VINIPUL INORGANICS FOODS PRIVATE LIMITED,CHEMBUR, MUMBAI vs. INCOME TAX OFFICER WARD 14 (3) (2), MUMBAI, MAHARSHI KARVE ROAD, MUMBAI

O R D E R Per N.K. Choudhry (JM): These appeals have been preferred by the Assessee against the independent orders even dated 02/06/2023 impugned herein passed by the National Faceless Appeal Centre (NFAC) Delhi/ Ld. Commissioner of Income tax (Appeals) [in short, Ld. Commissioner (Appeals] under section 250 of the Income-tax Act, 1961 (in short, the Act) for the A.Ys.2009-10 & 2010-11.

2 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd 2. Since both the appeals carry identical addition under section 69C of the Act, hence we heard both the appeals together and the same are being disposed of by this common order. for A.Y. 2010-11 is being treated as the lead case. this case, the Assessee company for the assessment year 20010-11 , declared total income of Rs.16,31,260/- by e-filling its return of income on 28/09/2010, which was processed under section 143(1) of the Act . Subsequently information was received by the AO from the Sales- tax Authorities, Mumbai regarding certain parties who were engaged in the activity of issuing accommodation bills without actually supplying the goods and the Assessee Company had also made purchases from some of these bill racketeers. The assessment of the Assessee for the assessment year 2010-11 was accordingly reopened under section 147 of the I.T. Act, 1961 by issuing the notice under section 148 with the prior approval of erstwhile Addl.CIT-10(2), Mumbai. Vide order dated 25-03-2014 under section 143(3) read with section 143(3) read with section 147 of the I.T. Act, the re-assessment assessing the total income at Rs.4,76,14,520/- was completed.

4. The Assessee carried the matter before the then CIT(A), who partly allowed the appeal by holding as under:- “Following the above decision of the Hon’ble Gujarat High Court that “not the entire purchase price but only the profit element embedded in such purchases can be added to the income of the assessee, “the addition of Rs.4,59,83,257/- made by the Assessing Officer on account of bogus purchases is confirmed to the extent of 12.5% which will sufficiently cover 3 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd the profit element embedded in such purchases and subsequent manufacturing and sales. The appellant’s grounds of appeal on this issue are partly allowed.”

5. Against the order of the then CIT(A), the Assessee and Department filed respective appeals before the ITAT and raised the issue of restricting the addition of Rs. 4,59,83,257/- made on account of bogus / unproved purchases to the extent of only the profit of 12.5% of the said purchases. The Tribunal set aside the order of the CIT(A) and restored the matter to the file of the Assessing Officer to make a fresh assessment after examining the concerned parties and giving opportunity of cross examination to the Assessee.

6. In the second round of assessment proceedings, the assessing officer asked the Assessee to furnish the addresses of 16 parties from whom the alleged purchases have been made and also the relevant evidences to prove the genuineness of the purchases. On receipt of the addresses of the parties from the Assessee, summons under section 131 were issued to 6 parties out of 16 parties, but the same were returned un-served by the postal authorities. The Assessing Officer thereafter, many times asked the Assessee to provide latest addresses of the parties or to produce all the 16 parties for cross examination as has been directed by the ITAT. The AO also fixed the schedule for cross examination of such parties. The Assessee, however, neither provided the latest addresses of such parties nor produced them for cross examination and even otherwise the Assessee also failed to produce evidence of delivery of goods such as transporter receipt with delivery challans, lorry Nos. etc. to establish that goods from those parties were actually and physically delivered to 4 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd the Assessee Company, therefore the Assessing Officer considering the facts and circumstances in totality repeated the addition of the entire bogus purchases to the tune of Rs.4,59,83,257/- u/s 69C of the Act, by passing the Assessment order dated 07-12-2019 under section 143(3) read with section 254 of the I.T. Act, 1961.

7. The Assessee challenged the said addition by filling first appeal before the CIT(A), however could not succeed, as the Ld. Commissioner confirmed the addition by impugned order. Further aggrieved, the Assessee is in appeal before the Tribunal.

8. Ld. Counsel of the Assessee at the outset mainly claimed that the Assessing Officer inspite of directions by the Hon’ble Co-ordinate Bench of the Tribunal dated 30/01/2018 failed to give an opportunity of cross examination to the Assessee and, therefore, the assessment order itself is liable to be quashed and / or has to adhere to the directions of the higher Judicial Form. The Assessee also relied on a slew of judicial precedents to buttress its point that failure to produce parties for cross examination amounted to violation of principles of natural justice and, therefore, the order rendered by the Assessing Officer stands vitiated. The Assessee also claimed that in any case the addition is un-sustainable.

9. On the contrary the Ld. DR vehemently supported the orders passed by the authorities below. 10. Heard the parties and perused the material available on record. We observe that the Assessing Officer in order to adhere with the directions of the Hon’ble co-ordinate bench of the Tribunal issued summons under section 131 of the Act to the parties from whom 5 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd Assessee had allegedly made the purchases. However, notices were returned un-served as the parties were not available at the addresses given by the Assessee. Since the summons issued to the parties were return un-served, therefore, the AO requested the Assessee to furnish the latest addresses of such parties or to produce the parties in person in order to provide the opportunity of cross examination to the Assessee. However, the Assessee blindly expressed its inability to produce the said parties and, therefore, in the constrained circumstances, the Assessing Officer passed the assessment order. As the notices issued to the parties from whom the Assessee had made alleged purchases, in fact returned un-served, which goes to show that the alleged suppliers were not available at the addresses given by the Assessee and even the Assessee has also failed to produce the latest addresses of the parties and shown its inability, therefore, the question of cross examination does not arise at all. The Assessee is also under the obligation to substantiate its claim by producing the relevant documents and by producing the relevant parties with whom the transactions have been made and until and unless the Assessee discharges its onus, the transactions remained un-substantiated. Unless and until the Assessee discharges its obligations, it cannot claim its right. Hence, in our considered view, in the constrained circumstances, the Assessing Officer was unable to afford the opportunity of cross examination of the witnesses/alleged sellers unless and until they appear before the Assessing Officer. It is also an admitted fact that during the survey proceedings, the statement of the director of the Assessee company was recorded on oath, wherein he clearly stated that no records for purchase of goods such as inward register, stock delivery register, stock inventory 6 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd register, etc. were maintained on account of non affordability to maintain regular staff. It is also a fact that auditor has also in the audit report clearly mentioned that no stock register was maintained during financial year 2010-11 and 2011-12. The Assessee also failed to produce evidence of delivery of goods such as transporter receipt with delivery challans, lorry Nos. etc. to establish that goods from those parties were actually physically delivered to the Assessee Company. Therefore, on the aforesaid analyzations, we are in concurrence with the determination made by the authorities below that the Assessee has defaulted in discharging the primary onus of proving the genuineness of the alleged bogus purchases and consequently the alleged purchases are correctly held as bogus by the authorities below. However, coming to the addition made by the authorities below wherein they have considered entire amount of the alleged bogus purchases to the tune of Rs.4,59,83,257/- as unexplained expenses and added the same to the alleged bogus purchases under section 69C of the Act, we observe that various courts have dealt with the identical issue and wherein the sale has been accepted then the entire bogus purchases cannot be subjected to the disallowance /addition. In fact, the profit element embedded in the alleged bogus purchases can be considered for disallowance/addition. The Assessee, in support of aforesaid dictum relied upon various judgments including by the Hon’ble co-ordinate bench of the Tribunal in the case of M/s Ratnagiri Stainless Pvt Ltd vs ITO, Mumbai (ITA No.4463/Mum/2016 decided on 4th April, 2017, which in our considered opinion seems to be most relevant, in the facts and circumstances of this case. In the said case, the Hon’ble co-ordinate bench dealt with the identical issue, wherein the notices under section 133(6) of the Act issued by the Assessing 7 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd Officer to the alleged bogus parties were either returned unserved or were not replied to and the assesses also on being specifically asked, failed to file the documents for showing the evidence qua movements of goods from supplier to the Assessee and from Assessee to the customers. Therefore, the Hon’ble Bench came to the conclusion that primary onus cast on the Assessee itself did not discharge by the Assessee. Though the Hon’ble Bench affirmed the action of the Assessing Officer in determining the bogus purchases, however, ultimately adopted the GP rate on alleged bogus purchases @12.5% of the alleged bogus purchases and granted the credit of GP ratio declared on the bogus purchases in the return of income filed with the revenue. For clarity and ready reference, we extract below the relevant portion of the order of the co-ordinate bench:- “11. Now, coming to the merits of the case, we have observed that the assessee is dealing in the business as supplier in ferrous and non-ferrous. The genesis of the case is the Information which was received by the A.O. from DGIT (Inv.), Mumbai that there are some parties who are engaged in hawala transactions and are involved in issuing bogus bills for sale of material without delivery of goods, which information was based on information received from Maharashtra Sales Tax Authorities that the assessee is beneficiary of hawala/accommodation entries for bogus purchases from 28 entry providers to the tune of Rs. 2,39,83,261/- from these accommodation entry providers . The accommodation entry providers had deposed and admitted before the Maharashtra Sales Tax Authorities vide their statement/affidavits that they were engaged in providing bogus accommodation entries where in bogus sale bills were issued without delivery of goods , in consideration for commission. These accommodation entry providers , on receipt of cheques from the parties against bogus bills for sale of material , later on withdrew cash from their bank accounts which was returned to beneficiaries of bogus bills after deduction of their agreed commission . The assessee was stated to be one of the beneficiaries of these bogus entries of 8 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd sale of material by these 28 hawala entry operators in favour of the assessee to the tune of Rs.2,39,83,261/- , wherein the assessee made alleged bogus purchases to the tune of Rs.2,39,83,261/- through these bogus bills issued by hawala entry providers in favour of the assessee. These dealers were surveyed by the Sales Tax Investigation Department whereby the directors of these dealers have admitted in a deposition vide statements/affidavits made before the Sales Tax Department that they were involved in issuing bogus purchase bills without delivery of any material. There is a list of 28 such parties wherein the assessee is stated to be beneficiary of bogus purchase bills to the tune of Rs.2,39,83,261/-. It was observed by AO that these parties just issue bogus bills in lieu for earning commission without actual supply of goods. In an sworn Affidavit Cum Declaration filed before Sales Tax Investigation Branch, Mumbai and in deposition before the Assistant Commissioner of Sales tax, Investigation Branch, Mumbai ,the directors of the said 28 entities have admitted of issuing only invoices for sake of entry without delivery of goods. The Directors of the said 28 entities stated in their sworn affidavit that they had only supplied bills on receipt of cheques and later on cash was withdrawn from banks and after deduction of agreed commission, balance money was returned in cash to the assessee. The details of the aforesaid bogus parties from whom the assessee is stated to have purchased material are as under:- ASHTAVIYAK SALES AFWPN2169J 2008-09 21,194 AGENCY STELCO STEEL AFYPJ0025K 2008-09 371,948 INDUSTRIES RELIANT METAL ALAPR6303A 2008-09 468,667 CORPORATION PADMAVATI METAL & AFSPJ4124P 2008-09 556,674 ALLOYS JINESH METAL ARDPK1291P 2008-09 48,140 CORPORATION RATNAJYOTI METAL & AADCR3441A 2008-09 135,742 TUBES PVT. LTD ANIKET STEEL PVT. LTD AAGCA0417J 2008-09 779,845 RELIABLE METAL (INDIA) AJNPD6596Q 2008-09 957,436 TYSON STEEL AND AACCT9481B 2008-09 1,131,749 TUBES PRIVATE LIMITED VIGNESHWAR IMPEX ARDPK1294J 2008-09 1,133,295 RISHAB METAL (INDIA) AACPJ6417C 2008-09 115,2573 RAMANI METAL AIRPD5688A 2009-09 115,573 9 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd CORPORATION POOJA METAL & ALLOYS ACYPC4975E 2008-09 793,199 MAZDA STEEL TRADE AAECM1196L 2008-09 49,462 PVT. LTD ARIHANT TRADE LINAK BDRPS0342C 2008-09 320,881 TAMAS STEEL & ALLOYS AACCT1556F 2008-09 1,122,116 PVT LTD KANK STEEL (INDIA) AFYPB6058G 2008-09 1,351,280 WEL STEEL (INDIA) AHZPD3657L 2008-09 2,651,855 TAKSHIL TRADING PVT. AABCT5406H 2008-09 112,829 LTD RAJESHWARI TRADING AACCR7829M 2008-09 2,569,340 PVT. LTD RANAKPUR SALES BABPS6817D 2008-09 198,640 CORPORATION RAJESHWARI TRADING AACCR7829M 2008-09 2,569,340 PVT. LTD RANAKPUR SALES BABPS6817D 2008-09 198,640 CORPORATION ELECON IMPEX PVT LTD AABCE233E 2008-09 246,395 NAVRATAN METAL IMPEX AABCE6233E 2008-09 246,395 PRIYA STEEL CORPN AKCPD1838M 2008-09 530,244 VANDNA METAL AEWPJ3208B 2008-09 833,173 SYNDICATE POOJA STEEL & ALLOYS ACSPC2231P 2008-09 1,369,290 NAVODAY TRADE IMPEX AACCN3641F 2008-09 2,024,972 PVT LTD VISHESH STEEL AXVPS3398H 2008-09 3,586,202 SUPPLIERS Notices u/s.133(6) of the Act were issued by the AO to all the above 28 parties. All these notices except one notice were either returned un-served or were not replied to. Only one party namely M/s Ranakpur Sales Corporation, categorically stated that they have not supplied any material to the assessee concern. The A.O. asked the assessee to produce the parties but the assessee failed to produce the parties. The parties were not produce even before learned CIT(A) . The assessee also failed to produce suppliers, transporters or brokers before the AO for verification and enquiry. The assessee did not ask for the cross examination of Ranakpur Sales Corporation. The assessee was specifically asked to produce original bills and vouchers, all original documentary evidence of movement of goods for verification, details and documentary evidence of delivery challans, 10 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd vehicle numbers, weighment slips, details of godowns, details of octroi payment etc. . However, the assessee did not produce the original documents before the A.O. . The assessee also did not file documents for showing movement of goods from supplier to assessee and from assessee to customer as evidence although it stated in its reply that said documents are being filed. The assesee did not submitted documentary evidence to show that there was movement of goods. The AO observed that the assessee filed delivery challan in one case only and that too there was no mention of transportation details. It was observed that the assessee has not submitted confirmations from these parties nor transportation details of the material purported to be purchased from these suppliers were furnished . Statement of purchase and sales showing name of the supplier and customers, date of purchase and sales , quantity purchased and sold to show one to one co- relation between purchases and sales were submitted by the assessee before the AO. The assessee also submitted VAT audit report. It was submitted that sales are fully vouched and without purchases, there cannot be sales and hence all purchases are genuine. The stock register for full year and ledger copy of the suppliers were also submitted and the assessee was able to quantitatively reconcile the sale and purchase of material. The assessee has also made the payments for these purchases through cheque for which evidence has been produced. It was submitted that there was no cash deposit in the bank and the payments have been made by the assessee to selling parties by account payee cheques. . It was held by authorities below that since the assessee had made sales which were duly quantitatively reconciled by the assessee with purchases , the purchases were made by the assessee but the same were made at low price from grey market and to cover deficiencies in documents, invoices were obtained from these 28 suppliers who issued bogus bills to the assessee without supplying any material. Thus, the AO held that the assessee failed to prove the onus cast upon it to prove that purchases to the tune of Rs. 2,39,83,261/- made by the assessee were genuine purchases , which were held by the authorities below to be bogus purchases as no material was supplied to the assessee by these suppliers which material in-fact was purchased from grey market at lower price which led to higher margin of profits which need to be estimated and added to the income of the assessee . The learned CIT(A) confirmed the additions.

11 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd These are information which are especially in the knowledge of the assessee and the onus is on the assessee to prove that purchases are genuine as these purchases are recorded in the books of accounts of the assessee. Section 106 of Indian Evidence Act ,1872 clearly stipulates as under: “106. Burden of proving fact especially within knowledge When any fact is especially within the knowledge of any person, the burden of proving that fact is upon him. Illustrations (a)**** (b) A is charged with traveling on a railway without a ticket. The burden of proving that he had a ticket is on him.” The assessee was not able to discharge burden cast u/s 106 of 1872 Act as the assessee did not produce the original documents before the A.O. . The assessee also did not file documents for showing movement of goods from supplier to assessee and from assessee to customer as evidence although it stated in its reply that said documents are being filed. The assesee did not submitted documentary evidence to show that there was movement of goods. The assessee filed delivery challan in one case only and that too there was no mention of transportation details. The assessee did not file confirmations from these parties nor transportation details of the material purported to be purchased from these suppliers were furnished . The parties were also not produced before the authorities below. The only party who responded to notice u/s 133(6) of 1961 Act issued by the AO namely Ranakpur Sales Corporation deposed against the assessee. The assessee did not ask for cross examination of Ranakpur Sales Corporation who appeared before the AO in response to notice u/s 133(6) of 1961 Act and deposed against the assessee by confirming that bogus bills were issued by them in lieu of commission while no material was supplied against bogus invoices raised by them. The right of cross examination is not absolute. The assessee has to first discharge its primary onus cast under law and if the same stood duly discharged which is not rebutted by authorities , but despite that then also the authorities proceed to put assessee to prejudice solely relying on the basis of incriminating statement recorded of third party at the back of the assessee, then certainly the right to cross examination the said third party whose incriminating statement recorded at the back of the assessee is relied upon by authorities to prejudice the assessee will become absolute. But in the instant case , primary onus cast on the assessee itself did not stood discharged by the assessee as discussed above. The A.O. made gross profit additions @ 12.5% over the 12 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd total bogus purchases of Rs. 2,39,83,261/- , which were held to be non-genuine by the authorities below, which addition came to Rs. 29,97,908/- which addition was confirmed by the learned CIT(A). . In such circumstances ,GP ratio needs to be estimated which definitely involved some estimation/guess work but the said estimation/guess work should be fair , honest and rational keeping in view factual matrix of the case and cannot be arbitrarily applied at the discretion of authorities . We have gone through the case laws relied upon by the assessee. Reference is drawn to decision of Hon’ble Supreme Court in the case of Kachwala Gems v. JCIT (2007) 288 ITR 10(SC) , wherein Hon’ble Lordships held as under : “4. The facts of the case are in a short compass. The appellant- assessee deals in precious and semi-precious stones. In the course of assessment, the Assessing Officer noticed the following defects in the books of account of the assessee : "1. The assessee has not maintained and kept any quantitative details/stock register for the goods traded in by the assessee.

13 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd

16 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd 11. In view of our decision in the appeal pertaining to AY 2009-10 i.e. I.T.A. No.2509/Mum/2023 is also partly allowed in the same terms.