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Income Tax Appellate Tribunal, MUMBAI BENCH “C” MUMBAI
Before: SHRI RAVISH SOOD & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the assessee. The relevant assessment year is 2009-10. The appeal is directed against the order of the Commissioner of Income Tax-47, Mumbai [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) r.w.s. 147 of the Income Tax Act 1961, (the ‘Act’).
During the course of hearing, the Ld. counsel for the assessee submits that he would not like to press the 1st and 2nd ground of appeal. In the written submission signed and filed by him it is mentioned that the 1st and 2nd ground of appeal are not pressed. Having considered the Pooja Exports 1st and 2nd ground of appeal are dismissed as not pressed.
The 3rd ground of appeal
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) also erred in exercising powers of enhancement. The Ld. CIT(A) here lost sight of a vital aspect of law that under the provisions of section 251 of the Income Tax Act, 1961, an Appellate Commissioner has powers to enhance only order of ‘assessment and not a’ re-assessment order u/s 147. The enhancement made by the Ld. CIT(A) of Rs.13,99,83,745/- the income of the appellant is therefore without jurisdiction and deserves to be deleted in appeal. The 4th ground of appeal Even otherwise, on merits, the enhancement of Rs.13,99,83745/- by the Ld. CIT(A) to the income of the Appellant is totally misconceived and deserves to be deleted or in the alternate, reduced in appeal.
4. Briefly stated, the facts are that the nature of business of the assessee is export of cut and polished diamonds, rough diamonds and re- assortment of polished diamonds. A search and seizure action u/s 132 of the Act was carried out in the case of the assessee, its group concerns and at the residential premises of its partners and Directors of group companies and employees Shri Sunil Sudhir Kothari, Shri Sanju Sudhir Kothari, Shri Tejas Shah, Shri Ramakant Sawant, Shri Ganesh Salunkhe, Shri Pramod Amberkar on 28.07.2009. Consequent to the above action, notice u/s 153A was issued by the Assessing Officer (AO) on 14.12.2009 Pooja Exports asking the assessee to file its return of income. In response to it, the AO filed the return of income on 28.10.2010 declaring total income of Rs.8,50,17,150/-. The AO completed the assessment u/s 143(3) r.w.s. 153A on 29.12.2011 making an addition of Rs.5,25,49,162/- (income from undisclosed sources) and Rs.1,00,000/- (out of telephone expenses). Thus the AO arrived at a total income of Rs.13,76,66,310/-.
Aggrieved by the order of the AO, the assessee filed an appeal before the CIT(A). It is found that the Ld. CIT(A) deleted the additions made by the AO. In further appeal, the Tribunal confirmed the order of the CIT(A). Subsequently, the AO issued notice u/s 148 dated 29.03.2014 to the assessee with the reason that he had received information from the Director General of Income Tax (Investigation) that the assessee had made bogus purchases from one Bhanwarlal Jain Group. In the assessment order dated 20.03.2015, the AO made an addition of Rs.55,31,163/- to the income computed in the assessment order dated 29.12.2011 which was Rs.13,76,66,312/-. Thus the total taxable income arrived at by the AO was Rs.14,31,97,480/-.
Aggrieved by the order of the AO dated 20.03.2015, the assessee filed an appeal before the Ld. CIT(A). During the course of appellate proceedings, the assessee was asked to file complete details of purchase and sales of diamonds for the year under consideration. The assessee filed details which are as under :
Month Opening Stock Purchases (In. Rs.) Sales (In Rs.) Closing Stock Monthly Profit / (In. Rs.) (In. Rs.) Loss (In. Rs.) Apr-08 6,49,49,076 27,14,92,758.00 25,70,69,991.00 8,48,96,107.20 -55,24,264.20 Pooja Exports May-08 8,48,96,107.20 20,64,88,977.80 18,12,88,548.00 10,57,62,787.55 43,33,749.45 Jun-08 10,57,62,787.55 16,13,59,842.00 16,79,40,327.00 8,12,78,491.85 1,79,03,810.70 Jul-08 8,12,78,491.85 23,34,67,160.50 16,84,39,978.00 18,60,23,445.31 -3,97,17,770.96 Aug-08 18,60,23,445.31 30,90,71,824.00 34,85,64,863.00 11,50,90,139.66 3,14,40,266.65 Sep-08 11,50,90,139.66 18,80,85,132.00 20,57,64,429.00 10,08,99,528.13 -34,88,685.47 Oct-08 10,08,99,528.13 21,63,30,139.00 15,69,25,670.00 12,77,34,380.52 3,25,69,616.61 Nov-08 12,77,34,380.52 5,41,49,644.00 18,01,17,836.00 6,18,88,071.29 -6,01,21,882.77 Dec-08 6,18,88,071.29 8,54,96,503.00 6,32,55,108.00 6,11,15,344.11 2,30,14,122.18 Jan-09 6,11,15,344.11 0.00 5,29,23,511.00 4,48,54,137.80 -3,66,62,304.69 Feb-09 4,48,54,137.80 0.00 4,39,64,313.00 0.00 8.90.118.80 1,72,59,41,980.30 1,82,62,54,280.00 3,53,63,223.70 The Ld. CIT(A) on perusal of the above details observed that the assessee has booked huge losses from the sale/export of rough diamonds. He held that the assessee has booked a net loss of Rs.3,53,63,223/- in the trading of rough diamonds for the full year under consideration. Also examining the month-wise data of trading in rough diamonds, he tabulated the following figures :
Sr. No. Month Monthly Profit Loss (in Rs.) 1. Apr-08 -55,24,264.20 2. Jul-08 -3,97,17,770.96 3. Sep-08 -34,88,685.47 4. Nov-08 -6,01,21,882.77 5. Jan-09 -3,66,62,304.69 Total -14,55,14,908.09 From the above data, the Ld. CIT(A) observed that by entering into bogus purchase transactions, the assessee has been able to reduce its trading profits to the extent of Rs.14,55,14,908/-. Allowing benefit of the Pooja Exports Rs.55,31,97,475/- made by the AO towards profit embedded in bogus purchases, the Ld. CIT(A) enhanced the income of the assessee by Rs.13,99,83,745/-.
Before us, the Ld. counsel for the assessee submits that the CIT(A) has no power to enhance in an appeal against re-assessment order u/s 147 of the Act. As per him an order of reassessment is an order where the income is reassessed after it was assessed. Thus it is argued by him that the expression ‘reassessment’ contemplates a second assessment. It is explained by him that in the scheme of assessment provisions and appeal provisions of section 246A, the legislature has deliberately used ‘assessment’ along with ‘reassessment’ so as to assign mutually exclusive meanings to them. It is thus argued by him that unless the statute confers power of enhancement on the appellate authority, it cannot enhance. The Ld. counsel submits that since the word ‘re-assessment’ is absent in section 251(1)(a), the CIT’s power to enhance is applicable only to original assessment and not to re-assessment u/s 147. It is stated by him that clause (d) permits the Appellate Commissioner to ‘pass such as he thinks fit’ and similar words can be found in section 251(1) which deals with order to be passed by Appellate Tribunal. It is argued by him that noting these words, the Supreme Court in Hukumchand Mills Ltd. v. CIT (1967) 63 ITR 232 (SC) has held that the powers of the Appellate Tribunal are wide but does not include power of enhancement unlike powers of Commissioner (Appeals). Thus the Ld. counsel submits that the power of the Appellate Commissioner to deal with appeal against re- Pooja Exports (d) and the same should align with ‘natural powers’ which cannot contain enhancement. On merits, it is argued by him that the assessee deals in rough and polished diamonds. During the course of appellate proceedings, the Ld. CIT(A)sought details of stock, purchases and sales of rough diamonds only and the assessee gave month-wise details from his ‘Tally Application’. It is stated by him that the Ld. CIT(A) mistakenly assumed his ‘minus’ figures as ‘losses’ for that month, which actually are ‘profits’ and based on this, he erroneously inferred that the assessee had booked ‘losses’ by inflating purchases. Thus it is stated that the Ld. CIT(A)rejected the book results and estimated gross profit suppression at Rs.14,55,14,908.09 (i.e. total of so called minus monthly figures) and this includes disallowance of Rs.55,31,163/- towards alleged bogus purchases. Thus the effective enhancement by the CIT(A) is Rs.13,99,83,745/-.
On the other hand, the Ld. DR submits that the power of enhancement stands specifically conferred on the CIT(A) by section 251(1)(a) of the Act. Further, it is submitted by him that the reliance placed by the Ld. counsel on the decision in Hukumchand Mills Ltd. (supra) is misplaced as in that case, the Hon’ble Supreme Court has held that the Tribunal has power to remand the matter back to the AO. It is stated by him that a proper reading of the above decision of the Supreme Court indicates that the Appellate Assistant Commissioner did have the power of enhancement while possibly the Tribunal may not have. Thus it is stated by him that the power of enhancement stands specifically Pooja Exports CIT(A) u/s 251(1)(a) of the Act. On merits it is stated by him that the appellant’s contention is correct, however, conversely the positive figures for the months of May, June, August, October, December, (2008) and Feb (2009) are negative figures. It is stated by him that in the chart prepared by the Ld. CIT(A), the negative and positive figures got inter-changed, inadvertently. It is finally explained by him that however, after considering the correct calculations also, there is still a total loss of Rs.11,01,51,684/- and the enhancement made by the Ld. CIT(A) may be adjudicated by taking this amount of Rs.11,01,51,684/- instead of Rs.14,55,14,908/-.
We have heard the rival submissions and perused the relevant materials on record. It is clear that section 2(8) of the Act defines that ‘assessment’ includes ‘re-assessment’. Therefore, CIT(A) has power to enhance an order of ‘re-assessment’. However, on merits we find that in the instant appeal, the assessee deals in rough and polished diamonds. During the course of appellate proceedings, the assessee filed month-wise details in response to the query raised regarding details of stocks, purchases and sales of rough diamonds only. We find that the Ld. CIT(A) mistakenly assumed the ‘minus’ figures as ‘losses’ which actually are profits. Because of this mistaken assumptions, he inferred that the assessee has booked ‘losses’ by inflating purchases. Further, the figures dealt by the Ld. CIT(A)related to rough diamonds. Also he mistakenly selected a purchase bill of ‘polished diamonds’ relating to one Pushpak Diamonds. This purchase bill is of ‘cut and polished diamonds’ and he picked up a purchase rate of Pooja Exports Rs.25,715/- to alleged inflation. As this bill is of polished diamonds and not of ‘rough diamonds’, it resulted in a distorted picture because the purchase rate of polished diamonds is obviously more than that of rough diamonds because of value addition due to fine cutting and polishing. In view of the above facts, it is crystal clear that the enhancement of Rs.13,99,83,745/- made by the CIT(A) is not based on sound propositions. Facts being so, we delete the enhancement of Rs.13,99,83,745/- made by the Ld. CIT(A). Thus the 3rd ground of appeal is dismissed, whereas, the 4th ground of appeal is allowed.
The 5th ground of appeal
On the facts and circumstances of the case the Ld. CIT(A)erred in also sustaining the addition of Rs.55,31,163/- made by the Assessing Officer as 2.52% embedded gross profit of alleged bogus purchases of Rs.21,94,90,261/-. The addition of Rs.55,31,163 was clearly erroneous and resulting in to double taxation as the appellant had already declared 2.52% gross profit in its trading results. The addition of Rs.55,31,163/- may therefore please be deleted in appeal.
10. During the course of reassessment proceedings, the AO observed that the Director of Income Tax (Inv.)-II, Mumbai (in short ‘DGIT’) vide his letter dated 13.03.2014 has communicated the details of fictitious sales bills and bogus unsecured loans given by the concerns allegedly floated by M/s Bhanwarlal Jain Group. As per the said information the assessee has availed of accommodation/fictitious bills from the following parties :
Pooja Exports Sr. No. Name of the party who have issued bogus PAN of bill Amount of such bills to the assessee provider bogus bills. 1 M/s Prime star AAHFP4334R 2,24,71,675 2 M/s Ankita Exports AAFFA6854K 84,48,378 3 M/s Rajan diamonds AKBPK7402K 1,25,27,482 4 M/s Pushpak Gems AADFP2673D 87,35,349 5 M/s Malhar Exports AFEPV3695M 71,06,045 6 M/s Marvin Enterprises AAOFM3212W 4, 13,13,773 7 M/s Navkar Diamonds AAOFM3212E 2, 15,98,187 8 M/s Mahalaxmi Gems Private Limited AABCM8875H 4, 19,00,745 9 M/s Mohit enterprises ACRPK1211G 3,02,74,765 10 M/s Pushpak Gems AADFP2673D 1,30,42,814 11 M/s Megha Gems AJOPP5374M 1, 20,71,408 Total :- 21, 94, 90, 621 The AO observed that the assessee failed to produce the parties from whom purchases were made. In view of the specific finding of the DGIT that the above concerns are engaged in issuing bogus bills without doing actual business, the AO estimated the profit embedded in the above purchases of Rs.21,94,90,621/- @ 2.52% of the GP declared by the assessee and thus made an addition of Rs.55,31,163/-.
In appeal, the Ld. CIT(A) confirmed the addition of Rs.55,31,163/- made by the AO on account of bogus purchases on the reasons given by the AO.
Before us, the Ld. counsel for the assessee submits that the appellant has shown 2.52% of gross profit and this gross profit is after Pooja Exports AO has made addition for the alleged embedded profits in the bogus purchases at the same GP rate of 2.52% and in the process 2.52% addition is double taxation.
On the other hand, the Ld. DR submits that the profit embedded in the bogus purchases has been estimated by the AO at the GP rate disclosed by the assessee of 2.52% and the same being reasonable, the order of the CIT(A) be confirmed. 14. We have heard the rival submissions and perused the relevant materials on record. Having considered the facts and circumstances of the case, we are of the considered view that an opportunity to the assessee to cross-examine the concerned parties mentioned at para 10 hereinabove would resolve the contentious issues here. Cross-examination is allowed by procedural rules and evidently also by the rules of natural justice. Any witness who has been sworn on behalf of any party is liable to be cross-examined on behalf of the other party to the proceedings. The Hon'ble Supreme Court in State of Kerala vs. K.T. Shaduli Grocery Dealer AIR 1977 SC 1627, recognised the importance of oral evidence by holding that the opportunity to prove the correctness or completeness of the return necessarily carry with it the right to examine witnesses and that includes equally the right to cross-examine witnesses. In ITO vs. M. Pirai Choodi (2012) 20 taxmann.com 733 (SC), the Hon'ble Supreme Court has held that “Order of assessment passed without granting an opportunity to assessee to cross-examine, should not Pooja Exports High Court; at most, High Court should have directed Assessing Officer to grant an opportunity to assessee to cross- examine concerned witness.
We are of the considered view opportunity to the assessee to cross examine the said parties would resolve the contentious issues in the present case. Therefore, we set aside the order of the Ld. CIT(A) and restore the matter to the file of the AO to make an order afresh after giving opportunity to the assessee to cross examine the said parties. We direct the assessee to file the relevant documents/evidence before the AO. Needless to say, the AO would give reasonable opportunity of being heard to the assessee before finalizing the order. As the above matter has been restored to the file of the AO, we are not adverting to the case-laws relied during the proceedings.
Thus the 5th ground of appeal is allowed for statistical purposes.
The 6th ground of appeal On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in losing sight that the Appellant had declared a sum of Rs.8,00,00,000/- as additional income in statement u/s 132 at time of search on 28.07.2009 to cover discrepancies and additions in assessment and this being, he ought to have allowed credit for this amount of Rs.8,00,00,000/- against any addition to the appellant’s income in assessment or enhancement in appeal. The action of the AO in denying credit for this amount of Rs.8,00,00,000/- is clearly unjust and requires to be reconsidered by the Hon’ble Tribunal in appeal.