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Income Tax Appellate Tribunal, ‘D‘ BENCH
Before: SHRI AMIT SHUKLA & SHRI, GAGAN GOYAL
आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been filed by the Revenue against the order dated 18/04/2023 passed by NFAC, Delhi for the quantum of assessment passed u/.143(3) r.w.s. 147 for the A.Y.2011-12. 2. In the grounds of appeal, Revenue has raised the following grounds:-
1.On the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred to delete the addition made on disallowance of RS.2,51,76,570/- being purchase made from the M/s SAR Engineering Ld which is a suspicious entity 2.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred to decide against the Ld AO for violation of principles of natural justice whereas the AO has followed the due process of law.
3. On the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred to held that the transaction done through account payee cheque are genuine whereas assessee itself vide affidavit dated 22.09.2009 admitted that certain purchases of DFIA/DFRC licenses from three parties during AY 2008-09 to 2010-11 may not be considered genuine purchases even when it was done through account payee cheque and purchase were duly reflected in the books of account 4."On the facts and in the circumstances of the case and in law, the CIT (A) has erred to decide against the Ld AO without providing an opportunity of being heard when admitting additional ground."
5. The appellant craves leave to amend or alter any ground or add a new ground that may be necessary at the time of hearing."
Thus, in the grounds of appeal Revenue has challenged the deletion of addition made on disallowance of Rs.2,51,76,570/- being purchase made from M/s. SAR Engineering Ltd.; and secondly, ld. CIT(A) has erred in deciding against the AO without providing an opportunity of being heard when admitting the additional ground.
M/s. Mota Trading Pvt. Ltd.
The brief facts are that assessee has filed return of income on 28/09/2011 declaring total income of Rs.95,29,250/-. Thereafter, assessee’s case was reopened u/s.147 and notice u/s.148 was issued on 31/03/2017. The reasons recorded by the ld. AO reads as under:- “ M/s. Mota Trading Private Limited filed its return of income for A.Y 2011-12 on 28.09.2011 declaring Income of Rs. 95,10,770/- . The same was processed u/s 143(1) on 21.02.2012. Subsequently, the assessment u/s. 143(3) was completed on 06.01.2014 assessing total Income at Rs.95,29,250/- In this case information was received from the Dy. DIT (Inv.) Unit-6(3), Mumbai on 10.03.2017 2. In the instant case certain investigation had been undertaken by the Dy DIT (Inv.) Unit-6(3), Mumbai in the case of an entity named M/s. SAR Engineering Ltd. (PAN: AAFCS18360) in connection with certain transaction in the bank Account No. 026105700353 of the said entity maintained with ICICI Bank, Zaveri Bazar, Mumbai.
3. To ascertain the nature and purpose of the transactions, enquiry was sought to be conducted by issuing Summons under section 131 dated 03.09.2014 to M/s. SAR Engineering Limited on the address as per the latest Return of Income and as per MCA database, i.e,, "7, Prembhavan, 2nd Floor, 234/236, Narsi Natha Street, Masjid (W), Mumbai-400 009". The same was returned back with the remarks "closed". Further, Summons was issued on 21.01.2015 on the address as per PAN database, i.e, "Shop No.1, Adj. Ratna Silk Mills, Parsi Panchayat Road, Andheri (E), Mumbai". The same was also returned back with the remarks "Not Know". Another address of the subject entity from open sources was gathered to be "69, Hasti Industrial Premises, Plot No. R-798. TTC Industrial Area, Village Mahape, Navi Mumbai-400 710". 4.To further investigate, field enquiries were conducted by the Inspector of Income-tax by visiting all the three address of the subject and it was found that there is no business entity named M/s. Mota Trading Pvt. Ltd. M/s. SAR Engineering Ltd. running from any of the premises. Thus, the subject company was not traceable on all available addresses. Further, Summons were also issued for the main Director in the subject company Shri Anil Raghavan on his available address (A-404, New Arihant CHS, Manpada Raod, Dombivali East, Thane-421201 and 19-340, MHB Colony, Meghwadi, Jogeshwari East, Mumbai-400 060), which were also unserved.
