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Income Tax Appellate Tribunal, “D”, BENCH MUMBAI
Before: SHRI G. MANJUNATHA & SHRI RAVISH SOOD&
IN THE INCOME TAX APPELLATE TRIBUNAL “D”, BENCH MUMBAI BEFORE SHRI G. MANJUNATHA, ACCOUNTANT MEMBER & SHRI RAVISH SOOD, JUDICIAL MEMBER ITA No.5679/Mum/2018 (Assessment Year: 2009-10) Ramesh Kumar Savalchand Vs. ITO-19(3)(1) Jain Room No.202, Matru Mandir, 2nd Floor Prop: M/s. Mahalaxmi Steel Industreis Tardeo 53/57, Bhandari Street, Shop Mumbai-400 007 No.4, 1st Kumbharwada Lane Mumbai-400 004 PAN/GIR No.AACPJ0692D (Appellant) .. (Respondent) & ITA No.5263 & 5264/Mum/2019 (Assessment Year: 2010-11 & 2011-12) Ramesh Kumar Savalchand Vs. ITO-19(3)(1) Jain Room No.202, Matru Mandir, 2nd Floor Prop: M/s. Mahalaxmi Steel Industreis Tardeo 53/57, Bhandari Street, Shop Mumbai-400 007 No.4, 1st Kumbharwada Lane Mumbai-400 004 PAN/GIR No.AACPJ0692D (Appellant) .. (Respondent)
Revenue by Mrs.Jyothilakshmi Nayak, Sr.AR (Addl, CIT) Assessee by Shri Praful L.Vora, AR
Date of Hearing 12/12/2019 Date of Pronouncement 12/12/2019 आदेश आदेश / O R D E R आदेश आदेश PER G.MANJUNATHA (A.M):
These three appeals filed by the assessee are directed against separate, but identical orders of the Ld. Commissioner of Income
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Tax (Appeals)–30, Mumbai, dated 24/07/2018 for AY 2009-10 and order of the Ld. Commissioner of Income Tax (Appeals)–04, Mumbai, dated 14/06/2019 for AYs 2010-11 and 2011-12. Since, the facts are identical and issues are common, for the sake of convenience, these appeals were heard together and are disposed- off by this consolidated order.
The assessee has, more or less raised common ground of appeal for all three AY’s. Therefore, for the sake of brevity grounds of appeal filed for AY 2009-10 in ITA No.5679/Mum/2018 is reproduced as under:-
Ld. A.O. 15(3)(1), Mumbai has not maintained date wise proceeding sheet, has not recorded the reasoning for reopening of the case before issue of Notice u/s, 147/148 of the Act. Ld, A.O. has merely relied on DIGT(I) Mumbai and Sales Tax Department opinions and informations and as per satisfaction of CIT and CBDT as per letter dated 02.07.2014 has not made inquiries in that respect, relied on borrowed informations and satisfaction and opinions of other authorities, are also not allowed for reopening of the assessment proceedings. Therefore, Notice u.'s, 147/148 is liable to be quashed and all collateral proceedings are also liable to be annulled and / or set aside. Ld. A.O. 19(3)(1), Mumbai, who has passed the order has not recorded reasons for reopening nor has issued notice u/s. 147/ 148 of the Act though he has issued fresh Notices u/s. 142(1) and 143(2) of the Act due to change of jurisdiction therefore, order passed by him is wit >out jurisdiction as he has to form his own opinion and cannot rely on the reasons recorded by his predecessor to reopen the case and to pass reassessment order Ld-CIT(A) did not decide the ground in clear verdict. 2. Ld, A.O. has not brought any documents and evidence in respect of information in respect of vendors in dispute, no materials are available on record and if available not given to the Appellant at any stage of proceedings though asked for, therefore, there is a clear violation of principles of natural justice by Ld, A.O. and for the reasons reassessment order passed is liable to be set-aside on this count also with impugned appeal order. Ld. CIT(A) did not decide these grounds in appeal though raised in first appeal, as it goes to the root of the jurisdiction matter of Ld. A.O. to reopen the assessment and to make any addition in declared income. 3. Additions made by Ld. A.O- and sustained by Ld. CIT(A) are based on suspicion, conjectures, surmises, based on third parties opinions relied on statements of vendors taken by Sales Tax Authority u/s.-14 of the
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MVAT Act, 2002 which have no value as evidence under the Evidence Act as no order 19 Rule 1 and 2 of Civil Procedure Code arc passed by the Authorities before obtaining the said Statements, hence, not to be considered in the matter of the Appellant as stated in letter of A,R. dated 02.03.2015. Appellant has disclosed and adduced his initial burden by producing details asked for and therefore, further burden is on authorities to bring sufficient cogent and corroborative evidences to discard the evidence and details submitted with Ld. A.O. and Ld, CIT(A) which have not been done by the lower authorities. Ld. A.O. failed to prove that Appellant has inflated purchases and purchase price even in single transaction out of 3 vendors. Therefore, both the orders passed by them may be set aside, addition made order and sustained in appeal may be deleted or may be reduced to token amount in the interest of justice.
The Ld. AO. erred in rejecting the books result u/s. CIT(A) of the Act and Ld so erred in holding the same as correct.
As Ld. A.O. did not attend in the Appeal proceedings inspite of notice given to him u/s. 250(1) of the Act, on adverse inference may be drawn against him u/s, 114(g) of the Evidence Act for withholding of evidences documents etc. regarding availability of evidences, documents, materials, informations etc. use against the Appellant for reopening of the case as well as for making additions Ld, CIT(A) also erred as he did not called for the record of assessment at the time of hearing nor referred the same while passing the appeal aider and also failed to decide the grounds of jurisdiction of Ld. A.O, for reopening of the case and sustaining of addition, therefore, there is fragant violence of principles of natured justice and both the orders may be set aside on this ground with deletion of addition sustained by Ld. CIT(A), Respondent may be directed to file affidavit in support of this submission. 6. It is prayed that the following Circular dated 12th July, 2018 may be considers d in this appeal. "The CBDT has issued Circular No. 03/2018 dated 11th July, 2018 by which the monetary limits for maintainability of appeals filed by Department have been enhanced significantly. The CBDT has stated that all appeals and cross objections filed by the department before the Tribunal where the tax effect is less than Rs. 20/- Lakhs should be withdrawn / treated as not pressed. The CBPT has also made it clear that the Circular will apply to appeals and cross objections to be filed henceforth and it shall also apply retrospectively to pending appeals and cross objections. Thus Highest authority is not interest in pursuing of such appeals having tax liability less than Rs. 20'- lakh, this appeal may be allowed in all respect and addition sustained in appeal may be deleted.
Judgment of Gujarat High Court referred and relied by FAA cannot be o the case of the Appellant as in those cases it was accepted that has
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purchased the goods from other panics and recorded the purchases in the name of Vendors in the books of accounts. The judgments cited of Honorable Bombay High Court and 1TAT, Mumbai are not considered at all, there is no iota of word in appeal order, which are binding to all the lower authorities. 8. Appellant says an submit that when the appeal is partly allowed Ld. CIT(A) ought to have decided all the grounds of appeal and to pass reasoned and speaking order which has not been done by Ld- CIT(A) in the case of appellant 9. The interest levied u/s. 274A, B, C and D levied on amount of tax of additions male and sustained in appeal may be deleted or may be reduced to token amount considering the facts of the case, 10. If a delay caused in filing of this appeal may be condoned. 11. Appellant craves the liberty with prayer to allow to add or to alter or to amend or to change any grounds of appeal on or before the hearing of appeal. 12. Appellant may be allowed to submit an application for delay condonation issuing of an Ad Interim Stay Order and an Absolute Stay Order and Paper Book after filing of this appeal.
The brief facts of the case are that the assessee is engaged in the business of trader in steel and other metals in the name and style of M/s. Mahalaxmi Steel Industries, filed his return of income for AY 2009-10 on 28/09/2009, declaring total income of Rs.4,07,510/-. The return filed by the assesse was processed u/s 143(1) of the I.T.Act, 1961. Thereafter, the case has been reopened u/s 147, on the basis of information received from DGIT, investigation, Mumbai, as per which, Sales Tax Authorities of Government of Maharashtra had taken actions against number of Hawala dealers, who had issued bogus purchase bills to various parties. As per list of beneficiaries, the assessee is one of the beneficiary, who had taken accommodation bills of bogus purchases bills from various parties as listed by the AO in para 2 of his assessment order amounting to Rs. 1,02,92,636/-. The case was selected for scrutiny and the assessment has been completed u/s. 143(3).r.w.s. 147 of the I.T.Act, 1961 on 13/03/2015 and determined total income of Rs. 29,80,670/-, after making addition of 25% gross
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profit on alleged bogus purchase from those parties and made additions of Rs. 25,73,159/- to total income declared for the year.
Aggrieved by the assessment order, the assesee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assesse has filed elaborate written submissions, on the issue, which has been reproduced at Para 4 on pages 3 to 5 of ld. CIT(A) order. The sum and substance of the arguments of the assessee before the Ld.CIT(A) are that purchase from the above party is genuine, which is supported by necessary evidences. Therefore, no additions could be made on the basis of information received from third party. The assessee had also challenged reopeing assessment. The Ld.CIT(A), after considering relevant submission rejected legal ground taken by the assessee challening reopening assessment. Insofar as addition towards alleged bogus purchases after considering arguments of the assessee and also, by following the decision of Hon’ble Gujarat High Court, in the case of CIT vs. Simith P. Sheth (356 ITR 451) scaled down addition made by the AO to 12.50% gross profit on alleged bogus purchases/-. The relevant findings of the Ld.CIT(A) are as under:-
Carefully considered the rival submissions, perused the material on record and duly considered the factual matrix of the case as well as the applicable legal position before arriving the following conclusion/decision. 6.1 The Ground No- 1 to 4, deals with the estimated addition made by the 1,02,92,6367-, 6.2 I have carefully considered the rival contentions on the issue on hand. On perusal of the assessment order, ft is noticed that, in the appellant's case, Ld. AO has made independent verifications, apart from the information received from the Sales Tax Department Notice was issued u/s 142(1) of the Act, calling for several details with regard to the purchases and sales supported by bills and vouchers. The appellant failed to furnish all the details and requested the AO to complete the assessment after making a reasonable addition. In the present case, there is overwhelming evidence in the form of statement of supplier given
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before the Safes tax authorities that it was engaged only in issuing hawala bills and no goods were ever supplied by them. 6.3 After weighing the evidence pros and cons, I find that the appellant has not reconciled the purchases with the items sold despite giving an opportunity to do so, by the AO during the assessment proceedings. Onus is always on the appellant to prove as to how the material purchased was firstly obtained. The assessee could not submit the details called for by the A.O. and failed to link purchases with corresponding sales. Thus, it can be safely presumed that either they are non-existent or even if they did exist, they were not backed by sufficient evidence to undergo the test of scrutiny. 6.4 The supplier was in fact the appellant's witness and the Ld. AO was not required to force their attendance. It was for the appellant to produce them as per Civil Procedure Code, which applies on all fours to the income-tax proceedings. It is trite that once a transaction is shown to be of the nature of income, the onus shifts to the assessee to show that the same is not taxable. It can thus be safely assumed that the appellant has grossly failed in its duty to mitigate the burden cast upon it In so far as proving the genuineness of the transaction from the said party is concerned. 6.5 AR in the written submissions also stated that the AO not issued 133(6) notices, not summoned the parties etc., to verify the genuineness of the purchases. In this regard it is pertinent to mention that while dealing with the concept of burden of proof, onus of proving is always on the person who makes the claim and not on the Revenue. While dealing with the issue of deciding the burden of proof, Hon'ble Supreme Court in the cases of CIT Vs. Durgaprasad More 82 ITR 540 and Sumati Dayal Vs. CU 214 ITR 801 has held that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not real and that Taxing Authorities are entitled to look into surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities. The Hon’ble court also held that, it is no doubt, true that in all cases in which a receipt is sought to be taxed as income, the burden lies on the department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden to prove that it is not taxable because it falls within exemption provided by the Act, lies upon the assesses. In the case of Durgaprasad More (Supra), the Hon’ble Court went on to add that a party who relies on a recital in a Deed has to establish the truth of this recital, otherwise it will be very easy to make self serving statements in documents either executed or taken by a party who relied on those recitals. If all that an assessee who wants to evade tax has to have L some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. The Hon’ble Court further held that the Taxing Authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look in to the surrounding circumstances to find out the reality of the recitals made in those documents.
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6.6 ' It is also a settled legal proposition that if no evidence is given by the party on whom the burden is cast, the issue must be found against him. Therefore, onus is always on a person who asserts a proposition or fact, which is not self-evident. The onus, as a determining factor of the whole case can only arise if the tribunal which is vested with the authority to determine finally all questions of fact, finds the evidence pro & con, so evenly balanced that it can come to no conclusion, then the onus will determine the matter. However, in the instant case, the appellant has miserably failed to lead evidence and hence, onus is a determining factor.
6.7 Ld. AO added an amount Rs, 25,73,159/-, being 25% of the total non-genuine purchases to the total income of the assessee. Thus, the issue would boil down whether the element of profit adopted by the AO @25% treating the same as the profit element embedded in such bogus purchases, which the appellant would have made from some unknown entities is correct or not.
6.8 Hon’ble Gujarat High Court in the case of CIT vs. Simit Sheth (2013) 356 ITR 451 (Guj), Hon’ble Court was seized with the similar issue where the A.O. had found that some of the alleged suppliers of steel to the assessee had not supplied any goods but had only provided sale bills and hence, purchases from the said parties were held to be bogus. The AO, in that case added the entire amount of purchases to gross profit of the assessee. Ld. CIT (A) having found that the assessee had indeed purchased though not from named party Out other parties from grey market, partially sustained the addition as probable profit of the assessee. The Tribunal however, sustained the addition to the extent of 12.5%. Taking into account the above facts, the Hon'ble Gujarat High Court held that since the purchases were not bogus, but were made from parties other than those mentioned in books of accounts, only the profit element embedded in such purchases could be added to the assessee's income and as such no question of law arose in such estimation. While arriving at the above conclusion, the Hon’ble Court also relied on the decision in the case of Vijay M. Mistry Construction Ltd. 355 ITR 498 (Guj) and further approved the decision of Ahmedabad Bench, P"AT in the case of Vijay Proteins 58 ITD 428.
6.9 Hon'ble Gujarat High Court in the case of CFT vs. Simit P. Sheth 356 ITR 451 (Guj), upheld the decision of the ITAT, which confirmed the addition @12.5% of the total bogus purchase. Taking into account the facts of the case, the Hon'ble Gujarat High Court held that since the purchases were not bogus, but were made from parties other than those mentioned in books of accounts, only the profit element embedded in such purchases could be added to the assessee's income and as such no question of law arose in such estimation.
6.10 The appellant made purchases from parties who are said to be hawala operators, who is indulged in providing bogus bills without supply of any material. Independent inquiries conducted revealed that no such party is existing in the given address. When asked to produce the party during the assessment proceedings by the AO, appellant expressed his
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inability to do so. In the present case, A.O estimated the profit percentage on bogus purchases as 25%. The simple issue to be decided is whether the percentage adopted by the AO is correct in the line of business i.e. trading in ferrous and non-ferrous metals. As noticed above, in the similar circumstances of bogus purchases, Hon'ble Gujarat High Court estimated the additional advantage towards tax benefit. In view of the above, in my considered opinion, if the profit percentage embedded on such purchases is restricted to 12.5% that will meet the ends of the justice. Taking all the facts into consideration and applying the logic of Simit P. Sheth case, the A.O. is directed to restrict the estimation @ 12,5% on the non genuine purchases of Rs, 1, 02,92, 636/-. Appeal on Ground No. 1 to 4 is treated as "Partly Allowed'.
In Ground No. 6 of the appeal is against reopening of the assessment. It is stated in the ground that A.O. erred in issuing notice u/s 148 of the Act. 7.1 : The submissions made in the ground and the statement of facts by the appellant are carefully examined with reference to the facts of the case and material placed on record. It is settled legal position that in a case where there was no assessment or re-assessment prior to reopening of assessment, even if all the material facts are disclosed in the return of income already filed, reopening can be initiated, if the Assessing Officer has 'reason to believe' that the income has escaped assessment. The assessee in such cases cannot assail the reopening on the ground that the facts were already placed on record and that the Assessing Officer ought to have considered the facts. Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaverr Stock Brokers (P) Ltd. (291 ITR 500} observed that the word 'reason' in the expression reason to believe' would mean cause or justification and if the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reasons to believe that income had escaped assessment. It is further observed by the Supreme Court that the expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. At the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could it is evident from the reasons recorded as reproduced in the statement of facts by the appellant that the AO has received specific and credible information from the DGIT(lnv.), Mumbai that the assesses was involved in making bogus purchases through hawala dealers to the extent of Rs, 1,02,92,636/-. The information prima facie revealed that the appellant has claimed purchases for the A.Y. 2009-10 in their books. Based on this precise information, the AO issued notice u/s. 148 of the I,T. Act as he had prima-Facie reasons to believe that income chargeable to tax had escaped assessment within the meaning of sec. 147 of the I,T. Act. Thus, there was cause or justification for the AO to invoke provisions of sec. 147 and issue notice u/s. 148. As already mentioned, at the initiation stage, what is required to be seen is whether there are prima-facie 'reasons to believe' but not the established fact of escapement of income- The AO also recorded proper reasons for
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formation of the belief that income has escaped assessment. It is also important to note that the information relating to Hawala operators was also made available in public domain i.e. in the official website of the Maharashtra Safes Tax Department and therefore the reasons for reopening the assessment are not based on mere suspicion. Thus, all the conditions necessary for reopening of the assessment under the provisions of sec. 147 and for issue of notice u/s. 148 are satisfied in the case of the appellant for the year under appeal. For the foregoing reasons, it is held that reopening of the assessment under section 147 of the Act was done properly following the due procedures raid down by the law and there is no infirmity or illegality in reopening the assessment and the notice issued u/s, 148 for the year under consideration is perfectly legal and valid. Resultantly, Ground No- 6 relating to the reopening is 'Dismissed'.
We have heard both the parties, perused the material available on record and gone through orders of the authorities below. We find that the Ld. AO has made addition of 25% gross profit towards alleged bogus purchases, on the ground that the assessee one of the beneficiary of accommodation entries of bogus purchase bills issued by Hawala dealers. According to the Ld. AO, although assesee has filed certain basic evidences, but failed to file further evidence in the backdrop of clear finding by the Sales Tax Department, Maharashtra that those parties are involved in providing accommodation entries without actual delivery of goods. The Ld. AO had also taken support from the investigation conducted during the course of assessment proceedings, as per which notice issued u/s 133(6) to the party were returned un-served by the postal authorities. Therefore, he came to the conclusion that purchase from the said party is bogus in nature. It is the contentions of the assessee before the lower authorities that a purchase from the above party is supported by necessary evidences. It has furnished all possible evidences, including books of accounts; stock details and bank statement to prove that payment against said purchases have been made through proper banking channels.
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6 Having considered arguments of both parties and also, considered materials available on record, we find that both the sides failed to prove the case in their favour with necessary evidences. Although, assessee has filed certain basic evidences, but failed to file further evidences to conclusively prove purchases to satisfactions of the Ld.AO. At the same time, the Ld. AO had also failed to take the investigation to a logical conclusion by carry out necessary enquires, but he solely relied upon information received from investigation wing, which was further supported by information received from Maharashtra Sales Tax Department. Under these circumstances, it is difficult to accept arguments of both the sides. Further, in cases invloved alleged bogus purchases, various High Courts and Tribunals had considered an identical issue in light of investigation carried out by the Sales Tax Department and held that in case purchases claims to have made from alleged hawala dealers , only profit element embedded in those purchases needs to be taxed, but not total purchase from those parties. The Hon’ble Gujarat High Court, in the case of CIT vs Simith P.Sheth 356 ITR 451 had considered a similar issue and held that at the time of estimation of profit from alleged bogus purchases no uniform yardsticks could be adopted, but it depends upon facts of each case. The ITAT, Mumbai, in number of cases had considered an identical issue and depending upon facts of each case, directed the Ld.AO to estimate profit of 10% to 15% on total alleged bogus purchases. In this case, considering the nature of business of the assessee the Ld. AO has estimated 25% gross profit, whereas the Ld.CIT(A) has scaled down addition to 12.50% gross profit on total alleged bogus purchase. Although, both authorities have taken different rate of gross profit for estimation of income from alleged bogus purchase, but no one could
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support said rate of gross profit with necessary evidences or any comparable cases. In this case, the assessee is into the business of trading in Iron and Steel materials. The VAT rate applicable to said goods is 4%. The assessee may have saved 4% VAT component and further 2% to 3% in price reduction by indulging in obtaining accomadation entries from entry providers. Therefore, considering facts and circumstances of this case and consistent with view taken by the Co-ordinate Benchs in number of cases, we direct the ld. AO to adopt 6.50% (probable savings in 4% VAT + 2.5% margin on purchases) gross profit on alleged bogus purchases amounting to Rs. 1,02,92,636/- from those two parties.
In the result, appeal filed by the assessee for AY 2009-10 is partly allowed.
ITA No.5263/Mum/2019 for AY 2011-12 & ITA No.5264/Mum/2019 for AY 2010-11:-
The facts and issues involved in these two appeals filed by the assesse are identical to the facts and issues, which we had considered in ITA No.5679/Mum/2018 for AY 2009-10. The reasons given by us in preceding paragraphs in ITA No.5679/Mum/2018 shall mutatis mutandis apply to this appeal, as well. Therefore, for similar reasons recorded in ITA No.5679/Mum/2018, we direct the Ld.AO to estimate 6.50% gross profit on total alleged bogus purchases from suspicious/hawala dealers.
In the result, appeals filed by the assessee for AY 2010-11 and 2011-12 are partly allowed.
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As a result, all appeals filed by the assessee are partly allowed.
Order pronounced in the open court on this 12 /12/2019
Sd/- Sd/- (RAVISH SOOD) (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 12 /12/2019 Thirumalesh Sr.PS
Copy of the Order forwarded to : The Appellant 1. The Respondent. 2. The CIT(A), Mumbai. 3. CIT 4. DR, ITAT, Mumbai 5. BY ORDER, 6. Guard file. स�यािपत �ित //True Copy// (Asstt. Registrar) ITAT, Mumbai