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Income Tax Appellate Tribunal, MUMBAI BENCH “D” MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
The appeal by the revenue and the cross objection by the assessee are directed against the order of the Commissioner of Income Tax (Appeals) – 33, Mumbai and arises out of order u/s 143(3) of the Income Tax Act, 1961 (the ‘Act’). As common issues are involved, we are proceeding to dispose them off by this consolidated order for the sake of convenience.
The grounds raised by the revenue in this appeal as summarised are that (i) the learned CIT(A) erred in giving relief of Rs. 36,49,424/- on account of bogus purchase without appreciating the fact that the parties from whom the purchases were made were involved in issuing bogus bills, (ii) the learned CIT(A) has erred in concluding without any evidence that the assessee had purchased material but obtained the bills in some other party’s name, and (iii) the learned CIT(A) has erred in giving relief of Rs. 36,49,424/- on account of bogus purchase when the assessee has not been able to confirm the validity of purchases and has not given any evidence of corresponding sales having taken place.
The cross objection filed by the assessee as summarised are that (i) the appellant erred in not giving an opportunity to the respondent to cross examine those supplies from whom the alleged bogus purchases were made, thereby denying the interrogation of the suppliers by the respondent, (ii) the respondent categorically asserts that the entire transaction were genuine, (iii) the appellant had erred in ignoring the principles of natural justice by relying on details collected by him behind the back of the respondent and not giving the copies of statement and evidence to the respondents and thereby denying the respondent opportunity to cross examine the suppliers, (iv) the appellant had erred in law and in facts in alleging that the defaults on the part of the suppliers under the provision of MVAT Act would be sufficient to hold the respondent’s purchases as non- genuine and (v) the appellant had erred in law and in facts in alleging that the respondent had received back cash from the suppliers purely on the basis of surmises and conjectures without adducing any evidence on record in support of the same.
The assessee Teknic Industries (TI) filed its return of income for the A.Y. 2010-11on 27.09.2010 declaring a total income of Rs. 50,76,909/-. The assessee was engaged in manufacturing of plastic components, moulds and dyes. The Assessing Officer (A.O.) received during the course of assessment proceedings, information in respect of bogus sale bills from the Sales Tax Department of Maharashtra through the office of DGIT (Inv). The A.O. found that the assessee was one of the beneficiary getting accommodation entries during the F.Y. 2009-10 relevant to A.Y. 2010-11. The details are as under:
Beneficiary TIN Beneficiary Name Hawala TIN Hawala operator’s Hawala PAN F.Y. Amount Name (Rs.) 27850009520V Teknic Industries 27280662401V Ami Traders AGJPJ4579N 2009-10 5,47,561 27850009520V Teknic Industries 27950562074V S.S. Enterprises ABGFS2578E 2009-10 3,31,871 27850009520V Teknic Industries 27930669561V Ramdev Trading AKBFC2808H 2009-10 6,41,100 27850009520V Teknic Industries 27770666157V Shubham AYVPS0870R 2009-10 99,661 Enterprises 27850009520V Teknic Industries 27770524440V Amar Enterprises AIRPB6559J 2009-10 3,52,055 27850009520V Teknic Industries 2766066 Shree Sai Trading Co ATQPP8547E 2009-10 78,587 27850009520V Teknic Industries 27610669252V Swastik Enterprises BANPK9786M 2009-10 1,42,387 27850009520V Teknic Industries 27600606547V Omkar Trading Co AMDPM6129K 2009-10 2,56,393 27850009520V Teknic Industries 27260671239V Yeshudhasan AGIPN8180C 2009-10 4,07,384 Enterprise 27850009520V Teknic Industries 27240608588V Harsh Corporation ADKPN3382R 2009-10 3,14,894 27850009520V Teknic Industries 27230614753V Leo Impex AOXPK1521G 2009-10 3,21,833 27850009520V Teknic Industries 27210561220V National Trading Co AAGFN0083N 2009-10 2,83,518 27850009520V Teknic Industries 27030540755V Nageshwar ANMPP9773E 2009-10 2,08,942 Enterprises 27850009520V Teknic Industries 27560694451V Samarth Enterprises APBPS3000G 2009-10 1,84,584 Total consideration 41,70,770 In all these cases, the hawala operators confessed before the sales tax authority that they were issuing bogus / hawala accommodation bills i.e. merely issuing bills without actual delivery of goods. The A.O. made available to the assessee the statements of the above operators before the sales tax authority. He also gave the assessee a questionnaire dated 05.03.2013 for compliance. In response to it, the assessee filed a reply which the A.O. considered as repetitive and without substance. The A.O. observed that this was a case where purchases were questionable but sales were not. The assessee was changing the constitution of the item and selling them to a third party. In view of the above, the A.O. made an addition of Rs. 41,70,770/- u/s 69C of the Act.
