SAMRAT METAL TRADERS P.LTD,MUMBAI vs. ITO WD 5(3)(2), MUMBAI

PER RAMIT KOCHAR, Accountant Member These cross appeals, filed by the Assessee and Revenue, being ITA No. 3527/Mum/2016 and ITA no. 3759/Mum/2016 for assessment year 2009- 10, are directed against the appellate order dated 15-02-2016 passed by I.T.A. No. 3527 & 3759/Mum/2016

learned Commissioner of Income Tax (Appeals)-10, Mumbai (hereinafter called “the CIT(A)”), for assessment year 2009-10, appellate proceedings had arisen before learned CIT(A) from the assessment order dated 08-01-2014 passed by learned Assessing Officer (hereinafter called “the AO”) u/s 144 r.w.s. 147 of the Income-tax Act, 1961 (hereinafter called “the Act”).

S.No. Name of the party Amount (In Rs.)

The AO observed that the afore-said dealers from whom the assessee purchased the material to the tune of Rs. Rs.7,47,73,908/-. were listed as hawala dealers in Maharashtra Sales Tax departments web site and on investigation, the Maharashtra sales tax department has come to the conclusion that these dealers are allegedly hawala operators wherein bogus bills were issued by these dealers without physical delivery of goods, which has been admitted by these dealers to be engaged in hawala entries by issuing bogus bills without supplying any material physically through sworn affidavits cum declarations on oath filed by their Directors before Maharashtra VAT authorities. It was also averred by these dealers that cheque deposited in their bank accounts against bills issued by them were withdrawn in cash and after deduction of commission cash was returned to 2

I.T.A. No. 3527 & 3759/Mum/2016

the purchasing parties. This led to reopening of the assessment u/s 147 , wherein notice u/s 148 was issued to the assessee by the AO on 08-03-2013 which was claimed by the AO to be duly served on the assessee. The assessee did not file return of income pursuant to notice u/s 148. The AO also issued and served notices u/s 143(2) and 142(1) to the assessee from time to time including deputing inspectors to personally serve the notices but the assessee did not responded to the notices and show cause issued by the AO which led to the additions of the entire alleged bogus purchase to the tune of Rs. Rs.7,47,73,908/-. to the income of the assessee vide best judgment assessment order dated 08-01-2014 passed by the AO u/s 144 r.w.s. 147 of the 1961 Act .

observed by learned CIT(A) that the assessee might have inflated purchases by taking invoices from grey market to suppress profits .The learned CIT(A) observed that the AO could not prove that the amounts given to sellers have come back to the appellants. It was observed by learned CIT(A) that it cannot be lost sight that there are accommodation entries being given by bogus hawala operators and the Maharashtra VAT authorities have conducted investigation to come to conclusion that these hawala dealers are only issuing bogus bills without supplying any material and the assessee is beneficiary of these bogus entries. The learned CIT(A) confirmed additions to the tune of 12.5% of bogus purchases from the said parties to the tune of Rs.7,47,73,908/- , vide appellate order dated 15-02-2016 passed by learned CIT(A).

engaged in bogus billing wherein no physical material was supplied . It was submitted that the assessee did not produced these parties before the AO nor filed any confirmations /bank statements before the AO even in remand proceedings , and since the assessee never participated in assessment proceedings no effective enquiry could be undertaken in the absence of co- operation by the assessee during assessment proceedings . The learned counsel for the assessee submitted that additional evidences were filed before learned CIT(A) which were forwarded by learned CIT(A) for seeking remand report from the AO. It was submitted that no independent investigation was carried out by the AO and no opportunity to confront the said alleged bogus dealers were provided to the assessee . It was submitted by the learned counsel for the assessee that books of accounts were not rejected by the AO. The ld. Counsel for the assessee submitted that it also filed before learned CIT(A) all the details of purchases bill wise, quantity wise and party wise. It was submitted that quantitative reconciliation of the stock was duly submitted to co-relate purchases before learned CIT(A). Our attention was drawn to paper book/page 42-60. 6. We have considered contentions of learned DR and perused the material on record. We have also carefully gone through paper book filed before the tribunal by the assessee to see the evidences filed by the assessee and whether they are sufficient enough to upheld the orders of authorities below. We have observed that the assessee is trader in Metals. The AO received information from office of DGIT(Inv.), Mumbai in respect of the assessee that the assessee is engaged in bogus purchase activities from hawala operator wherein the assessee is beneficiary of these alleged hawala entries of purchases to the tune of Rs.7,47,73,908/- .The assessee has made purchases to the tune of Rs.7,47,73,908/- from the following five parties who were allegedly hawala entry operator engaged in issuing bills without supplying any material :

S.No. Name of the party Amount (In Rs.)

I.T.A. No. 3527 & 3759/Mum/2016

The said five dealers from whom the assessee purchased the material to the tune of Rs.7,47,73,908/- were listed as hawala dealers in Maharashtra Sales Tax departments web site and on investigation, the Maharashtra sales tax department has come to the conclusion that these dealers are allegedly hawala operators wherein bogus bills were issued by these dealers without delivery of goods. These dealers have also filed sworn affidavit and declaration on oath before the sales tax authorities that they are engaged in providing bogus hawala entries without supplying any material . These five dealers also admitted that cheques received by them from purchasing parties were deposited in their bank accounts and cash was withdrawn from bank and returned to purchasing parties after deducting their commission. This led to reopening of the assessment u/s 147 by the AO, wherein notice u/s 148 was issued by the AO to the assessee on 08-03-2013 which was duly served on the assessee. The assessee did not filed return of income in pursuance of notice u/s 148. The AO also issued notices u/s 143(2) and 142(1) from time to time to the assessee as well inspectors were deputed to personally serve notices and to submit inspector report but the assessee did not responded to all these notices issued by the AO as the assessee did not appear before the AO nor any reply was filed by the assessee before the AO which led to the additions of the entire alleged bogus purchase to the tune of Rs.7,47,73,908/- to the income of the assessee vide best judgment ex-parte assessment order dated 08-01-2014 passed by the AO u/s 144 r.w.s. 147 of the 1961 Act . The inspectors deputed by the AO for verifications also reported after visiting assessee’s premises that the premises of the assessee was lying closed. During appellate proceedings before learned CIT(A), the assessee furnished additional evidences which were admitted by learned CIT(A) and the same were forwarded to the AO for remand report. The AO stated in remand report that the assessee was given adequate and proper opportunity of being heard by the AO during assessment proceedings u/s 147 r.w.s. 148 but the assessee never availed opportunities afforded to it by the AO . The AO also stated that the assessee has not submitted any confirmations from said parties nor bank statements were submitted and I.T.A. No. 3527 & 3759/Mum/2016

only list of sundry creditors were submitted. The AO , thus, left the matter to be decided by learned CIT(A). The learned CIT(A) observed that the AO has not doubted the sales disclosed by the assessee and hence he has to allow the purchases since there cannot be sales without purchases . It was observed by learned CIT(A) that the assessee might have inflated purchases by taking invoices from grey market to suppress profits .The learned CIT(A) observed that the AO could not prove that the amounts given to sellers have come back to the appellants. It was observed by learned CIT(A) that it cannot be lost sight that there are accommodation entries being given by bogus hawala operators and the Maharashtra VAT authorities have conducted investigation to come to conclusion that these hawala dealers are only issuing bogus bills without supplying any material and the assessee is beneficiary of these bogus entries.The learned CIT(A) restricted the additions to the income by estimating profits to the tune of 12.5% of the alleged bogus purchases. It is observed that the learned CIT(A) did not make any further enquiry, verifications and investigations before accepting the additional evidences filed by the assessee. The assessee did not filed bank statements nor confirmations from these parties are filed. The assessee however did filed quantitative reconciliation of stock purchased from these parties as well list of sundry creditors. The assessee also did not produced the parties from whom purchases were made before the authorities below. The assessee did not gave adequate and proper explanation for his conduct of not participating in assessment proceedings . There is an incriminating statements given by these selling parties before Maharashtra VAT authorities wherein sworn affidavits on oath as well declarations were made by these parties that they were only engaged in issuing bogus bills without supplying any material physically . They have also deposed that cheques deposited by them in the banks received from the purchasing parties were encashed by them and cash was returned to purchasing parties after deduction of their commission. These evidences so now filed by the assessee before learned CIT(A) are to be evaluated based on the above background. The assessee did not participated in the assessment proceedings held by the AO u/s 143(3) r.w.s. 147 . The assessee claimed before the tribunal that its premises was not closed all the time but in the afternoon the premises was closed as its personnel has to go to market and hence the premises was closed in the afternoons . Some of the notices issued by the AO were duly served on the I.T.A. No. 3527 & 3759/Mum/2016

assessee as admitted by the assessee before the tribunal which clearly establishes that the assessee was aware of the assessment proceedings being conducted before the AO (PB/ page 31). The assessee has deliberately avoided assessment proceedings before the AO by not participating in the same and proper and adequate explanation for non appearance in assessment proceedings is not forthcoming. The assessee also did not produce these parties before the authorities below who were allegedly involved in hawala transactions as reported by Mahrashtra VAT authorities after investigations conducted by Maharashtra VAT authorities . These hawala dealers have admitted before these authorities vide sworn affidavit and declaration on oath that they were issuing bogus accommodation bills without supplying any material physically . The assessee also did not produce confirmation letters from these parties nor bank statements were produced. The assessee filed certain additional evidences before learned CIT(A) which were forwarded to the AO who stated in his remand report that proper and adequate opportunity of being heard was duly granted to the assessee during assessment proceedings and thereafter the AO left the matter for CIT(A) to decide on merits. The learned CIT(A) under these circumstances should have either asked AO to make necessary enquiries , verifications and investigations as are required to compute income of the assessee by seeking second remand report or should have conducted necessary enquiries , verifications and investigations himself as the powers of learned CIT(A) are co-terminus with the powers of the AO including powers of enhancement, more-so learned CIT(A) was aware that there was no co-operation of the assessee during assessment proceedings and also there were incriminating material by way of information from DGIT(Inv.) and Maharashtra VAT authorities that the assessee is beneficiary of bogus hawala entries from alleged five hawala entry operators who have merely issued bills without supplying any material wherein cash was returned by these hawala entry operators to the assessee after deducting their commission. The learned CIT(A) merely accepted the contentions of the assessee without any necessary verifications, enquiry and investigations and estimated income to the tune of 12.5% of bogus purchases based on certain case laws. These purchases to the tune of Rs.7,47,73,908/- are appearing in books of the assessee and the onus is on the assessee to prove that these are genuine and bonafide expenses claimed by the assessee which were incurred

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wholly and exclusively for the business of the assessee, including producing the parties before the authorities . This is to be read in the light of provisions of Section 69C read with proviso which was introduced by Finance Act,1998 w.e.f. 1-4-1999 . Under these circumstances keeping in view factual matrix of the matter as discussed by us above, we are inclined to set aside and restore the issues covered by this appeal back to the file of the AO who will de-novo decide the issues on merits in accordance with law. The AO shall grant opportunity of being heard to the assessee in accordance with principles of natural justice in accordance with law before de-novo adjudicating the issues on merits. The evidences and explanations submitted by the assessee shall be admitted by the AO in the interest of substantial justice. Since, the assessee did not co-operated during assessment proceedings by not participated in the assessment proceedings deliberately, we would like to clarify that this is an open remand. We order accordingly

Order pronounced in the open court on 23 .10.2017

आदेश क" घोषणा खुले "यायालय म" "दनांकः 23 .10.2017 को क" गई । (SAKTIJIT DEY ) ACCOUNTANT MEMBER

Mumbai, dated: 23 .10.2017 copy to…

I.T.A. No. 3527 & 3759/Mum/2016

BY ORDER DY/ASSTT.