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Income Tax Appellate Tribunal, “I”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI AMARJIT SINGH, JM
आयकर अपील सं./ITA No.5450, 5451 & 5452/Mum/2015 (�नधा�रण वष� / Assessment Year :2009-2010 to 2011-2012) M/s. Innovators Façade Vs. ACIT (Cir-2), Thane. Systems Pvt. Ltd., B- 65, 204, Sector-I, Shanti Nagar, Mira Road (E), Thane – 401107 �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAAC17326Q .. (अपीलाथ� /Assessee) (��यथ� / Respondent) �नधा�रती क� ओर से /Assessee by : Shri Naresh Jain, A.R. राज�व क� ओर से /Revenue by : Shri Pavan Kumar Beerla, DR सुनवाई क� तार�ख / Date of Hearing : 25/05/2016 घोषणा क� तार�ख/Date of Pronouncement 20/07/2016 आदेश / O R D E R PER R.C.SHARMA (A.M): These are the appeals filed by the assessee against the order of CIT(A)-1, dated 18.09.2015, for the assessment years 2009-10 to 2011- 12, in the matter of order passed u/s.143(3) r.w.s. 147 of the IT Act.
Common grievance of the assessee in all the three years under consideration pertains to the additions made on account of alleged bogus purchases. Grounds taken by the assessee in the assessment year 2009- 2010 read as under:-
1. 1. On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the action of Assessing officer in reopening the assessment under section 147/148 of Income Tax Act, 1961 for the A.Y.2009-10.
2. On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the additions made by the AO of Rs.3,40,64,343/- on account of purchases to the total income for the Asst. Year2009-10.
3. On the facts and circumstances of the case and in law, the learned CIT(A) erred in ignoring the fact that the statements made by the Directors of the Assessee Company were duly retracted and should not be the basis for framing assessment.
4. The Ld. CIT(A) erred in ignoring the plea of the assessee that without prejudice to above, only a certain percentage of the Purchases as profit margin, at best can be added to the income of the assessee and not the entire purchases.” Since common grounds are involved in all the three years and the CIT(A) has disposed of all the three years by consolidated order dated 18.09.2015, we therefore heard all three files together and now disposing of the same by this consolidated order.
3. Facts in brief are that the assessee company is contractor for civil and interior work which includes external and internal glazing of glass work and providing & fixing aluminum windows. Original return of income for A.Y.2009-2010 was filed on 22.09.2009 declaring total income at Rs.1,33,40,240/-. The case of the assessee gets selected for scrutiny and vide order u/s.143(3) dated 23.12.2011, the assessment gets completed.
Later survey u/s. 133A of the act was conducted at the business premises of the assessee on 22.11.2012. As per the information made available to assessee by the survey team, the Department of sales Tax Maharashtra has placed names of certain parties as bogus hawala operators on their website mahavat.gov.in. The survey team alleged that some of the purchases made by the Company were from hawala operators which were in the practice of giving accommodation bills. Statement of Director of the Company was recorded during the course of survey, wherein surrender of Rs.10.69 crore had been taken for three years i.e. AY 2009- 10, 2010-11 & 2011-12 under pressure which was later retracted in detail.
Out of total amount surrendered an Amount of Rs.3,40,64,343/- was related to AY 2009-10.
4. After survey, assessee’s case was reopened. In response to notice u/s.148, assessee had filed the return of income on 14.02.2013, incorporating Rs. 3.40 crore as income. But the assessee had not paid the taxes on it as the return was filed under protest. The assessee also filed a letter to the AO dated 28.02.2013 to ignore the return filed on 14.02.2013 and asked to treat the return filed u/s 139(1) in compliance of notice u/s. 148. Further vide letter dated 2308.2013 the aseessee had filed a detailed reply, rebutting the allegation of the AO and also submitted the retraction statement.
However AO did not convince with the assessee’s reply and framed assessment u/s.143(3) and assessed income at Rs.4.74 crore.
6. Before the learned CIT(A) assessee has challenged reopening as well as merit of the addition. By the impugned order CIT(A) rejected assessee’s contention of reopening and also confirmed the addition made on account of alleged bogus purchases.
Before us assessee challenged, validity of reopening as well as merit of addition.
After going through the order of the lower authorities as well as reasons recorded for reopening, we find that the AO had specific information that the assessee had obtained accommodation bills from Hawala dealers to the extent of Rs.10,69,87,060/- for three AYs i.e. AY 2009-10, 2010-11 and 2011-12. A survey was carried out at the premises of the assessee. The AO on the basis of the statement of the Director of the assessee company wherein he had declared additional income for the year under consideration reopened the assessment. Thus, the AO was having sufficient reason to believe that there was escapement of income.
Accordingly we do not find any infirmity in the order of AO for reopening the assessment.
With regard to merit of the addition it was contended by learned AR that all the purchases made are genuine and payment has been made by account payee cheques only. The assessee had submitted copy of invoices along with supporting vouchers in the assessment proceedings.
Also, there is no dispute regarding the fact that all the payments were made by account payee cheques and the same has been made as per the terms of the payment i.e. 60 days – 120 days [apx]. Account confirmation of the parties from whom the transaction were made were also field before the AO. It was further contended that no incriminating material was shared with the assessee to prove the alleged bogus purchases. However no opportunity to cross-examine was provided to the assessee with regard to the statement given by those alleged hawala operators. As per the learned AR addition was made merely by relying on the statement given by third party. Reliance was placed on the decision of Hon’ble ITAT Jodhpur Bench in the case of ITO Vs Permanand, 107 TTJ 395 wherein it was held that in absence of any other evidence, no addition can be made solely relying on the statement of third parties. The head notes are reproduced herein below:
'Income from undisclosed sources-Addition under section 69- Alleged bogus purchases-AO received information from the Sales- tax Department that the purchases mode by the assessee from two parties were bogus-Solely relying on the same, AO made addition under s. 69-Not justified-No addition can be made in the hands of the assessee merely on the basis of observations made by a third party- While making the assessment, it is the satisfaction of the AO which is of prime importance-It cannot be substituted by the satisfaction of someone else-Assessee has discharged the primary onus cast on him by showing the purchases in the books of accounts, payment by way of account payee cheques and producing the vouchers of sale of goods-AO did not make requisite investigations against the said sellers-Moreover, no opportunity was given to the assessee to confront the sellers-Addition rightly deleted.”
It was further contended that so far as the site 'mahavat.gov.in' containing list of parties is concerned, the site only contains a list of suspicious parties and not confirmed hawala parties. Further, during F.Y.
2008-09, 2009-10 & 2010-11, when these purchases were made, the site was not containing the names of the parties from whom the assessee had made the purchases. The names were put subsequently on the site.
Therefore assessee had no clue how the parties who were issuing invoices against the purchases could be hawala parties. It is also possible that assessee had purchased the goods from market from persons and they had given the invoices to the assessee of some other firm. Assessee could only see whether these parties are registered under vat or not and at that time these parties were duly registered under Maharashtra VAT.
Therefore assessee had no reason to suspect that the invoices which it was getting along with the goods are from hawala operators.
As per learned AR at no stage, during the course of surveyor or during the course of assessment proceedings, it was pointed out to assessee by the department that:
i. From which date these parties are blacklisted. ii. What kind of information Maharashtra Sales Tax Department has provided to Income Tax Department. iii. What type of statement these parties have given before Sales Tax Department. iv. What kind of documentary proof these parties have given about the assessee company. As per ld. AR though assessee has confessed in statement recorded u/s 131 in the proceeding u/s 133A, The same has been retracted by assessee as the assessee was forced to sign the same. It was further contended by ld. AR that statement made by assessee during survey operations has no evidentiary value. For this reliance was placed in the case of Mahesh Ohri v. ACIT (Delhi) . 154 TTJ 33 DeI 'E' (UO) ITR tribunal Volume 23 Part 4 page 522 and UNITEX PRODUCTS LTD. vs. ITO (2008) 22 SOT 429 (Mumbai) . He also contended that assessee can retract the admission made during the survey with evidence in view of the decision of Mumbai Tribunal in the case of ACIT Vs. Safe Enterprises 128 ITD 459 (Mumbai). He further contended that no other collaborating evidence was found during survey for addition except only statement of assessee. Amount surrendered in survey under pressure, no material or evidence found in support of amount surrendered under these circumstances, addition is liable to be deleted. For this purpose reliance was placed on the following decisions :- Satish Builders v/s ACIT 12005 Bench 'C' dated 13/212009 (Del) reported in Tax review March 2009 page 65 23 DTR 171 (Del); DCIT v/s Premsons 'B' Bench Mumbai BCA April 2009 page 25 130 TTJ 159 (Mum) DCIT v/s Pahar Ganj Grih Nirman Sahakari Samiti Ltd. 99 TTJ 549 (Jaip) Ajit Chintaman Karve v/s ITO 311 ITR (AT) 66 (Pune)
Learned AR invited our attention to the details of purchases furnished during appellate proceedings which were sent by the CIT(A) to the AO for his comments. Our attention was also invited to the remand report sent by AO dated 19th January, 2015, wherein AO has stated that during remand proceedings, in order to verify whether the assessee has purchased material from hawala dealers at a higher rate, the assessee was asked to furnish the details in respect of some items purchased from parties other than the hawala dealers during the same period. On the verification, AO found that in respect of some items the rate of items supplied by entry provided was higher as well as lower also but the ultimate effect of the purchase of all such hawala dealers has resulted into higher profit margin shown by the assessee. In the remand report, AO has also observed that the assessee has produced purchase orders, invoices, delivery, challans in respect of purchases of materials both from the hawala dealers as well as other parties.
In view of the above remand report, it was contended that entire purchase should not be added and only a percent of purchases wherein price are higher than normal purchases can be added. In view of all these details it was submitted that AO was not justified in making addition for the alleged purchases. Reliance was placed by ld. AR on the following judicial pronouncements :-
i) ITO vs. Permanand [107 TTJ 395 (Jodh); ii) DCIT vs. Shri Rajeev G. Kalathil, [ITA 6727/M/2012(Mum); (iii) ITO vs. D.N. Shah & Co. [2 TTJ 1217 (Ahd)]; iv) CIT vs. M.K. Brothers [(1987) 163 ITR 249 (Guj)] v) M/s Imperial imp & exp vs ITO(ITA 5427/Mum/2015) vi) Deepak Popat Lal Ghada vs. ITO(ITA 6203/Mum/2013) vii) DCIT vs. Shri Jitendra S. Motani [ITA 6178/M/2007 (Mum)] CIT vs. Sanjay Oil Cake Industries v. CIT [316 ITR 274 (Guj)] viii)
On the other hand, it was contended by learned DR that the AO had received information that the purchases amounting to Rs.10,69,87,060/- for the three A Ys i.e. 2009-10, 2010-11 and 2011-12 had been shown by the assessee from the parties who were appearing in the list of hawala dealers as mentioned on the official website of the Sales-tax Department of Maharashtra Government. Thereafter a survey u/s.133A of the IT. Act was carried out at the business premises of the assessee on 22.11.2012.
During the course of survey statement of Shri Radheshyam Shivchand Sharma, Director of the assessee company was recorded in which he was confronted with this information. As per learned DR, the assessee company had filed its revised 15.
Returns for all the three years after a period of about three months from the date of survey, incorporating the additional income surrendered during the course of survey. Therefore, it cannot be said that the statement of the Director recorded during the course of survey was taken under any kind of pressure. The assessment proceedings for A.Y. 2010-11 were going on and the AO through show cause notice dated 22.01.2013 had asked the assessee to explain why the addition in respect of bogus purchases should not be made to its income. Further as per learned DR it is only after a period of nine months from the date of survey that the assessee filed objection to re-opening of the assessment for A.Y. 2009-10 & 2011- 12 and made retraction of the statement made during the course of survey. It is at this stage when the assessee submitted that the retraction of the statement also applied to the assessment year 2010-11, the assessment for which had already been finalized on the basis of the revised return in which the additional income had been incorporated.
According to learned AR the assessee has not been able to establish the genuineness of the purchases shown from various parties amounting to Rs.10,69,87,060/-, who were listed as hawala operators on the website of the Sales Tax Department. Learned DR further relied upon the finding of lower authorities and contended that additions so made by the AO should be confirmed.
We have heard the rival submission and carefully gone through the order of the tax authorities below and also deliberated on judicial pronouncement referred by lower authorities in their respective orders as well as cited by learned AR and DR during the course of hearing before us. From the record, we found that assessee company was incorporated on 08.06.1999 as private limited company as a small scale industry and is engaged in construction of commercial and industrial services. Assessee company is the leading facade work contractors in India and provides complete enveloping solutions to construction industry in India. In past, it has completed projects for reputed companies such as M/s Ganon Dunkerley & Co Ltd, M/s GVK Properties, M/s K. Raheja Constructions, M/s L&T, M/s. Shapoori Pallanji and M/s Simplex Infrastructure. During the year under reference, some of the important and prestigious projects in hand were viz M/s Aditya Birla, M/s BG Shirke Const. Tech., M/s Emirates Technologies, M/s GRAUER & WElL (INDIA) Ltd., M/s Gujarat Adani Port Ltd., M/s Kalpataru Properties (Thane), M/s L&T, M/s Oberoi Construction, M/s Symbiosis, M/s. Tata Institute of Science etc. The assessee company's job is mainly performed at site. However, major portion of fabrication work is done at its plants. Once a project is taken up, it takes minimum three and maximum five years to complete. The purchases are centralized. Most of the material is received at factory and from there it is dispatched to various locations. However, to reduce the cost of transportation, some material which does not require any kind of finishing/ fabrication/ polishing is directly purchased and supplied at sites.
Though the major element of cost is material and labour but equally there are overheads, design and drawing cost as well as cost of senior and technical people of the assessee.
On the information from Sales Tax Department that there are some bogus suppliers issuing bills without physical delivery of goods, a survey was conducted at the premises of the assessee wherein statement of Director was recorded and assessee has also offered income on account of said alleged bogus purchases. Survey was on the basis of information from the sales tax department. Just on the information from Sales Tax Department and on the statement of any party and without actually verification and putting on record and without giving an opportunity of cross examination, the purchases from such suspected parties should not be disallowed. For this purpose reliance can be placed on the following judicial pronouncements:
• Income Tax Officer vs. Permanand 107 TTJ 395 [Jodhpur ITAT) Income from undisclosed sources-Addition under s. 69-Alleged bogus purchases-AO received information from the Sales-tax Department that the purchases made by the assessee from two parties were bogus-Solely relying on the same, Aa made addition under s. 69-Not justified-No addition can be made in the hands of the assessee merely on the basis of observations made by a third party-While making the assessment, it is the satisfaction of the Aa which is of prime importance-It cannot be substituted by the satisfaction of someone else-Assessee has discharged the primary onus cast on him by showing the purchases in the books of accounts, payment by way of account payee cheques and producing the vouchers of sale of goods-AO did not make requisite investigations against the said sellers-Moreover, no opportunity was given to the assessee to confront the sellers-Addition rightly deleted. DClT vs. Shri Rajeev G. Kalathil [ITA 6727/Mum/2012) [Mum ITAT] The AO had made the addition as one of the suppliers was declared a hawala dealer by the VAT Department. The Tribunal observed that this was a good starting point for making further investigation and to take it to its logical end. But, the AO left the job at initial point itself. It was further held that suspicion of highest degree cannot take place of evidence and the Assessing
Officer could have called for the details of the bank accounts of the suppliers to find out whether there was anyimmediate cash withdrawal from their account. Transportation of good to the site is one of the deciding factors to be considered for resolving the issue and the CIT (A) had given a finding of fact that part of the goods received by the assessee was forming part of closing stock. Furthermore, since the proof of movement of goods is not in doubt and there is nothing in the order of the AO about cash trail, disallowance could not be made.
• ClT vs. M.K. Brothers 163 ITR 249 (Gujarat HC)
Income-Addition-Bogus purchases-Assessee making purchases from certain parties, who were held to be bogus by sales-tax authorities-Assessee was given credit facilities for a short duration and the payments were given by cheques- Tribunal observed that there were certain doubtful features, but the evidence was not adequate to conclude that the purchases made by the assessee from the parties were bogus- Conclusion arrived at by the Tribunal is not against the weight of evidence- Addition of the amount of purchases as income from undisclosed sources rightly deleted.
The Income Tax Officer vs. D.N. Shah & Co. 2 TTJ 1217 [Ahmadabad ITAT]
Income from undisclosed sources-Addition under ss. 69 and 69A assessee , a dealer in chemicals purchasing goods worth Rs.1.71 lakhs from one M-Payment for purchase by crossed cheque- Proper entry of goods purchased in the stock- book- Evidence of M before sales-tax authorities to the effect that after 1970 they entered only hawala transactions- Opportunity for cross examination of M not made available to assessee either by sales-tax or by Income-tax authorities-Additions under s. 69 and 69A not justified.
• Jagdamba Trading Company vs. ITO 107 TTJ 398 [Jodhpur ITAT]
Income from undisclosed sources-Addition-Alleged bogus purchases-There is no proof on record that the amount of Rs.2,20,000 paid by assessee by cheque was deposited in the account of the assessee-Asstt. manager of the bank has categorically confirmed that the recipient of cash was one R and not RP, proprietor of the assessee concern-Except the contra entry on the backside of the said cheque mentioning that amount was deposited in assessee account, there is no evidence to connect the assessee with the withdrawal of said money-As regards the averment of the seller in his affidavit submitted in sales-tax proceedings that he has not made any sales during the relevant year, same cannot be relied upon, particularly when no opportunity of cross-examination was given to the assessee-Said affidavit having been filed during the sales-tax proceedings of the seller, it hardly has any evidentiary value against the assessee in the income-tax proceedings therefore, the purchases in question held to be bogus-Impugned addition deleted.” cannot be
As per verdict of Hon’ble Supreme Court in the case of CIT Vs. S.
Kahder Khan & sons, 300 ITR 157, Section 133A does not empower any IT Authority to examine any person on oath, hence, mere statement recorded during survey has no evidentiary value and any such addition cannot be made, without bringing on record corroborative materials. The Hon’ble Supreme Court further observed that this view is clearly supported by CBDT Circular dated 10th March, 2003. Accordingly it was held that no addition can be made merely on the basis of statement recorded during survey u/s.133A. Futhermore, any statement without any corroborative evidence cannot be used for making an addition especially when such statements are made during the survey proceedings. For this purpose, reliance can be made on the following judicial pronouncement. i. S Arjan Singh vs. CWT 175 ITR 91 [Delhi] In this case the assessee is having one property at Aurangzeb Road, New Delhi. The assessee had indicated some value in the Wealth Tax Return. The WTO referred the matter to a valuer and accepted the value determined by the Valuation Officer. The assessee appealed to the AAC that the Valuation Officer had, inter alia, not deducted 50 percent of the unearned increase to be paid to the Land and Development Officer on transfer, in arriving at the valuation. The AAC rejected the contention but the Tribunal held that after 1951, this payment became obligatory and the said amount has to be allowed as a deduction in arriving at the valuation of the property in the light of the principles laid down by the Supreme Court in CWT vs. Sikand (P. N.) (1977) 107 ITR 922. Consequently, the Tribunal directed the WTO "to recompute the value of the property in different years in the light of the above directions" but indicated that the recomputed value will not be less than that returned by the assessee in those years.
Against this, the assessee had preferred an appeal in HC raising the question that lithe Tribunal erred in law in holding that the valuation of the property computed in accordance with the direction of the Tribunal be not less than that returned by the assessee itself.”
Hon'ble High Court had held that a valuation lower than that returned may be the correct value. An admission is an important piece of evidence, but it is not conclusive and it is open to the assessee to show that it is incorrect. ii. Commissioner Of Income Tax vs. Dhingra Metal Works 328 ITR 384 [Delhi]
On 14th Sept., 2004, a survey under s. 133A of the Act was conducted on the assessee's business premises. During the course of survey, the tax officials noticed some discrepancies in stock and cash in hand. During the said survey, assessee surrendered an amount of Rs. 99,50,000/- and offered the same for the purposes of taxation. The additional income offered included a sum of Rs. 45,00,000 on account of excess stock found during the course of survey and offered by one of the partners of the assessee as additional income. Subsequently, the assessee vide its letter dt. 29th Nov., 2004, contended that the statement about stock was incorrect and that the impugned discrepancy had been reconciled as it was only a mistake. Consequently, the respondent-assessee withdrew the offer of additional income for taxation on account of excess stock.
On 31st Dec., 2007, the AO passed the assessment order wherein he did not accept the plea of the assessee that excess stock during the course of survey had been reconciled. The AO relied upon the statement of one of the partners of the assessee given during the course of survey under s. 133A of the Act and concluded that the explanation/retraction by the assessee was an afterthought and had no element of truth. CIT (A) as well as ITAT had deleted the addition. Department had preferred an appeal in HC. HC Held that where the assessee has been able to explain the discrepancy in stock found during the survey, addition could not have been made by the AO solely on the basis of the statement made by the assessee during the course of survey. iii. Paul Mathews & Sons Vs. Commissioner Of Income Tax 263 ITR 101Revision-Erroneous and prejudicial order-Assessment vis-a-vis disclosure during survey-Sec. 133A does not empower any ITO to examine any person on oath-Thus, the statement elicited during the survey operation has no evidentiary value-ITO did not accept the income declared by the assessee after the survey in a mechanical way, but applied his mind to various aspects of the matter before completing the assessment-Advances admittedly received by the assessee from two parties have been explained partly and the unexplained amount is telescoped in the income already disclosed. Hence, no separate addition was made-Alleged admission in the statement of the managing partner was only a qualified one and the assessee had clearly explained the same to the AO by cogent materials-Order passed by the AO cannot be said to be erroneous or prejudicial to the interests of Revenue - ClT not justified in invoking powers under s. 263. iv. Assistant Commissioner Of Income Tax Vs. Smt. Usha Rani Talla 6 ITR (Trib) 37.
Assessment - Undisclosed income – Addition - Sustainability- Survey operations in the business premises of partnership firm carrying business in jewellery-discrepancy found in the stock and cash found- Assessee being the wife of the partner summoned and her statement recorded-Based on the statement made by her amounts surrendered during survey added to income of assessee notwithstanding the subsequently retraction of the statement stating that it was made in a disturbed mind-On appeal CIT(A) holding that there being no evidence regarding undisclosed income, addition made only on the basis of statement given in a state of confusion and later retracted, could not be sustained either in part or as a whole-On further appeal held that a statement is recorded under s. 133A is not given any evidentiary value obviously for the reason that the officer is not authorized to administer oath and to take, any sworn statement which alone lends evidentiary value as contemplated under the law-Basis for addition was the statement of the assessee without any corroborative material or evidence on record no material brought on record by the AO to substantiate that any expenditure on renovation was incurred by the assessee nor the AO made any reference to the DVO to find out the correct state of affairs-No addition warranted in the hands of the assessee merely because she signed the statement accepting the same. v. ClT vs. P Balasubramanian 354 ITR 116 [Madras] Survey-Statement recorded u/s 133A-No corroboration-Addition- Deletion thereof-Survey was conducted at assessee's premises- 900 gms of gold was found during survey-Assessee's statement that it had 2100 gms of gold which was given to three persons was recorded-AO made addition of 3000 gms of gold-CIT(A) further made addition of unaccounted cash found in survey and interest earned on unaccounted investments based on assessee's statement-Tribunal deleted additions made by ClT(A)- Held, assessee, in his explanation, had stated that remaining 2100 gms had been given to 3 Asaris- Officers had not verified whether gold was available with said Asaris nor chose to examine them- Statement recorded during survey operation u/s 133A may be a relevant material, but in absence of further materials to substantiate same, such statement recorded u/s 133A can hardly be basis for assessment-During survey, 900gms gold was found in assessee's premises and statement of assessee was supported only to that extent-Statement of assessee in respect of remaining gold was not substantiated-In so far as unaccounted cash, assessee tried to explain by stating that he had sold a land and consideration was deposited in Bank and was withdrawn and during course of survey, Department came across said cash-Survey was on 29.10.2002 and withdrawal of money from Bank was a few days before search-Even though said amount was not disclosed in his books, assessee tried to explain same- So far as addition of interest earned on unaccounted investment in money lending business was concerned, enhancement was based only on statement recorded from assessee-No other material or information was available that assessee invested in money lending business and earned interest- Thus, addition was based on only rough estimate-CIT{A) made enhancement to income determined by Assessing Officer based on unsworn statement obtained u/s. 133A, in absence of other materials-Thus, Tribunal had rightly set aside order of CIT (A). vi. ITO vs. Vijay Kumar Kesar 327 ITR 497 [Chhattisgarh] Income from undisclosed sources-Addition under s. 69-Addition on the basis of statement recorded during survey-Assessee surrendered the cash and value of excess stock found during survey for taxation but did not offer any such amount in his return- He produced his updated books of account and other primary records during the assessment proceedings to explain the cash and stock found at the time of survey but the AO rejected the same solely on the ground that the assessee had made confessional statement during the survey proceedings and surrendered income from undisclosed sources in the form of cash and excess stock and such primary evidence was produced after considerable period-On appeal, CIT(A) accepted the explanation offered by the assessee and the books of account produced by him as the entries in the books were supported by primary evidence-CIT(A) also accepted the explanation that the statements were made by the assessee without understanding the import of the same as he was under stress due to the death of his daughter-Order passed by CIT(A) has been confirmed by the Tribunal- Findings recorded by both the authorities cannot be termed perverse or contrary to record- Confession made by the assessee during survey proceedings is not conclusive and it is open to the assessee to establish that the same was not true and correct by filing cogent evidence-Additions rightly deleted. vii. ClT vs. Mrs Doris S Luiz 96 ITR 646 [Kerala] The stand taken by the assessee was that the money in question is in the nature of trust money, not impressed with the character of revenue receipt. On a careful analysis of the position, one is satisfied that the money was being held by the assessee in confidence for the benefit of the students going for overseas training and employment and, as such, it is not a taxable item in her hands. The money received has no profit-making quality about it, and it continues to be the money of the students for which the assessee is accountable to the students. The assessee all along has been in the bona fide belief that the surplus amount in her hands under the above account was in the nature of a trust fund refundable or returnable to the party. Reliance was placed very much by the lAC on the admission of the assessee that Rs. 22,000 was not refunded to the students. It is stated that she agreed to the said amount of Rs. 22,000 being treated as income. It is worthwhile to remember in this connection that during all the relevant years the assessee had taken the consistent stand that the deposits were returnable to the persons concerned after meeting the expenses, and the surplus, therefore, should not be assessed as income. During the year in question she happened to make the admission under a misconception of the attendant facts and circumstances. In spite of the admission it is incumbent on the Department of establish by relevant proof that the amount in question was income in the hands of the assessee. The admission was wrong and it was for the Department to prove positively on other material that there was concealment of income. Being a quasi-criminal proceeding, the burden is entirely on the Department. Apart from the so-called admission, there is no material to hold that the income was concealed. Further Hon'ble se in case of Pullangode Rubber Produce Co ltd vs. State of Kerala & ANR 91 ITR 18 had held that an admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the person who made the admission to show that it is incorrect. In this case the assessee had incurred an amount of Rs. 79,680/- for the cultivation, upkeep or maintenance of immature plants. The same has been capitalized in the books of accounts. However, at the time of agricultural income tax assessment, the same has been treated as revenue expenditure and deducted in the computation. The same was denied to the assessee. The matter ultimately travelled to se. se held that "It is no doubt true that entries in the account books of the assessee amount to an admission that the amount in question was laid out or expended for the cultivation, upkeep or maintenance of immature plants from which no agricultural income was derived during the previous year. An admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the person who made the admission to show that it is incorrect. "
However, even if any addition is made what can be added is some percentage of Gross Profit or net profit as all the purchases are accounted and consumed in business. For this purpose, following the judicial pronouncement supports the view that a reasonable gross profit rate or net profit rate can be added as undisclosed income of the assessee. For this purpose, reliance can be place
• Shri Madhukant B. Gandhi vs. ITO [ITA 1950/Mum/2009] (Mum ITAT) The A.O. treated parties as bogus and made total disallowances. ITAT restricted the disallowance to 5% only in respect of the disputed purchase. • DClT vs. Shri Jitendra S. Motani [ITA 3024 to 3028, 6178/Mum/2007] (Mum ITAT) The AO made disallowance of entire purchases. Only few parties filed confirmations. CIT (A) applied 3% to GP to all the purchases. The payments were made by A/c payee cheque. The ITAT held that addition restricted to 3% on tainted purchases only (i.e. where no confirmation was obtained or doubtful in nature). • ClT vs. Sanjay Oil Cake Industries v. CIT (2009) 316 ITR 274 (Guj.)(HC) Purchase of oil cake. AO had information that these parties are hawala entry givers- Entire purchases were added. Tribunal restricted to 25% of purchases as profit of assessee. Both the assessee and Revenue filed an appeal before the Court. High Court affirmed the view of Tribunal. CIT vs. Bholanath Poly Fab (P.) Ltd. 355 ITR 290 (Gujarat HC) Assessee is engaged in the business of trading in finished fabrics. Assessing Officer disallowed the purchases on account that parties from whom purchases were made are not found at the addresses given. CIT(A) confirmed the assessment order. Tribunal held that purchases were made from bogus parties, but the purchases themselves were not bogus as entire quantity of opening stock, purchases and the quantity manufactured during the year under consideration were sold by the assessee. Therefore, Tribunal held that additions should not be the entire amount, but the profit margin embedded on such purchases would be subjected to tax. On appeal by revenue to High Court, Tribunal's order was upheld.
From the record we found that during assessment proceedings, the assessee claimed that the statement was given on the wrong understanding of facts and accordingly retracted from the earlier statement given during the course of survey action on the ground that the said statement was given under force. The assessee vide letter dated 30- 7-2014 has also submitted that the statement was given for all the three years, the retraction so made was applicable to all the three years. In support of this contention, the assessee stated that the purchases from all the so called hawala dealers are genuine in the light of the fact that proper bills have been issued by all such parties and the assessee had made payments by cheques against such purchases. It has further submitted that the assessee has undertaken the project of reputed companies such as M/s Ganon Dunkerley & Co. Ltd., M/s GVK Properties. M/s K. Raheja Construction, M/s. L & T, M/s. Shapoorji Pallanji and M/s. Simplex Infrastructure and such projects cannot be completed without the purchase of materials in support of its contention the assessee has submitted details of materials consumed against sales which reflects that the ratio of sales to materials consumed is maintained almost uniformly over the year as per the details enclosed by the assessee. It was further submitted that since those hawala parties had not paid VAT collected from us to the Sales Tax Department, it does not mean that the purchases are not genuine and therefore those parties are defaulters only in terms of non-payment of VAT to the Sale Tax Department, Maharasbtra. Further, the assessee submitted that all such purchases are genuine and not for the purpose of reducing profit margin as evident from the fact tabled below that the net profit of the assessee company has remained almost the same as compared to earlier years as well as subsequent years. From the record we also found that during the course of remand proceedings, in order to verify whether the assessee has purchased materials from hawala dealers at higher rate, the assessee was asked to furnish the details in respect of same items purchased from the parties other than the hawala dealers during the same period. It is seen that in respect of some of the items, the rate of the items supplied by the entry providers was higher as well as lower also but the ultimate effect of the purchases from all such hawala dealers has resulted into higher profit margin shown by the assessee. We also found that during the remand proceedings, the assessee could produce purchase orders, invoices, delivery challans in respect of the purchases of materials both from hawala dealers as well as other parties.
Now, coming to the merits of the addition, we found that parties from whom purchases were made, were found to be registered with Sales Tax Department. Merely because they had not paid the tax on their sales, cannot be held against the assessee so as to conclude that assessee has not purchased the goods. We also found that the income tax survey team has not shared with the assessee, any evidence or statements by these parties proving them to be hawala operators. The survey team neither shared with the assessee as to on what basis Maharashtra VAT department is declaring these parties as hawala operators/suspicious parties. Whether these parties have given any affidavit or any other evidences were gathered by VAT department to come to such conclusion is not made known to the assessee nor have been shared with the assessee. We also found that in the statement before survey team assessee had never accepted that it had taken any accommodation bill from any hawala operator. When a query with respect to bogus purchases was raised the director has stated as below: “Above expenses have been done as per the business compulsions and the funds generated rave been entirely used for the business purposes only.”
No incriminating evidence was gathered by the survey team to prove that the assessee has indulged itself into procurement of accommodation bill from alleged hawala operators. Further no evidence was gathered by the survey team that cash was actually received back from these parties after payment is made to them in cheques. Thus, charge of inflating purchases by purchasing accommodation bills from these parties is not proved by any incriminating material gathered during the survey operation.
On similar facts and circumstances, Ahmedabad ITAT in the case of ITO Vs D N Shah & Co, 2 TTJ 1217 had also decided the case in favour of the assessee. In- that case also, the assessee had recorded the receipt of material and also made the payment by account payee cheques. It was held that statement recorded behind the back of assessee by sales tax authorities cannot be used against the assessee.
The head notes of the decision is reproduced herein below :
'Income from undisclosed sources - Addition under ss. 69 and 69A - Assessee, a dealer in chemicals purchasing goods worth Rs. 1.71 lakhs from one M - Payment for purchase by crossed cheque- Proper entry of goods purchased in the stock- book - Evidence of M before sales-tax authorities to the effect that after 1970 they entered only hawala transactions - Opportunity for cross examination of M not made available to assessee either by sales-tax or by Income- tax authorities - Additions under s. 69 and 69A not justified'”
We had also carefully gone through the statement so recorded during the survey and found that there is a contradiction in the statement, insofar as on the one side the director has stated that expenses were incurred for business purposes and at the same time agreed to offer a sum of Rs.10.69 crores as unaccounted income. We had also carefully gone through the remand report dated 19-1-2015, which reads as under :-
“To, The Hon’ble Commissioner of Income Tax (A)-I, Thane. Sir, Sub: Remand Report in the case of M/s. Innovators Facade System Pvt. Ltd. For A.Y. 2010-11-reg. Ref: Letter No.THN/CIT(A)-I/Remand Rep./2014-15/300 dated 02/0112015. Kindly refer to subject above.
2. The assessment in this cases was completed u/s. 143(3) of the I. T. Act, 1961 on 04/03/2013 and the income was assessed at Rs.8,06,06,450/- against returned income at Rs.1,72,47,772/-. In this case an addition of Rs. 6,28,80,474/- was made on account of bogus purchases surrendered by the assessee during survey u/s. 133A carried out at the business premises of the assessee on 22/11/2012. During the course of assessment proceedings, this addition was made on the basis of the finding that during year, the assessee has claimed expenses on purchase of materials which were not substantiated either at the time of surveyor subsequently during assessment. During the course of assessment proceedings, the AO had issued a show cause notice on 22/01/2013 to show cause as to why
Rs.6,28,80.474/- should not be disallowed in view of the statement recorded during survey action. The assessee vide his letter dated nil filed in response to the said show cause notice has stated at para no.2 of the self submission which is reproduced as under:
"We have already submitted our surrender in our statement on the date of survey proceedings".
Accordingly, The AO disallowed Rs.6,28,80,474/- on account of bogus purchases and added the same to the returned income of the assessee.
Since the assessee had made purchases from the hawala dealers/entry providers during F.Y. 2008-09 & F. Y. 20 I 0-11 and the same was surrendered during survey action, notices u/s, 148 were issued for these two assessment years also. During reassessment proceedings, the assessee claimed that the statement was given on the wrong understanding of facts and accordingly retracted from the earlier statement given during the course of survey action on the ground that the said statement was given under force. The assessee vide letter dated 30/07/2014 has submitted that the statement was given for all the three years, the retraction made also made applicable to all the three years. In support of this contention, the assessee stated that the purchases from all the so called hawala dealers are genuine in the light of the fact that proper bills have been issued by all such parties and the assessee had made payments by cheques against such purchases. It has further submitted that the assessee has undertaken the project for reputed companies such as M/s. Ganon Dunkerley & Co Ltd., M/s GVK Properties, M/s K. Raheja Construction, M/s. L & T, M/s. Shapoorji Pallanji and M/s. Simplex Infrastructure and such projects cannot be completed without the purchase of materials in support of its contention the assessee has submitted details of materials consumed against sales which reflects that the ratio of sales to materials consumed is maintained almost uniformly over the year as per the details enclosed by the assessee.
It has further submitted that since those hawala parties had not paid VAT collected from us to the Sales Tax Department, it does not mean that the purchases are not genuine and therefore those parties are defaulters only in terms of non-payment of VAT to the Sale Tax Department, Maharasbtra. Further, the assessee submitted that all such purchases are genuine and not for the purpose of reducing profit margin as evident from the fact tabled below that the net profit of the assessee company has remained almost the same as compared to earlier years as well as subsequent years.
During the course of remand proceedings, in order to verify whether the assessee has purchased materials from hawala dealers at higher rate, the assessee was asked to furnish the details in respect of same items purchased from the parties other than the hawala dealers during the same period. It is seen that in respect of some of the items, the rate of the items supplied by the entry providers was higher as well as lower also but the ultimate effect of the purchases from all such hawala dealers has resulted into higher profit margin shown by the assessee. During the remand proceedings, the assessee could produce purchase orders, invoices, delivery challans in respect of the purchases of materials both from hawala dealers as well as other parties but did not produce lorry receipts, stock register, material inward and outward register, in support of delivery of goods.
In view of the fact that the director of the assessee company had admitted to have made purchases from the parties declared hawala dealers by the Sales Tax Department, Maharashtra and accordingly surrendered Rs.6,28,80474/- at the time of survey, it is submitted that the assessee's retraction from the surrender made in the statement given at the time of the survey proceedings is without any base and evidences as the assessee also failed to produce lorry receipts, stock register, inward and outward register. consumption register, to substantiate its claim to have received the goods supplied by such parties. Therefore, the appeal of the Assessee deserves to be dismissed. However, the case may be decided on merits. Yours faithfully, (ASHOK P. JAKHANWAL) Asst. Commissioner of Income Tax, Circlc-2, Thane. Copy for information to; The Addl. Commissioner of Income Tax, Range-2, Thane.”
It is clear from the remand report that the AO has duly mentioned the fact that during assessment proceedings, the assessee has claimed that though the statement was given on wrong understanding of facts and accordingly retracted from earlier statement given during the course of survey action on the ground that the said statement was given under force. Furthermore, during the remand proceedings, in order to verify whether the assessee has purchased materials from hawala dealers at higher rate, the assessee was asked to furnish the details in respect of same items purchased from the parties other than the hawala dealers during the same period. The assessee furnished the bills asked by the AO to verify the correctness and after verification the AO observed in the remand report that in respect of some of the items, the rate of the items supplied by the entry providers was higher as well as lower also but the ultimate effect of the purchases from all such hawala dealers has resulted into higher profit margin shown by the assessee. In the remand report the AO also observed that during the remand proceedings, the assessee had produced purchase orders, invoices, delivery challans in respect of the purchases of materials both from hawala dealers as well as other parties.
It means that the materials were actually purchased, it may be possible that actual purchases were made from one party whereas bills have been issued by other party. Under these circumstances, entire purchases so made cannot be added, only a percentage of such purchases may be added keeping in view the rate of GP & NP shown by assessee vis-à-vis other assessee engaged in similar work and the facts and circumstances of the case.
Now, coming to the disallowance of alleged bogus purchases, we found that these suppliers were found to be non-genuine by the sales tax department, even though it was the contention of ld. AR that suppliers were registered with VAT where stringent process is followed for issuing VAT registration like photo, verification of address (residential and office), ration card and proof of residence. However, at the very same time, we cannot ignore the actual purchases made by the assessee, which was utilised for its construction purpose and sales. During remand proceedings the assessee has filed details of materials consumed against sales which reflected that the ratio of uniformly over the years. This is a finding recorded by AO during remand proceedings which has not been controverted by ld. DR by bringing any positive materials on record. In the remand proceedings the AO after examining all such purchases observed that net profit of the assessee has remained almost the same as compared to the earlier years as well as subsequent years. Meaning thereby there is no inflation of purchases to reduce the net profit during the years under consideration. Even to verify the fact of assessee having purchased material from hawala dealers at a higher price, the AO asked the assessee to furnish details in respect of some of the items so purchased by hawala dealers and the similar item purchased from other dealers, wherein after verification, the AO recorded a finding to the effect that the rate of items supplied by hawala dealers was higher as well as lower also but the ultimate effect of the purchases from all such hawalas dealers has resulted in the higher profit margin shown by the assessee. It means there is no adverse effect of the purchase so made even from the hawala dealers, insofar as purchase so made have actually been consumed and similar profit has been shown by the assessee in respect of these purchases when utilized in construction and/or sold.
We had also carefully gone through the particulars of the alleged bogus bills, nature of goods supplied, products supplied and payments details. We had also verified the confirmation of accounts for purchase of goods, bank statement showing payments made for alleged purchase bills. The purchase so made were consumed by the assessee in the business of its civil and interior work which includes external and internal glazing of glass work and providing & fixing aluminum windows. We had also verified the comparative GP and NP rate shown by the assessee which appears to be reasonable as compared to the other business house engaged in the similar line of civil and interior work. The net profit rate shown by the assessee ranged between 3.04% to 3.61%.
From the record we found that assessee had shown GP rate of 16.39% and 23.49% in the assessment year 2009-10 and 2010-11, which is much better than the gross profit rate shown in the assessment year 2008-09 at 11.41%. Moreover the GP rate shown by the assessee is comparable to the GP rate shown by other assessee engaged in similar trade. However, to safeguard the interest of revenue and to cover the leakage of revenue, if anyone, and also totality of facts and circumstances of the case before us, we direct the AO to restrict the addition to the extent of 2% of alleged bogus purchases so made. We direct accordingly.
Facts and circumstances in the year 2010-11 & 2011-2012 are pari materia, following the reasoning given hereinabove, we restrict the additions in these years also to the extent of 2% of alleged bogus purchases so made. We direct accordingly.
In the result, appeals of assessee are allowed in part.
Order pronounced in the open court on this 20/07/2016.