The ACIT, Circle-6,, Surat v. M/s. Vijay Process, Surat

ITA 2375/AHD/2007 | 2003-2004
Pronouncement Date: 09-07-2010 | Result: Dismissed

Appeal Details

RSA Number 237520514 RSA 2007
Bench Ahmedabad
Appeal Number ITA 2375/AHD/2007
Duration Of Justice 3 year(s) 1 month(s) 7 day(s)
Appellant The ACIT, Circle-6,, Surat
Respondent M/s. Vijay Process, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 09-07-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 09-07-2010
Date Of Final Hearing 01-07-2010
Next Hearing Date 01-07-2010
Assessment Year 2003-2004
Appeal Filed On 01-06-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE SHRI MAHAVIR SINGH JUDICIAL MEMBER AND SHRI A.N.PHAUJA ACCOUNTANT MEMBER ITA NO.2375/AHD/2007 ASSESSMENT YEAR:2003-04 DATE OF HEARING:1.7.10 DRAFTED:2.7.10 ASSTT. COMMISSIONER OF INCOME-TAX CIRCLE-6 SURAT ROOM NO.611 AAYAKAR BHAVAN MAAJURA GATE SURAT V/S. M/S. VIJAYA PROCESS PLOT NO.4 BLOCK NO.4355 B/H. LUCKY PETROL PUMP PALSANA DIST. SURAT PAN NO.AACFV9944Q (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI K. MUDHUSUDUN SR-DR RESPONDENT BY:- SMT. URVASHI SODHAN AR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY THE REVENUE IS ARISING OUT OF THE O RDER OF COMMISSIONER OF INCOME-TAX(APPEALS)-IV SURAT IN APPEAL NO.CAS-IV/8 /06-07 DATED 30-03-2007. THE ASSESSMENT WAS FRAMED BY THE ACIT CIRCLE-6 SURAT U/S.143(3) OF THE INCOME-TAX ACT 1961 (HEREINAFTER REFERRED TO AS THE ACT) VI DE HIS ORDER DATED 27-03-2006 FOR THE ASSESSMENT YEAR 2003-04. 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) IN DELETING THE DISALLOWANCE OF BOGUS PURCHASES MADE B Y ASSESSING OFFICER. FOR THIS REVENUE HAS RAISED FOLLOWING EFFECTIVE THREE GROUNDS :- [1] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE IN LAW THE LD. CIT(A) HAS ERRED IN RESTRICTING THE ADDITION TO RS.2 12 00 0/- AS AGAINST THE ADDITION OF RS.36 32 505/- MADE BY THE ASSESSING OFFICER THEREB Y DELETING AN ADDITION OFRS.34 20 505/-. [2] THE LD. CIT(APPEALS) HAS NOT APPRECIATED THE FA CT THAT THE GENUINENESS OF THE PURCHASES MADE BY THE ASSESSEE HAVE NOT BEEN ES TABLISHED. ITA NO.2375/AHD/2007 A.Y.2003-0 4 ACIT CIR-6 SRT V M/S VIJAY PROCES PAGE 2 [3] THE LD CIT(A) HAS NOT CONSIDERED THE FACT THAT THE MERE FURNISHING OF DETAILS OF BANKING TRANSACTION CAN NOT MAKE AN EXPE NDITURE ALLOWABLE WHEN BUSINESS NEXUS AND SERVICES RENDERED BY THE RECIPIE NTS HAVE NOT BEEN ESTABLISHED AT ALL. 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT THE ASSESSEE-FIRM IS ENGAGED IN THE BUSINESS OF SIZING PROCESSING AND T RADING OF YARN. THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.2 62 550/- WAS FILED ON 14-11-2003 ALONG WITH AUDIT REPORT U/S.44AB OF THE ACT. THE ASSESSMENT FI NALIZED U/S.143(3) OF THE ACT DETERMINING TOTAL INCOME AT RS.41 65 960/- ON 27-03 -2006. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSING OFFICER NOTICED I SSUED U/S.133(6) OF THE ACT TO CERTAIN PARTIES TO VERIFY THE GENUINENESS OF SUCH P URCHASES. HOWEVER THE SAME WERE RETURNED UN-SERVED AND IN THE CASE OF M.R. CORPORATION NO REPLY WAS RECEIVED. THE ASSESSING OFFICER REQUESTED THE ASSESSEE-COMPAN Y TO PRODUCE THESE PARTIES. THE ASSESSEE EXPRESSED ITS INABILITY TO PRODUCE THE SUPPLIERS FOR VERIFICATION OF GENUINENESS OF PURCHASE OF RAW MATERIALS. THE ASSES SEE STATED THAT THEIR BILLS IN SUPPORT OF THE TRANSACTIONS AND PAYMENT MADE THROUG H ACCOUNT PAYEE CHEQUES SHOULD BE CONSIDERED SUFFICIENT PROOF FOR THE GENUI NENESS IN THE CASE OF M/S. ABHI TEX IT WAS INFORMED BY THE BANK IN REPLY TO THE LE TTER WRITTEN TO THE ROYAL CO-OP. BANK LTD SALABATPURA AND BANK OF BARODA THAT NO S UCH ACCOUNT IN THE NAME OF ABHI TEX WERE MAINTAINED AND OPERATED WITH THE ABOV E BANKS. HENCE THE ACCOUNT OF ABHI TEX IS SIMPLY A NAME ENTRY. THAT IN THE CAS E OF DHANA LAXMI ENTERPRISE COPY OF ACCOUNT OPENING FORM AND BANK STATEMENT WERE OBT AINED FROM INDUS IND BANK SURAT BRANCH AND ADDRESS OF THE BUSINESS PREMISES F URNISHED BY THE ASSESSEE WAS 180 HIRACHAND SOCY. UDHNA MAGDALLA ROAD SURAT. O N SPOT INQUIRY OF BUSINESS PREMISES OF DHANLAXMI ENTERPRISE AS APPEARING IN TH E ACCOUNT OPENING FORM AND ALSO ON SALE BILL INSPECTOR HAD REPORTED THAT NO S UCH BUSINESS CONCERNS WAS FOUND TO BE OPERATING FROM THE ADDRESS GIVEN. HENCE ACTU AL SELLER NEVER EXISTED AND CLEARLY THE ISSUE OF THE SELLER RECEIVING PAYMENTS CAN NOT ARISE. IN THE CASE OF YESHA ENTERPRISE IT WAS FOUND SPOT INQUIRY THAT NO SUCH BUSINESS CONCERN WAS EVER EXISTENCE AND NEVER CARRIED OUT BUSINESS FROM THE A DDRESS GIVEN. THE SAME FACT WAS CONFIRMED BY THE OCCUPANT OF THE FLAT IN QUESTION. HENCE THE ISSUE OF ANY PAYMENT BEING MADE TO THE PARTY CAN NOT ARISE. ITA NO.2375/AHD/2007 A.Y.2003-0 4 ACIT CIR-6 SRT V M/S VIJAY PROCES PAGE 3 4. THE ASSESSING OFFICER IN VIEW OF THE FOLLOWING R EASONING MADE DISALLOWANCE OF BOGUS PURCHASES TO THE EXTENT OF RS.36 32 505/-: - (1) ASSESSEE CLAIM TO HAVE PAID TO TWO ADATIYA ( AGENT) OF M.R. CORPORATION AND STAR TRADERS PROPRIETOR OF M.R. CORPORATION CAT EGORICALLY DENIED HAVING MADE ANY SO-CALLED SALE OF CHEMICALS. ENQUIRY REVEA LED NON TRACEABILITY OF ADATIYA. STAR TRADER IS AHMEDABAD BASED BUSINESS CONCERN AND PAYMENT MADE TO ADATIYA BASED TO SURAT IS ALSO NOT TRACEABL E IS NOTHING BUT A MAKE BELIEVE STORY OF THE ASSESSEE WITH AN INTENTION TO INFLATE EXPENDITURE. (2) BANK INQUIRY AND SUBSEQUENT SPOT ENQUIRY IN THE CASE OF YESHA ENTERPRISE ABHI TEX AND DHANLAXMI ENTERPRISE REVEALED NON-EXIS TENCE OF ANY BUSINESS CONCERN IN THE GIVEN ADDRESS. (3) ASSESSMENT FOR THE A.Y. 2002-03 DONE U/S.143(3 ) AO DETECTED SIMILAR MODUS OPERANDI ADOPTED BY THE ASSESSEE WHERE ASSES SEE CLAIMED PURCHASE FROM A BUT PAID TO B. IT IS CLEAR THAT THE ASSESSEE IS RESORTING TO THIS TYPE OF WAYS AND MEANS TO DEFRAUD THE REVENUE CONSISTENTLY OVER PERIOD OF TIME. (4) NO PAN OF THE SELLING PARTIES WAS FURNISHED NOR CORRECT ADDRESS TO ASCERTAIN THE SO-CALLED SALE OF RAW MATERIAL TO THE ASSESSEE IF ANY. (5) AS FAILED TO DISCHARGE ITS DUTY OF PROVING THE GENUINENESS OF TRANSACTIONS. (6) MERE MAINTENANCE OF THE QUANTITATIVE RECORDS IS NOT A SUFFICIENT CONDITION TO ACCEPT THE GENUINENESS OF SO CALLED PURCHASE. ON US IS CAST UPON THE ASSESSEE TO PROVE BY MEANS OF INPUT-OUT RATIO CONS UMPTION RATIO OF RAW MATERIAL AGAINST UNIT OF FINAL PRODUCT MANUFACTURED . (7) FROM VERIFICATION OF PAST RECORDS OF THE ASSESS EE IT IS FOUND THAT ASSESSEE ADOPTED SIMILAR MODUS OPERANDI IN THE PAST ALSO. DU RING THE ASSESSMENT PROCEEDINGS OF A.Y. 2002-03 AO DETECTED SIMILAR MEA NS AND WAYS OF THE ASSESSEE TO CLAIM BOGUS EXPENDITURE AND MADE SUITAB LE ADDITION OF THE SAME. THE RELEVANT PORTION OF THE ASSESSMENT ORDER IS REP RODUCED BELOW. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS PURCHASED OILS AND CHEMICALS OF RS.4 24 000/- FROM M/S. NIKITA SAL ES CORPORATION. TO VERIFY THE GENUINENESS OF PURCHASES MADE NOTICE U/ S.133(6) WAS ISSUE TO THIS PARTY. THE NOTICE WAS RETURNED UN-SERVED BY THE POSTAL DEPARTMENT. THEREFORE THE ASSESSEE WAS REPEATEDLY REQUESTED TO FURNISH THE NEW/CHANGED ADDRESS OF THIS PARTY. BUT TILL DATE THE ASSESSEE NEITHER PRODUCED THE NEW/CHANGED ADDRESS O F THIS PARTY NOR ANY EVIDENCE SHOWING PURCHASES MADE FROM THIS PARTY . THE ASSESSEE ONLY SUBMITTED THE COPY OF LEDGER ACCOUNT OF THE PA RTY AND THE COPY OF BANK STATEMENT SHOWING THE PAYMENT MADE TO THIS PAR TY. THE DETAILS SUBMITTED BY THE ASSESSEE WERE VERIFIED . IN THE LEDGER ACCOUNT SUBMITTED BY THE ASSESSEE IT HAS SHOWN PAY MENT TO THIS PARTY THROUGH BANK ACCOUNT. THE FIRST PAYMENT OF RS.2 26 000/- WAS MADE ON 26/12/2001 BY CHEQUES NO.21106 AND THE NEXT PAYMENT OF ITA NO.2375/AHD/2007 A.Y.2003-0 4 ACIT CIR-6 SRT V M/S VIJAY PROCES PAGE 4 RS.1 98 000/- WAS MADE ON 19/3/2002 BY CHEQUES NO.2 1082. IN THE BANK STATEMENT IN RESPECT OF CHEQUES NUMBER 231106 WAFA TRD WAS APPEARING INSTEAD OF THE NAME OF THIS PARTY AND IN RESPECT OF CHEQUES NO.21082 JOSHI BHAR WAS APPEARING INSTEAD OF THE NAME OF THIS PARTY. FOR FURTHER VERIFICATION COPIES OF BOTH THE SIDES OF THE CHEQUES WERE CALLED FROM THE BANK. ON PERUSAL OF TH E CHEQUES IT WAS FOUND THAT THE CHEQUES NO.21106 WAS ISSUED IN FAVOU R OF WAFA TRADERS AND CHEQUE NO.21082 WAS ISSUED IN FAVOUR OF JOSHI B HARAT AND BOTH THE CHEQUES WERE ACCOUNT PAYEE. THE FACTS AND CIRC UMSTANCES IN RESPECT OF THIS PARTY IS ELABORATED BELOW:- I. THE ASSESSEE HAS SHOWN PURCHASES OF RS.4 24 000 /- FROM M/S. NIKITA SALES CORPORATION. II. THE ASSESSEE DID NOT SUBMIT ANY CONFIRMATION FR OM THIS PARTY. III. THE NOTICE ISSUED U/S.133(6) TO THIS PARTY WAS RETURNED UNSERVED BY THE POSTAL DEPARTMENT. IV. EVEN ON REPEATED REQUEST THE ASSESSEE DID NOT FURNISH THE NEW/CHANGED ADDRESS OF THIS PARTY TILL DATE. V. THE PAYMENT MADE TO THIS PARTY ALSO COULD NOT BE VERIFIED. BECAUSE ON VERIFICATION OF THE CHEQUES IT WAS FOU ND THAT THE CHEQUES WERE ISSUED IN THE NAME OF SOME OTHER PERSO NS AND NOT IN THE NAME OF PARTY AS CLAIMED BY THE ASSESSEE . VI. THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE TO SUBSTANTIATE/PROVE THE PURCHASE MADE FROM THIS PART Y. VII. EVEN ON REPEATED REQUEST THE ASSESSEE DID NOT PRODUCE THIS PARTY TO THE OFFICE OF THE UNDERSIGNED. BASED ON ABOVE FINDINGS OF THE AO WHOLE OF THE AMO UNT PAID TO M/S. NIKITA SALES CORPORATION WAS TREATED AS BOGUS PURCHASE AND ADDITION MADE ACCORDINGLY. HERE IN THE INSTANT CASE ALSO ASSESSE E RESORTED TO SAME MODUS OPERANDI WITH AN INTENTION TO CLAIM BOGUS EXPENDITU RE AND REDUCE TAXABLE INCOME. 5. AGGRIEVED ASSESSEE PREFERRED APPEAL BEFORE CIT( A). THE CIT(A) RESTRICTED THE ADDITION AT RS.2.12 LAKH BY GIVING FOLLOWING FI NDING IN PAGE-4 OF HIS APPELLATE ORDER:- I HAVE CONSIDERED THE SUBMISSION AND HAVE GONE THR OUGH THE DETAILS FURNISHED AS ALSO THE REMAND OF THE AO. IT IS SEEN THAT THE ASSESSMENT HAS BEEN FRAMED IN THIS CASE IN EVERY SLIPSHOD MANNER A ND THE E4VIDENCE FURNISHED BY THE APPELLANT HAS BEEN TOTALLY IGNORED . IT APPEARS THAT THE AO WAS MORE INFLUENCED BY THE FINDINGS IN AY 2002-03 A ND HAS IGNORED THE VITAL EVIDENCES FURNISHED BY THE APPELLANT. HE HAS RELIED MORE ON THE SPOT INQUIRIES CONDUCTED BY THE INSPECTOR OF THE OFFICE RATHER THA N APPRECIATING THE EVIDENCES IN THE FORM OF PAYMENT HAVING BEEN EFFECT ED TO ALL THE PARTIES THROUGH ACCOUNT PAYEE CHEQUES. HE HAS MERELY RELIED ON PETTY FACTORS LIKE NON-AVAILABILITY OF TELEPHONE NUMBERS ON THE SALE B ILL OR SALE-TAX NO. AND THE SO-CALLED NON-EXISTENCE OF SUCH PARTY AT THE ADDRES S MENTIONED ON THE SALE BILL. IT IS NO FAULT OF THE APPELLANT THAT A PARTY WHICH IS MAINTAINING A BANK ACCOUNT IN WHICH ACCOUNT PAYEE CHEQUES ISSUED BY TH E APPELLANT IS ITA NO.2375/AHD/2007 A.Y.2003-0 4 ACIT CIR-6 SRT V M/S VIJAY PROCES PAGE 5 DEPOSITED DOES NOT MENTION ITS CORRECT ADDRESS ON SUCH SALE BILLS. THE PRESENT AO IN HIS REMAND REPORT HAS ACCEPTED THE FA CT THAT ALL THESE PAYMENTS WERE MADE BY A/C PAYEE CHEQUES AND CLEARED BY THE B ANK AS CLAIMED BY THE APPELLANT AND THEREFORE THERE WAS NO JUSTIFICATION IN TREATING THE PURCHASES MADE BY THE PARTY AS BOGUS. THEREFORE SUCH KIND OF AN ADDITION MADE WITHOUT APPRECIATING THE EVIDENCES FURNISHED BY THE APPELLA NT IS NOT SUSTAINABLE. HOWEVER IT IS SEEN THAT IN THE CASE OF M/S. M.R. C ORPORATION THE AO RECORDED THE STATEMENT OF THE PROPRIETOR OF THE FIRM WHO CA TEGORICALLY DENIED THAT HE EVER SOLD ANY MATERIAL TO THE APPELLANT FIRM AND DI D NOT ISSUE ANY BILL OF THE MATERIAL CLAIMED BY THE APPELLANT. THE AO ALSO GAVE AN OPPORTUNITY TO THE APPELLANT TO CROSS-EXAMINE THE SAID PERSON WHICH WA S NOT AVAILED. THIS SHOWS THAT THE CLAIM OF PURCHASES FROM M/S. M.R. CO RPORATION IS NOT PROVED. THE APPELLANT HAD CLAIMED TO HAVE PAID THIS AMOUNT TO M/S. DANA TEXTILES BUT SINCE THE FIRM FROM WHICH THE BILL WAS ISSUED CATEG ORICALLY DENIED TO HAVE MADE SUCH SALES AND THE APPELLANT ALSO COULD NOT PR OVED THE PURCHASES FROM THE SAID PARTY SPECIALLY IN VIEW OF THE FACT THAT IT REFUSED TO CROSS-EXAMINE THE SAID PERSON IT IS CLEAR THAT NO SUCH PURCHASES WER E MADE AND THEREFORE THE AO'S ACTION IN DISALLOWING PURCHASES WORTH RS.2 12 000/- FROM SAID PARTY IS HEREBY CONFORMED. THE ADDITION ON ACCOUNT OF BOGUS PURCHASES IS THEREFORE DIRECTED TO BE RESTRICTED TO RS.2 12 000/- ONLY. 6. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE STAT ED THAT THE ASSESSEE COULD NOT FORCE THEIR PRESENCE BEFORE THE AO BUT HAD SUBM ITTED COPIES OF THE BILLS AND PROOF OF PAYMENT I.E. COPY OF THE BANK STATEMENTS FOR THE YEAR AND LEDGER COPIES OF THEIR ACCOUNTS. THE TOTAL PURCHASES FROM THESE SEVE N PARTIES WERE OF RS.13928538/- OUT OF WHICH THE AO ACCEPTED GENUINENESS OF PURCHAS ES FROM TWO PARTIES TOTALING RS.10296033/-. REGARDING THE OTHER PARTIES THE SIT UATION WAS EXPLAINED TO THE AO WHO INSISTED ON RECORDING THE STATEMENT OF SUCH PAR TIES AND NON-APPEARANCE OF SUCH PARTIES SHOULD NOT HAVE BEEN SUFFICIENT GROUND FOR DRAWING ADVERSE INFERENCE. ACCORDING TO HER SUFFICIENT EVIDENCES WERE SUPPL IED TO PROVE THE GENUINENESS OF PURCHASES AND ALL PAYMENTS WERE MADE THROUGH A/C PA YEE CHEQUES AND IT WAS FURTHER STATED THAT ALL PURCHASES WERE ENTERED IN T HE STOCK REGISTERS AND IT WAS A MERE PRESUMPTION ON THE PART OF THE AO THAT CASH WA S RECEIVED BACK BY THE ASSESSEE WHICH IS NOT SUPPORTED BY ANY DIRECT OR I NDIRECT EVIDENCE. SHE CONTENDED THAT IN THE CASE OF M/S. NITITA SALES CORPORATION ADDITION WAS DELETED BY THE CIT (APPEAL) RELYING ON THE JUDGMENT OF HONBLE GUJARA T HIGH COURT IN THE CASE OF CIT VS. M/S. M.K. BROS. 163 ITR 249. THE LD. COUNSEL F URTHER STATED THAT IN THE CASE OF M/S. ABHI TEXTILE (RS.6 34 100/-) THE COPIES OF CH EQUES FURNISHED BY THE BANK ALSO PROVED THE PAYMENT TO THE SAID CONCERN BUT THE AO M ERELY ON THE BASIS OF PARTIES ADDRESS NOT BEING MENTIONED ON THE BILL MADE A DISA LLOWANCE OF THE ENTIRE PURCHASES. IN THE CASE OF M/S. DHANLAXMI ENTERPRISE (RS.7 13 3000/-) THE A/C PAYEE ITA NO.2375/AHD/2007 A.Y.2003-0 4 ACIT CIR-6 SRT V M/S VIJAY PROCES PAGE 6 CHEQUES WAS CLEARED TO INDUS BANK AND THE BANK ACCO UNT OF THE PARTY ALSO HAD THE SAME ADDRESS AS ON THE SALE BILL. BUT THE AO RELIED ON THE SPOT INQUIRY AND DISALLOWED THE CLAIM OF PURCHASES. IN THE CASE OF M /.S. YESHA ENTERPRISE (RS.18 10 605/-) THE ADDRESS ON THE SALE BILL WAS THE SAME AS MENTIONED IN THE BANK ACCOUNT OF THE PARTY AND THE CHEQUES WAS CLEARED IN FAVOUR OF ASSESSEES ACCOUNT IN SURAT MERCANTILE CO.OP. BANK. SHE ALSO RELIED ON TH E ASSESSMENT ORDER OF EARLIER YEAR AND STATED THAT IN THE AY 2002-03 THE AO HAD ALLOWED TRANSACTION WITH THE SAME PARTY OF RS.4436786/- AS GENUINE. IN THE CASE OF M/S. M.R. CORPORATION (RS.2 12 000/-) THE CHEQUES WAS ISSUED IN THE NAME OF M/S. DANA TEXTILES WHO WAS THEIR AGENT FOR PAYMENT OF PURCHASES. THE COPY OF S ALE BILL ALSO REFLECTED THE CORRECT ADDRESS AS DECLARED TO THE SALES-TAX DEPARTMENT. FU RTHER ON A SIMILAR GROUND PURCHASES OF RS.4 24 000/- TO M/S. NIKITA SALES COR PORATION MADE TO THE AGENT WAS ALLOWED BY THE CIT(APPEAL) IN AY 2002-03 ALSO. IN T HE CASE OF M/S. STAR TRADERS (RS.2 62 500/-) THE SITUATION WAS EXACTLY THE SAME AND THE PAYMENT WAS MADE TO HIS AGENT M/S. KAMAL TEXTILES. THEREFORE THERE WAS NO REASON TO TREAT THESE PURCHASES AS BOGUS. THE LD. AR ALSO IS FILED COPIES OF BILLS COPY OF BANK STATEMENT AND A CERTIFICATE FROM THE BANK IN SUPPORT OF CLAIM THAT ALL PAYMENTS WERE MADE THROUGH A/C. PAYEE CHEQUES. THIS CERTIFICATE FROM T HE BANK BEING A FRESH EVIDENCE WAS FORWARDED TO THE AO FOR HIS COMMENTS WHO VIDE LETTER DATED 23.03.2007 REPORTED THAT HE OBTAINED PHOTO COPIES OF CHEQUES F OR MAKING PAYMENTS BY THE ASSESSEE FROM THE SURAT PEOPLES CO.OP. BANK AND FRO M THE EXAMINATION OF SUCH CHEQUES IT WAS FOUND THAT THE PAYMENTS WERE MADE T O THE PARTIES AS CLAIMED BY THE ASSESSEE AND THE CLEARANCE OF CHEQUES WAS ALSO IN A CCORDANCE WITH THE CLAIM. IN VIEW OF THESE FACTS SHE STATED THAT EXCEPT IN THE C ASE OF M.R. CORPORATION THE ASSESSEES PURCHASES SHOULD BE CONSIDERED AS GENUIN E AND NO DISALLOWANCE SHOULD BE MADE. SHE STATED THAT THE ASSESSEE HAS NOT CHALL ENGED THE FINDINGS OF CIT(A) IN THE CASE OF PURCHASES MADE FROM M.R. CORPORATION. 7. ON THE OTHER HAND LD. SR-DR SHRI K. MADHUSUDAN SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. HE STATED THAT ASSESSING OFF ICER ISSUED NOTICES U/S.133(6) FOR VERIFYING CERTAIN PURCHASES OF RAW MATERIALS AND AL L THE NOTICES CAME BACK UNSERVED EXCEPT IN THE CASE OF M.R. CORPORATION. HOWEVER N O REPLY WAS RECEIVED FROM M.R. CORPORATION AND CONSEQUENTLY AO ASKED THE ASSESSEE TO PRODUCE THE PARTIES BUT THE ASSESSEE EXPRESSED INABILITY TO PRODUCE THE SUPPLIE RS FOR VERIFICATION AND ASSESSEE ITA NO.2375/AHD/2007 A.Y.2003-0 4 ACIT CIR-6 SRT V M/S VIJAY PROCES PAGE 7 SUBMITTED THE BILLS/VOUCHERS FOR PURCHASES AND PAYM ENT THROUGH CHEQUES SHOULD BE CONSIDERED AS SUFFICIENT PROOF. HOWEVER AO ENQUIRE D FROM THE BANKS AND CAUSED ENQUIRIES BY THE INSPECTOR OF DEPARTMENT AND FOUND THAT THE SELLERS DOES NOT EXIST AT THE ADDRESSES GIVEN AND IN SOME CASES THE OCCUPANTS STATED THAT THERE WAS NO SUCH BUSINESS RUNNING FROM SUCH PREMISES. THE ENQUIRY FI NDINGS OF THE AO RE-TABULATED IN THE ANNEXURE FILED IN THE BENCH DURING THE COURSE O F HEARING. THE PROPRIETOR OF M.R. CORPORATION CATEGORICALLY STATED THAT NO CHEMICAL W AS SOLD AS CLAIMED BY THE ASSESSEE AND NO SUCH BILL WAS ISSUED BY THE ASSESSE E. THE LD. DR FURTHER ARGUED THAT AT A LATER STAGE OF THE PROCEEDINGS ASSESSEE CLAIMED THAT IT HAD MADE PAYMENTS TO PARTIES THROUGH AGENTS (ADATIYAS) AND F URNISHED THE BANK ACCOUNT TRANSACTIONS OF THE SO-CALLED AGENTS. THE CIT(A) AC CEPTED THE CLAIM OF THE ASSESSEE THAT THE PAYMENTS WERE MADE TO AGENTS THROUGH CHEQU ES FOR THE CHEMICALS SUPPLIED BY THE SELLERS BUT IT IS NOT UNDERSTOOD AS TO HOW T HE PURCHASE CONSIDERATION FOR RAW MATERIALS/CHEMICALS CAN BE MADE TO AGENTS INSTEAD O F THE SELLERS WHO GAVE THE BILLS FOR PURCHASES. ACCORDING TO HIM THE ASSESSEES CLA IM HAS TO BE ACCEPTED THAT THERE WERE AGENTS BETWEEN SELLERS AND THE ASSESSEE IT FO R THE ASSESSEE TO ESTABLISH THAT THE SELLERS WERE AVAILABLE AT THE GIVEN ADDRESSES. ONCE ALLEGED SELLER THE PROPRIETOR OF M/S. M.R CORPORATION HAS DENIED HAVING SUPPLIED ANY CHEMICALS AND HAVING GIVEN ANY BILL. HE FURTHER ARGUED THAT THE ASSESSEE HAD N OT BROUGHT ON RECORD ANY COMMISSION PAID TO THE AGENTS FOR THE SERVICES. IN THE LIGHT OF THE ABOVE FACTS AND ALSO THE FINDINGS OF THE ENQUIRY BY THE ASSESSING O FFICER THE LD. SR-DR ARGUED THAT THE CLAIM OF THE PAYMENT APPEARS DOUBTFUL INASMUCH AS THE PURPOSE OF THE EXPENDITURE WHETHER THE SAME WAS LAID OUT WHOLLY AN D EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AS REQUIRED BY SECTION 37(1) OF THE ACT AN D IT IS SETTLED LAW THAT THE BURDEN IS ON THE ASSESSEE TO PROVE THE EXPENSES WERE LAID OUT WHOLLY AND EXCLUSIVELY FOR PURPOSES OF BUSINESS AND RELIANCE PLACED ON THE FOL LOWING:- GOODLAS NEROLAC PAINTS LTD. V. CIT (1982) 137 ITR 58 (BOM) ANDREW YULE & CO. V. CIT 49 (1963) ITR 57 (CAL) AND MERE PAYMENT BY ITSELF WOULD NOT ENTITLE AN ASS ESSEE TO DEDUCTION UNLESS THE SAME WAS PROVED TO BE PAID FOR COMMERCIAL CONSIDERA TION AND RELIANCE PLACED ON THE FOLLOWING:- ASSAM PESTICIDES & AGRO CHEMICALS 227 ITR 846 (GAU) CIT V. TRANSPORT CORPORATION OF INDIA ((2002) 256 ITR 701 (AP) ITA NO.2375/AHD/2007 A.Y.2003-0 4 ACIT CIR-6 SRT V M/S VIJAY PROCES PAGE 8 AGAIN MERE PRODUCTION OF VOUCHERS IN SUPPORT OF THE CLAIM WOULD NOT PROVE THE CLAIM MADE BY ASSESSEE AND RELIANCE PLACED ON THE FOLLOWI NG:- CIT V. CHANDRA VILAS HOTEL (1987) 164 ITR 102 (GUJ) LD. SR-DEPARTMENTAL REPRESENTATIVE URGED THE BENCH THAT THE EXPENDITURE CLAIMED BY ASSESSEE FOR PURCHASE OF RAW MATERIALS AS DISALL OWED BY ASSESSING OFFICER MAY BE UPHELD. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO PERUSED THE CASE RECORDS INCLUDING THE ASSESSMENT ORDER THE ORDER OF CIT(A) AND THE ASSES SEES PAPER BOOK CONSISTING PAGES 1 TO 77. WE FIRST FIND THAT THE ASSESSING OF FICER HAS TREATED THE PURCHASES FROM THREE PARTIES OF YARN NON-GENUINE WHEREIN FOL LOWING ENTRIES IN YARN REGISTER IS MADE AND SAME IS SENT FOR CONVERSION OR MANUFACTURI NG. M.S. ABHI-TEX (RS.6 34 100/) ENTRY NO. DATE PAGE NO. QNT. RECEIPT REMARKS (BILL/AMT.) 6. 18/04/02 1 KGS. 3 000 (BILL-173 OF RS.2 88 500/-) 51. 19/07/02 4 KGS.3 600 (BILL-194 OF RS.3 45 600/-) TOTAL KGS.6 600 TOTAL RS.6 34 100/- M/S. DHAN-LAXMI ENTERPRISES (RS.7 13 300/-) ENTRY NO. DATE PAGE NO. QNT. RECEIPT REMARKS (BILL/AMT.) 71. 01/09/02 6 KGS. 3 400 (BILL-313 OF RS.3 72 800/-) 75. 10/10/02 7 KGS.3 300 (BILL-401 OF RS.3 40 500/-) TOTAL KGS.6 700 TOTAL RS.7 13 300/- M/S. YESHA ENTERPRISES (RS.18 10 605/- ENTRY NO. DATE PAGE NO. QNT. RECEIPT REMARKS (BILL/AMT.) 2. 08/04/02 1 KGS. 3 400 (BILL-11 OF RS.3 57 500/-) 28. 07/06/02 3 KGS. 3 990 (BILL-194/5 OF RS.4 23 605/-) 46. 06/07/02 4 KGS. 3 400 (BILL-294 OF RS.3 79 600/-) 50. 15/07/02 4 KGS. 3 400 (BILL-352 OF RS.2 86 100/-) 55. 23/07/02 4 KGS. 3 400 (BILL-393 OF RS.3 63 800/-) TOTAL KGS.17 590 TOTAL RS.18 10 605/- WE FIND FROM THE RECORDS THAT ALL THE ABOVE YARN IS CONSUMED FOR THE MANUFACTURING AND THE SALE IS EFFECTUATED OUT OF THESE MANUFACTUR ING OF PRODUCTION AND SAME HAS ITA NO.2375/AHD/2007 A.Y.2003-0 4 ACIT CIR-6 SRT V M/S VIJAY PROCES PAGE 9 COME ON CREDIT SIDE OF TRADING ACCOUNT. THUS ASSES SEE CAN BE ENTITLED TO CLAIM THE PURCHASES OF RAW MATERIALS (YARN AND CHEMICALS) AS HE HAS DEBITED THE SAME UNDER PURCHASES ACCOUNT IN TRADING ACCOUNT. WE FURTHER FI ND THAT THE PAYMENTS TO ABOVE THREE PARTIES OF YARN IN QUESTION IS MADE ONLY BY A /C. PAYEE CROSSED CHEQUES PAYMENT PROOF TO ASSESSING OFFICER DURING COURSE OF ASSESSMENT AND EVEN BEFORE CIT(A) WAS FILED IN THE SHAPE OF BANKERS STATEMENT AND SAME WAS VERIFIED WITH BANKER BY CALLING THE COPIES OF CHEQUES. THE ASSESS EE HAS ALSO ESTABLISHED THE CREDITORS IDENTITY BY SUBMITTING THE LEDGER ACCOUN TS WITH HIS BILLS PAYMENT-PROOF ETC. THE ASSESSING OFFICER HAS ALSO VERIFIED THE FACT OF PAYMENT WITH THE BANKER OF THE PURCHASER. THE COMPLETE AND CORRECT DAY-TO-DAY STOC K RECORD IS MAINTAINED AND THE PARTY-WISE STOCK OF INVENTORIES PURCHASED IS TALLIE D WITH STOCK-REGISTER THEIR SALE-BILLS AND OUR BOOKS OF ACCOUNT. WE FURTHER FIND THAT IN A SSESSMENT YEAR 2002-03 THE ASSESSING OFFICER HAS CONSIDERED THE FACTS OF PAYME NT BY A/C. PAYEE CHEQUES AND LEDGER-ACCOUNTS WITH SALE BILLS ETC. AND ALLOWED TH E PURCHASES OF YARN AS GENUINE PURCHASES OF M/S.YESHA ENTERPRISES OF RS.44 36 786/ -. 8. AS REGARDS TO THE PURCHASES OF STAR TRADERS OF C HEMICALS WHICH ARE TREATED AS NON-GENUINE BY THE ASSESSING OFFICER THE ASSESSEE HAS FILED COMPLETE DETAILS OF ENTRIES IN CHEMICAL REGISTER FOR PURCHASES MADE AND SAME IS SENT FOR CONVERSION OR MANUFACTURING. M/S. STAR TRADERS (RS.2 62 500/-) ENTRY NO. DATE PAGE NO. QNT. RECEIPT REMARKS (BILL/AMT.) 33 03/05/02 2 KGS.2 500 (VIDE BILL-39.40 OF RS.2 62 500/-) TOTAL KGS.2 500 TOTAL RS.2 62 500 WE FIND FROM STOCK RECORDS OF THE ASSESSEE THAT ALL THE CHEMICALS IS CONSUMED FOR THE MANUFACTURING/CONVERSION AND ALSO THE SALE IS E FFECTUATED OUT OF THESE CONVERSION AND SAME IS SHOWN ON CREDIT SIDE OF TRAD ING ACCOUNT. THUS ASSESSEE CAN BE ENTITLED TO CLAIM THE PURCHASES OF RAW MATERIALS LIKE CHEMICALS AND THAT IS DEBITED UNDER THE HEAD PURCHASES A/C. IN TRADING ACCOUNT. W E FIND THAT THE PAYMENT MADE TO THE ABOVE PARTY IN QUESTION IS TO HIS ADATIYA (I.E. AGENT) EXCLUSIVELY TO DISCHARGE THE LIABILITY OF PURCHASE. THE CHEQUES ISSUED TO S UCH ADATIYA IS ONLY BY A/C. PAYEE CROSSED CHEQUES AS PER MARKET-PRACTICE. THE ASSESSI NG OFFICER WAS PROVIDED WITH ITA NO.2375/AHD/2007 A.Y.2003-0 4 ACIT CIR-6 SRT V M/S VIJAY PROCES PAGE 10 THE PAYMENT-PROOF (BANK-STATEMENT) AND HE HAS VERIF IED THE SAME WITH BANKER. THE PAYMENT MADE IS AS FOLLOWS:- IN THE CASE OF PARTY PAYMENT MADE TO /ADATIYA CHEQUE NO. DATE AMOUNT M/S. STAR TRADERS M/S. KAMAL TEXTILE 025425 04/5/02 RS.1 26 000/- 025426 04/5/02 RS.1 36 500 TOTAL RS.2 62 500 WE FIND THAT THESE ARE THE PAYMENTS FOR PURCHASES A ND SAME IS BY A/C. PAYEE CROSSED CHEQUES AND THE CREDITORS IDENTITY IS ESTAB LISHED BY SUBMITTING LEDGER- ACCOUNT AND COPIES OF HIS SALES-BILLS. THAT THE ASS ESSING OFFICER HAS ALSO VERIFIED THE PAYMENT FROM THE BANKERS AND COMPLETE AND CORRECT D AY-TO-DAY STOCK OR INVENTORY RECORD IS MAINTAINED. PARTY-WISE STOCK STATEMENT IS TALLIED WITH REGISTER SALE BILL AND BOOKS OF ACCOUNT IN GENERAL. WE FIND THAT IN SIMILA R CIRCUMSTANCES THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ITO V. TOTARAM B SHARMA PROP.SUPER THERM IN TAX APPEAL NO. 1344 & 1355 OF 2008 VIDE JUDGMENT DATED 09-02-2010 HELD AS UNDER:- 10. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY MR. NAIK AND ALSO PERUSED THE ORDERS PASSED BY THE AUTHORITIES BELOW. FIRST OF ALL IT IS TO BE RECORDED THAT IN THE ORDER PASSED BY THE ASSESSING OFFICER THE ASSESSING OFFICER HAS STARTED THE DISCUSSION ON THE ISSUE OF BOGUS PURCHASES AND ULTIMATELY CAME TO THE CONCLUSION THAT THOUGH THE P URCHASES CAN BE SAID TO BE GENUINE THE PAYMENTS HOWEVER FOR SUCH PURCHASES WERE MADE BY THE ASSESSEE IN CASH WHICH IS UNACCOUNTED FOR. AS SUCH THERE IS NO BASIS FOR ARRIVING AT THIS CONCLUSION. THE CIT (APPEALS) HAS CONSIDERED THESE TRANSACTIONS OF PURCHASES WHICH ARE OF SMALL IN NA TURE AND ARRIVED AT PEAK OF RS.5 05 800/-. HOWEVER THE TRIBUNAL HAS MADE DETAI LED ANALYSIS OF THE FACTS AND AFTER MAKING CERTAIN PROPORTIONS WHICH ARE RELE VANT IN SUPPORT OF THESE TRANSACTIONS THE TRIBUNAL HAS RECORDED THAT THE PU RCHASES MADE BY THE ASSESSEE FROM FOUR DIFFERENT PARTIES ARE DULY RECOR DED PAYMENT FOR SUCH PURCHASES ARE ALSO FOUND TO BE RECORDED AND REVENUE HAS NOT DOUBTED THE GENUINENESS OF THE SALES RATHER HAS ACCEPTED THE S AME THERE IS NO ALLEGATION OF SUPPRESSION OF SALE PRICE OR SUPPRESS ION OF VALUE OF CLOSING STOCK EITHER QUANTITY-WISE OR VALUE-WISE AND THERE IS NO ALLEGATION OF INFLATION OF PURCHASES ALSO. THE TRIBUNAL THEREFORE CAME TO THE CONCLUSION THAT NO ADDITION CAN BE MADE ON EITHER OF THESE COUNTS AND THE PEAK ARRIVED AT BY THE CIT (APPEALS) IS ALSO NOT JUSTIFIED. 11. CONSIDERING THE ORDER PASSED BY THE TRIBUNAL W E ARE OF THE VIEW THAT THE FINDINGS RECORDED BY THE TRIBUNAL ARE BASED ON MERI T WHICH ARE ARRIVED AND AFTER DETAILED ANALYSIS OF PURCHASE AND APPRECIATIN G THE EVIDENCE ON RECORD WHICH CANNOT BE SAID TO BE THE BASIS OF ANY SUBSTAN TIAL QUESTIONS OF LAW. WE THEREFORE DISMISS BOTH THE APPEALS. ITA NO.2375/AHD/2007 A.Y.2003-0 4 ACIT CIR-6 SRT V M/S VIJAY PROCES PAGE 11 9. FURTHER THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ACIT V. AKRUTI DYEING & PRINTING MILLS PVT. LTD. IN TAX APPEAL NO. 997 OF 2008 VIDE JUDGMENT DATED 27-01-2009 BY REPRODUCING THE TRIBUNALS FINDING HE LD AS UNDER:- 4. THE TRIBUNAL HAS RECORDED THE FOLLOWING FINDINGS :- A-S20. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD WE FIND THAT A SEARCH OPERATION WAS CARRIED OUT ON SHRI ROHIT PANWALA AND HIS ASSOCIATES AND OTHER PROCEEDINGS WERE ALSO TAKEN AGAINST THEM WHEREIN SH RI ROHIT PANWALA STATED THAT HE USED TO PROVIDE ACCOMMODATION/FAKE BILLS AT THE REQUEST OF THE PARTIES. ON THE BASIS OF THIS THE AO HAS TREATED THE PURCHA SES MADE BY THE ASSESSEE FROM 3 PARTIES WHICH DO NOT INCLUDE ROHIT PANWALA F OR RS.7 21 950/- AS BOGUS. THE ASSESSEE CLAIMED THAT THE PAYMENTS TO THE PARTI ES WERE MADE BY ACCOUNT PAYEE CHEQUES AND AGAINST RECEIPT OF GOODS. WE FIND THAT THE REVENUE HAS BROUGHT NO MATERIAL ON ACCOUNT OF RECORD TO SHOW TH AT THE PURCHASES SHOWN BY THE ASSESSEE FROM THE AFORESAID 3 PARTIES WERE N OT GENUINE AND WHERE ACCOMMODATION/FAKE BILLS SHOWN BY THE ASSESSEE. NO STATEMENT RECORDED FROM THE ABOVE 3 PARTIES BY THE REVENUE WERE BROUGH T ON RECORD. WE FIND NO MATERIAL ON THE BASIS OF WHICH IT CAN BE ALLEGED TH AT THE ABOVE PARTIES ADMITTED THAT THE BILLS RAISED BY THEM AGAINST THE ASSESSEE WERE MERELY ACCOMMODATION BILLS. IN THE ABOVE CIRCUMSTANCES THE DISALLOWANCE MADE BY THE REVENUE ON THE BASIS OF SURMISES AND CONJECTURE S WITHOUT ANY POSITIVE MATERIAL ON RECORD. WE FIND NO MATERIAL ON THE BASI S OF WHICH IT CAN BE ALLEGED THAT THE ABOVE PARTIES ADMITTED THAT THE BILLS RAIS ED BY THEM AGAINST THE ASSESSEE WERE MERELY ACCOMMODATION BILLS. IN THE AB OVE CIRCUMSTANCES THE DISALLOWANCE MADE BY THE REVENUE ON THE BASIS OF SU RMISES AND CONJECTURES WITHOUT ANY POSITIVE MATERIAL ON RECORD. THEREFORE IN OUR CONSIDERED OPINION THE DISALLOWANCE MADE IS UNSUSTAINABLE. ACCORDINGLY WE DELETE THE ADDITION MADE AND ALLOW THE GROUND OF APPEAL OF THE ASSESSEE . THUS IT IS APPARENT THAT SO CALLED STATEMENT OF SH RI ROHIT PANWALA WAS RECORDED IN SEARCH PROCEEDINGS CONDUCTED AT PREMISE S OF SHRI ROHIT PANWALA. IT IS NOT EVEN THE CASE OF THE ASSESSING OFFICER TH AT IN THE SAID STATEMENT SHRI ROHIT PANWALA HAD ACCEPTED THAT HE HAD ISSUED FAKE/ COMMISSION BILLS TO THE ASSESSEE. THE EXTRACTED PORTION REPRODUCED HEREINBEFORE FROM THE ASSESSMENT ORDER INDICATES THAT ON THE BASIS OF GENERAL STATEMENT AN INFERENCE HAS BEEN DRAWN BY THE ASSESSING OFFICER BECAUSE POSSIBLY THE THREE CONCERNS FROM WHOM PURCHASES HAVE BEEN MADE BY THE ASSESSEE WERE MENTI ONED BY SHRI PANWALA IN THE COURSE OF HIS STATEMENT. THE TRIBUN AL HAS IN THIS CONTEXT RIGHTLY FOUND THAT THE SAID THREE PARTIES HAVE NOT BEEN EXAMINED AND IF EXAMINED THE STATEMENTS HAVE NOT BEEN BROUGHT ON R ECORD. THE TRIBUNAL HAS FURTHER FOUND THAT PAYMENTS WERE MADE BY ACCOUNT PA YEE CHEQUES AND AGAINST RECEIPT OF GOODS. IT IS IN THIS CONTEXT THA T THE TRIBUNAL HAS RECORDED THAT THERE WAS NO MATERIAL ON THE BASIS OF WHICH IT COULD BE ALLEGED THAT THE THREE PARTIES HAD ADMITTED THAT THE BILLS RAISED BY THE SAID THREE PARTIES AGAINST THE ASSESSEE WERE MERELY ACCOMMODATION BILL S. ITA NO.2375/AHD/2007 A.Y.2003-0 4 ACIT CIR-6 SRT V M/S VIJAY PROCES PAGE 12 5. IN LIGHT OF THE AFORESAID FINDINGS OF FACT RECOR DED BY THE TRIBUNAL UPON APPRECIATION OF EVIDENCE AVAILABLE ON RECORD IT IS NOT POSSIBLE TO ACCEPT THE CONTENTION OF THE APPELLANT THAT THE IMPUGNED ORDER OF TRIBUNAL SUFFERS FROM VICE OF PERVERSITY SO AS TO GIVE RISE TO A SUBSTANT IAL QUESTION OF LAW. ADMITTEDLY THE ORIGINALLY PROPOSED QUESTION DOES N OT ARISE FROM THE IMPUGNED ORDER OF THE TRIBUNAL. 10. IN VIEW OF THE ABOVE FACTS AND LEGAL POSITION A S ENUNCIATED BY HONBLE JURISDICTIONAL HIGH COURT THAT ONCE THE PAYMENTS AR E MADE BY ACCOUNT PAYEE CHEQUES AGAINST RECEIPTS OF GOODS AND EVEN THERE IS NO DEFECT IN THE BOOKS OF ACCOUNT AND THE PURCHASES AS WELL AS SALES ARE RECO RDED IN THE STOCK REGISTER AND EVEN THE MOVEMENT OF GOODS ARE ESTABLISHED BY THE A SSESSEE THE PURCHASES CAN NOT BE TREATED AS NON-GENUINE OR BOGUS. IN THE PRE SENT CASE ALSO THE ASSESSEE HAS PROVED THAT THE PAYMENTS ARE MADE BY ACCOUNT PAYEE CHEQUES AND THERE IS NO DOUBT FOR THE PURCHASE OF MATERIAL I.E. YARN AND CH EMICAL IN SUCH CIRCUMSTANCES THE PURCHASES ARE TO BE TREATED AS GENUINE. ACCORDINGL Y WE FINDINGS OF CIT(A) AND THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 11. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) IN DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDIT ION OF GP. FOR THIS THE REVENUE HAS RAISED THE FOLLOWING GROUND NO.4 :- [4] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DIRECTING TO DELETE THE ADDITIO N OF RS.2 34 453/- MADE ON ACCOUNT OF ESTIMATING GROSS PROFIT. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSI NG OFFICER HAS REJECTED THE BOOKS OF ACCOUNT U/S.145(3) OF THE ACT DUE TO FOLLOWING INCONSISTENCY:- 1. STOCK REGISTERS ARE NOT PRODUCED BEFORE THE AUD ITORS. 2. OVERWRITING IN THE STOCK REGISTERS WITH AN INTEN TION TO ACCOMMODATE/ADJUST THE QUANTITATIVE DETAILS. 3. ENTRIES MADE IN THE STOCK REGISTER OF YARN SUCH AS DELIVERY CHALLAN NO. IS NOT MATCHING WITH THE DELIVERY CHALLAN NUMBER OF TH E SELLER. 4. MOST IMPORTANTLY PURCHASE OF CHEMICALS AND YARN IS PROVED TO BE NON GENUINE IN THE CASE OF FOLLOWING PARTIES:- M.R. CORPORATION STAR TRADERS DHANLAXMI ENTERPRIS E YESH ENTERPRISE ABHI TEX. ITA NO.2375/AHD/2007 A.Y.2003-0 4 ACIT CIR-6 SRT V M/S VIJAY PROCES PAGE 13 WE FIND THAT THE ASSESSING OFFICER IN VIEW OF THE A BOVE REJECTED THE BOOK RESULTS AND ESTIMATED THE GP AT 5.2% BY APPLYING AVERAGE GP OF LAST TWO YEARS IMMEDIATELY PRECEDING THE YEAR UNDER CONSIDERATION AS AGAINST T HE DECLARED GP OF 4.2%. THE CIT(A) DELETED THE ADDITION BY ACCEPTING THE BOOK R ESULTS AS CORRECT BY GIVING FOLLOWING FINDING IN PAGE-6 & 7 OF HIS APPELLATE ORDER:- I HAVE CONSIDERED THE SUBMISSIONS AND HAD GONE THR OUGH THE DETAILS FURNISHED. IT IS SEEN THAT THE TURN OVER OF THE APP ELLANT HAS DECREASED COMPARED TO LAST YEAR AND THERE IS JUSTIFIED REASON S LIKE MACHINERY BREAK DOWN IN THE MONTH OF FEBRUARY FOR LOWER GP DURING T HE YEAR. HOWEVER THE AO HAS NOT CONSIDERED ALL THESE REASONS AND HAS SPECIF ICALLY RELIED ON THE BOGUS PURCHASES TO ESTIMATE A HIGHER GP. AS ALREADY HELD IN EARLIER PART OF THIS ORDER ALL THE PURCHASES WERE NOT BOGUS AND THEREFO RE THIS COULD NOT BE A REASON FOR REJECTION OF BOOK RESULTS. FURTHER THE ASSESSING OFFICER OBSERVATION THAT THE STOCK REGISTER WAS NOT PRODUCE D BEFORE THE AUDITORS IS NOT SUPPORTED BY ANY MATERIAL ON RECORD AND IS JUST A C ONJECTURE. THERE IS NO DRASTIC FALL IN GP COMPARED TO LAST YEAR WHICH COUL D JUSTIFY REJECTION OF BOOK RESULTS. THIS ACTION OF THE AO THEREFORE IS NOT SUS TAINABLE AND ADDITION ON ACCOUNT OF GP IS DIRECTED TO BE DELETED. 13. WE FIND THAT THE REVENUE HAS NOT CHALLENGED THE ACCEPTANCE OF BOOK RESULTS BY THE CIT(A) AND ONCE THE BOOKS OF ACCOUNT ARE ACC EPTED AS CORRECT ESTIMATED GP RATE CANNOT BE APPLIED. A SIMILAR VIEW HAS BEEN TA KEN BY THIS TRIBUNAL IN THE CASE OF JCIT V. SURESH SCRAP INDUSTRIES IN ITA NO.855/AHD/1999 DATED 02-05-2008 AND TRIBUNAL HAS HELD IN PARA-5 AS UNDER:- 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE MATERIAL ON RECORD ALONG WITH THE ORDER OF THE TAX AUTHORITIES. WE FIND THAT THE AO HAS REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED THE GROSS PROFIT OF THE ASSESSEE. THE ASSESSEE WENT IN APPEAL BEFORE THE CI T(A) CHALLENGING THE ACTION OF THE AO OF REJECTING THE BOOKS OF ACCOUNTS AND ALSO ESTIMATION OF GROSS PROFIT. THE CIT(A) FOUND THE ACTION OF THE AO ABOUT REJECTION OF THE BOOKS OF ACCOUNTS TO BE UNJUSTIFIED AND DIRECTED TH E AO NOT TO REJECT THE BOOKS OF ACCOUNTS U/S.145 OF THE ACT. EVEN HE HELD THAT IT IS NOT OPEN TO THE AO TO MAKE ESTIMATE WITHOUT THE BASIS WHEN THE BOOK S OF ACCOUNTS REPRESENT CORRECT AND TRUE PICTURE. THE REVENUE HAS ALTHOUGH CHALLENGED THE DELETION OF THE ADDITION ON ACCOUNT OF FALL IN THE GROSS PROFIT BUT DID NOT TAKE ANY GROUND AGAINST THE DIRECTION OF THE CIT(A) NOT TO REJECT T HE BOOKS OF ACCOUNTS U/S.145. IN VIEW OF THESE FACTS WE DO NOT FIND ANY ILLEGALI TY OR INFIRMITY IN THE ORDER OF THE CIT(A) AS IN THE ABSENCE OF REJECTION OF BOOKS OF ACCOUNTS THE AO IN OUR OPINION CANNOT MAKE ANY ADDITION IN THE GROSS PROF IT SHOWN BY THE ASSESSEE. WHICH WAS AFFIRMED BY HONBLE JURISDICTIONAL HIGH C OURT IN TAX APPEAL NO.1979 OF 2008 VIDE JUDGMENT DATED 02-03-2010 IN PARA-6 HELD AS UNDER:- 6. THE ENTIRE APPEAL PROCEEDS ON A MISCONCEPTION. EXERCISE OF POWERS UNDER SECTION 145 OF THE ACT CANNOT BE AN ASPECT OF GROSS PROFIT ADDITION BUT IT IS ITA NO.2375/AHD/2007 A.Y.2003-0 4 ACIT CIR-6 SRT V M/S VIJAY PROCES PAGE 14 THE OTHER WAY ROUND. ONLY AFTER BOOKS OF ACCOUNTS H AVE BEEN REJECTED FOR ANY OF THE REASONS PROVIDED BY SECTION 145 OF THE ACT W OULD THE ASSESSING OFFICER BE ABLE TO MAKE ESTIMATE OF PROFITS. EVEN ON FACTS WHEN ONE CONSIDERS THE SUBMISSIONS MADE BY THE DEPARTMENTAL REPRESENTATIVE BEFORE TRIBUNAL AS RECORDED IN PARAGRAPH NO.3 OF THE IMPUGNED ORDER DA TED 02 ND MAY 2008 IT BECOMES CLEAR THAT AT NO STAGE WAS IT EVER URGED TH AT COMMISSIONER (APPEALS) HAD WRONGLY CANCELLED REJECTION OF BOOKS OF ACCOUNTS. EVEN OTHERWISE IN THE PRESENT CASE THE ONLY REASON FOR REJECTION OF BOOK RESULTS IS LOW GP WHICH IS VERY VAGUE IN THE ABSENCE OF ANY F INDING REGARDING ANY DEFECT IN THE BOOKS OF ACCOUNT. ONE MORE CONTRADICTION IN THE ORDER OF THE ASSESSING OFFICER IS THAT ON ONE HAND THE AO RECORDS THAT STOCK REGISTER S ARE NOT PRODUCED AND ON THE OTHER HAND HE RECORDS THAT THERE IS OVERWRITING IN THE STOCK REGISTERS WITH AN INTENTION TO ACCOMMODATE/ADJUST THE QUANTITATIVE DETAILS. IN VIEW OF THE ABOVE THERE IS CLEAR CONTRADICTION IN THE ORDER OF THE AO FOR REJECTION OF BOOK RESULTS. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES RESPECTFULLY FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT WE CONFIRM THE ORDER OF CIT(A) DELETING THE ADDITION. 14. IN THE RESULT REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 09/07/2010 SD/- SD/- (A.N.PHAUJA) (MAHAVIR SINGH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD DATED : 09/07/2010 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE 2. THE DEPARTMENT. 3. THE CIT(APPEALS)-IV SURAT 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD