M/s. Morakhia Metal & Alloys Pvt.Ltd, Ahmedabad V. Dy. CIT,(OSD)-1,Circle-4, Ahmedabad

ITA 667/AHD/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9893 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 15-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bogus purchase; Principle of natural justice; Cost of acquisition; Corroborative evidences
• Section: 69C; 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, B BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA.NO.667/AHD/2016 / ASSTT. YEAR: 2011-12 M/S.MORAKHIA METAL & ALLOYS P.LTD. 12, 2 ND FLOOR, B-WING MARADIA PLAZA, C.G. ROAD AHMEDABAD 380 063. PAN : AAACM 3439 J VS. DCIT(OSD) - 1 CIR.4, AHMEDABAD. ( APPLICANT ) ( RESPONENT ) ASSESSEE BY : SHRI PARIMAL PARMAR, AR REVENUE BY : SHRI MUDIT NAGPAL, SR.DR / DATE OF HEARING : 01/11/2018 / DATE OF PRONOUNCEMENT: 11/12/2018 +,/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDER OF LD.CIT(A)-2, AHMEDABAD DATED 25.1.2016 PASSED THE ASSTT.YEAR 201 1-12. 2. ASSESSEE HAS TAKEN EIGHT GROUNDS OF APPEAL, WHIC H ARE ARGUMENTATIVE AND DESCRIPTIVE IN NATURE. IN BRIEF, ITS GRIEVANCE S REVOLVE AROUND THREE ISSUES VIZ. (I) THE LD.CIT(A) HAS ERRED IN CONFIRMING DISA LLOWANCE OF PURCHASE AMOUNTING TO RS.3,06,32,999/- AFTER HOLDING IT TO B E BOGUS; (II) THE LD.CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS.21,566/- OUT OF RS.4,20,334/- MADE BY THE AO UNDER SECTION 14A R.W.R. 8D; AND (II I) THE LD.CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS.2,19,474/- UNDER S ECTION 36(1)(VA) OF THE ITA NO.667/AHD/2016 2 ACT ON ACCOUNT OF LATE PAYMENT OF EMPLOYEES CONTRI BUTION TOWARDS PROVIDENT FUND. 3. AT THE TIME OF HEARING NO ARGUMENTS WERE ADVANCE D QUA DISALLOWANCE OF RS.21,566/- MADE WITH AID OF SECTION 14A R.W.S. 8D BY THE LD.COUNSEL FOR THE ASSESSEE. CONSIDERING SMALLNESS OF THE AMOUNT INVOLVED THEREIN, ASSESSEE DID NOT PRESS THIS GROUND OF APPEAL, HENCE IT IS RE JECTED. 4. AS FAR AS DISALLOWANCE OF RS.2,19,474/- IMPUGNED IN THIRD FOLD OF GRIEVANCE, THIS ISSUE IS SQUARELY COVERED AGAINST T HE ASSESSEE BY THE DECISION HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. G UJARAT STATE ROAD TRANSPORT CORPORATION LTD., 41 TAXMANN.COM 100 (GUJ ) WHEREIN THE HONBLE HIGH COURT HELD THAT IF AMOUNT OF EMPLOYEES PF CON TRIBUTIONS ARE NOT DEPOSITED WITHIN TIME LIMIT PROVIDED IN THE RESPECT IVE ACTS, I.E. PROVIDENT FUND AND ESI ACT, THEN DEDUCTION WILL NOT BE ADMISS IBLE TO THE ASSESSEE. IN VIEW OF THIS JUDGMENT OF HONBLE JURISDICTIONAL HIG H COURT, WE REJECT THIS GROUND OF APPEAL. 5. NOW WE TAKE FIRST FOLD OF GRIEVANCE, WHICH IS TH E MAIN GRIEVANCE OF THE ASSESSEE. 6. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE AT THE RELEVANT TIME WAS ENGAGED IN MANUFACTURING OF FERROUS AND NON-FERROUS METAL. IT HAS FILED IT RETURN OF INCOME ON 30.9.2011 DECLARING TOTAL INCOM E AT RS.1,19,12,250/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED AND SERV ED UPON THE ASSESSEE. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE AO THA T MAHARASHTRA SALES TAX DEPARTMENT HAS CONDUCTED VARIOUS INQUIRIES QUA THREE PARTIES VIZ. PARASNATH ENTERPRISES, SENDOZ STEELS AND NAVKAR IMPEX. ACCOR DING TO THE INFORMATION TRANSMITTED BY THE MAHARASHTRA SALES TAX DEPARTMENT , THESE CONCERNS WERE ITA NO.667/AHD/2016 3 INVOLVED IN GIVING BOGUS TAX INVOICES WITHOUT MOVEM ENT OF GOODS. THEY ISSUED BILLS ONLY FOR THE SAKE OF COMMISSION. THE ASSESSEE HAD THE FOLLOWING PURCHASES FROM THESE CONCERNS VIZ: I) PARASNATH ENTERPRISE : RS.1,40,61,135/- II) SENDOZ STEELS : RS.1,27,98,864/- III) NAVKAR IMPEX : RS. 37,70,000/- RS.3,06,32,999/-. THE LD.AO HAS CONFRONTED THE ASSESSEE AS TO WHY THE SE PURCHASES SHOULD NOT BE DISALLOWED. THE ASSESSEE HAS SUBMITTED THAT TRA DING GOODS PURCHASED FROM THE ABOVE PARTIES WERE SOLD TO DIFFERENT PARTIES, A ND THEIR BILLS ARE MARKED AS ANNEXURE-B. THE ASSESSEE HAS EARNED PROFIT OF RS.1 5,29,625/- ON SALE OF ABOVE GOODS AND SUCH PROFIT HAS BEEN OFFERED FOR TA XATION. THE ASSESSEE HAS SUBMITTED OTHER SUPPORTING EVIDENCE SHOWING THE GEN UINENESS OF PURCHASES. THE LD.AO WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE. HE RELIED UPON THE STATEMENT OF REPRESENTATIVES OF THESE CONC ERNS GIVEN BEFORE THE MAHARASHTRA SALES TAX DEPARTMENT AND TREATED THE PU RCHASES AS BOGUS. ACCORDINGLY, HE MADE THE ADDITIONS. DISSATISFIED W ITH THE ADDITIONS, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD .CIT(A). IT HAS FILED WRITTEN SUBMISSIONS WHICH HAS BEEN REPRODUCED BY THE LD.CIT (A). LET US TAKE NOTE OF RELEVANT PART OF SUCH SUBMISSIONS, WHICH IS SELF-EX PLANATORY. IT READS AS UNDER: THE RELEVANT EXTRACTS FROM THE SUBMISSION DTD. 18. 11.2015 OF THE APPELLANT ARE REPRODUCED HERE UNDER:- 4. THE FIRST ISSUE PERTAINS TO ACTION OF LEARNED AO IN TREATING PURCHASES OF RS.3,06,32,999/- AS BOGUS PURCHASES. 4.1 DURING THE YEAR UNDER CONSIDERATION, LEARNED AO FOUND THAT MAHARASHTRA SALES TAX. DEPARTMENT HAS INVESTIGATED THAT M/S. PARASNATH ENTERPRISES, M/S. NAVKAR IMPEX AND M/S. S ENDOZ STEELS - WITH OTHER PARTIES WERE INVOLVED IN ISSUING BOGUS T AX INVOICES WITHOUT MOVEMENT OF GOODS FOR THE SAKE OF COMMISSI ON. STATEMENTS OF KEY PERSONS OF SUCH PARTIES WERE ALSO RECORDED B Y SALES TAX ITA NO.667/AHD/2016 4 DEPARTMENT, MAHARASHTRA. APPELLANT HAS MADE PURCHAS ES AS FOLLOWS FROM