HARESH K. SANGHVI,MUMBAI vs. INCOME TAX OFFICER-17(1)(5), MUMBAI

4. Additions made by Ld. A.O. and sustained by Ld. CIT(Appeals) are based on suspicion, conjectures, surmises based on third parties opinion. Appellant has declared his initial burden by advising and producing the details asked for and therefore, further burden is on the authority to bring sufficient materials to discard the evidences submitted with the Paper-Book, which has not been done by the lower authorities, therefore, both orders passed by the ; lower authorities may be set aside, additions may be deleted or may be reduced to token amount in the interest of justice.

5. Appellant craves the liberty with prayer to allowed to add or to alter or to amend or to change any grounds of appeal on or before of the hearing of this appeal.

6. Appellant may be allowed to submit an application for issuing of an Ad- Interim Stay Order and an Absolute Stay Order and Paper-Book after filing of this appeal.

4. In this case on receipt of information from the DGIT (Investigation), Mumbai, it came to light that the assessee had made purchases from the following suspicious

(A.Y. 2011-12) Haresh K. Sanghvi vs. ITO parties/hawala parties during the assessment year 2010-11, relevant to assessment year 2011-12, the details of which are as follows:

Sr. No. Name of the hawala party Amount (Rs.) 1. DHRUV SALES CORPORATION 1,72,510 2. OM CORPORATION 7,985 3. SAGAR ENTERPRISES 44,708 4. MANIBHADRA TRADING CO 52,826 5. SEJAL ENTERPRISES 10,13,982 6. POLARIS SALES AGENCY PRIVATE 11,08,259 LIMITED 7. ASHTVINAYAK SALES AGENCY 17,70,483 8. DONEAR TRADING PRIVATE LIMITED 82,545 9. JIGAN ENTERPRISES 1,721 10. CHIRAC CORPORATION 1,03,845 11. NIHSA ENTERPRISES 1,24,931 12. AIMMOL INDUSTRIES 2,13,914 13. LEOIMPEX 5,684 14. IMPEX TRAIDNG CO. 94,291 15. MAHAVIR CORPORATION 1,77,596 16. SHANTINATH CORPORATION 1,79,877 17. DEEP ENTERPRISES 4,16,211 18. BLUE NILE ENTERPRISES 34,02,554 19. CORAL TRADING CO 1,97,027 20. SHUBHLAXMI SALES CORPORATION 64,547 21. MARUTI IMPEX 13,87,370 22. ANSHU MERCANTILE PVT LTD 7,29,349 23. ROHIT ENTERPRISES 1,78,501 24. VIDHI METAL INDUSTRIES 31,44,770 25. S. S. ENTERPRISES 6,61,612 26. POOJA METAL & ALLOYS 8,87,122 27. NAVRATAN METAL IMPEX 8,29,272 28. SUBHAM STEEL IMPEX 13,12,053 Total 1,83,65,545

(A.Y. 2011-12) Haresh K. Sanghvi vs. ITO 5. Subsequently, by virtue of notice u/s. 142(1), the assessee was asked to prove the genuineness of above purchases by producing relevant documentary evidences such as purchase order, sale invoice, delivery challan, mode of payment, mode of transportation, relevant entry in stock register etc. The assessee was also asked to produce purchase parties to prove the genuineness of above purchases. Further, notices u/s 133(6) of the Income Tax Act was issued to above mentioned hawala parties but all the notices received back with the remark 'left/not known'. The assessee was also asked to show cause as to why the expenditure claimed in respect of purchases shown to have made from the aforesaid dealer should not be disallowed.

The assessee vide order sheet noting dated 10.11.2015 has furnished copies of (a) ledger account of the purchase party; and (b) Purchase Bill. Before the Assessing Officer, the assessee submitted that he/she has shown corresponding sales of material alleged to be purchased from hawala parties and had offered the income thereon for taxation. There can be no sale without purchase, therefore requested to treat the purchases as genuine. However, the Assessing Officer noted that till date the assessee has neither submitted the confirmation of above purchases from respective purchase parties nor produced the broker/agents or the suppliers before the undersigned. Hence, he proceeded to make a disallowance of 12.5% of the purchase.

As regards reopening:

3.1 From the assessment order I find that the initial assessment was made only in the section 143(1) and hence only reason to believe is required for a valid initiation of proceedings under section 147. There was a receipt of information by the AO from DGIT investigation about the appellant having made purchases from suspicious parties/ hawala parties; the information was specific and the details of the 28 such suspicious parties was provided.

As regards merits:

5.1 It is yet another case in the long line of cases relating to hawala parties and the addition made by the AO is based on the following grounds: a. The assessee did not furnish any Ledger account confirmation from the said dealer/supplier. b. The assessee failed to produce the suppliers of Disputed purchases. c. Sales-tax Department had provided substantial evidence to put the purchases in doubt. The assessing officer proceeded to add 12.5% of such purchases amounting to Rupees 1.83 crores and accordingly addition of Rupees 22.95 Lacs was made. 5.2 In the statement of facts again ipse dixit statements have been made but the allegation which has been made by the assessing officer have not been controverted rather virtually the whole of statement of facts contests the reopening. There is no effective controverting submission. 5.3 While it is true that no addition would be possible merely because the said parties were not produced but in the instant case there are other factors also. The appellant has also not tried to prove whether there was any delivery challan, one-to-one correspondence of purchases and sales, whether there were proper stock in register entries, whether if the products were subject to (A.Y. 2011-12) Haresh K. Sanghvi vs. ITO Octroi/EXCISE there were proper gate passes et cetera to prove the movement of goods; there is no contention in respect of delivery challans. Even in the case of N1KUNJ EXIMP which is relied upon by the assessee there was Ledger account confirmation from the parties concerned it was based on those Ledger account party CONFIRMATIONS and non-production of the alleged suppliers that it was held that mere nonproduction of the alleged suppliers cannot lead to a sustainable addition. But in the instant case there were not even CONFIRMATIONS which distinguishes and sets apart the addition.

(A.Y. 2011-12) Haresh K. Sanghvi vs. ITO 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 directors of these dealers have admitted in a deposition vide statements/affidavit made 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.

Rajesh Jhaveri Stock Brokers P. Ltd, 291 ITR 500:-

"Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to lax 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 AO has cause or justification to know or suppose (hat 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 AO should have finally ascertained the fact by legal statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Managnese Ore Co, ltd. v. ITO(1991) 191 ITR 662, 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 stage. This is so because the formation of belief by the AO is within the realm of subjective satisfaction ITO v. Selected Dalurband Coal Co, (P.) Ltd. (1996) 217 ITR 597 (Supreme Court): Raymond Woollen Mills Ltd. v. ITO (1999) 236 ITR 34 (Supreme Court).”

(A.Y. 2011-12) Haresh K. Sanghvi vs. ITO 12. As regards merits of addition, I 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. Neither the assessee

(A.Y. 2011-12) Haresh K. Sanghvi vs. ITO has been able to produce any confirmation from these parties. In such circumstances, there is no doubt that these parties are non-existent.

(A.Y. 2011-12) Haresh K. Sanghvi vs. ITO 15. However I note that this is not an appeal by the revenue. Hence it will not be appropriate to take away the relief already granted by the revenue to the assessee, Hence I confirm the order of learned CIT(A).