Sh. Deepak Heritage, Phagwara V. The Additional Commissioner of Income-tax, Phagwara

ITA 46/ASR/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4425 (ITAT-AMRITSAR)
• Duration Of Justice: 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 06-08-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 16-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: Y K SUD
• Keywords: Bogus purchase; Gross profit estimation; Opportunity of being heard; Principle of natural justice; Reasonable cause; Corroborative evidences; Assessment record
• Section: 40A(3); 143(3); 133A; 133(6); 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.46(ASR)/2013 ASSESSMENT YEAR:2009-10 PAN :AAEFD9869Q M/S. DEEPAK HERITAGE, VS. ADDL. COMMR. OF INCOME T AX, PHAGWARA. PHAGWARA RANGE, PHAGWARA. (APPELLANT) (RESPONDENT) I.T.A. NO.128(ASR)/2013 ASSESSMENT YEAR:2009-10 PAN :AAEFD9869Q ADDL. COMMR. OF INCOME TAX, VS. M/S. DEEPAK HERITAG E, PHAGWARA RANGE, PHAGWARA. PHAGWARA. (APPELLANT) (RESPONDENT) ASSESSEE BY:SH.Y.K.SUD, CA RESPONDENT BY:SH.MAHAVIR SINGH, DR DATE OF HEARING:06/08/2013 DATE OF PRONOUNCEMENT:11/09/2013 ORDER PER BENCH ; THESE CROSS APPEALS OF THE ASSESSEE AND THE REVEN UE ARISE FROM THE ORDER OF THE CIT(A), JALANDHAR DATED 01.03.2013 FO R THE ASSESSMENT YEAR 2009-10. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF AP PEAL: 2 1. THAT THE CIT(A) WAS NOT JUSTIFIED IN SUSTAININ G THE ACTION OF THE A.O. IN REJECTING THE BOOKS OF ACCOUNTS OF THE AP PELLANT BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE INCOME TAX ACT, 1961. BOTH OF THEM FAILED TO APPRECIATE THAT THE BOOKS OF ACCOUNTS WERE DULY AUDITED AND SUPPORTED BY BILLS AND VOUCHERS. 2. THAT CIT(A) HAS WRONGLY ESTIMATED THE GROSS PROFIT RATE @ 25% AFTER SUSTAINING THE ACTION OF THE AO IN REJECTION OF THE BOOKS OF ACCOUNTS AGAINST THE G.P. RATE OF 8.19% DECLARED B Y THE ASSESSEE. AT ANY RATE THE ESTIMATION OF G.P. RATE B Y THE CIT(A) IS HIGHLY EXCESSIVE AND HAS NO BASIS. 3. THAT THE CIT(A) HAS FAILED TO APPRECIATE THAT BOGUS PURCHASES OF RS.1,31,28,580/- WERE NOT BOGUS AND DULY SUPPORTED BY BILLS AND VOUCHERS AND CONFIRMATION OF THE SUPPLIERS. THE CIT(A) OUGHT TO HAVE DELETED THIS ADDITION OF RS.131228560 /- RATHER THAN ESTIMATING THE G.P. RATE OF THE APPELLANT. HE HAS FAILED TO GIVE FINDING ON THE SUBMISSIONS OF THE ASSESSEE IN THIS REGARD. 4. THAT THE CIT HAS WRONGLY SUSTAINED THE ADHOC DISAL LOWANCE OF RS.223273/- MADE BY THE AO OUT OF THE TOTAL EXPENSE S CLAIMED BY THE ASSESSEE. THE CIT(A) FAILED TO APPRECIATE T HAT ALL THE EXPENSES WERE FULLY VOUCHED AND NO ADHOC DISALLOWAN CE COULD HAVE BEEN MADE OUT OF THE SAME. 5. THAT THE ORDERS OF THE AO AND CIT(A) ARE AGAINST TH E LAW AND FACTS OF THE CASE. 3. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPE AL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DIRECTING THE A.O. TO APP LY G.P. @ 25% INSTEAD OF 40.29% IGNORING THE FACTS THAT THE A.O . HAS MADE PROPER INVESTIGATION AND ASSESSEE FAILED TO FURNI SH SATISFACTORY EVIDENCE IN THIS REGARD. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A) HAS ERRED IN GIVING RELIEF OF RS.62,56,7 58/- ADDITION MADE OF BOGUS PURCHASES IGNORING THE FACTS THAT THE A.O. HAS MADE DETAILED INVESTIGATION ASSESSEE WAS UNABLE TO PROVE THE GENUINENESS OF PURCHASES. 3. IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) BE SE T ASIDE AND THAT OF THE A.O. BE RESTORED. 4. THE APPELLANT REQUESTS FOR LEAVE TO ADD OR AMEND OR ALTER THE GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD AND DI SPOSED OF. 3 3. THE BRIEF FACTS IN THE GROUNDS RAISED BY THE ASS ESSEE AND THE REVENUE ARE AS APPEARING IN PARA 3 TO 9 OF AOS ORDER ALONG WITH VARIOUS ANNEXURES FORMING PART OF THE ORDER OF THE AO ARE REPRODUCED AS UNDER: 3. THE ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF TRADING OF SUITS, SAREES, DRESSES, CLOTHS, FABRICS, WEDDING I TEMS ETC. 4. ABYSMALLY LOW GROSS PROFIT RETURNED: 4.1. DURING THE COURSE OF SCRUTINY PROCEEDINGS, IT WAS SEEN THAT THE GROSS PROFIT PERCENTAGE RETURNED BY THE ASSESSEE IS AS UNDER: ASSESSMENT YEAR TURN OVER GP %AGE 2009-10 4.08 CRORES 8.19% 2008-09 4.33 CRORES 7.74% 2007-08 4.33 CRORES 7.71% IT CAN BE SEEN THAT THE GP PERCENTAGE RETURNED BY THE ASSESSEE IS ABYSMALLY LOW AS COMPARED TO OTHER ASSESSEES IN TH E SAME LINE OF BUSINESS. VIDE ORDER SHEET NOTING DATED 09.08.2011 , THE ASSESSEES AR WAS ASKED TO EXPLAIN AS UNDER: AS COMPARED TO OTHER ASSESSEES IN THE SAME LINE OF BUSINESS, G.P. RATE RETURNED BY YOU IS EXTREMELY LOW. EXPL AIN THE REASONS THEREOF, AND JUSTIFY THE SAME WITH EVIDENCE. 4.2. THEREAFTER, REPEATED ADJOURNMENTS WERE SOUGHT 09.09.2011, 19.09.2011, 07.10.2011, 18,10,2011 AND 01,11,2011 BUT NO REPLY AS FURNISHED. VIDE ORDER SHEET NOTING DATED 08.11.201 1, THE ASSESSEES AR WAS AGAIN GIVEN AN OPPORTUNITY TO EXPLAIN AS UN DER: THE G.P. OF 8.19% SHOWN BY YOU, AS COMPARED TO OTH ER CONCERNS IN THE SAME LINE OF BUSINESS, IS VERY LO W, COMPARATIVE FIGURES ARE AS UNDER: BOMBAY CLOTH HOUSE 09.10 16.21% KHUBSURAT 09-10 17.25% BILLA SILK & SAREES 09-10 12.23% LAXMI EMPORIUM 09-10 15.58% BEDI CLOTH HOUSE 09-10 18.30% TO SUBSTANTIATE/JUSTIFY THE LOW G.P. RETURNED, WI TH SUPPORTING DOCUMENTS. 4 4.3. IN THE SUBSEQUENT HEARINGS, NO VALID JUSTIFICA TION/EXPLANATION FOR THE LOW G.P. RETURNED WAS FURNISHED BY THE AS SESSEE, EXCEPT FOR STATING THAT INSTANCES GIVEN ABOVE ARE OF FIRMS O PERATING IN PHAGWARA, WHEREAS THE ASSESSEES BUSINESS WAS OPERATING FROM JALANDHAR CITY. A SPECIFIC SHOW CAUSE NOTICE WAS, THEREFORE, ISSUED TO THE ASSESSEE ON 05.12.2011, WHEREIN THE ASSESSEE WAS GIVEN ANOTHER OPPORTUNITY TO FURNISH HIS REPLY IN THE MATTER AS UNDER: 2.(A), IT IS FURTHER SEEN THAT VIDE ORDER SHEET NOTING DATED 08.11.2011, YOU WERE ASKED TO JUSTIFY THE ABYSMAL LY LOW G.P. BEING RETURNED BY YOU, AS UNDER: THE G.P. OF 8.19% SHOWN BY YOU, AS COMPARED TO O THER CONCERNS IN THE SAME LINE OF BUSINESS, IS VERY LO W. COMPARATIVE FIGURES ARE AS UNDER: BOMBAY CLOTH HOUSE 09.10 16.21% KHUBSURAT 09-10 17.25% BILLA SILK & SAREES 09-10 12.23% LAXMI EMPORIUM 09-10 15.58% BEDI CLOTH HOUSE 09-10 18.30% TO SUBSTANTIATE/JUSTIFY THE LOW G.P. RETURNED WITH SUPPORTING EVIDENCE. IT IS SEEN THAT TILL DATE, YOU HAVE NOT FURNISHE D ANY JUSTIFICATION/EXPLANATION FOR THE SAME, EXCEPT FO R STATING THAT THE INSTANCES GIVEN ABOVE ARE OF FIRMS OPERATING IN P HAGWARA, WHEREAS YOUR FIRM IS WORKING IN JALANDHAR CITY, S O THE GP MARGIN OF THESE FIRMS CANNOT BE COMPARED TO YOUR C ASE. ALTHOUGH THERE IS HARDLY ANY MERIT IN YOUR ARGUMENT, SINCE ALL THESE FIRMS ARE IN THE SAME LINE OF BUSINESS AS YOURS, AND THERE IS N OT MUCH DIFFERENCE IN THE CUSTOMER BASE AND MARKET CONDITIONS OF JALAN DHAR & PHAGWARA, YET IN ORDER TO MEET YOUR OBJECTION, COMPARATIVE I NSTANCES OF FIRMS IN THE SAME LINE OF BUSINESS AS YOURS, IN JALANDHAR C ITY, HAVE BEEN EXAMINED AND THE FOLLOWING PICTURES EMERGES: SR.NO. NAME A.Y. TURNOVER G.P% 1. M/S. POSHAK, JALANHDAR 2009-10 3.12 CRORES 13.6% 5 2. M/S. CRAZY BOUTIQUE, JALANDHAR 2009-10 71.12 CRORES 12.9% 3. M/S. SACHDEVA SAREE EMPORIUM, SAFFRON MALL, JALANDHAR. 2009-10 10.24 CRORES 10.64% THUS, IT CAN BE CLEARLY SEEN THAT THE GP RETURNED B Y YOU IS ABYSMALLY LOW, EVEN WHEN COMPARED TO OTHER CONCERN S IN THE SAME LINE, IN THE SAME CITY. THE FIRM AT S.NO.(1) HAVIN G TURNOVER COMPARABLE TO YOURS, HAS RETURNED A GP OF 13.6%. I N FACT, THE FIRM AT S. NO.(3) ABOVE IS OPERATING FROM EXACTLY THE SAM E LOCATION AS YOURS, AND HAVING MORE THAN DOUBLE YOUR TURNOVER, AND IS STILL RETURNING G.P. OF 10.64% (B) THIS ABYSMALLY LOW GP % BEING RETURNED BY YOU, COUP LED WITH THE GLARING DEFECTS IN THE BOOKS OF ACCOUNTS AND MA INTENANCE OF BILLS/VOUCHERS, AS ALSO THE NON-VERIFIABILITY OF TH E STOCK DETAILS, WHICH HAVE ALREADY BEEN CONFRONTED TO YOU VIDE ORDE R SHEET NOTING DATED 15.11.2011 AND REPEATEDLY THEREAFTER, CLEARLY POINTS TO THE FACT THAT THE BOOKS OF ACCOUNTS BEING MAINTAINED BY YOU ARE INCORRECT AND INCOMPLETE, AND ARE BEING FABRICATED AND COOKED UP TO PRESENT A PARTICULAR PICTURE.. (C) IN VIEW OF THE ABOVE, YOU ARE HEREBY GIVEN ANOTHER OPPORTUNITY TO SHOW CAUSE AS TO WHY YOUR BOOKS OF ACCOUNT SHOUL D NOT BE REJECTED U/S 145(3), BEING INCORRECT AND INCOMPLETE AND NOT PRESENTING A TRUE PICTURE OF YOUR STATE OF AFFAIRS . 4.4. IN THE SUBSEQUENT HEARING ON 13.12.2011, NO RE PLY ON THIS ISSUE WAS FURNISHED AND FURTHER TIME WAS SOUGHT. THE LAST AND FINAL OPPORTUNITY WAS GIVEN TO THE ASSESSEE TO FURNISH IT S REPLY IN THE MATTER ON 16.12.2011. IN THE SUBMISSION FILED ON 16.12.201 1, THE ASSESSEE HAS STATED AS UNDER: 7. IN RESPONSE TO FRESH COMPARABLE CASES MENTIONE D BY YOUR GOODSELF, WE WOULD LIKE TO SUBMIT AS UNDER: I) M/S. POSHAK JALANDHAR TURNOVER OF RS.3.12 CRORE & G .P. RATE 13.6%, THE FIRM IS SITUATED AT POSH MARKET OF JALANDHAR I.E. MODEL TOWN, ALL THE HIGH SOCIETY CUSTOMERS MAKE THEIR SHOPPING AT THAT MARKET & THE FIRM IS GOING ITS BUSINESS SINCE LAST MORE THAN 10 YEARS . II) M/S. CRAZY BOUTIQUE IS SITUATED IN MAIN MARKET OF JALANDHAR I.E. BAZAR SHEIKHAN WITH TURNOVER OF RS. 71.12 6 LACS AND G.P. 12.9% DOING ITS BUSINESS FROM LAST 25 YEARS. III) SACHDEVA SAREE EMPORIUM,JALANDHAR WITH A TURNOVER O F RS.10.24 CRORES OF GP RATE 10.64% IS WELL ESTABLISH ED OLD FIRM OF JALANDHAR PREVIOUSLY DOING ITS BUSINESS IN THE OLD CITY SINCE IST 25 YEARS. IV) OWNER OF ALL THESE FIRMS ARE OLD RESIDENCES OF JALA NDHAR & HAVING VERY GOOD REGULAR CLIENTAGE. ALL THE FIRMS ARE WELL ESTABLISHED FIRMS OF THE CITY. V) WE WERE RESIDENT OF PHAGWARA & WERE VERY MUCH NEW T O THE MARKET OF JALANDHAR & IN THAT YEAR WE WERE DAIL Y UP & DOWN FROM PHAGWARA TO JALANDHAR. THIS WAY OUR WORKING HOURS WERE LESS. VI) WE DO NOT KNOW THE QUALITY OF CLIENT OF ANY OTHER P ARTY. VII) WE DO NOT KNOW THE PURCHASE AND SALE OF POLICY OF A NY OTHER PARTY. TO ESTABLISH IN A NEW MARKET YOU HAVE TO GIVE SOME BENEFIT TO THE CUSTOMER TO LURE THEM & W E CAN DO ONLY ONE THING TO SALE THE GOODS ON CHEAP RATES. VIII) FURTHER, MORE WE WOULD LIKE TO SUBMIT THAT WE CANNO T COMMENT ON THE BUSINESS STYLE & POLICIES & LEVEL OF SATISFACTION & PROFIT EARNED BY ANY 3 RD PARTY AS WE HAVE NO SOURCE & INFORMATION ABOUT ANY OTHER PARTY. THIS IS FIRST TIME IN OUR LIFE WHEN WE CAME TO KNOW ABOUT T HE GP OF THESE PARTIES & ONLY DUE TO YOUR GOODSELF & EVEN TODAY WE DO NOT KNOW ABOUT THE NET PROFIT OF ALL THESE FI RM. IX) WE KNOW OURSELVES & WE ARE SATISFIED WITH OUR SALE, PROFIT & REPUTATION IN THE NEW MARKET. EACH AND EVE RY PURCHASE OF OURS IS GENUINE ONE & VERIFIABLE & OUR CLOSING STOCK IS ACTUAL STOCK & WE HAVE NEVER APPLI ED THE G.P. RATE. 4.5. FROM THE REPLY REPRODUCED ABOVE, IT CAN BE SEE N THAT THE ASSESSEE HAS BEEN ABLE TO GIVE ANY PLAUSIBLE OR SATISFACTORY EXP LANATION FOR THE LOW GP% AGE RETURNED BY IT. THE ASSESSEE HAS SIMPLY TRIED T O BRUSH ASIDE THE INSTANCES OF HIGHER G.P. %AGE BEING RETURNED BY CERTAIN OTHER REPUTED FIRMS IN THE SAME LINE OF BUSINESS IN JALANDHAR AS WELL AS PHAGW ARA BY STATING THAT IT WAS NEW TO THE MARKET OF JALANHAR AND THAT THE OTHE R FIRMS WERE SITUATED IN POSH AREAS OF JALANDHAR. THERE IS NO WEIGHT IN THIS ARGUMENT OF THE ASSESSEE, SINCE THE ASSESSEE FIRMS ESTABLISHED 5-6 YEARS BACK. ALSO, THE ASSESSEE FIRM ITSELF OPERATES FROM A POSH AREA OF JALANDAR I.E. SAFRON MALL, SO IT CANNOT BE SAID THAT THE INSTANCES OF OTHER FI RMS QUOTED ABOVE, ARE NOT COMPARABLE. IN FACT, AS POINTED OUT IN THE SHOW CA USE NOTICE REPRODUCED 7 ABOVE, THE FIRM M/S. SACHDEVA SAREE EMPORIUM IS OPE RATING FROM EXACTLY THE SAME PREMISES AS THE ASSESSEE. ALSO, AS FAR AS THE ASSESSES ARGUMENTS THAT THEY WERE RESIDENTS OF PHAGWARA AND WERE NEW TO THE MARKET OF JALANDHAR IS CONCERNED, IT NEEDS TO BE POINTED OUT HERE THAT THE ASSESSEE ITSELF HAS A FIRM OPERATING AT PHAGWARA ALSO, BY NAME M/S. NEW DEEPKA K TEXTILES, AND THE G.P. RATE RETURNED BY THE SAID FIRM ALSO IS TO THE TUNE OF 8-10% ONLY, WHICH SHOWS THAT IT IS THE CONSISTENT POLICY OF THE ASSE SSEE GROUP TO RETURN SUCH AN ABYSMALLY LOW G.P. RATE, SO AS TO PAY MINIMUM TAXE S. IT ALSO NEEDS TO BE ADDED HERE THAT EVEN THE G.P. RATE OF 10.64% RETURN ED BY M/S. SACHDEVA SAREES, WAS FOUND TO BE INADEQUATE BY THE DEPARTMEN T, ARE DURING THE COURSE OF SEARCH/SURVEY ACTION, RS.1,04,00,000/- HA D BEEN SURRENDERED FOR THE YEAR UNDER CONSIDERATION BY THE SAID FIRM, AF TER ADDING WHICH, THE G.P. WORKS OUT TO 20.7%. ALSO, THE TURNOVER OF M/S. SACH DEVA SAREE EMPORIUM IS MUCH HIGHER THAN THE ASSESSEE FIRMS, SO THAT AS PER THE ASSESSEE;S OWN ARGUMENT, ITS G.P. SHOULD BE HIGHER THAN M/S. SACHD EVAS, BECAUSE HIGHER DISCOUNTS HAVE TO BE GIVEN TO ACHIEVE HIGHER SALES. IN FACT, ALL THE INSTANCES OF DIFFERENT FIRMS IN PHAGWARA & JALANDHAR, QUOTED ABOVE, ARE ONLY INDICATIVE OF THE G.P. RATE BEING RETURNED BY THESE FIRMS, SUO MOTTO. IT DOES NOT IN ANY WAY IMPLY THAT THE SAID G.P. RATES HAVE BEEN ACCEPTED BY THE DEPARTMENT AS CORRECT, OR THAT THEY SET A BENCH MAR K. THE ACTUAL G.P. MARGIN OF TEHSE FIRMS MAY BE MUCH HIGHER WHICH HAS TO BE EXAMINED, AS PER THE FACTS OF EACH PARTICULAR CASE. AS FAR AS THE PA RTICULARS CASE OF THE ASSESSEE FIRM IS CONCERNED, IT IS DOING ROARING BU SINESS, FROM A PRIME LOCATION OF JALANDHAR, AND CATERS TO A LOT OF EXCLU SIVE NRI CUSTOMERS, WHERE PROFIT-MARGINS ARE INFACT THE HIGHEST, SO THAT THE RE IS NO VALID REASON/JUSTIFICATION FOR THE HOPELESSLY LOW GP RATE OF 8.19% BEING RETURNED BY IT. AS FAR AS THE ASSESSEES CONTENTION THAT EACH AND E VERY PURCHASE IS GENUINE ONE AND VERIFIABLE AND OUR CLOS ING STOCK IS ACTUAL STOCK, IS CONCERNED, THIS CLAIM OF THE ASSESSEE WAS MINUTELY EXAMINED DURING THE COURSE OF SCRUTINY DISCUSSED IN DETAIL I N THE SUBSEQUENT PARAS OF THIS ASSESSMENT ORDER. 5. INCORRECT & INCOMPLETE BOOKS OF ACCOUNTS IN ORDER TO EXAMINE THE VERACITY OF THE CLAIM OF TH E ASSESSEE THAT ITS BOOKS OF ACCOUNT WERE CORRECT AND COMPLETE AND THAT EACH AND EVERY PURCHASE WAS GENUINE AND VERIFIABLE, THE BOOK S OF ACCOUNT OF THE ASSESSEE FIRM WERE DEEPLY EXAMINED AND SEVERAL DEFECTS AND 8 DISCREPANCIES WERE FOUND THEREIN, WHICH ARE NOW DIS CUSSED IN DETAILED HEREUNDER: (A) BOGUS CREDITORS/PURCHASES: AS PER BALANCE SHEET ANNEXED WITH THE RETURN OF INC OME, SUNDRY CREDITORS OF AS MUCH AS RS.2,22,40,390/- HAV E BEEN SHOWN AS OUTSTANDING BY THE ASSESSEE FIRM, AGAINST PURCHASES OF RS.3,85,42,972/-, WHICH IS 57.7% OF THE TOTAL PURCH ASES. AS PER LIST ATTACHED, THERE ARE AROUND 57 CREDITORS. VIDE QUESTIONNAIRE ISSUED ON 29.09.2010, THE ASSESSEE WAS ASKED TO FUR NISH CONFIRMATIONS OF CREDITORS ABOVE RS.50,000/- WITH T HEIR COMPLETE ADDRESS & PANS. IN THE SUBSEQUENT BEARINGS , THE CONFIRMATIONS CALLED FOR WERE NOT FURNISHED. LETTER S U/S 133(6) CALLING FOR THE SAID CONFIRMATIONS, WERE THEREFORE ISSUED BY THIS OFFICE, ON THE ADDRESSES GIVEN BY THE ASSESSEE FIRM . MANY OF THE LETTERS WERE RECEIVED BACK UNSERVED, WHICH ARE A PA RT OF THE ASSESSMENT RECORD (VO.II). A SPECIFIC SHOW CAUSE WAS ISSUED TO THE ASSESSEE ON 07.09.2011, WHICH WAS DULY SERVED ON THE ASSESSEE ON 09.09.2011 AND 18.10.2011. THEREAFTER, IN THE COURSE OF SUBSEQUENT HEARINGS, CONFIRMATIONS OF SOM E PARTIES WERE FILED BY THE ASSESSEES AR IN A PIECE-MEAL MAN NER. REPEATED OPPORTUNITIES WERE GIVEN IN THIS REGARD, W HICH ARE DULY RECORDED VIDE ORDER-SHEET NOTINGS DATED 01.11. 2011, 08.11.2011, 15.11.2011, 18.11.2011, 25.11.2011 AND 02.12.2011. FINALLY, A SHOW CAUSE WAS ISSUED TO THE ASSESSEE ON 05.12.2011, WHICH IS REPRODUCED HEREWITH: 1. PLEASE REFER TO THE HEARING HELD IN YOUR CASE ON 02.12.2011, WHICH WAS ATTENDED BY YOUR PARTNER, SH. SUBASH GULATI, VIDE ORDER SHEET NOTING OF THE SAID DATE, D ULY SIGNED AND NOTED BY YOUR PARTNER, YOU HAVE BEEN GIVEN THE LAST OPPORTUNITY ON 13.12.2011,11.00 AM TO FILE THE FOLLOWING INFORMATION/EXPLANATION/DETAILS: (I) IT IS SEEN THAT CONFIRMATIONS OF 9 CREDITORS ARE ST ILL NOT FURNISHED, INSPITE OF REPEATED & SUFFICIENT OPPORTUNITIES. SL.NO. NAME AMOUNT (IN RS.) 1. M/S. HAJI MOHAMMAD & CO. VARANASI 2,70,000 9 2. M/S. KAMAL HOSSAIN, DELHI 3,00,840 3. M/S. NEW FASHION SUITS & SAREES, DELHI 1,35,125 4. M/S. MAHINDE HAND EMBROIDERY, DELHI 9,66,650 5. M/S. MASUD HAND EMBROIDERY, DELHI 16,21,450 6. M/S. MUNNA BHAI EMBROIDERY VARANASSI 2,58,000 7. M/S. MOHAMMAD HAND EMB., DELHI 4,34,300 8. M/S. ABDUL RAHIM EMB. WORKS, DELHI 4,46,600 9. M/S. ASHINA DESIGNERS, DELHI 2,43,250 TO FILE THE SAME LATEST BY 08.12.2011, 11.30AM FALL ING WHICH, THEY SHALL BE TREATED AS BOGUS CREDITORS. (2) THE CONFIRMATION OF M/S. FANCY SAREES, DELHI FILED BY YOU IS A COPY OF YOUR OWN LEDGER ACCOUNT, WHICH IS NOT ACCEPTABLE. A) PROPER CONFIRMATION OF THIS PARTY ON THEIR LETTER HEAD B) COPIES OF ALL BILLS OF THIS PARTY. C) ALL PAYMENTS MADE TO THIS PARTY ARE IN CASH ON REPEATED CONSECUTIVE DATES, THE PAYMENTS BEING MUCH MORE THAN RS.20,000/-. PLEASE EXPLAIN WHY THE PROVISIONS OF S.40A(3) SHOULD NOT BE APPLIED THERETO? (3) AS PER CONFIRMATION OF M/S. PREM CREATIONS, LUCKNOW FILED BY YOU, THE FOLLOWING PAYMENTS HAVE BEEN MADE BY YOU TO THIS PARTY IN CASH: 03.03.2009 40,000/- 17.03.2009 98,500/- 29.03.2009 75,000/- PLEASE EXPLAIN WHY PROVISIONS OF S.40A(3) SHOULD NO T BE APPLIED, AND THESE PAYMENTS DISALLOWED? VIDE HIS SUBMISSION FILED ON 13.12.2011, THE ASSESS EES AR FURNISHED CONFIRMATIONS OF 4 OUT OF 9 PARTIES, SPECIFIED AS PER 10 Q.NO.1(1) OF SHOW CAUSE NOTICE DATED 05.12.2011 REP RODUCED ABOVE, AND CONFIRMATIONS OF THE 2 PARTIES AS PER A.NO.1(2) AND 1(3) OF THE SAID SHOW CAUSE NOTICE. THE CONFIRMATIONS AND COPIE S OF LEDGER ACCOUNT OF THESE 6 PARTIES ARE ENCLOSED WITH THIS A SSESSMENT ORDER AS ANNEXURES A-1 TO A-6. CONFIRMATIONS OF 5 CREDITORS WERE STILL WERE NOT FURNISHED. MOREOVER, THE LETTERS U/S 133(6) ISS UED TO ALL THESE 11 PARTIES ON THE ADDRESSES PROVIDED BY THE ASSESSEE, WERE RECEIVED BACK UN-SERVED. THESE ARE A PART OF THE ASSESSMENT RECOR D (VOL.II). FURTHER, IN RESPECT OF THE 6 CONFIRMATIONS FURNISHED, A NUMB ER OF DISCREPANCIES/DEFECTS WERE NOTED, WHICH WERE DULY C ONFRONTED TO THE ASSESSEE, VIDE ORDER SHEET NOTING OF THE SAID DATE I.E. 13.12.2011, WHICH IS BEING REPRODUCED HEREWITH: 1. IN RESPECT OF 5 CREDITORS, CONFIRMATIONS ARE ST ILL NOT FILED, INSPITE OF SUFFICIENT & REPEATED OPPORTUNITIES. MOREOVER, THE LETTERS U/S 133(60 ISSUED TO THESE PARTIES, ON THE ADDRESSES PROVIDED BY YOU YOURSELF, HAVE BEEN RECEIVED BACK, UN-SERVED, W ITH THE CLEAR REMARK FROM THE POSTAL AUTHORITIES THAT NO SUCH PE RSON/FIRM ON THIS LOCATION. THESE ARE, THEREFORE, CLEARLY BOGUS CREDITORS. 2) IN RESPECT OF THE 4 CONFIRMATIONS FILED TODAY AN D 2 CONFIRMATIONS (OF M/S. FANCY SAREES & M/S. PREM CRE ATIONS) FILED EARLIER, IT IS SEEN THAT - (A) THERE ARE REPEATED CASH PAYMENTS ON CONSECUTIV E DATES, ON WHICH, THE DENOMINATION HAS BEEN KEPT LESS THAN RS.20,000 WITH THE CLEAR INTENTION TO CIRCUMVENT THE PROVISIONS OF SEC.40A(3). (B) SINCE THESE ALL PARTIES ARE OUTSIDE THE AREA, FROM FAR AWAY PLACES LIKE DELHI, VARANASI & LUCKNOW, AS PER YOUR OWN SUBMISSION, THEY WILL OBVIOUSLY NOT VISIT YOU CONSECUTIVELY ON SO MANY DAYS TO COLLECT THEIR PAYMENTS. (C) THE PAYMENTS HAVE OBVIOUSLY BEEN MADE IN LUMPS UM IN CASH ON ONE DATE, AND THE ACCOUNTING ENTRIES HAVE B EEN MADE LATER, SHOWING PAYMENT OF RS.20,000 OR LESS ON EACH DATE. THIS IS ALSO EVIDENCED FROM THE FACT THAT THE CREDITORS HAVE SHO WN THE RECEIPT OF THE ENTIRE PAYMENT IN CASH ON ONE DATE. 11 D) EVEN MORE CONCLUSIVE EVIDENCE IS PROVIDED BY TH E ASSESSEES OWN LEDGER, WHERE THE ENTRIES OF THESE C ASH PAYMENTS HAVE BEEN MADE AFTER 31 ST MARCH. THIS CLEARLY SHOWS THAT THESE ENTRIES HAVE BEEN MADE LATER ON, AS AN AFTER-THOUGHT AND NOT IN THE REGULAR COURSE OF BUSINESS. THE GENUINENESS OF THESE PAYMENTS IS, THEREFORE, ITSELF DOUBTFUL. E) THE SO-CALLED VOUCHERS PRODUCED BY THE ASSESSEE , AS PROOF OF THESE PAYMENTS, ARE SELF GENERATED CASH VO UCHERS, WHICH HAVE VERY OBVIOUSLY BEEN FRESHLY PREPARED ON A SINGLE DA Y BY THE SAME PERSON. F) EVEN THE PURCHASE BILLS IN RESPECT OF THESE PAR TIES, COPIES OF WHICH ARE KEPT ON RECORD, SHOW THAT THESE ARE K EPT ON RECORD, SHOW THAT THESE ARE NOT PROPER BILLS ON PROPER LETTER-HE ADS, BUT COMPUTER GENERATED PRINT OUTS, WHICH ARE OFTEN IN THE SAME F ONT. THE PAYMENTS TO THESE PARTIES, THEREFORE, ARE NOT G ENUINE, BESIDES WHICH, THEY ARE CLEARLY MADE IN CASH, IN CONTRAVENT ION OF THE PROVISIONS OF SECTION 40A(30 & ARE THEREFORE, NOT A LLOWABLE. 3. MOREOVER, SIMILAR PATTERN IS OBSERVED IN RESPECT OF THE 5 CREDITORS IN RESPECT OF WHOM NO CONFIRMATIONS ARE F URNISHED (AS PER PARA (1) ABOVE, THE LEDGER ACCOUNTS OF THESE PARTIE S SHOW THAT REPEATED PAYMENTS ARE MADE IN CASH ON CONSECUTIVE D ATES, AND MOREOVER, THE ENTRIES OF THESE PAYMENTS HAVE BEEN M ADE AFTER 31.03.2009, WHICH CLEARLY SHOWS THAT THIS IS AN AFT ER-THOUGHT. WHEN ASKED TO PRODUCE VOUCHERS IN RESPECT OF THESE PAYME NTS, THE ASSESSEE EXPRESSES HIS INABILITY TO DO SO. THIS CLEARLY PROV ES THAT THE VOUCHERS ARE YET TO BE PREPARED IN RESPECT OF THESE PARTIES, AND SIMILARLY THAT VOUCHERS IN RESPECT OF THE PARTIES AT SR. NO.(2) AB OVE HAVE BEEN PREPARED RECENTLY, AND ARE NOT GENUINE. THE CONFIRMATIONS OF THE REMAINING 5 CREDITORS WER E NOT FURNISHED, EVEN IN THE COURSE OF NEXT HEARING ON 16 .12.2011 AND THE ASSESSEE WAS AGAIN ASKED TO SHOW CAUSE WHY THESE PA RTIES SHOULD NOT E TREATED AS BOGUS. VIDE HIS SUBMISSIONS FILED ON 20. 12.2011, THE ASSESSEES AR FURNISHED CONFIRMATIONS OF THESE 5 PA RTIES. THE SAID CONFIRMATIONS ALONGWITH LEDGER ACCOUNT OF THE SAID PARTIES IN THE BOOKS OF THE ASSESSEE, ARE ENCLOSED WITH THIS ORDER AS ANNEXURE A-7 TO A-11. IT WAS SEEN THAT THE CONFIRMATIONS FURNISHED DID NOT EVEN 12 CONTAIN THE PAN DETAILS OF THE PARTIES AND THEY WER E ALL SIGNED ILLEGIBLE HANDWRITING. THIS IS CLEARLY NOTED VIDE ORDER SHEET NOTING OF THE SAID DATE I.E. 20.12.2011, WHICH IS REPRODUCED HEREUNDER: FROM THE CONFIRMATIONS OF 5 PARTIES FURNISHED, IT IS SEEN THAT PAN IS NOT MENTIONED ON ANY OF THE SAID CONFIRMATI ONS. THEY ARE ALL SIGNED IN ILLEGIBLE HANDWRITING. THEIR AUT HENTICITY IS, THEREFORE UNVERIFIABLE. FROM THE CONFIRMATIONS FURNISHED AND THE LEDGER AC COUNTS OF THE SAID PARTIES ENCLOSED WITH THIS ORDER, IT CAN B E CLEARLY SEEN THAT IN RESPECT OF THESE 5 PARTIES ALSO, THE SAME PATTERN O F REPEATED CASH PAYMENTS ON CONSECUTIVE DATES, IS NONE OF THE CASES , THE PAN OR ASSESSMENT DETAILS OF THE SAID PARTIES IS MENTIONED . IN NONE OF THE CASES, ANY CONTACT-NUMBER OF THESE PARTIES IS GIVEN . IN FACT, NEITHER THE CONFIRMATIONS, NOR THE PURCHASE BILLS CONTAIN THE SALES TAX NUMBER OF THESE SO CALLED SUPPLIES. MOREOVER, AS POINTED OUT IN THE CASE OF THE OTHER 6 PARTIES, HERE ALSO, THE PARTIES IN THEIR CO NFIRMATIONS HAVE SHOWN CASH RECEIPTS ABOVE RS.20,000/- ON A SINGLE D ATE, WHEREAS THE ASSESSEE HAS SHOWN THESE PAYMENTS AS BROKEN PAYMENT S ON A NUMBER OF CONSECUTIVE DATES. MOREOVER, AS IN THE CASE OF OTHER 6 PARTIES HERE ALSO, CONCLUSIVE EVIDENCE IS PROVIDED BY THE ASSESS EES OWN LEDGER, WHERE THE ENTRIES OF THESE CASH PAYMENTS HAVE BEEN MADE AFTER THE ENTRY OF CHEQUE PAYMENT MADE ON 31.03.2009. MOREOVE R, IN RESPECT OF ALL THE 11 PARTIES THE LETTERS U/S 133(6) ISSUED BY THIS OFFICE ON THE ADDRESSES PROVIDED BY THE ASSESSEE ITSELF, HAVE BEE N RECEIVED BACK UN- SERVED WITH THE CLEAR REMARK FROM THE ASSESSEE ITS ELF, HAVE BEEN RECEIVED BACK UNSERVED, WITH THE CLEAR REMARK FROM THE POSTAL AUTHORITY THAT NO SUCH PERSON/FIRM ON THIS LOCATI ON. THESE ARE, THEREFORE, CLEARLY BOGUS CREDITORS, WHICH HAVE BEEN INTRODUCED BY THE ASSESSEE FIRM TO INFLATE ITS PURCHASES AND THEREFOR E, REDUCE THE GROSS PROFIT RETURNED AND TAXES PAID. (B) CASH PURCHASES MADE IN CONTRAVENTION OF PROVISIONS OF SECTION 40A(3). AS ALREADY DISCUSSED IN PARA 5(A) ABOVE, IT WAS SE EN THAT PAYMENTS TO ALL THE 11 CREDITORS AS PER ANNEX A-1 T O A-11 ENCLOSED WITH THIS ORDER, HAD BEEN MADE IN CASH INSTALMENTS FOR RS.20,000/- EACH OR LOWER CONTINUOUSLY. THIS WAS DULY CONFRONT ED TO THE ASSESSEE, VIDE ORDER SHEET NOTING DATED 13.12.2011, WHICH H AS ALREADY BEEN 13 REPRODUCED IN PARA 5(A) ABOVE. THE REPLY DATED 16. 12.2011 FURNISHED BY THE ASSESSEE, IN RESPONSE TO THIS, IS REPRODUCED HEREWITH: 2. IN RESPECT OF CASH PAYMENT TO VARIOUS PARTIES WE HAVE ALREADY EXPLAINED THE FACTUAL POSITION OF ALL PAYM ENTS IN OUR LETTER DATED 13.12.2011. WE ONCE AGAIN REPEAT THAT ON THE TOUR THESE PARTIES HAVE VISITED US. WE MADE PAYMENT TO THESE PARTIES @ RS.20000/- IN SINGLE DAY. WHEREAS YOUR CLAIM OF LUMP SUM PAYMENT TO THESE PARTIES, WE HUMBLY DENIED THE SAM E. AS THIS IS ONLY YOU SUSPICION & ON THE CONTRARY WE ARE PROVID ING TO YOUR GOODSELF THE DOCUMENTARY EVIDENCE OF ALL THESE PA YMENT & WHICH CAN EASILY VERIFIABLE BY YOUR GOODSELF FROM THE PARTIES AS WELL AS FROM THE DOCUMENTS. WE HAVE ALREADY PROVID ED YOU THE ADDRESSES & CONTACT NUMBER OF ALL THESE PARTIES. 3. WE AGAIN SUBMIT THAT WE ARE MAINTAINING OUR ACC OUNTS ON REGULAR BASIS & THERE IS NO AFTER-THOUGHT & THIS I S MERE YOUR SUSPICION. 4. WE DIDNT PREPARE ANY VOUCHER FRESHLY & EACH & EVERY VOUCHER PREPARED ON THE DAY OF PAYMENT & DULY SIGN ED BY THE RECIPIENT. THE ASSESSEES AUTHORIZED REPRESENTATIVE HAS THERE FORE TRIED TO EXPLAIN THE MATER BY STATING THAT THE PAYMENTS ARE GENUINE, AND THAT CASH PAYMENTS TO THE PARTIES ARE BELOW RS.20,000 AN D THEREFORE, NOT COVERED UNDER THE PROVISIONS OF SECTION 40A(3) OF T HE ACT. IT IS HIS CONTENTION THAT THE CASH PAYMENTS HAVE BEEN MADE BE CAUSE THE SAID PERSONS HAVE VISITED THE ASSESSEE PERIODICALLY ON T OUR AND PAYMENTS HAVE BEEN MADE ACCORDINGLY. HOWEVER, THE FACTS ON RECORD POINT TO SOMETHING EL SE. FIRSTLY, ALL OF THESE PARTIES TO WHOM THE CASH PAYMENTS HAVE BEEN MADE ARE AT FAR AWAY PLACES LIKE VARANASI, LUCKNOW AND DELI SO THAT THE ASSESSEES CONTENTION THAT THE PART PAYMENTS HAVE B EEN MADE BECAUSE OF THE PERIODICALLY VISIT OF THE AUTHORIZED PERSON FROM THESE PARTIES, IS NOT AT ALL BELIEVABLE. SECONDLY, AS CAN BE SEEN FRO M THE LEDGER ACCOUNTS OF THESE PARTIES, ENCLOSED AS ANNEXURE A-1 TO A-11 OF THIS ORDER, THE PAYMENTS HAVE BEEN MADE TO THESE PARTIES NOT ON PERIODICAL INTERVALS BUT ON REGULAR CONSECUTIVE DATES. SOME E XAMPLES OF THE SAME ARE GIVEN BELOW: 14 M/S. FANCY SAREE, NEW DELHI (ANNEXURE A-1) (RS) 12.02.2009 19,500 13.02.2009 19,500 15.02.2009 20,000 16.02.2009 20,000 17.02.2009 19,500 18.02.2009 19,500 17.03.2009 19,500 18.03.2009 20,000 20.03.2009 20,000 21.03.2009 20,000 22.03.2009 20,000 23.03.2009 20,000 06.09.2009 20,000 07.09.2008 20,000 08.09.2008 20,000 10.09.2008 20,000 11.09.2008 20,000 18.09.2008 20,000 19.09.2008 20,000 20.09.2008 15,000 22.09.2008 18,000 01.10.2008 20,000 02.10.2008 20,000 03.10.2008 20,000 04.10.2008 20,000 05.10.2008 20,000 M/S PREM CREATAIONS LUCKNOW (ANNEXURE A-2) 10.03.2009 18,500 12.03.2009 20,000 13.03.2009 20,000 14.03.2009 20,000 15.03.2009 20,000 24.03.2009 16,000 25.03.2009 19,500 26.03.2009 19,500 27.03.2009 20,000 15 M/S. KAMAL HUSSAN KHAN, DELHI (ANNEXURE A-7) 10.03.2009 19,000 11.03.2009 20,000 12.03.2009 19,500 14.03.2009 20,000 23.03.2009 20,000 24.03.2009 20,000 25.03.2009 20,000 26.03.2009 20,000 27.03.2009 15,000 28.03.2009 16,000 AS SEEN ABOVE, THE CASH PAYMENTS HAVE BEEN MADE TO THESE PARTIES NOT ON PERIODICAL INTERVALS, AS CLAIMED BY THE ASSESSEE, BUT REGULARLY ON CONSECUTIVE DATES. IN ALL THE CASE S, THERE IS A SINGLE BILL OF PURCHASE FOR WHICH THE BROKE PAYMENT S HAVE BEEN MADE ON CONSECUTIVE DATES, SO THAT THERE IS NO APPA RENT OR REASONABLE CAUSE FOR MAKING THE BROKEN PAYMENTS. FU RTHER, IN THE CASH BOOK OF THE ASSESSEE, IT IS SEEN THAT THE CASH BALANCE REMAINS VERY HIGH. THE PAYMENTS TO THESE PARTIES WE RE NOT DISPUTED AND NOWHERE HAS A DEBIT NOTE BEEN RAISED A GAINST THEM. WHEN THE ASSESSEE HAD HUGE CASH BALANCE ON AL L THESE DATES WHEN THE PAYMENTS HAVE BEEN MADE, WHEN THE P AYEE HAD BANK ACCOUNT WHEN THE WHOLE PAYMENT WAS DUE AND THE RE WAS NO DISPUTE, IT IS NOT UNDERSTANDABLE OR EXPLAINABLE AS TO WHY CASH PAYMENTS HAVE BEEN MADE/RECEIVED ON DAILY BASI S. THE EXAMPLES GIVEN ABOVE ARE ONLY ILLUSTRATIVE. T HE TOTAL AMOUNT OF SAID CASH PAYMENTS OF RS.20,000 OR LESS M ADE REPEATEDLY OVER A NUMBER OF DAYS TO THE SAME PARTIE S IS RS.2570,415/- ( AS PER ANNEXURE C OF THIS ORDER). I NSPITE OF BEING GIVEN ADEQUATE OPPORTUNITY TO DO SO, THE ASSE SSEES AUTHORIZED REPRESENTATIVE HAS NOT BEEN ABLE TO GIVE ANY REASONABLE EXPLANATION IN THIS REGARD. IT IS VERY M UCH EVIDENT FROM THE FACTS AND CIRCUMSTANCES OF THE CASE THAT T HE BROKEN PAYMENS MADE CONSECUTIVELY OVER A NUMBER OF DAYS IS NOTHING BUT AN ARRANGEMENT BETWEEN THE ASSESSEE AND SUCH P ARTIES TO GIVE AND RECEIVE CASH PAYMENTS IN SUCH A MANNER AS TO CIRCUMVENT THE PROVISION OF SECTION 40A(3). MOREOVE R, THE PARTIES HAVE SHOWN THE RECEIPT OF THESE PAYMENTS ON A SINGLE 16 DATE. THE EXPLANATION GIVEN BY THE ASSESSEE THAT T HESE PAYMENTS WERE GIVEN TO THE PERSONS OF THESE PARTIE S ON TOUR, FURTHER PROVES THAT THE PAYMENTS WERE MADE ON A SI NGLE DATE, SINCE IT IS NOT UNDERSTANDABLE AS TO WHY THE SAME P ERSON WOULD VISIT THE ASSESSEE EACH DAY, ON SO MANY CONSECUTIVE DATES. IT IS ALSO BEEN THE CONTENTION OF THE ASSESSEE TIME & AGAIN THAT FURTHER VERIFICATION MAY BE MADE FROM THE PAR TIES DIRECTLY. IT IS ONCE AGAIN STATED AT THE COST OF REPETITION T HAT EFFORTS WERE MADE BY THIS OFFICE TO MAKE THE SAID VERIFICATIONS FROM THESE PARTIES DIRECTLY, BY ISSUING LETTERS TO THEM U/S 13 3(6), AT THE ADDRESSES GIVEN BY THE ASSESSEE ITSELF. BUT THEY HA VE ALL BEEN RECEIVED BACK, UNSERVED WITH THE CLEAR REMARK NO S UCH PERSON/FIRM AT THE GIVEN LOCATION. THIS CONTENTION THEREFORE, DOES NOTHING TO HELP THE CASE OF THE ASSESSEE AND I N FACT, GOES TO PROVE THAT THESE ARE ALL FICTITIOUS/BOGUS ENTITIES. AND CONTRARY TO THE CLAIM OF THE ASSESSEE, THERE ARE NO CONTACT NUM BER OF ANY OF THE CONFIRMATIONS/BILLS. THUS, NO UNAVOIDABLE OR EXCEPTIONAL CIRCUMSTANCES HAVE BEEN POINTED OUT BY THE ASSESSEE FIRM, WHICH COULD JUSTIFY THE MAKING OF SUCH PAYMENTS IN CASH.. IN CIT VS. HIMACHAL TEREPENE PRODUCTS (P) LTD. (2004) 269 ITR 538 (CAL.), IT WAS HELD THAT IN THE ABSENCE OF ANY EVIDENCE TO SHOW THAT THERE WERE EXCEPTIONA L OR UNAVOIDABLE CIRCUMSTANCES JUSTIFYING PAYMENTS IN CA SH, DISALLOWANCE U/S 40A(3) WAS JUSTIFIED : TRIBUNAL NO T JUSTIFIED IN ALLOWING DEDUCTION ON THE GROUND THAT THE EXPENDITU RE IN QUESTION WAS NOT EXCESSIVE OR UNJUSTIFIED; REQUEST TO REMAND THE CASE TO THE TRIBUNAL IS DECLINED IN THE FACTS A ND CIRCUMSTANCES OF THE CASE. IN C.V.GEORGE & SONS VS. ASSTT. CIT (2006) 286 ITR 389 (KAR), IT WAS HELD THAT ASSESSEE HAVING NOT FUR NISHED ANY MATERIAL TO SATISFY THE ITO ABOUT THE EXISTENCE OF THE CIRCUMSTANCES WHICH NECESSITATED IMPUGNED PAYMENTS OTHERWISE THAN BY CHEQUES IT CANNOT CLAIM BENEFIT OF R. 6DD(J) NOTWITHSTANDING GENUINENESS OF PAYMENT AND PROVE I DENTITY OF PAYEE AND, THEREFORE, DISALLOWANCE U/S 40A(3) WAS J USTIFIED. 