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PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by assessee is directed against the order of ld. Commissioner of Income Tax (Appeals)-30 [the ld. CIT(A)], Mumbai dated 08.02.2017 for Assessment Year 2009-10. The assessee has raised the following grounds of appeal:
1. REASSESSMENT 1.1 The Ld. Commissioner of Income - tax (Appeals) - 30, Mumbai ["Ld. CIT (A)"]' erred in confirming the action of the A.O. in initiating reassessment proceedings and framing the assessment of the Appellant by invoking the provisions of section 147 r.w.s. 148 of the Income tax Act, 1961 [the Act"]. 1.2 While doing so, the Ld. CIT (A) failed to appreciate that: (i) The case of the appellant did not fall within the parameters laid down by section 147 r.w.s. 148 of the Act; (ii) The necessary preconditions for initiating the reassessment proceeding and completion thereof were not satisfied. 1 Mum 2017-Shri Shantilal G. Jain 1.3 It is submitted that in the facts and the circumstances of the case, and in law, the reassessment framed is bad, illegal and void.
2. NATURAL JUSTICE 2.1 The Ld. CIT (A) erred in confirming the action of the A.O. in not granting proper, sufficient and adequate opportunity of being heard to the Appellant while framing the assessment. 2.2 It is submitted that in the facts and the circumstances of the case, and in law, the assessment so framed be held as bad and illegal, as the same is framed in breach of the principles of natural justice and without application of mind to the facts brought on record by the Appellant. WITHOUT PREJUDICE TO THE ABOVE 3.1 The Ld. CIT (A) erred in confirming the action of the A.D. in making addition of Rs. 2,29,21,394/- to the income of the Appellant on account of non - genuine purchases. 3.2 While doing so, the Ld. CIT (A) erred in confirming the action of the A.O. in rejecting the book result u/s 145 (3) of the Act. 3.3 While doing so, the Ld. CIT (A) erred in: (i) Basing his action only on surmises, suspicion and conjecture; (ii) Taking into account irrelevant and extraneous considerations; and (iii) Ignoring relevant material and considerations as submitted by the Appellant. 3.3 It is submitted that in the facts and the circumstances of the case, and in law, no such addition was called for. 3.4 Without prejudice to the above, assuming - but not admitting - that some addition was called for, it is submitted that the computation of the addition made by the A.O. is arbitrary, excessive and not in accordance with the law.
Brief facts of the case are that the assessee is a Proprietor of Ambika Steel Centre and engaged in trading of ferrous and non ferrous metals. The assessee filed his return of income for Assessment Year 2009-10 on 26.09.2009 declaring total income at Rs. 94,741/-. The assessment was completed under section 143(3) on 17.10.2011 assessing the total income at 2 Mum 2017-Shri Shantilal G. Jain Rs. 2,79,690/- by making various additions/disallowances. The assessment was re-opened under section 147 by issuing notice under section 148 on 06.03.2014. The assessment was re-opened on the basis of information received from DGIT (Investigation), Mumbai about the information received from Sales Tax Department, Government of Maharashtra that certain dealers are indulging in providing accommodation entries in the form of issuing bogus bills/purchase bills without actual delivery of goods. The assessee was shown as one of the beneficiary from such hawala dealers. On the basis of such information, the assessment was re-opened. The assessee filed reply dated 20.03.2014, in response to the notice under section 148. In the reply, the assessee stated that the return of income filed originally may be treated as return in response to the notice under section 148. The Assessing Officer issued notice under section 143(2) and 142(1) and proceeded for re- assessment. During the re-assessment proceeding, the Assessing Officer noted that the assessee has shown purchases from five. The names of all the parties appeared in the list of hawala dealers. The assessee has shown the total purchases from all five parties in the following manner :
Sr.No. Name of hawala parties F.Y. Amount 1. Shri Ganesh Steel 2008-09 19,14,692/- 2. Trishla Tradwings 2008-09 9,67,569/- 3. Aayushi Enterprises 2008-09 77,33,606/- 4. Manav Impex 2008-09 54,50,159/- Mum 2017-Shri Shantilal G. Jain
Manibhadra Trading Co. 2008-09 68,55,368/- Total 2,29,21,394/- 3. The Assessing Officer asked the assessee to furnish the details and complete address of parties, purchase bill, invoices, ledger account, details of transportation of goods, Lorry receipt showing the evidence that goods were received in the premises of assessee. The Assessing Officer also issued notice under section 133(6) to all the parties/dealers. Notices sent to M/s Manav Impex and M/s Aayushi Enterprises was replied by the dealers stating that they have not done any business with the assessee and that their firm closed during the Assessment Year 2009-10. Notice sent to other three remaining parties were returned back un-served with the remark of postal authorities ‘not known’/ ‘no such address’ or ‘Left’. The assessee was issued show- cause notice as to why the purchases from all five parties should not be treated as non-genuine. The Assessing Officer recorded that the assessee has not produced any details/documents during the assessment proceeding. The Assessing Officer concluded that the Sales Tax Department, Government of Maharashtra has conducted enquiry which conclusively proved that the parties were engaged in providing accommodation entries. The parties were issuing bills without delivery of any goods. Investigation Wing of Income Tax Department also conducted the enquiries against such hawala parties.
The assessee has adopted modus operandi to reduce the true profits by inflating his expenses by taking accommodation entries from such parties.
ITA No. 3117 Mum 2017-Shri Shantilal G. Jain The Assessing Officer failed to produce the bills for their examination, so the books of account of assessee to the extent that purchase made from these parties remained unverifiable. The assessee not discharges his onus to substantiate the genuineness of parties. The Assessing Officer disallowed the entire/aggregate purchases of five parties of Rs. 2,29,21,394/- while passing the assessment order under section 143(3) r.w.s.
On appeal before the ld. CIT(A), the action of Assessing Officer in re-opening as well as in making 100% addition was sustained. Thus, further aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us.
We have heard the submission of ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the revenue and perused the material available on record. Ground No.1 relates to validity of re-opening under section 147 r.w.s. 148 and Ground No.2 relates to denial of natural justice and Ground No.3 relates to addition of Rs. 2.29 Crore on account of non-genuine purchases. The ld. AR of the assessee submits that initial assessment was completed under section 143(3) on 17.10.2011. The Assessing Officer examined the complete details of purchases shown by assessee. The assessee has shown income from his proprietary concern, wherein the assessee is dealing in ferrous and non-ferrous metals. The assessee has shown turnover of Rs. 2.56 Crore and declared Gross Profit (GP) @ 5.09% which is higher than the preceding Assessment Year GP declared of 5.02%. The Assessing Officer after examining the other issues 5 Mum 2017-Shri Shantilal G. Jain made certain disallowances no disallowances on account of purchases was made as the assessing officer was fully satisfied. The assessment was re- opened on the basis of third party information. The assessing officer disallowed the 100% of the purchases. The sales of assessee were not disputed by assessing officer. The sale is not possible in absence of purchase; the total turnover shown by assessee at Rs. 2.56 Crore was duly accepted by Assessing Officer while passing the assessment order under section 143(3) on 17.10.2011. The Assessing Officer in re-assessment proceeding disallowed the 100% of the purchases i.e. Rs. 2.29 Crore. The ld. AR of the assessee further submits that it is beyond the imagination that the sale is possible without purchase of goods. The ld. AR of the assessee further submits that though all documents were furnished during the original assessment that is why the Assessing Officer was satisfied with the explanation furnished by assessee. The ld. AR of the assessee further submits that assessee has filed his affidavit stating therein that his entire record of the firm from Assessment Year 2001-02 to 2010-11 i.e. upto September 2010 was damaged in rainy water. The assessee made a non-cognizable report with the concerned Police Station. The assessee also filed certain photograph and would submit that the assessee filed affidavit before the ld. CIT(A) along with the affidavit and original of non-cognizable report filed with the Police Station. The ld. AR further submits that a reasonable percentage of alleged bogus purchases may be disallowed to avoid the possibility of revenue leakage, though the 6 Mum 2017-Shri Shantilal G. Jain purchases made by assessee were genuine one. The Assessing Officer made the addition on the basis of third party information and without giving any opportunity to cross-examine the alleged hawala dealers. The statement of dealer recorded by Sales Tax Department, Government of Maharashtra was not provided.
5. On the other hand, the ld. DR for the Revenue supported the orders of authorities below. The ld. DR for the Revenue argued that the Investigation Wing of the Income-tax Department made full-fledged enquiry. The parties from whom the assessee has shown the purchases are bogus Hawala dealers.
The hawala dealers are indulged in issuing bogus bills without delivery of any material or goods. The assessee obtained accommodation bills only in order to inflate the expenses and to bring down the profitability in order to avoid the tax. The ld. DR for the Revenue prayed for dismissal of the appeal.
We have considered the rival submissions of the parties and have gone through the orders of authorities below. Ground No. 1 & 2 relates to re- opening and denial of natural justice. We have noted that the ld. AR of the assessee has not made any specific submission except submitting that in the original assessment, the purchases were verified and accepted by Assessing Officer. Therefore, in our view, the ld. AR of the assessee has not contested the ground no. 1 & 2 of the appeal. Thus, the ground no.1 & 2 of the appeal are dismissed as not pressed. Mum 2017-Shri Shantilal G. Jain
Ground No.3 relates to addition of Rs. 2.29 Crore (100% of the purchases).
We have noted that initially, the assessment was completed under section 143(3) on 17.10.2011. The Assessing Officer accepted the GP declared by assessee at 5.09%. In preceding Assessment Year, the assessee has declared GP @ 5.02%. The assessee is dealing in ferrous and non ferrous steel. The assessment was re-opened by Assessing Officer on the basis of information received from DGIT (Investigation), Mumbai on the information received by Sales Tax Department, Government of Maharashtra. The Sales Tax Department, Government of Maharashtra identified the dealers who are allegedly indulged in providing accommodation entries. The name of assessee also appeared in the list of beneficiary who has shown purchases from the parties, who were declared as hawala dealers by Sales Tax Department, Government of Maharashtra. The assessee has shown aggregate purchases of Rs. 2.29 Crore from five such parties. During the assessment proceeding, the Assessing Officer issued notice to the parties, out of which two parties namely M/s Manav Impex and M/s Aayushi Enterprises replied that they have not done any business with assessee. So far as remaining three parties are concerned, the Assessing Officer noted that the notices sent through remaining three parties were returned back as unserved by the postal department with the remark ‘not known’, ‘no such addresses’ or ‘left’. The Assessing Officer by took his view that assessee has not proved the genuineness of purchases disallowed the 100% o the purchases. The 8 Mum 2017-Shri Shantilal G. Jain Assessing Officer concluded that the Sales Tax Department, Government of Maharashtra has conducted enquiry which conclusively proved that the parties were engaged in providing accommodation entries. The parties were issuing bills without delivery of any goods. Investigation Wing of Income Tax Department also conducted the enquiries against such hawala parties.
The assessee has adopted modus operandi to reduce the true profits by inflating his expenses by taking accommodation entries from such parties.
The Assessing Officer failed to produce the bills for their examination, so the books of account of assessee to the extent that purchase made from these parties remained unverifiable. The assessee not discharges his onus to substantiate the genuineness of parties and disallowed the entire purchases.
Before the ld. CIT(A), the assessee stated that his documents were damaged/spoiled in rainy water and that he has made an FIR with Police Station on 12.01.2011. It was further stated that the addition was made only on the basis of statement of third party before Sales Tax Department/VAT Authorities. The Sales Tax authority has not received the tax from those suspicious dealers. The assessee further stated that mere return of notice under section 133(6) does not mean that the parties are bogus. The assessee maintained the stock register and that sale of the assessed are not disputed.
The assessee also specifically stated that only profit element embedded in such type of disputed purchases may be subject to tax. The ld. CIT(A) not accepted the contention of assessee and confirmed the action of Assessing 9 Mum 2017-Shri Shantilal G. Jain Officer. The ld. CIT(A) concluded that out of five parties, two parties namely M/s Manav Impex and Aayushi Enterprises stated that they have not done any business with the assessee and that their firm are closed during the relevant period. The other three parties, notices were returned back unserved.
The ld. CIT(A) on the basis of his observation took his view that purchases made from all five parties are bogus in absence of evidence either before Assessing Officer or before him. 9. We have noted that sale of assessee is not disputed by the Assessing Officer.
It is settled position that no sale is possible in absence of purchases. The total turnover of assessee during the year was of Rs. 2.56 Crore. The assessee has shown the purchase of Rs. 2.29 Crore and has declared the income of Rs. 94,741/-. The assessee has already declared GP @ 5.09%. Therefore, after considering the facts and the nature of business of the assessee, particularly, when the sales of the impugned purchases were not disputed, and that the assessee has already shown GP of 5.09%% on such purchases, we are of the considered opinion that under Income Tax Act only real income can be taxed by the Revenue. Even if the transaction is not verifiable, the only taxable is the taxable income component and not the entire transaction. And after considering the facts of the case and the rival contentions of the parties we are of the opinion that in order to fulfill the gap of revenue leakage the disallowance of reasonable percentage of such purchases would meet the end of justice. Hence, the addition is restricted to 12.5% of the total impugned 10 Mum 2017-Shri Shantilal G. Jain (disputed) purchases. Similar view was taken by Hon’ble Bombay High Court in CIT Vs Hariram Bambani (ITA No. 313 of 2013 dated 04.02.2015).
In the result the ground No.3 of the appeal is partly allowed..
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on 11/06/2019.