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Income Tax Appellate Tribunal, PUNE BENCH “SMC”, PUNE
Before: SHRI D. KARUNAKARA RAO, AM
आदेश / ORDER आदेश आदेश आदेश
PER D. KARUNAKARA RAO, AM
This appeal filed by the assessee is against the order of CIT(A)-1, Nashik dated 21.02.2017 for the A.Y. 2010-11.
Assessee raised the following grounds of appeal:
“1. On the facts and in the circumstances of the case and as per law, the Commissioner of Income Tax (Appeals)-1, Nashik, is not justified in confirming validity of notice issued u/s.148 particularly when AO has issued the said notice on the basis of information received from third party, without applying his mind.
2 ITA No.949/PUN/2017 Shanteelal C. Joshi
On the basis of facts and in the circumstances of the case and as per law, the Commissioner of Income Tax, (Appeals)-I, Nashik, is not justified in confirming the disallowance of purchases of Rs. 26,58,213/-, particularly when the AO has not allowed the appellant the cross- examination of the witness of the revenue i.e. parties from whom the purchases were made as well as the competent Sales Tax Authority on the basis of whose information the notice u/s. 148 of the Act was issued by the AO. 3. On the basis of facts and in the circumstances of the case and as per law, the disallowance made by the Commissioner of Income Tax (Appeals)-1, Nashik of the purchases made from some of the parties of Rs.26,58,213/- by treating the same as fictitious particularly when the appellant has furnished the basic evidences in support of the said purchases. 4. The Appellant craves for addition to, deletion, alteration, modification, change any of the grounds.”
Briefly stated relevant facts include that the assessee is an
individual and is engaged in the business of manufacturing and trading
steel. Assessee filed the original return of income on 09.08.2010
declaring total income at Rs.4,50,580/-. On the basis of information
received from Sales Tax Department, AO noticed that the assessee
indulged in making purchases from couple of hawala dealers viz. (1)
Rahul Steels; and (2) Asian Steel aggregating to Rs.26,58,213/-. At the
end of re-assessment proceedings u/s.143(3) r.w.s. 147 of the Act, the
AO made addition of Rs.26,58,213/- on account of the said bogus
purchases. Aggrieved with the order of AO, the assessee filed an appeal
before the CIT(A) challenging the validity of notice issued u/s.148 of the
Act as well as the addition on account of bogus purchases amounting
to Rs.26,58,213/-.
During the First Appellate proceedings, with regard to the first
issue i.e. validity of notice issuing u/s.148 of the Act, CIT(A) noted that
as the assessee failed to furnish full details in response to the notice
u/s.148 of the Act, the AO formed reasons to believe that the income
3 ITA No.949/PUN/2017 Shanteelal C. Joshi
has escaped assessment and accordingly, assessment was reopened by
issuing notice u/s.148 of the Act. The CIT(A) also was of the view that
while recording the reasons for reopening, AO followed due procedure of
law and ascertained the fact by legal evidence and therefore, reasons
recorded were not vague. Thus, relying on the judgment of Hon’ble
Supreme Court in the case of ACIT Vs. Rajesh Jhaveri Stock Brokers
Pvt. Ltd., 291 ITR 500, judgment of Delhi High Court in the case of
United Electrical Co. Pvt. Ltd. Vs. CIT 258 ITR 137 apart from others,
CIT(A) upheld the view of AO regarding initiation of proceedings u/s.
147 of the Act. Contents of Para 4 along with its sub-paras of the
CIT(A)’s order are relevant in this regard.
With regard to merits of the addition of Rs.26,58,213/-, CIT(A)
confirmed the same. In the process, CIT(A) observed that neither at the
time of assessment proceedings nor at the time of appellate
proceedings, neither the impugned sellers/parties were produced nor
filed submissions evidencing the claim. The assessee also not enclosed
the quantitative details, purchase to sale reconciliation with the help of
stock register. Transportation of goods were not evidenced. In view of
the fact that assessee failed to produce any documentary evidence in
the shape of transport receipt warehouse receipts, stock of goods,
matching purchases to sales to support his purchases, CIT(A)
confirmed the addition. Para 5.1 and 5.2 of the appellate order are
relevant in this regard.
Aggrieved with the order of CIT(A), assessee filed appeal before me
raising the aforementioned grounds extracted above.
