ASSISTANT COMMISSIONER OF INCOME-TAX vs. M/S. MAHALAXMI ELECTRICALS,, NASHIK

आदेश आदेश / ORDER आदेश आदेश

PER D. KARUNAKARA RAO, AM :

The Revenue filed the main appeal ITA No.301/PUN/2016 and the assessee filed the Cross Objection against the order of CIT(A)-2, Nashik, dated 29-12-2015 for the Assessment year 2009-10.

the CO filed by the assessee is allowed, adjudication of appeal filed by

the Revenue becomes academic. We proceed to adjudicate the CO filed

by the assessee first.

C.O.No.103/PUN/2017 (Arising out of ITA No.301/PUN/2016) A.Y. 2009-10

under :

The following grounds are taken without prejudice to each other - On facts and in law,

1] The learned CIT(A) erred in confirming the disallowance of Rs.6,11,847/- out of the total disallowance of Rs.61,18,471/- made by the A.O. in respect of purchases made from six alleged hawala parties on the basis of information obtained from Maharashtra Sales Tax Dept.

2] The learned CIT(A) erred in holding that 10% of the purchases made by the assessee from the above parties were to be disallowed without appreciating that no disallowance was warranted on facts of the case.

3] The learned CIT(A) failed to appreciate that the purchases made by the assessee from the six parties were supported by documentary evidences and in the absence of any evidence brought on record to show that the payments made by the assessee to these parties through banking channel were withdrawn by them and returned to the assessee in cash, there was no reason to doubt the genuineness of the payments made by the assessee to these parties.

4] The learned CIT(A) ought to have appreciated that in spite of the specific written request dated 13.08.2013 made by the assessee in the course of asst. proceedings, the A.O. had neither provided the copies of statements of the alleged hawala parties, nor had the assessee provided the opportunity of cross examination to the assessee and hence, the addition made by the A.O. solely by relying upon such statements of hawala parties without even confronting the same to the assessee was not justified in law.

5] Without prejudice, the assessee submits that the disallowance made @ 10% on alleged hawala purchases is very high considering the nature of business of the assessee and if at all, any addition is to be sustained, the same may be reduced substantially.

6]. The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal.”

submitted that the core issue in the above objections relate to failure of

the AO in granting the opportunity to the assessee and denying the

written request of the assessee. Bringing our attention to the letter of

the assessee dated 29-12-2014, Ld. Counsel submitted that the same

constitutes written request and read out the relevant lines from Para

No.2 of the said letter. For the sake of completeness, the said para is

extracted here as under :

“As per the discussion with you it is stated that you have some of the party’s statement with you. We hereby request you to please allow us to cross examination. Secondly please furnish us the details of the latest address of the party’s hence we can bring the ledger confirmations. The department may give this opportunity to prove our genuineness. We have submitted all the documents, information and details to prove our genuine transaction.

Further, stating that on similar legal issue, the Tribunal in the

case of M/s. Joto Abrasives Pvt. Ltd. Vs. DCIT in ITA

No.2902/PUN/2016, dated 28-03-2018 for the A.Y. 2009-10 held the

order of the AO as unsustainable. Ld. Counsel also relied on the

decision of Pune Bench of the Tribunal in the case of Anita Sanjay

Agrawal Vs. ITO and others in ITA Nos. 2622 to 2624/PUN/2016 and

others, dated 28-03-2018 for the A.Yrs. 2009-10 to 2011-12. He filed

the copies of the orders of the Tribunal (supra).

and is engaged in the business of supply of all types of Industrial

Electrical, Mechanical Installation and Maintenance. Assessee filed the

return of income on 30-09-2009 declaring total income of

Rs. 44,49,070/-. In the re-assessment proceedings, AO made addition

of Rs.61,18,471/- on account of bogus purchases as per the discussion

given in Para No.3.2 of the reassessment order. Assessee demonstrated

the trail of goods in this case. However, the AO made the entire

addition of bogus purchases amounting to Rs.61,18,471/-. During the

First Appellate proceedings, assessee raised the issue of validity of

reassessment apart from the merits of additions. CIT(A) adjudicated the

issue and held in Para No.12.3 of his order that the failure to grant the

benefit of cross examination to the assessee makes the order erroneous.

Notwithstanding the said decision, the CIT(A) confirmed the addition to

the extent of 10% of the bogus purchases amounting to Rs.6,11,847/-.

Contents of Para No. 12.3 and 12.4 are relevant in this regard. For the

sake of completeness, we reproduce the said paras here as under :

“12.3 Further the appellant vide letter dated 29-12-2014 had requested the A.O. to furnish the statement/s recorded by Sales Tax Department and to allow cross examination of the deponents. However, the AO has neither supplied the said statements nor allowed cross examination of the deponents. In view of the settled legal position and various decisions relied on by the appellant, the addition made by the AO without supplying the material relied on by him and without allowing cross examination to the appellant is not justified. 12.4 The appellant has raised alternative contention that he has declared reasonable gross profit and hence the alleged benefit on account of goods purchased from grey market may be estimated @4% of the alleged hawala purchases as without the said purchases goods cannot be sold. It has also been pointed out by the Ld. AR of the appellant that the Assessing Officers in various cities like Bombay, Pune, Aurangabad etc. have estimated the addition on account of alleged hawala purchases to the extent of certain percentage of hawala purchases on account of the benefit of purchases made from grey market. Considering the totality of the facts of the case under appeal, the said benefit has been estimated @10% of the hawala purchases of Rs.61,18,471/- and the addition is restricted to that extent. The addition of Rs.61,18,471/- is accordingly restricted to Rs.6,11,847/- and the addition to the extent of Rs.55,06,624/- is deleted.”

Andaman Timber Industries Vs. CIT - Civil Appeal No. 4228/2006,

dated 02-09-2015 is distinguishable on facts, Ld. DR for the Revenue

mentioned that the assessee filed the letter for want of cross

examination of the parties only on 29-12-2014 where the assessment is

getting time barred on 31-12-2014. Further, Ld. DR heavily relied on

the orders of the AO and CIT(A) and suggested the re-assessment made

by the AO survives. He further relied on the arguments made by him in

connection with the appeals in the case of Anita Sanjay Agrawal Vs. ITO

and others and M/s. Joto Abrasives Pvt. Ltd. Vs. DCIT (supra).

additions for the failure of the AO to provide cross examination to the

assessee before making additions, when there is a written request from

the assessee. We have perused the orders of the Revenue and the

decisions of the Pune Bench of the Tribunal in the case of Anita Sanjay

Agrawal Vs. ITO and others and M/s. Joto Abrasives Pvt. Ltd. Vs. DCIT

(supra). On going through the same, we find this issue stands against

the Revenue. We find in the case of M/s. Joto Abrasives Pvt. Ltd. Vs.

DCIT, dated 28-03-2018 (supra), the Tribunal held as under :

“7. We heard both the sides on the legal aspect of the issue relating to correctness of making additions at the back of the assessee by the Assessing Officer without granting benefit of cross examination of the assessee. In our view, this issue is covered in favour of assessee by virtue of decision of Pune Bench of the Tribunal in the case of Anita Sanjay Agrawal Vs. ITO and others in ITA Nos.2622 to 2624/PUN/2016. For the sake of completeness, relevant para is extracted herein below:

“25. The facts and issues arising before us are squarely covered by the facts and issues before the Hon'ble Supreme Court in M/s. Andaman Timber Industries Vs. Commissioner of Central Excise (supra) and applying the said principle / ratio to the facts of the present case, we hold that where the assessee had sought cross- examination of the witnesses at the earliest stage i.e. while objecting to the reasons recorded for reopening the assessment, which duly has been acknowledged by the Assessing Officer in his order disposing of objections raised by the assessee against reopening of assessment. But the Assessing Officer though asked the assessee to collect the statement but failed to allow cross-examination though he admitted that the same would be allowed in due course of time. On a later date, the Assessing Officer concludes that the letters sent under section 133(6) of the Act to the dealer were returned back. But the same cannot be reason for denying cross- examination. In the absence of allowing cross-examination of witnesses used against the assessee, where the addition was made in the hands of assessee on the basis of aforesaid statements recorded by the Sales Tax Department, we hold that no addition on account of bogus purchases can be made in the hands of assessee. The assessee had also established factum of trail of goods. Accordingly, we delete the addition made on account of bogus purchases. The grounds of appeal raised by the assessee are thus, allowed.”

Considering the above, we are of the opinion that the facts are comparable and thus the decision of the Tribunal apply to the legal issue raised by the assessee in Ground No.3(c) of the appeal. On facts, it is evident that the benefit of cross examination was not granted to the assessee before making addition. Further, the order of the AO/CIT(A) do not indicate furnishing the copies of the statements of the suppliers to the

assessee before making assessment. Nevertheless, the assessee furnished evidences by way of purchase bills, lab test reports showing the fact relating to manufacture of goods. Therefore, the addition made by AO without granting cross examination is unsustainable. Reliance is placed on the ratio of Hon'ble Apex Court in the case of M/s. Andaman Timber Industries Vs. CIT (supra) and the decision of the Tribunal in the case of Anita Sanjay Agrawal Vs. ITO (supra). Accordingly, the ground No.3(c) raised by the assessee is allowed.

Considering our decision above, the remaining grounds raised by the assessee on merits are dismissed as being academic.”

examination before taking adverse decision against the assessee makes

the assessment order erroneous. This failure of the AO constitutes a

grave one, moreso, when the assessee requested the same in writing

and, in effect, the same was denied silently. The CIT(A) has already

adjudicated the issue in favour of the assessee and the Revenue is not

in appeal on this finding of the CIT(A). Relevant lines from Para No.12.3

are already extracted in the preceding paragraphs. The Revenue’s

contention that the request is made only on 29-12-2014 is

unsustainable for the reason that it is the duty of the AO to adhere to

the set principles of natural justice. Supplying of the statements

containing adverse conclusions/assertions and providing cross-

examination if any is an essential ingredient of the said principles of

natural justice. The ratio of the judgment of Hon’ble Apex Court in the

case of M/s. Andaman Timber Industries Vs. CIT - Civil Appeal No.

4228/2006, dated 02-09-2015 is relevant on this issue. Therefore, we

proceed to extract the relevant lines from the said judgment here as

under :

“According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the

assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them.

As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross- examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17.03.2005 was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions.

In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Notice.

We, thus, set aside the impugned order as passed by theTribunal and allow this appeal.”

findings to the extent that how the addition should be restricted to 10%

when the cross examination issue is held unjustified by the CIT(a) as

per finding in Para No.12.3 of his order.

In view of the above discussion and in the light of the

Judgment/decisions (supra) on this legal issue, we are of the

considered opinion that the addition made by the AO without granting

cross examination is unsustainable. Therefore, the grounds raised by

the assessee in the Cross objections are allowed.

ITA No.301/PUN/2016 A.Y. 2009-10

adjudication of the appeal of the Revenue becomes an academic.

Accordingly, the grounds raised by the Revenue are dismissed.

allowed and appeal of the Revenue is dismissed.

Order pronounced in the open court on this 26th day of April, 2018.

Sd/- Sd/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) �याियक �याियक सद�य �याियक �याियक सद�य सद�य /JUDICIAL MEMBER लेखा सद�य लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य

पुणे Pune; �दनांक Dated : 26th April, 2018 सतीश आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ि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)-2, Nashik 4. CIT-2, Nashik िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “B Bench” Pune; 5. गाड� फाईल / Guard file. 6.

आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार

स�यािपत �ित //True Copy//

Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune