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Income Tax Appellate Tribunal, MUMBAI BENCHES “SMC”, MUMBAI
Before: SHRI R.C. SHARMA (AM) & SHRI RAM LAL NEGI (JM)
O R D E R PER RAM LAL NEGI, JM These appeals have been filed by the assessee against the two orders dated 02.11.2017 passed by the Ld. Commissioner of Income Tax (Appeals)-3, Nasik, for the assessment year 2009-2010 and 2010-11, whereby the Ld. CIT (A) has dismissed the appeals filed by the assessee against assessment orders passed u/s 143 (3) read with section 147 of the Income Tax Act, 1961 (for short ‘the Act’). Since both the appeals pertain to the same assessee and the issues involved are identical, both the appeals were clubbed, heard together and are being disposed of for the sake of brevity. Assessment Year: 2009-2010 and 2010-11 Brief facts of the case are that the assessee proprietor of M/s Jayleela Enterprises, engaged in the business of selling chemicals, filed its return of income for the assessment year under consideration declaring the total income of Rs. 7,89,624/-. The return was processed u/s 143(1) of the Act. Subsequently, the assessment was reopened u/s 147 of the Act on the basis of information received from the Sales Tax Department, Maharashtra to the effect that the assessee during the year relevant to the assessment year under consideration obtained accommodation bills from six ‘Hawala’ dealers amounting to Rs. 83,14,878/- to inflate purchases.
The assessee did not file fresh return in response to the notice u/s 148 of the Act. Accordingly the AO treating the return filed by the assessee u/s 139 of the Act, as return in response to notice u/s 148 of the Act, issued notices u/s 143(2) and 142(1) of the Act. In compliance thereof the authorized representative of the assessee appeared and furnished the details called for and also discussed the issues involved. The AO issued the notices u/s 133(6) of the Act to the parties from whom the assessee had shown purchases during the previous year. However, the notices were received back un-served as the parties were not found available at the given addresses. AO further asked the assessee to produce the parties for verification and to establish the genuineness of the transaction, by furnishing evidence. In response thereof the assessee submitted a written reply contending that the purchases are genuine and all payments were made through cheques and also submitted the copies of Invoice bills. The AO rejected the contention of the assessee and made addition of 12.5% of the total amount of questioned purchases treating the same as bogus transaction.
3. Aggrieved by the assessment order, assessee challenged the same before the CIT(A). The Ld. CIT(A) after hearing the assessee confirmed the addition of 12.5% on the total amount of bogus purchases except in respect of purchase Assessment Year: 2009-2010 and 2010-11 amounting to Rs. 18,60,799/- shown made from Riddhi Enterprises for the reason that the assessee has claimed before the Ld CIT(A) that it had neither made any purchase nor there is any entry to that effect in its books of account. The Ld. CIT(A) further directed the AO to verify the same and to exclude the said amount before computing the addition of 12.5%. Still aggrieved, the assessee is in appeal before the Tribunal.
4. The assessee has challenged the impugned order by raising the following grounds of appeal:- A) “Binding Precedent
1. The learned CIT (A) has erred in law & in facts in not following binding precedents in the case of CIT v. Nikunj Eximp Enterprises (P) Ltd. (2013) 216 Taxman 171 (Mag.) & Babulal C. borane (282 ITR 251) (Bom) (HC) & CIT Vs Ashish International 4299/2009 Bombay High court. B) Assessment Based on suspicion & on surmises
1. The learned CIT (a) has erred in law & in facts to confirm action of A.O. on the basis of conjunctions, suspicion & surmises.
2. The learned CIT (A) has erred in law & in facts to appreciate that the books of accounts has to be treated as evidence except proving is to be wrong.
3. The learned CIT (A) has erred in law & in facts to held that material was purchased from different source only on the basis of suspicion and without any corroborative evidneces & specially when turnover & Gross Profit in percentage terms is higher than earlier previous year. C) Addition of Rs. 10,39,360 of Hawala purchases
1. The learned CIT (A) has erred in law & facts to confirm addition to the extent of Rs. 10,39,360/- on the ground of bogus purchases & to confirm addition of Rs. 10,39,360/- being 12.5% of gross profit on purchases.
2. The learned CIT (A) has erred in law & in facts & failed to appreciate the fact that when sales have been dully accepted by CIT (A) along with quantitative & production records there is no question of unaccounted purchases & the learned CIT (A) has erred in law & in facts to make addition when sales have been Assessment Year: 2009-2010 and 2010-11 effected consequent to that purchases & sales have been accepted as true & correct & also GP has been accepted.
The learned CIT (A) has erred in law & in facts to appreciate that just because of non appearance of parties in response to summon U/s 133 (6) does not amount that the appellant has bogus purchases & specially when cross examination was not allowed of witness in spite of demanded by the appellant.
On the facts and circumstances of case, the assessment order passed by the assessing officer is bad-in-law and required to be quashed as it is passed against the principal of natural justice when cross examination has not been allowed inspite of demanded by the appellant.
The learned CIT (A) has erred in law & in facts to appreciate that addition has resulted in exorbitant G.P. which is impossible in this business and hence making the addition is bad & illegal.
6. The learned CIT (a) has erred in law & in facts in following judgments in case of CIT Vs SIMIT P SHETH where facts are completely different And also inspite of binding precedents of jurisdictional high court.
7. The learned CIT (A) has erred in law & in facts in confirming addition to the extent of 12.5% as against 2.5% in case of SIMIT P SHETH (after excluding 10% rate for vat for which no expenses has been debited in profit & loss account.) 8. The learned CIT (A) has erred in law & in facts to give more weightage on secondary evidence i.e. affidavit by hawala dealers than primary evidences available in the form of bills, cheque payments, subsequent sales etc. and confirming addition on the basis of third party statements without any corroborative evidences.
9. The learned CIT (A) erred in law & in facts to confirm the addition on the ground that the appellant himself has opted for addition during assessment proceedings but failed to appreciate the fact that offer for addition was conditional which has not been accepted by the AO and cannot be ground for addition now. D) Reassessment 1. The learned CIT (A) has erred in law & in facts to confirm action of AO to issue notice U/s 148 of the Act and which is bad and illegal in law. Assessment Year: 2009-2010 and 2010-11
2. The learned CIT (A) has erred in law & facts to do reassessment merely on the basis of information of investment wing. E) Order u/s 143 (3) 1. The learned CIT (A) has erred in law & in facts to do the assessment u/s 143 (3) when no return was filled by the appellant in response to notice u/s 148 and the appellant prays that assessment may be annulled and set aside.”
5. Before us, the Ld. counsel for the assessee submitted that since the assessee has not filed any return in response to the notice u/s 148 of the Act, the AO had no jurisdiction to pass assessment order u/s 143(3) of the Act. Accordingly, the Ld. CIT(A) ought to have allowed the appeal of the assessee and set aside the action of AO. On the point of addition of Rs.10,39,360/-, which is 12.5% of the questioned amount, Ld. counsel submitted that all the purchases were genuine and the payments were made through cheques. The Ld. counsel further contended that Notice u/s 148 was issued by AO on the basis of information received from the sales tax department of Maharashtra government and not on the basis of his subjective satisfaction, therefore the action is bad in law. So far as the addition of 12.5% of the total amount of bogus purchases is concerned the Ld. counsel contended that the Ld. CIT (A) has failed to appreciate the fact that when sales have been duly accepted by AO along with quantitative & production records question of unaccounted purchases does not arise. The Ld. counsel further contended that the facts of the judgment in the case of CIT vs. Simit P. Sheth 356 ITR 451(Guj) are different from the facts of the present case, therefore, the impugned order is bad in law and the addition sustained by the Ld. CIT (A) is liable to be deleted.
On the other hand, the Ld. Departmental Representative (DR) submitted that although the assessee has submitted details of sundry debtors and creditors, party wise purchases and sale, details of expenses debited to profit and loss account, details of bank statements etc. but the assessee failed to produce the copy of transport receipt, details of vehicle expenses and copy of Assessment Year: 2009-2010 and 2010-11 octroi receipts/ delivery challans etc, which are essential to prove the genuineness of the purchases. Moreover, the Notices u/s 133(6) of the Act issued to the parties concerned were received back un-served which further corroborate the fact that the purchases were not genuine. Hence, the Ld. CIT (A) has rightly sustained the addition of 12.5% of the total amount of bogus purchases by following the decision of the Hon’ble Gujarat High Court in the case of Simit P. Sheth (supra). The Ld. counsel relied on the following judgments/decisions of the Hon’ble High Courts of Bombay and Calcutta, and ITAT Mumbai Benches in support of the contentions of the assessee:-
The Pr. CIT-12, Mumbai vs. M/s Chawla Interbuild Construction co. Pvt Ltd Income Tax Appeal No 1103 of 2015; 2. Maya Debi Bansal vs. CIT,[1979] 117 ITR 125 Cal; 3. Prabhat Gupta vs. ITO Circle -27(2)(5) Mumbai, &797/Mum/2017 and cross appeal filed by the department; 4. ACIT vs. M/s Steel Line (India), ITA No 1321/Mum/2016 for A.Y.2009- 10, for A.Y.2010-11 and ITA No 1323/Mum/2016 for A.Y.2011-12 and cross appeals by the assessee.
We have heard the rival submissions and also gone through the material on record including the cases relied upon by the parties authorities below. The first issue raised by the assessee is that the re-opening is bad in law as the notice u/s 148 was issued on the basis of information received from the Sales Tax Department, Maharashtra. In our considered view, since the information contained the details of bogus parties from whom, the assessee had shown purchase of goods worth Rs. 83,14,878/-, reopening of assessment on the basis of the said information cannot be said to be bad in law. AO can reopen the assessment u/s 147 of the Act if he has reason to believe that any income chargeable to tax has escaped assessment. In the present case, the information received by the AO was sufficient to form the belief that part of the income of the assessee has escaped from assessment. Moreover, the AO has completed Assessment Year: 2009-2010 and 2010-11 reassessment after affording opportunity of being heard to the assessee and therefore, no prejudice has been caused to the assessee. Hence, we decide this issue against the assessee.
The next issue raised by the assessee pertains to addition of 12.5% of the total amount of bogus purchases made by the AO. We notice that the AO has issued notice to the assessee to prove the genuineness of the transaction by adducing evidence. However, the assessee has failed to establish the genuineness of the transaction on the basis of evidence and only contended that all the transactions are genuine. We further notice that the assessee has not produced the copy of transport receipt, details of vehicle expenses and copy of octroi receipts/ delivery challans etc. which are vital for proving genuineness of the purchases in question. Therefore, we are of the considered view, that the other documents produced by the assessee do not establish the genuineness of the transaction. So far as the issue regarding cross examination of the witnesses is concerned, we notice that the authorities below have not based their findings on any witness whose statement was relied on without giving opportunity to cross-examine the assessee. On the other hand the assessee has failed to discharge the onus of proving genuineness of the transaction despite sufficient opportunities afforded by the authorities below. Hence, there is no merit in the contention of the assessee that the Ld. CIT(A) has passed the impugned order in violation of the principles of natural justice.
However, we further notice that the AO has not rejected the sales of the assessee during the relevant financial year. Under these circumstances it can safely be concluded that although the assessee had purchased the goods in question and sold the same, but the goods were not purchased from the parties from whom the assessee has shown purchased in its books of account. This fact further gives rise to the conclusion that the assessee had purchased the questioned goods in grey market. So, under these circumstances, the AO has rightly followed the principles of law laid down by the Hon’ble Gujarat High Assessment Year: 2009-2010 and 2010-11 Court in the case of Simit P. Sheth (supra), in which it has been held that only profit element embedded in such purchases can be added to income of the assessee. In our considered view, the cases relied upon by the Ld. counsel for the assessee are distinguishable on facts, therefore not applicable to the present case.
We further notice that in the present case the assessee has shown gross profit during the year under consideration which is 5.57%, the same is more than the G.P of earlier year. Hence, keeping in view the increasing rate of GP, we modify the impugned order and restrict the addition to the extent of 10% of the total amount of bogus purchases after verifying the transaction with Riddhi Enterprises in terms of the directions given in the Ld CIT(A). The assessee has raised the following effective grounds of appeal
against the impugned order passed by the Ld. CIT (A):- A) “Binding Precedent
1. The learned CIT (A) has erred in law & in facts in not following binding precedents in the case of CIT v. Nikunj Eximp Enterprises (P) Ltd. (2013) 216 Taxman 171 (Mag.) & Babulal C. borane (282 ITR 251) (Bom) (HC) & CIT Vs Ashish International 4299/2009 Bombay High court.
B) Assessment Based on suspicion & on surmises
1. The learned CIT (a) has erred in law & in facts to confirm action of A.O. on the basis of conjunctions, suspicion & surmises.
2. The learned CIT (A) has erred in law & in facts to appreciate that the books of accounts has to be treated as evidence except proving is to be wrong. 3. The learned CIT (A) has erred in law & in facts to held that material was purchased from different source only on the basis of suspicion and without any corroborative evidences & specially Assessment Year: 2009-2010 and 2010-11 when turnover & Gross Profit in percentage terms is higher than earlier previous year. C) Addition of Rs. 10,39,360 of Hawala purchases 1. The learned CIT (A) has erred in law & facts to confirm addition to the extent of Rs. 5,94,866/- on the ground of bogus purchases & to confirm addition of Rs. 5,94,866/- being 12.5% of gross profit on purchases. 2. The learned CIT (A) has erred in law & in facts & failed to appreciate the fact that when sales have been dully accepted by CIT (A) along with quantitative & production records there is no question of unaccounted purchases & the learned CIT (A) has erred in law & in facts to make addition when sales have been effected consequent to that purchases & sales have been accepted as true & correct & also GP has been accepted. 3. The learned CIT (A) has erred in law & in facts to appreciate that just because of non appearance of parties in response to summon U/s 133 (6) does not amount that the appellant has bogus purchases & specially when cross examination was not allowed of witness inspite of demanded by the appellant. 4. On the facts and circumstances of case, the assessment order passed by the assessing officer is bad-in-law and required to be quashed as it is passed against the principal of natural justice when cross examination has not been allowed inspite of demanded by the appellant. 5. The learned CIT (A) has erred in law & in facts to appreciate that addition has resulted in exorbitant G.P. which is impossible in this business and hence making the addition is bad & illegal. 6. The learned CIT (a) has erred in law & in facts in following judgments in case of CIT Vs SIMIT P SHETH where facts are completely different And also inspite of binding precedents of jurisdictional high court. 7. The learned CIT (A) has errd in law & in facts in confirming addition to the extent of 12.5% as against 2.5% in case of SIMIT P SHETH (after excluding 10% rate for vat for which no expenses has been debited in profit & loss account.) 8. The learned CIT (A) has erred in law & in facts to give more weightage on secondary evidence i.e. affidavit by hawala dealers than primary evidences available in the form of bills, cheque Assessment Year: 2009-2010 and 2010-11 payments, subsequent sales etc. and confirming addition on the basis of third party statements without any corroborative evidences.
9. The learned CIT (A) erred in law & in facts to confirm the addition on the ground that the appellant himself has opted for addition during assessment proceedings but failed to appreciate the fact that offer for addition was conditional which has not been accepted by the AO and cannot be ground for addition now. D) Reassessment 1. The learned CIT (A) has erred in law & in facts to confirm action of AO to issue notice U/s 148 of the Act and which is bad and illegal in law.
2. The learned CIT (A) has erred in law & facts to do reassessment merely on the basis of information of investment wing.”
2. The facts of the present case are identical to the facts of the assessee’s own case for the A.Y. 2009-10 discussed above and since the issues involved in the present case are issues involved in the aforesaid case. In this year also the assessee has shown gross profit more than the earlier year. Since, we have partly allowed the appeal of the assessee for the A.Y. 2009-10, consistent with our findings we modify the findings of the Ld. CIT (A) and restrict the addition to 10% of the total amount of bogus purchases in this case also.
In the result, both the appeals filed by the assessee for assessment years 2009-2010 and 2010-11 are partly allowed.