SH. RAJIV MAHAJAN,NEW DELHI vs. ITO, NEW DELHI

PER DIVA SINGH, JUDICIAL MEMBER

1. “On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad both in the eyes of law as well as on facts. 2(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the order of the AO, despite the fact that the initiation of proceedings under section 147, read with section 148 are bad as the conditions and procedure prescribed under the statute have not been complied with. (ii) That the learned CIT(A) has erred both on facts and in law in confirming the order of the AO despite the fact that the initiation of proceedings are bad in law as the reasons recorded for issue of notice under section 148 are bad in the eye of law.

I.T.A .No.-1100/Del/2016 (iii) That the learned CIT(A) has erred both on facts and in law in confirming the order of the AO despite the fact that the initiation of proceedings has been done on the basis of reasons which do not have any live nexus with the belief formed by the AO. 3(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition of Rs.4,29,058/- made by the AO on account of bogus purchases. (ii) That the addition has been confirmed rejecting explanation and evidences furnished by the assessee. 4(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition made by the AO despite the fact that the same has been made on the basis of material collected at the back of the assessee without giving him an opportunity to rebut the same in clear violation of principle of natural justice. (ii) That the leaned CIT(A) has erred in confirming the addition made on the basis of statement of some person recorded, without giving assessee an opportunity for cross examining the same.

5. The appellant craves leave to add, amend or alter any of the grounds of appeal.”

“I have information on record that purchase made from M/s Pashupati Enterprises for a sum of Rs.4,12,566/- are in the nature of accommodation entry only, since Shri Vaishali Gupta and Shri Rakesh Gupta, who have floated these Page 2 of 7

I.T.A .No.-1100/Del/2016 concerns have admitted that no sales have been made but they have provided only bills and charging their commission @ 2.5% to 3%. Please prove the genuineness of purchases. Falling which, I propose to disallow a sum of Rs.4,12,566/- being bogus purchase detailed in books.”

The reasons for non-acceptance are set out in para 6 and the assessee’s reply thereto dated 13.03.2014 and 18.03.2014 though extracted in para 7 of the assessment order had still not met with success before the AO. These replies were read out and heavily relied upon. On the basis of the same, it was submitted that the assessee had established that the specific enterprises M/s Pashupati Enterprises had filed a DVAT return thus it was submitted that the transactions could not be bogus. The subsequent fact that its TIN had been cancelled as per information conveyed on 13.03.2014 it was submitted was not relevant as during the period the transactions were done i.e. 01.02.2008 to 31.03.2008 its TIN was very much active. Accordingly the conclusion drawn without confronting the assessee with the alleged statements of the two persons was strongly objected to and it was argued that the addition based on suspicions deserves to be deleted.

Apart from that it was also argued that the AO has acted on some definite information which may not have been elaborately discussed as there may have been many such persons who had bogus transactions. It was submitted that the mere fact that DVAT return had been filed is neither here nor there as creating paper trail by unscrupulous companies in bogus fictitious transactions to defraud the State Exchequer in customs, excise and direct tax related concerns is a hard reality of the times. It was his submission that the AO Page 3 of 7

I.T.A .No.-1100/Del/2016 proceeded on definite information and his finding has been upheld by the CIT(A). In these circumstances it was his submission that the addition deserves to be sustained.

The record shows that the AO had the benefit of statements of Mr. Vaishali Gupta and Mr.Rakesh Gupta admitting that no sales have been made by them and they were providing accommodation entries and charging commission on bills issued. Since the assessee had one transaction with the said enterprise the assessee was issued notice u/s 148. In response thereto the assessee replied stating that original return filed on 29.09.2008 may be considered as having been filed in compliance thereto. Accordingly after issuance of notice u/s 143(2) the AO show caused the assessee to prove genuineness of the purchases to that extent. The relevant extract from the show cause notice dated 07.02.2014 is reproduced from the order:-

“I have information on record that purchase made from M/s Pashupati Enterprises for a sum of Rs.4,12,566/- are in the nature of accommodation entry only, since Shri Vaishali Gupta and Shri. Rakesh Gupta, who have floated these concerns have admitted that no sales have been made but they have provided only bills and charging their commission @ 2.5% to 3%. Please prove the genuineness of purchases. Failing which, I propose to disallow a sum of Rs.4,12,566/- being bogus purchase detailed in books.”

5.1. We find that in view of the subsequent cancellation of the TIN of the said concern the reply of the assessee alongwith evidences that the said concern had filed its DVAT return during the relevant period was considered to be not relevant and the transaction was held to be bogus. This finding has been affirmed by the CIT(A). On a perusal of the orders of the tax authorities, we find that the entire information available with the Revenue has not been brought out in the order as reference is only made to statements given by Sh. Vaishali Gupta and Sh. Rakesh Gupta where were the alleged statements given when and to whom Page 4 of 7

I.T.A .No.-1100/Del/2016 has not been referred to by the tax authorities. Considering the overall factual matrix, we find that the correctness of the orders of the tax authorities without having access to the exact statements of the Sh. Vaishali Gupta and Sh. Rakesh Gupta cannot be ascertained.

Where, when and before whom, the alleged statements have been given by the two persons are relevant facts and the statement so relied upon in all fairness necessarily must be confronted by the Revenue to the assessee before drawing any adverse conclusion relying thereon. No doubt the Assessing officer following due procedure on facts may be justified to draw adverse conclusions qua the assessee, however the law does not confer any entitlement to draw adverse conclusions on information not confronted. If the facts based on evidences claimed by the assessee are to be upset by the tax authorities and the assessment is sought to be re-opened then the evidence taken into consideration must be effectively confronted. A statement not confronted cannot be relied upon. We are of the view that the mere fact that the VAT department cancelled Registration in some subsequent period by itself cannot lead to the conclusion that all previous transactions were bogus it can at best merely trigger an alarm. The specific cause of cancellation of Registration by VAT department must be addressed. To rectify this procedural defect the issue is restored back to the AO directing him to confront the assessee with the statements of the persons claiming that the M/s Pashupati Enterprises was engaged in providing accommodation entries by issuing bills on commission. Support is drawn from the decision of the Hon’ble Delhi High Court in the case of CIT vs. KAMDHENU STEEL & ALLOYS LTD. & ORS reported in 361 ITR 220. A perusal of the said decision would show that the Hon’ble Delhi High Court held therein that not providing opportunity of cross-examination of witness is a violation of principle of natural Justice and upheld the action of the Tribunal in remitting

I.T.A .No.-1100/Del/2016 the matter to the Assessing Officer. The relevant finding of the Hon’ble Delhi High Court is reproduced hereunder:

“55. In our discussion on the aspect of remand in IT Appeal No. 972 of 2009, we have indicated that if the addition is set aside only because of some procedural defect or irregularity, viz., violation of principle of natural justice, then matter can be remitted back to give opportunity to the assessee to cross-examine the witness if it was not done. The clincher on this aspect is now the order of the Supreme Court in the case of ITO vs. M. Pirai Choodi (Civil Appeal Nos. 9756 & 9757 of 2010, decided on 19th Nov., 2010 [reported at (2011) 245 CTR (SC) 233 : (2011) 63 DTR (SC) 187—Ed.] where the Court held as under : "Heard learned counsel on both sides.

Leave granted.

In this case, the High Court has set aside the order of assessment on the ground that no opportunity to cross-examine was granted, as sought by the assessee. We are of the view that the High Court should not have set aside the entire assessment orders. At the highest, the High Court should have directed the AO to grant an opportunity to the assessee to cross-examine the concerned witness. Be that as it may, we are of the view that, even on this particular aspect, the assessee could have gone in appeal to CIT(A). The assessee has failed to avail the statutory remedy. In the circumstances, we are of the view that the High Court should not have quashed the assessment proceedings vide impugned order. Consequently, the impugned order is set aside. Liberty is granted to the assessee to move CIT(A). It is made clear that the assessee herein will move the CIT(A) within a period of six weeks from today."