CHIRAG RAJENDRA SHAH,MUMBAI vs. ITO WD 24(1)(4), MUMBAI

Since the facts are identical, we are referring to the facts and figures from assessment year 2009-10.

Brief facts of the case are as under: The assessee is engaged in the business as a reseller and trader in iron and steel under the proprietorship concern M/s. Harsh Steel. Its case was initially processed u/s 143(1). Subsequently, the AOreceived information from DGIT(Inv.)/ Mumbai and Sales Tax Department that the assessee had claimed purchases of Rs.6,03,82,692/- from parties who have been declared as hawala dealers by Sales Tax Department. These parties had issued accommodation bills without actual sale and delivery of goods. Therefore, the case was re-opened. On further verification, the Assessing Officer observed that the assessee had claimed purchases of Rs.8,23,49,198/- from 5 hawala parties. The Assessing Officer issued notice u/s.133(6) to 5 parties which were returned back with remarks 'not known/left/unclaimed and address incomplete'. The Assessing Officer issued summons u/s 131 to the assessee to produce the parties, books of accounts, confirmation, ledger accounts of the purchase parties, evidence of movement of materials, transport receipts and the sale details. The assessee submitted that he had already filed the details of the purchase parties and the sales details, copies of vouchers and expenses made towards and sold the same to the sale parties. The assessee also filed the comparative analysis of the GP ratio for AY 2008-09 to 2011-12. The Assessing Officer rejected the explanation of the assessee ow the ground that the assessee had not produced a single party. Further, the AO mentioned that the confirmations filed were self-made ones without any supporting evidences like copy of PAN card, Driving license or passport so that the signature of alleged hawala parties could be verified. The sample bills were not supported by transportation bills, octroi paid bills and loading and unloading details. Therefore, the ledger accounts and copy of bills are not sufficient to prove the genuineness of the transaction. The Assessing Officer has also relied upon the deposition made by the Principal Officer of the alleged concerns before the Sales Tax Department wherein all of them had admitted that they were not doing any genuine business but were indulged in providing accommodation entries to people who needed their services. The Assessing Officer has treated the expenditure incurred on such purchases as unexplained. The Assessing Officer rejected the assessee's reliance OR the judgment of the Gujarat High Court in the case of CIT Vs Simit P. Shah on the grounds that the purchases itself were not doubted. The Assessing Officer held the view that the assessee had purchased the goods at cheaper cost to avoid payment of sale tax, excise duty etc. To avoid disallowance u/s 40A(3) of the IT Act, the assessee had obtained the bills from hawala operators. Based on above, the Assessing Officer completed the assessment and treated the aggregate purchases of Rs.8,23,49,198/- from 5 parties as unexplained expenditure u/s 69C of the Income Tax Act against which the assessee is in appeal with this office. were noted as under:

Considering the above submissions, as regards the reopening, the ld. Commissioner of Income Tax (Appeals) confirmed the same by observing as under:

On the issue of merits of addition, the ld. Commissioner of Income Tax (Appeals) principally upheld the treatment of purchase as bogus by observing as under:

Thereafter, the ld. Commissioner of Income Tax (Appeals) confirmed 25% of the addition.

Against the above order, the assessee is in appeal before us.

We have heard both the counsel and perused the records. While challenging the reopening, the ld. Counsel of the assessee’s submissions are as under:

Furthermore, the ld. Counsel of the assessee submitted that the ld. Commissioner of Income Tax (Appeals) has passed a very laconic order. He submitted that the assessment order should not have been passed u/s. 143(2) rather should have been passed u/s. 144 of the Act. Furthermore, the ld. Counsel of the assessee referred to several case laws including those referred before the ld. Commissioner of Income Tax (Appeals). He also referred to certain case laws from the ITAT on the issue of merits. He also referred to few judgments from the following case laws from the Hon'ble jurisdictional High Court:

The ld. Departmental Representative, on the other hand, relied upon the orders of the authorities below. He vehemently reiterated that the purchases are bogus inasmuch as no evidence of delivery has been furnished. He submitted that even today the assessee has not presented the delivery challans. In this regard, the ld. Departmental Representative further referred to the following case laws:

