VIPUL NIRANJAN SHAH,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 2, PUNE

आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: This is an appeal filed by the Assessee directed against the order of ld.Commissioner of Income Tax(Appeals), Pune-5, Pune Appeal No.PN/CIT/CIT(A)-5/DCIT, Cir-2, Pune/413/2013-14 dated 24.02.2017for the Assessment Year 2010-11.The Assessee raised following grounds of appeal: “1. The Deputy Commissioner of Income Tax, Circle-2, Pune has erred in assessing total income returned by the assessee of Rs. 80,73,640/- at a higher amount of Rs. 1,89,30,910/- and the Commissioner of Income tax (Appeals), Pune-5, Pune has erred in confirming the same. 2. The Deputy Commissioner of Income Tax, Circle-2, Pune has erred in making aggregate additions of Rs. 66,51,2651- and the Commissioner of Income tax(Appeals), Pune-5, Pune has erred in confirming the same. 3. The Deputy Commissioner of Income Tax, Circle-2, Pune, has erred in making an addition of Rs. 12,00,473/- to the returned income of the assessee by treating certain purchases as hawala purchases and considering the same as unexplained under section 69C of the Income Tax Act, 1961 (the Act) and the Commissioner of Income tax (Appeals), Pune-5, Pune has erred in confirming the same.

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The Assessee filed appeal against the said Assessment Order before Commissioner of Income Tax (Appeals) 5, Pune. The Commissioner upheld both the additions made by the AO. Aggrieved with the said order of Commissioner of Income Tax (Appeals), the assessee has filed an appeal before this tribunal.

3.Ground Related to Addition u/s 69C:

The AO in the assessment order has mentioned as under :

“3.1 During the assessment proceedings, the assessee was asked to submit the break-up of purchases. From the details submitted, it was found that the assessee had claimed purchases on account of the following parties :

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Sr.No. TIN No. Name of the Supplier/hawala Amount of dealer purchases 1 27850646616V DHRUVIT SALES 99,800.00 CORPORATION 2 27250553632V KINJAL INTERNATIONAL 199,159.00 3 27940520224V SUDHA TRADING 401,905.00 COMPANY 4 27930121705V VIRESH SALES 398,514.00 CORPORATION 5 27640574321V KANTILAL BROTERS 101,094.00 Total 1,200,472.00

3.2 The above parties have been listed as suspicious hawala dealers in the official Website of Maharashtra Sales Tax Department. These parties have issued bogus bills without actually supplying the goods. Therefore, a show cause notice dt.08.02.2013 was served on the assessee to prove the genuineness of purchases by producing the above parties before the undersigned in substantiation of the claim of purchases. Alternatively, the assessee was also given an opportunity to prove the actual physical movement and delivery of goods by way of circumstantial evidences, such as, Purchase Orders/ Purchase Bills/ Lorry Receipts/ Octroi Payments/delivery challans/Inward Register, etc. 3.3 The assessee has replied vide letter dt. 25.02.2013. The submissions of the assessee have been summarized as below: “1. In the notice it is stated that the parties mentioned therein are established by the Sales Tax Departjment as Hawala Dealers. This not ture. In fact the Sales Tax Department have published a list of the suspicious dealers, on their website, and in that list, the names of the dealers, mentioned in the notice issued by you are included. 2. We have effected the purchases from the parties mentioned in the notice, in support of the we are enclosing herewith the following: a. copies of purchase bills b . copies of sale bills 3. Material received from suppliers have been sold to various parties. 4. Materials have been transferred from Mumbai to Pune, in some cases directly to end user and in other case have been brought by a contract transporter, viz. Namely, Mr. Pradeep

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Khopde – Payment to him have been made by cheque. TDS and Service Tax due on the same have also been paid. 5. The above facts, along with documents, prove that we have made genuine transactions of sales and purchases. We are also enclosing herewith a statement giving correaltion of purchase and sales. 6. Their, the supplying parties, non payment of MVAT has required us to pay the same, since we have taken the credit for it. This payment is required to be made on account of reversal of set off. As per judgement of the Hon’ble Bombay High Court in the case of M/s. Mahalxmi Cotton Ginning pressing and oil Industries (Writ Petition no 33 of 2012 dated May 11, 2012), if the seller did not deposit the tax on the sales effected by him into government Treasury, then the subsequent purchasers who have effected the purchases from such defaulting seller will not get the set-off. Accordingly, we reversed the set-off of the sales tax paid by effecting the purchases from the parties mentioned in your notice and revised the sales tax returns giving the effect of such reversal. The purchases are being transferred to “Purchases not eligible forest off”. This action of ours is accepted by the sales tax department and accordingly the proceedings initiated for making payment towards reversal of set-off is closed. 7. Non payment of the MVAT by the supplying parties does not nullify the trade. The fact remains that goods have been purchased and sold by us. Considering the facts and legal positions we hereby request that the purchases from the parties mentioned in your notice may be allowed as normal trade purchases.” 3.4 The submission made by the assessee are considered and the same are not acceptable. The arguments given by the assessee are theoretical in nature, which makes it amply clear that the arguments are an afterthought to present the non genuine purchases as genuine purchases by way of correlating the purchases with sales. The assessee has not produced the concerned parties as his witness in support of the claim of purchases made in the return of income. Alternatively, the assessee was also given an opportunity to prove that there was actual physical movement of goods and delivery of goods. The assessee has not produced any of the evidences which prove that there was actual physical delivery of goods from the said parties. All that the assessee has produced are the bills raise by the above said parties and in some cases credit notes given by them. The assessee has

ITA No.1453/PUN/2017 for A.Y. 2010-11 Vipul Niranjan Shah (A)

not produced any of the evidences to prove that there was physical movement of goods. The assessee has tried to justify his theory that without purchase of goods sale of goods would not be possible for which he has given a correlation of goods purchased and the parties to whom goods have been sold. Such correlation remains merely theoretical without the backing of supporting documents for the underlying transactions. 3.5 The assessee has argued that the Sales Tax Department has not established that the above said parties are hawala dealers. He has submitted that the department has published a list of suspicious dealers. Such arguments of the assessee cannot be accepted. Among the suspicious dealers, many hundreds of dealers have submitted affidavits stating that they have not done any business and have merely issued bills without actual supply of goods. The assessee has submitted that materials have been transferred from Mumbai to Pune and in some cases directly to the end-user and in other cases have been brought by a contract transporter for which payments have been made by cheques. The assessee has not provided any supporting documents for such arguments. Therefore, the arguments of the assessee are rejected due to lack of merit. The assessee has submitted that he has relied on the judgement of the Hon’ble High Court in the case of M/s. Mahalaxmi Cotton Ginning Pressing and Oil Industries (writ petition No.33 of 2012 dt. May 11, 2012 and has reversed the ITC claimed on account of purchases from the above parties. The assessee’s argument that non-payment of MVATG by supplying parties does not nullify the trade and the fact remains that goods have been purchased and sold by him cannot be accepted because the assessee has not given any supporting documents for actual physical delivery of goods by the above said parties. 3.6. Based on the above arguments, the purchases claimed by the assessee from the above said parties cannot be treated as genuine. Therefore, the expenses calimed by the assessee stand ‘unexplained’ and hence attracting provisions u/s. 69C of the IT Act. The total quantum of purchases from the above parties is an amount of Rs.12,00,473/- . Hence, an amount of Rs.12,00,473/- is added back to the returned income u/s. 69C of the I.T.Act. Penalty proceedings u/s. 271(1)(c) are initiated for furnishing inaccurate particulars of income (Addition : Rs.12,00,473/-)” 3.1. The CIT(A) has mentioned as under : “7.6 I have perused carefully the material on record and contention of the Appellant. Some undisputed facts which emerged are that, a) the Appellant did not produce the concern parties as its witness in support of the claim of purchases made in the Return of Income. B) Despite opportunity given, the Appellant could not produce evidence of

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physical movement and delivery of the goods from the said parties. C) The Appellant only produce bills and in some cases credit notes. 7.6.1 I tend to agree with the AO, that the theory of the Appellant that without purchase of goods, sale of goods would not be possible for which he gave a correlation of goods purchased and parties to whom goods had been sold, such correlation remains theoretical without the backing of supporting documents of underlying transactions. It is also stated by the AO that, many of the hawala dealers had given affidavits of merely giving bills. The appellant could not produce any documents regarding transfer of the goods from Mumbai to Pune or to the end user. The contentions of the Appellant of the power of AO to call witness is devoid of merit. The onus was on the Appellant to produce the purchasers from whom he had made the purchase. The contention of the Appellant, that there was no proof except the list of Sales Tax Department had no legs to stand. The investment in these purchases also could not be proved by the Appellant. All this definitely proves that, the Appellant did not effect any purchase at all. Therefore, the expenses claimed by the Assessee stand ‘unexplained’ and the AO has rightly added back this amount u/s 69C of the I.T.Act. The addition so made is sustained. The Ground No.3 and 4 are hereby dismissed.” 3.2 The learned AR took us through the Assessment Order. He submitted that the appellant is a trader , his sales have not been doubted by the department. The learned AR submitted that when there are sales there has to be corresponding purchases. Sales are impossible without purchases in the case of a trader. Therefore, he submitted that the purchases are genuine.

3.2.1 The DR relied on the orders of the AO and CIT(A)

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“8. In the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entitles who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entitles were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee’s additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee’s sales. There was no discrepancy between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujrat High Court in the case of N.K. Industries Ltd. (supra) cannot be applied without reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and observed as under- “So far as the question regarding addition of Rs.3,70,78,125/- as gross profit on sales of Rs.37.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during the Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6% gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66%. Therefore, considering 5.66% of Rs.3,70,78,125/- which comes to Rs.20,98,621.88 we think it fit to direct the revenue to add Rs.20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue.” 9. In these circumstances, no question of law, therefore, arises. All the Income Tax Appeals are dismissed, accordingly. No order as to costs.”

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5.1 Thus there cannot be any sales in the absence of purchase. The department has not doubted the sales of the appellant. The Ld. Department Representative and The Ld.AR has not brought to our notice any contrary decision to the decision of Hon’ble Bombay High court mentioned above. Therefore, respectfully following the decision of Hon’ble Bombay High Court, the Assessing Officer is directed to find out the GP on the Genuine purchases, then apply the same GP for the so called non genuine purchase. For this purpose the matter is remanded to the file of the Assessing Officer. The appellant shall provide all the essential information to the Assessing Officer regarding the genuine purchases so that the Assessing Officer can arrive at the GP for the genuine purchase. Assessing Officer is free to make necessary inquiry to arrive at the correct GP. However, doing so, the Assessing Officer shall provide an opportunity to the assessee. Thus, the ground number 3 is remanded back to the file of the Assessing Officer.

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7.1 Before the CIT(A) the Assessee raised the contention that Assessee had not earned exempt income from mutual funds rather it earned taxable income from mutual fund. The CIT(A) rejected this contention on the ground that it was not raised before the Assessing Officer. The assessee also claimed before the CIT(A) that entire investment was from own funds and not from borrowed funds. The assessee also claimed that no expenditure has been incurred for earning exempt income. However, the CIT(A) upheld the addition. 7.2. The A.R. submitted that own funds have been invested and no expenditure had been incurred. AR also claimed that separate books of accounts have been maintained for personal and business expenditure. A.R. also filed letters from mutual funds to prove that no exempt income have been earned. The Ld. D.R. relied on CIT(A)’s order and Assessment order. Further, the

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Ld.D.R. also pointed out that the letters from mutual funds were neither filed before the CIT(A) nor before the AO. The Ld.AR also accepted that these papers were not filed before CITA(A)/AO.

7.3 In this background, facts and circumstances of the case, the issue is set aside to the file of A.O. The A.O is directed to verify the assessee’s claim and decide the issue De-novo. However, the A.O. shall provide an opportunity to the Assessee, and the assessee shall file all the relevant documents. Thus, this ground is set aside. 8. Thus, the appeal is partly-allowed for statical purposes. Order pronounced in the open Court on March, 22nd 2022.

s Sd/-/- S Sd/-d/- (PARTHA SARATHI CHAUDHURY) (DR. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; �दनांक / Dated :March, 22nd 2022/ SGR/Ashwini* आदेशक��ितिलिपअ�ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(A)-Central, Pune. 4. The Pr. CIT concerned, Pune. िवभागीय�ितिनिध,आयकरअपीलीयअिधकरण, “ए” ब�च, 5. पुणे / DR, ITAT, “A” Bench, Pune. गाड�फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // TRUE COPY // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे/ITAT,Pune.