THE ITO, Ward-1(2), V. M/S DOLAT PROTEINS, GONDAL

ITA 676/RJT/2003

• Counselvise Citation: 67624914 RSA 2003
• Duration Of Justice: 9 year(s) 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 13-06-2013
• Assessment Year: 1995-1996
• Appeal Filed On: 26-09-2003
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K C MATHEWS
• Keywords: Bogus purchase; Reassessment proceedings
• Section: 131; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBULAL: RAJKOT BENCH: RAJKOT BEFORE SHRI T K SHARMA, JM AND SHRI D K SRIVASTAVA, AM ITA NO. 676 /RJ T/20 03 ASSESSMENT YEAR : 1995 - 96 ITO, WARD(2), RAJKOT V. M/S. DOLAT PROTEINS, 8/B, NATIONAL HIGHWAY, BHOJPARA GONDAL D ATE OF HEARING : 13 .0 6 .2013 DATE OF PRONOUNCEMENT : 31 .0 7 .2013 REVENUE BY : SHRI K C MATHEWS , SR. DR ASSESSEE BY : SHRI SANJAY R SHAH, CA ORDER D. K. SRIVASTAVA: THIS ORDER IS BEING PASSED IN COMPLIANCE WITH THE FOLLOWING DIRECTIO NS GIVEN BY THE HONBLE J URISDICTIONAL HIGH COURT IN ITS ORDER DATED 13.12.2011 IN THE DEPARTMENTS APPEAL IN THE CASE OF THE ASSESSEE , I.E., CIT V. DOLAT PROTEINS, TAX APPEAL NO.561 OF 2010: - HAVING THUS HEARD LEARNED COUNSEL FOR THE PARTIES AND HAVING PERUSED THE ORDERS ON RECORD, WE ARE OF THE VIEW THAT THE TRIBUNAL WRONGLY APPLIED THE DECISION IN THE CASE OF SANJAY OILCAKE INDUSTRIES [SUPRA] TO CONFIRM THE DECISION OF THE CIT[A]. IT IS NOT IN DISPUTE THAT IN THE CASE OF SANJAY OILCAKE INDUSTRIES, THIS COURT HAS CONFIRMED THE ADDITION OF 25% OF THE PURCHASES DECLARED BY THE ASSESSEE. IN THE PRESENT CASE, ADMITTEDLY, THE ADDITION RESTRICTED BY THE CIT[A] COME TO BARELY 3% OF THE PURCHASES. IF THE TRIBUNAL WAS OF THE OPINION THAT BEING THE TRADER, LESSER ADDITION WAS JUSTIFIED, SUCH ASPECT WAS NOT DISCUSSED IN THE TRIBUNAL ORDER. EVEN THE CIT[A] HAS NOT GONE ON THIS FOOTING AND RESTRICTED THE ADDITION BY COMPARING THE NET PROFIT OF THE ASSESSEE AND OTHER FIGURES SUCH AS INTEREST PAYMENT AND SALARY TO THE P ARTNERS. IT MAY BE, AS IS SUGGESTED BY THE COUNSEL FOR THE ASSESSEE THAT THE PERCENTAGE OF ADDITION TO BE MADE IN SUCH CASES, IF THE ASSESSEE HAPPENS TO BE A TRADER AND NOT A MANUFACTURING, MAY BE DIFFERENT. HOWEVER, NEITHER THE CIT [A] NOR THE TRIBUNAL HA S EXAMINED THE ISSUE FROM THIS ANGLE. IN PARTICULAR, THE TRIBUNALS ORDER WHICH RESTS ON THE DECISION OF THIS COURT IN CASE OF SANJAY OILCAKE INDUSTRIES [SUPRA], CANNOT SUSTAIN. 2 676 - RJT - 2003 - DOLAT PROTEINS IN THE RESULT, THE ORDER OF THE TRIBUNAL DATED 26 TH JUNE 2009 IS SET - ASIDE. P ROCEEDINGS ARE REMANDED TO THE TRIBUNAL FOR FRESH CONSIDERATION, AFTER HEARING BOTH THE SIDES. TAX APPEAL IS DISPOSED OF. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE, A PARTNERSHIP FIRM, FILED ITS RETURN OF INCOME ON 30.10.1995 RETURNING TOTAL INCOME AT RS.9,000/ - . NOTICE U/S 147/148 WAS ISSUED BY THE ASSESSING OFFICER ON 04.07.1997 TO REASSESS THE TOTAL INCOME OF THE ASSESSEE. BY THE SAID NOTICE, THE ASSESSEE WAS CALLED UPON TO FURNISH ITS RETURN OF INCOME P URSUANT TO WHICH THE ASSESSEE SUBMITT ED BEFORE THE ASSESSING OFFICER THAT ITS EARLIER RETURN FILED ON 30.10.1995 MAY BE TREATED AS RETURN FILED