ACIT 21(1), MUMBAI V. GIRISH J GADA, MUMBAI

ITA 913/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2478 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2016
• Appeal Filed By: Department
• Bench Allotted: G
• Next Hearing Date: 25-10-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 09-02-2015
• Court: TRIBUNAL
• Department Lawyers: PREMAND JAR
• Assessee Lawyers: NEHA PARANJAPEDR
• Keywords: Bogus purchase; Unexplained expenditure; Business income; Transfer pricing; Search and seizure; Peak credit; Corroborative evidences
• Section: 69C; 40A(3); 143(3); 133(6); 131; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G, MUMBAI BEFORE SHRI AMIT SHUKLA (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER) I.T.A. NO.912-915/MUM/2015 (ASSESSMENT YEARS: 2008-09 TO 2010-11) ACIT, 21(1), ROOM NO.116, 1 ST FLOOR, PIRAMAL CHAMBERS PAREL MUMBAI-400012 VS SHRI GIRISH J GADA (PROP OF M/S GIRI FAB) 103A, HIMGIRI T H KATARIA MARG MATUNGA, MUMBAI 400 016 PAN : AACPG666Q (REVENUE) (RESPONDENT) REVENUE BY SHRI PREMAND J(AR) RESPONDENT BY SHRI K GOPAL & NEHA PARANJAPE(DR) DATE OF HEARING : 25-10-2016 DATE OF PRONOUNCEMENT : 25 -10-2016 O R D E R PER ASHWANI TANEJA, AM: THESE APPEALS HAVE BEEN FILED BY THE REVENUE AGAIN ST SEPARATE ORDERS PASSED BY THE COMMISSIONER OF INCOME-TAX (AP PEALS)-29, MUMBAI [HEREINAFTER CALLED CIT(A)] IN THE CASE OF SAME ASS ESSEE INVOLVING IDENTICAL ISSUE IN ALL THE THREE APPEALS. THEREFORE, WE HEAR D ALL THE APPEALS TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON O RDER. 2. FIRST WE SHALL TAKE UP APPEAL FOR A.Y. 2008-09 IN I TA NO.912/MUM/2015 AGAINST THE ORDER PASSED BY THE LD. CIT(A)-29, MUMBAI 2 I.T.A. NO.912-915/MUM/2015 DATED 14-11-2014 PASSED AGAINST THE ASSESSMENT ORDE R U/S 143(3) R.W.S. 147 DATED 28-03-2013 ON THE FOLLOWING GROUNDS:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN: (1) 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS. 3,87,81,689/- WITHOUT CONSIDERING THE FACTS THAT ASSESSEE HAS NOT PRODUCED ANY CORROBORATIVE EVIDENC ES ALSO SUCH AS TRANSPORTATION VOUCHERS FOR SUCH HUGE PURCHASES (2) 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) HAS ERRED IN NOT CONSIDERING THE DEC ISION OF THE APEX COURT IN THE CASE OF SUMATI DAYAL VS. CIT, 214 ITR 80(SC) WHICH CLEARLY RECOGNIZES THE PRINCIPLE OF PREPONDERANCE O F PROBABILITY WHICH IS RELEVANT IN THE CONTEXT OF THE STATEMENTS RECORDED FROM MUKESH CHOKSI AND GROUP AND THE ASSESSMENTS COMPLETED BY THE DEPARTMENT HOLDING SHRI MUKESH CHO KSHI AS HAWALA OPERATOR WHICH WERE CONFIRMED BY THE HON' BLE ITAT, MUMBAI.' II. FOR THIS AND OTHER REASONS IT IS SUBMITTED THAT THE ORDER OF THE CIT(A) MAY BE SET ASIDE AND THAT OF THE AO RESTORED. 3. THE SOLITARY GROUND RAISED BY THE REVENUE IS WITH R EGARD TO DELETION OF ADDITION MADE BY THE AO ON ACCOUNT OF BOGUS PURC HASES. 4. THE BRIEF FACTS ARE THAT THE ASSESSEE IS AN INDIVID UAL AND PROPRIETOR OF GIRI FABS ENGAGED IN THE BUSINESS OF SUPPLYING V ARIOUS MATERIALS TO GOVERNMENT SCHOOLS RUN BY MUNICIPAL CORPORATION OF GREATER MUMBAI (MCGM). THIS CASE WAS REOPENED BY THE AO ON THE GR OUND THAT IN A SEARCH AND SEIZURE OPERATION CARRIED OUT UPON ONE S HRI MUKESH CHOKSHI GROUP IT WAS REVEALED THAT VARIOUS COMPANIES WERE E NGAGED IN PROVIDING BOGUS ACCOMMODATION BILLS, WHEREIN ONE SUCH COMPANY WAS M/S VIJAYALAXMI CORPORATION FROM WHOM M/S GIRI FABS (PR OPRIETARY UNIT OF THE ASSESSEE) HAD MADE PURCHASES AGGREGATING TO RS. 4,4 5,29,792/-. DURING 3 I.T.A. NO.912-915/MUM/2015 THE COURSE OF RE-ASSESSMENT PROCEEDINGS, THE AO CON FRONTED TO THE ASSESSEE THAT IN VIEW OF THE AFORESAID INFORMATION, THE AMOUNT OF PURCHASES FROM M/S VIJAYALAXMI CORPORATION SHOULD B E TOTALLY DISALLOWED. IN RESPONSE, THE ASSESSEE SUBMITTED THAT IT WAS SUP PLYING VARIOUS ITEMS LIKE UNIFORMS, SHOES, SOCKS, ETC. TO GOVERNMENT SCH OOLS RUN BY MCGM AND THE SAME WAS DONE AFTER SECURING CONTRACT FOR SUPPL YING THESE ITEMS THROUGH THE PROCESS OF TENDER. THESE ITEMS WERE PR OCURED FROM THE MARKET THROUGH VARIOUS PARTIES AND WERE SUPPLIED TO VARIOUS SCHOOLS AS PER TERMS OF CONTRACT WITH MCGM. MCGM MADE PAYMENT AFTER BEING SATISFIED THAT THE ITEMS CLAIMED TO BE SUPPLIED BY THE ASSESSEE WERE RECEIVED IN THE SCHOOLS, AND THE PAYMENT WAS MADE B Y MCGM TO THE ASSESSEE AFTER DEDUCTION OF TAX AT SOURCE. BUT THE AO WAS NOT SATISFIED AND WAS OF THE VIEW THAT THOUGH THE SALES CANNOT BE DOUBTED, BUT THE PURCHASES MADE BY THE ASSESSEE WERE DOUBTFUL AS THE SE WERE MADE FROM BOGUS PARTIES. ACCORDINGLY, HE HELD THAT THE ASSES SEE PROCURED THE GOODS FROM THE MARKET IN CASH AT MUCH LESSER RATE AND OBT AINED BILLS FOR THE PURCHASE FROM THE AFORESAID PARTIES AFTER PAYING CO MMISSION TO THEM. UNDER THESE CIRCUMSTANCES, THE AO CONFRONTED THE AS SESSEE TO EXPLAIN AS TO WHY NOT THE PEAK CREDIT OF THE ABOVE BOGUS PURCH ASES SHOULD NOT BE TAKEN AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. FINALLY, THE AO HELD IN THE ASSESSM ENT ORDER THAT PURCHASES WERE DUBIOUS AND THEREFORE IT MAY BE CONC LUDED THAT THE ASSESSEE MUST HAVE USED CASH TO BUY GOODS FROM UNRE GISTERED DEALERS. THEREFORE, THE ENTIRE AMOUNT OF PURCHASES FROM THE ABOVE SAID PARTY AGGREGATING TO RS.4,45,29,792 MUST HAVE BEEN MADE B Y MAKING PAYMENT IN CASH AND, THEREFORE, THE SAME WAS TO BE TREATED AS UNEXPLAINED EXPENDITURE U/S 69C OF THE ACT. IT WAS FURTHER OBS ERVED BY THE AO THAT 4 I.T.A. NO.912-915/MUM/2015 THE ABOVE SAID PAYMENT WAS LIABLE TO BE DISALLOWED U/S 40A(3) AS THE AMOUNT HAS BEEN INDEED PAID IN CASH WHICH EXCEED TH E MAXIMUM LIMIT PRESCRIBED UNDER THE ACT. UNDER THESE CIRCUMSTANCE S, THE AO ADDED BACK TOTAL AMOUNT OF RS.4,45,29,792 TO THE INCOME OF THE ASSESSEE ON ACCOUNT OF BOGUS PURCHASES FOR THE YEAR UNDER CONSIDERATION . 5. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE THE C IT(A) AND MADE ELABORATE SUBMISSIONS ALONG WITH DOCUMENTARY EVIDEN CES TO DEMONSTRATE THAT THE TRANSACTION OF PURCHASES FROM VIJAYALAXMI CORPORATION WAS GENUINE AND DULY SUPPORTED WITH BILLS, VOUCHERS AND OTHER DOCUMENTARY EVIDENCES AND THAT THE ENTIRE PAYMENT WAS MADE THRO UGH ACCOUNT PAYEE CHEQUES. COPY OF BANK STATEMENT OF VIJAYALAXMI COR PORATION WAS ALSO SUBMITTED TO DEMONSTRATE THAT NO CASH WITHDRAWAL WA S MADE BY THE SAID PARTY AGAINST CHEQUE ISSUED BY THE ASSESSEE ON ACCO UNT OF PURCHASES. IT WAS SUBMITTED THAT THE AO MADE PRESUMPTION THAT PUR CHASES WERE BOGUS, AND NO CONTRARY MATERIAL WAS BROUGHT ON RECO RD TO NEGATE THE OVERWHELMING DOCUMENTARY EVIDENCES IN SUPPORT OF TH E TRANSACTION. 6. LD. CIT(A) CONSIDERED THE ASSESSMENT ORDER AS WELL AS THE SUBMISSIONS OF THE ASSESSEE AND ALSO THE DOCUMENTAR Y EVIDENCES BROUGHT ON RECORD BY THE ASSESSEE IN SUPPORT OF THE TRANSAC TION. AFTER ANALYSING ALL FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) WAS OF THE VIEW THAT SINCE SALES HAVE BEEN ACCEPTED, PURCHASES SHOWN BY THE AS SESSEE CANNOT BE DOUBTED. BUT HE DOUBTED THE PURCHASE PRICE SHOWN ON THE INVOICES ISSUED BY THE AFORESAID PARTY. HE WAS OF THE OPINION THAT THE ASSESSEE HAS NOT BEEN ABLE TO PROVE THAT THE GOODS WERE PURCHASED FR OM THE AFORESAID PARTY AT ARMS LENGTH PRICE. UNDER THESE CIRCUMSTA NCES, LD. CIT(A) ESTIMATED NET PROFIT @5.5% OF GROSS TURNOVER AS AG AINST 2.49% SHOWN BY THE ASSESSEE. UNDER THESE CIRCUMSTANCES, HE CALCUL ATED NET PROFIT OF 5 I.T.A. NO.912-915/MUM/2015 RS.78,12,826 ON THE GROSS TURNOVER OF RS.14,20,51,3 82 AS AGAINST NET PROFIT OF RS.20,64,720 SHOWN BY THE ASSESSEE. THER EFORE, HE MADE NET ADDITION OF RS.57,48,106 (I.E. 78,12,826 20,64,72 0) AND DELETED THE ADDITION OF THE BALANCE AMOUNT. 