AVCON CONTROLS P.LTD,MUMBAI vs. DCIT 9(1)(2), MUMBAI

O R D E R Per R.C. Sharma, AM These are appeals filed by the assessee against the order of the CIT(A)- 16, Mumbai dated 30-042015 for assessment years 2009-10 to 2012-13, in the matter of order passed under Section 143(3) r.w.s. 147 of the Income Tax Act (hereinafter “the Act”).

• Purchase orders, invoices, lorry receipts, check post entries, gate entries, goods receipt notes, issue of material, production record of consumption, delivery challans, Octroi charges in relation to the goods supplied to the assessee from A.Y. 2007-08 to till date. • Copies of Income Tax Returns, computation of income, Balance Sheet and Profit & Loss account with Annexures and Schedules thereto for the A.Y. 2009-10. • Extract of Bank Statement(s) reflecting the relevant entries in relation to transactions with the assessee company till date. • Copy of ledger account in relation to the assessee company from A.Y. 2007-08 to till date. • Any other information that may be parted with, in connection with the transactions with the assessee during the year. The assessee was thereafter show caused as to why the purchases made from above two parties should not be added back to the total income of the assessee company. The AR of the assessee was also asked to produce the above parties. The A.R. of the assessee stated that the assessee will not be able to produce the above said two parties. Not satisfied with assessee‟s reply the AO added the entire amount of such purchases to the income of the assessee.

3 to 4313/Mum/2015 M/s. Avcon Controls P. Ltd) “After careful perusal of the assessment order and written submissions filed by the A/R of the appellant it has been observed that in the present case the assessment order was passed u/s 143(3) for the relevant year but later on the AO on the basis of information in his possession formed the reason to believe that the income had escaped assessment because the appellant had made purchases from M/s Atul Traders which had been declared as a Hawala Dealer by the Maharashtra State VAT Department. The assessment order was again passed u/s 143(3) and the addition on account of bogus purchase has been made against which the appellant has filed an appeal. The grounds of appeal raised by the appellant relating to the issue that notice u/s 148 is illegal and invalid is being adjudicated first. The case of the appellant is covered by judgment of the Apex Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd. in which it has been held as under:- "16. Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191ITR 6621, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, 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 have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that state. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction ITO v. Selected Dalurband Coal Co. (P.) Ltd. [1996] 217 ITR 597 (SC); Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR

34. (SC)." In the present case there was relevant material with the AO on which he could as a reasonable person could have formed a requisite belief. Hence the grounds of appeal no. 5 of the assessee is dismissed and the proceedings initiated by the AO by issuing notice u/s 148 are held to be valid.

4 to 4313/Mum/2015 M/s. Avcon Controls P. Ltd) Regarding the grounds of appeal of the appellant in which the addition made by the AO has been challenged on merits, the same is being adjudicated as under:- According to the AO the purchases made by the appellant amounting to Rs.8,58,707/- which have been made from Atul Traders who is one of the Hawala Dealers as per list issued by the VAT department of State of Maharashtra is not genuine on account of the reasons which have been discussed in detail supra. The AO has made enquiries to prove that the selling party i.e. Atul Traders has made huge cash withdrawals from its bank account in which the cheques issued by the appellant has been credited and according to the AO this proves the fact that M/s Atul Traders is a Hawala Dealer. But the A/R of the appellant has vehemently argued that the transactions were made through account payee cheques and has produced bills and delivery challans. The details of the items purchased from this party was also furnished during the course of assessment proceedings. It has also been stated that the purchases were recorded in the stock register and the relevant records by Store department and protection department of the appellant was furnished before the AO. The copy of the VAT returns filed by M/s Atul Traders even after cancellation of the registration has been accepted online on the site of VAT department and copies of returns/challans were furnished before the AO. In identical circumstances the Mumbai 'D' bench of the Hon'ble ITAT has decided in the case of Ramesh Kumar & Co. which has been relied upon by the A/R of the appellant that in such type of cases the AO has a duty to make further investigation to bring the facts on record that whether there was any immediate cash withdrawals from their account. The AO has made detailed investigation in this case for which I must compliment him. The AO has obtained bank account of Atul Traders which has been annexed as Annexure 1 to the assessment order approves that M/s. Atul Traders is a Hawala Dealer because he has made payments to the parties who has also been identified as Hawala dealers by the state VAT department and further there are regular huge cash withdrawals from the account of M/s. Atul Traders which gives credibility to the findings of the AO as recorded in the assessment order to make the addition. The AO has rightly relied on the case laws of Kachwala Gems/Precision Finance Private Limited and Saravana Constructions Private Limited does not give credibility to the genuineness of the purchases only because the payments have been made through the banking channel. Similarly in the case of Rajeev G. Kalathil vs. DCIT relied upon by the appellant it has been held that transportation of goods to the site is one of the deciding factor to be considered for resolving the issue. But in the present case the AO has brought on record that no information regarding transportation of goods to the business premises of the appellant have been furnished during the course of assessment proceedings and for this the detailed discussion has been made

5 to 4313/Mum/2015 M/s. Avcon Controls P. Ltd) supra. Hence the case law relied upon by the appellant as decided by the jurisdictional bench of the ITAT goes against of the appellant because the seller from whom the goods have been purchased by the appellant has been found nonexistent because the notice u/s 133(6) was received back and despite the fact that the appellant was provided an opportunity to produce the seller, the appellant has not been able to produce the seller before the AO. Moreover, each and every case has to be decided on the particular facts and it is settled law that only that case law has to be followed which is identical on facts. The judgment of the Hon'ble Punjab & Haryana High Court in the case of J.R. Solvent Industries 22 Taxmann.com 115 is squarely applicable to the facts of the case in which it has been held that where the purchases are made from the non existing dealer same would be held bogus even if complete quantitative details of purchases are available in the books of account of the assessee.” Assessee is in further appeal before us against the above order of the CIT(A).

6 to 4313/Mum/2015 M/s. Avcon Controls P. Ltd) (MVAT TIN No. 27220377351V & PAN No. AAJPS1099L) on various dates which is used in the manufacture of components such as plungers, stoppers, stems and gear blanks, used for finished goods. • The assessee says that the above mentioned purchases from M/s. Atul Traders were used in manufacturing and sales thereof which were made in the regular course of business and the same were supported by copies of the bills/delivery challans. • The sales tax assessment has been made by wrongly treating the said dealer and assessee's purchases as not genuine and disallowed the setoff claimed for the said purchases. The assessee has paid the MVAT due as per the order, as the Sales tax law clearly spells the liability when the selling dealer has not paid their VAT liability. However the fact that MVAT has been paid on such purchases does not in any manner indicate that the purchases are bogus as alleged. • The assessment under the MVAT Act, 2002 has been made as the said dealers failed to make MVAT payments which is the basis for allowing set off under the MVAT Act, 2002. It is the set off that has been disallowed under the MVAT Act and not the purchases which are genuine. Addition has been made merely on the basis of certain statements recorded by the Authorities from certain persons from whom said purchases were made by the assessee. The addition has been made without giving an opportunity to the assessee to cross examine the persons on basis of whose statements the additions/ assessments have been made. Therefore, the assessment is illegal and invalid and accordingly cannot be sustained in law. However to buy peace and the amount of tax involved was very small, the assessee has not preferred an appeal under the MVAT Act, 2002. • All the material purchased is recorded in stock register and BIN Card and issued to the manufacturing department on issue of material requisition slip from Production Department. The Stores Department maintains the record of receipt and issue of the material in computer as well as the BIN Card System.

7 to 4313/Mum/2015 M/s. Avcon Controls P. Ltd) • The assessee has already submitted the above documents to the assessing officer evidencing the correctness of above facts. • M/s. Atul Traders had filed their Returns for the period from 01.04.2011 to 31.03.2012 after cancellation of the registration which department has accepted the return filed online under form Jl and J2. The assessee's MVAT No. 27940346012V was appearing in the return filed by M/s. Atul Traders. The xerox copy of the returns and challans were submitted to the AO for his perusal and record. • There were purchases during subsequent years also and on request of the department assessee had paid the set off claimed. The assessee never accepted the said purchases as bogus. Therefore, Sales Tax Department did not issue any notice on assessee. The assessee had neither received the notice nor accepted the purchases from M/s. Atul Traders under hawala transactions. • On receiving the information from Sales Tax department at the time of sales-tax assessment assessee had collected the sales tax paid challans', returns filed, Ledger copy duly signed by the proprietor of M/s. Atul Traders and obtained PAN also and submitted the copies thereof to the AO. • The assessee's total purchases during the year under reference were ₹.66031645/- as against the purchases from M/s. Atul Traders which the AO proposed to add was ₹.858707/- only. The ratio between the total purchases and the purchases from Atul Traders, Your Honour, the percentage is 1.30% which is very negligible considering the sales turnover of ₹.18,86,79,030/-.

• The assessee submitted the photocopies of the following during the assessment proceedings: 1) Copy of Purchase orders 2) Copy of Invoice copies and delivery challans 8 to 4313/Mum/2015 M/s. Avcon Controls P. Ltd) 3) GRR report issued by our Stores and Inspection dept. 4) Bin card maintained by the stores for quantitative record. 5) Bank statement highlighting the payments confirming the payments made by Account Payee cheque. 6) Bank Certificate confirming the payments made by Account Payee Cheque and, 7) Ledger copy of Atul Traders duly confirmed and signed by him.

9 to 4313/Mum/2015 M/s. Avcon Controls P. Ltd) 9. The facts and circumstances in the assessment years 2010-11 to 2012-13 are same, following the reasoning given hereinabove, we direct for restricting the addition to 12.5% of the purchases.

Order pronounced in the open court on 30th May, 2018.