THE AFORESAID PARTIES: 1. PARASNATH ENTERPRISE : RS. 1,40,61,135/ - 2. SENDOZ STEELS -: RS. 1,27,98,864/- 3. NAVKAR IMPEX : RS.37.70,000/- TOTAL RS.3,06,29,999/- HENCE, LEARNED AO ASKED THE APPELLANT TO FURNISH DE TAILS OF PURCHASES MADE FROM THE ABOVE PARTIES AND ALSO ASKE D AS TO WHY PURCHASES FROM SUCH PARTIES SHOULD NOT BE ADDED TO THE TOTAL INCOME OF THE APPELLANT BEING PURCHASES WITHOUT MOVEMENT O F GOODS AS ADMITTED BY THE ABOVE PARTIES IN THEIR STATEMENTS. IN RESPONSE TO THE SAME, APPELLANT FURNISHED ITS REPLY VIDE LETTER DAT ED 14.03.14 (COPY PLACED AT PGS.1-2 OF P/B) WHEREIN FOLLOWING ASPECTS WERE BROUGHT TO THE KNOWLEDGE OF THE LEARNED AO: > PURCHASES MADE FROM ABOVE THREE PARTIES ARE GENUINE AND PAYMENTS HAVE BEEN MADE TO SUCH PARTIES BY CHEQUE. COPIES OF LEDGERS OF SUCH PARTIES ALONG WITH COPIES OF PURCHA SE BILLS ARE PLACED AT PGS.3-33 OF P/B. > CONFIRMATION OF SENDOZ STEELS WAS ALSO PLACED BEFOR E AO. COPY OF SUCH CONFIRMATION IS PLACED AT PGS.34-35 OF P/B. TRADING GOODS PURCHASED FROM ABOVE PARTIES WERE SOL D TO DIFFERENT PARTIES RESULTING INTO PROFIT OF RS. 15,29,625/- WH ICH HAS BEEN SHOWN AS BUSINESS PROFIT AND ON WHICH TAX HAS BEEN PAID @ 30%. COPY OF SHEET AS TO WORKING OF SUCH PROFIT AND RELEVANT SAL ES INVOICES ARE PLACED AT PGS.36-62 OF P/B. > APPELLANT BOOKS OF ACCOUNTS ARE ALSO DULY AUDITED. TAX AUDIT REPORT AND AUDITED ANNUAL ACCOUNTS ARE PLACED AT PAGS 63- 110 OF P/B. ALL THE AFORESAID EVIDENCES AMPLY PROVE THAT PURCHASES FROM CONCERNED THREE PARTIES ARE GENUINE. FURTHER, LEARN ED AO HAS NOT DOUBTED FIGURES OF SALES OF THE APPELLANT. ONCE SAL ES ARE NOT IN DISPUTE, IT IS NOT OPEN FOR THE LEARNED AO TO DOUBT PURCHASES SINCE IN ABSENCE OF PURCHASE, APPELLANT COULDN'T HAVE MADE A NY SALES. ACCORDINGLY, NO DISALLOWANCE IS CALLED FOR IN RESPE CT OF THE PURCHASES MADE BY THE APPELLANT FROM THE ABOVE THRE E PARTIES. ITA NO.667/AHD/2016 5 4.2 FURTHER, DURING THE COURSE OF ASSESSMENT, LEARN ED AO ASKED THE APPELLANT TO PRODUCE EVIDENCES IN RESPECT OF FREIGH T PAID TO TRANSPORT COMPANIES, OCTROI, BILLS/INVOICES OF TRANSPORT COMP ANIES AND VEHICLE NOS. OF TRANSPORT VEHICLES USED AS CARRIERS. IN RES PONSE TO THE SAME, IT -WAS EXPLAINED TO THE LEARNED AO THAT THE AMOUNT ME NTIONED IN PURCHASE BILLS WAS INCLUSIVE OF ALL SUCH EXPENSES W HICH IS A NORMAL PRACTICE IN TRADING BUSINESS. EVEN THE APPELLANT HA S SOLD SUCH GOODS AT PRICE INCLUSIVE OF SUCH EXPENSES. HENCE, QUESTIO N OF PRODUCING EVIDENCES IN RESPECT OF SUCH EXPENSES DOESN 'T ARIS E AT ALL 4.3 FURTHER, LEARNED AO HAS HEAVILY .RELIED ON AFFI DAVIT DATED 13.12.11 BY VARIOUS PERSONS WHEREIN THEY HAVE ADMIT TED THAT THEY ARE ENGAGED IN THE ACTIVITY OF ISSUING BOGUS TAX IN VOICES WITHOUT MOVEMENT OF GOODS. LEARNED AO HAS ALSO RELIED ON ST ATEMENT OF SHRI MANOJ UDAY MEHTA, PROPRIETOR OF M/S. NAVKAR IMPEX D ATED 05.07.11. LEARNED AO HAS FURTHER RELIED ON LETTER D ATED 06.08.11 ADDRESSED TO JT. COMMISSIONER OF SALES TAX, REGISTR ATION BRANCH, MUMBAI BY ASST. COMMISISONER OF SALES TAX. (INVESTI GATION)-!5, MUMBAI WHEREIN IT HAS BEEN STATED THAT M/S. SENDOZ STEELS WAS NOT AVAILABLE ON THE GIVEN ADDRESS. APPELLANT MOST RESP ECTFULLY SUBMITS THAT NONE OF SUCH AFFIDAVIT/STATEMENT/LETTER HAS BE EN GIVEN TO THE APPELLANT BY THE LEARNED AO AT THE ASSESSMENT STAGE WHICH IS IN GROSS VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. I T IS A SETTLED LAW THAT NO EVIDENCE COLLECTED BEHIND THE BACK OF AN ASSESSE E CAN BE USED AGAINST HIM SO AS TO MAKE ANY ADDITION IN HIS HANDS UNLESS SUCH ASSESSEE IS PROVIDED SUCH EVIDENCE AND SUCH ASSESSE E IS GIVEN AN OPPORTUNITY TO REBUT THE SAME. ACCORDINGLY, APPELLA NT REQUESTS YOUR HONORS TO PROVIDE COPIES OF ABOVE AFFIDAVIT/STATEME NT/LETTER TO THE APPELLANT AND ALSO AN OPPORTUNITY TO CROSS-EXAMINE CONCERNED PERSONS IN THE LARGER INTEREST OF JUSTICE. I LEGAL SUBMISSION IN RESPECT OF ALLEGED BOGUS PURCHA SE: 5.1 IN ORDER TO DEAL WITH THE MAIN ISSUE RAISED REL ATING TO ALLEGED BOGUS PURCHASE, IT IS NECESSARY TO QUEER THE PITCH IN REGARD TO THE IMPLICATION OF THE TERM 'BOGUS PURCHASES'. THIS EXP RESSION IS USED TO CONNOTE MORE THAN ONE SITUATION. AT TIMES THE EXPRE SSION BOGUS PURCHASE' IMPLIES MERELY FICTITIOUS ENTRY IN THE BO OKS. THE ENTRY MADE IN BOOKS OF ACCOUNT IS NOT SUPPORTED BY ACTUAL RECEIPT OF GOODS. IN SUPPORT OF SUCH PURCHASE, A BILL OR VOUCHER IS O BTAINED AND PRODUCED FROM THE ALLEGED SUPPLIER. IN SHORT, A MER E ENTRY IS MADE IN ITA NO.667/AHD/2016 6 THE FINANCIAL BOOK UNSUPPORTED BY RECEIPT OF GOODS WHICH AS STATED EARLIER, IS INTENDED TO REDUCE THE PROFIT. 5.2 THE EXPRESSION 'BOGUS PURCHASE' IS ALSO USED TO COVER ANOTHER CATEGORY OF TRANSACTIONS WHERE IN FACT THE PURCHASE S ARE EFFECTED. THEY ARE REFLECTED IN THE BOOKS OF ACCOUNTS. IN SUP PORT OF SUCH PURCHASE, THE BILLS ARE PRODUCED FROM THE SUPPLIER WHO ACTUALLY DID NOT SUPPLY THE GOODS AT ALL BUT PROVIDED ONLY THE B ILLS TO COVER THE SAID PURCHASE. IN FACT, SUCH GOODS ARE OBTAINED FRO M A THIRD PARTY WHO DOES NOT WISH TO DISCLOSE ITS IDENTITY WITH A V IEW TO AVOIDING ITS OWN SALES-TAX, INCOME-TAX AND OTHER LIABILITIES. TH US, THOUGH THE PURCHASES ARE EFFECTED FROM 'A' THEY ARE SHOWN AS P URCHASE FROM 'B'. THE PAYMENTS ARE MADE TO 'B' BY CROSS ORDER CH EQUES WHO IN TURN MAKES CASH PAYMENTS TO 'A'. THIS PRACTICE IS A LSO RESORTED TO WHEN IT IS NOT PRACTICABLE TO OBTAIN THE GOODS OTHE RWISE THAN IN CASH. HOWEVER, WITH A VIEW TO AVOIDING DETECTION, SUCH GO ODS ARE ROUTED THROUGH ANOTHER PERSON WHO IS SHOWN AS OSTENSIBLE S UPPLIER. THE PAYMENTS ARE MADE BY CHEQUES TO SUPPLIER WHO IN TUR N MAKES CASH PAYMENT TO THE REAL OWNER OF THE GOODS. THESE PURCH ASES ARE THOUGH DESCRIBED AS BOGUS PURCHASES, IN FACT, REPRESENT AT THE HIGHEST INFLATED PURCHASES WHEN THE FACTUM OF RECEIPT OF GO ODS CANNOT BE DENIED NOR DISPUTED. IN THIS SITUATION, DISALLOWANC E OF THE ENTIRE ITEM OF PURCHASE FROM THESE PARTIES WOULD BE WHOLLY UNJU STIFIED NOR COULD IT BE HELD THAT THESE PURCHASES ARE BOGUS (THOUGH D ESCRIBED AS SUCH) BECAUSE THE EXPRESSION 'BOGUS' MEANS SHAM OR NOMINA L WHEN THERE IS NO EFFECTIVE RECEIPT OF GOODS. 5.3 THE THIRD SITUATION MAY ARISE UNDER WHICH A LSO THE EXPRESSION 'BOGUS PURCHASE' USED IS THAT WHEN THE PURCHASES AR E EFFECTED FROM UNACCOUNTED FOR MONEY, THESE PURCHASES ARE NOT REFL ECTED IN THE BOOKS AT ALL BUT THEY GET REFLECTED IN THE STOCK AND CONS EQUENTLY IN SALES IF THE ASSESSES CHOOSES TO BRING THE SALE PROCEEDS IN BOOK S OR OTHERWISE THE SALES ARE MADE OUTSIDE THE BOOKS AT ALL. IN THIS SI TUATION, THE ADDITION COULD ONLY BE MADE FOR UNACCOUNTED UNDISCLOSED EXPE NDITURE IN PURCHASES -WHICH -WOULD FALL UNDER THE PROVISIONS O F SECTION 69C OF THE ACT. 5.4 FURTHER THE APPELLANT RESPECTFULLY SUBMITS THAT ENTIRE PURCHASES HAVE BEEN PROPERLY RECORDED IN THE BOOKS OF ACCOUNT AND THE SAME WERE PRODUCED DURING THE COURSE OF ASSESSING PROCEE DINGS. THE AO HAS NEITHER FOUND ANY FAULT IN THE BOOKS OF ACCOUNT MAINTAINED BY THE APPELLANT NOR POINTED OUT ANY DEFECT IN THE METHOD OF ACCOUNTING ITA NO.667/AHD/2016 7 EMPLOYED BY THE APPELLANT. THE AO HAS ACCEPTED BY T HE SALES OF VARIOUS MATERIALS PURCHASED. UNDER THE CIRCUMSTANCE S IT IS NOT OPEN FOR THE AO TO DISALLOW A PART OF THE PURCHASES AS DONE IN THE PRESENT ASSESSMENT. 5.5 ANOTHER ASPECT OF THE MATTER IS THAT THE LEARNE D A. O., WITH UTMOST RESPECT, HAD TAKEN A COMPLETELY DISTORTED VIEW OF T HE ENTIRE TRANSACTION AND HAS NOT PAUSED TO EXAMINE THE EFFECT OF HIS DEC ISION. ASSUMING FOR THE SAKE OF ARGUMENT THAT PURCHASES ARE HELD TO BE BOGUS, THEN CORRESPONDING SALES RECEIPTS WHICH ARE SAID TO HAVE BEEN EFFECTED OUT OF THIS PURCHASE WOULD ALSO BE REQUIRED TO BE DELET ED AS NOT GENUINE. THEREFORE, BOTH PURCHASES AND SALES WILL HAVE TO BE REDUCED CORRESPONDINGLY AND SO ALSO THE MARGIN OF PROFIT DI SCLOSED BY APPELLANT ON THE JOB RECEIPTS. IN OTHER WORDS, TRADING ACCOUN T WILL BE REQUIRED TO BE RECAST EXCLUDING JOB RECEIPTS MADE OUT OF PURCHA SES. THEREFORE, IT IS RESPECTFULLY SUBMITTED THAT THE LEARNED A.O. WAS CL EARLY WRONG IN DISALLOWING ENTIRE PURCHASE TREATING IT AS BOGUS. R ELIANCE IS PLACED ON 'BALAJI TEXTILE INDUSTRIES (?) LTD. VS. I. T. O. (B OM.) (49ITD177) '. 5.6 ANOTHER MATERIAL ASPECT WHICH HAS BEEN LOST SIG HT IS THAT THE TRANSACTION IN QUESTION IS OF PURCHASE AND SALE I.E . THE RELATIONSHIP BETWEEN THE SUPPLIER AND THE APPELLANT IS THAT OF S ELLER AND PURCHASER AND NOT WHICH EXISTS BETWEEN LOAN CREDITOR /DEPOSIT OR AND THE APPELLANT AS A DEBTOR. IN OTHER WORDS, THERE IS NO DEBTOR CRE DITOR RELATIONSHIP QUA THE TRANSACTION IN QUESTION. THEREFORE, ENTIRE TRAN SACTION OF /PURCHASE AND SALE HAS TO BE EXAMINED ON BROAD, ACCEPTED, COMMERCIAL PRINCIPLES. IT IS TRITE LAW TO SAY THAT IN COMPUTIN G PROFITS AND GAINS OF BUSINESS, AO IS REQUIRED TO APPROACH THE QUESTION F ROM A BUSINESSMAN POINT OF VIEW AND NOT FROM THE ANGLE OF REVENUE. NO W THE TRANSACTION RELATING TO PURCHASE AND SALES IS GOVERNED BY THE P ROVISIONS OF SALE OF GOODS ACT. IN THIS CONNECTION ATTENTION IS INVITED TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CHOWRINGHEE SA LES BUREAU P. LTD. VS. C.I.T. (SC) (87LT.R. 542) IN WHI CH AT PAGE 547 IT IS INTER ALIA STATED THUS: 'SECTION 4 OF THE ACT PROVIDES INTER ALIA, THAT CON TRACT -WHEREBY THE SELLER TRANSFERS OR AGREES TO TRANSFER THE PROPERTY IN THE GOODS TO THE BUYER FOR A PRICE. WHERE UNDER A CONTRACT OF SALE, THE PROPERTY IN THE GOODS IS TRANSFERRED FROM THE SELLER TO THE BUYER, THE CONTRACT IS CALLED SALE.' 7. THE LD.CIT(A) THEREAFTER REPRODUCED CASE LAWS CI TED BY THE ASSESSEE, HOWEVER, DID NOT CONCUR WITH THE SUBMISSION OF THE ASSESSEE AND CONFIRMED THE DISALLOWANCE. BEFORE US, THE LD.COUNSEL FOR T HE ASSESSEE RAISED TWO FOLD OF SUBMISSIONS. IN THE FIRST FOLD OF CONTENTIONS, HE SUBMITTED THAT EVIDENCE ITA NO.667/AHD/2016 8 POSSESSED BY THE AO IS THE INFORMATION SUPPLIED BY THE MAHARASHTRA SALES TAX DEPARTMENT FOR DOUBTING THE PURCHASES MADE BY T HE ASSESSEE. THE STATEMENTS OF REPRESENTATIVE OF THESE CONCERNS WERE RECORDED FROM THE BACK OF THE ASSESSEE. THE AO HAS NOT SUPPLIED COPIES OF TH ESE STATEMENT AS WELL AS AFFIDAVITS ALLEGED TO HAVE BEEN FILED BY THESE PERS ONS DEPOSING THEREIN THAT THEY PROVIDED ACCOMMODATION ENTRY. HENCE, IN VIEW OF THE HONBLE SUPREME COURT JUDGMENT IN THE CASE OF ANDAMAN TIMBER INDUST RIES VS. CIT, 62 TAXMANN.COM 3 (SC) SUCH STATEMENT AS WELL AS AFFIDA VITS COULD NOT BE RELIED UPON BY THE AO UNLESS AN OPPORTUNITY TO CROSS-EXAMI NE THESE PERSONS GIVEN TO THE ASSESSEE. ONCE THESE STATEMENTS AND AFFIDAV ITS ARE BEING EXCLUDED THEN THERE IS NOTHING WITH THE AO TO DOUBT THE PURCHASES MADE BY THE