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Income Tax Appellate Tribunal, MUMBAI BENCH “K” MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI N.K. PRADHAN
ORDER PER N.K. PRADHAN, A.M. This is an appeal filed by the Revenue. The relevant assessment year is 2011-12. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-38, Mumbai and arises out of the assessment completed u/s 143(3) r.w.s 147 of the Income Tax Act 1961, (the ‘Act’).
The 1st ground raised by the Revenue in this appeal is that the Ld. CIT(A) erred in deleting the addition of Rs.43,40,426/- made by the AO on account of bogus purchases. The 2nd ground of appeal is that the Ld. CIT(A) erred in not considering that the assessee failed to establish the genuineness and credit worthiness of the lender Shri Sanjay Vora.
We begin with the 1st ground of appeal
. Briefly stated, the facts of the case are that the Assessing Officer (AO) received information from the Sales Tax Department, Government of Maharashtra that the assessee had made bogus purchases during the impugned assessment year from the following parties: S. Name of the Party VAT TIN Amount No. (Rs.)
1. Maruti Corporation 27200629853V 10,92,982 2. H.R. Trading 27180792727V 2,11,302 3. Shree Ambika Trading Co. 27820725639V 2,49,743 4. Mayur Trading Co. 27460623114V 56,469 5. Adeshwar Enterprises 27210731843V 2,53,043 6. Trade Link 27740712782V 3,08,149 7. Deepak Sales Corporation 27900590474V 10,88,351
8. Pooja Traders 27230616596V 13,57,435 Total 46,17,474 The AO has observed that the above VAT TIN matches with the one in the copy of the bills filed by the assessee before him. The AO reopened the assessment by issuing notice u/s 148 on the basis of the above information. Thereafter, in order to verify the genuineness of transaction, the AO issued notice u/s 133(6) to the above parties. However, the said notices were returned back by the postal authorities with the remark ‘not known’, or ‘left’ or ‘no reply received’ or ‘not claimed’. The AO then communicated the above fact to the assessee and asked him to produce the above parties before him along with the books of accounts, bills, purchase orders, quantity sold, mode of transportation, bank statement etc. However, the assessee could not produce the above parties before the AO for examination.
Taking into account the above facts, the AO made an addition of Rs.46,17,474/- to the total income of the assessee on account of bogus purchases.
Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) observed that the assessee had shown GP ratio in the impugned assessment year at 5.99% as against 5.48% and 5.87% in AY 2010-11 and AY 2009-10 respectively. On that basis the Ld. CIT(A) directed the AO to estimate profit @ 6% on the alleged bogus purchases of Rs.46,17,474/-. It comes to Rs.2,77,048/-.
Before us, the Ld. DR submits that the Ld. CIT(A) should have upheld the disallowance of Rs.46,17,474/- made by the AO instead of restricting it to 6% as the assessee failed to prove the genuineness of transactions. On the other hand, the Ld. counsel of the assessee supports the order the Ld. CIT(A) and also submits that only the profit element embedded in such purchases could be arrived at and the Ld. CIT(A) has rightly estimated it @ 6%.
We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. We begin with the 1st ground of appeal. The fact remains that after the notice u/s 133(6) issued by the AO came back unserved by the postal authorities, he had requested the assessee to produce the above parties for examination. The assessee failed to produce the above parties before the AO. 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 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].
There is no basis in the order of the Ld. CIT(A) in estimating the profit @ 6% in the case of a transaction in which the genuineness is not proved by the assessee. 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.
Then we move to the 2nd ground of appeal
. The AO made an addition of unsecured loan of Rs.8,00,000/- u/s 68 as the assessee failed to file the copy of bank statement and income tax return of Mr. Sanjay R. Vora. In appeal the Ld. CIT(A) has noted that merely not providing copy of return of income and bank statement of the creditor does not prove the loan credit to be ingenuine. Therefore, she deleted the addition of Rs.8,00,000/- made by the AO.
8. Before us, the Ld. DR submits that the details contained in the bank statement and the income tax return are having implications in proving the capacity of the creditor to advance money. Also it can prove the genuineness of the transaction.
9. On the other hand, the Ld. counsel of the assessee supports the order passed by the Ld. CIT(A).
We have heard the rival submissions and perused the relevant materials on record. It is a settled position of law that in order to discharge the onus u/s 68, the assessee must prove the following: (i) the identity of the creditor, (ii) the capacity of the creditor to advance money, and (iii) the genuineness of the transaction. We are of the considered view that the bank statement and the income tax return of Mr. Sanjay R. Vora are relevant materials which could prove the genuineness of transaction amounting to Rs.8,00,000/-. Therefore, we set aside the order of the Ld. CIT(A) on the above issue and restore the matter to the file of the AO to make an assessment on the above issue afresh after giving a reasonable opportunity of being heard to the assessee. We direct the assessee to file the above details before the AO.
In the result, the appeal is allowed for statistical purposes. Order pronounced in the open Court on 11/10/2017. Sd/- Sd/- (MAHAVIR SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 11/10/2017 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to :
1. 1. The Appellant 2. The Respondent.
3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai