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Income Tax Appellate Tribunal, MUMBAI BENCH “E” MUMBAI
Before: SHRI D.T. GARASIA & SHRI N.K. PRADHAN
ORDER PER N.K. PRADHAN, A.M. The cross appeals-one by the assessee and the other by the Revenue- are directed against the order of the Commissioner of Income Tax (Appeals)-34, Mumbai and arise out of the assessment Shri Sandeep K. Mehta 212/Mum/2015 completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’). Since common issues are involved, we are proceeding to dispose them off by a consolidated order for the sake of convenience. 2. The ground raised by the assessee in this appeal is that the Ld. CIT(A) erred in restricting the disallowance to Rs.27,43,736/- on account of non-genuine purchases. The ground raised by the Revenue is that the Ld. CIT(A) erred in deleting the addition of Rs.61,95,130/- made on account of non- genuine purchases from seven parties and directing the AO to accept the GP @ 10% ignoring the fact that some of these parties are included in the list of suspicious and/or hawala dealers provided by the Sales Tax Department.
3. Briefly stated, the facts of the case are that the Assessing Officer (AO) found during the course of assessment proceedings that the following parties from whom the assessee had made purchases were appearing in the list of suspicious dealers detected by the Sales Tax Department, Government of Maharashtra who indulged in issuing only bills without delivering any goods or materials for a commission: Sl. No. Name of the party Amount (Rs.)
1. Ami Traders 250000 2. Tara Enterprises 891870 3. Somnath International 1230000 4. Matoshree Traders 1762040 5. Ganesh Enterprises 880000 6. Payal Enterprises 1129020
7. Adinath Enterprises 52200 6195130 The AO provided to the assessee the copies of statement, deposition, affidavit etc. of the abovementioned parties to the assessee on 16.11.2013. Then the AO issued notice u/s 133(6) to the above Shri Sandeep K. Mehta 212/Mum/2015 parties to verify the transactions. However, the notices issued by him in some cases were returned back by the postal authorities with the remark ‘left’ or ‘not known’. In some cases, no reply was received by the AO. In response to a query raised by the AO, the assessee submitted that the purchases made from the above parties were genuine. The assessee also filed before the AO the bills/vouchers and bank statements highlighting the payments made to these parties. However, the AO was not convinced with the above explanation of the assessee as it failed to produce any lorry receipt, delivery challan, evidence of payment of octroi (if any), stock register before him. Therefore, he made an addition of Rs.61,95,130/- u/s 69C of the Act.
Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). We find that the Ld. CIT(A) estimated the gross profit of the assessee at 10% of sales of Rs.18,55,46,732/-. It comes to Rs.1,85,54,673/-. By substracting therefrom, the gross profit already declared by the assessee at Rs.1,58,10,937/-, the Ld. CIT(A) restricted the disallowance to Rs.27,43,736/-.
Before us, the Ld. counsel of the assessee files a copy of the submission made before the AO and the Ld. CIT(A). The Ld. counsel further submits that the assessee had submitted before the AO various details which include details of purchase and sale, invoice copy, bank statement etc. It is submitted by him that the statements given by the parties are completely baseless with a mala fide intention to evade the sales tax payment recovered from the assessee by issuing tax invoice. It is also stated by him that the statement of third parties cannot be Shri Sandeep K. Mehta 212/Mum/2015 concluded adversely in isolation and without corroborating evidence against the assessee.
Per contra, the Ld. DR submits that the Ld. CIT(A) failed to take into consideration the fact that the Sales Tax Department, Government of Maharashtra has recorded the statement of these parties by way of affidavits that these dealers were engaged in the business of issuing bills without physical delivery of materials. The assessee failed to file before the AO the delivery challan, lorry receipt, stock register in respect of the said purchases. Thus it is stated by him that the addition of Rs.61,95,130/- should be confirmed fully.
We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. We are of the considered view that the contentious issues in the instant case could be resolved by examining the above parties. It is the duty of the AO to enforce attendance of a witness if his evidence is material. At the same time the assessee must furnish the complete address of such person. 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 Shri Sandeep K. Mehta 212/Mum/2015 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.” The importance of cross-examination has been emphasized by the Hon’ble Bombay High Court in the case of Om Vinyls P. Ltd. vs. ITO [WP(L) No. 3114 of 2014]. In view of the above, 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 in the light of our observation hereinbefore after giving opportunity to the assessee to cross-examine the concerned parties. We also 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 the matter has been restored to the file of the AO, we are not adverting to the case laws relied on by the Ld. counsels during the course of hearing.
Shri Sandeep K. Mehta 212/Mum/2015