On examination of the Bank Statement of the reported Account of M/s. SAR Engineering Ltd. it is seen that amount of Rs.1,07,04,569/- is received from Mota Trading Private Limited in F.Y.-2010-11, which represents purchase/expense booked by Mota Trading Private Limited from SAR Engineering Ltd.
In view of the inquires conducted, M/s. SAR Engineering Ltd. appears to be a non-genuine entity and accordingly, the purchase/expenses booked by Mota Trading Private Limited from this entity are prima-facie non-genuine.
The information received was examined along with return of income of the assessee. In view of the above facts and circumstances of the case, I have reason to believe that the income of the assessee M/s. Mota Trading Private Limited chargeable to tax for the AY. 2011-12 amounting to at least Rs.1,07,04,569/- has escaped assessment due to failure of the assessee to disclose fully and truly all material facts necessary for the assessment in this case in terms of the provisions of section 147 of the IT Act.
Thereafter, assessee raised objection against reopening vide letter dated 26/08/2017 and the same was rejected by the ld. AO vide letter dated 19/09/2017. The ld.AO noted that assessee has entered into transaction in M/s. SAR Engineering Ltd. which is a suspicious entity. In response to the show-cause notice, assessee submitted all the details of purchases made by the assessee including tax invoice, ledger account of the assessee M/s. Mota Trading Pvt. Ltd. and ledger account of the party, bank statements, VAT returns etc. The ld. AO sent notice u/s. 133(6) to the said party calling for the details, however, no reply was received till the passing of the assessment order. The ld. AO rejected assessee’s submissions and the documents after observing and holding as under:-
4.3 The assessee's submission have been thoroughly considered. On the basis of these submission and reply, following are the note- worthy points required to be deliberated while framing the assessment of the assessee: A. The main contention of the assessee company is that it has made payment by cheque only and the transaction of licenses is duly accounted in the books of the assessee. However, it has been noticed that the assessee company was subjected to survey action u/s. 133A of the I.T. Act on 08.09.2009. During the survey, the assessee company vide affidavit dated 22.09.2009 admitted that certain purchases of DFIA/DFRC licenses from 3 parties during A.Y. 2008-09, 2009-10 and 2010-11 may not be considered as genuine purchases. Further, It was stated by the assessee that the purchases were made from those 3 parties are supported by purchase vouchers and the payment to those parties were made by account payee. Cheque only. Moreover, it submitted the details of the sale of licenses, purchase from those 3 parties. It is submitted that M/s. SAR Engineering Limited was not amongst those 3 parties. Consequently, additional income was also offered by the assessee company in respect of these unexplained purchase of licenses @ 15% of the total purchases of the licenses from those parties. B. The assessee company has taken the stand that all the purchases are duly reflected in the stock register. However, it is stated that the assessee company Itself admitted to be involved in unexplained purchases of licenses In A.Y. 2010-11. Therefore, the evidentiary value of the stock register is negligible and the stand of the assessee is not having factual footings.
M/s. Mota Trading Pvt. Ltd. C. The Hon'ble ITAT, Jaipur In the case of M/s. Kachwala Gems vs. JCIT [ITA No.134/JP/2002 dated 10.12.2003] affirmed by the Hon'ble Supreme Court in the case of M/s. Kachwala Gems vs. JCIT (2006) 206 CTR (SC) 585: 288 ITR 10 (SC), has held that even payment by account payee cheque is not sufficient to establish the genuineness of purchases. D. In fact, self-interest talks in all sorts of tongues and plays all sorts of roles. The indifference of not producing the party which issued the bill(s) is indicative of the truth. The Revenue is not doubting all the purchases but doubting only those purchases for which the genuineness could not be proved. One cannot lose sight of the fact that dark deeds are performed under the cover of darkness and direct evidence can never be available. Sometimes, the facts speak loud and clear. After carefully going through the submissions of the assessee as well as the data/details/documents available on record, it becomes crystal clear that; (a) The primary onus is on the assessee to establish the genuineness of the purchases claimed by it; (b) Since the primary facts are in the knowledge of the assessee, it is the duty of the assessee to provide the correct address or contact modes of the alleged suppliers: (c) If the investigation done by the Department leads to doubt regarding the genuineness of the purchases, it is Incumbent on the assessee to produce the parties along with the necessary documents to establish the genuineness of the transaction; and (d) Payment by account payee cheque is not sacrosanct F. The Hon'ble ITAT, Jalpur In the case of M/s. Kachwala Gems vs. JCIT [ITA No.134/JP/2002 dated 10.12.2003] affirmed by the Hon'ble Supreme Court In the case of M/s. Kachwala Gems vs. JCIT (2006) 206 CTR (SC) 585: 288 ITR 10 (SC), has held that even payment by account payee cheque is not sufficient to establish the genuineness of purchases.
M/s. Mota Trading Pvt. Ltd. G. In fact, self-interest talks in all sorts of tongues and plays all sorts of roles. The indifference of not producing the party which Issued the bill(s) is Indicative of the truth. The Revenue is not doubting all the purchases but doubting only those purchases for which the genuineness could not be proved. One cannot lose sight of the fact that dark deeds are performed under the cover of darkness and direct evidence can never be available. Sometimes, the facts speak loud and clear. H. After carefully going through the submissions of the assessee as well as the data/details/documents available on record, it becomes crystal clear that; (a) The primary onus is on the assessee to establish the genuineness of the purchases claimed by it; (b) Since the primary facts are in the knowledge of the assessee, it is the duty of the assessee to provide the correct address or contact modes of the alleged suppliers; (c) If the investigation done by the Department leads to doubt regarding the genuineness of the purchases, it is incumbent on the assessee to produce the parties along with the necessary documents to establish the genuineness of the transaction; and (d) Payment by account payee cheque is not sacrosanct. 4.5 In view of the factual matrix narrated heretofore, the assessee's claim of purchases purported to have been made from M/s. SAR Engineering Limited for a total sum of Rs. 2,51,76,570/- is hereby rejected and accordingly the same is hereby considered as bogus purchases and consequently an unexplained expenditure on the part of the assessee and accordingly the same is hereby added to income of the assessee company under the head "Income from Other Sources" and the same is hereby held to be not liable for any sort of deduction there against.
The ld. CIT(A) before whom the validity of reopening was also challenged apart from the merits. The assessee’s submissions M/s. Mota Trading Pvt. Ltd. and the material placed on record have ben discussed in detail in the impugned order. On merits, the assessee had stated as under:- I (B) Disallowance of purchases- Rs. 2,51,76,570/-> Your honour would appreciate that the appellant had during the course of assessment proceedings filed various details and explanations to prove that the purchases made from Ms SAR Engineering Limited are genuine. In this regard, the appellant had filed the following details: Ledger account of M/s. SAR Engineering Ltd. In the books of the appellant duly confirmed by them (Refer page 57 of paper book) Copies of purchase bills for licenses purchased from M/s. SAR Engineering Ltd, along with copy of covering letter for transfer of license duly attested by the Bank Manager (Refer pages 68 to 159 of paper book) Copies of Bank Statements showing various payments by crossed account payee cheques made to M/s. SAR Engineering Ltd. (Refer pages 58 to 65 of paper book) Copy of stock register highlighting the purchases from M/s. SAR Engineering Ltd. (Refer pages 160 to 166 of paper book) Details of corresponding sales made to various parties of licenses purchased from M/s. SAR Engineering Ltd. along with bills (Refer pages 167 to 186 of paper book) Ledger accounts of parties to whom licenses purchased from M/s. SAR Engineering Ltd. were sold (Refer pages 187-188 and 202- 203 of paper book) Copy of Bank Statements highlighting the amounts received from parties to whom licenses purchased from M/s. SAR Engineering Ltd. were sold (Refer pages 257 to 266 and 277 to 289 of paper book)
M/s. Mota Trading Pvt. Ltd. Annexure J1 (ie. VAT Audit Report) of M/s SAR Engineering Ltd. filed under Maharashtra State Laws in Form No. 704 to show that M/s. SAR Engineering Ltd. had claimed credit of VAT on purchases made by them against VAT charged to the appellant atalitatmtheizrepti=lattges (Refer pages 274 to 276 of paper book) TIN No. of M/s. SAR Engineering Limited as per Maharashtra VAT website to show that the said party was a registered dealer under Sales Tax Laws (Refer pages 274 to 276 of paper book). Your honour would appreciate that the AO has not made any independent verification or inquiry with respect to the details submitted by the appellant. Further, it appears from paragraph 4.2 of the Assessment Order that, the AO had issued notice u/s. 133(6) to the M/s. SAR. Engineering Ltd., which seems to be have been served on the said party as the AO states that no reply was received in response to notice u/s. 133(6). Your honour would appreciate that the AO has not enforced the attendance of the party by issuing summons u/s. 131 or otherwise. Further, the AO has justified the addition by stating that the onus is on the appellant to prove that the purchases are genuine. The appellant submits that they have furnished all the information and details available with them and also gathered from the Maharashtra VAT website. However, what further information or details were required has not been stated by the AO. The AO states that the appellant should have given correct address or contact details of the said party. The appellant submits that they had provided the correct address and the AO had issued notice u/s. 133(6), which has not been returned unserved. Accordingly, the appellant submits that they had discharged the onus cast on them by filing the various details as stated in paragraph 22 above. It was thereafter for the AO to prove conclusively that the purchases made by the appellant were bogus.
The ld. CIT(A) in so far as the validity of reopening iswas concerned, has held that the entire proceedings u/s.147 / 148 is M/s. Mota Trading Pvt. Ltd. invalid and has quashed the assessment as per his discussion from pages 17 to 20, after referring to various decisions.
Further on merits also he discussed the issue in detail holding as under:- It is a fact that all the payments to the suppliers have been made through banking channels. No evidences has been brought on record proving that the suppliers had withdrawn cash immediately after deposits of cheques of the assesses Otherwise a probable presumption could have been reached that the money trail proved returning of money to the assessed from the suppliers. We are aware that payment by cheques in itself is not conclusive. But, the surrounding circumstances are such that prove that the AO had made upheld the addition not on evidence but on surmises and suspicion. It is said that suspicion of highest degree cannot take place evidence and in the case under consideration the AO have not brought sufficient material that could justify huge addition made to the income of the assessee. In my opinion, the information received by the AO was a very good starting point for further investigation. But, he did not taken it to the logical end. It can be said that he left the starting point as and where it was. Without rebutting the evidences produced by the assessee, the AO made the addition. It appears that the only thing that has tied the scale against it is returning back of notices issued by the AO, u/e.133(6)of the Act But, this itself is not sufficient to hold that purchases made by it were bogus. In the case of Nikunj Exim Export, the Hon'ble Bombay High Court has held that non service of notice does not conclusively prove the non genuineness of a transaction. By producing various documents the assessee had proved that balance of convenience was in its favour. For violation of principles of natural justice alone, the order can be held to be invalid. Here, we would like to rely upon the cases referred to by the AR before us-especially the case of Andaman Timbers (supra) and it reads as under- • According to us, not allowing the assessee to cross examine the witness by the Adjudicating Authority though the statements M/s. Mota Trading Pvt. Ltd. of those witnesses were made the basis of impugned order is a serious flaw which makes the order nullity in as much as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine the Adjudicating Authority did not grant this opportunity to the assessee, it would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However no such option was granted and the aforesaid plea is not even dealt by the Adjudicating Authority But, I would like to decide the issue on merits also. The AO has not rejected the books of accounts of the assessee nor have doubted the purchases made by it. The recognized principles of accountancy and tax jurisprudence hold that no sales can take place without purchases. Thus, the case under appeal is not about non genuineness of purchases itself, but it is about non genuineness of suppliers. Whether provisions of section 69C of the Act can be applied in the matters where all the purchase and sales transactions part of regular books of accounts. Basic precondition for invoking the section 69C is that the expenditure incurred by the assessee should be out of books of accounts. Here, the payments to the suppliers, as stated earlier, have been made by cheques. So, it cannot be held that expenses were incurred by the assessee outside the books of accounts. Section 69C was introduced in to the statute with a specific purpose. A bare reading of the section makes it clear that if the assessee incurred any expenditure, but offered no explanation about the source of such expenditure or part thereof, or the explanation so offered is not satisfactory, such expenditure may be deemed to be the income of the assessee. The assessee has offered satisfactory explanation about the source of the expenditure in the case before us. In the case of Parekh Corporation Ul Building (32 CCH 129) the Tribunal has discussed the applicability of provisions of section 69C of the Act and has held as under:
M/s. Mota Trading Pvt. Ltd. In so far as the application of 69C is concerned, we find that the same cannot be attracted because section 69C applies here in any financial year and assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, of by the assessee is not satisfactory. It is then that the amount covered by such expenditure or part thereof is deemed as income of the assessee for such financial year. The bedrock for making an addition under section 69C is that there must have been some expenditure incurred by the assessee, the source of which is not disclosed. If our such expenditure is recorded in the books of accounts, there cannot be any reason to invoke the provisions of section 69C of the Act. In that view of the matter is it is held that provisions of section 69C were strongly restore by the AO for making this addition." In light of the above, we find that no addition could have been made u/s.69 C of the Act. Considering the peculiar facts and circumstances of the case under appeal, I hold that the order of the AO are not valid because of violation of principles of natural justice. Besides, the addition made u/s.69C is also not maintainable. So, reversing the order of the Ld AO, I decide the 1st ground of appeal in favour of the assessee.
Before us ld. DR submitted that here in this case assessee during the course of survey on 08/09/2009 had admitted that certain purchases of DFRC/DFIA/DEPB licenses from parties during A.Yrs. 2008-09, 2009-10 and 2010-11 were not genuine, although there is no such admission for A.Y.2011-12 and M/s. SAR Engineering Ltd., were not among three parties. However, he held that, this only goes to show that assessee was involved in unexplained purchases of licenses. Apart from that, the party has not responded to the notice u/s. 133(6) which also goes to show that the purchases are not genuine and assessee was not M/s. Mota Trading Pvt. Ltd. able to substantiate the purchases. Ld. DR thus strongly relied upon the observations and finding of the ld. AO as incorporated above.
On the other hand, ld Counsel drew our attention to the details and documents which were furnished before the ld. AO alongwith letter dated 06/11/2017 which are running from pages 47-294 wherein all the details of tax invoices alongwith transfer of DFRC/DFIA/DEPB license with counter signature of the bank alongwith bank statements, ledger account, VAT returns, stock register, purchases from the said party; and not only that, he also drew our attention to corresponding sales made to various parties of licenses purchased from M/s. SAR Engineering Ltd. He also drew our attention to VAT audit report of M/s. SAR Engineering Ltd. that it has claimed credit of VAT on purchases made by them against VAT charged. He further submitted that it is not a case of any entry provider who has provided any accommodation entry for purchase bills and assessee has been regularly purchasing the licenses with the same party in the earlier years and trading with these licenses in wherein the transaction with the said party has been accepted. Therefore, the order of the ld. CIT (A) deserves to be upheld. 14. We have heard rival submissions and perused the relevant finding given in the impugned orders as well as material placed before us. The assessee is engaged in trading of import licenses which was sanctioned to the exporters against exported goods. These licenses are transferable for import of prescribed items.
M/s. Mota Trading Pvt. Ltd. The assessee has brought his import licenses like DFRC/DFIA/DEPB licenses from various parties including SAR Engineering Ltd. During the year assessee has made purchases of these licenses for Rs.2,51,76,570/- from the said party. In support, assessee has filed confirmation of accounts and the copy of ledger accounts of M/s. SAR Engineering Ltd. wherein sales have been shown to the assessee company. All these transactions are through banking channels and in support of this, the copy of bank statements have also been filed. The copy of tax invoices placed in the paper book shows various particulars of sale of import licenses alongwith transfer letter duly authenticated by the manager of the bank. None of the tax invoices and transfer letters has been rebutted or any comment has been made by the ld. AO. If assessee had shown purchase bills for licenses alongwith copy of covering letter for transfer of licenses duly attested by the Bank Manager alongwith transactions reflected in the bank accounts then it cannot be held that assessee had not made any purchases. Apart from that, assessee has also produced stock register highlighting the purchases, corresponding sales made to various parties, the copy of which is appearing from pages 161 to 166. These document shows date wise, license number wise purchases made from M/s. SAR Engineering Ltd. and corresponding sales made to various parties alongwith inward and outward quantity of stock. None of these details of trading account have been doubted or the books of accounts has been rejected by the ld. AO. The assessee has also filed copy of ledger accounts of the parties to M/s. Mota Trading Pvt. Ltd. whom assessee has made sales of the same licenses purchased from M/s. SAR Engineering Ltd. which are also reflected in the bank statements, that the amount received from the parties to whom the same licenses were sold. Another important piece of evidence was that assessee had filed customer wise VAT sales return not only in the case of assessee itself but also of SAR Engineering Ltd., which goes to show that the purchase and sales have been accepted by the VAT department. Once the source of purchases are from the books duly corroborated by inward stock register, quantity details of licenses purchased and corresponding details of sales made to various parties, then it cannot be held that purchases are bogus.
The entire case of the ld. AO hinges upon the fact that in the earlier years assessee had admitted that certain purchases made from three parties were not genuine. However, nothing has been stated for the current assessment year, nor even in the earlier years, M/s. SAR Engineering Ltd. was amongst the three parties. The AO has drawn adverse inference based on some admission in the earlier year of some other party to doubt otherwise genuine purchases made from another party in this year. There is no substance or any concrete finding based on material for doubting the purchases made from SAR Engineering Ltd. and accordingly such reasons are unsustainable. Accordingly, the finding and the observation given by the ld. CIT (A) are upheld and addition has been deleted.
M/s. Mota Trading Pvt. Ltd. 15. One more aspect is that the Revenue in the grounds of appeal has merely challenged that ld. AO was not given opportunity while admitting the additional ground. It has not been specified which additional ground has been admitted. If it is for challenging the validity of reopening u/s 147/148, then it cannot be reckoned as additional ground, because assessee has raised objections against reopening u/s.147/148 which the ld. AO has rejected in his letter disposing of the objection. Assessee has raised this ground before the ld. CIT (A) as it was also raised before the ld. AO, therefore, it cannot be held that the validity of reopening was additional ground. Infact, the department has not even challenged the quashing of the assessment order. If the assessment order itself has been quashed then challenging the deletion of additions on merits is purely academic, because the assessment itself is quashed and held to be invalid against which there is no appeal. If the additional grounds is with regard to principle of natural justice on which ld. CIT (A) has given his remarks that also cannot be treated as additional ground. Consequently, all the grounds raised by the department is dismissed.
16. In the result, appeal of the Revenue is dismissed. Order pronounced on 30th October, 2023.