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Income Tax Appellate Tribunal, MUMBAI BENCH “J” MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
ORDER PER N.K. PRADHAN, A.M. The above four cross appeals - two by the assessee and two by the Revenue – are directed against the order of the Commissioner of Income Tax (Appeals)-3, Nasik and arise out of the assessment completed u/s 143(3) r.w.s. 147 of the Income Tax Act 1961 (the ‘Act’). As common issues are involved, we are proceeding to dispose them off through a consolidated order for the sake of convenience.
The ground raised by the assessee in this appeal is that the Ld. CIT(A) has erred in estimating net profit @ 6% on the alleged unproved purchases disregarding the submission and documentary evidence of Shri Rajesh Ambalal Shah 3 3132, 2321 & 3133 /Mum/2017 the assessee. Also it is stated that the reopening made by the AO u/s 147/148 be quashed.
The cross appeal filed by the Revenue is that the Ld. CIT(A) erred in restricting the disallowance made u/s 69C (i) from Rs.71,25,181/- to Rs.4,27,510/- in A.Y. 2009-10 and (ii) from Rs. 1,95,17,832/- to Rs. 11,71,069/- in A.Y 2011-12 without appreciating the decision of the Hon’ble Gujarat High Court and approved by the Hon’ble Supreme Court in the case of N.K. Proteins Ltd. vs. DCIT in SLP (CC No.769 of 2017) wherein it has been held that when the entire purchases have been found to be bogus then confirming disallowance on percentage basis goes against the principle of section 68 and 69C.
Let it be stated that the facts for both the assessment years are similar. We begin with the AY 2009-10. 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 obtained bogus purchase bills from the following parties:
Sl. Name of the entry Maharashtra AY Amount in No. provider VAT No. the bills taken by the assessee(Rs.) 1. Sunder Corporation 27450609394V 2009-10 11,91,910/- 2. Vruksha Enterprises 27530620893V 2009-10 6,53,193/- 3. Chaitanya Enterprises 27360694658V 2009-10 3,58,053/- 4. Krishi Enterprises 27490662722V 2009-10 4,10,120/- 5. Bright Enterprises 27110698627V 2009-10 8,34,104/- 6. Shreyas Marketing Agency 27200244472V 2009-10 12,18,072/- 7. Shree Ganesh Trading Co. 27270244094V 2009-10 24,59,729/- Total 71,25,181/- Shri Rajesh Ambalal Shah 4 3132, 2321 & 3133 /Mum/2017 Similar purchases made for the AY 2011-12 are as under:
Tin of Hawala Name of Hawala Pan of Hawala A.Y. Amount in Dealer Dealer Dealer Rs. 1 2 3 4 5 27910623885V DONEAR TRADING AACCD4946K 2011-12 3,393,447 PVT. LTD. 27050634058V LINUS SALES AGENCY AABCL2934N 2011-12 3,409,568 PVT. LTD. 27190653866V UNIVERSAL TRADING AJIPJ7859H 2011-12 307,652 COMPANY 27530620893V VRUKSHA BGMPS2816M 2011-12 4,160,944 ENTERPRISES 27360694658V CHAITANAYA AJXPS1279D 2011-12 236,420 ENTERPRISES 27930587111V NEWZONE AAECM7719B 2011-12 620,460 MULTITRADE PVT. LTD. 27200244472V SHREYAS AADHK8405J 2011-12 831,822 MARKETING AGENCY 27270244094V SHREE GANESH AALPM8933D 2011-12 1,052,337 TRADING CO. 27070741426V JAY GANESH AVNPM8339E 2011-12 1,531,770 ENTERPRISE 27330145897V SHREEJI ADIPM8293L 2011-12 1,634,923 ENTERPRISES 27110698627V BRIGHT AMWPM2356H 2011-12 2,338,489 ENTERPRISES TOTAL 19,517,832 On the basis of above information, the AO recorded the reasons and reopened the assessment which was made earlier u/s 143(1) by issuing notice u/s 148 of the Act.
The assessee is an individual engaged in the business of supplying building material under the proprietary concern M/s Jars Trading Corporation.
During the course of assessment proceedings, the AO asked the assessee to file copies of purchase bills, lorry receipts, octroi payment Shri Rajesh Ambalal Shah 5 3132, 2321 & 3133 /Mum/2017 receipts in respect of the said transactions with the above parties during the year under consideration. Then the AO issued notice u/s 133(6) to the above parties to verify the genuineness of the transactions. Most of the notices issued by him were returned back by the postal authorities as unserved. The AO also observed that the assessee was not able to produce the copies of confirmation from the above parties regarding goods purchased and also the ledger extract of the assessee in the books of the above parties. In view of the above facts, the AO made an addition of Rs.71,25,181/- u/s 69C to the total income shown by the assessee.
Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) has held that (i) in the AY 2009-10, the bogus purchases are of Rs.71.25 lakhs out of total purchases of Rs.1.93 crore which amount to 37% and in the AY 2011-12 the said purchases are of Rs.1.95 crore out of total purchases of Rs.2.98 crore which amount to around 66%, (ii) without the impugned purchases, the sale and the profit on sale as shown by the assessee would not be possible. The Ld. CIT(A) relied on the decision in the case of Shri Jitendra Motani (ITA No.5927/Mum/2009 for AY 2006-07 and ITA No.3024 to 3028/Mum/2008 for AY 2001-02 to 2003-04 and 2005-06) and the judgment of the Hon’ble Gujarat High Court in CIT vs. Simit P. Shah 356 ITR 451 and estimated the profit @ 6% on the bogus purchases of Rs.71,25,181/- and it comes to Rs.4,27,510/- for the AY 2009-10. The Shri Rajesh Ambalal Shah 6 3132, 2321 & 3133 /Mum/2017 profit estimated by the Ld. CIT(A) for the AY 2011-12 comes to Rs.11,71,069/-.
Though the case was fixed for hearing before the Tribunal, neither the assessee nor his authorized representative appeared.
Before us, the Ld. DR submits that following the judgment of the Hon’ble Supreme Court in N.K. Proteins Ltd. (supra), the Ld. CIT(A) should have confirmed the disallowance made by the AO u/s 69C. There is no reason to restrict the disallowance to 6%.
We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. Regarding the objection raised by the assessee to the reopening u/s 147/148 we may mention here that the return of income filed by the assessee for the AY 2009-10 and 2011-12 were processed u/s 143(1) only. In the case of ACIT vs. Rajesh Jhaveri Stock Brokers P. Ltd. 291 ITR 500 (SC), the Hon’ble Supreme Court has held that information u/s 143(1)(a) is not an assessment and the notice u/s 148 issued by the AO was valid. Therefore, in the instant case after receipt of information from the Sales Tax Department, Government of Maharashtra, the AO has rightly issued the notice u/s 148. Thus the ground raised by the assessee against the issuance of notice u/s 148 by the AO for the AY 2009-10 and 2011-12 are dismissed. 8.1 Then we discuss the other ground raised both by the assessee and the Revenue.
Shri Rajesh Ambalal Shah 7 3132, 2321 & 3133 /Mum/2017 In the case of N.K Proteins Ltd. (supra), there was search proceedings conducted by the Revenue at the office premises of the assessee wherein blank signed cheque books and voucher of number of concerns were found. Accordingly, the purchases made from these concerns were treated as bogus by the AO and the entire deposits in bank accounts of these parties were treated as assessee’s income on protective basis. On appeal, the ITAT restricted the addition on account of alleged bogus purchases at 25% i.e. Rs.73,23,322/- of the total purchases amounting to Rs.2,92,93,288/-. On further appeal, the Hon’ble High Court modified the order of the Tribunal and directed for addition of entire bogus purchases. After hearing the counsels, the Hon’ble Supreme Court dismissed the SLP filed by the assessee and confirmed the decision of the High Court for addition of entire income on account of bogus purchases. 8.2 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.
Shri Rajesh Ambalal Shah 8 3132, 2321 & 3133 /Mum/2017 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]. 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.