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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR
सुनवाई क� तार�ख /Date of Hearing : 11-05-2016 घोषणा क� तार�ख /Date of Pronouncement : 25-07-2016 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the assessee company, being 20th August, 2014 passed by learned Commissioner of Income Tax (Appeals)- 9, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2009-10, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 18th February, 2014 passed by the learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) r.w.s. 147 of the Income Tax Act,1961 (Hereinafter called “the Act”).
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The grounds of appeal raised by the assessee company in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) read as under:-
“1. On the facts and in the circumstances of case the CIT (Appeals) has failed to appreciate that the notice issued under section 148 was bad in law.
2. On the facts and in the circumstances of the case, and in law, the learned CIT (Appeals) has erred in holding that the Assessing Officer was justified in initiating action under section 147 of the Act and the same cannot be considered to be bad in law and contrary to the provisions of the Act.
3. The CIT (Appeals) has failed to appreciate that the proceedings have been initiated mechanically on the information received from the Sales tax Department, who had called the concerned supplier as "suspicious", without having any tangible material to form a belief that income has escaped assessment
4. The CIT (Appeals) has failed to appreciate that the Dy. CIT ought to have dealt with the objections that had been raised by Appellant against the initiation of reassessment proceedings before proceeding to frame the reassessment order.
5. On the facts and circumstances of the case and in law the CIT (Appeals) has erred in confirming the addition that has been made by the Assessing Officer relying solely on the statement recorded by the Sales tax authorities at the back of Appellant and has failed to appreciate that neither a copy of the said statement was made available nor an opportunity was given to cross examine the person, which vitiates the proceedings.
On the facts and in the circumstances of the case and in law the CIT (Appeals) has failed to appreciate that addition has been made by the Assessing Officer while placing reliance on irrelevant notorised affidavit cum declaration of some third party viz. a director of Milestone Corporation (with whom Appellant had no dealing) filed before sales tax authorities.
7. On the facts and in the circumstances of the case and in law the CIT (Appeals) has erred in confirming the disallowance of Rs. 5,70,214 being the purchase of goods that has been made by the Assessing Officer alleging the said purchases to be fictitious.
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On the facts and in the circumstances of the case, the Assessing Officer and the CIT (Appeals) both have failed to take cognisance of the material that was placed on record to establish receipt of the goods and the sales thereof.
9. On the facts and in the circumstances of the case and in law, the CIT (Appeals) has erred in confirming the addition of Rs 5,70,214 made by the Assessing Officer on account of alleged bogus purchases on wrong and insufficient surmises.”
The brief facts of the case are that assessee company has filed return of income with Revenue u/s 139(1) of the Act on 30th September, 2009 declaring income of Rs. 57,61,640/- which was processed u/s 143(1)(a) of the Act. The case was reopened u/s 147 of the Act and notice u/s 148 of the Act was issued on 11th March, 2013 which was served upon the assessee company on 14th March, 2013 i.e. with a period of four years from end of the relevant assessment year. The assessee company is primarily engaged in the business of retail dealership of footwear, ladies bags and other allied items. The assessee company has also derived income by way of share of profit from a partnership firm namely ‘Regal Shoes’ engaged in a similar line of business.
At the outset, the ld. Counsel for the assessee company submitted that he is not pressing ground No. 1 to 6 and the same may be dismissed as not pressed. The ld. D.R. has also not raised any objection with respect therero. As such, grounds No. 1 to 6 are dismissed as not being pressed.
Information was received from the office of the DGIT (Investigation), Mumbai regarding bogus purchases of Rs. 5,70,214/- made by the assessee company from the hawala operator M/s Big Step International. The information was based on the data of bogus bills suppliers received from Sales Tax Department, Govt. of Maharashtra. As per the records of the Sales Tax Department, M/s Big Step International is one of the parties involved in bogus billing. They just issues bills for commission without actual supply of goods. In a Notarized Affidavit Cum Declaration filed before Sales Tax ITA 6408/Mum/2014 4 Investigation Branch, Mumbai and in deposition before the Assistant Commissioner of Sales Tax (I-27), Investigation Branch, Mumbai the Director of M/s Milestone Corporation have admitted of issuing only invoices/bills without delivery of goods. The said hawala bill providers have categorically admitted during deposition before the sales tax authorities that these bills are provided just for the sake of entry and as such no materials were supplied by them. They had only supplied bills on receipt of cheques and later on cash was withdrawn from the banks and after deduction of agreed commission balance money was returned in cash.
The assessee company was specifically asked to produce the following information:
(a) purchase bills (b) quantitative details of each commodity in the opening stock, purchases, sales and closing stock (c) records maintained for receipt and dispatch of goods (d) consumption and production of goods (e) TIN & PAN of each party from whom purchases have been made (f) copies of accounts of all parties from whom purchases are made including the bogus parties from whom the purchases are made (g) documents relating to transportation and receipt of goods (h) copy of bank accounts from whom payments against purchases are made (i) the address of the broker through whom purchases are made.
The assessee company submitted the copy of purchase bills, ledger extracts. No details regarding records maintained for receipt and dispatch of goods, the address of the broker through whom the purchases were made, copies of bank statement from where the payment for purchases were made. The ITA 6408/Mum/2014 5 assessee company submitted that it has made valid purchase and goods were used for the purposes of business.
The A.O. rejected the contentions of the assessee company in view of the statement of hawala dealer recorded under oath by sales tax authority during survey action conducted in their premises. The onus to prove that the expenditure made on account of purchases is genuine and to prove the genuineness of transactions made with the above said parties admitted to be bogus by the parties themselves lies upon the assessee company, was the observations of the AO. No evidence has been produced by the assessee company. The assessee company failed to produce any independent evidence in its support and discharge the onus despite sufficient opportunity being given to the assessee company. The contentions of the assessee company that the material was purchased from these parties was not evidenced from stock register.The stock register was not submitted before the AO. The assessee company did not produced purchase orders, vajan kata receipts or transporters bills for verification by the AO. The contentions of the assessee company that purchases and sales are reconciled were not evidenced by any cogent material produced before the AO.The details for making payment to this party Big Step International was not produced before the AO, while the statement of hawala operator clearly establishes that these purchases were bogus purchases. The A.O. accordingly disallowed an amount of Rs. 5,70,214/- on account of bogus purchases and added the same to the income of the assessee company vide assessment order dated 18-02-2014 passed u/s 143(3) r.w.s. 147 of the Act.
6.Aggrieved by the assessment order date 18-02-2014 passed by the A.O. u/s 143(3) read with Section 147 of the Act, the assessee company filed first appeal before the learned CIT(A).
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Before the ld. CIT(A), it was submitted that the assessee company has purchased material from Big Step International and the A.O. observed that the said purchases appears to be bogus. The additions have been made on the basis of suspicion while re-opening can be done based on reasons to believe that income has escaped assessment and hence re-opening is invalid. The additions have been made relying on the notarized affidavit cum declaration of the stranger company ‘Milestone Corporation’ furnished before Sales tax Authorities , while purchases were made by the assessee company from ‘Big Step International’. It was submitted that the said affidavit of M/s Milestone Corporation was not brought to the notice of the assessee company and the assessee company had no occasion to refute the same, hence, it cannot be relied upon to make the additions. The assessee company also submitted that it has no dealings with M/s Milestone Corporation. Thus, the assessee company contended that the A.O. erred in making the addition and also the reopening is not valid. The assessee company submitted that the goods inward reports from the concerned outlets showing the receipt of the goods delivered to Linking Road, Bandra retail outlet and Vashi retail outlet and delivered to Inorbit Mall, Malad were submitted before the A.O. which were not considered by the AO. Thus, the assessee company has given all the details and sales could not have been affected without the corresponding purchases. It was submitted that the GP ratio accounted during the year was 31.08% on the said goods purchased from M/s Big Step International and thus, the ld. CIT(A) is not justified in treating the transaction as bogus. The GP ratio for the last four years is as under:-
Asst. Year G.P. Ratio 2009-10 38.89% 2008-09 36.36% 2007-08 36.55% 2006-07 38.47% ITA 6408/Mum/2014 7
The assessee company submitted that from the above, it can be seen that the GP ratio obtained during the year under consideration is better than the corresponding ratio for all the previous three years. It was submitted that during the course of financial year 2011-12 it was learnt that the said suppliers M/s Big Step International did not pay VAT on the above supplies of Rs.5,70,214/- made during the impugned previous year and the assessee company deposited the VAT with Sales Tax Authorities by withdrawing the VAT credit claim in the returns. The amount of VAT credit claim which was withdrawn was amounting to Rs. 63,358/- and the same was debited to supplier account. Copy of accounts were furnished for financial year 2011-12 wherein the balance amount of Rs. 5,06,785/- payable to Big Step International after the above debit of Rs.63,358/- which has been written back in the accounts in the financial year 2011-12 and has been offered to tax in the assessment year 2012-13, hence, addition in this regard leads to double taxation of the same amount . It was submitted that the department on mere suspicion and based on the alleged statement of a third party disallowed the purchases made by the assessee company whereas all evidences were submitted before the A.O. The ld. CIT(A) upheld the reopening of assessment relying on the decision of Hon’ble Supreme Court in the case of M/s Rajesh Jhaveri Brokers Pvt. Ltd. (2007)291 ITR 500(SC). On merits, it was held by the ld. CIT(A) that Big Step International have been proved to be a hawala entry provider and the Investigation Wing of Income Tax and Sales Tax authority have informed that the assessee company is also a beneficiary of the racket of hawala. The assessee company could not provide any documentary evidence of actual delivery of material allegedly purchased from the said party. The ld. CIT(A) also relied on the decision of Hon’ble Supreme Court in the case of Sumati Dayal, (1995)214 ITR 801(SC) as well as in the case of P. Mohankala, (2007)291 ITR 278(SC) to content that one has to consider all surrounding circumstances for accepting the genuineness of a ITA 6408/Mum/2014 8 transaction. The ld. CIT(A) observed that detail enquiries were made by the Sales Tax department and it was revealed that the party from whom the assessee company has purchased goods do not have any capacity and only exist in paper. It was observed by the ld. CIT(A) that the assessee company has also not made any payment for the said purchase on the ground that the quality of goods was not up the mark which is clearly an afterthought because it is unbelievable that an actual supplier will not insist for payment of goods supplied by it. The ld. CIT(A) accordingly upheld the addition made by the A.O. vide appellate orders 20-08-2014 passed by learned CIT(A).
8.Aggrieved by the appellate order dated 20-08-2014 passed by the ld. CIT(A), the assessee company is in second appeal before the Tribunal.
The ld. