Draft letter in response to bogus purchase

To,

The Assessing Officer,

Dear Sir,

Name                   :

Assessment Year : 20  -20

PAN no.               :

Subject                : Submission of details

Sir,

With reference to the captioned, we hereby are submitting following details for your perusal.

1.   Genuiness of Purchase from M/s. _______________ and

M/s. __________________:

           The Purchase was made from the said party whose address is as per details given in the purchase bill.

Further to our submission on documents, we hereby submit as under:-

         Reason to Reopen         

1. In the first place, it is pertinent that the name of the selling dealer is placed on the Mahavat list only as a ‘suspicious’ dealer i.e. a person who is suspected for issuing fake bills without selling the goods. The law on reassessment is clear to the effect that an assessment can be opened only if the Assessing Officer has reasons to believe that income of the Assessee has escaped assessment. The formation of this belief is a jurisdictional condition and its absence can vitiate the re-assessment proceedings. The Court would be entitled to quash the reassessment proceedings if the reasons to believe are non-existent. The reasons must be genuine and not a pretence. An assessment cannot be re-opened on mere suspicion. After all, ‘reason to believe’ is not the same thing as ‘reason to suspect’.

1. The decision of the Supreme Court in the case of Sheo Nath Singh v. AAC (1971) 82 ITR 147 is a good authority for the proposition that an assessment cannot be re-opened on the basis of mere suspicion. Based on this decision, thus the reassessment proceedings cannot be initiated on the basis that the seller is found to be a ‘suspicious dealer’ on the Mahavat list.

1. Further, a general confession by a person that all his transactions are bogus or that he has indulged only in bogus transactions cannot be basis for re-opening the assessment of an Assessee who has transactions with this person. This is more particularly so when the Assessee has not been specifically named in the confession.

1. Also non production of the parties does not meant non existence of the parties , as these parties have made purporated declaration to various Sales Tax and Income Tax Authorities 

      Purchase of Materials: 

1. The transactions were supported by proper documentary evidences that the payments made to the parties by the Assessee were in confirmation with bank certificate (bank statement). That the suppliers were shown as default under the Maharashtra VAT Act could not be sufficient evidences to hold that the purchases were non-genuine. The party might not have paid sales tax for its own reasons. Therefore, to treat amount paid to said party as bogus is totally wrong. 

1. The sample bills submitted contained TIN numbers of the vendors. The same were verified in the Maharashtra sales tax department official website www.mahavat.gov.in the suppliers were registered dealers and were carrying proper VAT and registration No. Non traceability of vendors does not mean that the parties are not genuine.

1. The Purchase from the said parties are in facts lower and/or at same price from which the Assessee had purchase from other suppliers.

1. The Materials Purchased has been recorded in Stock and Excise record. The Trading activities is backed by detailed quantitative particulars

1. The Assessee  had produced Assessee produced gate pass, avak chitti (receipt note) and weight note and Lorry Receipts (L.R.Copy)

1. Payments were delayed or not made due to following reasons :

• The vendor/parties had give credit facility
•  in some cases the payments were   with held due to non realization of  sale proceed
• Defective (not as per specification provided) goods supplied and the final settlement with our buyers is pending and the vendors account is unsettled.

      Sales of Materials        

1. The materials purchased from the parties had been sold to various parties (as per details statement attached herewith). Copy of Ledger account and confirmation of the parties to whom it was sold is attached herewith.

• The Assessee had produced Production/Consumption records, which clearly shows that the materials purchased were consumed and goods produced, were sold to different parties after paying excise. The Yield and input- output ratio are in line with Past records and even within the year under consideration

1. It was also argued that some of the material purchased from the said parties were lying part of closing stock as on 31.03.2009 as per the statement submitted on record. In such case there is no impact on profitability of the Assessee .In such a case there no expenses debited to profit & Loss account and as such the question of disallowing the same and adding the same to income would not arise.

• The architect had confirmed about use of materials in the Job / Construction work done by Assessee. Which in turn establish the use of materials.

• All the transactions of purchase and sales were duly recorded in books of account. All these years accounts of the Assessee was Audited and relevant record filed before appropriate applicable statutory authorities.

1. If Sales were genuine , Purchase must be genuine

      Other  

1. Attention to your goodself also invited to the facts that Assessment order u/s. 143(3) pertaining to  Assessment year  200__-__ was also passed by Assessing Officer (Copy of the Asst Order Attached)

1. The Profitability of the Assessee since last three Assessment year are tabulated as under :

1. Considering above facts and justification , it is clear that assessee  had not purchased for  inflating expenses and there by reducing profit .In the instant case the profitability has been improved/stable in consistency with past  trend.

1. Inspite of these submissions / explanations , your goodself still had any issue about admissibility of the said expenses , we request you to provide documents / Statements  / affidavit on the basis of which your goodself had came to the conclusion that the said purchase is bogus

Without prejudice we submit the following documents :

1. the Bank Statement evidencing payment made through A/c Payee cheque  to the party
2. Invoice Bill Copy.
3. Ledger account of the party in our books
4. Company is following Net Method of Accounting and;

So actual expenses debited to profit & loss account is net of vat which is Rs 300000/= and not Rs 337500/= as per your letter.

1. In the notice it is stated as  M/S. XYZ Enterprises and in our bill it is WXYZ  Enterprise

Based on statements / affidavit or such other evidence on which your goodself had relied upon to come to conclusion that purchase from said parties are bogus , we will make further submission / representation to your goodself

Following Judicial Pronouncement relied upon:

(i)       CIT v Nikunj Eximp Enterprises Pvt. Ltd. (Bombay High Court) (ITXA No. 5604 of 2010—judgment dated 17 December 2012). (Corresponding ITAT decision ITA No. 8994/M/04—order dated 30 April 2010).

(ii)      Babulal C. Borana v ITO [2006] 282 ITR 251 (Bom);

(iii)     CIT v M. K. Bros. [1987] 163 ITR 249 (Guj);

(iv)     CIT v Adinath Industries [2001] 252 ITR 476 (Guj) (Department’s SLP       dismissed by the Supreme Court—[2001] 247 ITR (St) 35);

(v)      CIT v Hi Lux Automotive (P.) Ltd. [2009] 23 DTR (Del) 385;

(vi)     Balaji Textile Industries (P.) Ltd. v ITO [1994] 49 ITD 177 (Mum);

(vii)    ITO v Permanand [2007] 107 TTJ (Jd) 395;

(viii)   ITO v Ghanshyam Steel Traders [1999] 107 Taman 126 (Ahd) (Mag);

(ix)     G. G. Diamond International v Dy. CIT [2006] 104 TTJ (Mum) 809;

(x)      Asstt. CIT v Kishan Lal Jewels (P.) Ltd. [2012] 147 TTJ (Del)

308;

(xi)     Rajesh P. Soni v Asstt. CIT [2006] 100 TTJ (Ahd) 892;

(xii)    Sagar Bros. v ITO [1996] 56 ITD 561 (Kol); and

(xii) COMMISSIONER OF INCOME TAX vs. VIJAY M. MISTRY CONSTRUCTION LTD

Thanking you,

Yours truly,

(This being Personal View of Author , Members requested to apply points based on applicability of their cases)