Income Tax Appellate Tribunal - Ahmedabad
Devendra Girdharilal Jain,Huf, ... vs Department Of Income Tax on 30 December, 2014
आयकर अपीलȣय अͬधकरण, अहमदाबाद Ûयायपीठ 'ए', अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
" A " BENCH, AHMEDABAD
सम¢ Įी एन.एस.सैनी, लेखा सदèय एवं Įी कुल भारत, ÛयाǓयक सदèय ।
BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER And
SHRI KUL BHARAT, JUDICIAL MEMBER
आयकर अपील सं./I.T.A. No.776/Ahd/2011
( Ǔनधा[रण वष[ / Assessment Year : 2007-08)
The ITO बनाम/
Devendra Girdharilal Jain, HUF
Ward-2(4) Vs. AF-1, Rushika Apartments
Ahmedabad Nr.Sujata Flats, Shahibaug
Ahmedabad
èथायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AADHD 7924 H
(अपीलाथȸ /Appellant) .. (Ĥ×यथȸ / Respondent)
अपीलाथȸ ओर से / Appellant by : Shri B.Kulshrestha, Sr.DR
Ĥ×यथȸ कȧ ओर से/Respondent by : -None-
ु वाई कȧ तारȣख /
सन Date of Hearing 08/12/2014
घोषणा कȧ तारȣख /Date of Pronounce ment 30/12/2014
आदे श / O R D E R
PER SHRI KUL BHARAT, JUDICIAL MEMBER :
This appeal by the Revenue is directed against the order of the Ld.Commissioner of Income Tax(Appeals)-XVI, Ahmedabad ('CIT(A)' in short) dated 10/01/2011 pertaining to Assessment Year (AY) 2007-08. The only effective ground raised by the Revenue in its appeal reads as under:-
ITA No.776 /Ahd/2011ITO vs. Devendra Girdharilal Jain, HUF Asst.Year - 2007-08 -2-
1. The Ld.CIT(A) has erred in law and on facts in allowing relief of Rs.2,84,01,250/- on account of bogus purchases of Rs.2,98,96,050/- added in the assessment order. (Addition confirmed to the extent of Rs.14,94,800/- being 5% of Rs.298,96,050/-.
On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer since the assessee has failed to disclose his true income.
The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the AO be restored. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.
2. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s.143(3) of the Income Tax Act,1961 (hereinafter referred to as "the Act") was framed vide order dated 17/12/2009, thereby the Assessing Officer (AO in short) made disallowance of the expenditure towards purchases amounting to Rs.2,98,96,050/- and also made VAT penalty of Rs.1,000/-, disallowance of office rent of Rs.60,000/-, disallowance of godown rent of Rs.45,600/- and adjustment made u/s.145A of the Act on account of the difference in closing stock amounting to Rs.5,41,926/-. Against this, assessee filed an appeal before the ld.CIT(A), who after considering the submissions, restricted the disallowance to the extent of 5% of the purchases. However, confirmed the disallowance made on account of the office rent, ITA No.776 /Ahd/2011 ITO vs. Devendra Girdharilal Jain, HUF Asst.Year - 2007-08 -3- godown rent and restricted the disallowance made on account of the closing stock. Now, the Revenue is in appeal.
3. The only effective ground is against in allowing relief of Rs.2,84,01,250/- made on account of bogus purchases by the ld.CIT(A).
4. No one appeared on behalf of the assessee and no adjournment application has been filed. On last date of hearing, i.e. on 27/10/2014, notice of hearing was sent through DR. The Revenue has placed a letter dated 24/11/2014 on record stating that the notice of hearing was served by way of affixture. It is stated in the letter that the respondent is not available on the given address. Under these facts, the appeal was taken up for hearing in the absence of the assessee.
5. The ld.Sr.DR supported the order of the AO and submitted that the ld.CIT(A) was not justified in restricting the disallowance. However, he submitted that the ld.CIT(A) has categorically confirmed the findings of the AO about the purchases not made from the parties as claimed by the assessee. He drew our attention towards paragraph No.2.4.1 of the appellate order. However, despite having confirmed that the purchases were not made from the concerned parties, the ld.CIT(A) proceeded to restrict the disallowance to the extent of 5% of the purchases.
ITA No.776 /Ahd/2011ITO vs. Devendra Girdharilal Jain, HUF Asst.Year - 2007-08 -4-
6. We have heard the ld.Sr.DR, perused the material available on record and gone through the orders of the authorities below. We find that the AO has given an elaborate finding for not accepting the explanation of the assessee in paras-3.2 to 3.4 of his order which are reproduced as under:-
"3.2. The reply filed by the assessee vide letter dtd.2.12.2009 has been considered. The claim of the assessee that no addition in respect of above referred bogus purchases introduced by the assessee in the name of the parties mentioned above should be made is not acceptable because of following reasons:-
(i) It is well settled law that onus lies on the assessee to prove the genuineness of any expenditure which is claimed as deduction in computing its taxable income. Therefore, the onus in the instant case squarely lies on the assessee to prove the genuineness of the purchases of the of the above referred parties as he has claimed deduction in respect of the expenditure, being the purchases claimed to have been made from these parties. Till date the assessee has not produced (except copies of account of these parties) any evidence in support of his claim that he has actually made above referred purchases from these parties. In spite of having been specifically requested to produce the original sale invoices claimed to have been issued by these parties in respect of above referred purchases and copies of the cheques which the assessee should have issued in favour of these parties, the assessee has not produced these documents till date.
(ii) In his submission, the assessee has relied heavily on the fact that payment has been made by the assessee through cheques to these parties. It has also been claimed that name of these parties duly appear in the bank statement of the assessee. The assessee has further claimed that these facts establish that the payments against these parties have been made by the assessee to the said parties only. Of these issues, the correct factual position is as under:-ITA No.776 /Ahd/2011
ITO vs. Devendra Girdharilal Jain, HUF Asst.Year - 2007-08 -5-
(b) Not a single cheque issued by the assessee against these purchases has been credited in the account of any of these parties.
(c) None of the cheque issued was account payee cheque.
(d) No cheque was issued in favour of any of these parties.
However, to befool and misguide the revenue authorities, in some cases, the! assessee has written some-what names similar to these parties, eg. Ambuja Intermediates (not M/s.Ambuja Intermediates Pvt. Ltd.), Arcata Trade Links (not M/s.Arcata Trade Link Pvt. Ltd.), Rohan Dye (not M/s.Rohan Dyes & Intermediates Ltd.)
(e) Some of the cheques issued against these purchases were credited in the accounts of M/s.Mohit International and M/s. The Green Book of India which are proprietorship concern of Shri Devendra G. Jain, Karta of Devendra G. Jain HUF, the assessee. Other cheques were credited in the accounts of various "shroffs" (the persons engaged in cheque discounting business). The details (to the extent that could be received from various banks) of all the cheques issued against these purchases and credited in various bank accounts are as per the Annexure attached with the assessment order, which forms part of this assessment order.
Hence the argument of the assessee that since the assessee has issued cheques (to different parties), therefore, the claim of the assessee for deduction in respect of these purchases should be allowed, cannot be accepted.
(iii) M/s.Ambuja Intermediates Pvt. Ltd., M/s.Rohan Dyes & Intermediates Ltd. and M/s.Arcata Trade Links Pvt. Ltd. have denied having made above referred sales to these parties and M/s.Vishal Enteprise, Yogeshwar Enterprise and M/s.Navrang Corporation are not existing at the address given by the assessee.
ITA No.776 /Ahd/2011ITO vs. Devendra Girdharilal Jain, HUF Asst.Year - 2007-08 -6- Therefore, the claim of the assessee for deduction in respect of the above referred purchases claimed to have been made from these parties, cannot be allowed.
(iv) The assessee has further argued in his submission that as the sales of the assessee are being treated as genuine, therefore, all the purchases shown by the assessee in his books of accounts should also been treated as genuine and deduction in respect of all such purchases should be allowed, even if these purchases are proved to be bogus. This argument of the assessee is not acceptable, because as discussed earlier, it is a well settled law that onus lies on the assessee to prove the genuineness of the purchases, if the assessee claims any deduction in respect of such purchases. In the case under consideration, as the assessee has not been able to prove that the assessee has actually made above referred purchases from the parties mentioned above, the claim of the assessee for deduction of these purchases cannot be allowed merely because the assessee has made sales. It is incumbent on the assessee to prove that suppliers were genuine suppliers of these goods and they really supplied these goods to the assessee and the assessee really made payment by cheques to these very parties and none else. Such a burden has to be discharged by the assessee with very strong and clinching evidence in view of the blatant denial by some of the parties and none-existence to other parties. As the assessee has failed to prove that above referred goods were actually purchased by him, therefore, deduction in respect of expenditure claimed to have been incurred by the assessee for making above referred purchases has to be disallowed.
(v) Further, Section 40A(3) of the I.T. Act, 1961 provides that if the assessee incurs any expenditure in respect of which payment has been made otherwise than by an account payee cheque, drawn on a bank or account payee bank draft, no deduction shall be allowed in respect of such expenditure. In the case under consideration, the assessee has not made payment either by account payee cheques or account payee bank drafts, hence no ITA No.776 /Ahd/2011 ITO vs. Devendra Girdharilal Jain, HUF Asst.Year - 2007-08 -7- deduction could have been allowed in respect of the expenditure incurred by the assessee towards purchases referred above from these parties, even if these purchases were genuine purchases.
(vi) The assessee has also argued that as the assessee has sold the goods, it proves that the assessee must have received the goods, if not from these parties, from other parties; hence, the assessee should be allowed the deduction in respect of the purchases that must have made from other parties. The assessee vide letter dtd.8.12.2009 was given an opportunity to give the complete details and evidences of purchases, if any, claimed to have been made, out of books of accounts, from other parties. He was also requested to give details and evidences of payments made in respect of such unaccounted purchases, if any. The assessee has not furnished any details of the out of books purchases, source of such purchases, payment made against such purchases and source of such payments, if any. It is only in the knowledge of the assessee from where unaccounted purchases, if any, has been made by him and from which source the payments against any such purchases have been made. As the assessee has not furnished details of source of such purchases and source of payments made against such purchases, therefore, the claim of the assessee for allowing deduction in respect of any unaccounted purchases cannot be allowed.
(vii) Proviso to Section 69C of the I.T. Act, 1961 provides that notwithstanding any thing contained in any other provision of the I.T. Act, no deduction under any head of income shall be allowed in respect of any expenditure for which no explanation about the source of such expenditure is offered by the assessee or in the opinion of the A.O. the explanation offered is not satisfactory. In the case under consideration, as the assessee has not been able to furnish any explanation about the source of any unaccounted purchases or source of payment of such purchases, therefore, the argument of the assessee that he should be allowed deduction in respect of unaccounted purchases that he must have made, to sale the goods, cannot be accepted.
ITA No.776 /Ahd/2011ITO vs. Devendra Girdharilal Jain, HUF Asst.Year - 2007-08 -8-
(viii) I have perused all the decisions of various High Courts & Tribunals cited by the assessee in his submission. None of the decision says that deduction in respect of any expenditure can be allowed to the assessee even if the assessee fails to prove genuineness of such expenditure. In the case under consideration as the assessee has failed to prove that he has made above referred purchases from the parties mentioned above, therefore, the claim of the assessee cannot be allowed. Under the similar circumstances, the Delhi High Court in the case of La Medica (250 ITR 575) has observed to the effect that the decision has to be taken on relevant material and not on irrelevant material. In that case, the assessee has shown the purchase of raw material from a party which was found nonexistent and amount of purchase price was considered as income from undisclosed source of assessee. The Tribunal held that not withstanding suspicious circumstances of purchases, the goods so purchased were pledged with the bank and hence nonexistence of the seller could not be the basis for doubting the genuineness of the purchase and/or to infer that there was fictitious purchases. The Delhi High Court on reference held that the Tribunal has not taken into consideration relevant material and has acted on irrelevant materials. What was under consideration was whether the purchases were made from a particular party as claimed by the assessee. Once it was accepted that the supplies were not made by the said party to whom the payments were allegedly whether the purchases were made from some other source could not have weighed with the Tribunal as a factor in favour of the assessee and concluded that the Assessing Officer has rightly treated such purchases as income from undisclosed sources.
The Hon'ble High Court deciding the case has observed as under:-
"Held, that the Tribunal had not taken into consideration relevant materials and had acted on irrelevant materials. The question before the Tribunal was not whether purchases were made from another concern. What was under consideration was whether the purchases were made from K as was claimed by the assessee. Once it was ITA No.776 /Ahd/2011 ITO vs. Devendra Girdharilal Jain, HUF Asst.Year - 2007-08 -9- accepted that the supplies were not made by K to whom payments were alleged to have been made, the question whether the purchases were made from some other source could not have weighted with the Tribunal as a factor in favour of the assessee. The conclusion of the Tribunal were, therefore, clearly erroneous, contrary to the materials on record and had been arrived at without taking into consideration relevant material and by placing reliance on irrelevant materials. Where the Tribunal acted partly on relevant and partly on irrelevant materials, and it was not possible to say to what extent the latter had influenced its mind, the finding was vitiated because of the use of irrelevant materials. The Tribunal had no material to come to the conclusion that the sum of Rs.3,82,750 could not be treated as the assessee' s income from undisclosed sources."
The Hon'ble ITAT Ahmedabad 'C' Bench in ITA No.1262/Ahd/2002 A.Y. 1994-95 vide order dt.30.4.2003, in the case of SWETAMBER STEEL LTD. Vs. ITO WARD 4(3), BARODA, following the decision of Hon'ble Delhi High Court in the case of CIT Vs. La Medica 250 ITR 575 has upheld the order of the AO and CIT(A), disallowing the whole of the claim of the assessee of bogus purchases. The matter was decided by the Tribunal against the assessee in view of the observations of their lordships of Delhi High Court in the above referred case. Appeal against this order of the ITAT was not admitted by the Hon'ble High Court as well as the assessee lost it before the Hon'ble Supreme Court. Non admission of appeal u/s.260A by the Hon'ble High Court on the ground that no substantial question of law arise from the order of the Tribunal is held by the Hon'ble Supreme Court in Nirma Industries Ltd. Vs. DCIT (283 ITR 402), to be the confirmation of the Tribunal order and its merger in the Hon'ble High Court order.
The Hon'ble ITAT, Ahmedabad 'D' (3rd Member) Bench has followed the above referred decision of the ITAT, Ahmedabad, while deciding the case of ACIT Cir.5, Baroda Vs. Amar Mining Co. 121 IT 273 (Ahd.).
3.3. In view of the facts discussed above, it is held that the assessee has inflated his expenditure by introducing following bogus purchases in the name of parties mentioned below.
M/s.Ambuja Intermediates Pvt. Ltd.
ITA No.776 /Ahd/2011ITO vs. Devendra Girdharilal Jain, HUF Asst.Year - 2007-08
- 10 -
Sr.No. Date Item Amount(Rs.)
1. 20.04.2006 H. Acid 7,05,262/-
2. 20.05.2006 H.RDS 11,78,682/-
3. 09.06.2006 H.RDS 13,93,031/-
4. 20.06.2006 H.RDS 13,76,731/-
5. 01.07.2006 H.RDS 9,80,896/-
6. 01.07.2006 H.RDS 12,64,453/-
7. 17.07.2006 H.RDS 20,80,417/-
8. 22.12.2006 H.ACID 11,23,969/-
9. 21.03.2007 H.RDS 13,34,297/-
TOTAL Rs.1,14,37,738/-
M/s.Rohan Dyes & Intermediates Ltd.
Sr.No. Date Item Amount(Rs.)
1. 01.03.2007 J.ACID 38,61,312/-
2. 01.03.2007 K.ACID 35,58,464/-
3. 01.03.2007 H.ACID 35,58,464/-
4 01.03.2007 H.AVID 38,61,312/-
TOTAL Rs.1,48,39,552/-
M/s.Arcata Trade Links Pvt. Ltd.
Sr.No. Date Item Amount(Rs.)
1. 07.12.2006 J.ACID 10,35,000/-
TOTAL Rs.10,35,000/-
M/s.Vishal Enterprise
Sr.No. Date Item Amount(Rs.)
1. 20.12.2006 RDS 7,73,760/-
TOTAL Rs.7,73,760/-
M/s.Yogeshwar Enterprise
ITA No.776 /Ahd/2011
ITO vs. Devendra Girdharilal Jain, HUF
Asst.Year - 2007-08
- 11 -
Sr.No. Date Item Amount(Rs.)
1. 02.03.2007 RDS 5,64,246/-
TOTAL Rs.5,64,246/-
M/s.Navrang Corporation.
Sr.No. Date Item Amount(Rs.)
1. 08.09.2006 12,45,754/-
TOTAL Rs.14,45,754/-
3.4. The claim of the assessee for deduction of Rs.2,98,96,050/- (Rs.1,14,37,738/- + Rs. 1,48,39,552/- + Rs.10,35,0007- + Rs.7,73,760/- + Rs.5,64,246/- + Rs. 12,45,754/-) being bogus purchases introduced in the name of above referred parties is disallowed and added back to the income of the assessee. The claim of the assessee for deduction of Rs. 2,98,96,050/- is also disallowable u/s.40A(3) as the payment against these bogus purchases have been made otherwise than by an account payee cheque drawn on a bank or account payee bank draft. Penalty proceedings u/s.271 (1) (c) have already been initiated for filing inaccurate particulars of income thereby concealing the income of Rs. 2,98,96,050/-."
6.1. However, the ld.CIT(A) accepted that the purchases were not made from the concerned parties, but proceeded to restrict the disallowance to the extent of 5% of the total purchases. The finding of the ld.CIT(A) is reproduced hereunder for the sake of clarity.
"2.4.4 In view of the above, the decisions relied upon by the AO are not applicable but the decision of honourable Gujarat High Court in the case of M K Brothers (supra) and the decision of honourable ITAT Ahmedabad in the case of Rasiklal K. Parekh (supra) and the decision of honourable ITAT Ahmedbaad in the case of Vijay Proteins Ltd. is squarely applicable. The appellant has admitted in the alternative ITA No.776 /Ahd/2011 ITO vs. Devendra Girdharilal Jain, HUF Asst.Year - 2007-08
- 12 -
argument that at least 4% has been saved on VAT by resorting to purchasing outside the books of accounts and obtaining bills of some other party. Further, no disallowance can be made under section 40A(3) in view of the decision of honourable ITAT Ahmedabad in the case of Vijay Proteins Ltd. (supra) and also the other decisions quoted by the appellant and reproduced above in the submission of the appellant. Considering the above circumstances it would be fair if 5% of the purchases are disallowed as expenditure which the assessee would have saved by buying from the open market outside the books of account. Therefore, the disallowance made by the AO of Rs.2,98,96,050/- is restricted to Rs.14,94,800/-. This ground of appeal is therefore partly allowed."
6.2. We find that the AO has given various reasons for not accepting the explanation of the assessee. The AO has given finding that the assessee failed to produce the original sale invoices, not a single cheque issued by the assessee against these purchases has been credited in the account of any of these parties, none of the cheque was issued as 'A/c.payee cheque' and no cheque was issued in favour of any of these parties. The AO has also invoked the provisions of section 40A(3) and proviso to section 69C of the Act. We find that there is no finding or any whisper on these objections of the Assessing Officer in the impugned order. The ld.CIT(A) has simply restricted the disallowance to the extent of benefit of VAT, i.e. 5% of the total purchases. Under these facts and circumstances of the case, we are unable to confirm the finding of the ld.CIT(A), therefore the order of the ld.CIT(A) is set aside on this issue and restore the same back to his file for decision afresh in accordance with law. The ld.CIT(A) is hereby directed to decide the ITA No.776 /Ahd/2011 ITO vs. Devendra Girdharilal Jain, HUF Asst.Year - 2007-08
- 13 -
issue after obtaining Remand Report from the AO and decide all his objections in accordance with law. Thus, ground raised by the Revenue is allowed for statistical purposes.
7. In the result, Revenue's appeal is allowed for statistical purposes.
Order pronounced in the Court on Tuesday, the 30th day of December,2014 at Ahmedabad.
Sd/- Sd/-
(एन.एस.सैनी) (कुल भारत)
लेखा सदèय ÛयाǓयक सदèय
( N.S. SAINI ) ( KUL BHARAT )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 30/12 /2014
टȣ.सी.नायर, व.Ǔन.स./T.C. NAIR, Sr. PS
आदे श कȧ ĤǓतͧलͪप अĒेͪषत/Copy of the Order forwarded to :
1. अपीलाथȸ / The Appellant
2. Ĥ×यथȸ / The Respondent.
3. संबंͬधत आयकर आयुÈत / Concerned CIT
4. आयकर आयुÈत(अपील) / The CIT(A)-XVI, Ahmedabad
5. ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय अͬधकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड[ फाईल / Guard file.
आदे शानुसार/ BY ORDER, स×याͪपत ĤǓत //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलȣय अͬधकरण, अहमदाबाद / ITAT, Ahmedabad