M/s Ganesh Dass Piara Lal Jain, Ambala City V. ITO, Ambala

ITA 83/CHANDI/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0045 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 24-11-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 01-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Unexplained cash credit; Business income; Search and seizure; Principle of natural justice; Onus to prove
• Section: 143(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT & MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO. 83/CHD/2013 ASSESSMENT YEAR: 2009-10 M/S GANESH DASS PIARA LAL JAIN, VS. THE ITO, WARD- 4 AMABALA CITY AMABLA PAN NO. AAAFG9705C (APPELLANT) (RESPONDENT) APPELLANT BY : SH. SUDHIR SEHGAL RESPONDENT BY : SH. SUSHIL KUMAR DATE OF HEARING : 08.02.2016 DATE OF PRONOUNCEMENT : 02.05.2016 ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF CIT(A)- PANCHKULA DATED 19.12.2012 RELATING TO ASSESSMENT YEAR 2009-10. 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOL LOWING GROUNDS:- 1. THAT THE WORTHY COMMISSIONER OF INCOME TAX (A PPEALS), PANCHKULA HAS ERRED IN CONFIRMING THE ADDITION OF R S. 3,07,95,467/- ON ACCOUNT OF BOGUS PURCHASES. 2. THAT THE WORTHY COMMISSIONER OF INCOME TAX ( APPEALS) HAS FAILED TO CONSIDER THE FACT THAT THE SALES HAVI NG BEEN 2 ACCEPTED BY THE CIT (A) AND, AS SUCH, THERE WAS NO JUSTIFICATION IN MAKING THE ADDITION OF BOGUS PURCH ASES. 3. THAT THE CIT (A) HAS FAILED TO CONSIDER THE F ACT THAT BY DISALLOWING THE PURCHASES, THE GROSS PROFIT RATE CO MES TO 83%, WHICH CANNOT BE THERE IN THE ASSESSEE'S BUSINE SS. 4. THAT THE CIT (A) HAS FAILED TO GIVE ANY FINDING ON GROUND NO. 1 TAKEN BEFORE HER WITH REGARD TO THE FA CT THAT THE ASSESSING OFFICER HAS EXCEEDED THE LIMIT OF ASSESSI NG UNDER THE SCHEME OF SELECTION THROUGH CASS WHICH HE COULD NOT HAVE AND DEPARTED FROM THE JURISDICTION ENVISAGED U NDER THE SCRUTINY THROUGH CASS SELECTION OF THE CASES AS CLA RIFIED IN E.NO. 225/26/2006-ITA.II (PT.)- 3. AT THE TIME OF HEARING OF THE APPEAL, SHRI SUDHI R SEGHAL, LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS FOR GROUND NO.4 OF THE A PPEAL AND, HENCE, WE DISMISS THE SAME AS NOT PRESSED. 4. AS REGARDS GROUND NOS. 1 TO 3 OF THE APPEAL, REL EVANT FACTS ARE THAT ASSESSEE SUBMITTED ITS RETURN OF INCOME ON 30.9.200 9 DECLARING TOTAL INCOME AT RS. 5,410/-. THE ASSESSEE CARRIES ON WHOLESALE CLO TH BUSINESS. THE ONLY SOURCE OF INCOME WAS SHOWN TO BE THE BUSINESS INCOME. THE RETURN WAS PROCESSED U/S 143(1) OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE A CT'). SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES WER E ISSUED TO THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEE PRODUCED PURCHASE BILLS OF THE MATERIAL FOR THE FINANCIAL YEAR 2008-0 9, OUT OF WHICH COPIES OF CERTAIN BILLS WERE OBTAINED. THE DETAILS OF THE SA ME ARE MARKED AS ANNEXURE-A WHICH IS ANNEXED TO THE ASSESSMENT ORDER. THE ASSES SING OFFICER CONDUCTED FIELD ENQUIRES AND NOTED THAT NO SUCH PARTIES ARE IN EXISTENCE. HE, THEREFORE, ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE TO EXPLA IN AS TO WHY THESE PURCHASE BILLS SHOULD NOT BE TREATED TO BE IN-GENUINE AND BO GUS FOR INFLATED PURCHASES 3 WITH THE INTENTION TO CONCEAL THE PROFIT. IN RESPO NSE TO THE SAID NOTICE, THE ASSESSEE SUBMITTED A REPLY GIVING DETAILED EXPLANAT ION REGARDING PURCHASES. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE E XPLANATION OF THE ASSESSEE AND, AS SUCH, IT HAS BEEN HELD BY THE ASSESSING OF FICER THAT ASSESSEE HAD MADE THESE CREDIT ENTRIES IN THE BOOKS OF ACCOUNT AND HA S CREATED THERE-UNDER FALSE LIABILITY ON ACCOUNT OF THE ALLEGED SO CALLED PURCH ASES. THE ASSESSING OFFICER HELD THE AGGREGATE SUM INVOLVED IN THESE PURCHASE B ILLS AS BOGUS AND, HENCE, MADE AN ADDITION OF RS. 3,07,95,467/- TO THE ASSESS EES TOTAL INCOME. 5. ON APPEAL, THE CIT(A) UPHELD THE ORDER OF THE AS SESSING OFFICER, AND HENCE THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNA L. 6. BEFORE US, SHRI SUDHIR SEHGAL, LD. COUNSEL FOR T HE ASSESSEE SUBMITTED THAT THE AUTHORITIES BELOW HAVE MISERABLY FAILED T O APPRECIATE THAT THE PURCHASES WERE MADE THROUGH BROKER WHO USE TO DELIV ER GOODS AND RECEIVE PAYMENT ON BEHALF OF THE PARTNERS AS IT IS THE PRAC TICE OF ASSESSEES LINE OF BUSINESS. SHRI SUDHIR SEHGAL POINTED OUT THAT THE P URCHASES FROM THE PARTIES MENTIONED IN ANNEXURE A ANNEXED TO THE ASSESSMEN T ORDER WERE MADE FROM THEM THROUGH BROKERS WHO USED TO DELIVER GOODS AND RECEIVE PAYMENTS ON BEHALF OF THE PARTIES AS IS THE PRACTICE IN THIS LI NE OF BUSINESS. IT IS ALSO CLAIMED THAT DUE TO KEEN COMPETITION IN THIS LINE O F BUSINESS, THE PARTIES SUPPLY THE GOODS AT THE SHOPS OF THE PURCHASERS AND ALSO C OLLECT MONEY FROM THEM ITSELF. THUS, THE ASSESSEE IS NOT SUPPOSED TO KNOW THE SAID SOURCES ESPECIALLY WHEN THE PAYMENTS HAVE BEEN MADE AFTER DELIVERY OF GOODS AND NO ADVANCE PAYMENTS HAVE BEEN MADE. THE LD. COUNSEL FOR THE A SSESSEE VEHEMENTLY ARGUED THAT THERE WAS NO JUSTIFICATION IN DOUBTING THE PURCHASES BECAUSE IN THE ABSENCE OF THE PURCHASES, HOW THE SALES COULD BE MA DE. HE FURTHER CONTENDED THAT IF THE PURCHASES ARE TO BE EXCLUDED, AS PROPOS ED, CORRESPONDING SALES ARE 4 ALSO TO BE DECREASED, WHICH WILL MEAN NO AFFECT ON THE GROSS PROFIT WORKED OUT IN THE TRADING ACCOUNT, IF REDRAFTED. SHRI SUDHIR SEHGAL, LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT AS PER ASSESSING OFFIC ERS ASSUMPTION REDRAFTING OF THE TRADING ACCOUNT VIS-A-VIS DECREASING THE PURCHA SE AND WORKING OUT THE PROFIT BY INCREASING THE SAME TO THAT EXTENT, IS H IGHLY OBJECTED TO AS THE RATE OF PROFIT WILL WORK OUT TO 83% WHICH IS NORMALLY IMPOS SIBLE / UNBELIEVABLE BEING UN-IMAGINABLE AND HENCE CANNOT BE THERE AT ALL IN A LL PROBABILITIES, LOOKING TO THE MARKET CONDITIONS OF THIS LINE OF BUSINESS. AC CORDING TO LD. COUNSEL FOR THE ASSESSEE, IF PURCHASES ARE DISBELIEVED, THE SAL ES ARE ALSO TO BE REDUCED AS THE SALES CANNOT BE THERE WITHOUT PURCHASES. SHRI S UDHIR SEHGAL, LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT THE ASSESSI NG OFFICER HAS NOT BROUGHT OUT ANY MATERIAL ON RECORD TO JUSTIFY THE PROFIT RA TE OF 83% DEEMED TO BE ADOPTED. HE THEREFORE, SUBMITTED THAT IMPUGNED ADDI TION DESERVES TO BE DELETED. RELIANCE WAS ALSO PLACED ON THE FOLLOWING DECISIONS:- S.NO. PARTICULARS 1 KACHWALA GEMS V/S JOINT COMMISSIONER OF INCOME TAX 288ITR10(SC) 2 SARASWATHI OIL TRADERS V/S COMMISSIONER OF INCOME T AX 254 ITR 259 (SC) 3 COMMISSIONER OF INCOME TAX V/S LEADERS VALVES (P) L TD ; 285 ITR 435 (P&H) 4 RAJESH GUPTA V/S JOINT COMMISSIONER OF INCOME ITA NQ.264/CHD/2010, ITAT, CHANDIGARH, ORDER DATED 31 ST MAY, 2012. 5 PIYUSH DEVELOPERS PVT. LTD V/S ASSISTANT COMMISSI ONER OF INCOME TAX ITA N0.5599/DEL/2010, ITAT, DELHI BENCH, NEW DELHI, ORDER DATED 8 TH JULY, 2015 6 BHUSHAN POWER & STEEL LTD. V/S DEPUTY COMMISSIONER OF INCOME TAX ITA NO,38/CHD/2014, ITAT, CHANDIGARH BENCH, CHANDIG ARH ORDER DATED 3TH AUGUST 2015. 7 COMMISSIONER OF INCOME TAX V/S BHOLANATH POLY FAB P VT LTD 355 ITR 290 (GUJ) 5 8 VENUS ARTS AND GEMS V/S INCOME TAX OFFICER 369ITR161(P&H} IN VIEW OF THE ABOVE, SHRI SUDHIR SEGHAL, LD. COUNSEL FOR T HE ASSESSEE SUBMITTED THAT THERE WAS NO JUSTIFICATION IN MAKING THE ADDITION ON ACCOUNT OF BOGUS PURCHASES. 7. ON THE OTHER HAND, SHRI SUSHIL KUMAR, LD. DR HEA VILY RELIED ON THE ORDERS OF THE AUTHORITIES BELOW IN SUPPORT OF REVEN UES CASE. HE FURTHER SUBMITTED THAT ASSESSEE HAD MADE FALSE ENTRIES IN H IS BOOKS AND CREATED A FALSE LIABILITY ON ACCOUNT OF THE PURCHASES. HE ACCORDIN GLY, SUBMITTED THAT THE SUMS CREDITED ON ACCOUNT OF ALLEGED PURCHASES IN ASSESSE ES BOOKS OF ACCOUNT CREATED THERE UNDER LIABILITY IN THE FORM OF SUNDRY CREDITO RS HAVE BEEN RIGHTLY TREATED AS UNEXPLAINED CREDIT ENTRIES BY THE LOWER AUTHORIT IES. HE THEREFORE, SUBMITTED THAT THE IMPUGNED ADDITION MAY BE UPHELD. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PER USED THE MATERIALS AVAILABLE ON RECORD. THE PERUSAL OF THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE SHOWS THE DETAILS AS UNDER:- TRADING ACOUNT FOR THE YEAR ENDED 31 MARCH 2009 PARTICULARS SCH TOTAL (IN RS.) PARTICULARS SCH TOTA L (IN RS.) OPENING STOCK 2,435,565 BY SALES SALES 40,334,375 PURCHASE 40,186,954 BY CLOSING STOCKI 5,003,757 LESS PROFIT 2,715,613 TOTAL 45,338,132 TOTAL 45,338,132 6 9. THE REDRAFTED TRADING ACCOUNT ADOPTED BY THE ASS ESSING OFFICER IS AS UNDER:- REDRAFTED TRADING ACOUNT ADOPTED BY AO PARTICULARS TOTAL (IN RS.) PARTICULARS TOTAL (IN R S.) TO OPENING STOCK 2,435,565 BY SALES SALES 40,334,375 TO PURCHASE 40,186,954 BY CLOSING STOCK 5,003,757 LESS ALLEGED BOGUS PURCHASES 330795467 9391487 11827052 TOTAL TO GROSS PROFIT 33511080 45338132 45,338,132 10. COMPARATIVE CHART OF GROSS PROFIT FOR THE EARLI ER YEARS AND THE YEAR UNDER CONSIDERATION ARE AS UNDER:- COMPARATIVE CHART ASSESSMENT YEAR SALES (IN RS.) GROSS PROIFT (RS.) G . .PERCENTAGE 2009-10 (UNDER APPEAL) 4,03,34,375 27,15,613 6.73% 2008-09 2,17,93,383 15,62,193 7.17% 2007-08 3,71,17,054 26,00,948 7.00% 2006-07 (U/S 143(3) 2,89,70,626 20,34,973 7.02% 2005-06 (U/S 143(3) 1,86,70,806 13,93,478 7.46% 7 FROM THE COMBINED READING OF THE ABOVE, IT IS CLEAR THAT GP MARGIN OF THE ASSESSEE COMES TO 6.73%, IF PURCHASES OF RS. 3,07 ,95,467/- ARE TREATED AS BOGUS AND THE SAME IS ADDED TO THE GROSS PROFIT TH EN THE GP WORKS OUT AT 83%, WHICH IS UNBELIEVABLE AND UN-IMAGINARY AS SALES CAN NOT BE THE PROFITS. IN OUR OPINION, THE WHOLE TRADING RESULTS WOULD PRESENT A DISTORTED PICTURE, IF ASSESSING OFFICERS VERSION IS ACCEPTED, WHICH IN OUR OPINION, IS NOT POSSIBLE IN ASSESSEES LINE OF BUSINESS. AT THIS STAGE, WE MAY REFER TO THE DECISION OF THE ITAT, DELHI BENCH IN THE CASE OF PIYUSH DEVELOP ERS PVT LTD VS. ACIT (SUPRA) RELIED ON BY SHI SUDHIR SEHGAL, LD. COUNSEL FOR THE ASSESSEE, WHEREIN THE ASSESSING OFFICER MADE THE ADDITION OF RS. 2,89 ,34,711/-. THE PURCHASES FROM THREE PARTIES WERE HELD TO BE BOGUS AND NON-GE NUINE. ON APPEAL, THE CIT(A) HELD THAT IF THESE PURCHASES ARE DISALLOWED, THE GP MARGIN WOULD JUMP TO 68%, WHICH IS ABNORMAL IN THIS LINE OF BUSINESS. HOWEVER, THE CIT(A) ESTIMATED THE GP OF THE ASSESSEE AT 27% AS AGAINST 68% WORKED OUT BY THE AO. THE REVENUE CHALLENGED THE ORDER OF THE CIT(A) BEF ORE THE TRIBUNAL AND THE TRIBUNAL VIDE ITS ORDER DATED 8.7.2015 IN ITA NO. . 5599/DEL/2010 RELATING TO ASSESSMENT YEAR 2008-09 HELD AS UNDER:- 14.1 NO DEFECTS HAVE BEEN FOUND IN THE STOCK REGISTER NO R ANY DEFECTS HAVE BEEN POINTED OUT BY THE A.O. IN THE AU DITED BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE. DESPITE SEARCH AND SEIZURE NO ADVERSE MATERIAL WAS FOUND TO SUBSTANTIATE THE DISA LLOWANCE MADE BY THE A.O. THE SO CALLED SPOT ENQUIRY DONE BY THE INS PECTOR HAS NO CREDENCE AS NO DETAILS HAVE BEEN FILED BEFORE US, N OR WAS THE ASSESSEE CONFRONTED WITH THE MANNER IN WHICH SPOT E NQUIRY WAS CONDUCTED, THE PERSONS WHO CONDUCTED THE SPOT ENQUI RY OR THE MATERIAL GATHERED BY THE REVENUE IN THE SPOT ENQUIR Y. THUS THE REVENUE CANNOT PLACE RELIANCE ON THIS ENQUIRY. THE PURCHASES WHICH ARE DISALLOWED RELATE TO CEMENT AND STEEL WHICH ARE ESSENTIAL FOR THE PURPOSE OF CONSTRUCTION. NO ENQUIRIES ARE MADE WITH THE BANKS, OTHER STATUTORY AUTHORITIES ON THE IDENTITY OF THE PARTIE S. DETAILS SUCH AS 8 WHETHER SALES TAX AUTHORITIES HAVE ACCEPTED THE QUA NTUM OF PURCHASES MADE BY THE ASSESSEE HAVE NOT BEEN OBTAIN ED IDENTITY COULD BE ASCERTAINED BY THE AO, BOTH FROM THE BANKE R AND THE SALES TAX AUTHORITIES. UNDER THE CIRCUMSTANCES WE HAVE TO UPHOLD THE CONTENTIONS OF THE ASSESSEE, THAT THE FINDING OF TH E AO, THAT THE ASSESSEE HAS NOT FURNISHED FULL DETAILS, IS FACTUAL LY IN CORRECT. 14.2 . COMING TO THE IDENTITY OF THE PARTIES WE FIND THA T ALL THE PARTIES ARE REGISTERED WITH SALES TAX DEPARTMENT AND HAVE C HARGED VAT IN EACH OF THE BILLS. ALL THESE PARTIES HAVE BANK ACCO UNTS AND PAYMENTS WERE MADE THROUGH ACCOUNT PAYEE CHEQUES. EVIDENCE O F MATERIAL HAVING BEEN RECEIVED BY THE ASSESSEE, HAS BEEN FILE D. 14.3 . AS REGARDS THE FACT THAT THE ASSESSEE WAS NOT ABL E TO PRODUCE THE PARTIES, WE AGREE WITH THE CONTENTIONS OF THE A SSESSEE THAT NON PRODUCTION OF THE PARTIES CANNOT BE A GROUND OF DIS ALLOWANCE OF ALL THE PURCHASES FOR THE FOLLOWING REASONS. (I) THE PERSONS FROM WHOM PURCHASES ARE MADE COULD NOT ALWAYS BE IN THE CONTROL OF THE ASSESSEE, SPECIFICALLY WHEN T HEY ARE UNRELATED PARTIES. (II) THE VOLUME AND QUALITY OF EVIDENCE PRODUCED B Y THE ASSESSEE IS SUCH THAT NON PRODUCTION OF THE PARTY FROM WHOM THE ASSESSEE PURCHASED CANNOT LEAD TO A CONCLUSION THAT THE PURC HASES ARE NOT GENUINE. THE LD.CIT(A) AT PARA 4.4 HELD AS FOLLOWS. 4.4. IT IS ALSO SEEN THAT DURING THE COURSE OF ASS ESSMENT PROCEEDINGS THE ASSESSEE HAD FILED VARIOUS EVIDENCE S (WHICH HAVE BEEN FILED IN THE PAPER BOOK) OF THE PURCHASES MADE FROM THE SAID PARTIES IN THE SHAPE OF COPIES OF BILLS, P URCHASE VOUCHERS, MATERIAL RECEIPT NOTES, AS WELL AS THE CO PIES OF BANK STATEMENT OF THE ASSESSEE COMPANY EVIDENCING THE PA YMENT MADE TO THE SAID PARTIES, WHICH HAVE BEEN CLEARED F ROM THE ACCOUNT OF THE ASSESSEE. IN FEW CASES COPIES OF GRS ALONGWITH EVIDENCE OF WEIGHMENT OF GOODS FROM DHARMKANTA HAVE BEEN FILED BY THE ASSESSEE. IT IS ALSO AN UNDISPUTED FAC T THAT THE 9 INVOICES ISSUED BY THE VARIOUS PARTIES ARE BEARING THE TRUCK NUMBER OF THE VEHICLE USED FOR DELIVERY OF GOODS AN D VAT HAS ALSO BEEN CHARGED BY THE PARTIES IN THEIR BILLS. TH E GOODS MENTIONED IN THE BILLS ARE MAINLY CEMENT AND STEEL (TMT BARS) WHICH ARE THE BASIC COMPONENT REQUIRED FOR CONSTRUC TION OF ANY BUILDING OR COMPLEX. THE EVIDENCE OF RECEIPT OF SUC H GOODS BY ASSESSEE 'IN THE FORM OF PURCHASE VOUCHER/MATERIAL RECEIPT NOTE IS ALSO THERE. MOST IMPORTANTLY AS STATED BY THE AR ALL THE PAYMENTS MADE TO THE PARTIES HAVE BEEN MADE BY ACCO UNT PAYEE CHEQUES AND SAME HAVE BEEN CLEARED FROM THE ASSESSE E'S BANK ACCOUNT. THE LD. AR HAS ALSO BROUGHT MY ATTENTION T O THE FACT THAT THE ASSESSEE IS MAINTAINING ITEM WISE STOCK RE GISTER COPIES OF WHICH WERE FILED BEFORE THE ASSESSING OFFICER DU RING THE COURSE OF ASSESSMENT PROCEEDINGS AND NO DEFECT HAS BEEN FOUND IN THE SAME. THUS IT IS OBSERVED THAT SUFFICIENT PI ECES OF EVIDENCE OF TRANSACTIONS OF THE PURCHASES MADE FROM VARIOUS PARTIES HAVE BEEN PRODUCED BY THE APPELLANT WHICH H AVE NOT BEEN DENIED BY THE ASSESSING OFFICER AND HAVE NOT B EEN FOUND TO BE FALSE. THEREFORE, IN SUCH CIRCUMSTANCES THERE WAS HEAVY ONUS ON THE ASSESSING OFFICER TO PROVE OTHERWISE WH ICH HAS NOT BEEN DISCHARGED BY HIM AND ON THE OTHER HAND INITIA L ONUS ON THE ASSESSEE HAS BEEN DISCHARGED. THE HON'BLE APEX COURT IN DAULAT RAM'S CASE 87 ITR 349 HAS HELD THAT THE ONUS TO PROVE THAT THE APPARENT WAS NOT REAL WAS ON THE PARTY WHO CLAIMED IT TO BE SO. THUS THE ONUS WAS. HEAVILY ON THE ASSESSI NG OFFICER IN THIS CASE. THE ASSESSING OFFICER HAS ALSO MENTIONED THE FACT OF MAKING CERTAIN SP9T. ENQUIRES WHICH ACCORDING TO HI M HAVE REVEALED THAT PARTIES M/S JAI AMBE TRADING COMPANY AND M/S SHREE GANPATI ENTERPRISES DID NOT EXIST AT THEIR GI VEN ADDRESSES FOR 6-7 YEARS. AR STATED AND ASSESSMENT O RDER ALSO DOES NOT SHOW THAT SUCH FACTS OR THE ENQUIRIES HAVE BEEN CONFRONTED TO THE APPELLANT. ASSESSING OFFICER HAS THUS DISALLOWED PURCHASES IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE IN SUCH CIRCUMSTANCES I AM IN AGREEMENT WIT H THE CONTENTIONS OF ID. AR THAT THE ACTION OF THE ASSESS ING OFFICER IN SIMPLY BRUSHING ASIDE THE EVIDENCES BEFORE HIM WAS HIGHLY UNJUSTIFIED IN THE FACTS AND CIRCUMSTANCES OF THE C ASE. 10 THESE FINDINGS OF THE LD.CIT(A) COULD NOT BE CONTR OVERTED BY THE LD.D.R. WE FIND NO INFIRMITY IN THE SAME. (III) THE OTHER ASPECTS ARE THAT THE VALUE OF WORK CERTIFIED, THE VALUE OF CLOSING STOCK HAVE BEEN ACCEPTED BY THE A. O. BOTH THESE CANNOT BE INDEPENDENT OF THE VALUE OF PURCHAS ES. THE PURCHASES EITHER FORM PART OF WORK CERTIFIED OR CLO SING STOCK. WHEN BOTH THESE ARE ACCEPTED AND NOT DISTURBED, THE QUESTION OF DISALLOWING THE PURCHASES DEBITED IN THE PROFIT AND LOSS ACCOUNT DOES NOT ARISE. (IV) THE LD.CIT(A) HAS RIGHTLY ANALYSED THAT IF THI S DISALLOWANCE OF PURCHASES IS UPHELD THEN THE G.P. R ATE OF THE ASSESSEE WOULD BE ABNORMAL AT 67%. (V) THE HONBLE CALCUTTA HIGH COURT IN DIAGNOSTICS VS. CIT (2012) REPORTED IN 20 TAXMANN.COM 692 (CAL.) AT PAR AS 9 AND 10 HELD AS FOLLOWS. 9. HOWEVER, AS REGARDS THE PAYMENTS MADE TO M/S SELVAS PHOTOGRAPHICS ARE CONCERNED AMOUNTING TO RS.3,12,302/- WE FIND THAT THOSE HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUES AND THOSE HAVE BEEN ENCASHED THROUGH THE BANKERS OF M/S SELVAS PHOTOGRAPHCIS. IT APPEARS THAT ACCORDING TO THE APPELLANT, AT THE TIM E OF ASSESSMENT, THE APPELLANT HAD NO BUSINESS TRANSACTI ON WITH M/S SELVAS PHOTOGRAPHICS AND CONSEQUENTLY, THE SAID PARTY DID NOT COOPERATE WITH THE AO. HOWEVER, THE TRANSACTION HAVING TAKEN PLACE THROUGH ACCOUNT PAYE E CHEQUES, WE ARE UNABLE TO ACCEPT THE CONTENTION OF MR.AGARWAL, THE LD. ADVOCATE APPEARING FOR THE REVE NUE THAT THE TRANSACTION WAS A NON-EXISTENT ONE. IF AN ASSESSEE TOOK CARE TO PURCHASE MATERIALS FOR HIS BU SINESS BY WAY OF ACCOUNT PAYEE CHEQUES FROM A THIRD PARTY AND SUBSEQUENTLY THREE YEARS AFTER THE PURCHASE, THE SA ID THIRD PARTY DOES NOT APPEAR BEFORE THE AO PURSUANT TO THE NOTICE OR EVEN HAS STOPPED THE BUSINESS, THE CL AIM OF THE ASSESSEE ON THAT ACCOUNT CANNOT BE DISCARDED AS NON 11 EXISTENT. IN THE CASE BEFORE US, THE REVENUE HAS NO T PUT FORWARD ANY OTHER GROUND, SUCH AS, IT WAS NOT A GEN UINE TRANSACTION FOR OTHER REASONS BUT HAS SIMPLY REJECT ED THE CLAIM ON THE GROUND AS IF THERE WAS NO SUCH TRANSAC TION. 10. THE TRANSACTION HAVING TAKEN PLACE THROUGH PAYM ENT BY ACCOUNT PAYEE CHEQUES, SUCH PLEA IS NOT TENABLE AND IN SUCH CIRCUMSTANCES, THE TRIBUNAL BELOW ERRED IN LAW IN REVERSING THE FINDING ARRIVED AT BY THE CIT(A) ACCEPTING THE SAID TRANSACTION AS A GENUINE TRANSAC TION. (EMPHASIS OURS). 14.4 . IN VIEW OF THE ABOVE DISCUSSION WE UPHOLD THE FIN DING OF THE LD.CIT(A) ON THE DELETION OF THE DISALLOWANCE OF RS . 2,89,34,711/-, WHICH WAS TREATED AS BOGUS PURCHASES BY THE A.O. TH ESE GROUNDS OF REVENUE ARE DISMISSED. 11. IN THIS CASE ALSO, THE ALLEGATION OF THE REVENU E AUTHORITIES IS THAT ASSESSEE WAS NOT ABLE TO PRODUCE THE PARTIES, IN VI EW OF THE DECISION OF THE ITAT DELHI BENCH REFERRED TO ABOVE, WE HOLD THAT NO N PRODUCTION OF PARTIES CANNOT BE A GROUND OF DISALLOWANCE OF ALL THE PURCH ASES FOR THE FOLLOWING REASONS:- I) THE PARTIES FROM WHOM PURCHASES ARE MADE COULD NOT ALWAYS BE IN THE CONTROL OF THE ASSESSEE SPECIALLY WHEN THEY ARE UNRELATED PARTIES. II) NON-PRODUCTION OF THE PARTIES FROM WHOM THE ASSESSE E PURCHASED MATERIALS CANNOT LEAD TO THE CONCLUSION THAT THE PU RCHASES ARE NOT GENUINE. 12. IN OUR OPINION, THE DECISION OF THE ITAT, DELHI BENCH REFERRED TO ABOVE IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE, AND, THEREFORE, WE HOLD THAT IN THIS CASE ALSO, THERE IS NOT JUSTIFICATION IN MAKING THE DISALLOWANCE OF RS. 3,07,95,467/- ON ACCOUNT OF BOGUS PURCHASES. I N THIS CASE, THE ASSESSING OFFICER HAD TREATED PURCHASES WORTH RS. 3,07,95,467 /- FROM CERTAIN PARTIES AS 12 BOGUS ONE, HOWEVER, SALES MADE OUT OF SUCH PURCHASE S WERE NOT DISPUTED OR QUESTIONED AND RESULTANT PROFIT ON SUCH SALES HAS B EEN ACCEPTED IN TOTO BY THE ASSESSING OFFICER AND CIT(A).THE ACCOUNT BOOKS OF T HE ASSESSEE WERE NEVER REJECTED BY THE ASSESSING OFFICER, IN THE CASE OF C IT V BHOLANATH POLY FAB PVT LTD (2013) 355 ITR 290 (GUJARAT), THE HON'BLE HIGH COURT HELD AS UNDER:- 5. HAVING COME TO SUCH A CONCLUSION, HOWEVER, THE TRIBUNAL WAS OF THE OPINION THAT THE PURCHASES MAY HAVE BEEN MADE FROM BOGUS PARTIES, NEVERTHELESS, THE PUR CHASES THEMSELVES WERE NOT BOGUS. THE TRIBUNAL ADVERTED TO THE FACTS AND DATA ON RECORD AND CAME TO THE CONCLUSION THAT THE ENTIRE QUANTITY OF OPENING STOCK, PURCHASES AND THE QUANTITY MANUFACTURED DURING THE YEAR UNDER CONSIDE RATION WERE SOLD BY THE ASSESSEE. THEREFORE, THE PURCHASES OF THE ENTIRE 1,02,514 METRES OF CLOTH WERE SOLD DURING TH E YEAR UNDER CONSIDERATION. THE TRIBUNAL, THEREFORE, ACCEP TED THE ASSESSEE'S CONTENTION THAT THE FINISHED GOODS WERE PURCHASED BY THE ASSESSEE, MAY BE NOT FROM THE PART IES SHOWN IN THE ACCOUNTS, BUT FROM OTHER SOURCES. IN T HAT VIEW OF THE MATTER, THE TRIBUNAL WAS OF THE OPINION THAT NOT THE ENTIRE AMOUNT, BUT THE PROFIT MARGIN EMBEDDED IN SU CH AMOUNT WOULD BE SUBJECTED TO TAX. THE TRIBUNAL RELI ED ON ITS EARLIER DECISION IN THE CASE OF SANKET STEEL TR ADERS AND ALSO MADE REFERENCE TO THE TRIBUNAL'S DECISION IN T HE CASE OF VIJAY PROTEINS LTD. V. ASST. CIT [1996] 58 ITD 4 28 (AHD). 6. WE ARE OF THE OPINION THAT THE TRIBUNAL COMMITTE D NO ERROR. WHETHER THE PURCHASES THEMSELVES WERE BOGUS OR WHETHER THE PARTIES FROM WHOM SUCH PURCHASES WERE ALLEGEDLY MADE WERE BOGUS IS ESSENTIALLY A QUESTION OF FACT. THE TRIBUNAL HAVING EXAMINED THE EVIDENCE ON RECORD CAME TO THE CONCLUSION THAT THE ASSESSEE DID PURCHASE TH E CLOTH AND SELL THE FINISHED GOODS. IN THAT VIEW OF THE MA TTER, AS NATURAL COROLLARY, NOT THE ENTIRE AMOUNT COVERED UN DER SUCH PURCHASE, BUT THE PROFIT ELEMENT EMBEDDED THEREIN W OULD BE 13 SUBJECT TO TAX. THIS WAS THE VIEW OF THIS COURT IN THE CASE OF SANJAY OILCAKE INDUSTRIES V. CIT [2009] 316 ITR 274 (GUJ). SUCH DECISION IS ALSO FOLLOWED BY THIS COURT IN A J UDGMENT DATED AUGUST 16, 2011, IN TAX APPEAL NO. 679 OF 201 0 IN THE CASE OF CIT V. KISHOR AMRUTLAL PATEL. IN THE RE SULT, TAX APPEAL IS DISMISSED. 13. IN THE AFORESAID CASE, THE TRIBUNAL HAS CATEGOR ICALLY HELD THAT THOUGH PURCHASES WERE FROM BOGUS PARTIES NEVERTHELESS PUR CHASES THEMSELVES WERE NOT BOUGS. ACCORDINGLY, THE TRIBUNAL HELD THAT THUS NOT ENTIRE AMOUNT BUT PROFIT MARGIN EMBEDDED IN SUCH AMOUNT WOULD BE SUBJECT TO TAX. THE HON'BLE GUJARAT HIGH COURT UPHELD THE ORDER OF THE TRIBUNAL. IN OUR OPINION, THERE IS A MERIT IN THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT IN THE ABSENCE OF THE PURCHASES, THERE COULD NOT BE SALES WORTH RS. 4,03, 34,375/-. NOT ONLY THIS, THE AO HAS ALSO ACCEPTED THE OPENING AND CLOSING STOCK AS SHOWN BY THE ASSESSEE IN THE BOOKS OF ACCOUNT. THE ASSESSING OFFICER HAS NOT DOUBTED THESE SALES. IF THE ASSESSING OFFICERS VERSION IS ACCEPTED THEN T HE GP WORKS OUT AT 83% WHICH IS UNBELIEVABLE AND UN-IMAGINARY AS SALES CA NNOT BE THE PROFITS. THUS, CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF T HE PRESENT CASE, WE DO NOT SEE ANY JUSTIFICATION IN MAKING THE ADDITION OF RS. 3,07,95,467/- ON ACCOUNT OF BOGUS PURCHASES. ACCORDINGLY, WE ALLOW GROUND NOS. 1 TO 3 OF THE APPEAL. 14. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 02/05/2016. SD/- SD/- (RANO JAIN) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED :02 ND MAY, 2016 RKK COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A),THE DR