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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI RAJENDRA, AM & SHRI PAWAN SINGH, JM
आदेश / O R D E R PER PAWAN SINGH, J. M.: 1. The present appeal under section 253 of Income Tax Act (‘Act’) is directed by the assessee against the order of Commissioner of Income Tax (Appeals) 3, Thane, dated 05/11/2015. The assessee has raised as many as 8 grounds of appeal. However, as per our considered opinion there is only three effective grounds of appeal, the rest of the grounds are argumentative in nature. The grounds of appeal are summarized as under; (i) The ld AO erred in reopening the assessment under section 148 merely on the borrowed satisfaction which is bad in law. (ii) The ld AO erred in disallowing Rs. 37,59,256/- by way of alleged bogus purchases. (iii) The AO wrongly charged interest under section 234 and initiated penalty under section 271(1)( c) of the Act.
The brief facts of the case are that assessee is a manufacturer of engineering goods in the name of Microtech Engineering works filed return of income on 29/09/2011 declaring income at Rs 6,68,700/-. The assessment was reopened by AO on the basis of information received from Sale Tax Department of State of Maharashtra that certain parties from whom assessee made purchases are involved in providing hawala entries namely. The sales Tax Department conducted investigation and recorded statements of vendors on oath, who have admitted that they have provided accommodation entry without actual delivery of goods. The details of the bogus dealers are available on the website of Sales Tax Department. The 1 AY 2011-12 Govind B Rathod assessee has also made purchases from such bogus dealers, the details of which are as under;
Sr. No. Name Amount in Rs. 1 Sheetal Trading Co 10,96,875/- 2 Emco Industries 6,99,919/- 3 Darshan Sales Corporation 2,80,001/- 4 Subhalaxmi Sales Corporation 3,53,506/- 5 Ambika Sales Corporation 9,89,291/- 6 Shantinath Corporation 3,39,664/- Total Rs. 37,59,256/- To verify the purchases claimed by the assessee, the AO issued notice under section 133(6). None of the parties filed their reply in compliance of the said notice. In absence of reply from those suppliers the AO presumed that assessee has not purchased anything from the above said supplier during the year under consideration. The AO made the addition of the entire amount of such purchases in the income of assessee in the order passed under section 143(3) read with section 147 of the act. Aggrieved by the order of AO the assessee filed appeal before the CIT(A), but the same was dismissed vide order dated 15 November 2015 impugned in the present appeal.
We have heard ld AR of the assessee and the ld DR for revenue and perused the material available on record. The Learned AR of the assessee argued that AO has not rejected the books of account of the assessee. The notice under section 133(6) sent to the parties were duly served. Section 69C of the Act has no application on the facts of the present case. The AO disallowed the entire purchases. The AO failed to appreciate that the purchases were made by account payee cheques which cannot be termed as a bogus. The AO relied on the information of third-party which is not admissible against the assessee. The AO has not made any independent enquiry or details of the bank accounts of the supplier to find out whether there was any immediate cash withdrawal from their accounts. The ld AR of the assessee further relied upon the decision of Hon’ble jurisdictional High Court in Nikunj Eximp Enterprises Private Limited reported vide 372 ITR 619(Bom) and various decisions of this Tribunal, copies of which are filed in the paper book. On the other hand, the Learned DR for the revenue argued that notices sent to all those dealers/ parties but nobody appeared nor filed their reply in response to the notice served upon them. The assessee has not called any of the parties during the reassessment proceeding to prove the genuineness of purchases. The GP rate of the assessee is fluctuating. The GP rate for the year under consideration was 21%. The Learned DR for revenue strongly supported the order of authorities below. In the rejoinder argument the ld AR of the assessee argued that GP addition cannot be made without rejecting books of account of the assessee, which has not been done in the present case. AY 2011-12 Govind B Rathod
We have considered the rival contentions of the ld representative of the parties and further perused the orders of authorities below. The perusal of assessment order reveals that AO has not made any independent enquiry except issuing notice to the dealer/ supplier under section 133(6) of the Act. In absence of reply from the alleged supplier the AO presumed that assessee has not purchased anything from the said supplier. The entire addition made by assessing officer is based on the assumption and presumption. The order of AO does not reveal that copies of statement recorded by Sale Tax Department of State Government was called by AO for his perusal or the same was provided to the assessee. The action of AO is based on the information of third-party. During the appellate proceeding, the Learned CIT(A) observed that assessee did not produced the hawala dealers before Assessing Officer for cross verification. The observation of Learned CIT(A) is contrary to the finding of assessing officer. The AO had not asked the assessee to produce the said hawala dealer during the reassessment proceeding. The ld CIT (A) further observed that statement and affidavit filed by hawala dealer before Sales Tax Department have evidentiary value. In fact such evidence was not available before Assessing Officer or before ld CIT (A). The copies of such statements or affidavits were never confronted with the assessee either by Assessing Officer or by ld CIT(A). Even otherwise, if it is considered for the sake of consideration for a moment that the statement or the affidavit filed before the sale tax Department has any relevance, the assessing officer should have carried out independent enquiry and to provide opportunity to the assessee to counter the same. The coordinate bench of this Tribunal in DCIT Vs Rajeev M. Kalathil in (AY-2009-10) dated 20.08.2014 in which the similar addition was made on the basis of information available on website of Sales Tax Department, Government of Maharashtra, was deleted by the Tribunal, holding as under:-
We have heard the rival submissions and perused the material before us. We find that AO had made the addition as one of the supplier was declared a hawala dealer by the VAT Department. We agree that it was a good starting point for making further investigation and take it to logical end. But, he left the job at initial point itself. Suspicion of highest degree cannot take place of evidence. He could have called for the details of the bank accounts of the suppliers to find out as whether there was any immediate cash withdrawal from their account. We find that no such exercise was done. Transportation of good to the site is one of the deciding factors to be considered for resolving the issue. The FAA has given a finding of fact that part of the goods received by the assessee was forming part of closing stock. As far as the case of Western Extrusion Industries www.taxguru in ITA/6727/Mum/2012/RGK 4 (supra)is concerned, we find that in that matter cash was immediately withdrawn by the supplier and there was no evidence of movement of goods. But, in the case before us, there is nothing, in the order of the AO, about the cash traial. Secondly, proof of movement of goods is not in 9 ACIT Vs. Tarla R Shah doubt. Therefore, considering the peculiar facts and circumstances of the case under appeal, we are of the opinion that the order of the FAA does not suffer from any legal infirmity and there are not sufficient evidence on file to endorse the view taken by the AO. So, confirming the order of the FAA, we decide ground no.1 against the AO.
ITA No.439/M/2016 AY 2011-12 Govind B Rathod In Ganpatra A Sanghavi vs ACIT in (AY-2009-10) dated 05.11.2014, similar addition of Rs.1,74,01,436/- was deleted by the Tribunal holding as under:- “8.Be that as it may, another important factor the bank account copies collected by the assessing officer shows that the assessee had made the a payments to the above said parties by way of account payee cheques. Thus, it is seen that the transactions have been routed through the bank accounts. Further, it is not the case of the assessing officer that the assessee has indulged in accounting of bogus purchases. When the assessee submitted that he could not have affected the sales without making corresponding purchases, the AO has taken the view that the assessee could have effected purchases in the grey market, which conclusion is, in fact, not supported by any material. Under this impression only, the AO has further expressed the view that the assessee would have purchased the materials by paying cash thus violating the provisions of sec 40A(3) of the Act, which is again based on only surmises. In the absence of any material to support the said view, we are unable to agree with the view taken by the tax authorities that the purchases amount is liable to be disallowed u/s40A(3) of the Act on the same impression only, the AO has expressed the view in the remand report that the purchases amount is also liable to assessed u/s69C of the Act as the source of purchases were not proved. Again the said conclusion is based upon only surmises, which could not be sustained. Thus, it is seen that the assessing officer has accepted the fact that the quantity details of purchases and sales have been reconciled by the assesee. Further, various case law relied upon by the assessee also supports his case. Under these set of facts, we are of the view that the ld. CIT(A) was not justified in confirming the disallowance of purchases. Accordingly, we set aside the order of the ld. CIT(A) on this issue and direct the AO to delete the disallowance of purchases.” Further in ACIT Vs. Talra R Shah in ITA No.5295/Mum/2013dated 28.11.2014, similar addition to the tune of Rs.4,98,80,892/- was deleted by the Tribunal holding as under:-
“8. We have carefully perused the orders of the lower authorities and the relevant documentary evidences brought before us. We find that the AO has made the addition as some of the suppliers of the assessee were declared Hawala dealer by the Sales tax Department. This may be a good reason for making further investigation but the AO did not make any further investigation and merely completed the assessment on suspicion. Once the assessee has brought on record the details of payments by account payee cheque, it was incumbent on the AO to have verified the payment details from the bank of the assessee and also from the bank of the suppliers to verify whether there was any immediate cash withdrawal from their account. No such exercise has been done. The Ld. CIT(A) has also confirmed the addition made by the AO by going on the suspicion and the belief that the suppliers of the assessee are Hawala traders. We also find that no effort has been made to verify the work done by the assessee from the Municipal Corporation of Greater Mumbai. We agree with the submissions of the Ld. Counsel that if there were no purchases, the assessee would not have been in a position to complete the civil work. 8.1. On civil contract receipts of Rs. 32.05 crores, the assessee has shown gross profit at 14.2% and net profit at 9.72%. 8.2. Even if for the sake of argument, the books of accounts are rejected, the profit has to be computed on the sales made by the assessee www.taxguru.in 6 ITA No. 4 AY 2011-12 Govind B Rathod
2959/M/2014 U/s. 44AD of the Act, the presumptive profit in case of civil contractors is 8% and in case of a partnership firm, a further deduction is allowed in respect of salary and interest paid to the partners. The ratio analysis of the profitability is also in favour of the assessee. In our considered opinion, the purchases are supported by proper invoices duly reflected in the books of account. The payments have been made by account payee cheque which are duly reflected in the bank statement of the assessee. There is no evidence to show that the assessee has received cash book from the suppliers. The additions have been made merely on the report of the Sales tax Department but at the same time it cannot be 11 ACIT Vs. Tarla R Shah said that purchases are bogus. We, therefore, set aside the findings of the Ld. CIT(A) and direct the AO to delete the addition of Rs. 4,98,80,892/-.
Similarly in ACIT Vs Deepak Popat Lal Gala in (AY: 2010-11) dated 27.03.2015, similar deletion of addition to the tune of Rs.7,36,27,555/- was sustain by the Tribunal observing as under:-
13. On the other hand, the ld. AR submitted that the additions made in the case of some other assesses on identical reasons have been deleted by the Co- ordinate Benches of the Tribunal in the following cases : a) Ramesh Kumar and Co V/s ACIT in (AY- 2010-11) dated 28.11.2014; b) DCIT V/s Shri Rajeev G Kalathil in ITA No.6727/Mum/2012 (AY-2009- 10) dated 20.8.2014; and c) Shri Ganpatraj A Sanghavi V/s ACIT in ITA No. 2826/Mum/2013 (AY- 2009-10) dated 5.11.2014 In all the above said cases, the Co-ordinate Benches of the Tribunal has held that the AO was not justified in making the addition on the basis of statements given by the third parties before the Sales Tax Department, without conducting any other investigation. In the instant case also, the assessing officer has made the impugned addition on the basis of statements given by the parties before the Sales tax department. We notice that the ld.CIT(A) has taken note of the fact that no sales could be effected without purchases. He has further placed reliance on the decision rendered by Hon’ble Gujarat High Court in the case of CIT Vs. M.K. Brothers (163 ITR 249). He has further relied upon the decision rendered by the Tribunal in the cae of ITO Vs. Premanand (2008)(25 SOT 11)(Jodh), wherein it has been held that where the AO has made addition merely on the basis of observations made by the Sales tax dept and has not conducted any independent enquiries for making the addition especially in a case where the assessee has discharged its primary onus of ITA. No.5920/Mum/2013 and 6203/Mum/2013 7 showing books of account, payment by way of account payee cheque and producing vouchers for sale of goods, such an addition could not be sustained. The Ld CIT(A) has also appreciated the contentions of the assessee that he was not provided with an opportunity to cross examine the sellers, which is required to be given as per the decision of Hon’ble Kerala High Court in the case of Ponkunnam Traders (83 ITR 508 & 102 ITR 366). Accordingly, the Ld CIT(A) has deleted the impugned addition. On a careful perusal of the decision rendered by Ld CIT(A) would show that the first appellate authority has analysed the issue in all angles and applied the ratio laid down by the High Courts and Tribunals in deciding this issue. Hence, we do not find any reason to interfere with his order on this issue.
ITA No.439/M/2016 AY 2011-12 Govind B Rathod Further in Ramila R Shah in (AY: 2010-11) dated 05.03.2015, the Tribunal confirmed the order of the CIT(A) deleting the addition of Rs.28.08 lakhs. In the case of ITA No. 5706/Mum/2013 in Paresh Gandhi (AY: 2010-11) dated 13.05.2015, the order of the CIT(A) was confirmed by the Tribunal deleting the addition of Rs.1,37,65,667/- holding as under:-
5. We have heard the rival submissions and perused the material before us. We find that the AO had not doubted the genuineness of the purchase but had made the disallowance of Rs.1.37 crores invoking the provisions of 69C of the Act. We find that in similar circumstances the Tribunal had deleted the addition made by the AO in the cases relied upon by the AR of the assessee. In the case of Rajiv G Kalathil (supra), to which one of us was party identical issue has been decided as under :- 2.3.Before us, Departmental Representative argued that both the suppliers were not produced before the AO by the assessee, that one of them was declared hawala dealer by VAT department, that because of cheque payment made to the supplier transaction cannot be taken as genuine. He relied upon the order of the G Bench of Mumbai Tribunal delivered in the case of Western Extrusion Industries. (ITA/6579/ Mum/2010- dated 13.11.2013). Authorized representative (AR) contended that payments made by the assessee were supported by the banker’s statement, that goods received by the assessee from the supply was part of closing stock, that the transporter had ITA/5706/Mum/2013,AY-2010-11-PG 4 admitted the transportation of goods to the site. He relied upon the case of Babula Borana (282 ITR251), would Nikunj Eximp Enterprises (P) Ltd. (216Taxman171) delivered by the Hon’ble Bombay High Court. 2.4. We 13 ACIT Vs. Tarla R Shah have heard the rival submissions and perused the material before us. We find that AO had made the addition as one of the supplier was declared a hawala dealer by the VAT Department. We agree that it was a good starting point for making further investigation and take it to logical end. But, he left the job at initial point itself. Suspicion of highest degree cannot take place of evidence. He could have called for the details of the bank accounts of the suppliers to find out as whether there was any immediate cash withdrawal from their account. We find that no such exercise was done. Transportation of good to the site is one of the deciding factor to be considered for resolving the issue. The FAA has given a finding of fact that part of the goods received by the assessee was forming part of closing stock. As far as the case of Western Extrusion Industries (supra)is concerned, we find that in that matter cash was immediately withdrawn by the supplier and there was no evidence of movement of goods. But, in the case before us, there is nothing, in the order of the AO, about the cash trail. Secondly, proof of movement of goods is not in doubt. Therefore, considering the peculiar facts and circumstances of the case under appeal, we are of the opinion that the order of the FAA does not suffer from any legal infirmity and there is not sufficient evidence on file to endorse the view taken by the AO. So, confirming the order of the FAA, we decide ground no.1 against the AO.
Considering, the various decisions of coordinate bench, we are of the view that the facts of case of the assessee are similar and the ratio decided in all the cases is squarely applicable on the facts of the present case. Thus, we hold that the addition made by AO and sustained by ld CIT(A) is liable to be deleted. In the result, the appeal of the assessee is accepted. 6 AY 2011-12 Govind B Rathod
As the assessee has succeeded on the merits of the addition, the other ground raised
by the assessee challenging the reopening u/s 147/148 has become academic. Even, otherwise the AR for assessee has not argued anything in respect of such ground of appeal. The ground related with charging of interest u/s 234 is consequential in nature and needs no adjudication, when the assessee succeeded on merit. The grounds are related with initiation of penalty is premature and the same is dismissed.
7. In the result, appeal filed by assessee is allowed. No order as to cost. Order announced in open court on 14th day of October 2 016. Sd/- Sd/- (RAJENDRA) (PAWAN SINGH) लेखा सद� / Accountant Member �ाियक सद� / Judicial Member मुंबई Mumbai; िदनांक Dated : 14.10.2016 आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��थ� / The Respondent 2. आयकर आयु�(अपील) / The CIT(A) 3. आयकर आयु� / CIT - concerned 4. 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard File आदेशानुसार/ BY ORDER,