We have carefully considered the submissions. As regards the reopening of the assessee, on a careful consideration, we note that in this case information was received by the Assessing Officer from DGIT Investigation (Mumbai) there are some parties who are engaged in the hawala transactions and are also involved in issuing bogus purchase bills for sale of material without delivery of goods, which information was based on information received by Revenue from Maharashtra Sales Tax Authority. Information was received that the assessee was beneficiary of hawala accommodation entries from entry providers by way of bogus purchase. The accommodation entry provider has deposed and admitted before the Maharashtra Sales Tax Authority vide statement/ affidavit that they were engaged in providing bogus accommodation entries wherein bogus sale bills were issued without delivery of goods, in consideration for commission. These, accommodation entry providers, on receipt of cheques from parties against bogus bills for sale of material, later on withdrew cash from their bank accounts, which was returned to beneficiaries of bogus bills after deduction of their agreed commission. The Assessee was stated to be one of the beneficiaries of these bogus entries of sale of material from hawala entry operators in favour of the assessee wherein the assessee made alleged bogus purchases through these bogus bills issued by hawala entry providers in favour of the assessee. These dealers were surveyed by the Sales Tax Investigation Department whereby the before the Sales Tax Department that they were involved in. issuing bogus purchase bills without delivery of any material. There is a list of such parties wherein the assessee is stated to be beneficiary of bogus purchase bills.

From the above, we find that tangible and cogent incriminating material were received by the AO which clearly showed that the assessee was beneficiary of bogus purchase entries from bogus entry providers which formed the reason to believe by the AO that income has escaped assessment. The information so received by the AO has live link with reason to believe that income has escaped assessment. On these incriminating tangible material information, assessment was reopened. At this stage there has to be prima facie belief based on some tangible and material information about escapement of income and the same is not required to be proved to the guilt. In this regard, we refer to the decision of the Hon'ble Apex Court in the case of CIT(A)

The above discussion and precedent from Apex Court fully justify the validity of reopening in this case. Further we find that the Ld. CIT(A) has carefully examined the issue and has properly appreciated the issue. Hence, we do not find any infirmity in the same. Accordingly, we uphold the order of the Ld. CIT(A) on the issue of reopening. Since, the issue has been decided on the basis of the Hon’ble Apex Court decision, the other case laws referred by assessee are not supporting the assessee’s case.

We find that the validity of the reopening has already been found to be justified by us. The other points raised by the ld. Counsel of the assessee are that for the reopening, the Assessing Officer was not required to take any permission but still he has taken some permission. In our considered opinion, how the same will be fatal to the reassessment has not been explained to us as that act of Assessing Officer is a nullity. The Assessing Officer was perfectly justified to reopen on his own on the facts and circumstances of the case. This the ld. Counsel of the assessee also admits. Hence, in our considered opinion, the same does not invalidate the reopening. Furthermore, the ld. Counsel of the assessee has alleged that the reopening was done on bogus purchase while in completing the Assessing Officer has confirmed 100% of the purchase as unexplained expenditure.

As regards merits of addition, we find that credible and cogent information was received in this case by the assessing officer that certain accommodation entry provider/bogus suppliers were being used by certain parties to obtained bogus bills, assessee was found to have taken accommodation entry/bogus purchase bills during the concerned assessment year from different parties. Based upon this information assessment was reopened. The credibility of information relating to reopening has been confirmed by the learned CIT(A) and by ITAT as above. Furthermore it is noted that in such factual scenario Assessing Officer has made the necessary enquiry. The issue of notice to all the parties have returned unserved. Assessee has not been able to provide any confirmation from any of the party. Assessee has also not been able to produce any of the parties. The necessary evidence for transportation of goods have not been provided by the assessee. In this factual scenario it is amply that assessee has obtained bogus purchase bills. Mere preparation of documents for purchases cannot controvert overwhelming evidence that the provider of these bills are bogus and non-existent and there is no cogent evidence of transportation of goods. The sales tax Department in its enquiry have found the parties to be providing bogus accommodation entries. The assessing officer also issued notices to these parties at the addresses provided by the assessee. All these notices have returned unserved. Assessee has not been able to produce any of the parties. The assessing officer has noted that there is no cogent evidence of the provision of goods. such circumstances, there is no doubt that these parties are non-existent.

