Bhupendrasingh Rajendrasingh HUF & Rajendrasingh Rajpal ITA Nos.131/ 132/Ind/2016 , , IN INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE . . , . . , BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER . . ./I.T.A. No. 131/Ind/2016 /Assessment Year: 2011-12 Bhupendra Singh Rajendra Singh Rajput HUF Kudagaon, Distt.Beed PAN AAEHB 4692M :: /Appellant Vs JCIT Range Khandwa :: /Respondent . . ./I.T.A. No. 132/Ind/2016 /Assessment Year: 2011-12 Rajendra Singh Rajpal Sendhwa PAN ABAPR 6790P :: /Appellant Vs DCIT Range Khandwa :: /Respondent 1 Bhupendrasingh Rajendrasingh HUF & Rajendrasingh Rajpal ITA Nos.131 7 132/Ind/2016 /Appellants by Shri P.D. Nagar /Respondent by Shri K.G. Goyal 14.9.2016 Date of hearing 17.10.2016 Date of pronouncement /O R D E R PER SHRI D.T. GARASIA, JM These different appeals are filed by different assessees. Since issue involved in these appeals is identical, these appeals are being disposed of by this consolidated order for sake of convenience. ITA No.131/Ind/2016 2. short facts of case are that during course of assessment proceedings information was received from DGIT, Bhopal, in case of assessee that this concern has made purchases from M/s Nirma Trading Company and Shri Omkar Enterprises without taking 2 Bhupendrasingh Rajendrasingh HUF & Rajendrasingh Rajpal ITA Nos.131 7 132/Ind/2016 delivery of goods. On basis of this Assessing Officer has given show cause notice that during year, under consideration, assessee has made purchases from M/s Nirma Trading Company and Shri Omkar Enterprises for total sum of Rs. 2,46,08,762/- without taking delivery of goods. M/s Nirma Trading Company and Shri Omkar Enterprises have provided freight paid bills without delivery of goods. Therefore, assessee was required to prove genuineness of transaction and to file copy of bills, transport receipt, return filed in Commercial Tax Department and copy of assessment order passed by Commercial Tax Department and confirm copy of account from M/s Nirma Trading Company and Shri Omkar Enterprises. assessee was also requested to furnish books of accounts with stock register so that transaction may be verified. In response to notice, assessee has filed confirmed copy of 3 Bhupendrasingh Rajendrasingh HUF & Rajendrasingh Rajpal ITA Nos.131 7 132/Ind/2016 account, copy of bills, lorry receipt, copy of acknowledgement of VAT tax return, copy of VAT audit report. assessee has also filed quantitative details, value and press running number to prove genuineness of physical delivery of goods. To verify genuineness of transport receipt notice u/s 133(6) of Act was issued to Amar Jyoti Carrier, Indore, and on verification of bills and invoices issued by M/s Nirma Trading Company and Shri Omkar Enterprises, it was found that bills are issued without lorry number, truck number and spot. Therefore, transport receipt does not mention movement of goods. Thereafter, physical possession of purchase of cotton bales was taken which receipt has been submitted and payment has been made. After considering this reply, Assessing Officer was of view that detailed inquiry in case of entry providers has been conducted by DGIT, Mumbai, and it 4 Bhupendrasingh Rajendrasingh HUF & Rajendrasingh Rajpal ITA Nos.131 7 132/Ind/2016 was found that M/s Nirma Trading Company and Shri Omkar Enterprises have provided only copy of bills without delivery of goods. Therefore, Assessing Officer was of view that assessee did not make purchases from these two parties. assessee claimed that even if purchases were effected from other parties, as per decision of Hon'ble Gujarat High Court in case of CIT vs. Bholanath Poly Fab Pvt. Ltd.; 355 ITR 290 only GP addition has to be made but Assessing Officer did not accept same and he added entire purchase as bogus purchase from unexplained sources and added same u/s 69 of Act of Rs.2,46,08,762/-. 3. matter was carried in appeal and learned CIT(A) dismissed appeal of assessee. Now assessee is in appeal before Tribunal. 4. Before us, learned counsel for assessee submitted that certain information was forwarded by DGIT 5 Bhupendrasingh Rajendrasingh HUF & Rajendrasingh Rajpal ITA Nos.131 7 132/Ind/2016 (Inv.), Mumbai regarding bogus purchases from these two suppliers for taking necessary action. In turn DGIT (Inv.), Bhopal informed Assessing Officer that genuineness of purchases from these parties was doubted and based on such information, enquiry was made by AO during course of assessment proceedings. It was contained that aforesaid two parties were found to be suspicious dealer as reported by Asstt. Commissioner of Sales Tax (1-8), Investigation-A, Mumbai because they were not found at addresses given hence conclusion was drawn that those dealers have accommodated other parties by giving purchase invoices. appellant proved that all transactions were effected in normal course of business by submitting following documents to prove genuineness of entire purchases :- a) Statement of accounts of M/s B.R. Cot, (the appellant s proprietorship concern) as appeared in 6 Bhupendrasingh Rajendrasingh HUF & Rajendrasingh Rajpal ITA Nos.131 7 132/Ind/2016 books of M/s. Shree Omkar Enterprises and M/s. Nirma Trading Co., b) Statement of accounts of M/s. Shree Omkar Enterprises in books of appellant. c) Statement of account of M/s. Nirma Trading Co. in books of appellant. d) Payments advise of Axis Bank in support of payments made by A/c payee Cheque/RTGS to Shree Omkar Enterprises and M/s. Nirma Trading Co. e) Purchase invoices issued by M/s. Shree Omkar Enterprises and M/s. Nirma Trading Co. along with copies of Lorry Receipts and sales invoices issued by appellant i.e. M/s B.R. Cot against such purchases. f) Copies of sales tax returns filed by appellant in Form-231 along with their acknowledgments showing purchases of cotton and sales thereof. learned counsel further stated that complete details showing purchases effected by assessee from aforesaid two parties i.e. their TIN, lot no., cotton bales purchased, net weight, value of goods, tax charged and corresponding sales of same cotton bales 7 Bhupendrasingh Rajendrasingh HUF & Rajendrasingh Rajpal ITA Nos.131 7 132/Ind/2016 to various parties wherein assessee earned gross profit of Rs.37,55,227/- against purchases effected from above two parties mainly due to holding stock in anticipation of price increase, which was offered for tax and assessed accordingly. He argued that said purchases were directly linked with sales effected by assessee and identity of selling dealers was disclosed. Just because sales tax was not paid by two suppliers, adverse inference cannot be drawn as to genuineness of transaction and appellant cannot be penalized as held by Bombay High Court in case of Babulal C. Borana vs. ITO (2006) 282 ITR 251. He stated that when sales thereof were not doubted, payments were made by cheques against delivery taken from concerned suppliers and all transactions are recorded in books having quantitative tally, presumption would be that when sales were genuine, purchases should also be genuine as held in following cases :- i) CIT vs. Jagdish Chandra Viswakarma (2011) 18 ITJ 51 (MPHC), 8 Bhupendrasingh Rajendrasingh HUF & Rajendrasingh Rajpal ITA Nos.131 7 132/Ind/2016 ii) ACIT vs. Bhaskar Trading Corpn. (2007) 9 ITJ 141 (ITAT- Indore) iii) CIT vs. NikunjEximp Enterprises P. Ltd (2013) 216 Taxman 171 (Bom.HC) iv) ITO vs. Surana Traders (2005) 92 ITD 212 (Mum.Trib) v) CIT vs. Adinath Industries (2001) 252 ITR 476 (Guj) vi) CIT vs. Hi Lux Automative P. Ltd (2009) 183 Taxman 260 (Del) vii) Maruti Impex vs. JCIT (ITAT-Mumbai Bench - order dt. 09.03.2016)[enclosed] According to him, transaction cannot be considered as non-genuine based on suspicion, especially when various documents placed substantiates genuineness thereof. If some of dealers were branded by Maharashtra VAT department as Hawala Dealers , just because they were not traceable at given address, Income tax department cannot treat purchases effected by assessee from such dealers as bogus without making any 9 Bhupendrasingh Rajendrasingh HUF & Rajendrasingh Rajpal ITA Nos.131 7 132/Ind/2016 enquiry. He pointed out that Sales Tax Officer (Investigation Wing), had observed that dealer may be bogus or fictitious having large turnover hence enquiry is required in matter . According to him, it is just possibility that selling dealers, with malafide intention to avoid tax liability under Maharashtra VAT Act, did not disclose sales effected in their return. Sales tax department of Maharashtra did not mention anywhere in report that sales effected to assessee by aforesaid parties are in nature of accommodation entries only. Details of turnover disclosed by suppliers in returns submitted under Maharashtra VAT Act during A.Y. 2011-12 vis- -vis purchases effected by appellant from them were as under :- Name of Supplier Quarterly Turnover Purchases returns disclosed in by 10 Bhupendrasingh Rajendrasingh HUF & Rajendrasingh Rajpal ITA Nos.131 7 132/Ind/2016 submitted returns appellant M/s. Nirma April to Sep Rs.570.74 Rs.133.58 Trading Co. 2010 lacs lacs M/s. Omkar F.Y. 2010-11 Rs.1412.20 Rs.112.50 Enterprises, lacs lacs Under circumstances, it cannot be presumed that purchases effected by assessee from these two dealers were not genuine. It was just feeling of non- availability of supplier at last known address may not be sole basis to treat purchases as bogus when sales against purchases are not doubted as held in case of Rajesh P. Soni vs. ACIT (2006) 100 TTJ 892 (Ahd) & M/s. YFC Projects Pvt ltd vs. DCIT (2010) 134 TTJ 167 (Del). 5. It was also submitted by learned counsel that in case aforesaid documents were not considered as sufficient proof of genuine purchases, 11 Bhupendrasingh Rajendrasingh HUF & Rajendrasingh Rajpal ITA Nos.131 7 132/Ind/2016 both suppliers should have been summoned u/s 131 of Act by Assessing Authority by giving opportunity to appellant to cross-examine and inspecting their books of accounts along with their bank statement because payments were made to them by A/c payee cheques only. Neither summons were issued nor any opportunity was given to appellant and just on basis of information from Sales Tax Department, Mumbai, addition was made. 6. learned counsel further argued that cotton bales are being sold by identifying same through press nos. and sales were also effected to various manufacturers by identify press numbers. Assessing Authority also observed fact that goods purchased were ultimately sold and also stated that purchases were made from unknown parties 12 Bhupendrasingh Rajendrasingh HUF & Rajendrasingh Rajpal ITA Nos.131 7 132/Ind/2016 instead of above two suppliers. fact remains that goods were purchased and they were sold. Quantitative details are maintained and same were certified in Tax Audit Report u/s 44AB of Act. Hence even if purchases are found to have been effected from bogus suppliers, entire addition cannot be made unless there is some evidence in support of claim that money reached back to assessee. Suspicion alone however strong is not sufficient. Gross profit earned was also substantial on such purchases hence at most further estimation of profit may be justified instead of considering entire purchases as bogus and its assessment u/s 69C of Act. Reliance is placed on following judgments :- a) CIT vs. Bholanath Poly Fab Pvt Ltd (2013) 355 ITR 290 (Guj.HC) b) CIT vs. Simit P Sheth (2013) 356 ITR 451 (Guj.HC), c) CIT vs. Hindustan Equipment P. Ltd (2013) 22 ITJ 555 (MP). 13 Bhupendrasingh Rajendrasingh HUF & Rajendrasingh Rajpal ITA Nos.131 7 132/Ind/2016 d) Sanjay Oil Cakes Industries vs. CIT (2009) 316 ITR 274 (Guj.) e) G.G Diamond International vs. DCIT (2006) 104 TTJ 809 (Mumbai) f) DCIT vs. Narendra Kumar Lunawat(2004) 90 TTJ 467 (Jaipur) 7. learned counsel for assessee also argued that this case is covered by decision of Hon'ble Delhi High Court in case of CIT vs. Hi Lux Automative P. Ltd. (2009) 183 Taxman 260(Del.) wherein Hon'ble High Court has categorically summarized issue regarding genuineness of transaction where party was not traceable and what can be held in such type of cases regarding genuineness of purchase and allowability. learned counsel for assessee submitted that there are three categories (a) where summons could be served (b) where summons were served but no compliance and (c) where statement 14 Bhupendrasingh Rajendrasingh HUF & Rajendrasingh Rajpal ITA Nos.131 7 132/Ind/2016 was recorded. Where those parties on whom summons could not be served, Assessing Officer has to make attempt to verify genuineness of transaction from books of assessee, his bank accounts or bills. Assessing Officer did not make any inquiry from account of bank to determine whether or not amounts were credited in accounts of respective party. So far as second category of cases is concerned, Assessing Officer did not attempt to enforce attendance of those parties on summons issued by him. Other inquiries in respect of first category of cases were made by him and third category where party has attended but no fault with bills then no addition can be made. Therefore, in this case second category comes as no summons was issued by Assessing Officer to seller. Assessing Officer did not find fault with bills or bank statement filed by 15 Bhupendrasingh Rajendrasingh HUF & Rajendrasingh Rajpal ITA Nos.131 7 132/Ind/2016 assessee. learned counsel for assessee also submitted that in that judgment Hon'ble High Court has considered decision of CIT vs. Lower authorities Medica reported in 250 ITR 575 (Delhi) and held that in this case payment has been made to fictitious party. 8. learned counsel for assessee also relied upon decision of Bombay High Court in case of Babulal C. Borana vs. ITO; 282 ITR 251 wherein it was held that where stock of HDPE powder belonging to assessee found in godown of third party, which forms part of genuine purchase and also part of closing stock recorded in books of accounts maintained by assessee, could not be treated as unexplained investment u/s 69 of Act. Similarly, in case of CIT vs. Nikunj Eximp; 83 CCH 298 (Bom) merely because supplier did not appear before Assessing Officer, we could not conclude that purchases were not made by assessee. Similarly, 16 Bhupendrasingh Rajendrasingh HUF & Rajendrasingh Rajpal ITA Nos.131 7 132/Ind/2016 Hon'ble Gujarat High Court in case of DCIT vs. Adinath Industries; 252 ITR 476 wherein assessee produced all material to show that purchase of material from party was not production and Assessing Officer accepted existence of party in another case, no addition can be made. In case of ACIT vs. Bhaskar Trading Corpn.; 9 ITJ 141 wherein Indore Bench of Tribunal has dealt with this issue and held that when payments have been received by account payee cheque, if sales are genuine and not doubted, purchases can also be genuine. counsel also relied upon decision of Hon'ble Gujarat High Court in case of CIT vs. M.K. Bros.; 163 ITR 249 wherein it was held that when assessee has made purchases from certain party which were held to be bogus by sales tax authority and if payment was given by cheque, addition cannot be made on account of income from undisclosed sources. Similarly in 17 Bhupendrasingh Rajendrasingh HUF & Rajendrasingh Rajpal ITA Nos.131 7 132/Ind/2016 case of CIT vs. Bholanath Poly Fab Pvt. Ltd.; 355 ITR 290 Hon'ble Gujarat High Court held that where purchases were bogus then not entire purchases, but profit element embeded therein can be subjected to tax. Similarly in case of CIT vs. Simit P Sheth; 356 ITR 451 Hon'ble Gujarat High Court held that not purchase price but only profit element embeded in such purchases learned CIT(A) ould be added to income of assessee. learned counsel for assessee has also relied upon decision of Hon'ble jurisdictional High Court in case of CIT vs. Hindustan Equipment P. Ltd.; 22 ITJ 555 wherein Hon'ble High Court held that 6% of net profit applied in bogus purchases is justified. 9. On other hand, learned DR relied upon decision of Hon'ble Delhi High Court in case of CIT vs. La Medica; 250 ITR 575 with submission that in case of bogus purchases if detailed I nquiry revealed that 18 Bhupendrasingh Rajendrasingh HUF & Rajendrasingh Rajpal ITA Nos.131 7 132/Ind/2016 alleged supplier did not exist and one was operating bank account opened by him with introduction by partner of concerned assessee and amounts paid were withdrawn by sister concern and if it is proved that purchases were not made from that party, whole of addition has to be made as income from undisclosed sources. Coming to facts of case, learned DR submitted that assessee has made purchases from M/s Nirma Trading Company and Shri Omkar Enterprises, both are not traceable and they are not in existence, therefore, whatever purchases are made from these parties, are to be treated as bogus purchases and addition made by Assessing Officer deserves to be sustained. learned DR submitted that cases relied upon by learned counsel for assessee are distinguishable on facts. Therefore, same are not applicable to facts of present case. 19 Bhupendrasingh Rajendrasingh HUF & Rajendrasingh Rajpal ITA Nos.131 7 132/Ind/2016 10. We have heard rival contentions of both parties. Looking to facts and circumstances of case, in instant case it is not disputed that assessee has purchased 600 and 500 cotton bales from M/s Nirma Trading Company and Shri Omkar Enterprises, respectively. information was received regarding bogus purchases from these two suppliers on ground that these parties are giving bills only and they not giving delivery of goods. above two parties were not found at their address, therefore, it was concluded that they have given accommodation entries by giving purchase invoices. assessee has submitted statement of M/s Nirma Trading Company and Shri Omkar Enterprises. statement of account of Shri Omkar Enterprises in books of assessee, statement of account of M/s Nirma Trading Company in books of assessee, payment details of AXIS Bank in support of payment made by 20 Bhupendrasingh Rajendrasingh HUF & Rajendrasingh Rajpal ITA Nos.131 7 132/Ind/2016 account payee cheques to Shri Omkar Enterprises and M/s Nirma Trading Company, purchases invoice issued by Shri Omkar Enterprises and M/s Nirma Trading Company along with copy of lorry receipt and corresponding sale invoices, copies of sales tax returns filed by assessee. assessee has filed complete details showing purchases effected by assessee from above parties, TIN number, lot number, cotton bales purchases, net value, value of goods, tax charged and corresponding sales of same cotton bales to various parties. assessee has earned gross profit on Rs. 37,55,227/- against these purchases. In this case assessee has also filed copies of VAT audit report and returns submitted under Maharashtra VAT Act of Shri Omkar Enterprises and M/s Nirma Trading Company vide paper book page nos. 96 to 129 and pages 132 to 135. We find that in this case 21 Bhupendrasingh Rajendrasingh HUF & Rajendrasingh Rajpal ITA Nos.131 7 132/Ind/2016 addition has been made only on ground that both parties are not traceable. We find from order of Assessing Officer that Assessing Officer has not issued any summons to both parties for their presence during assessment proceedings. As per decision of Hon'ble Delhi High Court in case of CIT vs. Hi Lux Automative Pvt. Ltd.; 183 taxmann 260, Hon'ble High Court has held that where summons could not be served and where summons were served but there was no compliance, Assessing Officer should verify genuineness of transaction from books of assessee and bank account or bills. Assessing Officer should also make inquiry from bank to determine whether or not amounts were credited in accounts of respective parties. We find that in this case Assessing Officer has not issued any notice for presence of M/s 22 Bhupendrasingh Rajendrasingh HUF & Rajendrasingh Rajpal ITA Nos.131 7 132/Ind/2016 Nirma Trading Company and Shri Omkar Enterprises. Therefore, we are of view that Assessing Officer has not doubted bank transaction and Assessing Officer has not made any inquiry whether bank transaction was genuine or not. Similar issue had also come up before Hon'ble Bombay High Court in case of Babulal C. Borana vs. ITO; 282 ITR 251 wherein Bombay High Court has held that if any purchase has been made and payment of same were made by assessee by cheque and same has been duly credited in bank account of that party and this purchase is reflected in books of accounts maintained by assessee and value of these goods are reflected in books of accounts, hence identity of persons from whom goods were purchased and source of investment in such goods have been explained, therefore, no addition 23 Bhupendrasingh Rajendrasingh HUF & Rajendrasingh Rajpal ITA Nos.131 7 132/Ind/2016 can be made u/s 69 of Act. Similarly, we find that Hon'ble jurisdictional High Court in case of Hindustan Equipment; 22 ITJ 555 held that if there is bogus purchase having corresponding actual sales, only profit can be added. We also get support from decision of Hon'ble Gujarat High Court in case of CIT vs. M.K. Brothers; 163 ITR 249; CIT vs. Bholanath Poly Fab Pvt. Ltd.; 83 CCH 275; CIT vs. Simit P. Sheth; 84 CCH 339, Sanjay Oil Cakes Industries vs. CIT; 316 ITR 274. We find that in this case cotton bales are sold by identifying same lot numbers to various manufacturers by identifying press numbers, goods have been purchased and ultimately sold, quantity details are maintained and they are reflected in tax audit report u/s 44AB of Act, hence, if at all purchases are not found to have been made from these two parties and 24 Bhupendrasingh Rajendrasingh HUF & Rajendrasingh Rajpal ITA Nos.131 7 132/Ind/2016 treated as bogus purchases, entire addition cannot be made unless there is some evidence in support of claim that money reached back to assessee. We find that in instant case, Assessing Officer has not doubted bank transaction. Therefore, we are of view that entire addition cannot be made. only addition which can be made is only NP addition. In instant case, assessee has shown NP rate of 1.62% of total turnover. Therefore, we direct to apply Net profit on above purchases at rate of 6%. 11. In result, appeal of assessee stands partly allowed. ITA No.132/Ind/2016 12. Since facts and circumstances, except figures, involved in this appeal are exactly identical with 25 Bhupendrasingh Rajendrasingh HUF & Rajendrasingh Rajpal ITA Nos.131 7 132/Ind/2016 above case i.e. ITA No.131/Ind/2016, we, following reasonings given therein, decide this appeal also on similarly lines. Accordingly, this appeal of assessee is partly allowed. This order has been pronounced in open Court on 17th October, 2016. Sd/- sd/- ( . . ) ( . . ) (O.P.Meena) (D.T.Garasia) Accountant Member Judicial Member /Dated : 17th October, 2016. Dn/ 26 Bhupendrasingh Rajendrasingh HUF & Rajendrasingh Rajpal ITA Nos.131 7 132/Ind/2016 27 Bhupendra Singh Rajendra Singh Rajput HUF v. JCIT, Range Khandwa