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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI ABY T VARKEY & SHRI AMARJIT SINGH
O R D E R Per Amarjit Singh (AM): These 4 appeals filed by the assesse are directed against the different orders of CIT(A)-53, Mumbai. Since common issue on identical facts are involved in these appeals except variation in the amount, therefore, these appeals are adjudicated together by taking the as a lead case and its finding will be applied mutatis mutandis to the other appeal vide ITA No. 1945/Mum/2022. Similarly, the finding in respect of ITA No. 1935/Mum/2022 to mutatis mutandis. ITA No. 1944/Mum/2022 Legal: 1. Reopening under section 147/148 is bad in law The action of the Ld. A.O. in reopening the assessment of the Appellant by issuance of the notice under section 148 of the Act without recording valid and proper reasons to show that any income chargeable to tax has escaped P a g e | 2 & 1945, 1934 & 1935/Mum/2022 Mr. Hajaram Purohit Vs. DCIT (CC) -5(3) assessment is erroneous Hence, the notice under section 148 and subsequent assessment order passed under section 143 rws. 147 is bad in law and the same may be quashed and set aside.
Sanction not obtained as per section 151 The action of the Ld. A.O. in reopening the assessment without following proper sanctions as per section 151 is erroneous Hence, the notice under section 148 is bad in law and the same may be quashed and set aside as no there is no proper sanction as per section 151. Merit 3. Treating the purchases made during the year as bogus i. The Ld. CIT(A) erred in confirming the action of Ld. A.O. in making addition of Rs.11,86,69,553/- being purchases made by treating the same as bogus without appreciating the facts and circumstances of the case. ii. The Ld. CIT(A) failed to appreciate that the material purchased during the year are duly accounted in the book of the Appellant and the same are supported by proper documentary evidences The said material was subsequently sold by the Appellant and the profit earned thereon is offered for tax. Hence, the addition of Rs.11,86,69,553/- by treating the purchases as bogus is unjustified and the same may be deleted. iii. The Ld. CIT(A), further, failed to the appreciate that the Ld. A.O. has neither rejected the books of accounts of the Appellant nor pointed any discrepancies in the same. The Ld. A.O. also accepted the sales made during the year. Hence, the addition of Rs.11,86,69,553/- is unjustified and the same may be deleted. iv. Without prejudice to the above the Ld. CIT (A) erred in upholding the action of Ld. A.O. by treating the purchases as bogus on the basis of the certain information received from Sales Tax Department without providing the Appellant an opportunity to cross examine the persons relying on whose statement an adverse inference has been drawn against the Appellant. Hence, the addition of Rs.11,86,69,553/- is unjustified and the same may be deleted.
The Appellant craves leave to add, alter, rescind or amend any of the above grounds of appeal
.”
2. Fact in brief is that return of income declaring total income of Rs.11,68,560/- was filed on 29.09.2010. The assesse is a trader and stockiest of ferrous and non-ferrous metals and works under the name of M/s Rinku Steel Corporation. The case of the assesse was reopened u/s 147 of the Act by issuing of notice u/s 148 of the Act on 11.02.2014. Regarding reopening of the assessment the A.O stated that on the official website of the Sale Tax Department there was information of hawala dealers who have issued only bills to the various parties without P a g e | 3 & 1945, 1934 & 1935/Mum/2022 Mr. Hajaram Purohit Vs. DCIT (CC) -5(3) actual delivery of good. The detail of purchases made by the assesse from the such parties are as under: Sr. No. Name of the Hawala Party Purchase Amount in Rs.
1. Shradha Trading Co. 64,802/- 2. Apex Ferromate P. Ltd. 3,26,30,998/- 3. Akshay Metals 3,44,67,724/- 4. Jindal Metal Corporation 8,17,037/- 5. Konica Steel India 1,25,49,784/- 6. Veer corporation 3,81,39,208/- Total 11,86,69,553/- 3. During the course of assessment the assesse was asked to explain why the purchases made from the aforesaid hawala parties should not be disallowed. However, no explanation was filed by the assesse, therefore, the A.O had added the 100% of such purchases to the amount of Rs.118,66,955/- to the total income of the assesse.
4. Aggrieved, the assesse filed the appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assesse vide order dated 01.11.2017 holding that assesse has not furnished any evidence to show the genuineness of the purchases.
5. Thereafter, ITAT vide order dated 24.04.2019 restored the matter regarding addition of bogus purchases to the file of the ld. CIT(A) to decide the matter afresh on merit after giving the assesse proper opportunity of being heard.
During the course of appellate proceedings before the ld. CIT(A) the assesse submitted that he had made purchases of Rs.11,86,69,553/- from 6 parties and the purchases were recorded in the books of account and were supported by the invoices. The assesse also submitted that the A.O had not provided any opportunity for cross examination of those six parties. The assesse further submitted that the corresponding sales made was also supported with invoices. The payment were also made to these parties by account payee cheque. At P a g e | 4 & 1945, 1934 & 1935/Mum/2022 Mr. Hajaram Purohit Vs. DCIT (CC) -5(3) para 4.3 of the order ld. CIT(A) stated that the genuineness of the alleged 6 parties have been proved by producing copies of purchase invoices and payment made through bank account. The confirmation of these parties were also furnished. The assesse has also submitted the copy of balance sheet. However, the ld. CIT(A) has dismissed the appeal of the assssee stating that it was established by Sale Tax Department that these six parties were only providing accommodation entries without supplying of any goods and mere filing of purchase invoices and making payment through banking channel was not sufficient to prove the genuineness of the purchases. The ld. CIT(A) has also stated that assesse has not been able to produce these parties before the assessing officer as well as during the course of appellate proceedings.
During the course of appellate proceedings before us the ld. Counsel contended that ld. CIT(A) has completely unjustified in treating the 100% purchases as bogus without disproving the corresponding sales made by the assesse. No opportunity to cross examine the sale parties were given to the assesse. He also submitted that the supporting evidences i.e copies of purchase bill, copies of bank account and etc. were not disproved by the A.O and CIT(A). The ld. Counsel stated that merely on the basis of information available on the website of Sale Tax Department, the whole purchases without disturbing the sales cannot be disallowed.
On the other hand, the ld. D.R supported the order of lower authorities.
Heard both the sides and perused the material on record. During the course of assessment on the basis of information from Sale Tax Department that six parties were indulged in issuing of bogus bills without supporting of any material, the assessing officer treated the 100% purchases of Rs.11,86,69,553/- made by the assesse from such P a g e | 5 & 1945, 1934 & 1935/Mum/2022 Mr. Hajaram Purohit Vs. DCIT (CC) -5(3) six parties as bogus and added to the total income of the assesse. During the course of set aside proceedings before the ld. CIT(A) the assesse has submitted the copies of purchase invoices and detail of payment made for such purchases to the parties through bank account. The assesse has also furnished the confirmation of all these parties. The assesse also submitted the copies of balance sheet. However, the ld. CIT(A) had sustained the addition holding that mere filing of purchase invoices and the payment through banking channel were not sufficient to prove the genuineness of the purchases. In this regard, we find that except the information available on the website of the Sale Tax Department pertaining to issuing of bogus bills by the six parties no other materials were brought on record by the assessing officer. We observe that the assesse had shown corresponding sales against the said purchases debited and the genuineness of purchases of whole cannot be doubted and only the profit margin embedded in such transaction could be taxed. We observe that in such types of transactions, the assesse purchases the goods from the grey market by making gross payment in cash without bills. The bills are obtained from the third parties and after receipt of cheques such parties adjust the same by providing cash after deducting their commission. Taking all these facts the material purchase in the grey market are always cheaper than the material sourced from the genuine dealer. Before the ld. CIT(A) at para 4.4. of his order the assesse submitted that it had earned gross profit of 2.81% during the year. However, after taking into consideration that assesse has brought the material from the grey market at cheaper rate, therefore we consider that it is fair and reasonable to restrict the said disallowance at the 6% of the impugned purchases. Therefore, the A.O is directed to restrict the disallowance to the extent of 6% of the impugned purchases. Accordingly, the ground no. 3 of the assesse is partly allowed.
P a g e | 6 & 1945, 1934 & 1935/Mum/2022 Mr. Hajaram Purohit Vs. DCIT (CC) -5(3) 10. Ground no. 1 & 2 pertaining to reopening of assessment were not discussed, therefore, the same stand dismissed. ITA No. 1945/Mum/2022 Ground No. 1 & 2: 11. As the facts and issues involved in these grounds of appeal are same as ITA No. 1944/Mum/2022 as supra, therefore, applying the same findings mutatis mutandis these grounds of appeal of the assesse are also dismissed. Ground No. 3:
12. As the facts and issues involved in this ground of appeal is same as ITA No. 1944/Mum/2022 as supra, therefore, applying the same findings mutatis mutandis these grounds of appeal of the assesse is partly allowed.
13. Fact in brief is that the assessment u/s 143(3) r.w.s 147 was completed on 30.03.2015 by determining total income at Rs.11,98,38,110/- after making addition of Rs.11,86,69,553/- on account of bogus purchases made from six parties as discussed supra in this order. Thereafter vide order u/s 271(1)(c) of the Act dated 30.03.2019 the A.O has levied penalty of Rs.3,66,68,890/- for furnishing inaccurate particulars of income.
14. The assesse filed the appeal before the ld. CIT(A). However, the ld. CIT(A) has dismissed the appeal of the assesse. 15. During the course of appellate proceedings before us at the outset the ld. Counsel has vehemently contended that assessing officer has issued notice u/s 274 r.w.s 271(1)(c) dated 30.03.2015 without specifying whether the penalty is levied for concealment of income for P a g e | 7 & 1945, 1934 & 1935/Mum/2022 Mr. Hajaram Purohit Vs. DCIT (CC) -5(3) furnishing of inaccurate particular of income. The ld. Counsel has further contended that Hon’ble Jurisdictional High Court of Bombay in the case of Mohd Farhan A. Shaikh Vs. DCIT (2021) 434 ITR 1 (Bom) has held that if there is a defect in notice of not striking off irrelevant matter, the penalty cannot be levied. On the other hand, the ld. DR has supported the order of lower authorities. 16. Heard both the sides and perused the material on record. The case of the assesse was reopened and assessment u/s 143(3) r.w.s 147 of the Act was completed on 30.03.2015 after making an addition of Rs.11,86,69,553/- on account of bogus purchases. Thereafter, the A.O has levied penalty u/s 271(1)(c) of the Act in respect of addition of bogus purchases. 17. With the assistance of ld. Representative we have gone through the notice u/s 274 r.w.s 271(1)(c) dated 30.03.2015. The relevant part of the notice reproduced as under:
P a g e | 8 & 1945, 1934 & 1935/Mum/2022 Mr. Hajaram Purohit Vs. DCIT (CC) -5(3) 18. On the perusal of the notice it is clear that assessing officer has not specified whether the penalty is being levied on account of concealment of particulars of income or furnishing of inaccurate particulars of income. In this regard, we have gone through the case of jurisdictional High Court referred by ld. Counsel in the case of Mohd Farhan A. Shaikh Vs. DCIT (2021) 434 ITR 1 (Bom), the relevant part of head note is reproduced as under: “Section 271(1)(c), read with section 274 of the Income-tax Act, 1961- Penalty - For concealment of income (Recording of satisfaction) -Whether where assessment order clearly records satisfaction for imposing penalty on one or other, or both grounds mentioned in section 271(1) (c), a mere defect in notice- not striking off irrelevant matter would vitiate penalty proceedings. Held, yes Whether since penalty proceedings culminate under a different statutory scheme that remains distinct from assessment proceedings, therefore, assessee must be informed of grounds of penalty proceedings only through statutory notice Held, yes Whether even if notice contains no caveat that inapplicable portion be deleted, it is in interest of fairness and justice that notice must be precise, it should give no room for ambiguity-Held, yes [Paras 181 and 188][In favour of assessee].”