Hence purchase bills from these non-existent the/bogus parties cannot be taken as cogent evidence of purchases, in light of the overwhelming evidence the revenue authorities cannot put upon blinkers and accept these purchases as genuine. This proposition is duly supported by Hon’ble Apex Court decision in the case of Sumati Dayal 214 ITR 801 and Durga Prasad More 82 ITR 540. In the present case the assessee wants that the unassailable fact that the suppliers are non-existent and thus bogus should be ignored and only the documents being produced should be considered. This proposition is totally unsustainable in light of above apex court decisions.

In these circumstances learned departmental representative has referred to Hon’ble Gujarat High Court decision in the case of Appeal No. 240 of 2003 in the case of N K Industries vs Dy CIT, order dated 20.06.2016, wherein hundred percent of the bogus purchases was held to be added in the hands of the assessee and tribunals restriction of the addition to 25% of the bogus purchases was set aside. It was expounded that when purchase bills have been found to be bogus 100% disallowance was required. The special leave petition against this order along with others has been dismissed by the Hon’ble Apex Court vide order dated 16.1.2017.

We further note that Hon’ble Rajasthan high court has similarly taken note of decisions of the apex court on the issue of bogus purchases in the case of CIT Jaipur vs Shruti Gems in of 2009. The Hon’ble High Court has referred to the wherein the Hon’ble Court had inter alia held as under:

However, we note that this is not an appeal by the Revenue. Upon careful consideration we find that sales in these cases are not doubted. When sales are not doubted, 100% disallowance for bogus purchase is not sustainable as per the decision of the Hon’ble jurisdictional High Court in the case of Nikunj Eximp Enterprises (in writ petition no 2860, order dt. 18.6.2014). However, the facts of that case were different inasmuch as sales were to the Government department. However the facts and circumstances of the present case indicate that assessee has engaged into dealings in the grey market. Dealings in the grey market give the assessee various savings at the expense of the Exchequer. Hence, on the overall consideration of facts and circumstances and following the decision of Hon’ble Gujarat High Court in the case of CIT vs Simit P. Sheth [2013] 356 ITR 451 (Guj.) we hold that a disallowance of 12.5% of the bogus purchase would meet the end of justice. Accordingly, we modify the order's of authorities below and direct that the disallowance in this case should be restricted to 12.5% of the bogus purchase. We also note here that before the Assessing Officer the assessee has P. Sheth (supra) where 12.5% of disallowance was upheld.

As regards the reference to the Hon'ble jurisdictional High Court in the case of M/s. Ashish International (supra), we find that the same was delivered on the facts of that case. In that case, the Hon'ble jurisdictional High Court has noted that the appellate authority has sought a remand report and even at that stage the genuineness of the statement has not been established by allowing the cross examination of the person whose statement was relied upon by the Revenue. We find that in the present case, we have not raised any such issue. Rather, we have found that the assessee wants to cross examine his own suppliers whom he has not been able to produce. Furthermore, the addition has not been made solely on the basis of the statement. Comprehensive enquiry has been done and the assessee has totally failed in discharging the onus of proving that the purchase bills produced were genuine and not bogus. Furthermore, the decision of Hon'ble jurisdictional High Court in the case of M/s. Golani Brothers (supra) was also rendered on the facts of the particular case, wherein the Hon’ble High Court has found that there was no serious infirmity or perversity in the order of the Tribunal. Hence, in our considered opinion, the case laws relied upon by the ld. Counsel of the assessee do not support the case of the assessee. Furthermore, since we have considered the issue on the basis of the Hon’ble Apex Court decision and the decision of the Hon’ble High Courts referred hereinabove, the decisions of the tribunal referred by the ld. Counsel of