6. BEING AGGRIEVED, THE REVENUE FILED APPEAL BEFORE TH E TRIBUNAL AGAINST THE RELIEF GIVEN BY LD. CIT(A). IT HAS BEE N INFORMED TO US THAT NO APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE A DDITION SUSTAINED BY LD. CIT(A). OUR ATTENTION WAS DRAWN TO PAGE 4 OF THE P APER BOOK BEING VAT / SALES RETURN FILED BY THE SUPPLIER, VIZ. M/S VIJAYL AXMI CORPORATION. IT WAS SHOWN THAT THE SALES MADE BY THE SAID PARTY TO THE ASSESSEE HAVE BEEN DULY INCLUDED IN THE SAID RETURN ON WHICH TAXES HAV E BEEN DULY PAID. HE ALSO SUBMITTED DETAILED CHART SHOWING POSITION OF A SSESSMENT OF INCOME IN DIFFERENT YEARS. IT WAS ALSO SUBMITTED THAT AFTER INCLUDING THE ADDITION SUSTAINED BY THE LD. CIT(A), THE INCOME HAS BEEN CO MPUTED AT A VERY HIGH RATE AND THUS, THE LD.CIT(A) HAD ALREADY SUSTAINED THE ADDITION WHICH HAS LED TO ASSESSMENT OF INCOME AT HIGH PITCHED AMOUNT AND NO FURTHER ADDITION IS POSSIBLE IN THIS CASE. 7. PER CONTRA, THE LD. DR CONTESTED THE ORDER OF THE L D. CIT(A) AND SUBMITTED THAT INVOICES SUBMITTED BY THE ASSESSEE W ERE NOT RELIABLE AND THERE WAS DELAY IN FILING OF VAT RETURN BY THE SUPP LIER AND THEREFORE, HE REQUESTED FOR RESTORING THE ORDER OF AO AND SETTING ASIDE THAT OF THE LD. CIT(A). 8. WE HAVE GONE THROUGH THE ORDERS PASSED BY BOTH THE AUTHORITIES AS WELL AS THE SUBMISSIONS MADE BEFORE US. IT IS NOTE D THAT IN THIS CASE, ADMITTEDLY, SALES HAVE BEEN ACCEPTED AND QUANTITATI VE RECONCILIATION IS NOT DOUBTED. THE PAYMENT WAS MADE BY MCGM AFTER HA VING BEEN SATISFIED WITH THE GOODS SUPPLIED BY THE ASSESSEE. THE PAYMENT SO 6 I.T.A. NO.912-915/MUM/2015 RECEIVED WAS DULY INCLUDED BY THE ASSESSEE IN THE S ALES WHICH HAS BEEN SHOWN IN THE P&L ACCOUNT. THE INCOME SHOWN HAS BEE N DULY ACCEPTED BY THE REVENUE. UNDER THESE CIRCUMSTANCES, THE ENTIRE AMOUNT OF PURCHASES CANNOT BE DISALLOWED. THUS, THE ONLY ASPECT THAT N EEDS TO BE EXAMINED HERE IS WHETHER THE PURCHASES HAVE BEEN RECORDED CO RRECTLY OR THESE WERE INFLATED. IT IS NOTED THAT IN THIS REGARD THA T LD.CIT(A) MADE DETAILED ANALYSIS OF THE TRANSACTION OF THE ASSESSEE AND FAC TS OF THIS CASE AND FINALLY WORKED OUT THE CORRECT AMOUNT OF PURCHASES BY MAKIN G DETAILED OBSERVATIONS IN HIS ORDER WHICH ARE AS BELOW: 12. I HAVE GONE THROUGH THE ASSESSMENT ORDER PASSED 'BY THE ASSESSING OFFICER, AND THE WRITTEN SUBMISSIONS OF THE APPELLANT ON THE' ISSUE CAREFULLY. 13. AS OF NOW THE ISSUE OF BOGUS PURCHASES HAS BEEN MUCH DISCUSSED AND DEBATED BY THE VARIOUS COURTS AN D TRIBUNALS. IN MANY JUDICIAL PRONOUNCEMENTS ON THE ISSUE, THE COURTS HAVE TAKEN A CONSISTENT VIEW THAT IN CASE OF NON-EXISTENT , PARTIES FROM WHOM THE PURCHASES ARE SHOWN TO HAVE BEEN MADE, ONLY PART OF SUCH PURCHASES CAN BE DISALLOWED, IN THE CASES WHERE THE CORRESPONDING SALES ARE 'TREATED AS GENUINE, OR 'ALTERNATIVELY THE PROFIT EMBEDDED IN SUCH SALES AGAINST THE ALLEGED BOGUS PURCHASES CAN ONLY BE BROUGHT TO TAX. 14. IN THE INSTANT CASE THE ONLY ASSUMPTION FROM WHERE THE AO HAS FORMED THE . VIEW ABOUT THE BOGUS NATURE OF THE PURCHASES MADE BY THE APPELLANT FROM THE ABOVE CONCERN, 'I.E M/S VIJAYLAKSHMI CORPORATION, WHO HAS SUPPLIED THE MATERIALS, IS THAT THIS CONCERN BELONG TO MUKES H CHOKSI, WHO HAD ACCEPTED IN THE STATEMENT RECORDED DURING T HE SEARCH AT HIS PREMISES THAT HIS GROUP CONCERNS WERE INVOLVED IN THE BOGUS BILLING RACKET. 15. ON THE CONTRARY THE AO HAS NOT APPRECIATED THE FACT THAT THE APPELLANT HAS PLACED ON RECORD CERTAIN CRUCIAL EVIDENCES REGARDING THE TRANSACTIONS OF PURCHASES F ROM THE ABOVE PARTY, WHICH CANNOT BE IGNORED WHILE DECI DING THE ISSUE AT HAND. IT IS NOT THE CASE OF THE AO THAT TH E ABOVE 7 I.T.A. NO.912-915/MUM/2015 CONCERN M/S.VIJAYLAKSHMI CORPORATION HAS NOT PAID V AT ON THE SALES MADE TO THE APPELLANT. THE APPELLANT HAS PLAC ED ON RECORD THE VAT RETURNS FILED BY THE ABOVE CONCERN B EFORE THE SALES TAX DEPARTMENT, FOR THE PERIOD UNDER CONSIDERATION I.E. FROM 01/04/2007 TO 31/03/2008, W HICH SHOWS THAT THE SALES MADE BY THEM TO THE APPELLANT FIRM ARE REFLECTED IN THESE VAT REPORTS FILED BY THE ABOVE C ONCERN. THE COPY OF THE SAID VAT REPORT IS PLACED AT PAGE NO 57 0 TO 691 OF THE PAPER BOOK FILED THIS REPORT WAS ALSO PLACED BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS BUT THE ASSESSING OFFICER HAS NOT TAKEN ANY COGNIZANCE OF T HE SAME. THE TIN OF THE SUPPLIER IS ALSO MENTIONED ON THE VA T REPORTS, WHICH IS VERIFIABLE FROM THE SITE MAHAVAT OF THE SALES TAX DEPARTMENT. ONCE THE ABOVE PARTY IS REGIS TERED DEALER WITH THE SALES TAX DEPARTMENT AND PAYING REG ULAR SALES TAX AND FILING VAT REPORTS OF THE SALES MADE BY THEM BEFORE THE SALES TAX DEPARTMENT, THEIR IDENTITY IS NOT IN DOUBT. FURTHER THERE IS NO ADVERSE INFORMATION AVAI LABLE ON THE WEBSITE OF THE SALES TAX DEPARTMENT REGARDIN G THE ABOVE PARTY THAT THEY HAVE INDULGED IN THE EVASION OF VAT. THEREFORE TREATING THESE PARTIES AS BOGUS OR THE SA LE MADE BY THEM TO THE APPELLANT AS BOGUS WOULD BE TOTAL NEGAT ION OF THE ABOVE FACTS PLACED ON RECORD BY THE APPELLANT. 16. THE AO HAS NOT APPRECIATED THE FACT THAT THE PA RTY IN QUESTION IS REGISTERED DEALERS WITH THE SALES TAX D EPARTMENT AND IN RESPECT OF THE TRANSACTIONS OF SALES OF MATE RIALS TO THE APPELLANT, THEY PAID THE DUE SALES TAX UNDER THE SA LES TAX ACT WHICH IS MENTIONED IN THE VAT REPORT FILED WITH THE DEPARTMENT. ALL THESE FACTS GOES TO PROVE THAT THE TRANSACTION OF SALE AND PURCHASE BETWEEN THE PARTY AND THE APPELLANT ARE GENUINE, OTHERWISE THERE IS NO QUESTI ON OF MAKING PAYMENT OF SALES TAX / VAT, IF THE TRANSACTI ONS ARE BOGUS. 17. FURTHER, THE APPELLANT HAS ALSO MAINTAINED THE PROPER STOCK INVENTORY ITEM WISE. THE CLOSING STOCK INVENT ORY OF THE MATERIALS IS PLACED AT PAGE 62 OF THE PAPER BOOK FI LED DURING THE APPELLATE PROCEEDINGS WHICH INDICATE THAT THE APPELLANT HAS MAINTAINED PROPER RECORDS OF THE INWA RD AND OUTWARD MATERIALS AND ALSO THE DETAILS OF CLOSING S TOCK PURCHASES FROM THE UNREGISTERED DEALERS IN CASH IS NOT 8 I.T.A. NO.912-915/MUM/2015 . PLACED BY THE AO. THESE ARE ONLY THE ASSUMPTIONS AND PRESUMPTIONS WHICH CANNOT BE RELIED UPON FOR MAKING HUGE ADDITIONS. THE VARIOUS COURTS HAVE HELD IN A NUMBER OF DECISION THAT THE SUSPICION EVEN OF HIGHEST DEGREE CANNOT TAKE PLACE OF EVIDENCE. 18 FURTHER, NOWHERE IN THE ASSESSMENT ORDER, THE AO HAS DOUBTED THE CORRESPONDING SALES MADE BY THE APPELLA NT AGAINST THESE ALLEGED BOGUS PURCHASES MADE FROM THE PARTY IN QUESTION DURING THE YEAR UNDER CONSIDERATI ON. FROM THE DETAILS SUBMITTED, IT CAN BE OBSERVED THAT THE TOTAL PURCHASES MADE BY THE APPELLANT FOR THE PERIOD UNDE R CONSIDERATION IS AT RS. 13,57,88,871/- WHICH INCLUD ED THE PURCHASES FROM THE ALLEGED BOGUS PARTY I.E. M/S.VIJAYLAXMI CORPORATION. AGAINST THESE PURCHASES MADE, THE APPELLANT HAS MADE TOTAL SALES AMOUNTING TO RS.14,20,51 382 DURING THE YEAR. THESE TOTAL SALES INCLUDE THE PURCHASES MADE FOR THE ABOVE PARTY IN . QUESTION AND ON THESE SALES MADE, THE APPELLANT RECEIVED PAYMENT S FROM THE MCGM AND ON ALL THESE PAYMENTS RECEIVED TH E APPELLANT HAS ALREADY OFFERED THE PROFITS FOR TAXAT ION IN THE RETURN OF INCOME FILED FOR THE YEAR UNDER CONSIDERA TION'. THE MCGM MAKES THE PAYMENTS IN SUCH CASES OF THE CONTRACTORS AFTER PROPER SCRUTINY AND STRICT VERIFI CATION OF THE MATERIALS SUPPLIED BY THE APPELLANT. SUCH PAYMENTS COULD NOT HAVE BEEN MADE WITHOUT THE ACTUAL SUPPLIES RECEIVED BY VARIOUS SCHOOLS TO WHOM THESE ITEMS LIKE SCHOOL BAG S, SHOES, SOCKS WERE INTENDED TO BE DELIVERED. THE TAX AT SOURCE HAS ALSO BEEN DEDUCTED BY MCGM BEFORE MAKING SUCH PAYMENTS TO THE APPELLANT. THIS IS THE REASON THAT THE AO HAS GIVEN A CATEGORICAL FINDING AT PAGE 3 OF THE ASSESSMENT ORDER THAT SALES MADE BY THE APPELLANT A RE BEYOND DOUBT. IF THE SALES MADE BY THE APPELLANT A RE NOT IN DOUBT, HOW THE CORRESPONDING PURCHASES CAN BE TR EATED AS BOGUS ESPECIALLY IN VIEW OF THE FACTS STATED ABOVE. 19. TO PROVE THE FACT THAT THE PURCHASES/SALES FROM THESE PARTIES ARE GENUINE, THE APPELLANT HAS ALSO FILED T HE COPIES OF THE BILLS/INVOICES RECEIVED FROM THESE PARTIES FOR THE PURCHASES MADE WHICH INCLUDES THE DELIVERY CHALLANS IN CERTAIN CASES. THE AO HAS NOT GIVEN ANY COMMENTS O N THESE BILLS/INVOICES AND DELIVERY CHALLANS FILED BY THE 9 I.T.A. NO.912-915/MUM/2015 APPELLANT DURING THE COURSE OF ASSESSMENT PROCEEDIN GS. THE, AO HAS NOT EVEN DOUBTED THE INVOICES/BILLS ISSUED BY THESE PARTIES TO THE APPELLANT WHICH PROVES THE GENUINENE SS OF THESE TRANSACTIONS OF SALE/PURCHASE OF MATERIALS. 20. FURTHER, THE PAYMENTS FOR THE PURCHASES FROM TH E PARTY HAS BEEN MADE BY CHEQUES AND THROUGH NORMAL BANKING CHANNELS. THE AR OF THE APPELLANT HAS PLACED ON REC ORD THE COPIES OF THE BANK STATEMENT OF M/S GIN FAB ACC OUNT NO. 20002104260 MAINTAINED WITH BANK OF MAHARASHTRA SHO WING THE PAYMENTS MADE TO THE PARTY AGAINST PURCHASES MA DE FROM THE ABOVE PARTY. ON PERUSAL OF THE, BANK STATE MENT, IT CAN BE OBSERVED THAT THESE PAYMENTS WERE MADE TO TH IS PARTY RIGHT FROM THE BEGINNING OF THE YEAR AND ARE SPREAD THROUGHOUT THE ACCOUNTING PERIOD. IT IS NOT THE CAS E THAT THE PAYMENTS HAVE BEEN MADE AT ONE GO OR ONLY AT TH E END OF THE YEAR OR THE PAYMENTS TO THE PARTY ARE OUTSTA NDING AT THE END OF THE YEAR. ALL THE PAYMENTS HAVE BEEN MAD E TO THE PARTY IN THE NORMAL ROUTINE AS DONE IN THE CASE OF OTHER PARTIES AFTER AVAILING THE NORMAL CREDIT PERIOD. TH E AO HAS NOT MADE ANY INVESTIGATIONS TO . PROVE THAT THE PAYMENTS RECEIVED BY THE PARTIES IN QUESTION FOR THE SALE MA DE TO THE APPELLANT WERE WITHDRAWN IN CASH FROM THEIR ACCOUNT S AND GIVEN BACK TO THE APPELLANT AFTER CHARGING THEIR COMMISSION. ALL THESE EVIDENCES PLACED ON RECORD FOR THE PURCHA SES MADE CANNOT BE SET ASIDE SUMMARILY WITHOUT MAKING FURTHE R INVESTIGATIONS IN THE MATTER TO PROVE THAT THESE AR E NOT GENUINE. THE PURCHASES CANNOT BE TREATED AS BOGUS O NLY FOR THE REASON MR. MUKESH CHOKSI HAD ADMITTED IN THE STATEMENT RECORDED DURING THE SEARCH THAT THE CONCE RNS FLOATED BY HIM INDULGED IN BOGUS BILLING WITHOUT AC TUAL DELIVERY OF. GOODS. THE APPELLANT HAS NOT BEEN CONF RONTED WITH ANY MATERIAL WHICH THE AO WAS IN POSSESSION INDICATING ANY DOUBTS ABOUT THE GENUINENESS OF THE PURCHASES. IT IS THEREFORE APPARENT THAT THE CONFES SIONAL STATEMENT WAS UNCORROBORATED BY ANY MATERIAL OR INFORMATION FOUND OR SEIZED DURING THE COURSE OF SE ARCH OR OTHERWISE. SUCH CONFESSIONAL STATEMENT, IN THE ABSE NCE OF ANY CORROBORATIVE EVIDENCES, DOES NOT JUSTIFY ADVERSE VIEW TAKEN BY THE ASSESSING OFFICER AGAINST THE APPELLANT. IT WOULD NOT BE OUT OF PLACE TO MENTION HERE THAT THIS STATEMENT, GIVEN DURING 10 I.T.A. NO.912-915/MUM/2015 THE COURSE OF SEARCH, WAS LATER RETRACTED BY MUKESH CHOKSI DURING THE ASSESSMENT PROCEEDINGS BEFORE THE ASSESS ING OFFICER.' 