IN RESPONSE TO NOTICE U/S 147/148. DURING THE COU RSE OF REASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD RECORDED PURCHA SES AMOUNTING TO RS.1,23,43,311/ - FROM M/S. SHREENATHJI INDUSTRIES, SHAPAR IN ITS BOOKS OF ACCOUNT . IN ORDER TO VERIFY THE GENUINENESS OF THE AFORESAID PURCHASES REPORTEDLY MADE FROM M/S. SHREENATHJI INDUSTRIES, THE ASSESSING OFFICER DEPUTED HIS I NSPECTOR. THE INSPECTOR VISITED THE PREMISES OF M/S. SHREENATHJI INDUSTRIES ON 16.08.1995 AND REPORTED TO THE ASSESSING OFFICER THAT NOBODY WAS COMING TO ATTEND THE BUSINESS OF M/S. SHREENATHJI INDUSTRIES FOR LAST TWO YEARS. STATEMENT OF SHRI KALABHAI JIVRAJBHAI MA KWANA WAS ALSO RECORDED AT THE BUSINESS PREMISES OF M/S. SHREENATHJI INDUSTRIES U/S 131 OF THE INCOME - TAX ACT ON 17.08.199 4 DURING WHICH IT WAS STATED BY SHRI KALABHAI JIVRAJBHAI MAKWANA THAT MILL OF M/S. SHREENATHJI INDUSTRIES WAS CLOSED ABOUT FOUR YEARS AGO AND THAT NO GOODS HAD EITHER ENTERED OR LEFT OUT OF THE MILL DURING LAST FOUR MONTHS. THE ASSESSING OFFICER THEREAFTER PERUSED THE REPORT GIVEN BY THE EXECUTIVE ENGINEER, GUJARAT ELECTRICITY BOARD, SHAPAR WITH REGARD TO THE CONSUMPTION OF ELECTRICITY B Y MI/S SHREENATHJI INDUSTRIES . HE NOTICED THAT THERE WAS HARDLY ANY CONSUMPTION OF ELECTRICITY TO SUSTAIN THE RUNNING OF OIL MILL. THE ASSESSING OFFICER ALSO NOTICED THAT THE PRODUCTION LICENSE, WHICH ENABLED M/S. SHREENATHJI INDUSTRIES TO RUN THE OIL MILL , WAS CANCELLED BY THE MAMLATDAR, VANTHALI . THE ASSESSING OFFICER ALSO PERUSED THE REPORT OF THE MAMLATDAR DATED 18 .07.1995 AND NOTICED THAT THE FACTORY WAS FOUND TO BE CLOSED EVEN BY THE MAMLATDAR. ACCORDING TO THE REPORT OF THE MAMLATDAR, NEITHER THE BOOKS OF ACCOUNTS WERE FOUND NOR WAS ANY STAFF FOUND AT THE PREMISES OF M/S. 3 676 - RJT - 2003 - DOLAT PROTEINS SHREENATHJI INDUSTRIES. BASED ON THE REPO RT OF THE MAMLATDAR, THE ASSESSING OFFICER CONCLUDED THAT NO TRANSACTIONS WERE MADE FROM THE BUSINESS PREMISES OF M/S. SHREENATHJI INDUSTRIES, SHAPAR. I NQUIRIES WERE ALSO CONDUCTED BY THE ACIT, JUNAGADH CIRCLE, JUNAGADH WHICH REVEALED THAT M/S. SHREENATHJI INDUSTRIES WAS NOT IN A POSITION TO MANUFACTURE/PRODUCE ANY OIL OR OIL CAKE OR SELL THE SAME. IT WAS ALSO FOUND THAT M/S. SHREENATHJI INDUSTRIES, SHAPAR WAS INVOLVED IN ISSUING BOGUS BILLS ON COMMISSION BASIS. T HE ASSESSING OFFICER ISSUED A SH OW - CAUSE NOT ICE DATED 17.09.1999 CONFRONTING THE ASSESSEE WITH THE AFORESAID INFORMATION AND CALLING UPON THE ASSESSEE TO SHOW - CAUSE AS TO WHY THE PURCHASES AMOUNTING TO RS.1,23, 52 ,311/ - REPORTEDLY MADE FROM M/S. SHREENATHJI INDUSTRIES SHOULD NOT BE DISALLOWED. AFTER GOING THROUGH THE REPLY FURNISHED BY THE ASSESSEE, THE ASSESSING OFFICER HELD AS UNDER: - 7. THE ASSESSEE VIDE ITS REPLY DATED 17/1/2000 SUBMITTED THAT IT HAS FULLY REPLIED AND SUBMITTED XEROX COPIES OF PROOF PROVING GENUINENESS OF PURCHASES SUPPORTED BY EVIDENCES AND PROOF AS SHOWN BY IT. THE ASSESSEE FURTHER SUBMITTED THAT IT HAS GIVEN COPIES OF PROOF REGARDING PURCHASES FROM M/S. SHREENATHJI INDUSTRIES. THE ASSESSEE SUBMITTED THAT SALES ARE MADE AGAINST PURCHASES AND THESE SALES ARE NOT OBJECTED BY THE DEPARTMENT. THE ASSESSEE ALSO SUBMITTED THAT PURCHASES ARE NOT EXPENSES U/S.37(1) OF THE INCOME TAX ACT, 1961 AND HAS PROVED THE PURCHASES BY BILLS, PURVATHA REGISTER, PAYMENTS BY CHEQUES AS PER LAW AND SALES OF THE PURCHASES. 8. THE SUBMISSION OF THE ASS ESSEE CANNOT BE ACCEPTED FOR THE FOLLOWING REASONS: - 8.1 AS IT IS OBVIOUS FROM THE ABOVE, M/S. SHREENATHJI INDUSTRIES, SHAPER WAS NOT IN A POSITION TO MAKE ANY SALES. WITH THE FIGURE OF ELECTRICITY CONSUMPTION AS MENTIONED ABOVE IN THE CASE OF M/S. SHREEN ATHJI INDUSTRIES, SHAPER IT IS NOT POSSIBLE FOR IT TO ACHIEVE SUCH TURNOVER. WITHOUT ANY PRODUCTION NO SALES ARE POSSIBLE. 8.2 THE LICENSE OF M/S. SHREENATHJI INDUSTRIES WAS CANCELED. 4 676 - RJT - 2003 - DOLAT PROTEINS 8.3. M/S. SHREENATHJI INDUSTRIES, SHAPER HAD MADE NO REAL TRANSACTION S. IT HAD JUST ISSUED BILLS ON COMMISSION BASIS. 8.4. IT IS FOUND FROM THE BANK ACCOUNT OF M/S. SHREENATHJI INDUSTRIES, SHAPER THAT THE AMOUNTS DEPOSITED IN ITS BANK ACCOUNTS BY TRANSFER HAVE BEEN RETURNED BY CASH ON THE SAME DATE OR IMMEDIATELY THEREAFTE R. THIS ALSO PROVES THAT THE CHEQUES/DEMAND DRAFTS ISSUED IN FAVOUR OF M/S. SHREENATHJI INDUSTRIES, SHAPER WERE DEPOSITED IN ITS BANK ACCOUNTS AND IMMEDIATELY THE AMOUNTS HAD BEEN WITHDRAWN BY CASH AFTER DEDUCTING THE COMMISSION AND RETURN BACK TO THE PART IES WHICH HAD ISSUED CHEQUE/DEMAND DRAFTS. 8.5 THE ASSESSEE WAS ASKED TO FURNISH CONTRA ACCOUNT FROM M/S. SHREENATHJI INDUSTRIES, SHAPER. HOWEVER, THE ASSESSEE FAILED TO FURNISH CONTRA ACCOUNTS FROM IT. 8.6 THE ASSESSEE WAS ASKED TO PROVE THE MOVEMENT O F GOODS FROM THE PREMISES OF M/S. SHREENATHJI INDUSTRIES, SHAPER. HOWEVER, THE ASSESSEE FAILED TO PROVE MOVEMENT OF GOODS FROM THE PREMISES OF M/S. SHREENATHJI INDUSTRIES, SHAPER. 8.7 THE SUBMISSION OF THE ASSESSEE THAT PURCHASES ARE NOT EXPENSES U/S.37(1 ) OF THE INCOME TAX ACT IS NOT TRUE BECAUSE THAT IS THE ONLY SECTION IN WHICH ANY EXPENSES INCURRED FOR THE PURPOSE OF BUSINESS IS ALLOWED. THE ASSESSEE FAILED TO PROVE GENUINENESS OF THE PURCHASES. 8.8 THE DECISIONS QUOTED BY THE ASSESSEE ARE NOT APPLICA BLE IN THIS CASE BECAUSE FACTS OF THE CASES ARE DIFFERENT AND THE ASSESSEE ALSO FAILED TO PROVE THE GENUINENESS OF THE PURCHASES. HENCE, THE PURCHASES MADE BY THE ASSESSEE FROM M/S. SHREENATHJI INDUSTRIES, SHAPER ARE NOT GENUINE PURCHASES. 3. HAVING I NITIALLY PROPOSED (PARA 4.6 OF THE ASSESSMENT ORDER) TO DISALLOW THE ENTIRE PURCHASES REPORTEDLY MADE FROM M/S. SHREENATHJI INDUSTRIES , THE ASSESSING OFFICER HOWEVER RESTRICTED THE DISALLOWANCE TO THE EXTENT OF 25% OF THE PURCHASES 5 676 - RJT - 2003 - DOLAT PROTEINS REPORTEDLY MADE FROM M/S . SHREENATHJI INDUSTRIES, FOLLOWING THE JUDGMENT OF THIS TRIBUNAL IN THE CASE OF M/S. VIJAY PROTEINS LTD . , 58 ITD 428. 4. THE AFORESAID ADDITION MADE BY THE ASSESSING OFFICER WAS CH ALLENGED BY THE ASSESSEE BEFORE THE LD . CIT(A). THE L D . CIT(A), HOWEVER, RESTRICTED THE QUANTUM OF THE AFORESAID ADDITIONS TO RS.3,60,000/ - WHICH WORK S OUT TO APPROXIMATELY 3% OF THE PURCHASES REPORTEDLY MADE FROM M/S. SHREENATHJI INDUSTRIES, WITH THE FOLLOWING OBSERVATIONS: - 5.10 THUS THE ENTIRE CASE IS FOUND TO BE BASED ON THE DOCUMENTS CLEARLY ESTABLISHED TO BE UNRELIABLE AND FAKE AND SUPPORTING DOCUMENTS WHICH ARE ALSO BOUND TO BE NECESSARILY FAKE AND SO IS THE POSITION OF THE ENTRIES MADE BASED ON SUCH DOCUMENTS IN APPELLANTS OWN BOOKS OF ACCOUNTS. ONCE THIS IS FACTUAL P OSITION, IT HAS TO BE HELD THE APPELLANT HAS NOT BEEN ABLE TO ESTABLISH THE CLAIM OF DEDUCTION OF SUCH EXPENSES FULLY ON THE EVIDENCES PRODUCED ARE FAKE AND UNRELIABLE. BUT THE AO HAS NOT DOUBTED THE CORRESPONDING SALES AND HAD IN A WAY ACCEPTED THIS CORRE SPONDING PURCHASES AND HE HAS DISALLOWED 25% OF SUCH PURCHASE PRICE BASED ON THE FINDING OF HON ITAT IN THE CASE OF VIJAY PROTEIN LTD (SUPRA) FOR THE BENEFIT DERIVED BY THE APPELLANT IN THE MATTER OF SAVINGS ON ACCOUNT OF TAXES AS WELL AS POSSIBLE INFLATIO N IN THE PRICE, AS THE PARTICULARS IN THE MATTER PRICE AS WELL QUANTITY WERE MENTIONED IN SUCH INVOICES, ACCORDING TO SUIT WILL AND CONVENIENCE OF THE APPELLANT. IT IS SEEN THAT VARIOUS AOS HAVE TAKEN DIFFERENT VIEW IN THE MATTER OF QUANTUM OF DISALLOWANCE MADE FOR SUCH INFLATION NOT PRICE AND ONCE SUCH CASE HAS BEEN CITED BY THE APPELLANT ALSO WHERE THE DISALLOWANCE HAVE BEEN AT 1.5% OF SUCH PURCHASE PRICE. THEN ON OVERALL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE IT APPEARS IN MY CONSIDERED VIEW THAT THE APPELLANT WOULD NOT HAVE UNDERTAKE SUCH AN EXERCISE FOR OBTAINING BOGUS BILLS WHERE HE HAS TO MAKE PAYMENT THROUGH ACCOUNT PAYEE CHEQUES AND OBTAIN THE AMOUNT BACK IN CASH AFTER DEDUCTING CERTAIN PAYMENT BY WAY OF COMMISSION FOR ISSUE OF SUC H BILLS AND FURTHER SOURCING HIS PURCHASES TO MEET QUANTITATIVE TALLY IN THE RECORDS THROUGH ALTERNATIVE SOURCE, UNLESS THE4 6 676 - RJT - 2003 - DOLAT PROTEINS APPELLANT WAS ABLE TO DERIVE SOME CONSIDERABLE BENEFIT FOR THE SAME. HERE IT WILL BE PERTINENT TO POINT OUT THAT ON THE HUGE TURNOV ER OF RS.8.98 CRORES, THE APPELLANT HAS FINALLY ARRIVED AT NET PROFIT OF RS.7,436/ - AFTER DEBITING INTEREST AND SALARY TO PARTNERS AGGREGATING RS.1,42,301/ - ONLY. EVEN AFTER FOR ADDITIONS MADE FOR ADMISSIBLE EXPENSES AND DISALLOWANCES RETURN OF INCOME WAS DECLARED AT RS.9,000/ - ONLY. EVEN IF IT IS CONSIDERED THAT THE PARTNERS OF THE APPELLANT FIRM HAD DRAWN BENEFITS BY WAY OF SALARY AND INTEREST TO THE TUNE OF RS.1,42,301/ - , THE OVER ALL PROFIT EARNED AND DISCLOSED COMES TO RS.1,51,300/ - (APPROXIMATELY), I. E. TOO LOW TO BE ACCEPTABLE. ONE HAS TO NECESSARILY BEAR IN MIND SEVERAL PERSONS, WHO ARE ENGAGED IN THE BUSINESS ACTIVITY, WOULD NOT HAVE UNDERTAKEN SUCH ACTIVITY UNLESS ON CONTINUED BASIS THEY WERE ABLE TO DERIVE REASONABLE BENEFIT FROM THE SAME. HENCE I N THE OVER ALL FACTS AND CIRCUMSTANCES OF THE CASE, SPECIALLY CONSIDERING THE VALUE OF PURCHASES FROM M/S SIS, IT IS FELT THAT AN ADDITION OF RS.3,60,000/ - WOULD BE JUSTIFIED TO COVER THE INFLATION IN THE PURCHASE PRICE AS WELL THE PROPORTIONATE DISALLOWAN CE MADE OUT OF GROUND NUT OIL EXPENSES AND DISALLOWANCE MADE BY THE AO OUT OF OTHER EXPENSES FOR PERSONAL USER FOR WHICH NO WRITTEN CONTENTIONS HAVE BEEN ADVANCED IN APPELLATE PROCEEDINGS. 5. AGGRIEVED BY THE ORDER PASSED BY THE LD CIT(A), THE REVENUE FI LED APPEAL BEFORE THIS TRIBUNAL. HOWEVER, THE TRIBUNAL CONFIRMED THE ORDER PASSED BY THE LD . CIT(A). 6. AGGRIEVED BY THE ORDER PASSED BY THIS TRIBUNAL, THE REVENUE APPROACHED THE HONBLE HIGH COURT UPON WHICH THE HONBLE HIGH COURT RESTORED THE ISSUE TO THE FILE OF THIS TRIBUNAL WITH THE OBSERVATIONS AS REPRODUCED EARLIER IN THIS ORDER. PURSUANT TO THE AFORESAID DIRECTIONS GIVEN BY THE HONBLE HIGH COURT, THE MATTER WAS HEARD AT LENGTH. 7. AT THE TIME OF HEARING , THE LD AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE REITERATED ALL THOSE SUBMISSIONS WHICH WERE EARLIER MADE BEFORE THE LD . CIT(A) AS WELL AS BEFORE THIS TRIBUNAL. HE SUBMITTED THAT THE ASSESSEE WAS A MERE TRADER IN GROUNDNUT OIL AND NOT A MANUFACTURER . HE SUBMITTED THAT THE PURCHASES MADE FROM 7 676 - RJT - 2003 - DOLAT PROTEINS M/ S. SHREENATHJI INDUSTRIES WERE FULLY RECORDED IN THE BOOKS MAINTAINED BY THE ASSESSEE WHICH WERE DULY AUDITED U/S 44AB . HE ALSO SUBMITTED THAT THE PURCHASES WERE SUPPORTED BY BILLS AND BY CORRESPONDING SALES. ACCORDING TO HIM, THE MOVEMENT OF GOODS FROM TH E PREMISES OF M/S. SHREENATHJI INDUSTRIES TO THE PREMISES OF THE ASSESSEE WAS EVIDENCED BY GATE PASS. HE SUBMITTED THAT THE BOOKS OF ACCOUNT REGULARLY MAINTAINED BY THE ASSESSEE AND AUDITED BY THE CHARTERED ACCOUNTANTS WERE WRONGLY REJECTED BY THE AO . IN T HIS CONNECTION, HE ALSO REFERRED TO THE JUDGMENT DATED 9.2.2010 OF THE HONBLE JURISDICTIONAL HIGH COURT IN ITO V. TOTARAM B SHARMA, TAX APPEAL NO.1344 AND 1355 OF 2010. WITHOUT PREJUDICE TO THE AFORESAID SUBMISSIONS , HE SUBMITTED THAT THE CASE OF THE ASSE SSEE WAS AT THE MOST A CASE OF REJECTING THE BOOKS OF ACCOUNT AND THEREAFTER A PPLYING SUITABLE RATE OF GROSS PROFIT COMMENSURATE WITH THE HISTORY OF THE ASSESSEES OWN CASE AND NOT A CASE FOR DISALLOWANCE 25% OF THE PURCHASES MADE FROM M/S. SHREENATHJI IND USTRIES. HE CONTENDED THAT THE ASSESSEE WAS NOT A MANUFACTURER AND THEREFORE THE RATE OF DISALLOWANCE OF PURCHASES APPLICABLE TO A MANUFACTURER (AS IN THE CASE OF VIJAY PROTEINS OR SANJAY OILCAKE) WOULD NOT APPL Y TO THE ASSESSEE. 8. IN REPLY, THE LD . DE PARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER PASSED BY THE ASSESSING OFFICER. 9. WE HAVE HEARD B OTH THE PARTIES AND CAREFULLY CONSIDERED THEIR SUBMISSIONS. IT IS THE ASSESSEE - FIRM WHICH HAS RECORDED THE IMPUGNED PURCHASES IN ITS BOOKS OF ACCOUNT. IT IS A WELL SETTLED PRINCIPLE OF LAW OF EVIDENCE THAT THE BURDEN TO ESTABLISH THE GENUINENESS OF TRANSACTIONS LIES ON THE P ERSON WHO ASSERTS THEIR GENUINENESS. IT IS THE CASE OF THE ASSESSEE THAT THE IMPUGNED PURCHASES WERE GENUINE AND THEREFORE IT WAS FOR ASSE SSEE TO ESTABLISH THEIR GENUINENESS. 10. THERE ARE FOUR PARAMETERS , AND ALL OF THEM MUST CUMULATIVELY BE SATISFIED, ON THE BASIS OF WHICH GENUINENESS OF PURCHASES RECORDED IN THE BOOKS CAN BE ASCERTAINED. ONE, IT MUST BE SHOWN THAT THE PARTY FROM WHOM TH E GOODS ARE CLAIMED TO HAVE BEEN PURCHASED WAS IN A POSITION TO MANUFACTURE OR IN A POSITION TO SUPPLY THE GOODS. IN OTHER WORDS, THE CAPABILITY OF THE PARTY TO SUPPLY THE GOODS CLAIMED TO HAVE BEEN PURCHASED MUST BE ESTABLISHED. TWO, THE GOODS CLAIMED TO HAVE BEEN 8 676 - RJT - 2003 - DOLAT PROTEINS PURCHASED MUST BE SHOWN TO HAVE PHYSICALLY MOVED FROM THE PREMISES OF THE PARTY FROM WHOM THEY ARE CLAIMED TO HAVE BEEN PURCHASED TO THE PREMISES OF THE PARTY BY WHOM THE GOODS ARE CLAIMED TO HAVE BEEN PURCHASED. TH REE, THE PRICE FOR PURCHASING T HE GOODS MUST BE SHOWN TO HAVE BEEN GENUINELY PAID TO THE PARTY FROM WHOM THE GOODS HAVE BEEN PURCHASED. WE SHALL NOW PROCEED TO EXAMINE THE GENUINENESS OF THE IMPUGNED PURCHASES ON THE AFORESAID PRINCIPLES. 11. THE ASSESSING OFFICER HAS BROUGHT AMPLE MAT ERIALS ON RECORD TO ESTABLISH THAT M/S. SHREENATHJI INDUSTRIES WAS NOT IN A POSITION TO SUPPLY THE GOODS REPORTEDLY PURCHASED BY THE ASSESSEE FROM M/S SHREENATHJI INDUSTRIES . HE HAS ALSO ESTABLISHED THAT M/S SHREENATHJI INDUSTRIES WAS INVOLVED IN ISSUING B OGUS BILLS ON COMMISSION BASIS AND NOT IN GENUINE PURCHASES/SALES . THE ASSESSEE HAS NO T PRODUCED ANY MATERIAL BEFORE US TO REBUT THE AFORESAID FACTS OR TO ESTABLISH THAT M/S. SHREENATHJI INDUSTRIES WAS ACTUALLY IN A POSITION TO SUPPLY THE GOODS COVERED BY THE IMPUGNED PURCHASES. SECONDLY, P ERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE ASSESSEE DID NOT PRODUCE ANY EVIDENCE BEFORE THE ASSESSING OFFICER TO ESTABLISH THE PHYSICAL MOVEMENT OF THE GOODS COVERED BY THE IMPUGNED PURCHASES FROM THE PREMISES OF M/S. SHREENATHJI INDUSTRIES TO THE PREMISES OF THE ASSESSEE. THE ASSESSEE HAS NOT PLACED ANY TRANSPORT VOUCHERS BEFORE THE DEPARTMENTAL AUTHORITIES TO ESTABLISH THAT THE GOODS WERE ACTUALLY TRANSPORTED FROM THE PREMISES OF M/S. SHREENATHJI INDUSTRIES TO THE PRE MISES OF THE ASSESSEE. THIRDLY, A SPECIFIC FINDING HAS BEEN RECORDED BY THE ASSESSING OFFICER AFTER PERUSAL OF THE BANK ACCOUNT OF M/S. SHREENATHJI INDUSTRIES THAT THE AMOUNTS DEPOSITED IN THE BANK ACCOUNT OF M/S. SHREENATHJI INDUSTRIES WERE WITHDRAWN IN C ASH ON THE SAME DAY O N WHICH THEY WERE PAID/ DEPOSITED. THE FINDINGS RECORDED BY THE ASSESSING OFFICER IN PARAGRAPH 8.4 OF THE ASSESSMENT ORDER TO ESTABLISH THAT THE IMPUGNED PURCHASES WERE BOGUS HA VE NOT BEEN REBUTTED. IN FACT, NONE OF THE FINDINGS RECORDE D BY THE ASSESSING OFFICER IN PARAGRAPH 8 OF THE ASSESSMENT ORDER HA S BEEN REBUTTED BY THE ASSESSEE. ON THESE FACTS, WE HAVE NO DOUBT IN OUR MIND THAT THE IMPUGNED PURCHASES ARE BOGUS AND ENTRIES SHOWING SUCH PURCHASE IN THE BOOKS ARE FICTITIOUS . IT IS WEL L SETTLED THAT TRANSACTIONS WHICH ARE BOGUS AND FICTITIOUS SHOULD BE COMPLETELY IGNORED. IF SO IGNORED , THE AMOUNT CLAIMED TO HAVE BEEN PAID IN LIEU OF 9 676 - RJT - 2003 - DOLAT PROTEINS SUCH PURCHASES IS LIABLE TO BE DISALLOWED. IT IS PERHAPS FOR THIS REASON THAT THE ASSESSING OFFICER INIT IALLY PROPOSED TO DISALLOW THE ENTIRE PURCHASES CLAIMED BY THE ASSESSEE TO HAVE BEEN MADE FROM M/S SHREENATHJI INDUSTRIES. IN FACT, THE ACTION INITIALLY PRO POSED BY THE ASSESSING OFFICER TO FULLY DISALLOW THE IMPUGNED PURCHASES WAS IN CONFORMITY WITH THE D ECISION S NOT ONLY OF THE HONBLE DELHI HIGH COURT IN CIT V. LA - M EDICA, 250 ITR 575 (DEL) BUT ALSO OF SEVERAL HIGH COURTS SOME OF WHICH ARE (I) KAVERI RICE MILLS V. CIT, 157 TAXMAN 376 (ALL.); (II) SREE RAJVEL & CO. V. CIT, 268 ITR 267 (KER.); (III) DEORIA OXYGEN CO. V. CIT, 160 TAXMAN 427 (ALL . ); (IV) SRI GANESH RICE MILLS V. CIT, 294 ITR 316 (ALL.); AND (V) CIT V. A R CHOCKALINGAM CHETTIAR & SONS, 19 5 TAXMAN 222. 12. IT MAY BE RELEVANT TO MENTION AT THIS STAGE THAT THE ASSESSEE HAS PLACED NO EVIDENCE TO ESTABLISH THAT THE SAME QUANTITY OF GOODS , WHICH WERE REPORTEDLY PURCHASED FROM M/S. SHREENATHJI INDUSTRIES , WERE PURCHASED FROM ANY OTHER SOURCE. IN FACT, THERE IS NO ENTRY IN THAT BEHALF EVEN IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. IT IS THUS A CASE WHERE THE ASSESSEE HAS FAILED TO PRODUCE ANY EVIDENCE TO ESTABLISH THE GENUINENESS OF THE PURCHASES REPORTED LY MADE FROM M/S. SHREENATHJI INDUSTRIES OR CORRESPONDING PURCHASES MADE FROM ANY OTHER SOURCE . ON THE FACTS BROUGHT ON RECORD BY THE ASSESS ING OFFICER, WE ARE ABSOLUTELY CONVINCED THAT IT IS A CASE WHERE THE ASSESSEE HAS RECORDED BOGUS AND FICTITIOUS PURCHASES FROM M/S SHREENATHJI INDUSTRIES IN ITS BOOKS AND THEREFORE THE ENTIRE AMOUNT OF PURCHASES REPORTEDLY MADE FROM M/S. SHREENATHJI INDUST RIES W AS LIABLE TO BE IGNORED AND RESULTANTLY DISALLOWED AS PROPOSED INITIALLY BY THE ASSESSING OFFICER IN THE SHOW - CAUSE NOTICE ISSUED BY HIM TO THE ASSESSEE. 1 3 . THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN SANJAY OIL CAKE INDUSTRIES V. CIT , 316 ITR 274 , APPLIES TO A SITUATION WHERE ADDITIONS ARE BASED ON ACCOUNT OF INFLATED PURCHASE PRICE AND THERE IS MATERIAL AVAILABLE ON RECORD TO INDICATE THAT THE ASSESSEE HA S MADE PURCHASES FROM SOURCES OTHER THAN THOSE RE CORDED IN THE BOOKS OF ACCOUNT. IN THE PRESENT CASE, IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS INFLATED THE PURCHASE PRICE . IT IS A CASE WHERE THE ENTIRE PURCHASES REPORTEDLY MADE FROM M/S SHREENATHJI INDUSTRIES HAVE NOT ONLY BEEN FOUND TO BE BOGUS AND FICTITIOUS BUT THAT THE ASSESSEE HAS ALSO FAILED TO LEAD 10 676 - RJT - 2003 - DOLAT PROTEINS ANY EVIDENCE THAT IT HAS MADE CORRESPONDING PURCHASES FROM ANY OTHER SOURCE. T HE AMOUNT PAID TO M/S. SHREENATHJI INDUSTRIES HAS BEEN FOUND TO HAVE BEEN DEPOSITED IN THE BANK ACCOUNT OF M/S. SHREENATHJI INDUSTRIES BUT WI THDRAWN IN CASH IMMEDIATELY THEREAFTER. O N THESE FACTS, IT IS THE JUDGMENT IN CIT V . LA - M EDICA (SUPRA) AND SEVERAL OTHER JUDGMENTS CITED SUPRA THAT SQUA RELY COVER THE ISSUE AND NOT THE JUDGMENT IN SANJAY OIL CAKE INDUSTRIES V. CIT (SUPRA). HOWEVER, THIS IS NOT THE ISSUE BEFORE US AT THIS STAGE FOR CONSIDER ATION AND DECI SION. 1 4 . AS OF NOW, WE ARE CONCERNED WITH THE CORRECTNESS OF THE QUANTUM OF DISALLOWANCE/ ADDITION MADE BY THE ASSESSING OFFICER IN THE LIGHT OF THE DIRECTION S GIVEN BY THE HONBLE J URISDIC TIONAL HIGH COURT . IT IS A CASE OF DISALLOWANCE OF BOGUS PURCHASES. BOOKS OF ACCOUNT HAVE BEEN FOUND TO BE INCORRECT TO THE EXTENT OF PURCHASES FOUND TO BE BOGUS AND THEREFORE REJECTION OF BOOKS IS LIMITED TO THAT EXTENT ONLY. IT IS NOT A CASE OF COMPLETE REJECTION OF BOOKS BUT A CASE OF REJECTION OF ENTRIES LIMITED TO BOGUS AND FICTITIOUS PURCHASES RECORDED IN THE BOOKS. WE HAVE ALREADY HELD EARLIER THAT THE IMPUGNED PURCHASES ARE BOGUS AND FICTITIOUS AND THEREFORE THEY HAVE TO BE COMPLETELY IGNORED AND DI SALLOWED. NO VIEW CAN BE MORE LIBERAL THAN THE VIEW TAKEN BY THE ASSESSING OFFICER TO DISALLOW ONLY 25% OF SUCH PURCHASES IN SPITE OF THE FACT THAT THEY ARE BOGUS AND FICTITIOUS . THE PLEA OF THE ASSESSEE THAT IT IS ONLY A TRADER AND NOT MANUFACTURER HAS NO BEARING ON THE IMPUGNED DISALLOWANCE. THE ISSUE OF MANUFACTURING OR TRADING ARISES AFTER PURCHASES HAVE BEEN MADE AND THEREFORE THE ISSUE AS TO WHETHER THE ASSESSEE IS A TRADER OR MANUFACTURER WOULD HAVE NO BEARING EITHER ON THE GENUINENESS OF PURCHASES O R ON THE QUANTUM OF DISALLOWANCE OF BOGUS PURCHASES. ON THE FACTS OF THE CASE, THE ORDER PASSED BY THE LD . CIT(A) DESERVES TO BE REVERSED AND THAT OF THE ASSESSING OFFICER RESTORED. WE ORDER ACCORDINGLY. 1 5 . WE HAVE ALSO CONSIDERED THE PLEA OF THE ASSESS EE REGARDING APPLICATION OF SUITABLE RATE OF GROSS PROFIT COMMENSURATE WITH THE PAST RECORD OF THE ASSESSEE. WE ARE UNABLE TO ACCEPT THE AFORESAID PLEA FOR T WO REASONS. ONE, IT IS NOT A CASE OF REJECTION OF BOOKS OF ACCOUNT OF THE ASSESSEE AS A WHOLE BUT A CASE OF REJECTION OF TRANSACTIONS OF BOGUS PURCHASES MADE FROM A PARTICULAR PARTY. SINCE PURCHASES FROM A SPECIFIC PARTY HA VE BEEN FOUND TO BE BOGUS, THE REJECTION OF BOOKS WILL HAVE 11 676 - RJT - 2003 - DOLAT PROTEINS TO BE NECESSARILY RESTRICTED TO DISALLOWING THAT BOGUS PURCHASE ONLY. TW O, THERE IS A FUNDAMENTAL DIFFERENCE BETWEEN (I) A CASE WHERE SPECIFIC DISALLOWANCE EITHER ON THE FACTS OF THE CASE OR BECAUSE OF STATUTORY PROVISION IS CALLED FOR ; AND (II) A CASE WHERE IT IS NOT POSSIBLE TO ASSESS THE INCOME CORRECTLY ON THE BASIS OF BOO KS OF ACCOUNT MAINTAINED BY THE ASSESSEE IN WHICH CASE APPLICATION OF A SUITABLE RATE OF PROFIT MAY BE CONSIDERED BY THE AO AS ONE OF THE TOOLS FOR ASSESSING THE TOTAL INCOME OF THE ASSESSEE. IN THE CASE BEFORE US, SPECIFIC DISALLOWANCE IS REQUIRED IN TERM S OF SECTION 37 AS THE ASSESSEE HAS FAILED TO PROVE THE GENUINENESS OF PURCHASES MADE FROM A PARTICULAR PARTY. THERE IS NO FINDING BY THE AO THAT IT IS NOT POSSIBLE FOR HIM TO ASSESS THE TOTAL INCOME OF THE ASSESSEE WITHOUT APPLYING SUITABLE RATE OF GROSS PROFIT. THE ASSESSEE HAS ALSO NOT PLACED ANY MATERIAL BEFORE US TO SHOW THAT IT HAS NOT CORRECTLY RECORDED OTHER TRANSACTIONS IN ITS BOOKS. THE FACTS OF THE CASE REQUIRE SPECIFIC DISALLOWANCE LIMITED TO THE PURCHASES NOT FOUND TO BE GENUINE AND NOT APPLICA TION OF RATE OF PROFIT. 1 6 . IN VIEW OF THE FOREGOING, A PPEAL FILED BY THE REVENUE IN THIS BEHALF IS ALLOWED. ORDER PRONOUNCED ON 31 . 0 7 . 201 3 SD/ - SD/ - (T. K. SHARMA) ( D. K. SRIVASTAVA) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT: 31 .07 .2013 B T COPY OF ORDER FORWARDED TO: - 1 . APPELLANT ITO, WARD(2), RAJKOT 2 . RESPONDENT - M/S. DOLAT PROTEINS, 8/B, NATIONAL HIGHWAY, BHOJPARA, GONDAL 3 . CONCERNED CIT - I, RAJKOT 4 . CIT (A) - I, RAJKOT 5 . DR, ITAT, RAJKOT 6 . GUARD FILE. BY ORDER TRUE COPY PRIVATE SECRETARY, ITAT, RAJKOT