ASSESSEE. IN THE SECOND FOLD OF SUBMISSIONS, HE CONTENDED THAT T HE ASSESSEE HAS PLACED ON RECORD DETAILS OF SALES MADE OUT OF THE ABOVE GOODS . IT HAS ALSO PLACED ON RECORD DETAILS OF PAYMENTS MADE THROUGH ACCOUNT PAY EE CHEQUES TO THESE CONCERNS. HE ALSO POINTED OUT THAT THE PROFIT AT 5 % OF THE SALES HAVE BEEN SHOWN BY THE ASSESSEE IN THE RETURN FILED. HENCE, ACCORDING TO THE LD.COUNSEL FOR THE ASSESSEE, ONCE CORRESPONDING SALES HAVE NOT BEEN DISPUTED, THEN TOTAL PURCHASE COST COULD NOT BE DISALLOWED, BECAUSE THE ASSESSEE GOT MATERIAL, OUT OF WHICH, SALES HAVE BEEN MADE. IF NO MATERIAL COU LD EVER BEEN REACHED TO THE ASSESSEE, THEN SALES COULD NOT BE MADE. ALTERNATIV ELY, HE SUBMITTED THAT ELEMENT OF PROFIT INVOLVED IN THESE TRANSACTIONS AT THE MOST COULD BE ADDED AS INCOME OF THE ASSESSEE. HE POINTED OUT THAT IN THE CASE OF GANESH INDUSTRIES V. ITO, ITA NO.93/AHD/2016 AND 814/AHD/2016, ITAT, AHMEDABAD HAS ESTIMATED PROFIT. SIMILARLY, HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. GUJARAT AMBUJA EXPORTS IN TAX APPEAL NO.840 OF 2013 UPHELD THE ADDITION AT THE RATE OF 5% OF ALLEGED BOGUS PURCHAS ES WHICH WOULD MEET ENDS OF JUSTICE. ON THE OTHER HAND, THE LD.DR RELIED UP ON THE ORDER OF THE AO. ITA NO.667/AHD/2016 9 8. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND GONE TH ROUGH THE RECORD CAREFULLY. NO DOUBT, THE HONBLE SUPREME COURT HAS PROPOUNDED IN THE CASE OF ANDAMAN TIMBER INDUSTRIES VS. CCE (SUPRA) THAT S TATEMENT RECORDED FROM THE BACK OF THE ASSESSEE CANNOT BE RELIED UPON UNLE SS AN OPPORTUNITY TO CROSS- EXAMINE IS BEING PROVIDED TO THE ASSESSEE. SUCH ST ATEMENT DESERVES TO BE EXCLUDED. IT IS PERTINENT TO OBSERVE THAT THE AO H AS REPRODUCED COMPLETE STATEMENT OF REPRESENTATIVES OF THESE CONCERNS. TH ESE STATEMENTS WERE RECORDED BY THE INVESTIGATION WING OF MAHARASHTRA S ALES TAX DEPARTMENT. AT THAT POINT OF TIME, THERE COULD NOT BE ANY MOTIVE T O GIVE ANY STATEMENT AGAINST THE ASSESSEE. THEY MUST HAVE DISCLOSED THE TRUTH W ITH REGARD TO THEIR MODUS OPERANDI . ONCE SUCH TYPE OF INFORMATION IS BEING POSSESSED BY THE AO, THEN AO COULD SUSPECT THE CLAIM MADE BY THE ASSESSEE. T HUS, FIRST ONUS WILL BE UPON THE ASSESSEE TO DEMONSTRATE THAT PURCHASES MAD E BY HIM ARE GENUINE. THE ASSESSEE HAS PRODUCED COPIES OF BILL AND LEDGER ACCOUNT. IT HAS PRODUCED COPIES OF BILL AND LEDGER. IT HAS PRODUCED DETAILS OF PAYMENT THROUGH BANKING CHANNEL AND CONFIRMATION FROM ONE OF THE SUPPLIES I .E. SENDOZ STEEL. TO OUR MIND, THE QUANTITY AND QUALITY OF EVIDENCE PRODUCED BY THE ASSESSEE IS NOT SUFFICIENT. THE LEDGER AND PURCHASES BILLS ARE MAI NTAINED BY THE ASSESSEE. NO CORRESPONDING ENTRIES