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Income Tax Appellate Tribunal, MUMBAI BENCH “I” MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the assessee. The relevant assessment year is 2011-12. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-22, 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’).
The grounds of appeal
filed by the assessee read as under:
1. The Ld. CIT(A) erred on facts and in law in holding that the reopening of assessment by the Income Tax Officer- 10(2)(1), Mumbai (AO) u/s 147 was as per law.
2. The appellant prays that your honours hold that the reopening of assessment by the AO u/s 147 was bad in law and the consequential order passed u/s 143(3) rw.s. 147 is also bad in law.
The Ld. CIT(A) erred on facts and in law in not appreciating that the AO had not given the appellant an opportunity to cross examine the parties who had stated before the Sales Tax Authorities that they had only given accommodation entries. As the principles of natural justice are violated, the order u/s. 143(3) r.w.s. 147 is bad in law. 4. The appellant prays that your honours hold that the order u/s 143(3) r.w.s. is bad in law as the principles of natural justice are violated. 5. The Ld. CIT(A) erred on facts and in law in confirming the addition made by the AO on account of bogus purchases to the extent of Rs.1,95,655/- being estimated gross profit @ 12.50% of the bogus purchases amounting to Rs.15,65,241/-. 6. The appellant prays that the addition on account of estimated gross profit on alleged bogus purchases of Rs.1,95,655/- confirmed by the CIT(A) out of the addition of Rs.15,65,241/-may be deleted. 7. Without prejudice to the above, the Ld. CIT(A) erred on facts and in law in adopting the estimated gross profit @ 12.50% without any basis. 8. The appellant prays that if your honours are not inclined to delete the entire addition, the estimated gross profit on the alleged bogus purchases may be estimated considering the facts of the appellant’s case and the past history of the appellant’s case. 3. The 1st issue raised by the appellant (the 1st, 2nd, 3rd and 4th ground of appeal) is that the re-opening of assessment by the Assessing Officer (AO) u/s 147 is bad in law.
Briefly stated, the facts of the case are that the assessee filed its return of income for the assessment year (AY) 2011-12 on 30.09.2011 declaring total income at Rs.11,73,980/-. The AO processed the said return of income u/s 143(1) of the Act. Subsequently, the AO re-opened the assessment u/s 147. On the request of the assessee, the AO provided the reasons for re-opening the assessment. We have heard the rival submissions and perused the relevant materials on record. In ACIT v. Rajesh Jhaveri Stock Brokers P. Ltd. 291 ITR 500 (SC), it is held that intimation u/s 143(1)(a) is not an assessment and the notice u/s 148 issued by the AO was valid. In Kone Elevator India P. Ltd. v. ITO (Mad) 340 ITR 454, CIT v. Ideal Garden Complex P. Ltd. (Mad) 340 ITR 609 and ACIT v. Maersk Global Service Centre (India) (P.) Ltd. (ITAT, Mum) 66 DTR 90, it is held that the only condition to be satisfied for re-opening the return of income processed u/s 143(1) is that the taxable income has escaped assessment and the assessee’s plea that no fresh material was before the AO warranting re- opening is not relevant. In view of the above position of law, the 1st, 2nd, 3rd and 4th grounds of appeal are dismissed.
4. Now we deal with the 5th, 6th,7th and 8th ground of appeal. During the course of reassessment proceedings, the AO found from the information received from the Sales Tax Department, Government of Maharashtra that the assessee had made bogus purchases during the financial year (FY) 2010-11 amounting to Rs.15,65,241/- from the following parties :
Amount Beneficiary Name Beneficiary Hawala Name FY (Rs.) PAN Akash Purochem AACCA9261A Siddhivinayak 2010- 10,20,640 Pvt. Ltd. Corporation 11 --do-- --do-- Darshan Sales --do-- 5,44,601 Corpn. Total 15,65,241 During the course of assessment proceedings, the AO issued notice u/s 133(6) to the above two parties to examine the genuineness of transaction. However, the notices issued by him were returned as ‘unserved’ by the postal authority. The AO also noted that the assessee failed to file evidence of delivery of goods such as transporter’s bills, delivery challans, lorry number, weighment slip, octroi receipt etc. to establish that materials purchased from the above parties have been physically delivered in his premises. In view of the above, the AO made an addition of Rs.15,65,241/- u/s 69C of the Act.
Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) held that in the assessment as well as appeal proceedings, the assessee had given detailed submissions regarding quantitative tally of opening stock, purchases, consumption/sales and closing stock of materials. Payment for these purchases were also made by account payee cheques which is not disputed. Considering the above facts, the Ld. CIT(A), following the decision in CIT v. Simit P. Sheth (2013) 356 ITR 451 (Guj) directed the AO to estimate profit @ 12.5% on the bogus purchases of Rs.15,65,241/.
Before us, the Ld. counsel of the assessee submits that the appellant had in the first instance requested the AO to give them an opportunity to cross-examine these parties. However, the AO has without affording an opportunity to the appellant to cross-examine the parities whose statements he was relying upon, has taken a contrary view and added the purchases made from the said parties as bogus. The Ld. counsel thus submits that the AO could not have relied on the statements of the parties, without furnishing the copies of the statements to the appellant and without affording the appellant, an opportunity to cross-examine the parties.
On the other hand, the Ld. DR submits that notice u/s 133(6) issued to the concerned two parties have been returned by the postal authorities as ‘undelivered’. Thus the identity of the parties could not be established. The Ld. DR refers to page 123 of the Paper Book (P/B) filed by the assessee and submits that the appellant had filed a written submission dated 04.11.2015 before the Ld. CIT(A) stating that the concerned parties were absconding as they had not only sold goods to various parties, collected VAT but had not deposited VAT with the Sales Tax Authorities. As the parties were absconding, the issue of cross- examination by the AO does not arise. The Ld. DR also refers to the statement recorded by the AO of Shri Vipul P. Shah, Director of the assessee-company, during the course of survey u/s 133A of the Act on 11.12.2012. Thus the Ld. DR supports the order passed by the Ld. CIT(A).
We have heard the rival submissions and perused the relevant materials on record. The reasons for our decision are given below. We find that the notices u/s 133(6) sent by the AO, during the course of reassessment proceedings, were returned back by the postal authorities as undelivered. Therefore, the AO was not in a position to give the assessee an opportunity to cross-examine the above parties. A proper hearing must always include a fair opportunity to those who are parties in the controversy for correcting or contradicting anything prejudicial to their view. 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 have been set aside by High Court; at most, High Court should have directed Assessing Officer to grant an opportunity to assessee to cross- examine concerned witness.” In a similar case of a beneficiary of accommodation entries, their Lordships of the Hon’ble Bombay High Court in the case of Om Vinyls P. Ltd. (supra) have observed that it would be open to the assessee to raise all permissible defences and also to insist on cross-examination of the persons who have made a statement implicating the assessee in having participated in taking accommodation entries. 8.1 In view of the above position of law, we set aside the order of the Ld. CIT(A) and restore the matter to the file of the AO to make a fresh assessment after examining the concerned parties and giving opportunity of cross-examination to the assessee. 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 assessment order. As we have restored the matter to the file of the AO, we are not adverting to the case-laws relied on by the Ld. counsels. Thus the 5th, 6th,7th and 8th grounds of appeal are allowed for statistical purposes.