ASSISTANT COMMISSIONER OF INCOME TAX, DELHI vs. THE INDURE PRIVATE LIMITED, DELHI

PER VIMAL KUMAR, JUDICIAL MEMBER:

Sr. Source PAN Source Name PAN Information type Information Remarks No. Information value F.Y. 1 ALAPM8418R M/s. Shree 2012-13 Bogus purchases Rs.1,94,00,000 First set of Shyam Trading information Company (Prop. Business of Shri Anand Muraks 2 AYWPS7386N M/s. R.B. 2012-13 Bogus purchases Rs. 2,70,00,000 Second set Fabrications of (Prop. Business information of Shri Baburam Samasi

1. Whether on the facts and circumstances of the case, the Ld. CIT(A)/NFAC has erred in allowing the ground of the assessee ignoring the facts that the transactions made by the assessee to the tune of Rs. 4,64,00,000/- with M/s. Shree Shyam Trading Company (Prop. business of Shri Anand Muraka and M/s. R. B. Fabrications) Prop. of Baburam Samasi) were bogus purchases whereas the assessee failed to prove the genuineness of the transaction during assessment proceedings.”

6. Learned Authorized Representative for the Department of Revenue submitted that Ld. CIT(A) erred in deleting the additions ignoring detailed discussion in the order of Ld. AO. Hon'ble High Court of Punjab & Haryana in Narender Kumar Gupta [2015] 55 taxmann.com 371 (Punjab & Haryana) held that Tribunal cannot delete addition under Section 69C and estimate the income. Where Assessing Officer made addition to assessee's income under section 69C in respect of bogus purchases, in view of failure of assessee to even prove existence of suppliers, Tribunal could not delete impugned addition and direct Assessing Officer to assess income at net profit rate of 6 per cent. In the case of NK Industries Ltd [2016] 72 taxmann.com 289 (Gujarat)/[2017] 292 CTR In case of bogus purchases, the entire amount has to be added: Taxing only 25% of these bogus claim goes against the principles of Sections 68 and 69C of the Income Tax Act. The entire purchases shown on the basis of fictitious invoices have been debited in the trading account since the transaction has been found to be bogus. SLP against this decision was dismissed by Supreme Court as reported in 84 taxmann.com 195 (SC). Other decisions in the cases of Choksi Vachharaj Makanji & Co [2016] 76 taxmann.com 17 (Gujarat)/[2016] 243 Taxman 465, Shoreline Hotel (P) Ltd. [2018] 98 taxmann.com 234 (Bombay) and Hon'ble Supreme Court in the case of SEBI Vs Kishore R Ajmera were relied in the matter.

7. Learned Authorized Representative for assessee relied on order of Ld. CIT(A).

8. From examination of record in light of aforesaid rival contentions, it is amply clear that Ld. CIT(A) in Para no.7 held as under: “7. Vide ground-4, the appellant challenged the action of the AO in issuing the notice of re-opening the case on the basis of investigation wing information only and without making any independent enquiry and not produced the proprietor/accused for cross examination by the assessee in respect of the transactions added in the impugned order. In other words the appellant contended that AO had not conducted any independent inquiry but merely relied on the report of the Investigation wing, meaning that AO made relied upon borrowed satisfaction and concluded the assessment. This seems to be one of the objections raised by the assessee even before the AO and before analyzing the issue it is pertinent to take a look at the AO's response as mentioned in the assessment order, relevant extract as below for ready reference:

“On the matter of borrowed satisfaction, it is mentioned that the reopening of cases are based on the information analyzed by the internal investigation agencies of the department. The case is being reopened only on the basis of the report of the investigation agencies in which there is a concrete information and this information has a live link with the escapement of income. In this regard, it may be noted that on one side the assessee have submitted reply dated 25.05.2022 asking to provide the materials thereafter the then AO on 18.06.2022, has provided materials/documents discussing the transactions as show-caused in show cause notice (SCN) and at the same time despite of filing particular details in connection with alleged transaction made with non-existing entities on merits, it raised the issue that the same are on borrowed information, is not tenable. In this regard, it may be noted that SCN was issued based on cogent information/material available with the AO and its nexus purely found with the non- existing entities, hence, its contention is not tenable and same are disposed off.

As can be noticed from the above extract of assessment order, while rejecting the assessee's objections, the FAO reasoned that on one side the assessee have requested to provide the materials which the then AO, has provided wherein the transactions as show-caused in show cause notice (SCN) were discussed and at the same time the AO alleged that the assessee despite of filing particular details in connection with alleged transaction made with non-existing entities on merits, it raised the issue that the same are on borrowed information, is not tenable. Thus the FAO did not find it necessary to look into the objections while the fact of the matter is that legal objections can be raised by assessee at any point of time during the proceedings.

Having said so, it can be seen from the above extract that the FAO just relied upon the report of the investigation wing. The requirement of provisions for making an assessment of income escaping assessment is that of the satisfaction of the assessing officer. Here is a case where the FAO relied upon the satisfaction of "the report of the investigation agencies". And the FAO found the objection raised before him by the assessed as untenable for the reason cited above and further reasoning that assessee cannot raise objections during reassessment proceedings and that the assessment is done on merits of the case. This view of the AO is not tenable as the assessee can raise legal grounds at any point of time during the proceedings. While deleting with the assessee's objection contending that the re-assessment proceedings are bad in law, the AO stated in the assessment order that "All the contentions were carefully scrutinized, considered but the same were not tenable at the stage of faceless assessment ....". As regards the appellant's contention that it was denied cross- examination of the parties whose statements formed that basis for reopening of assessment as well as for making the said additions, it is noticed from the assessment order that the AO did admit that the statement recorded u/s 131 of the Act on oath from Shri BaburamSamasi the prop: M/s. R. B.Fabrications, formed the basis for reopening. The request for cross-examination was made to the AO during the course of re-assessment proceedings and the AO while denying the request made by the assessee held as follows: [assessment order page-23]: E) THE ASSESSEE SEEKS RIGHT TO CROSS EXAMINATION OF THE PERSON ON WHOSE STATEMENT THE AO HAS INITIATED REASSMENT PROCEEDINGS a) the assessee contended that the bare perusal of statements of i) Shri Baburam Samasi, proprietor of R. B. Fabrications, and ii) Pravin Kumar Aggarwal, proprietor of Shree Syam Trading Company, that the same has no relevant with the asessee or any transaction undertaken by the assessed. b) the assessee contended to statement of Shri Baburam samasai is seems to be made up story for reopening of assessment proceedings, hence seeks to cross examine Shri Baburam Samasar as well as Prabhu Dayal d) the assessee rely upon the judgment in the matter of Commissioner of Income Tax vs Ashwani Gupta, 2010(2) TMI 42 which states about the principles of natural justice to assessee Assessing officer relied upon granted. e) assessee's contention is that any action taken without granting the assessee a right to cross examine will lead to denial of proper opportunity of hearing and it shall lead to violation of principles of natural justice

Assessee's request for cross examination is not justified for the reason that there is transactions, the relationship exist from one business entity to another based on the principles of mutuality or with written or oral contract entered into transactions for benefit of each other. Shri Baburam Samasai proprietor of R. B. Fabrications, (a non filer or filing salary return ITR-1) from which the assessee have procured the materials under the guise of purchases, claimed in the profit and loss account as expenses, therefore, onus purely lies upon the assessee to produce the party for cross verification from which the assessee made purchases and to justify its transactions with their signed confirmation for the relevant period. However, the assessee failed to submit any confirmation from the parties from which the assessee had purchased the goods. Therefore, assessee's contention is not tenable.

It is clear from the above that the AO while on one had stated that the statement of Shri BaburamSamasi prop: M/s. R. B.Fabrications formed that basis for reopening of assessment, yet, he declined the assessee's request for cross-examination of the deponent Shri BaburamSamasi prop: M/s. R. B.Fabrications, thus violating the principles of natural justice and fair play. A statement of a third party cannot be the sole evidence to made an addition, unless it is corroborated by necessary documentary evidence to substantiate the so called deposition. Mere reliance on the statement of a third party cannot be made without ever granting an opportunity of cross-examination amounts to gross violation of the principles of natural justice. It is the duty of the AO to bring in all supporting evidences so that the very basis of the addition is on strong foundation and is irrefutable. Here is a case where the assessee refuted the claim of the third party and sought a cross-examination of the third party and the AO simply brushed aside the assessee's claim, thus weakening his basis/foundation for re- assessment. It is discernible from 26 & 27 of the assessment order that the assessee has submitted copies of bills/tax invoices of M/s R. B. Fabrications and M/s Shree Shyam Trading Company, which the AO refused to accept and the reason mentioned is as follows: "....On careful reading of the bills/tax invoices, the same are self generated and does not bear any way-bills. Also no delivery register, goods receipt note, and also signed confirmation from the said parties, not submitted...."

