THE DIRECTOR, WHICH IS REPRODUCED HERE AS UNDER:- Q. 12 IN REPLY TO Q. 11, YOU HAVE MENTIONED YOU HAV E NOT RECEIVED THE DELIVERY CHALLANS FROM ABOVE MENTIONED SEVEN SUPPLIERS, HENCE THE ENTRIES OF THE SAME ARE NOT 19 AVAILABLE IN THE DATA MAINTAINED IN ERP SOFTWARE IN THE COMPUTER. PLEASE STATE HOW WERE THE GOODS PURCHASED FROM THE ABOVE PARTIES WERE PUT TO USE--IN YOUR COM PANY? ANS.:WE HAD NOT RECEIVED IN GOODS OR RAW MATERIALS FROM THE SEVEN PARTIES MENTIONED IN Q. 11. WE HAD ONLY PROCURED BILLS FROM THE SUPPLIERS. HENCE THE DETAI LS OF THE SAME ARE NOT AVAILABLE IN THE DATA MAINTAINED IN TH E ERP SOFTWARE ON THE COMPUTER. 7.3 THEREFORE SUCH FACTS AND CIRCUMSTANCES DEMAND R EASONABLE AND CONVINCING APPROACH. RECENTLY HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS BHOLANATH POLYFAB PVT LTD (2013) 355 ITR 290 AND THEREAFTER IN THE CASE OF CIT VS SIMIT P SHETH (2013) 219 TAXM AN 85 (GUJ) HAS HELD THAT IN SUCH FACTS AND CIRCUMSTANCES NOT ENTIR E PURCHASE PRICE BUT ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES CAN BE ADDED. THE FINDING OF THE HONBLE GUJARAT HIGH COURT IN TH E CASE OF CIT VS SIMIT P SETH IS AS UNDER:- WE ARE BROADLY IN AGREEMENT WITH THE REASONING ADO PTED BY THE COMMISSIONER (APPEALS) WITH RESPECT TO THE N ATURE OF DISPUTED PURCHASES OF STEEL IT MAY BE THAT THE THRE E SUPPLIERS FROM WHOM THE ASSESSEE DARNED TO HAVE PURCHASED THE STEEL DID NOT OWN UP TO SUCH SALES HO WEVER, !HE VITAL QUESTION WHILE CONSIDERING WHETHER THE EN TIRE AMOUNT OF PURCHASES SHOULD BE ADDED BACK TO THE INC OME OF THE ASSESSEE OR ONLY THE PROFIT ELEMENT EMBEDDED THEREIN WAS 10 ASCERTAIN WHETHER THE PURCHASES THEMSELVES W ERE COMPLETELY BOGUS AND NON-EXISTENT OR THAT THE PURCH ASES WERE ACTUALLY MADE BUT NOT FROM THE PARTIES FROM WH OM IT WAS CLAIMED TO HAVE BEEN MADE AND INSTEAD MAY HAVE BEEN PURCHASED FROM GREY MARKET WITHOUT PROPER BALL ING OR DOCUMENTATION IN THE PRESENT CASE, THE COMMISSIONER OF INCOME-TAX (APPEALS) BELIEVED THAT WHEN AS A TRADER IN STEEL T HE ASSESSEE SOLD CERTAIN QUANTITY OF STEEL, HE WOULD H AVE PURCHASED THE SAME QUANTITY FROM SOME SOURCE. WHEN THE TOTAL SAFE IS ACCEPTED BY THE ASSESSING OFFICER, HE COULD NOT HAVE QUESTIONED THE VERY BASIS OF THE PURCHASES. IN ESSENCE, THEREFORE, THE COMMISSIONER (APPEALS) BELIEVED THE ASSESSEES THEORY THAT THE PURCHASES WERE NOT BOGUS BUT 20 WERE MADE FROM THE PARTIES OTHER THAN THOSE MENTIO NED IN THE BOOKS OF ACCOUNT. THAT BEING THE POSITION, NOT THE ENTIRE PURCHASE PR ICE BUT ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES CAN BE ADDED TO THE INCOME OF THE ASSESSEE. SO MUCH IS CLE AR BY THE DECISION OF THIS COURT. IN PARTICULAR, THE COUR T HAS ALSO TAKEN A SIMILAR VIEW IN THE CASE OF CIT V. VIJAY M. MISTRY CONSTRUCTION LTD. (2013) 355 ITR 498 (GUJ) AND IN T HE CASE OF CIT V. BHOLANATH POLY FEB (P.) LTD. [2013] 355 1 TR 290 (GUJ). THE VIEW TAKEN BY THE TRIBUNAL IN THE CASE O F VIJAY PROTEINS LTD. V. ASSTT. CIT 11996] 58 LTD 428 (AHD. ) CAME TO BE APPROVED. IF THE ENTIRE PURCHASES WERE WHOLLY BOGUS AND THERE WAS A FINDING OF FACT ON RECORD THAT NO PURCHASES WERE MA DE AT ALL, COUNSEL FOR THE REVENUE WOULD BE JUSTIFIED IN ARGUING THAT THE ENTIRE AMOUNT OF SUCH BOGUS PURCHASES SHOU LD BE ADDED BACK TO THE INCOME OF THE ASSESSEE. SUCH WERE THE FACTS IN THE CASE OF PAWANRAJ E BOKADIA (SUPRA). THIS BEING THE POSITION, THE ONLY QUESTION THAT SUR VIVES IS WHAT SHOULD BE THE FAIR PROFIT RATE OUT OF BOGUS PU RCHASES WHICH SHOULD BE ADDED BACK TO THE INCOME OF THE ASS ESSEE. THE COMMISSIONER ADOPTED RATIO OF 30 PER CENT OF SU CH TOTAL SALES. THE TRIBUNAL, HOWEVER, SCALED IT DOWN TO 12. 5 PER CENT. WE MAY NOTICE IN THE IMMEDIATELY PRECEDING YE AR TO THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSE E HAD DECLARED GROSS PROFIT AT 3.56 PER CENT OF THE TOTAL TURNOVER. IF THE YARDSTICK OF 30 PER CENT, AS ADOPTED BY THE COMMISSIONER (APPEALS) IS ACCEPTED THE GROSS PROFIT RATE WILL BE MUCH HIGHER. IN ESSENCE, THE TRIBUNAL ONLY ESTIMATED THE POSSIBLE PROFIT OUT OF PURCHASES MADE THROUGH N ON- GENUINE PARTIES. NO QUESTION OF LAW IN SUCH ESTIMAT ION WOULD ARISE. THE ESTIMATION OF RATE OF PROFIT RETUR N MUST NECESSARILY VARY WITH THE NATURE OF BUSINESS AND NO UNIFORM YARDSTICK CAN BE ADOPTED. 7.4 SINCE HON'BLE GUJARAT HIGH COURT HAS APPROVED THAT 12.5% ADDITIONAL PROFIT TAKEN BY THE ITAT IS REASONABLE H ENCE RESPECTFULLY FOLLOWING THE DECISION THE ADDITION TO THE EXTENT O F RS.14,76,642/-, BEING 12.5% OF SUCH PURCHASE EXPENDITURE, IS SUSTAI NED AND REST OF THE ADDITION OF RS. 1,03,36,494/- IS DELETED. 21 4. DURING THE COURSE OF HEARING BEFORE US, LD.COUNSEL OF THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING DECISIONS ITA NO.313 OF 2013 BOMBAY HIGH COURT CIT VS SHRI HARIRAM BHAMBHANI CIT VS BHOLANATH POLY FAB P LTD 355 ITR 290 (GUJ) CIT VS SATHYANARAYAN P RATHI 351 ITR 150 (GUJ) ITO VS SHRI GOPIKISHAN C MUNDHARA ITA 2993/MUM/2013 DCIT VS REMI PROCESS PLANT & MACHINERY LTD ITA 1723 /MUM/2015 SUBSEQUENTLY, DURING THE COURSE OF HEARING BOTH THE PARTIES PRESENT, FAIRLY AGREED THAT THE ORDER OF LD.CIT(A) CAN BE SUSTAINED AS IT IS MEANING THEREBY THAT THE RELIEF GRANTED BY LD.CIT(A) AS WELL AS THE DISALLOWANCE SUSTAINED BY HIM @12.5% DID NOT REQUIRE ANY KIND OF INTERFERENCE. 5. WE HAVE GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS CASE LAWS RELIED UPON BEFORE US AND ALSO DETAILED A ND WELL REASONED FINDINGS OF LD.CIT(A) AND FIND THAT NO INTERFERENCE IS CALLED F OR THEREIN. UNDER THESE CIRCUMSTANCES, APPEAL FILED BY THE REVENUE IS DISMI SSED AS WELL AS GROUND 1 O THE ASSESSEES APPEAL IS DISMISSED. 6. GROUND 2 : IN THIS GROUND, THE LD.COUNSEL OF THE ASSESSEE HAS MERELY SUBMITTED THAT GROUND WITH REGARD TO LEVY OF INTERE ST U/S 234B HAS NOT BEEN ADJUDICATED BY LD.CIT(A). WE HAVE GONE THROUGH THE ORDER PASSED BY LD.CIT(A|) AND FIND FORCE IN THE ARGUMENT MADE BY L D.COUNSEL. IT IS NOTED THAT THOUGH THE GROUND WITH REGARD TO CHARGING OF INTERE ST U/S 234B WAS TAKEN BEFORE LD. CIT(A) AS HAS BEEN ACKNOWLEDGED BY LD.CI T(A) IN HIS ORDER, BUT THE SAME WAS NOT PROPERLY ADJUDICATED. THE GRIEVANCE O F THE ASSESSEE WITH REGARD TO MANNER AND PERIOD OF COMPUTATION OF INTEREST U/S 234B REMAINS UNADDRESSED. THEREFORE, WE FIND IT PROPER TO SEND THIS GROUND BACK TO THE FILE 22 OF THE LD.CIT(A) TO BE DECIDED AFRESH AFTER GIVING OPPORTUNITY OF HEARING TO THE ASSESSEE AND AFTER PASSING DETAILED, SPEAKING AND WELL REASONED ORDER IN THIS RESPECT AFTER DEALING WITH ALL THE CONTENTIONS WITH REGARD TO LEVY OF INTEREST U/S 234B AS MAY BE RAISED BY THE ASSESSEE. THUS, THIS GROUND MAY BE TREATED AS ALLOWED, FOR STATISTICAL PURPOSE. 7. AS A RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOW ED AND THAT OF THE REVENUE IS DISMISSED. 8. IT IS BROUGHT TO OUR NOTICE THAT ALL OTHER APPEALS INVOLVE IDENTICAL ISSUES AND THERE IS NO DISTINCTION IN FACTS OR LEGAL POSIT ION. THEREFORE, CONSISTENT WITH OUR ORDER FOR AY 2007-08, APPEALS OF THE ASSESSEE A RE PARTLY ALLOWED AND THAT OF THE REVENUE ARE DISMISSED. THE AO IS DIRECTED T O FOLLOW OUR ORDER FOR A.Y. 2007-08. 9. IN THE RESULT, APPEALS FILED BY THE ASSESSEE ARE PA RTLY ALLOWED AND THAT OF THE REVENUE ARE DISMISSED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 29-03-201 7 AT THE CONCLUSION OF HEARING. SD/- SD/- (D.T. GARASIA) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 29 .03.2017 PK/- COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE , IBENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES