Income Tax Appellate Tribunal - Ahmedabad
M/S. Aashdeep Industries, Patan vs The Acit.,C.C.1(1),, Ahmedabad on 22 December, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "D" BENCH AHMEDABAD
BEFORE, SHRI S. S. GODARA, JUDICIAL MEMBER
AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER
ITA Nos. 1695/Ahd/2014, 2418 & 2419/Ahd/2012
(Assessment Years: 2007-08 to 2009-10)
Jayantilal P. Thakkar,
Prop. of Jyoti Traders,
90/38, Sardar Gunj, Patan - 384265 (N.G.) Appellant
Vs.
A.C.I.T., C.C. - 1(1), Ahmedabad Respondent
&
ITA Nos. 2041/Ahd/2014, 2366 & 2367/Ahd/2012
(Assessment Years: 2007-08 to 2009-10)
A.C.I.T.,
Central Circle - 1(1), Ahmedabad Appellant
Vs.
Shri Jayantilal P. Thakkar,
Prop. of Jyoti Traders,
90/38, Sardar Gunj, Patan - 384265 Respondent
PAN: AARPT7445D
&
ITA Nos. 1694/Ahd/2014, 791 & 792/Ahd/2013
(Assessment Years: 2007-08 to 2009-10)
M/s. Prakash Industries,
121, G.I.D.C., Chanasma,
Patan - 384220 Appellant
ITA Nos. 1695/Ahd/14 & 13 Ors. [Shri Jayantilal P. Thakkar & 2 Ors.]
-2-
Vs.
A.C.I.T., C.C. - 1(1), Ahmedabad Respondent
&
ITA No. 2039/Ahd/2014
(Assessment Year: 2007-08)
Income-Tax Officer
Ward-1, Patan Appellant
Vs.
M/s. Prakash Industries,
121, G.I.D.C., Chanasma,
Patan - 384220 Respondent
PAN: AAFFP9237P
&
ITA Nos. 1693/Ahd/2014, 793 & 794/Ahd/2013
(Assessment Years: 2007-08 to 2009-10)
M/s. Aashadeep Industries,
31, G.I.D.C., Chanasma,
Patan - 384220 Appellant
Vs.
A.C.I.T., C.C. - 1(1), Ahmedabad Respondent
&
ITA No. 2040/Ahd/2014
(Assessment Year: 2007-08)
Income-Tax Officer
Ward-1, Patan Appellant
ITA Nos. 1695/Ahd/14 & 13 Ors. [Shri Jayantilal P. Thakkar & 2 Ors.]
-3-
Vs.
M/s. Aashadeep Industries,
31, G.I.D.C., Chanasma,
Patan - 384220 Respondent
PAN: AAKFA8566F
राज व क ओर से/By Revenue : Shri V. K. Singh, Sr. D.R.
आवेदक क ओर से/By Assessee : Shri K. C. Thaker, A.R.
सन
ु वाई क तार ख/Date of Hearing : 11.12.2017
घोषणा क तार ख/Date of
Pronouncement : 22.12.2017
ORDER
PER BENCH This batch of fourteen appeals pertains to three assessees namely Shri Jayantilal P. Thakkar, M/s. Prakash Industries & Aashadeep Industries. The CIT(A)-1, Ahmedabad has passed all the lower appellate orders in these cases. First assessee and the Revenue have filed their cross appeals in AYs. 2007-08 to 2009-10 ITA Nos. 1695/Ahd/2014 with ITA Nos. 2418 & 2419/Ahd/2012 followed by latter's cross appeal thereto ITA Nos. 2041/Ahd/2014, 2366 & 2367/Ahd/2012. The above cross appeals for first assessment year emanate against the CIT(A)'s order dated 02.04.2014 in case no. CIT(A)-I/012/CC-1(1)/2013-14, upholding validity of re-assessment thereby partly upholding Assessing Officer's action disallowing the entire alleged bogus purchases of Rs.1,25,16,350/- to the extent of 25% only coming to Rs.31,29,085/-, involving proceedings u/s.148 r.w.s. 143(3) of the Income Tax Act, 1961; in short "the Act". The above cross appeals for latter two assessment years arise against the CIT(A)'s common order dated 17.08.2012 in case no. CIT(A).I/CC-1(1)/114&159/2010-11 adopting similar course of action to ITA Nos. 1695/Ahd/14 & 13 Ors. [Shri Jayantilal P. Thakkar & 2 Ors.] -4- uphold 25% of the bogus purchases disallowance involved of Rs.4,20,46,515/- & Rs.57,77,470/-; respectively, involving proceedings u/s.143(3) of the Act.
2. There are total four cases relating to second assessee M/s. Prakash Industries. Assessment year 2007-08 contains assessee's and Revenue's cross appeals ITA Nos. 2039 & 1694/Ahd/2013 directed against the CIT(A)'s order dated 03.04.2014 in case no. CIT(A)-I/CC.1(1)/010/2013-14 , upholding validity of re-assessment as well as partly confirming Assessing Officer's action disallowing alleged bogus purchases of Rs.1,18,46,009/- to the extent of 25% only, in proceedings u/s.143(3) r.w.s. 148 of the Act. Latter two assessment years 2008-09 involve assessee's appeals only ITA Nos. 791 & 792/Ahd/2013 preferred against the CIT(A)'s separate orders; both dated 21.12.2012 in case nos. CIT(A)- I/CC.1(1)/358/2010-11 & CIT(A)-I/CC.1(1)/359/2010-11, confirming Assessing Officer's action disallowing entire alleged bogus purchases of Rs.2,39,63,829/- and Rs.26,88,354/-; respectively, in proceedings u/s.143(3) of the Act.
3. We now come to the above third assessee's cases. Assessment year 2007-08 involves assessee's and Revenue's cross appeals ITA Nos. 1693 & 2040/Ahd/2014 against the CIT(A)'s order dated 03.04.2014 in case no. CIT(A)-I/011/CC- 1(1)/2013-14 inter alia affirming validity of re-assessment and in partly confirming Assessing Officer's action disallowing alleged bogus purchases of Rs.1,18,46,010/- to the extent of 25% only, in proceedings u/s.143(3) r.w.s. 148 of the Act. Latter two assessment years 2008-09 & 2009-10 contain assessee's appeals only ITA Nos. 793 & 794/Ahd/2013 directed against the CIT(A)'s orders; both dated 21.12.2012 in case no. CIT(A)-I/CC.1(1)/357/2010-11 & CIT(A)-I/CC.1(1)/356/2010-11, upholding assessment findings disallowing entire alleged bogus purchases of Rs.2,87,48,822/- & Rs.57,77,470/- as well as admitted undisclosed income of Rs.26lacs in latter case; respectively, in proceedings u/s.143(3) of the Act.
4. A combined perusal of all the above case files reveals that the sole substantive issue sought to be raised is qua disallowance of bogus purchases ITA Nos. 1695/Ahd/14 & 13 Ors. [Shri Jayantilal P. Thakkar & 2 Ors.] -5- followed by quantum thereof. Assessment year 2007-08 in all three assessees' cases involves proceedings u/s.148 r.w.s. 147 of the Act. Learned counsel representing assessees is very very fair at the outset in not pressing for this legal issue during the course of hearing. This corresponding ground in all the above cases is therefore rejected as not pressed.
5. We now advert to the above sole issue on merits regarding correctness of alleged bogus purchases disallowance and quantum thereof. It is evident that the CIT(A)'s orders in some cases restrict the same to the extent of 25% particularly in assessment year 2007-08 whereas he upholds the entire disallowance in the remaining instances. Both the learned representatives submit at the outset that all these cases involve the impugned bogus purchases disallowance on account of the fact that the department had conducted a search action in assessees' supplier's case in majority of appeals and in suppliers' supplier case (the same entity M/s. Edible Oil Mills Group). They state that we could take any of these appeals as the lead case. We therefore treat third assessee's appeal ITA No.2039/Ahd/2014 for assessment year 2007-08 as the lead one.
6. Relevant facts are in a very brief compass. This assessee manufactures and trades in atta and wheat. There is no dispute that it had been claiming to have made its raw material purchases from M/s. Vishal Traders, Virpur, Dist. Kheda. The department carried out a search and survey action in M/s. Edible Oils Mills groups of Patan District and agents / brokers of Mehsana and Sabarkantha districts on 01.09.2008. The departmental authorities noticed the said entity to have issued bogus / adjustment bills to a large number of entities from financial year 2006-07 onwards. The said authorities got recorded statement of M/s. Vishal Traders Prop. Shri Dharmendra J. Pandya admitting therein that the above entity in the name of M/s. Vishal Traders was not in existence since the last two assessment years. And that it had been issuing bogus adjustment bills only. Mr. Pandya further stated that his Mr. Madanlal L. Shah (Chandak) had introduced all the purchases parties to him. He had also opened various bank accounts in M/s. Harij Nagarik Sahkari ITA Nos. 1695/Ahd/14 & 13 Ors. [Shri Jayantilal P. Thakkar & 2 Ors.] -6- Bank Ltd., Mehsana Nagarik Sahkari Bank Ltd., Kalupur Commercial Co-operative Bank Ltd. and Dena Gramin Bank Ltd. wherein he used to appropriate bill amounts in question deposited by cheques followed by cash withdrawals. This followed Section 133A survey action in assessee's case. There is hardly any issue between the parties that this assessee had shown to have made its raw material purchases from the above entity in these three assessment years. The Assessing Officer therefore sought to verify assessee's purchases during scrutiny. It is evident from assessment order dated 04.03.2013 that he inter alia observed therein that it was assessee's bounden duty to prove its purchases in question by leading independent third party evidence in support of relevant book entries alongwith purchase register, sales register, suppliers and transporters for the purpose of satisfying genuineness element therein. He therefore treated all the impugned purchases of Rs.74,86,140/- in the impugned year in case of M/s. Vishal Traders to be bogus being in the nature of accommodation entries only. All this resulted in the said purchases disallowance in entirety.
7. The CIT(A) partly upholds the above impugned disallowance from 100% to the extent of 25% as follows:
"5. On going through the assessment order it can be deduced that the Assessing Officer made the addition of bogus purchases for following reasons:
(i) Search in the case of Shri Madanial L. Shah and his statement :
Search and survey action in Edible Oil Mill Group cases on 1.9.2008 revealed that many concerns were obtaining only bills claim purchases in their accounts.
In the assessment order has mentioned that a search u/s.132 was conducted in the case of Shri Madanial L. Shah on 1.9.2008. He informed in statement dated 22.9.2008 that he had introduced various traders of Harij and Patan to Shri Dharmendra J. Pandya, proprietor of M/s. Vishal Traders, Virpur. He had further confirmed that M/s. Vishal Traders, Virpur had issued only bogus bills and no delivery of goods had been made by it. That Vishal Traders had issued only bogus / adjustment bills and had not delivered any goods like oil cakes or any other items mentioned in the bill. That vehicle numbers written in the bills were also fictitious.
In the assessment order the Assessing Officer has stated that no details and registers were produced by the assessee. He has mentioned that cross ITA Nos. 1695/Ahd/14 & 13 Ors. [Shri Jayantilal P. Thakkar & 2 Ors.] -7- examination of Shri Madanlal L. Shah was given to the representative of the assessee.
(ii) Statements of the proprietor of Vishal Traders : Bogus purchases were made by the assessee from M/s. Vishal Traders. This was proved by the statements recorded of the proprietor of Vishal Traders - (532, Market Yard, Virpur, District- Kheda) whose proprietor - Shri Dharmendra J. Pandya in the statements recorded by the department on 9.7.2008 and 26.9.2008 admitted that he had issued only bogus bills and had not made any delivery of goods. He stated that he received only cash commission for issuing bills.
Copies of statements of Shri Dharmendra J. Pandya were provided to the appellant by the Assessing Officer. The Assessing Officer added Rs.70,75,459/- because according to him the assessee - M/s Prakash Industries- had shown purchases Rs.70,75,459/- from Vishal Traders which the AO has held to be bogus. Thus the AO held that purchases totaling to Rs.70,75,459/- are bogus. Perusal of the-show cause notice issued by the A.O. to the appellant shows that the AO gave opportunities to the appellant to prove the purchases from Vishal Traders 532, Market Yard, Virpur, District- Kheda as genuine purchases but the assessee failed.
(iii). Despite opportunities purchases from Vishal Traders not proved by the assessee: In the assessment order informs that the Assessing Officer through show cause letter asked the assessee to produce various details and registers, suppliers and transporters. The Assessing Officer has elaborated this point and has stated that he asked the assessee to substantiate the claim of purchases by producing gate-pass, L.R. receipts, challans, vouchers etc. He asked the assessee to establish quantitative co-relation between the purchase and sales in view of the manufacturing process flow chart, yield percentage, wastage ratio and power consumption. Despite opportunities, the assessee did not produce any evidence asked by the Assessing Officer, but for the ledger accounts of the Vishal Traders 532, Market Yard, Virpur, District- Kheda and copies of bills of Vishal Traders.
5.1 In order to verify the" genuineness of the purchases made by the appellant from M/s Vishal Traders, the assessment records were called for from the Assessing Officer and copies of the bank accounts of M/s Vishal Traders with The Harij Nagrik Sahkari Bank Ltd., Harij and Kalupur Commercial Cooperative Bank Ltd. Ahmedabad were obtained u/s 133(6) of the Act. A copy of these bank accounts is enclosed at Annexure A1 to A3 to this order. On perusal of the bank statements of the bank accounts opened by Shri Dharmendra J. Pandya, proprietor of M/s. Vishal Traders, Virpur a continuous pattern of deposit and immediate cash withdrawal is clearly seen. That such a » pattern is not seen in any actual manufacturing concern. This pattern of deposit in bank account of Vishal Traders followed by immediate cash withdrawal is in consonance with the statements of Shri ITA Nos. 1695/Ahd/14 & 13 Ors. [Shri Jayantilal P. Thakkar & 2 Ors.] -8- Dharmendra J. Pandya and Madanlal L. Shah that only bogus bills were issued.
5.2 While making addition of bogus purchases totaling to Rs.70,75,459/- from Vishal Traders by the appellant the A.O. has relied upon following decisions :
1. CIT vs. La Medica 250 ITR 0575 (2001) (Delhi High Court)
2. Sree Rajvel & Co. vs. CIT 268 ITR 0267 (2003) (Kerala High Court)
3. Beena Metals vs. CIT 240 ITR 0222(1999) (Kerala High Court)
4. Kaveri Rice Mills vs. CIT 157 Taxman 0376 (2006) (Allahabad High Court) 5.3 After careful consideration of the details filed and considering the assessment order and the submissions of the appellant the following facts emerge:
1. Proprietor of Vishal Traders - Shri Dharmendra Pandya during statements recorded by the department on 9.7.2008 and 26.9.08 confirmed that only bills issued not goods delivered.
2. Appellant deposits cash of equivalent amount in his Harij Nagrik Sahakari Bank Ltd account on the same date before he issues any cheque to Vishal Traders and Vishal Traders withdraws cash of the same amount on the same date.
3. Analysis, of the bank account of Vishal Traders at Harij Nagrik Sahakari Bank Ltd shows that immediately after a cheque is deposited, cash of equivalent amount is withdrawn on the same date by Vishal Traders.
4. Analysis of the bank account of the appellant at Harij Nagrik Sahakari Bank Ltd and those of Vishal Traders establishes a strange pattern of cash deposit, cheque issuance by the appellant, and cash withdrawal by the bill issuing concerns of the same amount on the same date, thus not ruling out that cheques issued to these entities come back to the appellant through cash withdrawals by these entities and that is why cash is deposited on the same date of the same amount by the appellant. A full circle gets established.
5.4 Purchases from Vishal Traders: The Assessing Officer has added purchases made by the appellant Rs.70,75,459/- made by the appellant from M/s. Vishal Traders, Ganj Bazar, Harij on the ground that the proprietor of this concern Shri Dharmendra Pandya in his statement before the department has stated that he is only giving fictitious entries and is not supplying any material whatsoever. The AO furnished a copy of the statement of Shri Dharmendra Pandya to the appellant.
5.6 Analysis of Vishal Traders bank account in the same bank shows that on the same dates i.e. 28.2.2007, 1.3.2007, 3.3.2007, 6.3.2007, 7.3.2007, ITA Nos. 1695/Ahd/14 & 13 Ors. [Shri Jayantilal P. Thakkar & 2 Ors.] -9- 27.3.2007 and 28.3.2007 cheques were deposited and on the same dates cash is withdrawn by Vishal Traders.
Relevant entries of bank statement of Vishal Traders - A/c.No.4775 (Harjj Nagrik Sahakarj Bank. Ltd.) Date Ch. No. Narration Deposit Withdrawals 28.2.2007 844725 By Transfer Prakash Rs. 5,00,000/-
Industries 28.2.2007 022177 By Transfer Prakash Rs. 5,00,000/-
Industries 28.2.2007 022178 By Transfer Prakash Rs. 5,00,000/-
Industries 28.2.2007 022179 By Transfer Prakash Rs. 5,00,000/-
Industries 28.2.2007 21291 Self Rs. 5,00,000/-
28.2.2007 21291 Self Rs. 5,00,000/-
28.2.2007 21291 Self Rs. 5,00,000/-
28.2.2007 21291 Self Rs. 5,00,000/-
01.03.2007 22180/965518 By Transfer Prakash Rs. 5,00,000/-
Industries/Divya Traders 01.03.2007 21295 Self Rs, 5,00,000/-
03.03.2007 22181 By Transfer Prakash Rs. 4,00,000/-
Industries 03.03.2007 21296 Self Rs. 4,00,000/-
06.03.2007 22182 By Transfer Prakash Rs. 4,00,000/-
Industries 06.03.2007 21297 Self Rs. 4,00,000/-
07.03.2007 22183 By Transfer Prakash Rs. 4,00,000/-
Industries 07.03.2007 21298 Self Rs. 4,00,000/-
27.03.2007 22184/968122 By Transfer Prakash Rs.16,57,000/-
Industries/Divya Traders 27.03.2007 Self Rs. 16,57,000/-
28.03.2007 22185/968125 By Transfer Prakash Rs.17,18,459/-
Industries/Divya Traders 28.03.2007 Self Rs. 17,18,500/-
5.7 In the above bank transactions of the appellant and Vishal Traders show that what was given through cheques to Vishal Traders reached back the appellant and that is why the cash deposits in the bank just before or after issuing cheques to Vishal Traders. Transactions / payments by the appellant to Vishal Traders are only an eye wash, specially when both the appellant (M/s. Prakash Industries) and Vishal Traders (Dharmendra Pandya) are apparently colluding to issue bills only without actually transacting business. This fact is further confirmed from the statement of Shri Dharmendra Pandya, proprietor M/s. Vishal Traders wherein he has stated that what was transacted was only accommodation bills and no actual supplies of any kind were made.
ITA Nos. 1695/Ahd/14 & 13 Ors. [Shri Jayantilal P. Thakkar & 2 Ors.]- 10 -
6. Once it is established that the purchases made by the appellant from M/S Vishal Traders is not genuine, then it becomes important to decide whether the entire bogus purchases made Joe added to the income of the appellant or some percentage has to be adopted for making the addition. The AO has disallowed the entire purchases. The AR of the appellant relying on the orders of the IT AT, Ahmedabad submitted that the addition must be limited to 5% of the purchases made from M/s Vishal Traders. In this regard, it is seen that the case of the appellant itself for the AY 2008-09 in Appeal No.ClT(A)4/CC.l(l)/358/2010-ll and for AY 2009-10 in Appeal- No.CIT(A)-l/CC.l(l)/359/2010-ll it has been held that the purchases made from M/s Vishal Traders are not genuine after discussing the facts elaborately. In fact, in the case of Gujarat Ambuja Export Limited for A.Ys. 2007-08, 2008-09 and -2009-10 the A bench of 1TAT Ahmedabad has also upheld the finding that the purchases made by the appellant from M/s Vishal Traders are bogus. My predecessor, the then ClT(Appeals)-I, Ahmedabad in the following cases upheld the disallowance of 25% of the bogus purchases made from Vishal Traders.
Sr.No. Name of the case A.Y.
1. .M/s. Jagdamba Ginning Factory 2008-09
2. M/s. Prakash Industries 2008-09
3. M/s. Aashadeep Industries 2008-09
4. M/s. Aashadeep Industries 2009-10
5. M/s. Pankaj Cotton Industries 2009-10
6. M/s. Omshree Nagraj Ginning 2009-10
7. Shri Bhadresh S. Shah 2008-09
8. Shri Bhadresh S. Shah 2009-10
9. Shri Kanubhai M. Khatri 2008-09
10. Shri Jayantilal P. Thakkar 2008-09
Prop: Jyoti Traders
11. Shri Jayantilal P. Thakkar 2009-10
Prop: Jyoti Traders
6.1 Similarly in the case of Jagdamba Ginning Factory v. Assistant
Commissioner of Income Tax, Central Circle- 1(1) Ahmedabad for A.Y. 2008-09 the D bench of the IT AT Ahmedabad has held the contention of the department that the purchases made from M/s Vishal Traders was not genuine. The IT AT has, however, reduced the disallowance made by the AO to 25%i of the purchases made from M/s Vishal Traders. The Gujarat High Court in the case of Sanjay Oilcake Industries v. Commissioner of Income Tax reported in 316 1TR 274(Guj) has held that disallowance of 25% of the purchases is reasonable when the purchases are bogus but the sales have not been questioned. Similarly the ITAT Ahmedabad in the cases of Vijay Proteins Ltd. V. Assistant Commissioner of Income Tax reported in (1996) 58ITD 428(Ahmedabad) and in the case of N. K. Proteins Ltd. V. Deputy Commissioner of Income Tax reported in (2004) 4 SOT 479 (AHD) have held that disallowance of 25% of the purchases in the case of bogus ITA Nos. 1695/Ahd/14 & 13 Ors. [Shri Jayantilal P. Thakkar & 2 Ors.]
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purchases is reasonable. In the case of Jagdamba Ginning Factory also the order had been passed by the undersigned in Appeal No. CIT(A)- I/CC.1(1)/169/2010-11 dated 21.12.2012. In view of the above, and following the judicial hierarchy, the AO is directed to disallow 25% of the purchases made from M/s Vishal Traders.
6.2 In view of the above the addition made by the AO is reduced from 74,86,140/- to Rs.18,71,535/-."
This leaves both the parties aggrieved to the extent as indicated in their respective pleadings.
8. Learned counsel representing assessee first of all seeks to treat the above impugned purchases as entirely genuine in the course of hearing. He further pleads that both the lower authorities did not afford cross examination opportunity of either Mr. Pandya or Mr. Chandak (supra) to the assessee. His case therefore is that the Assessing Officer as well as the CIT(A) have erred in disallowing the impugned purchases even to the extent of 25%. We find no merit in either of these submissions. The fact remains that the assessee has failed to prove genuineness of the impugned purchases by leading cogent evidence as discussed in both the lower proceedings. It was assessee's primary onus to lead sufficient evidence so as to shift the burden back to the Assessing Officer. It has come on record that the above supplier M/s. Vishal Traders gave only bogus purchases entries to all its customers. This clinching finding has gone unrebutted from assessee's side. We therefore see no reason to interfere with both the lower authorities' concurrent findings holding assessee's purchases in question to be not genuine. The assessee fails in its first substantive plea accordingly.
9. This leaves us with quantification issue pertaining to the above purchases disallowance. Learned Departmental Representative quotes a catena of case law i.e. hon'ble jurisdictional high court's judgment in SLP (Civil) 769 /2017 N. K. Proteins Ltd. vs. DCIT dismissed in limine on 16.01.2017 thereby confirming hon'ble jurisdictional high court's judgment in Tax Appeal no. 243 of 2003 decided on 20.06.2016 upholding this tribunal's order restricting similar bogus purchases ITA Nos. 1695/Ahd/14 & 13 Ors. [Shri Jayantilal P. Thakkar & 2 Ors.]
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disallowance to the extent of 25% only. Mr. Singh takes us to para 6 onwards of the above detailed judgment with observations on the impugned bogus purchases issue stated to be in Revenue's favour. He then cites hon'ble jurisdictional high court's other judgment in case of ACIT vs. Pavanraj B. Bokadia Tax Appeal No. 2345 of 2009 upholding such purchases disallowance in entirety. Next case law sought to be quoted is this tribunal's co-ordinate bench decision in Swetamber Steel Ltd.'s case as well as ACIT vs. Amar Mining Company (2009) 121 ITD 273 (Ahd)(TM) to press for restoring the above bogus purchases disallowance to the extent of 100%. Learned counsel representing assessee on the other hand filed before us this tribunal's co-ordinate bench's decision in Gujarat Ambuja Exports Ltd. vs. ACIT IT(SS)A No. 124/Ahd/2012 dated 17.04.2013 disallowing identical purchases to the extent of 5% only as upheld in Tax Appeal No. 840 of 2013 decided on 10.02.2014.
10. We have given our thoughtful consideration to rival submissions. The sole issue left for our adjudication is that of quantification of the impugned purchases disallowance in case of M/s. Vishal Traders. We confronted both the parties about a co-ordinate bench decision in ACIT vs. Pankaj Cotton Industries' case ITA No.858/Ahd/2012 decided on 27.10.2017 upholding the CIT(A)'s order under challenge therein restricting similar purchases disallowance in case of Vishal Traders itself in assessment years 2008-09 and 2009-10 as emanated from the very search/survey in question reading as under:
" 3. It thus emerges from a perusal of the above rival pleadings that the main issue in this former assessment year 2008-09 is that of validity of assessee's cotton purchases made from M/s Vishal Traders to the tune of Rs. 2,84,58,054/-. Case file reveals that the instant lis emanated from a search action dated 01-09- 2008 carried out at M/s Edible Oil Mills Group of Patan District and its group concerns on subsequent dates. One Shri Dharmendra J. Pandiya, proprietor of M/s Vishal Traders, Virpur did not exist and it had been issuing bogus/adjustment entries for the past two years in respect of oil seeds, oil cakes and other purchase items. All the said material resulted in a survey action being conducted in assessee's case u/s 133A of the Act. The assessee's partner Shri Pankaj Soni got recorded his statement in course of the said survey admitting to have taken adjustment bills in respect of purchases from M/s Vishal Traders. He further undertook to declare the 20% of the above purchases has assessee's undisclosed ITA Nos. 1695/Ahd/14 & 13 Ors. [Shri Jayantilal P. Thakkar & 2 Ors.]
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income to the tune of Rs. 5691610/-. There is no dispute that the said purchases read a figure of Rs. 28458054/- in case of M/s Vishal Traders in the impugned assessment year. This made the Assessing Officer to seek necessary purchase details during scrutiny. The assessee failed to prove the same despite availing various opportunities. The Assessing Officer thereafter disallowed all the above purchases as well as added above disclosed amount of Rs. 5691610/- as well as cash deposits made in assessee's bank accounts reading a figure of Rs. 32385600/- as unexplained u/s. 68 of the Act.
4. The assessee preferred appeal. It chose to file additional evidence/submissions in lower appellate proceedings. The CIT(A) sought remand report. The Assessing Officer submitted the same on 14-02-2012 reiterating his above bogus purchases and disallowances/additions (supra). The CIT(A) thereafter observed that it was at the best a case of raw material purchases unregistered dealers to save VAT etc. He finds in page 15 as per audit report scheduled as Annexsure-2 that the Assessing Officer had not doubted sales and closing stock quantity neither in assessment nor remand proceedings. The CIT(A) then restricts the impugned disallowance of Rs. 28819545/- to the tune of 25% thereof coming to 7204886/- only. He thereafter applies telescoping method qua admitted undisclosed income of Rs. 5691610/- (supra) to conclude that the above bogus purchases disallowance @ 25% would cover this latter figure as well. The CIT(A) lastly reverses Assessing Officer's findings in part making section 68 addition of Rs. 32385600/- to the tune of Rs. 449304/- only as under:
"In ground no.5 the appellant has disputed the addition of Rs.3,23,85,600 being unexplained cash credit.
Perusal of para 4 of the assessment order shows that the Assessing Officer made verification of bank accounts and added back all cash deposits appearing in two accounts without giving separately the amounts and dates of deposits. The addition was made as under:
"4.1 Vide notice u/s. 142(1) of the I.T. Act dated 16.8.2010, the assessee was asked to explain the cash deposits in the bank accounts. On verification of the copy of bank accounts submitted by the assessee, it is noticed that the assessee has made cash deposits in the bank accounts as under :
Name of Bank Bank A/c. No. Cash deposits
Harij Nagrill Sahakari Bank 4833 Rs.2,39,73,600
Ltd.
Dena Bank CCA/c.No.156 Rs. 84,12,000
Total ... Rs.3,23,85,600
4.2 Vide submission dated 20.10.2010, the assessee furnished copy of bank statements. However, the assessee did not furnish explanation of source of cash deposits into these bank accounts. The assessee also did not furnish cash book. Therefore, a summons u/s. 131 of the LT. Act was issued on 1.11.2010 and the assessee was asked to attend the office., on 11.11.2010 alongwith ITA Nos. 1695/Ahd/14 & 13 Ors. [Shri Jayantilal P. Thakkar & 2 Ors.]
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explanation of source of all cash deposits in the bank account alongwith documentary evidences. The assessee was also required to produce cash book for verification. However, the assessee failed to attend this office till date and furnish the explanation of source of cash deposits and also failed to produce the cash book."
13. During the course of appellate proceedings it was pleaded that cash deposits were out of cash available in the cash book. Soft copy of the cash book was impounded by the department during survey and hard copy was produced during appellate proceedings stating that the two cash books show that enough cash was available with the appellant for making cash deposits. The Assessing Officer was asked by my predecessor through his letter dated 3.6.2011 to verify the contention of the appellant. The Assessing Officer through his report dated 13.2.2012 found difference of Rs.5,03,026 and of Rs.55,246 in cash withdrawal entries and difference of Rs.1,08,968 in cash deposit entries on comparing the hard copy cash book produced later with the soft copy cash book impounded by the department. Report of the Assessing Officer has been reproduced in para 8 above. The report was made available to the appellant and it was stated that the discrepancy is minor and that netting of the difference in deposits and withdrawals should be allowed. The discrepancy on netting comes to Rs. 4,49,304.
Cash withdrawal discrepancy as per A.O. Rs.5,03,026
Cash withdrawal discrepancy as per A.O. Rs. 55,246
Rs. 5,58,272
Less: Cash deposit discrepancy as per A.O. Rs. 1,08,968/-
Rs.4,49,304
14. It may be mentioned here that analysis of bank accounts of the appellant which includes Harij bank account shows that same amounts issued to Vishal Traders through cheques stand deposited in cash at times on the same date when the cheque is issued to Vishal Traders, and analysis of Vishal Traders bank account shows that immediately on deposit of cheque cash has been withdrawn of the same amount. This indicates that cash is received back from Vishal Traders and deposited in the bank account of the appellant. In other words it is appellant's own money (cheques issued, for purchases made through accommodation bills) which comes back to him in cash and is deposited in the bank account. In my view cash deposits addition out of addition of Rs.3,23,85,600 to the extent of Rs.2,88,19,545 on account of purchases from Vishal Traders gets telescoped in the addition of Rs.2,88,19,545 on account of purchases from Vishal Traders 25% of which has been upheld in this appeal. This leaves amount of Rs.35,66,055 (Rs.3,23,85,600 - Rs.2,88,19,545) The appellant's contention is that cash was deposited in bank accounts because it was available as per cash books maintained by the appellant. The electronic cash book impounded at the time of survey at the premises of the appellant and the hard copy cash book have been compared by the Assessing Officer at the remand report stage, and the difference on netting of discrepancy in cash books comes to Rs.4,49,304 only. It may be remembered that in the remand report the Assessing Officer has not pointed out any major cash deposit discrepancy therefore the addition on account of unexplained cash credits after netting is upheld to the extent of Rs.4,49,304. The remaining addition of Rs. 35,66,055 (Rs.3,23,85,600 (cash deposit addition made by A.O.) - Rs.2,88,19,545 (bogus purchases through ITA Nos. 1695/Ahd/14 & 13 Ors. [Shri Jayantilal P. Thakkar & 2 Ors.]
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accommodation bills from Vishal Traders telescoped in the addition of Rs.3,23,85,600) is directed to be deleted because the entire addition on account of unexplained cash deposits has been made without informing the specific dates and amounts of cash deposits by the Assessing Officer and in the remand report the Assessing Officer has not objected to the contention of the appellant that cash was deposited according to the cash available as per cash book and on verification of the cash books submitted by the appellant discrepancy of Rs.4,49,304 is only found. Thus addition of Rs.4,49,304 is upheld as unexplained cash deposited in bank accounts out of addition of Rs.3,23,85,600 made in the assessment order. The balance is directed to be deleted."
5. This leaves both the parties aggrieved to the extent of their grievance pleaded in their above averred grounds.
6. We have given our thoughtful consideration to rival submissions. Learned counsel representing assessee fails to rebut both the lower authorities' findings that it had obtained bogus purchase entry from M/s Vishal Traders existing on paper only. His first plea is that the assessee had paid for its purchases by way of account payee cheques. We however are of the view that the said ledgers or mode of payments hardly have any genuineness elements in view of the above overwhelming element indicating the assessee to have obtained bogus purchases entries. We therefore find no reason to upset both the lower authorities' findings treating the above purchases as bogus in principle.
7. Both the learned representatives next argument is qua the quantum of disallowance. Learned Departmental Representative argues very strongly that we ought to disallow the entire purchases in tune with Assessing Officer's action as per hon'ble jurisdictional high court's judgment in ACIT vs. Pawanraj B. Bokadia Tax Appeal No. 2345 of 2009 decided on 27-09-2011. The assessee on the other hand pleads that the very issue in case of M/s Vishal Traders itself (supra) stands adjudicated qua the impugned assessment year in case of M/s Gujarat Ambuza Ltd. vs. ACIT in IT(SS)A 124/Ahd/2012 decided on 17-04-2013 wherein a co- ordinate bench has disallowed identical purchases to the extent of 5% only. Hon'ble jurisdictional high court judgment in Tax Appeal 840 of 2013 decided on 10-02-2014 is stated to have upheld the same. The assessee therefore submits that we ought to disallow only 5% of the above purchases.
8. Heard rival submissions. We have examined rival grievance(s) at length. We do not find merit in either parties' submissions. The CIT(A) had admittedly upheld the impugned bogus purchases disallowances to the extent of 25%. The Revenue's plea does not deserve to be accepted since the Assessing Officer has not found any infirmity in assessee's stock as well its raw material purchase, consumed and sold as stated in its audit report. Coupled with this, we find that hon'ble jurisdictional high court's recent judgment in case of M/s. N.K. Industries vs. DCIT dated 20-06-2016 in Tax Appeal 240 of 2013 and related cases upholds a co-ordinate bench's decision therein disallowing 25% of purchases amount in case of bogus bills. Hon'ble apex court has declined special leave petition, SLP(C) CC No. 963/2017 on 16-01-2017 as well. We therefore find no merit in Revenue's former grievance seeking to revive entire purchases disallowance of ITA Nos. 1695/Ahd/14 & 13 Ors. [Shri Jayantilal P. Thakkar & 2 Ors.]
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Rs. 28819545/-. Its corresponding first substantive is therefore rejected. So is the outcome of its latter substantive ground regarding admitted undisclosed income of Rs. 5691610/- as assessee's authorized person's survey statement undertaking to declaring 20% of the very purchases is very well less than the purchases disallowance @ 25% upheld in the instant proceedings. The Revenue's appeal ITA 858/Ahd/2012 fails.
9. We now advert to assessee's arguments seeking to reduce the above purchases disallowances from 25% to 5% only as per hon'ble jurisdictional high court's decision in Gujarat Ambuza Exports Ltd. A perusal of the said co-ordinate bench order reveals that there was no material on record as against the CIT(A)'s findings reproduced hereinabove that the concerned assessee had in fact paid cheques to M/s Vishal Traders who in turn withdrew cash amounts to be deposited back in payer's account. We therefore follow hon'ble jurisdictional high court's decision in N.K. Industries to confirm the CIT(A)'s action upholding the impugned bogus purchases disallowance to the extent of 25% only. The assessee's first substantive ground in its cross objection is therefore rejected.
10. This leaves us with assessee's second substantive ground seeking to delete section 68 addition of Rs. 4,49,304/- as upheld in lower appellate proceedings thereby partly reversing Assessing Officer's action adding entire cash deposits of Rs. 3,23,85,660/- as extracted in preceding paragraphs. It has come on record that the ld. CIT(A) has very well established the trail behind the impugned cash deposits to be emanating from cash received in case of M/s Vishal Traders. Learned counsel representing assessee fails to rebut the said clinching findings. We therefore find no reason to agree with assessee's instant latter substantive ground as well. Assessee's CO 106/Ahd/2012 is also declined.
Both the learned representatives fail to pinpoint any distinction on facts. It therefore emerges that the said co-ordinate bench has already placed reliance on hon'ble jurisdictional high court's latest judgment in N. K. Proteins (supra). It further transpires that the CIT(A)'s above extracted findings in para 6 make it clear that relevant facts in the said case as well as instant one are on identical footing. We therefore adopt consistency in the instant facts as well to uphold the CIT(A)'s well reasoned findings in restricting the impugned bogus purchases disallowance to the extent of 25% only. This lead case appeal ITA No. 2039/Ahd/2014 is accordingly dismissed.
11. Learned counsel representing assessee at this stage submitted that some of the instant appeals involve an instance wherein M/s. Vishal Traders is suppliers' supplier of the raw material in question. We reminded him that the above case of Pankaj Cotton Industries (supra) would squarely apply in the instant case as well as ITA Nos. 1695/Ahd/14 & 13 Ors. [Shri Jayantilal P. Thakkar & 2 Ors.]
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we have adopted a broader formula in upholding the impugned purchases disallowance to the extent of 25%. The same shall take care of all technical objections being raised at both parties' behest. We therefore adopt this 25% disallowance rate in all these cases on consistency formula.
12. We accordingly dismiss Revenue's all appeals ITA Nos. 2366 & 2367/Ahd/2012, ITA No. 2041/Ahd/2014 (in first assessee's case), ITA No. 2039/Ahd/2013 and ITA No. 2040/Ahd/2014 in remaining two assessees' cases. The first assessee's all three appeals ITA No. 2418 & 2419/Ahd/2012, 1695/Ahd/2014 are dismissed. Second assessee's appeals ITA Nos. 791 & 792/Ahd/2013 are partly allowed. Its third appeal ITA No.1694/Ahd/2013 is dismissed. Third assessee's former two appeals ITA Nos. 793 & 794/Ahd/2013 are partly allowed whereas ITA No. 1693/Ahd/2014 is dismissed. Ordered accordingly.
[Pronounced in the open Court on this the 22nd day of December, 2017.] Sd/- Sd/-
(PRADIP KUMAR KEDIA) (S. S. GODARA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad: Dated 22/12/2017
True Copy
S.K.SINHA
आदे श क त ल
प अ े
षत / Copy of Order Forwarded to:-
1. राज व / Revenue
2. आवेदक / Assessee
3. संबं धत आयकर आय!
ु त / Concerned CIT
4. आयकर आयु!त- अपील / CIT (A)
5. )वभागीय ,-त-न ध, आयकर अपील य अ धकरण, अहमदाबाद /
DR, ITAT, Ahmedabad
6. गाड3 फाइल / Guard file.
By order/आदे श से,
उप/सहायक पंजीकार
आयकर अपील य अ धकरण, अहमदाबाद ।