The AO had not given any reasons as to how he concluded that the bills are "self-generated". When the assessee had submitted the evidences in its support, it is for for the AO to disprove the same by conducting TAX independent inquiries to bring on record any evidence that rebuts the assessee's claim. Without doing so, the claim made by the assessee cannot be simply ignored and in such circumstances, addition made by placing mere reliance on the investigation report is not sustainable. The assessee is engaged in the business of turnkey contracts of Ash Handling Plant, Spares and Operation and Maintenance of Ash Handling Plants. Based on the information as mentioned above that the assessee has claimed bogus purchases from M/s R.B.Fabrications and M/s Shree Shyam Trading Company, the case of the assessee has been picked up for reassessment under Section 147 of the Act, and the assessee has been asked to show cause as to why the impugned addition of Rs. 4,64,00,000/- should not be made on account of the said bogus purchases. In the assessment order, as already stated above, it is mentioned that the assessee submitted requisite copies of bills of M/s R. B. Fabrications and M/s Shree Shyam Trading Company. While the fact remains that the AO had not conducted any further inquiry to disprove the said bills/purchases, it is also a fact that the AO had not at all disputed the sales. This is obvious from the assessment order that the AO had nowhere mentioned of any alleged bogus sales. The AO had also not mentioned of any analysis of stock traded so as to bring any material on recorded to prove that the alleged purchases in question are in fact bogus.

Where the assessee undertook sale/supply out of the purchases claimed and the said sale has not been disputed and profit thereon the sales has been offered to tax for the said assessment year and the said profit has been accepted, then said purchases cannot be held to be bogus. Therefore, when corresponding sales remain undisputed, purchases cannot be held to be bogus and, thus, impugned addition on account of so-called bogus purchases does not hold.

Further, if the purchases were e bogus as contended by the AO, it would be impossible for the assessee to complete the sale and thus, the corresponding sales would also be bogus. Therefore, where the corresponding sales could not be held to be bogus, purchases also could not be bogus. Reliance in this regard is placed on the following judgements:  Principal Commissioner of Income-tax vs. Nitin RamdeojiLohia [2022] 145 taxmann.com 546 (Bombay High Court) - In the said case, the Assessing Officer ("AO"), basis the information received from the Sales Tax Department of the Government of Maharashtra that the assessee was a beneficiary of accommodation entries on account of bogus purchases, reopened the case of the assessee under Section 147 of the Act and made an addition on account of alleged bogus purchases. The Commissioner of Income-tax (Appeals) ("CIT(A)") allowed the appeal on the ground that the AO having not disputed the sales, it was not a case of bogus purchases and that it was at best a case of inflated purchases. The Income Tax Appellate Tribunal ("ITAT/Tribunal") has also directed the AO to delete the addition on account of bogus purchases. On further appeal by the Revenue, the Hon'ble High Court of Bombay held as under: "7. From the above facts it is thus clear that the CIT (Appeals) partially allowed the appeal of the assessee on the ground that the A.O. had not disputed the sales and, therefore, this was not a case of bogus purchases, inasmuch as if the purchase was bogus, it would not be possible for assessee to complete the transaction by way of sale, unless it could be shown from the record that the corresponding sale was also a sham transaction.

We are in agreement with the view expressed by the CIT (Appeals) that, if the purchases are bogus, it would be impossible for the assessee to complete the business transaction and that if the purchase is bogus, the corresponding sale also must be bogus or else the transaction would be impossible to complete and as a necessary corollary, unless the corresponding sale is held to be bogus, the purchase also cannot be held to be bogus, rather it would be a case of purchase from bogus entities/parties. That view has been upheld by the Tribunal in principal while dismissing the appeal of the assessee. Further, disallowance of alleged bogus purchases when the sales that stemmed out of such purchases have been accepted, would result in double taxation in the hands of the assessee. Therefore, the said purchases cannot be held to be bogus and the proposed variation on account of the alleged bogus purchase is untenable and cannot be sustained.”