4 ITA No.949/PUN/2017 Shanteelal C. Joshi
At the outset, Ld. Counsel for the assessee submitted that CIT(A)
has erred in confirming validity of notice issued u/s. 148 particularly
when AO issued the said notice merely on the basis of information
received from third party and without applying his mind on the issue of
concealment of income. Ld. Counsel further submitted that while
confirming the disallowance of purchases of Rs.26,58,213/-, the AO did
not allow the assessee the cross examination of the witness of the
revenue i.e. parties from whom purchases were made as well as the
competent Sales Tax Authority, the source of the information for the
issuance of the notice u/s.148 of the Act. Regarding the merits of
addition, Ld. Counsel relied on various decisions of Pune Bench of the
Tribunal.
On the other hand, the Ld. DR for the Revenue relied heavily on
the orders of AO/ CIT(A).
On hearing both the sides and on perusal of orders of Authorities
below, I am of the view that AO as well as the CIT(A) have made the
aforesaid addition of Rs.26,58,213/- at the back of the assessee
without providing copies of statement/affidavits of the parties and
without providing the benefit of cross examination of the parties to the
assessee. The application of the assessee addressed to the CIT(A)-I,
dated 16-12-2016, evidences the fact of seeking cross examination and
copies of statements/affidavits of the parties. For the sake of
completeness of this order I proceed to extract the submissions made
by the assessee here as under (Para 3) :
“3. As stated above, in our opinion, the proceedings u/s.148 of the Act are initiated on the basis of copies of statements as well as affidavits of the above referred parties received from sales-tax department. Therefore, in such circumstances, the said parties are in fact witnesses
5 ITA No.949/PUN/2017 Shanteelal C. Joshi
of the revenue. The appellant does not have the copies of the statements/affidavits of the hawala dealers which the A.O. has relied upon for making the assessment of the year under appeal. Therefore, we kindly request your honour to direct the AO to grant us the copies of the said statements and affidavits. Ws also kindly request your honour to direct the AO to allow us the cross examination of the said so called suspicious dealers and also competent Sales Tax Authority who has furnished the details of suspicious dealers to the Income Tax Department. In the similar case it is accepted that the suspicious dealers on the basis of whose statements and affidavits the impugned proceedings are initiated, were absconding. Therefore, we request your honour to direct AO to produce the impugned parties.”
The above submissions of the assessee postulate that the revenue
authorities have not followed due procedure before making re-
assessment u/s.147 of the Act and therefore, violated the principles of
natural justice. Therefore, on this legal issue alone and without
considering the other arguments of the assessee, the assessment
proceedings u/s.148 of the Act has to be held as bad in law and void
ab-initio by virtue of judgment of Honble’ Supreme Court in the case of
Andaman Timber Industries vs. CCE - Civil Appeal No. 4228/2016
dated 02.09.2015.
Coming to the merits also, the assessee has produced copies of
bills, transport receipts, delivery challans, bank statements, etc.
establishing the trail of goods. Further, the books of account have also
not been rejected u/s.145(3) of the Act. Thus, the adjudication of the
merit related grounds becomes an academic exercise as I have already
granted relief on legal issue.
In view of the above discussion, I am of the view that the
assessment proceedings initiated u/s.148 are held as invalid and
unsustainable. Thus, the legal grounds raised by the assessee are
allowed, in principle. Consequently, the merit related grounds are
dismissed as academic.
6 ITA No.949/PUN/2017 Shanteelal C. Joshi
In the result, appeal of the assessee is partly allowed.
Order pronounced on 25th day of May, 2018.
Sd/- (डी डी.क�णाकरा राव क�णाकरा राव/D. KARUNAKARA RAO) डी डी क�णाकरा राव क�णाकरा राव लेखा सद�य लेखा सद�य / ACCOUNTANT MEMBER लेखा सद�य लेखा सद�य
पुणे / Pune; �दनांक / Dated : 25th May, 2018. Satish
आदेश क� �ितिलिप आदेश क� �ितिलिप अ�ेिषत आदेश क� �ितिलिप आदेश क� �ितिलिप अ�ेिषत अ�ेिषत / Copy of the Order forwarded to : अ�ेिषत
अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(A)-1, Nashik. 4. The CIT-1, Nashik 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “एक एक एक-सद�य एक सद�य सद�य” ब�च, सद�य पुणे / DR, ITAT, “SMC” Bench, Pune. गाड� फ़ाइल / Guard File. 6.
आदेशानुसार / BY ORDER, // True Copy //
िनजी सिचव /Sr. Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.