FROM THE SUPPLIERS. THUS, TH E ASSESSEE FAILED TO DISCHARGE ONUS OF DEMONSTRATING PURCHASES ARE GENUI NE. EVEN IF WE EXCLUDE EVIDENCE REFERRED BY THE AO BY PUTTING RELIANCE UPO N THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF ANDAMAN TIMBER INDUSTRIES (SUPRA), THEN ALSO WE ARE NOT SATISFIED WITH THE QUALITY OF EVIDENCE PRODUCED BY THE ASSESSEE TO BELIEVE THAT PURCHASES MADE BY IT FROM THESE CONCERNS ARE GENUINE. THEREFORE, WE DO NOT FIND FORCE IN THE FIRST FOLD O F CONTENTION RAISED BY THE LD.COUNSEL FOR THE ASSESSEE. HOWEVER, WE FIND FORC E IN THE ALTERNATIVE CONTENTION OF THE ASSESSEE. ELEMENT OF EXTRA PROFI T EARNED BY THE ASSESSEE IN THIS EXERCISE DESERVES TO BE ADDED IN THE TOTAL INC OME. FIRST DISPUTE CAN BE APPRECIATED WITH AN EXAMPLE. AN ASSESSEE MAKES A P URCHASE FROM PARTY A ITA NO.667/AHD/2016 10 BUT OBTAIN BILL FROM PARTY B. IN THIS EXERCISE, IT AVOIDS TO PAY CERTAIN TAXES SAY, SALES-TAX, EXCISE DUTY ETC. OTHERWISE, QUANTI TY OF SALES CANNOT BE ACHIEVED IF PURCHASES ARE NOT BEING MADE. IN THE P RESENT CASE ALSO THE ASSESSEE HAS SHOWN SALES, I.E. SALES HAVE NOT BEEN DISPUTED BY THE AO. SIMILARLY, QUANTITY OF SALES HAS ALSO NOT BEEN DISP UTED. THIS ASPECT HAS COME UP TIME AND AGAIN BEFORE THE HONBLE GUJARAT HIGH C OURT ALSO IN THE CASE OF GUJARAT AMBUJA EXPORT LTD. (SUPRA) AS REFERRED BY T HE LD.COUNSEL FOR THE ASSESSEE. PROFIT AT THE RATE OF 5% ON SUCH TRANSAC TION HAS BEEN ESTIMATED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. SIMILAR LY, IN THE CASE OF GANESH INDUSTRIES (SUPRA), WE HAVE CONSIDERED SIMILAR ISSU E, WHEREIN WE ESTIMATED GP AT 5% TO 6% ON THESE TRANSACTIONS, BECAUSE THE A SSESSEE HAD ALREADY DISCLOSED GP ON THE ALLEGED BOGUS PURCHASES AT 14.2 7% IN THAT CASE. IN THE PRESENT CASE ALSO, THE ASSESSEE HAS ALREADY OFFERED PROFIT AT 5%. IT HAS SHOWN THE INCOME ON THESE PURCHASES AT RS.15,29,625/-. I F WE FURTHER ESTIMATE PROFIT AT 5% THAT WILL MEET ENDS OF JUSTICE. IT TAKES CAR E OF AVOIDANCE OF PAYMENT OF TAX ETC. AND EARNING OF EXTRA PROFIT. THEREFORE, W E PARTLY ALLOW THIS GROUND OF APPEAL AND DIRECT THE AO TO ESTIMATE PROFIT AT 5% ( FIVE PERCENT) OVER AND ABOVE PROFIT DISCLOSED BY THE ASSESSEE ON THESE ALL EGED BOGUS PURCHASE. IN OTHER WORDS, ADDITION OF RS.15,29,625/- MORE WOULD BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE. IN VIEW OF THE ABOVE DISCU SSION, THIS GROUND OF APPEAL IS PARTLY ALLOWED. 9. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY A LLOWED. ORDER PRONOUNCED IN THE COURT ON 11 TH DECEMBER, 2018 AT AHMEDABAD. SD/ - (AMARJIT SINGH) ACCOUNTANT MEMBER SD/ - (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 11/12/2018