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Income Tax Appellate Tribunal, VIRTUAL COURT
Before: SHRI C.N. PRASAD, HONBLE & SHRI S. RIFAUR RAHMAN, HONBLE
Date of Hearing : 25.02.2021 Date of Pronouncement : 09.03.2021 O R D E R PER C.N. PRASAD (JM) 1. This appeal is filed by the Revenue against order of the Learned Commissioner of Income Tax (Appeals) – 47, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 27.05.2019 for the A.Y. 2014-15.
Revenue has raised following grounds in its appeal: - 1. "Whether on facts and circumstances of the case and in law, the CIT(A) was right in deleting the entire addition made on account of 'Bogus Purchases' ignoring the fact that the assessee was one of 2 ITA.No. 5062/MUM/2019 (A.Y: 2014-15) M/s. Sejal Exports (India) the beneficiaries of the accommodation entries obtained from various concerns floated by Shri Bhanwarlal Jain, who is in the field of providing accommodation purchase bills without actually delivering the goods and Shri Bhanwarlal Jain had admitted in the statement recorded u/s. 132(4) during the course of search and seizure action carried out in his group concerns that his group was in the business of providing bogus accommodation bills to various parties of which the assessee was one of the beneficiaries." 2. "Whether on facts and circumstances of the case and in law, the CIT(A) was right in deleting the entire addition made on account of 'Bogus Purchases' even though it is well established that the modus operand! of obtaining bogus purchase bills had to be considered in the light of surrounding circumstances, normal course of human conduct and preponderance of probability."
Briefly stated the facts are that, the assessee is a firm engaged in the business of “export of polished diamonds and export assortments” filed return of income on 09.10.2014 for the A.Y.2014-15 declaring income of ₹.1,04,85,140/- and the return was processed u/s. 143(1) of the Act. Subsequently, Assessing Officer received information from the DGIT(Inv.,), Mumbai about the accommodation entries provided by various dealers and assessee was also one of the beneficiary from those dealers. The assessment was reopened U/s. 147 of the Act based on the information received from DGIT(Inv.) Mumbai, that the assessee has availed accommodation entries from various parties as mentioned in the Assessment Order who are said to be providing accommodation entries without there being transportation of any goods. In the reassessment proceedings, the assessee was required to prove the genuineness of the 3 ITA.No. 5062/MUM/2019 (A.Y: 2014-15) M/s. Sejal Exports (India) purchases made from the parties. In response, assessee submitted that the purchases made are genuine. Assessee further submitted that the payments are made through account payee cheques as such contended that all the purchases are genuine. However, parties were not produced before the Assessing Officer.
Not convinced with the submissions of the assessee the Assessing Officer treated the purchases as non-genuine and he was of the opinion that assessee had obtained only accommodation entries without there being any transportation of materials and the assessee might have made purchases in the gray market. It is the finding of the Assessing Officer that assessee has failed to prove the genuineness of the transactions with the parties and neither produced the parties to prove genuineness of purchases. Assessing Officer to verify the entry providers deputed Income Tax Officer to inquire the genuineness and the existence of the parties by serving the notice and could not be able to locate the parties. Assessing Officer observed that the notice issued u/s. 133(6) of the Act to the parties were returned unserved and the assessee has not produced the parties before the Assessing Officer. Therefore, Assessing Officer treated Gross Profit addition 6.15% of alleged bogus purchases of ₹.8,96,59,029/- as non-genuine and added to the income of the assessee. On appeal the 4 ITA.No. 5062/MUM/2019 (A.Y: 2014-15) M/s. Sejal Exports (India) Ld.CIT(A) considering the evidences and various submissions of the assessee deleted the addition made by the Assessing Officer.
Ld. Counsel for the assessee reiterated the submissions made before the Ld.CIT(A) and supported order of Ld.CIT(A). Ld. Counsel for the assessee relied on the following decisions in support of his contention and prayed for upholding the order of the Ld.CIT(A). i. ITO v. Late Shri Amarchnad Purchase Shah in ITA.No. 818- 820/Mum/2017 dated 08.07.2019. ii. M/s. Sejal Gems Pvt. Ltd., v. DCIT in ITA.No. 3872/Mum/2017 dated 22.03.2019.
Ld. DR vehemently supported the orders of the Assessing Officer.
7. We have heard the rival submissions, perused the orders of the authorities below. On a perusal of the order of the Ld.CIT(A), we find that Ld.CIT(A) considered this aspect of the matter elaborately with reference to the submissions of the assessee and the averments in the Assessment Order and also following various judicial pronouncements including assessee’s own case in preceding Assessment Years, deleted the addition made by the Assessing Officer observing as under: - “11.0 I have considered the submissions of the Appellant, the assessment order, and perused the other material available on record on this issue. 11.1 I have taken note of the fact that an identical addition was made by the AO to the income of the Appellant Firm for the A.Y.
5 ITA.No. 5062/MUM/2019 (A.Y: 2014-15) M/s. Sejal Exports (India) 2007-08 to A.Y. 2013-14 in exactly similar facts and circumstances. The AO himself had in the concluding para 5.3 of the Assessment Order stated that addition is being made in the current assessment year under consideration on account of profit embedded in the bogus purchases based on the Assessment Order of earlier years. I have noted that even while discussing the facts of the case in para 5.0 of the Assessment Order, the AO had made reference to the notices issued u/s. 133(6) of the Act in earlier years in the Appellant’s own case. Hence, I have noted that there is no new finding of the AO in the current assessment year under consideration on the issue of bogus purchases. 11.2 This matter had travelled to the Hon'ble ITAT, Mumbai in the Appellant Firm’s own case in ITA.No. 3854, 3855, 3856, 3857, 3858, 3859 & 3864/Mum/2017 for the A.Y. 2007-08 to A.Y. 2013-14, wherein the addition made by the AO on account of bogus purchases was deleted, vide order dated 04.07.2018. I have noted that the AR of the appellant had heavily relied on the said judgement of the Hon'ble ITAT and stated that the issue is fully covered by the said decision of the Hon'ble ITAT, Mumbai in the case of the Appellant Firm, itself. The relevant excerpts of the said judgment are reproduced hereunder, for ready reference: - “16. As could be seen from the above, the facts in the case of the assessee and also the decision referred to above are almost identical. The parties have confirmed by filing replies to notices u/s. 133(6) of the Act along with the ledger account of the assessee in their Books of Accounts, copies of sales invoices issued by them to the assessee, thereby statements reflecting payments made by the assessee to them, copy of acknowledgment of Income Tax Returns filed by them to show that the transaction of sales made to the assessee are genuine. We also find that the Gross Profit margin shown by the assessee is ranging in between 7.02% to 7.62% consistently. Further, the disallowance / estimation of profit of purchases by treating them as bogus cannot be made only on the statements recorded from third parties, especially when the suppliers have responded to the notice u/s. 133(6) of the Act and filed all the necessary documents to prove the genuineness of the purchases made by the assessee. Thus the grounds raised by the assessee on merits are allowed. As we have allowed the appeals of the assessee on merits for the reasons and discussions made therein, the Revenue’s appeals are dismissed.
17. Coming to the appeals in the case of M/s. Ariha Diamond Jewellery Pvt. Ltd., and M/s. Sejal Gems Pvt. Ltd., facts being identical, we reject the grounds raised by the assessee in 6 ITA.No. 5062/MUM/2019 (A.Y: 2014-15) M/s. Sejal Exports (India) reopening the assessments beyond four years for the Assessment Years 2008-09 & 2009-10 and on merits facts are almost identical, however, the suppliers though not responded to the notices issued u/s. 133(6) of the Act they have given ledger confirmations which have been furnished to the Assessing Officer to prove the genuineness of the transaction. Hence, in view of the above discussion made in the appeals in the case of M/s. Sejal Exports (India), the decision taken therein applies Mutatis Mutandis to the appeals in the case of M/s. Ariha Diamond Jewellery Pvt. Ltd., and M/s. Sejal Gems Pvt. Ltd. Thus, the grounds raised by the assessee on merits are allowed. As we have allowed the appeals of the assessee on merits for the reasons and discussions made therein, the Revenue’s appeals are dismissed.” 11.2 In this regard, I am of the considered opinion that judicial discipline requires that the order of Hon'ble ITAT needs to be followed in letter and spirit by the lower authorities, even if the same is not acceptable. The correct legal recourse in such a situation is to agitate the matter at a higher level and obtain an order against the said ruling from a higher Court of law. 11.3 In the case of Union of India & Anr vs. Raghubir Singh 1989 AIR 1933, 1989 SCR (3) 316, the Hon'ble Supreme Court had held as under: - “…….. Taking note of the hierarchical character of the judicial system in India, it is of paramount importance that the law declared by this Court should be certain, clear and consistent. It is commonly known that most decisions of the courts are of significance not merely because they constitute an adjudication on the rights of the parties and re- solve the dispute between them, but also because in doing so they embody a declaration of law operating as a binding principle in future cases. In this latter aspect lies their particular value in developing the jurisprudence of the law. The doctrine of binding precedent has the merit of promoting a certainty and consistency in judicial decisions, and enables an organic development of the law, besides providing assurance to the individual as to the consequence of transaction forming part of his daily affairs. And, therefore, the need for a clear and consistent enunciation of legal principle in the decisions of a Court. ……….” 11.4. There are several judicial pronouncements which had held that the Tribunal is the final fact finding authority. In this regard, reference may be made to the Judgment of the Hon'ble Supreme 7 ITA.No. 5062/MUM/2019 (A.Y: 2014-15) M/s. Sejal Exports (India) Court in the case of K. Ravidranathan Nair Vs. Commissioner of income-tax [2001] 114 Taxman 53 (SC), wherein it was held as under:- “6. The High Court, surprisingly, threw out all the findings of fact that were reached by the Tribunal. It did so because, in the High Court's view, the Tribunal had misdirected itself in law in arriving at these findings. This was because, according to the High Court, the Tribunal had overlooked or ignored a clinching document and because it had wrongly cast the burden of proving the facts on a party. It is difficult to appreciate what that document was that the Tribunal had supposedly overlooked or how the High Court was entitled to look at it if it had not been placed before the Tribunal. It was erroneous to say that any burden had been incorrectly cast by the Tribunal because the Tribunal had evaluated all the material that was put before it, regardless of who had put it on the record.
The High Court overlooked the cardinal principle that it is the Tribunal which is the final fact finding authority. A decision on fact of the Tribunal can be gone into by the High Court only if a question has been referred to it which says that the finding of the Tribunal on facts is perverse, in the sense that it is such as could not reasonably have been arrived at on the material placed before the Tribunal. In this case, there was no such question before the High Court. Unless and until a finding of fact reached by the Tribunal is canvassed before the High Court in the manner set out above, the High Court is obliged to proceed upon the findings of fact reached by the Tribunal and to give an answer in law to the question of law that is before it.” 11.5. Again the Hon'ble Apex Court in the case of Ganapathy & Co. Vs. Commissioner of Income-tax, Bangalore [2016] 65 taxmann.com 194 (Supreme Court) had on this issue reiterated as under: - “7. An issue on which there could be little dispute on law, nevertheless, needs to be dealt with in view of the elaborate arguments advanced on behalf of the appellant – assessee, namely, that the High Court had relied on findings of fact independent of those considered by the learned ITAT which is the final fact finding authority. Reliance in this regard has been placed on several judgments of this Court to contend that issues of fact determined by the Tribunal are final and the High Court in exercise of its reference jurisdiction should not act as an appellate Court to review such findings of fact arrived at by the Tribunal by a process of reappreciation and 8 ITA.No. 5062/MUM/2019 (A.Y: 2014-15) M/s. Sejal Exports (India) reappraisal of the evidence on record. The aforesaid position in law has been consistently laid down by this Court in several of its pronouncements out of which, illustratively, reference may be made to Karnani Properties Ltd. Vs. Commissioner of Income-Tax, West Bengal [82 ITR 547], Rameshwar Prasad Bagla vs. Commissioner of Income-Tax, U.P. [87 ITR 421], Commissioner of Income-Tax, Bombay City vs. Greaves Cotton and Co. Ltd. [68 ITR 200] and K. Ravindranathan Nair vs. Commissioner of Income-Tax [247 ITR 178].
The legal position in this regard may be summed up by reiterating that it is the Tribunal which is the final fact finding authority and it is beyond the power of the High Court in the exercise of its reference jurisdiction to reconsider such findings on a reappraisal of the evidence and materials on record unless a specific question with regard to an issue of fact being opposed to the weight of the materials on record is raised in the reference before the High Court.” 11.6. Further, the judicial discipline, which is the touch stone for dispensing justice needs to be followed and adhered to by all authoriteis concerned. 11.7 the Hon'ble Supreme Court in the case of Union of India and other vs. Kamalakshi Finance Corporation AIR 1992 Supreme Court 711, 1994 (46) ECC 129, 1991 ECR 486 SC, has held that utmost regard should be paid by the adjudicating authorities and the appellate authorities to the requirements of judicial discipline and the need for giving effect to the orders of the higher appellate authorities, which are binding on them. The principles of judicial discipline require that the orders of the higher authorities should be followed unreservedly by the subordinate authorities. If this healthy rule is not followed, the result will only be undue harassment to the assessees and chaos in administration of tax laws. The relevant excerpts of Para 6 of the said order are reproduced hereunder: - “6. ……… The High Court has, in our view, rightly criticised this conduct of the Assistant Collectors and the harassment to the assessee caused by the failure of these officers to give effect to the orders of authorities higher to them in the appellate heirarchy. It cannot be too vehemently emphasised that it is of utmost importance that, in disposing of the quasi- judicial issues before them, revenue officers are bound by the decisions of the appellate authorities; The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal.
9 ITA.No. 5062/MUM/2019 (A.Y: 2014-15) M/s. Sejal Exports (India) The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not "acceptable" to the department - in itself an objectionable phrase - and is the subject matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws.” 11.8. In the case of Kamlakshi Finance, referred supra, the Hon'ble Apex Court has also brushed aside the plea of the department that it would lose revenue and would also have no remedy to have the matter rectified. The Hon'ble Apex Court has emphasized that the orders of the higher authorities shall be followed and if the Department is correct, finally it will get its due taxes, though after some procedural delay. The relevant portion of the judgment in this regard, is reproduced below: - “7. The impression or anxiety of the Assistant Collector that, if he accepted the assessee's contention, the department would lose revenue and would also have no remedy to have the matter rectified is also incorrect. Section 35-E confers adequate powers on the department in this regard. Under Sub-section (1), where the Central Board of Direct Taxes come across any order passed by the Collector of Central Excise with the legality or propriety of which it is not satisfied, it can direct the Collector to apply to the Appellate Tribunal for the determination of such points arising out of the decision or order as may be specified by the Board in its order.Under Sub-section(2) the Collector of Central Excise, when he comes across any order passed by an authority subordinate to him, if not satisfied with this legality or propriety, may direct such authority to apply to the Collector (Appeals) for the determination of such points arising out of the decision or order as may be specified by the Collector of Central Excise in his order and there is a further right of appeal to the department. The position now, therefore, is that,if any order passed by an Assistant Collector or Collector is adverse to the interests of the Revenue, the immediately higher administrative authority has the power to have the matter satisfactorily resolved by taking up the issue to the Appellate Collector or the Appellate Tribunal as the case may be. In the light of these amended provisions, there can be no justification for any Assistant Collector or Collector refusing to follow the order of the Appellate Collector or the Appellate
10 ITA.No. 5062/MUM/2019 (A.Y: 2014-15) M/s. Sejal Exports (India) Tribunal, as the case may be, even where he may have some reservations on its correctness. He has to follow the order of the higher appellate authority. This may instantly cause some prejudice to the Revenue but the remedy is also in the hands of the same officer.He has only to bring the matter to the notice of the Board or the Collector so as to enable appropriate proceedings being taken under Section.35-E (1) or (2) to keep the interests of the department alive. If the officer's view is the correct one, it will no doubt be finally upheld and the Revenue will get the duty, though after some delay which such procedure would entail.” 11.9 Thus, the decision of higher authority needs to be followed in the case of a quasi-judicial authority and, therefore, a lower officer is bound to followed the decision of the higher authority. Unless, in appeal the order of the higher authority is stayed, it operates as a valid binding decision to the lower authority not only in the case of the same assessee but also in other cases where the same law point is involved. In the present case at hand, no stay has been granted by any court on the operation of the 245D(4) orders passed by the Hon'ble ITSC and hence, the same are binding on the undersigned. 11.10 The law on judicial precedents & Contempt of Court has been elucidated upon by the Hon'ble Supreme Court in the case of CIT vs. Ralson Industries Ltd. (2007) 288 ITR 322 (SC) wherein it has been held that when an order is passed by a higher authority, the lower authority is bound thereby keeping in view the principles of judicial discipline. This aspect of the matter has been highlighted by the Hon'ble Apex Court in the case of Bhopal Sugar Industries vs. Income Tax Officer, Bhopal [AIR 196] SC 182] in the following terms:- “………. We think that the learned Judicial Commissioner was clearly in error in holding that no manifest injustice resulted from the order of the respondent conveyed in his letter dated March 24, 1955. By that order the respondent virtually refused to carry out the directions which a superior tribunal had given to him in exercise of its appellate powers in respect of an order of assessment made by him. Such refusal is in effect a denial of justice, and is furthermore destructive of one of the basic principles in the administration of justice based as it is in this country on a hierarchy of courts. If a subordinate tribunal refuses to carry out directions given to it by a superior tribunal in the exercise of its appellate powers, the result will be chaos in the administration of justice and we have indeed found it very difficult to appreciate the process of reasoning by which the learned Judicial Commissioner while roundly condemning the respondent for refusing to carry out the directions of the 11 ITA.No. 5062/MUM/2019 (A.Y: 2014-15) M/s. Sejal Exports (India) superior tribunal, yet held that no manifest injustice resulted from such refusal. It must be remembered that the order of the Tribunal dated April 22, 1954, was not under challenge before the Judicial Commissioner. That order had become final and binding on the parties, and the respondent could not question it in any way. As a matter of fact the Commissioner of Income-tax had made an application for a reference, which application was subsequently withdrawn. The Judicial Commissioner was not sitting in appeal over the Tribunal and we do not think that in the circumstances of this case it was open to him to say that the order of the Tribunal was wrong and, therefore, there was no injustice in disregarding that order. As we have said earlier, such view is destructive of one of the basic principles of the administration of justice. In fairness to him it must be stated that learned counsel for the respondent did not attempt to support the judgment of the Judicial Commissioner on the ground that no manifest injustice resulted from the refusal of the respondent to carry out the directions of a superior tribunal. He conceded that even if the order of the Tribunal was wrong, a subordinate and inferior tribunal could not disregard it; he readily recognised the sanctity and importance of the basic principle that a subordinate tribunal must carry out the directions of a superior tribunal. He argued, however, that the order of the Tribunal was unintelligible and the respondent did his best to understand it according to his light. This argument advanced on behalf of the respondent appears to us to be somewhat disingenuous. ……..” 11.11 Further in the case of Tej International Private Limited vs. DCIT (69 TTJ Del 650), the Hon'ble Delhi High Court has held that in the hierarchical judicial system that we have in India, the wisdom of the court below has to yield to the higher wisdom of the court above. The relevant excerpts of the judgment referred supra, are reproduced below: - “7. It may be mentioned that some Benches of the Tribunal have either taken independent view on the issue in this appeal or have later on followed Hon'ble Gauhati High Court, referred to above. However, with the latest judgment of Hon'ble Karnataka High Court in Kwality Biscuits Ltd.'s case (supra) the situation is materially different. In the hierarchical judicial system that we have, better wisdom of the court below has to yield to higher wisdom of the court above and, therefore, once an authority higher than this Tribunal has expressed an opinion on that issue, we are no longer at liberty to rely upon
12 ITA.No. 5062/MUM/2019 (A.Y: 2014-15) M/s. Sejal Exports (India) earlier decisions of this Tribunal even if we were a party to them. Such a High Court being a non-jurisdictional High Court does not alter the position as laid down by Hon'ble Bombay High Court in the matter of CIT v. Godavari Devi Saraf (1978) 113 ITR 589 (Bom). Therefore, we do not consider it permissible to rely upon the earlier decisions of this Tribunal even if one of them is by a Special Bench. It will be wholly inappropriate for us to choose views of one of the High Courts based on our perceptions about reasonableness of the respective viewpoints, as such an exercise will de lacto amount to sitting in judgment over the views of the High Courts something diametrically opposed to the very basic principles of hierarchical judicial system. We have to, with our highest respect of both the Hon'ble High Courts, adopt an objective criterion for deciding as to which of the Hon'ble High Court should be followed by us.” 11.12 In view of the above detailed discussion, following the decision of the Hon'ble ITAT, Mumbai in the appellant’s own case, the AO is directed to delete the addition of ₹.1,07,30,551/- on account of Gross Profit element embedded in the impugned purchases. Accordingly, Ground No. 2 of the present appeal is allowed.”
8. On a careful perusal of the order of the Ld.CIT(A) and the reasons given therein, we do not find any infirmity in the order passed by the Ld.CIT(A) in deleting the addition made on account of bogus purchases.
Even otherwise also we find that the tax effect in this appeal is less than ₹.50 Lakhs and therefore the appeal of the revenue is not maintainable on account of low tax effect in view of the CBDT Circular No. 17/2019 dated 08.08.2019.
13 ITA.No. 5062/MUM/2019 (A.Y: 2014-15) M/s. Sejal Exports (India) 10. On the preliminary objection Ld. DR submitted that it is covered under exceptions provided under clause 10(e) of the circular which provides that when additions are made based on the information received from “external sources” the revenue appeal cannot be dismissed on monetary grounds. Ld. DR submitted that this is a case where information has been received from DGIT (Inv.) based on which assessment was made therefore falls under the exception as the information was received from external sources.
Learned Counsel for the assessee submitted that the assessment was made based on the information received from DGIT(Inv.,), Mumbai which is clearly stated in Para No.4 of the Assessment Order. It is submitted that DGIT (Inv.,), Mumbai is not an external agency but it is only an internal agency of the revenue department. Ld. Counsel for the assessee also placed reliance on the decision of the Coordinate Bench in the case of ITO v. Late Shri Amarchand P. Shah (legal heir Shri Nitin A. Shah) in ITA.No. 818 to 820/Mum/2017 dated 08.07.2019.
On a perusal of the order of the Tribunal we see that Coordinate Bench held that DGIT(Inv.,) is not an external source but is part of the revenue department working under the CBDT. Thus, even otherwise the 14 ITA.No. 5062/MUM/2019 (A.Y: 2014-15) M/s. Sejal Exports (India) revenue effect in this case is less than ₹.50 lacks. In view of what is discussed above we reject the grounds raised by the revenue.
In the result, appeal of the Revenue is dismissed.
Order pronounced on 09.03.2021 as per Rule 34(4) of ITAT Rules by placing the pronouncement list in the notice board.