Aggrieved by the order of the A.O. the assessee filed an appeal before the learned CIT(A). The learned CIT(A) held as under:
“33. In the instant case, all the facts and circumstances outlined above leads to the conclusion that although the purchases made by the appellant from the 14 parties mentioned above during the year under consideration are not in doubt but at the same time it difficult to accept that the purchase price shown on the invoices/bills issued by these parties is as per the prevailing market price of those materials. The appellant has not placed any evidence on record that the goods were purchased from the above parties at arms length price. The appellant has also not placed on record any comparable bills/invoices for purchases of similar items made from other parties to establish that the purchases from the 14 parties in question were at par with the purchases made from other parties during the period under consideration. In the absence of any such evidence placed on record, the correctness of the purchase price mentioned on such bills/invoices issued by the party in question cannot be accepted and some additional gross profit need to be estimated on the purchases made from the above parties in question. 34 The appellant has shown gross profit of 1,37,93,406.44 during the year under consideration. As the purchases invoices issued against the alleged bogus purchases are unverifiable, and part of the profit element on the purchases made from the above mentioned 14 parties is already included in the above gross profit rate shown for the year under consideration, it would be fair and just, if the additional gross profit @ 12.5% is applied on such total alleged bogus purchases amounting to Rs. 41,70,770/-, the gross profit on such purchases would come to Rs. 5,21,346/- which need to be added to the income of the assessee on account of alleged bogus purchases for the year under consideration and the balance addition made amounting to Rs. 36,49,424/- is hereby deleted. The Assessing Officer is directed accordingly.”
Before us the learned DR relies on the order of the A.O. He submits that the learned CIT(A) has not taken into account the peculiarities of the present case and he has passed the order in a mechanical manner. Also it is stated by him that the learned CIT(A) has mentioned at para 23 of the order that the assessee produced evidence such as bills, invoices etc. which is incorrect in as much as the assessee before the A.O. had stated that the purchases and sales invoices were mostly lost in a fire in office.
The learned counsel of the assessee relies on the order by (i) ITAT, Mumbai “D” Bench in Assessment Year : 2010-11 in ACIT 25(2), Mumbai vs. Shri Ramila Pravin Shah, (ii) ITAT, Mumbai “D” Bench in ITA No. 2959/Mum/2014, Assessment Year : 2010-11 in Ramesh Kumar & Co. vs. ACIT 21(1), Mumbai, (iii) ITAT, Mumbai “G” Bench in ITA No. 2826/Mum/2013, Assessment Year : 2009-10 in Shri Ganpatraj A Sanghavi vs. ACIT 15(3), Mumbai, (iv) ITAT, Mumbai “D” Bench in ITA No. 6727/Mum/2012, Assessment Year : 2009-10 in Shri Rajiv G. Kalathil vs. DDIT 25(3), Mumbai.
We have heard the rival submissions and perused the relevant material on record. As mentioned here-in-above, the assessee failed to file before the A.O. the purchase and sale invoices. In the cross objection filed, the assessee has stated that it has been denied the opportunity to cross examine the suppliers. 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 held:-
“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 order. At the highest, the High Court should have directed the Assessing Officer to grant an opportunity to the assessee to cross-examine the concerned witness.” 8.1 Cross-examination is allowed by procedural rules and evidently also by the rules of natural justice. In view of the above, the order of the Ld. CIT(A) is set aside and the AO is directed to pass an order afresh as per the provisions of the Act, after giving opportunity (i) of being heard to the assessee and (ii) to cross-examine the concerned parties as mentioned at para 4 here-in-above. The assessee is directed to file before the AO the relevant details.
As the order of the learned CIT(A) is set aside, we are not adverting to the decisions mentioned at para 7 here-in-above.
In the result, the appeal as well as the cross objection are allowed for statistical purposes.
Order pronounced in the open Court on 28/04/2017