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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA
O R D E R Per Shamim Yahya, A. M.: This is an Appeal by the Assessee is directed against the Order by the Commissioner of Income Tax (Appeals)-42, Mumbai (‘CIT(A)’ for short) dated 28.12.2016 and pertains to the assessment year (A.Y.) 2009-10.
The issue raised is that the ld. CIT(A) erred in sustaining disallowance of 100% of bogus purchase, amounting to Rs.22,39,511/-. The assessee has also raised ground challenging the reopening of this case.
(A.Y.2009-10) Bhaveshwar Traders vs. Astt. CIT 3. In this case, the assessee is a Partnership Firm engaged in the business of manufacturing of ready-made garments. The assessee had filed its return of income for AY 2009-10 on 27/09/2009 declaring a total income of Rs.21,17,592/-. The same was assessed under section 143(3) of the Act on 31/10/2011 at an income of Rs.23,11,990/-. Subsequently, the Assessing Officer received information from the office of the DGIT(Inv) to the effect that the assessee has made bogus purchases and had taken accommodation bills of entry. The Assessing Officer reopened the assessment of the assessee after recording reasons. The assessee was found to have taken bills of purchase from the following hawala dealers: SL No. Name of Hawala Dealer Amount
Universal Trading Company Rs. 5,22,844 02. Payal Enterprises Rs. 2,50,000 03. Griffon Indian Riddhi Rs. 93,038 Enterprises 04. Dipali Enterprises Rs. 13,73,629 Total Rs. 22,39,511
In the assessment proceedings, the Assessing Officer sought to verify the purchases of Rs. 22,39,511/- claimed to have been made from the above four hawala dealers and issued notices u/s 133(6) of the Act, but these were returned by the postal authorities with the remarks 'not known' and 'unclaimed' etc. The Assessing Officer also directed the assessee to prove the genuineness of purchases from the above party with the documentary evidence or to produce the party along with necessary evidences like octroi receipts, L/R receipts etc. The Assessing Officer had also sought detailed information concerning the purchases, stocks, production details etc. as mentioned on pages 4-5 of the assessment order.
Before the AO the assessee claimed that on 10/10/2014 a fire had broken out in the registered factory premises of the assessee at B-2, A-101-108, RS Indl. Estate
(A.Y.2009-10) Bhaveshwar Traders vs. Astt. CIT Premises Co-op Society Ltd, Sonawala Cross Road No. 2, Goregaon (E), Mumbai and everything was burnt. Accordingly, the assessee submitted that it is not in a position to furnish any reply. The AO discussed the matter at pages 6-9 of the order of re- assessment and made an addition of Rs. 22,39,511/- under section 69C of the Act as bogus/unproved purchases from the four hawala dealers above.
Against the above order, the assessee appealed before the learned CIT(A) who confirmed the action of the assessing officer. The ld. CIT(A) concluded as under: 7.2 The assessee has also claimed the impugned dealers was its genuine suppliers. The point to be noted is that the assessee declared to the Income Tax Department that its suppliers are genuine despite the assessee foregoing the set off of the VAT paid by it on the alleged purchases and despite the 'dealer' giving statements to the Sales Tax Authorities that they are not doing any genuine sales. The 'dealer’ is the witnesses of the assessee through whom the assessee seeks to justify its books of account. When the assessee's witness does not seem to back the assessee's claims, it cannot even be said that the AO has entertained the witness of an outside third party. The A.O. had merely informed the assessee that its claim of making purchases from the alleged hawala_dealer is not borne out. The onus was on the assessee to substantiate his return of income. A similar issue has been considered and rejected by the ITAT in the case of Sukh Ram v. ACIT (2007) 99ITP 417(Pen and by the Delhi High Court in 285 ITR 256 (Del) in the same case. In the Sukh Ram case the appellant had claimed that the cash found at his residence during the course of the search belonged to a political party. The AO recorded a statement of the party treasurer of the political party who refuted this claim. Before the ITAT and the High Court the assessee claimed that no addition can be made in his case unless he gets to cross-examine the party treasurer. This argument of the appellant in this case was rejected and it was held that when the AO merely seeks to verify the claim of the assessee, it is not akin to taking evidence behind the back of the assessee. In the present case also, the assessee was allowed full opportunity in the re-assessment as well as the appeal proceedings to justify and prove its purchases but it has failed to do so. The assessee could not substantiate its own sellers. The onus never left the assessee. The assessee has not been able to file any confirmation of account from the party. 7.3 The assessee had also claimed that the AO has only relied upon the enquiries conducted by the Sales Tax Department. It is it is seen that the AO has given the details of the enquiries conducted by the Sales Tax Department at (A.Y.2009-10) Bhaveshwar Traders vs. Astt. CIT para-4.l(iii) of the reassessment order and the inquiries as well as the documents submitted by the hawala dealers establish that the transactions of the assessee with the hawala dealers were not genuine.
7.4 It is seen that though the assessee claims that the hawala dealers were genuine sellers but it is a fact that the assessee is unable to produce the sellers for verification. The assessee has no other document or evidence to establish receipt of the material from the hawala dealers or the consumption of the same. While the assessee has claimed that the fire has destroyed all its records, the fact remains that the assessee has no confirmation of accounts also from the hawala dealers. The assessee has taken no steps to gather evidences from other sources. Though the event of fire is a tragedy it is not possible to ignore the fact that the hawala dealers have made non-genuine sales to numerous business people for a commission. This aspect cannot be ignored also. In view of the above it is held that the assessee is not able to prove the genuineness of its purchases from the Hawala dealers and the addition of Rs. 22,39,511/- is confirmed.
Against the above order of learned CIT(A), the assessee is in appeal before the ITAT.
I have heard ld. Departmental Representative and perused the records. An adjournment letter has been filed by the assessee. Assessee had earlier also sought adjudication. This adjournment petition has been rejected. 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 obtain 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, the assessment was reopened. The credibility of information relating to reopening remains un-assailed. In such factual scenario, the assessing officer has made the necessary enquiry. 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. Necessary evidence relating to transportation of the goods was also not on record. In this factual scenario, it is amply clear that assessee has obtained bogus
(A.Y.2009-10) Bhaveshwar Traders vs. Astt. CIT purchase bills. Mere preparation of documents for purchases cannot controvert overwhelming evidence that the providers of these bills are bogus and non-existent.
The Sales Tax Department in its enquiry has found the parties to be providing bogus accommodation entries. Assessee has not been able to produce any of the parties. Neither the assessee has been able to produce any confirmation from these parties. In such circumstances, there is no doubt that these parties are non-existent. I find it further strange that assessee wants the Revenue to produce assessee's own vendors, whom the assessee could not produce. The purchase bills from these non- existent /bogus parties cannot be taken as cogent evidence of purchases. In light of the overwhelming evidence, the Revenue authorities cannot put upon blinkers and accept these purchases as genuine. This proposition is duly supported by Hon’ble Apex Court decision in the case of Sumati Dayal 214 ITR 801 and Durga Prasad More 82 ITR 540.
In the present case, the assessee wants that the unassailable fact that the suppliers are non-existent and thus bogus should be ignored and only the documents being produced should be considered. This proposition is totally unsustainable in light of above apex court decisions. However, I find that in this case, the sales have not been doubted. It is settled law that when sales are not doubted, 100% disallowance for bogus purchase cannot be done. The rationale being no sales is possible without actual purchases. This proposition is supported from Hon'ble jurisdictional High Court decision in the case of Nikunj Eximp Enterprises (in writ petition no 2860, order dt 18.6.2014). In this case, the Hon’ble High Court has upheld 100% allowance for the purchases said to be bogus when sales are not doubted. However, the facts of the present case indicate that assessee has made purchase from the grey market. Making purchases through the grey market gives the assessee savings on account of non- payment of tax and others at the expense of the exchequer. In such situation, in our
(A.Y.2009-10) Bhaveshwar Traders vs. Astt. CIT considered opinion, on the facts and circumstances of the case, 12.5% disallowance out of the bogus purchases meets the end of justice. Accordingly, I direct that the assessee be restricted to 12.5% of the bogus purchases.
As regards the reopening of the assessee, on a careful consideration, I note that in this case information was received by the Assessing Officer from DGIT Investigation (Mumbai) there are some parties who are engaged in the hawala transactions and are also involved in issuing bogus purchase bills for sale of material without delivery of goods, which information was based on information received by Revenue from Maharashtra Sales Tax Authority. Information was received that the assessee was beneficiary of hawala accommodation entries from entry providers by way of bogus purchase. The accommodation entry provider has deposed and admitted before the Maharashtra Sales Tax Authority vide statement/ affidavit that they were engaged in providing bogus accommodation entries wherein bogus sale bills were issued without delivery of goods, in consideration for commission. These, accommodation entry providers, on receipt of cheques from parties against bogus bills 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 assesses is stated to be beneficiary of bogus purchase bills.
(A.Y.2009-10) Bhaveshwar Traders vs. Astt. CIT 12. From the above, I find that tangible and cogent incriminating material were received by the AO which clearly showed that the assessee was beneficiary of bogus purchase entries from bogus entry providers which formed the reason to believe by the AO that income has escaped assessment. The information so received by the AO has live link with reason to believe that income has escaped assessment. On these incriminating tangible material information, assessment was reopened. At this stage there has to be prima facie belief based on some tangible and material information about escapement of income and the same is not required to be proved to the guilt. In this regard, I refer to the decision of the Hon'ble Apex Court in the case of CIT(A) Vs. 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. 170(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)."
The above discussion and precedent from Apex Court fully justify the validity of reopening in this case.