21. IN VIEW OF THE FACTS STATED ABOVE, IT IS CLEAR THAT THE PURCHASES MADE BY THE APPELLANT FROM M/S.VIJAYLAKSH MI CORPORATION CANNOT BE DISALLOWED ONLY ON THE BASIS OF A STATEMENT UNLESS AND UNTIL THESE STATEMENT ARE FURT HER CORROBORATED BY SOME OTHER EVIDENCE PLACED ON RECOR D TO PROVE THE SAME TO BE BOGUS, NO COGNIZANCE OF SUCH STATEMENTS CAN BE TAKEN. NO SUCH CORROBORATIVE EVIDENCES HAVE BEEN PLACED ON RECORD BY THE ASSESSI NG OFFICER BEFORE DECLARING THESE PURCHASES TO BE BOGU S AND DISALLOWING THE SAME. 22. AS IS EVIDENT FROM THE FACTS MENTIONED AT AFORE SAID PARAS, THE PURCHASES OF THE MATERIALS BY THE APPELL ANT ARE NOT IN DOUBT FROM THE PARTY IN QUESTION BUT ONLY FLAW I N THESE TRANSACTIONS IS THAT THESE PARTIES IN QUESTION HAVE NOT BEEN VERIFIED OR EXAMINED BY THE ASSESSING OFFICER TO ESTABLISH THE CORRECTNESS OF THE PURCHASE PRICE PAID FOR THE MATERIALS PURCHASED FROM THESE PARTIES. THE AO HAS NOT MADE A NY VERIFICATION OF SUCH PURCHASES EITHER U/S 133(6) OR BY CALLING THE PARTIES U/S 131 FOR EXAMINATION, WHICH WAS VITA L TO DETERMINE AS TO WHETHER THE PURCHASE PRICE SHOWN ON THE BILLS/INVOICES ARE AS PER PREVAILING MARKET PRICES OF THE MATERIALS PURCHASED. WITHOUT ASCERTAINING, THE CORR ECT PURCHASE PRICE OF THE MATERIALS PURCHASED, THE NET PROFITS SHOWN BY THE APPELLANT CANNOT BE ACCEPTED A S CORRECT. 23. SINCE THE PURCHASES BILLS ISSUED BY THE PARTY A RE NOT VERIFIABLE FROM THE CONCERNED PARTIES, THERE IS EVERY CHANCE, THAT THESE PURCHASES ARE OVER-INVOICED TO R EDUCE THE PROFITS. THEREFORE, THE CORRECT APPROACH IN SUCH TR ANSCTIONS WOULD BE TO TAX ONLY THE ESTIMATED PROFIT ELEMENT E MBEDDED, OVER AND ABOVE THE NET PROFIT ALREADY SHOWN, IN SUC H ALLEGED BOGUS PURCHASES WHICH NEED TO BE ESTIMATED FOR TAXA TION PURPOSES. THE DISALLOWANCE OF THE ENTIRE AMOUNT OF PURCHASES FROM THESE PARTIES WOULD NOT BE THE CORRECT APPROAC H TO DECIDE THE ISSUE JUDICIOUSLY. 24. WHILE DEALING WITH SIMILAR ISSUES, THE COURTS H AVE TAKEN A VIEW- THAT IN CASE OF THE ALLEGED BOGUS 11 I.T.A. NO.912-915/MUM/2015 PURCHASES, THERE IS NO JUSTIFICATION FOR ADDING BAC K THE ENTIRE PURCHASES WHAT THE INCOME TAX ACT ENVISAGES IS THE TAXATION OF THE INCOME ELEMENT ARISING FROM ANY FINANCIAL TRANSACTION AND NOT THE ENTIRE FINANCIAL TRANSACTIO N AS THE INCOME: THEREFORE ONLY THE PROFIT EMBEDDED CAN BE T AXED. SIMILAR APPROACH HAS TO BE ADOPTED IN RESPECT OF TH E ALLEGED BOGUS PURCHASES IN THE INSTANT CASE. 25. WHILE DEALING WITH AN IDENTICAL ISSUE IN THE CA SE OF CIT-I VS SIMIT P. SHETH, ITA NO. 553 OF 2012, ORDER DATED 16/11/2013, THE HON'BLE HIGH COURT OF GUJARAT HAS HELD THAT 'WE ARE BROADLY IN AGREEMENT WITH THE REASONING ADOPTED BY THE COMMISSIONER (APPEALS) WITH RESPECT TO THE NATURE OF DISPUTED PURCHASES OF STEEL. IT MA Y BE THAT THE THRE6 SUPPLIERS FROM WHOM THE ASSESSEE CLA IMED TO HAVE PURCHASED THE STEEL DID NOT OWN UP TO SUCH SAL ES. HOWEVER, VITAL QUESTION WHILE CONSIDERING THE ENTIRE AMOUNT OF PURCHASES SHOULD BE ADDED BACK TO THE INCOME OF THE ASSESSEE OR ONLY THE PROFIT ELEME NT EMBEDDED ' THEREIN WAS TO ASCERTAIN WHETHER THE PUR CHASES THEMSELVES WERE COMPLETELY BOGUS AND NON-EXISTENT O R THAT THE PURCHASES WERE ACTUALLY MADE BUT NOT FROM THE PARTIES FROM WHOM IT WAS CLAIMED TO HAVE BEEN M ADE AND INSTEAD MAY HAVE BEEN PURCHASED FROM GREY MARKET WITHOUT PROPER BILLING OR DOCUMENTATION. IN THE PRESENT CASE, CIT BELIEVED THAT WHEN AS A TR ADER IN STEEL THE ASSESSEE SOLD CERTAIN QUANTITY OF STEEL, HE WOULD HAVE PURCHASED THE SAME QUANTITY FROM SOME SOURCE. WHEN THE TOTAL SALE IS ACCEPTED BY THE ASSESSING OFFICER , HE COULD NOT HAVE QUESTIONED THE VERY BASIS OF THE PURCHASES . IN ESSENCE THEREFORE, THE COMMISSIONER (APPEALS) BELIE VED ASSESSES THEORY THAT THE PURCHASES WERE NOT BOGUS BUT WERE MADE FROM THE PARTIES OTHER THAN THOSE MENTIONED IN THE BOOKS OF ACCOUNTS. THAT BEING THE POSITION, NOT THE ENTIRE PURCHASE PR ICE BUT ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES CAN BE AD DED TO THE INCOME OF THE ASSESSEE. SO MUCH IS CLEAR BY DE CISION OF THIS COURT. IN PARTICULAR, COURT HAS ALSO TAKEN A SIMILA R VIEW IN CASE OF 12 I.T.A. NO.912-915/MUM/2015 COMMISSIONER OF INCOME TAX-IV VS. VIJAY M MISTRY CONSTRUCTION LTD. VIDE ORDER DATED 10.01.2011 PASSED IN TAX APP EAL NO. 1090 OF 2009 AND IN CASE OF COMMISSIONER OF INCOME TAX VS. BHOLANATH POLY FAB PVT. LTD. VIDE ORDER DATED 23.10 .2012 PASSED IN TAX APPEAL NO. 63 OF 2012. THE VIEW TAKEN B Y THE TRIBUNAL IN CASE OF VIJAY PROTEINS PVT. LTD. VS. CI T REPORTED IN 58 ITC 428 CAME TO BE APPROVED.' 26. SIMILARLY, IN THE CASE OF CIT, VS BHALANATH POLY FAB. (P) LTD., L.T.A.NO. 63 OF 2012, IN THE ORDER DATED 23/10/2012, THE HON'BLE HIGH COURT OF GUJARAT HAS HELD AS UNDER:- WE ARE OF THE OPINION THAT THE TRIBUNAL COMMITTED N O 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 PURCHA SE THE CLOTH AND SELL THE FINISHED GOODS. IN THAT VIEW OF THE MATTER, AS NATURAL COROLLARY, NOT THE ENTIRE AMOUNT COVERED UNDER SUCH PURCHASE, BUT THE PROFIT ELEMENT EMBEDDED THEREIN WOULD BE SUBJECT TO TAX. THIS WE. THE VIEW OF THIS COURT IN THE CASE OF SANJAY COKE INDUSTRIES V CIT 316 ITR 274 (G UI). SUCH DECISION IS ALSO FOLLOWED BY THIS COURT IN A JUDGME NT DATED AUGUST 16, 2011, IN TAX APPEAL NO.679 OF 2010 IN TH E CASE OF CIT V. KISHOR AMRUTLAL PATEL. IN THE RESULT, TAX APPEAL IS DISMISSED.' 27. IN VIEW OF THE FACTS AND CIRCUMSTANCES AND THE JUDI CIAL PRONOUNCEMENTS CITED ABOVE, WHAT CAN BE DISALLOWED OR TAXED IN THE INSTANT CASE OF THE ALLEGED BOGUS PURC HASES, AS HELD BY THE HON'BLE HIGH COURT OF GUJARAT IN THE ABOVE CITED CASE, IS ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH P URCHASES SHOWN TO HAVE BEEN MADE FROM THE ALLEGED BOGUS PART IES. THERE IS NO RATIONALE FOR DISALLOWING THE ENTIRE PU RCHASES MADE FROM1BPARTY IN QUESTION. 28. IN THE INSTANT CASE, ALL THE FACTS AND CIRCUMST ANCES OUTLINED ABOVE LEADS TO THE CONCLUSION THAT ALTHOUGH THE PUR CHASES MADE BY THE APPELLANT FROM THE PARTY IS NOT IN DOUB T BUT AT THE SAME TIME IT DIFFICULT TO ACCEPT THE PURCHASE PRICE SHOWN ON 13 I.T.A. NO.912-915/MUM/2015 THE INVOICES/BILLS ISSUED BY THE PARTY IN QUESTION. THE APPELLANT HAS NOT PLACED ANY EVIDENCE ON RECORD THAT THE GOOD S WERE PURCHASED FROM THE ABOVE PARTIES AT ARMS LENGTH PRI CE. THE APPELLANT HAS NOT PLACED ON RECORD ANY COMPARABLE BILLS/INVOICES FOR PURCHASES OF SIMILAR ITEMS MADE FROM OTHER PARTIES TO ESTABLISH THAT THE PURCHASES FROM THE PA RTY IN QUESTION WERE ALSO AT PAR WITH THE PURCHASES MADE F ROM OTHER PARTIES DURING THE PERIOD UNDER CONSIDERATION. IN A BSENCE OF ANY SUCH EVIDENCE PLACED ON RECORD, THE CORRECTNES S OF THE PURCHASE PRICE MENTIONED ON SUCH BILLS/INVOICES ISS UED BY THE PARTY I.E. M/S VIJAYLAKSHMI CORPORATION, CANNOT, BE ACCE P TED, WHICH IN TURN CAST DOUBT ABOUT THE AUTHENTICIT Y OF THE BOOKS OF ACCOUNT AS WELL AS THE NET PROFIT S HOWN BY THE APPELLANT FOR THE YEAR UNDER CONSIDERATION. IN VIEW OF THE SAME, THE BOOKS OF ACCOUNTS OF THE APPELLANT NEED T O BE REJECTED AND THE NET PROFIT FOR THE YEAR TO BE ESTI MATED. SINCE THE ASSESSEE IS BASICALLY A RETAIL TRADER IN THE GO ODS WHICH ARE SUPPLIED TO MCGM AND EVEN THE I.T. ACT. U/S 44AF PR OVIDES FOR 5% NET PROFIT ON THE GROSS RECEIPTS IN CASE OF CERT AIN ELIGIBLE BUSINESS HAVING TOTAL TURNOVER OF RS. 6O,00,000I- H OWEVER, IN THE CASE OF THE APPELLANT, THE TOTAL TURNOVER OR GR OSS RECEIPTS FOR THE YEAR UNDER CONSIDERATION ARE MORE THAN RS. 60 LACS, THEREFORE THE SAME RATE OF PROFIT CANN OT BE APPLIED IN THE INSTANT CASE IT WOULD, THEREFORE, BE FAIR AND REASONABLE IF THE NET PROFIT IN THIS CASE IS ESTIMA TED AT 5.5% OF THE GROSS TURNOVER. 29. IN VIEW OF THE FACTS NARRATED ABOVE, THE BOOKS OF ACCOUNTS OF THE APPELLANT FOR THE YEAR UNDER CONSIDERATION I .E. A.Y. 2008-09 ARE REJECTED AND THE NET PROFIT OF THE APPE LLANT IS ESTIMATED AT 5.5% OF THE GROSS TURNOVER AS AGAINST SHOWN BY THE APPELLANT AT 2.49% FOR THE YEAR UNDER CONSIDERA TION. BY APPLYING THE NET PROFIT RATE AT 5.5%, ON GROSS TURN OVER FOR THE YEAR WHICH IS AT RS.14,20,51,3821-, THE RET PRO FIT FOR THE YEAR COMES TO RS.78,12,826/- AS AGAINST SHOWN B Y THE APPELLANT AT RS.20,64,720I. THEREFORE THE NET A DDITION FOR THE YEAR UNDER CONSIDERATION WOULD BE RS.57,48, 106/- (7812,826 - 20,64,720). THUS, THE ADDITION MADE TO THE INCOME TO THE EXTENT OF RS 5748,106/- IS SUSTAINED FOR THE YEAR UNDER CONSIDERATION AND BALANCE ADDITION MADE 'IS 14 I.T.A. NO.912-915/MUM/2015 DELETED THE ASSESSING OFFICER IS DIRECTED ACCORDING LY. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 30. AS FAR AS THE CONTENTION OF THE ASSESSING OFFIC ER THAT THE CASE OF THE APPELLANT IS ALSO COVERED U/S 40A(3 ) IS CONCERNED, THE SAME CANNOT BE ACCEPTED. THERE IS N O EVIDENCE PLACED ON RECORD TO PROVE THAT THE APPELLA NT HAD PAID MONEY IN CASH TO THE OTHER PARTIES TO PURCHASE THE MATERIALS BY MAKING THE PAYMENTS THROUGH CHEQUES, W HICH IS EVIDENT FROM THE BANKING STATEMENTS. THEREFORE, TH ERE IS NO QUESTION OF CONSIDERING THE PAYMENTS MADE IN VIOLAT ION OF SECTION 40A(3) OF THE I.T. ACT, 1961. 9. PERUSAL OF THE ORDER OF THE LD. CIT(A) REVEALS THAT HE HAD MADE DETAILED ANALYSIS OF THE FACTS INVOLVED IN THIS CAS E AND APPLIED CORRECT POSITION OF LAW IN THIS REGARD AS WAS CLARIFIED BY HONBLE GUJARAT HIGH COURT IN THE CASE DISCUSSED BY LD. CIT(A). IT IS F URTHER NOTICED BY US THAT THE LD. CIT(A HAD ESTIMATED THE NET PROFIT OF THE ASSESSEE AT 5.5% OF THE GROSS TURNOVER AS AGAINST 2.49% SHOWN BY THE ASSESSEE WITH A VIEW TO NULLIFY OR EVEN OUT ANY POSSIBLE LEAKAGE IN THE FORM OF THE AMOUNT OF INFLATION DONE BY THE ASSESSEE IN THE AMO UNT OF PURCHASES. THE ASSESSEE ACCEPTED THE ORDER OF THE LD. CIT(A) I N ALL FAIRNESS. THE REVENUE HAS FILED THE APPEAL BEFORE US, BUT THE LD. DR IS NOT ABLE TO EXPLAIN HOW TOTAL AMOUNT OF PURCHASES COULD BE DISA LLOWED ESPECIALLY WHEN THE ENTIRE SALES HAVE BEEN ACCEPTED. THERE IS NOTHING IN POSSESSION OF LD. DR TO SHOW US IT THERE IS ANYTHIN G WRONG IN THE QUANTITATIVE RECONCILIATION OF THE ITEMS PURCHASED BY THE ASSESSEE AND ITEMS SOLD BY THE ASSESSEE. IF THE ITEMS SOLD BY T HE ASSESSEE HAVE BEEN ACCEPTED, THEN THE ASSESSEE MUST HAVE PRODUCED THES E ITEMS AND, THEREFORE, THE ENTIRE PURCHASES CANNOT BE DISALLOWE D. FURTHER, NOTHING HAS BEEN BROUGHT ON RECORD BY THE LD. DR THAT THE N ET PROFIT RATE ESTIMATED BY THE LD. CIT(A) AT 5.5% IS LESS THAN TH E APPROPRIATE RATE. 15 I.T.A. NO.912-915/MUM/2015 THUS, TAKING INTO ACCOUNT ALL THE FACTS AND CIRCUMS TANCES OF THE CASE AND KEEPING IN VIEW THE PECULIAR AND DISTINCT FEATU RES OF THIS CASE, WE FIND THAT THE ORDER OF THE LD.CIT(A) IS WELL REASON ED AND CORRECT IN THE GIVEN FACTS OF THE CASE. NO INTERFERENCE IS CALLED FOR THEREIN AND THEREFORE, THE SAME IS UPHELD. 10. AS A RESULT, APPEAL FILED BY THE REVENUE IS DISMISS ED. 11. IT HAS BEEN JOINTLY STATED BY BOTH THE PARTIES THAT THE FACTS INVOLVED IN APPEALS OF THE REVENUE FOR A.Y. 2009-10 (ITA NO.913/UM/2015) AND FOR A.Y. 2010-11 (ITA NO. 914/M UM/2015) INVOLVE IDENTICAL FACTS AND ISSUES. THEREFORE, IN VIEW OF OUR ABOVE ORDER, THESE APPEALS ARE ALSO DISMISSED. 12. IN THE RESULT, ALL THE APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER WAS PRONOUNCED IN THE OPEN COURT AT THE CONCL USION OF THE HEARING. SD/- SD/- (AMIT SHUKLA) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 10 TH NOVEMBER, 2016 PK/- COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE , G-BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES