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Income Tax Appellate Tribunal, MUMBAI BENCHES “F”, MUMBAI
Before: Shri Saktijit Dey & Shri Manoj Kumar Aggarwal
O R D E R Per Saktijit Dey, Judicial Member
This is an appeal by the assessee against the order dated 09.01.2017, of learned CIT(A)-16, Mumbai, for the assessment year 2009-10.
In ground no.1 assessee has challenged validity of re-opening of assessment u/s. 147 of the Act. Briefly, the facts are assessee - a company, is engaged in manufacture of drugs. For the assessment year under dispute assessee filed its return of income on 29.09.2009, declaring total income of ` 40,73,78,660/-. Assessment in this case was completed u/s. 143(3) of the Act, on 16.03.2011, determining total income at ` 45,01,57,500/- After completion of the assessment as aforesaid, the Assessing Officer received information from the DGIT (Inv), Mumbai, vide letter dated 26.12.2013, wherein, it was informed that in course of search proceedings conducted in case of certain parties. It was found that they were providing accommodation entries only without actual sale/purchase transactions. From the incriminating material found during the search operation, it was revealed that one such hawala entry provider viz. M/s. Srishti Mercantile Pvt. Ltd. has sold goods to the assessee to the tune of ` 37,20,244/- during the financial year relevant to the assessment year under dispute. In the said report it was also mentioned that the said party also appears in the list of bogus entry providers published by the Sales Tax Authorities and the TIN of the concerned party has also been cancelled by Sales Tax Authorities. On the basis of the aforesaid information, the Assessing Officer formed a belief that by virtue of such bogus purchases shown by the assessee, income chargeable to tax has escaped assessment. Accordingly, he re-opened assessment u/s. 147 of the Act by issuing notice u/s. 148 of the Act. In course of the assessment proceedings, the Assessing Officer called upon the assessee to prove the genuineness of the purchases made from M/s. Srishti Mercantile Pvt. Ltd., by furnishing documentary evidences including documents showing transportation and physical delivery of goods at the premises of the assessee.
As observed by the Assessing Officer, in response to the query raised by him, the assessee furnished copies of purchase invoices, delivery challans and payment details. However, assessee failed to furnish any evidence with regard to transportation and delivery of goods in the premises of the assessee. He observed, delivery challans are self generated, hence, not authentic. Further, he mentioned that in the delivery challans mode of transport or lorry numbers have not been mentioned to prove the actual transportation and delivery of goods. No weighment slip could be produced by the assessee to prove the movement of goods. The Assessing Officer also observed that in course of survey operations conducted in the business premises of the assessee on 17.10.2013, it was found that assessee had made purchases from six hawala operators including M/s. Srishti Mercantile Pvt. Ltd. The Assessing Officer observed, though notices u/s. 133(6) were issued to the concerned parties, all such notices returned unserved by the postal authorities on account of unavailability of concerned persons in the given address. He also noted that an exhaustive inquiry was conducted in course of assessment proceedings for A.Y. 2010-11 and it was found that purchases made from the concerned parties are bogus. The Assessing Officer observed, the notices issued by him u/s. 133(6) to the concerned parties on 27.01.2015 also returned unserved by the postal authorities.
Since, the assessee failed to conclusively prove the genuineness of the purchases made from M/s. Srishti Mercantile Pvt. Ltd., the Assessing Officer disallowed said purchases and added to the income of the assessee while completing the assessment. Being aggrieved of the assessment order so passed, assessee preferred appeal before the CIT(A) challenging the assessment order both on the legal issue of validity of proceedings u/s. 147 of the Act as well as on merit. However, learned CIT(A) did not find merit in any of the submissions of the assessee and upheld the addition made by the Assessing Officer.
The learned AR challenging the validity of assessment proceedings submitted that simply on the basis of information received from the DGIT (Inv), Mumbai, the Assessing Officer has re-opened assessment, which was completed earlier u/s. 143(3) of the Act. He submitted, except the report of DGIT (Inv), there was no other tangible material available with the Assessing Officer to form a belief that income has escaped assessment. Therefore, the assessment in case of the assessee having already been completed u/s. 143(3) of the Act, re-opening of assessment u/s. 147 of the Act cannot be done on a mere change of opinion.
The learned DR relied on the observations of the CIT(A) on the issue.
We have considered rival submissions and perused material on record.
Though, it is a fact that assessment in case of the assessee was originally completed u/s. 143(3) of the Act, however, it is evident from the facts on record that specific information came to the possession of the Assessing Officer after completion of the original assessment revealing that certain purchases made by the assessee was not genuine. Therefore, it cannot be said that there was no tangible material in the possession of the Assessing Officer after completion of the original assessment. At the time of re- opening of assessment u/s. 147 of the Act, the Assessing Officer has to form a prima facie belief that income has escaped assessment. The belief to be formed by the Assessing Officer must have a rational nexus with the information available on record. In the present case, the Assessing Officer had in his possession specific information/material indicating escapement of income which came to his possession after completion of the original assessment. That being the case, in our considered opinion, there is no deficiency in the proceedings initiated u/s. 147 of the Act. Accordingly, we dismiss the ground raised by the assessee.
In ground no. II. (2 & 3), assessee has challenged addition of ` 37,20,244/- on account of bogus purchases. Since we have already discussed the facts relating to this issue earlier, there is no need to repeat them again. Suffice to say, the Assessing Officer added the amount of ` 37,20,244/- by treating the purchases from M/s. Srishti Mercantile Pvt. Ltd. to be bogus. The learned AR reiterating the stand taken before the departmental authorities, submitted that assessee has produced all evidences such as purchase invoice, delivery challans, payment made to supplier through banking channel, consumption of goods, goods outward register showing dispatch of goods from warehouse etc. He submitted, inspite of production of such evidences; the departmental authorities have made the addition in an arbitrary manner. In this context, the learned AR drew our attention to the documentary evidence submitted before the Assessing Officer as placed in the Paper-book. The learned AR submitted, the assessee has shown a very healthy gross profit rate for the impugned assessment year, therefore, any further addition on account of bogus purchase would be improper. The learned DR relied on the observations of the Assessing Officer and learned CIT(A).
We have considered rival submissions and perused material on record.
The basic issue arising for consideration is, whether the assessee has proved the purchases made from M/s. Srishti Mercantile Pvt. Ltd. as genuine? As could be seen from the facts on record, in course of assessment proceedings for the impugned assessment year, the Assessing Officer apart from calling upon the assessee to prove the genuineness of purchases made, has also conducted enquiry independently by issuing notice u/s. 133(6) to the concerned party. As observed by the Assessing Officer, the notice returned unserved due to non-availability of the concerned party in the given address.
Notably, the learned CIT(A) has also observed that summons issued u/s. 131 of the Act also returned unserved. Further, in course of appellate proceedings, the assessee was called upon to produce the concerned party and also furnish details of the consumption of materials purchased. However, as per the categorical finding of the learned CIT(A), vide order sheet entry dated 06.01.2017, the AR of the assessee expressed his inability to file the details including the consumption of materials purchased. Even, the assessee could not give names and addresses of the persons to whom the material purchased was distributed. Thus, from the aforesaid facts, it is clear that the assessee’s claim of purchases to be genuine was not found to be correct through the inquiry conducted, both at the level of the Assessing Officer as well as the CIT(A). Since, the assessee failed to conclusively prove the fact that purchases made from the concerned party was genuine coupled with the fact that there was specific information from DGIT (Inv) as well as Sales Tax Department that the concerned party is a hawala operator, it has to be believed that the purchases claimed to have been made from the concerned party is not genuine. However, it is a fact on record that the Assessing Officer has not disputed or disturbed the sales effected by the assessee.
Therefore, there is a possibility that the assessee has purchased goods from sources other than the declared source to avoid payment of VAT/other taxes.
In view of the aforesaid, it will be appropriate to tax the profit element embedded in such bogus purchases. On considering the overall facts and circumstances of the case and the prevalent VAT rate, we are of the view that the addition on account of bogus purchases should be restricted to 12.5% of ` 37,20,244/-, The assessee gets relief to that extent. This ground is partly allowed.
In ground no.4, assessee has raised the issue of violation of rules of natural justice. However, there is no specific argument by the learned AR on this issue. Even otherwise also, on analysing the factual matrix of the case, we are of the view that full opportunity was given to the assessee to prove the genuineness of purchases made, both by the Assessing Officer as well as by the CIT(A). That being the case, the plea of the assessee that it was not provided proper opportunity is unacceptable. Fact remains that it is the assessee who has shown purchases from a party, identified as hawala operator. Therefore, the onus is entirely on the assessee to prove the genuineness of the purchases by either producing the concerned party or obtaining confirmations from him. The assessee has failed to do any such thing. Moreover, notices/summons issued by the AO to the concerned party in the given address have returned unserved. In these circumstances, the assessee cannot come forward with a plea that principle of natural justice is violated. Therefore, there being no merit in this ground, it is dismissed.
In the result, the appeal is partly allowed.
Order pronounced in the open court on this day of 12th September 2018.