17 IN SILK FAB EXPORTS VS. CIT (2007) 211 CTR (KER) 495, IT WAS HELD THAT VERY NATURE OF TRANSACTIONS BEING IMPROBABLE AND FACTS ON RECORD SHOWING THAT PAYEES HAD NO DIFF ICULTY IN ARRANGING TRANSACTIONS THROUGH BANK, BENEFIT OF R. 6DD(J) WAS NOT AVAILABLE TO ASSESSEE AND DISALLOWANCE U/S 40A( 3) WAS RIGHTLY MADE. MOREOVER, AS A CONSEQUENCE OF AMENDMENT OF SECTION 40A(3) BY THE FINANCE ACT, 1995, THIS RESIDUARY CL. (J) OF THE RULE 6DD STANDS OMITTED AND NOW CLS (J), (K) AND (I) HAV E BEEN INSERTED. THE NON DISALLOWANCE DUE TO UNAVOIDABLE O R EXCEPTIONAL CIRCUMSTANCES NOW STANDS WITHDRAWN AND THE ENTIRE PAYMENT WOULD BE DISALLOWED STRAIGHTWAY IF THE PAYM ENT IS NOT COVERED BY SPECIFIC CLAUSES OF RULE 6DD. ACCORDING TO THE KERALA HIGH COURT IN CIT VS. A.M.ZAINALABDEEN MUSALIAR (1999) 240 ITR 499 ( KER) , IT IS THE DUTY OF THE TRIBUNAL TO RECORD A CLEAR FINDING AS T O UNDER WHICH CLAUSE OF R.6DD THE PAYMENT IN QUESTION FALLS. IN THE TOTALITY OF THE CIRCUMSTANCES, THEREFORE, S INCE THERE IS NO APPARENT OR REASONABLE CLAUSE FOR MAKING THE BROKEN PAYMENTS IN CASH, THE PAYMENTS WERE NOT DISPUTED AN D THE ASSESSEE HAD HUGE CASH BALANCE WITH HIM, IT IS OBVI OUS THAT THESE PAYMENTS WERE MADE IN CONTRAVENTION OF THE PR OVISIONS OF SECTION 40A(3). THEREFORE, THESE PAYMENTS TOTALING TO RS.25,70,415/- ARE DISALLOWABLE U/S 40A(3). EVEN OT HERWISE, THE VERY GENUINENESS OF THESE PAYMENTS IS QUESTIONABLE, AS IS EVIDENT FROM THE LEDGER ACCOUNTS OF THESE PARTIES IN THE BOOKS OF ACCOUNT OF THE ASSESSEE FIRM, WHERE ENTRIES OF T HESE PAYMENTS HAVE BEEN CLEARLY MADE, AFTER 31.03.2009. FOR EXAMP LE, IF WE SEE THE LEDGER A/C OF M/S. FANCY SAREE (ANNEXURE A- 1), THE PURCHASE BILLS ARE ENTERED FROM 08.08.2008 TO 16.01 .2009. THEREAFTER, THERE IS A CHEQUE PAYMENT SHOWN ON 31.0 3.2009. AFTER THIS, ENTRIES OF REPEATED CASH PAYMENTS FROM 12.02.009 TO 23.03.2009 ARE MADE. AND EVEN AFTER THIS, ON THE NE XT PAGE, ENTRIES OF CASH PAYMENTS FROM 06.09.2009 TO 31.10.2 008 ARE MADE. THE VERY LEDGER A/C OF THE ASSESSEE AND THE S EQUENCE OF ENTRIES THEREIN, PROVES THAT THESE ENTRIES HAVE NOT BEEN MADE IN THE REGULAR COURSE OF BUSINESS, AND THAT THESE ARE NOT GENUINE PAYMENTS. THE SAME PATTERN CAN BE SEEN IN ALL THE 1 1 LEDGER 18 ACCOUNTS, WHICH PROVES THAT THESE CASH PAYMENTS ARE NOT GENUINE, APART FROM THE FACT THAT THEY ARE EVEN OT HERWISE, NOT ALLOWABLE U/S 40A(3). C. BANK ENQUIRIES PROVE EVEN CHEQUE PAYMENTS NOT GENUINE: AS DISCUSSED IN PARAS 5(A) AND 5(B), MOST OF THE PAYMENTS MADE TO THE 11 PARTIES, WHOSE ACCOUNTS AND CONFIRMATIONS ARE ENCLOSED WITH THIS ORDER AS ANNEX UARE A-1 TO A-11, HAVE BEEN MADE IN CASH, WHICH ARE NOT ALLOWAB LE AS PER PROVISIONS OF SECTION 40A(3) OF THE ACT. IT WAS FUR THER SEEN THAT TO NONE OF THESE PARTIES, CHEQUE PAYMENTS HAVE BEEN SHOWN TO HAVE BEEN MADE ON 31.03.2009 FROM THE BANK ACCOUNT OF THE ASSESSEE IN BANK OF INDIA, PHAGWARA. INFORMATION U/ S 133(6) WAS CALLED FOR, FROM THE SAID BANK, WHICH IS A PART OF THE ASSESSMENT RECORDS (VOL.4). AS PER THE LETTER NO.PH W/KLS/174 DATED 20.12.2011, RECEIVED FROM THE CHIEF MANAGER O F THE SAID BANK, IT IS REVEALED THAT ALL THESE CHEQUES HAVE BE EN DEPOSITED IN THE BANK ACCOUNTS OF THE SAID PARTIES AT THE SAME B ANK I.E. BANK OF INDIA, PHAGWARA, AND HAVE BEEN ENCASHED THEREFRO M. MOREOVER, EVEN THE ACCOUNT NUMBERS OF THE SAID PART IES ARE IN CONSECUTIVE SERIAL NUMBERS, WHICH SHOWS THAT ACCOUN TS HAVE BEEN OPENED ON THE SAME DATE. THIS, ALONGWITH THE F ACT THAT THE LETTERS U/S 133(6) ISSUED TO THESE PARTIES AT ADDRE SSES PROVIDED BY THE ASSESSEE WERE RECEIVED BACK UNSERVED, CLEARL Y FALSIFIES THE CONTENTION OF THE ASSESSEE THAT THESE ARE GENUI NE PARTIES EXISTING AT PLACES LIKE, DELHI, LUCKNOW AND VARANS I. THIS WAS DULY CONFRONTED TO THE ASSESSEES AR VIDE ORDER SHE ET NOTING DATED 20.12.2011, WHICH IS REPRODUCED HEREWITH: PAYMENTS TO ALL THESE PARTIES ARE MOSTLY MADE IN CASH. AND EVEN WHERE PAYMENTS HAVE BEEN MADE BY CHE QUE INFORMATION HAS BEEN RECEIVED FROM THE BANK, AS PER WHICH ALL THESE FIRMS SUPPOSEDLY IN LUCKNOW, VARANASI AND DE LHI ARE HAVING THEIR ACCOUNTS IN PHAGWARA, IN THE SAME BRAN CH AS THE ASSESSEES AND ALL THE CHEQUES ISSUED BY THE ASSES SEE HAVE BEEN ENCASHED AT PHAWARA. THIS FURTHER PROVES THAT THESE ARE BOGUS ENTRIES. WHEN CONFRONTED THE ASSESSEES ARS HAVE NOTHING TO SYA IN THE MATTER. 19 AS IS APPARENT FROM THE ORDER-SHEET NOTING REPRODU CED ABOVE, WHEN CONFRONTED WITH THESE FACTS, THE ASSESS EES AR HAD NOTHING TO SAY IN THE MATTER. IT IS, THEREFORE, PRO VED BEYOND DOUBT THAT ALL THESE 11 PARTIES ARE BOGUS, AND PUR CHASES MADE FROM THESE PARTIES CLAIMED BY THE ASSESSEE AND DEBI TED TO THE P & L ACCOUNT, ARE ALSO BOGUS. FURTHER, THE BANK WAS REQUESTED TO FURNISH THE ACC OUNT OPENING FORMS AND BANK ACCOUNT STATEMENTS OF THESE PARTIES AND ALSO TO SPECIFY WHERE THE CHEQUES ISSUED TO THESE P ARTIES HAD BEEN ENCASHED. ON THE LETTER U/S 133(6) DATED 20.12 .2011 ITSELF, THE BANK HAS CLEARLY STATED THAT ALL THESE CHEQUES HAVE BEEN ENCASHED AT OUR PHAGWARA BRANCH. FURTHER, THE ACCOU NT OPENING FORMS AND BANK ACCOUNT STATEMENTS OF THESE PARTIES, PROVIDED BY THE BANK VIDE ITS LETTER NO. PHW/KLD/ DATED 21.12.2 011, SHOW THAT ALL THE ACCOUNTS HAVE BEEN OPENED ON 30.03.200 9; ALL GIVE THE RESIDENTIAL/PERMANENT ADDRESS OF THE PARTY AS V PO BISHANPUR, DISTT. SOUTH, 24 PARGANA, BANGALORE; MAN Y OF THE BANK ACCOUNT STATEMENTS INFACT GIVE THE ADDRESSES O F THESE PARTIES AS PHAGWARA; AND ALL THE PARTIES HAVE BEEN INTRODUCED BY THE ASSESSEE ITSELF. ALL THE VERIFICATIONS HAVE BEEN SIGNED BY SH. SUBHASH CHANDER, MAIN PARTNER OF THE ASSESSEE F IRM. IN ALL CASES, THE AMOUNT DEPOSITED BY CHEQUE ON 31.03.2009 HAS BEEN WITHDRAWN IN CASH THE VERY NEXT DAY AND IN MANY CAS ES, THE ACCOUNT HAS BEEN SUBSEQUENTLY CLOSED. IN FACT, THE BANK STATEMENTS SHOW THAT THERE ARE NO CHEQUES DEPOSITED , BUT THESE ARE MERELY TRANSFER ENTRIES FROM THE ASSESSEES AC COUNT TO THESE ACCOUNTS. ON THE VERY NEXT DAY, THE CASH HAS BEEN W ITHDRAWN AND RETURNED TO THE ASSESSEE. AT NO PLACE IN ANY O F THE ACCOUNT STATEMENTS OF THE ACCOUNT OPENING FORMS, ANY ADDRES S OF ANY PARTY AT DELHI, LUCKNOW OR VARANASI, IS MENTIONED. IN FACT, THE ADDRESS OF 24 PARGANA, BANGALORE, GIVEN ON THE ACC OUNT- OPENING FORM, IS ITSELF A FICTITIOUS ADDRESS, BECAU SE THERE IS NO SUCH PLACE AS 24 PARGANA IN BANGALORE. ALSO, AS ALR EADY DISCUSSED ABOVE, ALL THE LETTERS U/S 133(6) ISSUED TO THESE PARTIES AT THE DELHI, VARANASI OR LUCKNOW ADDRESSES GIVEN BY THE ASSESSEE HAVE BEEN RECEIVED BACK, UNDELIVERED, WITH THE CLEAR REMARK FROM POSTAL AUTHORITIES NO SUCH PERSO N/FIRM AT THIS LOCATION. THERE IS, THEREFORE, CONCLUSIVE EVID ENCE THAT NO SUCH PARTIES EXIST AT THE GIVEN ADDRESSES AND NO PU RCHASES HAVE INFACT BEEN MADE FROM THESE PARTIES. THE ARE INFACT BOGUS 20 ENTITIES CREATED BY THE ASSESSEE ITSELF, TO INTRODU CE BOGUS PURCHASES AND THEREBY, REDUCE ITS G.P., SO AS TO PA Y MINIMUM TAXES. AS NOTED ABOVE, WHEN CONFRONTED WITH THESE FACTS, V IDE ORDER SHEET NOTING DATED 20.12.2011, THE ASSESSEE & HIS A R HAD NOTHING TO SAY IN THE MATTER. HOWEVER, LATER ON, TH EY HAVE FILED A WRITTEN SUBMISSION DATED 22.12.2011, WHICH ALTHOU GH FILED AFTER THE CONCLUSION OF ASSESSMENT PROCEEDINGS, IS BEING CONSIDERED, IN THE INTERESTS OF NATURAL JUSTICE. IN THIS SUBMISSION, THE ASSESSEE HAS STATED AS UNDER: 2. .ALL THE NINE ACCOUNTS OF OUR SUPPLIERS ARE GENUINE AND NO BANKER CAN OPEN ANY BOGUS ACCOUNT IN A BANK WITHOUT GETTING ANY IDENTIFICATION FROM THE PARTY. BANKS HAVE CERTAIN NORMS TO OPEN A NEW ACCOUNT AND EVERY BANKE R HAS TO FOLLOW THE NORMS. NO BANKER CAN IGNORE THE NORMS. EACH AND EVERY FIRM HAS TO PROVIDE THE PHOTOGRAPHS, ONE IDEN TIFICATIONS OR OTHER DOCUMENTS AS PER BANK REQUIREMENTS. NO D OUBT ALL THE MENTIONED SUPPLIERS ACCOUNTS HAVE BEEN OPENED IN B ANK OF INDIA, THE SAME BANK WHICH IS OUR BANKS. ALL THE PA RTIES HAVE BUSINESS RELATIONS IN PHAGWARA WITH OUR FIRM ONLY. TO OPEN A NEW BANK ACCOUNT ONE PERSON WHICH HAS AN ACCOUNT IN A BANK HAS TO GIVE INTRODUCTION OF THE A CCOUNT AND I HAVE THE BANK ACCOUNT IN BANK OF INDIA, FROM WHERE A NEW PERSON GET ANY INTRODUCTION TO OPEN AN ACCOUNT. THI S IS THE ONLY REASON THAT ALL THE ACCOUNTS ARE OPENED IN BANK OF INDIA, PHAGWARA BRANCH. BECAUSE THESE PARTIES ONLY KNOWN T O US IN CITY PHAGWARA. THE ASSESSEE IS, THEREFORE, TRYING TO EVADE THE IS SUE BY SHIFTING THE ONUS ON THE BANK. HOWEVER, THIS ARGUME NT DOES NOT HELP THE CASE OF THE ASSESSEE IN ANY WAY. THE ASSES SEE HAS ACCEPTED THAT HE INTRODUCED THESE PARTIES IN THE BA NK AND AS FAR AS THE BANKING AUTHORITIES ARE CONCERNED, THE ASSES SEE IS THEIR OLD CUSTOMER, SO THEY HAVE OPENED THE ACCOUNTS ON H IS RECOMMENDATION. THE FICTITIOUS ADDRESSES GIVEN ON T HE ACCOUNT OPENING FORMS, THE ADDRESSES OF THE FIRMS GIVEN AS PHAGWARA ON THE BANK STATEMENTS, THE LETTERS RECEIVED BACK UNSE RVED FROM THE ADDRESSES AT DELHI/VARANASI/LUCKNOW GIVEN BY THE AS SESSEE 21 ALL THESE LEAD TO THE UNMISTAKABLE CONCLUSION THAT THESE ARE ALL FAKE ENTITIES CREATED BY THE ASSESSEE ITSELF FOR IT S OWN PURPOSES. NO SUCH SUPPLIERS INFACT EXIST AND NO PURCHASES HAV E ACTUALLY BEEN MADE BY THE ASSESSEE FROM ANY OF THEM. (D) NO CORELATION BETWEEN PURCHASES AND SALES AND NO STOCK DETAILS: IT WAS FURTHER SEEN WHILE EXAMINING THE BOOKS OF ACCOUNTS, AD THE SALES/PURCHASE BILLS PRODUCED BY T HE ASSESSEE VIS-A-VIS THE LIST OF CLOSING STOCK FURNISHED, THA T THE CONTENTION OF THE ASSESSEE THAT ITS BOOKS OF ACCOUNTS ARE PROP ERLY MAINTAINED AND THAT ALL SALES AND PURCHASES ARE DUL Y RECORDED WAS ABSOLUTELY FALSE. THIS IS CLEARLY RECORDED VIDE ORDER SHEET NOTING DATED 15.11.2011, WHICH IS REPRODUCED HEREWI TH: FOR OPENING/CLOSING STOCK VALUATION, WHEN ASKED T O PRODUCE SPECIFIC PURCHASE & SALE BILLS, THE ASSESSE E IS UNABLE TO DO SO. EVEN ALL PURCHASES AND SALE BILLS ARE NOT PR ODUCED FOR VERIFICATION. THERE IS NO WAY OF ASCERTAIN WHETHER THE MATERIAL PURCHASED IS SOLD OR WHETHER IT IS IN THE CLOSING S TOCK. THE LIST/INVENTORY FURNISHED IS MERELY A RANDOM LIST, W HICH IS NOT VERIFIABLE AND RELIABLE. TO SHOW CAUSE WHY BOOKS O F ACCOUNTS SHOULD NOT BE REJECTED IN VIEW OF THIS. AGAIN, IN THE COURSE OF HEARING ON 16.12.2011, THE SALE AND PURCHASE BILLS OF THE ASSESSEE WERE MINUTELY EXAMIN ED. THE ORDER SHEET NOTING OF THE SAID DATE I.E. 16.12.2011 , WHICH IS SELF- EXPLANATORY, IS REPRODUCED HEREWITH: IT IS CLAIMED THAT ALL SALES & PURCHASES ARE DULY VOUCHED AND SUPPORTED BY PROPER BILLS AND THAT THE G.O.% RE TURNED IS CORRECT & GENUINE. AS A TEST-CHECK, THE ASSESSEE & HIS ARS ARE ASKED TO SHOW THE SALES BILLS IN RESPECT OF THE FOLLOWING PU RCHASES CLAIMED BY IT, AS PER PURCHASE BILLS FURNISHED. DATE BILL NO. NAME OF THE PARTY QTY PARTICULARS RATE AMOUNT 6.8.08 420 FANCY SAREE 35 TROUSER TOP 3550 124250 9.8.08 423 FANCY SAREE 10 SKIRS 5770 57700 22 9.8.08 423 FANCY SAREE 25 PAJAMI TOP 6500 162500 5.9.08 444 FANCY SAREE 15 PAJAMI TOP 7550 113250 5.9.08 444 FANCY SAREE 25 SAREES BLOUSE 6475 161875 15.1.09 12 AASHIANA DESIGNERS 25 BLACK SAREE 1150 28750 15.1.09 12 AASHIANA DESIGNERS 30 SKY BLUE SAREE 1400 42000 15.1.09 12 AASHIANA DESIGNERS 40 RED SAREES 1350 54000 15.1.09 12 -DO 25 ORANGE SAREES 1650 41250 29.1.09 13 -DO- 50 RED SAREES 1350 67500 29.1.09 13 -DO- 40 SKY BLUE SAREE 1400 56000 29.1.09 13 -DO- 80 SUITS 1850 148000 THEY ARE UNABLE TO SHOW ANY OF THE SALE BILLS IN RESPECT OF THESE ITEMS, WHICH SHOWS THE FALSITY & HOLLOWNESS OF THE IR CLAIMS REGARDING CORRECT MAINTENANCE OF SALES & PURCHASE BILLS AND BOOKS OF ACCOUNT. THE BOOKS OF ACCOUNTS OF THE ASSESSEES AR, THER EFORE LIABLE TO BE REJECTED. 3. MOREOVER, REGARDING THE BILLS OF EMBROIDERY CH ARGES ETC. ( OF M/S. MUNA BHAI EMBROIDERY ETC.) WHAT IS THE AUTHENTICITY OF THE RATES BEING GIVEN, AND EVEN THE QUANTITY A S MENTIONED IN THE BILLS? THESE CANNOT BE ESTABLISHED BY THE ASS ESSEES ARS. THEY ARE NOT ABLE TO FURNISH ANY SALES BILLS, WHI CH CAN ESTABLISH THE NEXUS BETWEEN THE CHARGES PAID + MATERIAL AND THE SALE PRICE OF SUCH ITEMS. THIS FURTHER POINTS TO DEFECTS IN THE BOOKS OF A CCOUNT OF THE ASSESSEE, WHICH ARE, THEREFORE, LIABLE TO BE REJECTED. IN THE REPLY FURNISHED ON 20.12.2011, THE ASSESSE E HAS STATED AS UNDER: 2. WE ONCE AGAIN MENTION THAT EACH & EVERY PURCHASE & SALE FROM OUR FIRM IS DULY SUPPORTED BY PROPER BI LLS & VOUCHERS & ACCOUNTED FOR IN OUR FINANCIAL BOOKS. IN ADDITI ON TO THAT, WE 23 HAVE ALREADY MENTIONED THAT WE ARE NOT MAINTAININ G ANY STOCK REGISTER. THE REASON IS THAT IT IS NOT POSSIBLE D UE TO NATURE OF BUSINESS. THERE ARE, NUMEROUS QUALITY, DESIGN, MA NUFACTURE OF OUR ITEMS WHICH CANNOT BE ACCOUNTED FOR IN QUANTI TATIVE TERMS. MADAM, WE ARE VERY MUCH SURE THAT NO OTHER BUSINE SS MAN IS DOING THIS KIND OF PRACTICE. YOU HAD QUOTED MORE THAN 8 PARTIES OF PHAGWARA AND JALANDHAR TO COMPARE OUR GROSS P ROFIT & WE CHALLENGE THAT NOT EVEN A SINGLE PARTY IS MAINTAI NING ANY STOCK REGISTER BECAUSE IT IS NEXT TO IMPOSSIBLE IN THE TRADE LIKE US. IN THE SAME WAY, WITH THE TURNOVER IN CRORES, NO PAR TY CAN DO THIS PRACTICE, I.E. TO CO-RELATE THE PURCHASE & SALES ITEM-WISE & PIECE-WISE. FURTHER, IT IS NOTEWORTHY TO MENTION THAT SURVEY U/S 133A HAD BEEN CONDUCTED IN OUR BUSINESS PREMISES. ON 12 JA NUARY, 2011 & DURING THE COURSE OF SURVEY & TO SETTLE ALL SUC H TYPE OF PREVIOUS AND PRESENT ACCOUNTING DISCREPANCIES & T O BUY THE PEACE OF MIND WE HAVE ALREADY SURRENDER AN AMOUNT OF RS. 1 CRORE 20 LAKHS & THE TAX HAS ALREADY BEEN PAID. FROM THE REPLY REPRODUCED ABOVE, IT IS EVIDENT THAT THE ASSESSEE, INSPITE OF HAVING BEEN GIVEN REPEATED AND INNUMERA BLE OPPORTUNITIES, HAS NOT BEEN ABLE TO FURNISH ANY SATISFACTORY REPL Y OR JUSTIFICATION, IN RESPECT OF THE NUMEROUS DEFECTS AND DISCREPANCIES NOTICED IN ITS BOOKS OF ACCOUNTS. IN THE REPLY REPRODUCED ABOVE, THE AS SESSEE HAS ONCE AGAIN REPEATED ITS CLAIM THAT EACH AND EVERY PURCH ASE AND SALE IS DULY SUPPORTED BY PROPER BILLS, WHICH HAS ALREADY BEEN PROVED TO BE HOLLOW AND COMPLETELY BASELESS. FURTHER, THE ASSESSEE HAS ACCEPTED THAT ITS PURCHASES AND SALES CANNOT BE CO-RELATED, AND HAS TRIED TO BRUSH ASIDE THE MATTER BY STATING THAT IT IS NOT POSSIBLE IN A TRADE LIKE THIS TO MAINTAIN A STOCK REGISTER. HOWEVER, AS WOULD BE EV IDENT FROM THE ORDER SHEET NOTING REPRODUCED ABOVE, THE ASSESSEE WAS ASKED TO SHOW THE SALE BILLS IN RESPECT OF CERTAIN SPECIFIC ITEM S, WHICH HAD BEEN SUPPOSEDLY PURCHASED BY THE ASSESSEE, AS PER THE P URCHASE BILLS PRODUCED. THE ITEMS POINTED OUT IN THE SAID BILLS , LIKE SKIRTS, TROUSERS TOP, BLOUSE ETC. ARE SPECIFIC AND UNUSUAL ITEMS, WHICH THE ASSESSEE CLAIMS TO HAVE PURCHASED AT EXORBITANT RATES LIKE RS.3550/- PER TROUSER TOP, RS.5770/- PER SKIRT AND RS.6475/- PER BLOUSE. IF THESE ITEMS WERE INDEED PURCHASED, IT IS NOT UNDERSTANDABLE AS TO WHY THE ASSESSEE COULD NOT PRODUCE EVEN A SINGLE BILL OF SALES IN R ESPECT OF THE SAME. 24 SIMILARLY, CERTAIN UNUSUAL & ABNORMAL PURCHASES LI KE 25 BLACK SAREES, 30 SKY BLUE SAREES, 40 RED SAREES ETC. ARE CLAIME D TO HAVE BEEN MADE BY THE ASSESSEE ON 15.01.2009. WHEN ASKED AS TO WH Y SO MANY SAREES OF THE SAME COLOUR AND SAME RATE WERE PURCHASED, I T WAS THE REPLY OF THE PARTNER OF THE ASSESSEE FIRM THAT THESE SAREES OF SPECIFIC COLOURS HAD BEEN ORDERED BECAUSE OF THE SPECIFIC ORDER OF A PARTY FOR SUPPLY OF THE SAME. IF THIS WAS THE CASE, IT IS NOT UNDERSTA NDABLE AS TO WHY THE SALE BILL IN RESPECT OF THE SAID SUPPLY CANNOT BE FURNISHED. IT IS, THEREFORE, OBVIOUS THAT THE BOOKS OF ACCOUNT FOR THE ASSESSEE FIRM ARE INCORRECT AND INCOMPLETE AND HAVE NOT BEEN WRITTEN IN THE REGULAR COURSE OF BUSINESS, BUT HAVE BEEN FABRICATED SO AS TO RETURN A LOW GROSS PROFIT AND NET PROFIT AND TO PAY MINIMUM TAX ES. IN FACT, THE PURCHASE BILLS THEMSELVES ARE ANOTHE R GIVE-AWAY. IN ADDITION, TO THE ACT THAT THERE IS OVER-WRITING ON THEM AT MANY PLACES, THE BILLS ARE INTERESTINGLY NUMBERED IN SEQUENTIAL , CHRONOLOGICAL ORDER. FOR EXAMPLE, THE PURCHASE BILL OF AASHIANA DESIGNE RS, DATED 15.01.2009, BEARS THE NUMBER 12, WHILE THE BILL DA TED 29.01.2009, BEARS THE NUMBER 13. HAS THE PARTY NOT MADE ANY SA LES BETWEEN THE DATES 15.01.2009 TO 29.01.2007? SIMILARLY, THERE A RE THREE BILLS OF M/S. PREM CREATIONS, DATED 18.01.2009, 22.01.2009 AND 30.01.2009, WHICH BEAR THE SERIAL NOS. 236, 237 & 238. THE SAM E PATTERN IS SEEN IN ALL THESE 11 CASES. WHAT IS EVEN MORE INTERESTING IS THE FACT THAT THE BILLS OF DIFFERENT PARTIES, WHICH ARE SUPPOSEDLY A T DELHI, VARANASI & LUCKNOW ARE ON IDENTICAL PAPER AND HAVE BEEN PRINT ED IN THE IDENTICAL FONT. AND FURTHER, THE BILLS OF AASHIANA DESIGNERS , DELHI AND MUNNA BHAI EMBROIDERY, VARANASI, ARE IN THE SAME HANDWRI TING. IT IS MORE THAN OBVIOUS THAT THESE ARE INFACT FABRICATED BILL S CREATED BY THE ASSESSEE ITSELF TO INFLATE ITS PURCHASES. AS FOR THE ASSESSEES CONTENTION THAT THESE DISCR EPANCIES HAVE ALREADY BEEN TAKEN CARE OF IN THE DISCLOSURE OF RS .1.20 CRORES MADE BY IT DURING THE SURVEY AT ITS PREMISES IN JANUARY, 2 011, IT IS ESTABLISHED FROM THE RECORD THAT THE SAID DISCLOSURE IS IN NO WAY CONNECTED TO THE DEFECTS & DISCREPANCIES NOTED DURING THE ASSESSMEN T PROCEEDINGS FOR THE YEAR UNDER CONSIDERATION, WHICH HAVE BEEN DISC USSED IN THE PRECEDING PARAS. THE SURRENDER HAS BEEN MADE ON A CCOUNT OF EXCESS CASH, EXCESS STOCK & SUNDRY RECEIVABLES FOR THE A. Y. 2011-12, WHICH HAS NO BEARING ON THE FACTS OF THE CASE FOR THE YE AR UNDER CONSIDERATION. 25 (E) UNVOUCHED EXPENSES IN THE COURSE OF EXAMINATION OF BOOKS OF ACCOUNTS AND BILLS/VOUCHERS FOR EXPENSES, IT WAS FURTHER SEEN TH AT EVEN THE EXPENSES DEBITED TO THE P & L ACCOUNT, WERE NOT SUPPORTED BY PROPER BILLS/VOUCHERS OR OTHER DOCUMENTARY EVIDENCE. THIS IS CLEARLY NOTED VIDE ORDER SHEET NOTING DATED 15.11.2011, WHICH IS REPRODUCED HEREWITH: IT IS STATED THAT EXPENSES/VOUCHERS ARE PRODUCED FO R VERIFICATION. HOWEVER, WHEN THE BOOKS & BILLS /VOU CHERS ARE VERIFIED, IT IS SEEN THAT- A) SALARY RS.10,11,750/- NO REGISTER MAINTAINED. PERSON-WISE DETAILS, AS CA LLED FOR, NOT FURNISHED. NOT EVEN VOUCHERS ARE PRODUCED. THERE I S NO PROOF AT ALL OF THESE EXPENSES CLAIMED. ALL PAYMENTS IN CASH. B) PACKING MATERIAL RS.8,18,406/- ONLY LEDGER ACCOUNT SHOWN. NO REGISTER, NO BILL/V OUCHER, NOT EVEN A SINGLE SUPPORTING EVIDENCE AVAILABLE FOR THE EXPENSES CLAIMED. ALL PAYMENTS IN CASH. C) PERIODICALS & JOURNALS RS.2,07,000/- TWO INVOICES OF AAYUSH PUBLISHING PRODUCED. TO FUR NISH CONFIRMATION FROM THE SAID PARTY AND COMPLETE DETAI LS OF THE MAGAZINES PURCHASED FROM THEM WITH RATE THEREOF. AL SO, PRODUCE THE MAGAZINES/JOURNALS PURCHASED FOR VERIFI CATION. D) TRAVELLING EXPENSES RS.92,694/-, STAFF WELFARE RS.17,989/- SALES PROMOTION RS.27,817/-, CAR REPA IR & MAINTENANCE RS.5,080/- IN RESPECT OF ALL THESE EXPENSES, NO BILLS/VOUCHER S OR OTHER SUPPORTING EVIDENCE IS PRODUCED. ALL PAYMENTS ARE IN CASH. IN SUCH A SCENARIO, HOW CAN THESE EXPENSES BE ACCEPTED AS GENUINE AND YOUR BOOKS OF ACCOUNTS COMPLETE & CO RRECT? THE ORDER-SHEET NOTING REPRODUCED ABOVE, IS SELF SPEAKING AND FURTHER POINTS TO THE KIND OF ACCOUNTS BEING MAINTAINED BY THE ASSESSEE FIRM. IT FURTHER PROVES THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE FIRM ARE COMPLETELY FABR ICATED, AND HAVE BEEN PREPARED IN SUCH A MANNER SO AS TO MINIMI ZE THE PROFIT RETURNED AND THEREBY EVADE THE PAYMENT OF TA XES. 26 6. IN VIEW OF THE ABOVE FACTS, CIRCUMSTANCES, EVIDE NCES AND OBSERVATAIONS, BEING NOT SATISFIED ABOUT THE CORREC TNESS AND COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE FIRM, I REJECT THE SAME AS PER THE PROVISIONS OF SECTION 145(3) OF THE ACT. IN VIEW OF THE SERIOUS AND GLARING DEFECTS IN THE BOOKS OF ACCOUNTS, AS DISCUSSED IN GREAT DETAILS IN PARAS 5(A) TO 5(E) AB OVE, IT IS OBVIOUS THAT THE BOOKS OF ACCOUNT MAINTAINED BY TH E ASSESSEE FIRM ARE INCOMPLETE, INCORRECT AND THOROUGHLY UNREL IABLE, NOT REFLECTING THE TRUE AND CORRECT ASSESSABLE INCOME O F THE ASSESSEE FIRM BY INFLATING THE EXPENSES AND CLAIMING BOGUS P URCHASES. THE TOTAL PURCHASES FROM THE 11 PARTIES, WHICH HAVE BEENPROVED TO BE BOGUS AS PER THE DETAILED DISCUSSION IN PARA 5(A), 5(B), 5(C) AND 5(D) ABOVE, DURING THE YEAR UNDER CONSIDER ATION ARE TO THE TUNE OF RS.1,31,28,580/- (AS PER ANNEXURE-B OF THIS ORDER). THE SAID AMOUNT IS, THEREFORE, BEING ADDED BACK TO THE TOTAL INCOME RETURNED BY THE ASSESSEE FIRM, AS BOGUS PURC HASES, WRONGLY CLAIMED AND DEBITED TO THE TRADING ACCOUNT. AS DISCUSSED IN GREAT DETAILS IN PARA 5(B) ABOVE, THES E PURCHASES INCLUDE THE CASH PURCHASES MADE IN CONTRAVENTION OF THE PROVISIONS OF SEC.40A(3) OF THE ACT, WHICH ARE EVEN OTHERWISE DISALLOWABLE UNDER THE SAID SECTION. THE TOTAL OF S UCH CASH PAYMENTS MADE TO THESE 11 PARTIES IS RS.25,70,415/- ( AS PER ANNEXURE C OF THIS ORDER). HOWEVER, SINCE THE PURCH ASES FROM THESE PARTIES HAVE ALREADY BEEN PROVED TO BE BOGUS AND HAVE BEEN ADDED BACK TO THE ASSESSEES TOTAL INCOME, NO SEPARATE ADDITION U/S 40A(3) IS BEING MADE. ALSO, AS DISCUSS ED IN PARA 4 ABOVE, THE G.P. RATE RETURNED BY THE ASSESSEE FIRM IS ABYSMALLY LOW. AS DISCUSSED AND PROVED IN PARAS 5(A) TO 5(D), THIS LOW G.P. RATE IS BECAUSE OF THE FABRICATED BOOKS OF ACC OUNTS AND THE BOGUS PURCHASES CLAIMED AND DEBITED BY THE ASSESSEE TO ITS TRADING ACCOUNT. SINCE THESE BOGUS PURCHASES HAVE A LREADY BEEN ADDED BACK TO THE ASSESSEES TOTAL INCOME, NO SEPARATE ADDITION ON ACCOUNT OF LOW G.P. RATE IS BEING MADE. 7. THE TOTAL ADDITION OF RS.1,31,28,580/- IS, THERE FORE, BEING MADE TO THE ASSESSEES RETURNED INCOME, ON ACCOUNT OF BOGUS PURCHASES CLAIMED BY IT, IN ORDER TO REDUCE ITS G.P . AND EVADE PAYMENT OF TAXES. SINCE THE DISCUSSION ABOVE PROVES THAT THE ASSESSEE HAS WILLFULLY FABRICATED AND FURNISHED INA CCURATE 27 PARTICULARS OF ITS INCOME, IN ORDER TO CONCEAL ITS TRUE INCOME, PENALTY PROCEEDINGS U/S 271(1)(C) ARE BEING SEPARAT ELY INITIATED. 8. FURTHER, AS DISCUSSED IN PARA 5(E) ABOVE, THE AS SESSEE HAS DEBITED CERTAIN EXPENSES TO P & L ACCOUNT, WHICH WE RE NOT SUPPORTED BY ANY EVIDENCE IN THE FORM OF BILLS/VOUC HERS ETC. THESE EXPENSES ARE AS UNDER: SALARY : 10,11,750 PACKING MATERIAL : 8,18,406 PERIODICALS & JOURNALS : 2,07,000 TRAVELLING EXPENSES : 92,694 STAFF WELFARE EXPENSES : 17,989 SALES PROMOTION : 27,817 CAR REPAIR : 57,080 22,32,736 AS DISCUSSED IN GREAT DETAILS IN THE ORDER-SHEET N OTING DATED 15.11.2011 WHICH HAS BEEN REPRODUCED IN PARA 5(E) ABOVE, NONE OF THESE EXPENSES WAS FOUND TO BE SUPPO RTED BY PROPER BILLS OR VOUCHERS, AND IN SOME CASES, THERE WAS NOT EVEN A SINGLE SUPPORTING EVIDENCE AVAILABLE WITH THE ASS ESSEE FOR THE EXPENSES CLAIMED. MOREOVER, ALL THESE EXPENSES HAVE BEEN INCURRED IN CASH, SO THAT THERE IS NO EVIDENCE OR V ERIFICATION THEREOF. HOWEVER, CONSIDERING THE TURNOVER SHOWN B Y THE ASSESSEE FIRM AND TAKING INTO ACCOUNT THE FACT THAT THE SAID EXPENSES ARE INCIDENTAL TO THE RUNNING OF THE ASSES SEES BUSINESS, A DISALLOWANCE OF ONLY 10% OF THE TOTAL E XPENSES CLAIMED UNDER THESE HEADS IS BEING MADE, WHICH WORK S OUT TO RS.2,23,273/-. THE SAID AMOUNT IS, THEREFORE, BEING ADDED TO THE TOTAL INCOME RETURNED BY THE ASSESSEE FIRM FOR THE YEAR UNDER CONSIDERATION. PENALTY PROCEEDINGS U/S 271(1)(C) FO R FURNISHING INACCURATE PARTICULARS OF INCOME TO THIS EXTENT ARE SEPARATELY INITIATED. 9. AS PER THE DISCUSSION ABOVE, THE TOTAL INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION IS COMPUT ED AS UNDER: TOTAL INCOME DECLARED AS PER RETURN OF INCOME : RS. 93,510 ADD: AS DISCUSSED IN PARA 4 TO 7 : RS.1,31,28,5 80 AS DISCUSSED IN PARA 8 : RS. 2,23 ,273 TOTAL ASSESSED INCOME: :RS.1,34,45,363 28 4. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED TH E WRITTEN SUBMISSIONS WHICH ARE REPRODUCED AT PAGES 35 TO 45 OF CIT(A)S ORDER, WERE SENT TO THE AO FOR COMMENTS, WHICH WERE RECEIVED AND ARE REPROD UCED AT PAGES 45 TO 49 AND THE REJOINDER OF THE ASSESSEE IS AT PAGES 49 TO 52, THE SAME ARE NOT REPRODUCED. THE LD. COUNSEL FOR THE ASSESSEE IN T HE WRITTEN SUBMISSION HAS SUBMITTED THAT THE PURCHASES ARE GENUINE. THE ASSES SEE HAS SUBMITTED THE CONFIRMATIONS OF THE PARTIES AND FEW OF THE PARTIES ARE HAVING PAN ALSO. THE STOCK REGISTER CANNOT BE MAINTAINED IN A BUSINESS L IKE THAT OF THE ASSESSEE. THEREFORE, THE AO IS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT. AS REGARDS THE ESTIMATION OF INC OME, DEPARTMENT HAS ACCEPTED THE GROSS PROFIT IN THE PRECEDING YEAR AND THE GROSS PROFIT DECLARED IN THE IMPUGNED YEAR IS BETTER THAN THE PROCEEDING YEAR AND THEREFORE, THE PAST RESULTS SHOULD BE TAKEN INTO ACCOUNT WHILE EST IMATING GROSS PROFIT IN CASE PROVISION OF SECTION 145(3) OF THE ACT ARE CON FIRMED. IN THE COMMENTS AND THE REJOINDER, ALMOST THE SAME COMMENTS AS IN T HE AOS ORDER AND THE SUBMISSION OF THE ASSESSEE WERE REPEATED. 5. THE LD. CIT(A) UPHELD THE APPLICATION OF PROVISI ON OF SECTION 145(3) OF THE ACT FOR THE REASONS THAT CERTAIN CREDITORS W ERE NOT VERIFIABLE AND CASH PURCHASES WERE MADE IN VIOLATION OF PROVISIONS TO S ECTION 40A(3) OF THE ACT. THE IMPUGNED PARTIES ON BANK ENQUIRIES REVEALED THA T THE PARTIES SITUATED AT 29 UP OPENED BANK ACCOUNTS AT PHAGWARA AND ALL SUCH PARTIES WERE INTRODUCED BY ASSESSEE ITSELF AND THE ADDRESS GIVEN AS 24 PARG ANA, BANGALORE WAS FOUND TO BE FALSE. THERE WAS NO CO-RELATION BETWEEN PURCH ASES AND SALES. NO STOCK DETAILS WERE MADE AVAILABLE. TIME TO TIME SHOW CAUS E NOTICES WERE GIVEN. NOTICES SERVED ON THE PARTIES WERE RECEIVED UNSERVE D. ACCORDINGLY, THE LD. CIT(A) CONFIRMED THE ACTION OF THE A.O. FOR INVOKIN G THE PROVISIONS OF SECTION 145(3) OF THE ACT. 6. AS REGARDS THE ESTIMATION OF INCOME, THE LD. CIT (A) UPHELD THE GP RATE OF 25% VIDE PARA 9 TO 17 WHICH FOR THE SAKE OF CONVENIENCE IS BEING REPRODUCED AS UNDER: 9. I HAVE CAREFULLY CONSIDERED THE ARGUMENTS PUT FORWARD IN OF GROUNDS NO. 2 TO 4. ONCE THE BOOKS OF ACCOUNT ARE REJECTED THE INCOME HAS TO BE ASSESSED N THE MANNER PROVIDED IN SECTIO N 144 OF THE ACT WHICH IS AS UNDER: THE ASSESSING OFFICER, AFTER TAKING INTO ACCOUNT ALL RELEVANT MATERIAL WHICH THE ASSESSING OFFICER HAS GATHERED SHALL AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD , MAKE THE ASSESSMENT OF TOTAL INCOME OR LOSS TO THE BEST OF HIS JUDGMENT AND DETERMINE THE SUM PAYABLE BY THE ASSESSEE ON THE BASIS OF SUCH ASSESSMENT. 10. NOW THE QUESTION ARISES IS AS TO WHAT METHOD IS TO BE EMPLOYED FOR DETERMINATION OF INCOME IN THE CASE OF ASSESSEE IN THE PRESENT YEAR TAKING INTO CONSIDERATION THE RELEVANT MATERIAL AV AILABLE. IT IS TRUE THAT PAST HISTORY OF ASSESSEE IS A VALID INDICATOR AND GUIDING FACTOR, BUT IN THE PRESENT CASE, IN MY OPINION, IF APPLIED WOULD GIVE DISTORTED RESULTS FOR REASON OF NUMEROUS DEFECTS IN THE ACCOUNTS WHI CH MAKES THE CASE IN THE PRESENT YEAR UNCOMPARABLE TO THE PAST HISTO RY BECAUSE THE AO HAS BROUGHT ENOUGH MATERIAL ON RECORDS IN SHAPE O F GLARING AND SERIOUS DEFECTS AS WELL AS COMPARABLE CASES IN SAM E OR AT NEARBY 30 LOCALITY DOING THE SIMILAR BUSINESS. JUSTICE V.C. CHHAGLA HAS QUOTED IN THE DECISION IN CASE OF M/S. A.MOOSA AND SONS 23 ITR 75 (BOM.) AS UNDER: AS POINTED OUT BY THE HOUSE OF LORDS IN SUN INSURAN CE OFFICE VS. CLARK (1912) AC 443, WHERE IT BECOMES NECESS ARY TO HAVE RECOURSE TO SOME FORM OF ESTIMATE BY THE INCOME T AX DEPARTMENT THAT METHOD SHOULD BE ADOPTED WHICH AP PROXIMATE MOST NEAR TO THE TRUTH AND EARL LOREBURN, L.C. IN HIS JUDGMENT AT PAGE 454 EMPHASIS THE FACT THAT A RULE OF THUM B MAY BE VERY DESIRABLE BUT COULD NOT BE SUBSTITUTED FOR THE ON LY RULE OF LAW THAT HE KNOWN OF NAMELY THAT THE TRUE GAINS WERE TO BE ASCERTAINED AS NEARLY AS IT COULD BE DONE (QUOTED BY CHAGLA, CJ IN A.MOOSA & SONS VS. CIT (1953) 23 ITR 73 (BO M.) 11. IN ANOTHER DECISION IN THE CASE OF M/S. GEMINI PICTURES LTD. 33 ITR 547 (MADRAS) IT WAS HELD AS UNDER: WHEN ONCE THE METHOD OF ACCOUNTING ADOPTED BY THE A SSESSEE IS REJECTED BY THE DEPARTMENT IT WAS NOT OPEN TO IT TO ADOPT ANY METHOD OF COMPUTING THE INCOME; THE OTHER METHOD OF ACCOUNTING EMPLOYED BY THE DEPARTMENT MUST REFLEC T THE PROFITS TRULY AND JUSTIFY. 12. IN CASE OF M/S. S.N. NAMASIVAYAM CHETTIA 38 IT R 579 (SC), IT WAS HELD AS UNDER: AT THE SAME TIME, KEEPING OF STOCK REGISTER IS OF G REAT IMPORTANCE BECAUSE THAT IS A MEANS OF VERIFYING T HE ASSESSEES ACCOUNT THE ABSENCE OF A STOCK REGISTER COUPLED W ITH OTHER MATERIALS, IT IS FELT THAT CORRECT PROFITS AND GA INS CANNOT BE DEDUCED FROM THE ACCONTS, RESORT TO THE FIRST PRO VISO CAN BE HAD [S.N. NAMASIVAYAM CHETTIAR VS. CIT (196) 38 ITR 5 79 (SC); GHANSHYANDAS PERMANAND VS. CIT (1958 33 ITR 13 (B OM.) 12. IN THE CASE OF ASSESSEE THE COMPARABLE CASES A RE AVAILABLE AND WOULD BE OF GREAT HELP IN DETERMINING THE PROFITS. IT IS MORE SO BECAUSE THERE IS FORCE IN THE ARGUMENTS OF ASSESSE E THAT IF THE SPECIFIC ADDITION MADE ON THE BASIS OF BOOKS OF ACCOUNT, WH ICH ARE REJECTED THE GP OF ASSESSEE COMES TO MORE THAN 40% WHICH IS NOT POSSIBLE. LOOKING TO ALL THE COMPARABLE CASES IT SEEMS QUITE IMPROBABLE TO HAVE 31 A G.P. OF 40%. IN VIEW OF THIS THE BEST COURSE AVA ILABLE IS TO ESTIMATE GP OF 40%. IN VIEW OF THIS THE BEST COURSE AVAILAB LE IS TO ESTIMATE GP RATE OF ASSESSEE KEEPING IN VIEW THE COMPARABLE CA SES AS WELL AS OTHER MATERIAL ON RECORDS. IN THE CASE OF M/S/. K.Y. PHI LLIP & SONS 63 ITR 411 (SC IT IS HELD AS UNDER: AT THE SAME TIME, WHERE THE FACTS OF THE CASE JUSTI FY THE REJECTION OF ACCOUNTS, THE AO IS ENTITLED TO DETERMINE THE APPLICATION OF A FLAT RATE BY TAKING INTO CONSIDE RATION THE TRADING CONDITIONS OF ASSESSEES LOCALITY AND THE NORMAL RATE OF PROFIT DISCLOSED BY SIMILAR TRADERS IN THE SAME A REA. 14. FOR ESTIMATION OF GP, THE COMPARABLE CASE CONF RONTED BY AO TO THE ASSESSEE ARE AS UNDER: BOMBAY CLOTH HOUSE 09.10 16.21% KHUBSURAT 09-10 17.25% BILLA SILK & SAREES 09-10 12.23% LAXMI EMPORIUM 09-10 15.58% BEDI CLOTH HOUSE 09-10 18.30% 15. THESE PARTIES WERE AT PHAGWARA. THE AO FURTHE R CONFRONTED THE ASSESSEE WITH FOLLOWING COMPARABLE CASES OPERATING AT JALANDHAR: SR.NO. NAME A.Y. TURNOVER G.P% 1. M/S. POSHAK, JALANHDAR 2009-10 3.12 CRORES 13.6% 2. M/S. CRAZY BOUTIQUE, JALANDHAR 2009-10 71.12 CRORES 12.9% 3. M/S. SACHDEVA SAREE EMPORIUM, SAFFRON MALL, JALANDHAR. 2009-10 10.24 CRORES 10.64% 16. IT IS TO BE APPRECIATED THAT JALANDHAR AND PHA GWARA ARE CLOSELY LOCATED AND AT BOTH THE PLACES SIMILAR TRADING CON DITIONS EXIST. THE AO IN HER ORDER AT PARA 4.5 HAS DEALT AS TO HOW THE C OMPARISON WAS VALID. THE ASSESSEE FIRM WAS NOT NEW TO JALANDHAR AND WAS WORKING FOR 5-6 YEARS. ONE FIRM M/S. SACHDEVA SAREES IS OPERATING FROM THE SAME PREMISES AS OF ASSESSEE. IN FACT, ASSESSEE ITSELF WAS RUNNING ANOTHER FIRM AT PHAGWARA WHERE ALSO THE GP SHOWN WAS 8.10% ONLY. IN CASE OF M/S. SACHDEVA SAREES THE GP OF 10.64% SHOWN WAS FOUND TO BE LOW AND ON SURVEY AFTER TAKING INTO ACCOUNT THE D ECLARATION MADE THE 32 GP STOOD AT 20.7%. MOREOVER, THE TURNOVER OF M/S. SACHDEVA SAREES WAS MUCH MORE THAN THE ASSESSEE HENCE A LE SSER GP WAS ACCEPTABLE. IN ONE CASE OF M/S. BEDI CLOTH HOUSE A GP OF 18.30% WAS SHOWN. IN ALL THE COMPARABLE CASES CITED THE GP W AS CONSIDERABLY HIGHER THAN THE ASSESSEE. EVEN AFTER APPLYING THE YARDSTICK OF COMPARISON TO SIMILAR CASES, ON SPECIFIC AND PEC ULIAR FACTS OF ASSESSEES CASE EVEN A HIGHER GP HAS TO BE ADOPT ED AS THERE ARE INSTANCES AS FOUND AND MENTIONED BY THE AP AT PAG E NO. 17 TO 20 IN RESPECT OF PARA 4.5(1) IN THE ASSESSMENT ORDER . IT IS CLEARLY BROUGHT OUT THAT CERTAIN PURCHASES WERE ENTERED BUT THERE WAS NO CORRESPONDING SALES. IN VIEW OF THIS THE CONTENTIO N OF THE ASSESSEE THAT SINCE SALES ARE ACCEPTED, THE PURCHASES HAVE TO BE ALLOWED IN PROPORTION, IS ALSO NOT ENTIRELY CORRECT. 17. IN VIEW OF THE ABOVE, CONSIDERING THE TOTALITY OF CIRCUMSTANCES, COMPARABLE CASES AND FININGS OF AO, I AM CONVINCED THAT A GP RATE EVEN HIGHER THAN COMPARATIVE CASES HAS TO BE APPLI ED AS THE PRESENT CASE IS NEITHER COMPARABLE TO THE PAST HISTORY OF ITS OWN NOR FULLY SIMILAR TO THE COMPARABLE CASES. GIVING A THOUGHTF UL CONSIDERATION TO ALL FACTORS, IN MY OPINION IF A GP OF 25% IS ADOP TED IT WOULD BE MOST FAIR AND REASONABLE AND IT WOULD BE MOST APPROXIMA TELY NEAR TO THE TRUTH AS FAR AS POSSIBLE. THE AO WHILE GIVING EFFE CT, WOULD EXCLUDE THE GP ALREADY SHOWN. 7. THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSES SING OFFICER BY DISALLOWING RS.2,23,273/- BEING 10% OF THE EXPENSES CLAIMED WHICH WERE NOT SUPPORTED BY ANY FORM OF EVIDENCE IN THE SHAPE OF BILLS OR VOUCHERS. THE DISALLOWANCE WAS VERY REASONABLE AND HELD THAT NO INTERFERENCE IS CALLED FOR AS NO EVIDENCE IS AVAILABLE AS YET. 8. THE LD. COUNSEL MR. Y.K.SUD, CA AT THE OUTSET DI D NOT PRESS GROUND NO.1 WHICH IS WITH REGARD TO INVOKING THE PROVISION OF SECTION 145(3) OF THE ACT. AS REGARDS THE ESTIMATION OF INCOME, HE ARGUED THAT GP RATE DECLARED BY 33 THE ASSESSEE WAS 8.19% DURING THE YEAR AND THE AO M ADE THE ADDITION OF RS.1,31,28,580/-. THUS, MAKING G.P. RATE OF 40.29% WHICH IS A IMPOSSIBLE GP RATE WHICH CANNOT BE ACHIEVED IN A TRADE LIKE AS SESSEE IS DOING. THE AO TREATED THE 11 PARTIES AS BOGUS PARTIES FROM WHOM THE ASSESSEE HAD MADE THE PURCHASES. HE ARGUED THAT THE SALES ARE NOT IN DOUBT AND HAVE BEEN ACCEPTED THEN HOW THE PURCHASES CAN BE IN DOUBT. CE RTAINLY THERE ARE PURCHASES WHERE GP RATE DECLARED DURING THE YEAR IS 8.19% ON TURNOVER OF RS.4.08 CRORE, 7.74% ON TURNOVER OF RS.4.33 CRORES IN THE PRECEDING YEAR AND 7.71% ON TURNOVER OF RS.4.33 CRORES IN THE YEAR PRIOR TO THE PRECEDING YEAR. HE ARGUED THAT ONCE THE BOOKS OF ACCOUNT ARE REJECTED THEN FAIR ESTIMATION HAS TO BE MADE. THE FAIR ESTIMATION IS B ASED ON THE PAST RECORD OF THE ASSESSEE AND THE COMPARABLE CASES, IF ANY. THE LD. CIT(A) IS NOT JUSTIFIED IN ESTIMATING THE GROSS PROFIT RATE AT 25% WHICH I S WITHOUT ANY BASIS. AS REGARDS THE COMPARABLE CASES, THE LD. COUNSEL FOR T HE ASSESSEE, MR. Y.K.SUD, CA ARGUED THAT THE FACTS OF THE CASES WHETHER THEY ARE COMPARABLE OR NOT HAS NOT BEEN BROUGHT ON RECORD BY ANY OF THE AUTHOR ITIES BELOW. THEREFORE, RELIANCE ON THE COMPARABLE CASES IS NOT JUSTIFIED. IN SUCH FACTS AND CIRCUMSTANCES, IT IS ONLY THE PAST HISTORY WHICH HA S TO BE FOLLOWED. HE RELIED UPON THE WRITTEN SUBMISSIONS PLACED BEFORE THE LD. CIT(A) AND THE A.O. 34 9. AS REGARDS THE ESTIMATION OF INCOME, LD. COUNSEL FOR THE ASSESSEE, MR. Y.K. SUD, RELIED ON THE DECISIONS OF VARIOUS COURT S OF LAW WHICH ARE REPRODUCED AS UNDER AND ARE AVAILABLE AT PB OF THE ASSESSEE: I) J.J. ENTERPRISES VS. CIT 254 ITR 216 2) MODERN STEEL IND. VS. ASSTT. CIT (ITAT DELHI BE NCH) 67 TTJ 445. 3) JHANDU MAL TARA CHAND RICE MILLS. VS. CIT 73 IT R 192 4) SHANKER EXPORTERS VS. ADDL. CIT (ITAT JAIPUR) 1 32 TTJ 107 5) PATEL & CO. & ANR. VS. ITO (ITAT AHMEDABAD) 81 TTJ 445 6) ORDER OF ITAT A CHENNAI BENCH ACIT, CIRCLE II I, CHENNAI VS. T. MANJULA 7) SANGRUR VANASPATI MILLS LTD. VS. ACIY CHD. (IT AT CHD. B BENCH 88 TTJ (CHD) 979. 8) CIT VS. VIJAY CONSTRUCTIONS 213 CTR (ALL) 305 9) MS. SHAM LATA KAUSHIK VS. ACIT 114 ITD (DELHI) 305 10) SUNDER MAL SAT PAL VS. ITO (ITAT, ASR BENCH) 9 4 TTJ 423 11) ITO VS. MAYUR AGGARWAL 133 TTJ (AGRA (TM) 1 12) VINDHYA TELELINK VS. JCIT 119 TTJ (JAB.) (TM) 433 10. THE LD. DR, MR. MAHAVIR SINGH, ON THE OTHER HAN D, ARGUED AT THE OUTSET THAT THE ASSESSEE IS MAINTAINING INCORRECT B OOKS OF ACCOUNT AND THE AO HAS ESTABLISHED THAT THE PURCHASES ARE BOGUS A ND SPECIFIC DEFECT WITH REGARD TO THE BOGUS PURCHASES HAS BEEN FOUND OUT BY THE AO AND CONFIRMED BY THE LD. CIT(A). THE ASSESSEE IS NOT MAINTAINING ANY STOCK REGISTER AND THEREFORE, THE ARGUMENTS OF THE LD. COUNSEL FOR TH E ASSESSEE THAT WHEN THE SALES ARE VOUCHED AND WHICH ARE NOT IN DISPUTE THEN ASSESSEE MUST HAVE MADE PURCHASES. THE LD. DR ARGUED THAT THERE IS NO DISPUTE TO THE FACT WHEN THE SALES ARE MADE THEY ARE MADE ONLY AGAINST GENU INE PURCHASES DECLARED 35 BUT THE SAME HAS TO BE PROVED BY THE ASSESSEE WHETH ER THE SALES HAVE BEEN MADE AGAINST SPECIFIC PURCHASES AND FOR THAT THE AS SESSEE HAS TO PROVE ON RECORD ITS CLAIM. THE ASSESSEE HAS NOT PRODUCED TH E STOCK REGISTER WHEN HE FOUND THAT THE PURCHASES ARE BOGUS AND SPECIFIC DEF ECT IS BEING POINTED OUT BY THE AO, SO HE DID NOT PRODUCE THE STOCK REGISTER . THEREFORE, THE ASSESSEE HAS INFLATED THE PURCHASES WHICH ARE OVER AND ABOVE THE PURCHASES AGAINST WHICH THE SALES HAVE BEEN DECLARED. AS REGARDS THE SPECIFIC DEFECTS POINTED OUT IN THE PURCHASES WHICH ARE BOGUS HAVING PROVED BY THE AO TO BE BOGUS AND NUMBER OF TIMES SHOW CAUSE NOTICES WERE GIVEN, WHICH WERE NOT REPLIED TO THE SATISFACTION OF THE AO AND NO EXPLANATION TO THE SATISFACTION OF THE AO WAS SUBMITTED. ACCOUNTS OF SUCH 11 CREDITORS WERE O PENED IN THE BANK OF THE ASSESSEE ITSELF. THE ADDRESS OF ALL THE PARTIES WAS GIVEN AS 24 PARGANA, BANGALORE WHICH WAS FOUND AS BOGUS ADDRESS, WHEREA S, ON THE OTHER HAND, THE ASSESSEE IS GIVING THE ADDRESS OF THOSE PARTIE S OF VARANASI OR DELHI WHICH ARE THE WRONG ADDRESSES TO MISLEAD THE INCOME TAX DEPARTMENT. THE NOTICES SENT FOR CONFIRMATION OF THE PURCHASES DEC LARED TO HAVE BEEN MADE BY THE ASSESSEE WERE RECEIVED UNSERVED. ON ENQUIRIE S FROM THE BANK AND COPY OF ACCOUNTS TAKEN FROM THE BANK, WHICH WERE CO NFRONTED TO THE ASSESSEE, NO EXPLANATION TO THE SATISFACTION OF THE AO WAS GIVEN. THE ADDRESS OF BANGALORE WAS FOUND TO BE FALSE AND NO E XPLANATION IN THIS REGARD WAS GIVEN. IT WAS ALSO OBSERVED BY THE AO THAT PAYM ENT TO THESE PARTIES 36 WERE NOT MADE ON PERIODICAL INTERVALS, AS CLAIMED B Y THE ASSESSEE BUT REGULARLY ON CONSECUTIVE DATES. IN ALL THE CASES, T HERE IS SINGLE BILL OF PURCHASE FOR WHICH THE BROKEN PAYMENTS HAVE BEEN MA DE ON CONSECUTIVE DATES IN CASH. IT WAS NOT EXPLAINED WHEN THE PAYEE HAD THE BANK ACCOUNT WHY THE WHOLE PAYMENT HAS BEEN MADE IN CASH OF RS.2 0,000/- OR LESS I.E. THE TOTAL PAYMENT TO 11 PARTIES TO THE EXTENT OF RS.25 ,70,415/- IN CASH WAS MADE DETAILS OF WHICH IS AVAILABLE AS PER ANNEXURE C I N AOS ORDER. INSPITE OF OPPORTUNITY GIVEN TO THE ASSESSEE, THE ASSESSEE HAS NOT BEEN ABLE TO PROVIDE REASONABLE EXPLANATION IN THIS REGARD. THUS, THERE IS CLEAR VIOLATION OF PROVISION OF SECTION 40A(3) OF THE ACT. IN CASE OF 9 PARTIES OUT OF 11 PARTIES, THE ASSESSEE GAVE CHEQUE PAYMENTS ON 31.03.2009 FR OM THE BANK ACCOUNT OF THE ASSESSEE, WHICH IS LOCATED IN THE SAME BANK BRA NCH I.E. BANK OF INDIA, PHAGWARA. ALL THE CHEQUES WERE DEPOSITED IN THE BAN K ACCOUNT OF THE SAID PARTIES OF THE SAME BANK AND HAVE BEEN ENCASHED THE REFROM IMMEDIATELY. EVEN ACCOUNT NUMBER OF THE SAID PARTIES ARE CONSECU TIVE WHICH SHOWS THAT THE ACCOUNTS HAVE BEEN OPENED ON THE SAME DATE. THE REFORE, THE CLAIM OF THE ASSESSEE THAT THE PARTIES OR PURCHASES ARE GENUINE IS PURELY FALSE. THE EXPLANATION OF THE ASSESSEE THAT THE PARTIES USED T O COME AND COLLECT THE MONEY IS WITHOUT ANY EVIDENCE OR WITHOUT ANY COGENT EXPLANATION AND THE ACCOUNTS HAVE BEEN OPENED ON 30.03.2009 AND ALL THE PARTIES WERE INTRODUCED BY ONE PERSON-SH. SUBASH CHANDER, PARTNE R OF THE ASSESSEE. NO 37 ADDRESS OF DELHI, LUCKNOW OR VARANASI IS MENTIONED IN THE ACCOUNT OF THE ASSESSEE EXCEPT 24 PARGANA, BANGALORE WHICH WAS FO UND TO BE BOGUS. THEREFORE, THERE IS CONCLUSIVE EVIDENCE THAT NO SUC H PARTIES EXIST AT THE GIVEN ADDRESSES AND NO PURCHASES HAVE BEEN MADE FROM THES E PARTIES. THE ASSESSEE HAS DEBITED BOGUS PURCHASES. THE ASSESSEE IS NOT MA INTAINING ANY STOCK REGISTER. THEREFORE, WHETHER PURCHASES MADE HAVE I N FACT BEEN SOLD OR HAVE BEEN SHOWN IN THE CLOSING STOCK CANNOT BE ASCERTAIN ED. THEREFORE, CLAIM OF THE ASSESSEE THAT THE SALES HAVE BEEN MADE THEN TH E PURCHASES CANNOT BE DOUBTED. AS REGARDS THE SURRENDER OF RS.1.20 CRORE ON 12 TH JANUARY, 2011 PERTAINING TO THE ASSESSMENT YEAR 2011-12 DOES NOT IMPLY AND CANNOT GIVE A CERTIFICATE OR CLEAN CHIT TO THE ASSESSEE FOR T HE PRECEDING YEAR OR YEARS. EVERY YEAR IS AN INDEPENDENT YEAR AND THE SURRENDER MADE WAS PERTAINING TO THE YEAR ENDING 31.03.2011 FOR THE ASSESSMENT YEAR 2011-12 AND IT HAS NOTHING TO DO FOR THE FACTS IN THE IMPUGNED YEAR. T HEREFORE, THE ASSESSEE HAVING DEBITED THE BOGUS PURCHASES IN ITS BOOKS OF ACCOUNT OVER AND ABOVE THE PURCHASES WHICH HAVE BEEN SOLD, THE AO HAS CORR ECTLY ADDED THE INCOME OF RS.1,31,28,580/-. THE LD. CIT(A) IS NOT JUSTIFIE D IN GIVING RELIEF BY DIRECTING TO APPLY GP RATE OF 25%, WHICH IS WITHOUT ANY BASIS AND WITHOUT POINTING ANY DEFECT IN THE ORDER OF THE AO. 11. AS REGARDS UNVOUCHED EXPENSES, THE LD. DR, MR. MAHAVIR SINGH, ARGUED THAT THE ASSESSEE HAS NOT PRODUCED ANY BILL/ VOUCHER WITH REGARD TO 38 EXPENSES OF RS.22,32,736/- AND THEREFORE, THE LD. C IT(A) HAS RIGHTLY CONFIRMED THE ACTION OF THE A.O. IN DISALLOWING 10% OF THE TOTAL EXPENSES CLAIMED. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. AS REGARDS GROUND NO.1, WHICH IS WITH REGARD TO INV OKING THE PROVISIONS OF SECTION 145(3) OF THE ACT, THE SAME IS NOT PRESSED BY THE LD. COUNSEL FOR THE ASSESSEE AND THEREFORE, THE SAME IS DISMISSED AS NO T PRESSED. 12.1. AS REGARDS GROUNDS NO. 2 & 3 OF THE ASSESSEE AND THE APPEAL OF THE REVENUE WHICH ARE WITH REGARD TO ESTIMATION OF INCO ME, THE ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF TRADING OF SUITS, S AREES, DRESSES, CLOTHS, FABRICS, WEDDING ITEMS ETC. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS DECLARED BETTER RESULTS OF GP RATE AT 8.19% AS COMPARED TO THE 7.74% IN THE PRECEDING YEAR AND 7.71% IN THE YEAR PRIOR TO T HE PRECEDING YEAR. THE ASSESSEE IS NOT MAINTAINING ANY STOCK REGISTER, HAS BEEN ACCEPTED BY THE A.O. IS NOT IN DISPUTE. THE EXPLANATION IN THIS REGARD W AS THAT THE ASSESSEE CANNOT MAINTAIN STOCK REGISTER FOR MANY ITEMS BEING TRAD ED AND IT IS NOT POSSIBLE TO MAINTAIN STOCK REGISTER OF EACH ITEM. ON PERUSAL O F THE FACTS ON RECORD AND ARGUMENTS OF BOTH THE PARTIES, THOUGH THE LD. COUNS EL FOR THE ASSESSEE INSPITE OF THE FACT DID NOT PRESS GROUND NO. 1 WITH REGARD TO INVOKING THE PROVISION OF SECTION 145(3) OF THE ACT AND HE DID NOT AGITATE CONFIRMING OF INVOCATION OF PROVISION OF SECTION 145(3) BY THE LD. CIT(A), B UT AT THE SAME TIME, 39 ARGUMENTS ARE MADE EVEN BEFORE US THAT THE PURCHASE S FROM THE IMPUGNED 11 PARTIES ARE GENUINE. THIS ARGUMENT OF THE LD. COUNS EL FOR THE ASSESSEE, MR. Y.K. SUD, CANNOT BE ACCEPTED THAT THE PURCHASES MA DE FROM THE IMPUGNED 11 PARTIES ARE GENUINE WHICH IN FACT HAVE BEEN HEL D TO BE BOGUS CREDITORS BY BOTH THE AUTHORITIES BELOW FOR THE REASONS AS RE PRODUCED IN THE ORDER OF THE A.O. AND CONFIRMED BY THE LD. CIT(A) AND ON OU R PERUSAL OF THE RECORD BEFORE US. THE BILLS OF PURCHASES ARE IN CONSECUTI VE NUMBER. THE ADDRESSES IN THE BANK ACCOUNTS ARE BOGUS ADDRESSES OF BANGAL ORE. THE ASSESSEE HAS GIVEN ADDRESS OF DELHI, LUCKNOW AND VARANASI, WHICH IS ALSO FOUND TO BE WRONG ADDRESS ON WHICH NONE OF THE PARTY IS WORKIN G. ONE CHEQUE IN MOST OF THE PARTIES AGAINST FIRST BILL HAS BEEN GIVEN ON 31.03.2009 WHICH HAS BEEN ENCHASED THEREAFTER. THE ENTRIES IN THE BOOKS OF AC COUNT IN MOST OF THE PARTIES CASES HAVE BEEN MADE IN CASH AFTER THE ENTR IES OF THE CHEQUE PAYMENTS ON 31.03.2009. THE CASH PAYMENT EACH OF RS .20,000/- OR LESS HAS BEEN ACCOUNTED FOR IN THE BOOKS AFTER ACCOUNTING FO R THE CHEQUE PAYMENT ON 31.03.2009. FOR EXAMPLE, WE TAKE THE ACCOUNT OF M/S . FANCY SAREES, WHERE THE BILL CREDITED IS DATED 16.01.2009 FOR RS.2,69, 000/- AND THE PAYMENT OF RS. 2,30,500/- DECLARED TO HAVE BEEN MADE ON 31.03 .2009 BY CHEQUE AND THE BALANCE IN THE PARTYS ACCOUNT HAS BEEN SHOWN AS CR EDIT OF RS.41,30,040/-. AFTER ENTRY ON 31.03.2009, THE ASSESSEE HAS SHOWN P AYMENT OF CASH MADE LESS THAN RS.20,000/- EACH FROM 12.02.2009 TO 23.03 .2009 AND THEREAFTER IN 40 THE SAME ACOUNT FROM 06.09.2008 TO 30.10.2008, EACH PAYMENT HAS BEEN DECLARED OF RS.20,000/- OR LESS. SIMILARLY, SUCH PA YMENTS HAVE DECLARED IN ALL OTHER BOGUS PARTIES WHICH CLEARLY PROVES THAT T HE PAYMENTS DECLARED ARE BOGUS PAYMENTS. CHEQUES PAID ON 31.03.2009 TO ALL T HE PARTIES HAVE BEEN ENCASHED IMMEDIATELY AND MOST OF THE PARTIES ARE HAVING ONLY ONE CHEQUE PAYMENT CREDITED IN THE CRDITORS ACCOUNTS AND OTHE R PAYMENTS ARE CASH PAYMENTS. FROM ALL ANGLES, THESE PURCHASES ARE BO GUS AND THE ASSESSEE HAS CREATED THESE BOGUS CREDITORS IN ITS BOOKS OF ACCOU NT. THEREFORE, WE FIND NO INFIRMITY IN THE FINDINGS OF THE LD. CIT(A) IN THIS REGARD. IT WAS PERTINENT TO GIVE SUCH FINDINGS THOUGH THE LD. COUNSEL HAS NOT P RESSED THE INVOKING OF PROVISIONS OF SECTION 145(3) OF THE ACT BECAUSE THE SE FINDINGS ON MERIT HAS A GREAT BEARING ON THE ESTIMATION OF INCOME. 12.2. THE LD. COUNSEL FOR THE ASSESSEE, MR. Y.K.SUD CA HAS RELIED UPON THE DECISIONS OF VARIOUS COURTS OF LAW WITH REGARD TO T HE ESTIMATION OF INCOME WHEN THE BOOKS OF ACCOUNT ARE REJECTED. WE ALSO REL Y UPON SUCH DECISIONS AND DO NOT DISPUTE THE FACTS THAT WHEN THE BOOKS O F ACCOUNT ARE REJECTED, CERTAINLY THERE HAS TO BE ESTIMATION OF INCOME. T HE ESTIMATION OF INCOME CANNOT BE WILD AND CANNOT BE ON SURMISES AND CONJE CTURES IS A SETTLED ISSUE. IN THE PRESENT CASE, THE ARGUMENTS MADE BY THE LD. COUNSEL FOR THE ASSESSEE WAS THAT FOR ESTIMATING INCOME OF THE IMPUGNED YEAR ONCE BOOKS OF ACCOUNT OF THE IMPUGNED YEAR HAS BEEN REJECTED, THEN THE AC COUNTS OF THE PRESENT 41 IMPUGNED YEAR CANNOT BE TAKEN INTO ACCOUNT OR CANNO T BE CONSIDERED FOR ESTIMATING INCOME OF THE IMPUGNED YEAR AND IT IS ON LY THE PAST YEAR RESULTS OF THE ASSESSEE WHICH HAVE BEEN ACCEPTED BY THE DEPART MENT OR COMPARABLE CASES, IF ANY, HAS TO BE CONSIDERED. IN THIS REGARD , WE DO NOT ACCEPT THE ARGUMENTS MADE BY THE LD. COUNSEL FOR THE ASSESSEE THAT IN THE PRESENT FACTS AND CIRCUMSTANCES OF THE CASE, WHEN THE ASSESSEE HA S NOT PRODUCED STOCK REGISTER AND THERE IS NOTHING ON RECORD AND NO COGE NT EXPLANATION GIVEN BEFORE THE AUTHORITIES BELOW OR EVEN BEFORE US THAT SUCH BOGUS PURCHASES MADE HAVE ACTUALLY BEEN SOLD IN THE ABSENCE OF STO CK REGISTER. THEREFORE, IT IS NOT POSSIBLE TO CONCLUDE THAT THE ASSESSEE HAS M ADE GENUINE SALES AGAINST THE PURCHASES MADE. IT IS QUITE POSSIBLE THAT THE PURCHASES DECLARED BY THE ASSESSEE MAY NOT AT ALL HAVE BEEN TAKEN IN STOCK BU T SIMPLY HAVE BEEN DEBITED IN THE PURCHASE ACCOUNT, JUST TO REDUCE THE GROSS PROFIT. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE REJECT THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE BOOKS OF ACCOUNT OF THE IMPUGNED YEAR SHOULD NOT BE TAKEN INTO ACCOUNT FOR ESTIMATION OF INCOME. FOR ESTIMATION OF INCOME, THE AO HAS TO ESTIMATE INCOME ON THE BASIS OF FACTS AND CIRCUMSTANCES OF THE IMPUGNED YEAR FOR THE REASON T HAT THE ASSESSEE HAS DEBITED BOGUS PURCHASES OR INFLATED EXPENSES FOR RE DUCTION OF PROFIT THEN ONLY IMPUGNED YEAR WORKING CAN HELP THE AO IN ESTIM ATING THE INCOME AND NOT THE PRECEDING YEAR RESULTS WHICH ARE NOT ON IDE NTICAL FACTS AND 42 CIRCUMSTANCES AS IN THE IMPUGNED YEAR. SECONDLY, IF IT IS NOT AT ALL POSSIBLE TO ESTIMATE INCOME IN THE PRESENT CASE THEN PAST YEAR RESULTS SHOULD BE TAKEN INTO ACCOUNT ONLY IF THE PAST YEARS WORKING IS ON THE IDENTICAL FACTS AND CIRCUMSTANCES OF THE IMPUGNED YEAR WHICH IS THE NE AREST TO THE IMPUGNED YEAR. THIRDLY, IN CASE PAST YEAR RESULTS ARE NOT AV AILABLE OR IT IS NOT POSSIBLE TO ESTIMATE INCOME ON THE BASIS OF PAST RESULTS THE N COMPARABLE CASES HAVING IDENTICAL FACTS HAVE TO BE TAKEN INTO ACCOUNT FOR E STIMATION OF INCOME . AS A WHOLE THE POSSIBILITY OF EARNING INCOME OR CERTAIN PERCENTAGE OF PROFIT HAS ALSO TO BE TAKEN INTO ACCOUNT EVEN IF THE ASSESSEE HAD CLAIMED BOGUS EXPENDITURE IN THE IMPUGNED YEAR. 12.3. NOW FOR ESTIMATION OF INCOME, FOR THE IMPUGNE D YEAR, THE ASSESSEE HAS NOT MAINTAINED ANY STOCK REGISTER AND THEREFORE , IT CANNOT BE SAID THAT THE ASSESSEE HAS ACTUALLY SOLD THE BOGUS PURCHASES SO M ADE. SO, THERE IS EVERY POSSIBILITY THAT EXPENDITURE TO THE EXTENT OF BOGUS PURCHASES MUST HAVE BEEN DEBITED. THE PAST YEARS RESULT CANNOT BE A GUIDE T O THE PRESENT ESTIMATION OF INCOME FOR THE REASONS THAT THERE IS NOTHING ON REC ORD THAT THE ASSESSEE HAS CLAIMED BOGUS PURCHASES IN THE PRECEDING YEAR. MORE OVER, THE ASSESSMENT IN THE PAST YEARS HAVE NOT BEEN MADE U/S 143(3) OF THE ACT. NOTHING IN THIS REGARD HAS BEEN BROUGHT ON RECORD BY EITHER OF THE PARTIES THAT THE PRECEDING YEAR RESULTS ARE IDENTICAL TO THE FACTS AND CIRCUMS TANCES OF THE IMPUGNED YEAR. 43 12.4. AS MENTIONED HEREINABOVE, NOW WE PERUSE COMPA RABLE CASES ON RECORD. THE AO HAS MENTIONED COMPARABLE CASES OF FI VE PARTIES HAVING GP RATE OF 16.21%, 17.25%, 12.23%, 15.58% & 18.30%. TH E ASSESSEE SUBMITTED THAT THESE PARTIES WERE HAVING BUSINESS AT PHAGWARA , AND ASSESSEES BUSINESS WAS BEING OPERATED FROM JALANDHAR. THEREFORE, SUCH CASES CAN NOT BE CONSIDERED COMPARABLE. THE AO ACCORDINGLY AFTER CON SIDERING SUBMISSION OF ASSESSEE BROUGHT ON RECORD THREE MORE COMPARABLE CA SES AT JALANDHAR, AS MENTIONED HEREINABOVE AND ALSO IN AOS ORDER AT PAG E 4 WHICH FOR THE SAKE OF CONVENIENCE ARE REPRODUCED AS UNDER: SR.NO. NAME A.Y. TURNOVER G.P% 1. M/S. POSHAK, JALANHDAR 2009-10 3.12 CRORES 13.6% 2. M/S. CRAZY BOUTIQUE, JALANDHAR 2009-10 71.12 CRORES 12.9% 3. M/S. SACHDEVA SAREE EMPORIUM, SAFFRON MALL, JALANDHAR. 2009-10 10.24 CRORES 10.64% THE EXPLANATION OF THE ASSESSEE WAS THAT THESE FIRM S ARE LOCATED IN POSH LOCALITIES AND THEY ARE WORKING FOR THE LAST MORE T HAN 10 YEARS AND THEREFORE, THE RESULTS OF SUCH CONCERNS CANNOT BEA GUIDE AND C ANNOT BE MADE APPLICABLE IN ASSESSEES CASE IN THE IMPUGNED YEAR. THE AO IN THIS REGARD HAS SUBMITTED THAT THE ASSESSEE ITSELF IS SITUATED IN POSH AREA O F JALANDHAR AND ASSESSEES ARGUMENTS HAVE NO WEIGHT SINCE THE ASSESSEE HAS EST ABLISHED BUSINESS AT 44 JALANDHAR FOR THE LAST 5-6 YEARS. AS REGARDS M/S. S ACHDEV SAREE EMPORIUM, JALANDHAR, WHOSE RESULTS HAVE NOT BEEN ACCEPTED BY THE DEPARTMENT AT 10.64% AND THE AO ENHANCED THE GP RATE TO 20.7%, TH E SAME IS IGNORED BECAUSE WHETHER THE SAID ORDER OF AO HAS ATTAINED F INALITY HAS NOT BEEN BROUGHT ON RECORD. WITH REGARD TO COMPARABLE CASES, THE ARGUMENTS MADE BY BOTH THE PARTIES HAVE BEEN CONSIDERED AND WE FIND T HAT THE CASES OF THESE THREE PARTIES I.E. M/S. POSHAK, M/S. CRAZY BOUTIQUE & M/S. SACHDEVA SAREE EMPORIUM, JALANDHAR ARE COMPARABLE CASES AND NOTHIN G HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE THAT THESE CASES ARE NOT COM PARABLE EXCEPT FOR THE REASONS THAT THESE FIRMS ARE DOING BUSINESS FOR MO RE THAN 10 YEARS AND IN THE POSH LOCALITIES. AS AGAINST THIS FINDING OF THE A.O . THAT THE ASSESSEE IS ALSO LOCATED IN THE POSH LOCALITY OF JALANDHAR AND ASSE SSEE IS DOING BUSINESS FOR THE LAST 5-6 YEARS. ACCORDINGLY, WE ARE OF THE VIE W THAT THE THREE PARTIES MENTIONED HEREINABOVE I.E. M/S. POSHAK, M/S. CRAZY BOUTIQUE AND M/S. SACHDEVA SAREE EMPORIUM, JALANDHAR ARE THE COMPARAB LE CASES. ACCORDINGLY, BY SEEING POSSIBILITY OF EARNING AN IN COME BY THE ASSESSEE HAS TO BE LOOKED INTO. THE LD. CIT(A) HAS FIXED G.P. RA TE OF 25% WHICH IS NOT BASED ON ANY MATERIAL OR COGENT REASONING, THEREFOR E, CANNOT BE UPHELD. AT THE SAME TIME, GP RATE FIXED BY THE AO CAN ALSO NOT BE UPHELD WHEN THERE IS EVERY POSSIBILITY THAT THE ASSESSEE MUST HAVE SOLD THE BOGUS PURCHASES DECLARED AS WELL OR IT MAY BE POSSIBLE THAT PART BO GUS PURCHASES HAVE BEEN 45 SOLD AND PART PURCHASES HAVE BEEN DEBITED TO INCREA SE EXPENDITURE FOR REDUCTION OF PROFIT. AS A WHOLE, AS PER OUR FINDING S HEREINABOVE PAST YEAR RESULTS IN THE FACTS AND CIRCUMSTANCES OF THE IMPU GNED YEAR CANNOT BE A COMPLETE GUIDE. BUT BY PERUSING THE FACTS AND CIRCU MSTANCES OF THE PRESENT CASE AND POSSIBILITY OF EARNING INCOME IN THE IMPUG NED YEAR, WE HAVE TO TAKE GUIDANCE FROM THE THREE COMPARABLE CASES MENTIONED HEREINABOVE TO END THE LITIGATION. WE TAKE THE AVERAGE GP RATE DECLARED B Y THREE PARTIES OF JALANDHAR, I.E. M/S. POSHAK, M/S. CRAZY BOUTIQUE AN D M/S. SACHDEVA SAREE EMPORIUM, JALANDHAR WHO HAVE DECLARED G.P. RATE FOR THE ASSESSMENT YEAR 2009-10 AT 13.6%, 12.9% & 10.64% AND THE AVERAGE OF THE GP RATE COMES AT 12.38% OF THE SAID THREE PARTIES, WHICH IN THE SAID FACTS AND CIRCUMSTANCES, IF APPLIED TO THE TURNOVER DECLARED BY THE ASSESSEE WI LL MEET BOTH ENDS OF JUSTICE. ACCORDINGLY, BOTH THE ORDERS OF THE AUTHOR ITIES BELOW ARE MODIFIED AND THE A.O. IS DIRECTED TO APPLY GP RATE OF 12.38% ON THE TURNOVER DECLARED BY THE ASSESSEE WHICH IS THE AVERAGE OF THREE COMPA RABLE CASES MENTIONED HEREINABOVE. THUS, GROUNDS NO. 2 & 3 OF THE ASSESSE E ARE PARTLY ALLOWED AND THAT OF THE REVENUE ARE DISMISSED. 13. AS REGARDS GROUND NO.4 REGARDING SUSTENANCE OF AD-HOC DISALLOWANCE OF RS.2,23,273/- MADE BY THE AO OUT OF TOTAL EXPENS ES CLAIMED, THE ASSESSEE HAS NOT PRODUCED ANY VOUCHERS OR EVIDENCE OR ANY EX PLANATION WITH REGARD TO THE EXPENSES OF RS.22,32,736/-, THE DISALLOWANCE CO NFIRMED BY THE LD. 46 CIT(A) BEING 10% OF SUCH EXPENSES IS QUITE REASONAB LE. THUS, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND THE SA ME IS UPHELD. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO.46(ASR)/2013 IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IN ITA NO.128(ASR)/2013 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11TH SEPT., 2013. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 11 TH SEPT., 2013 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. DEEPAK HERITAGE, PHAGWARA. 2. THE ADDL. CIT, PHAGWARA RANGE, PHAGWARA. 3. THE CIT(A),JALANDHAR. 4. THE CIT, JALANDHAR. 5. THE SR DR, ITAT, AMRITSAR.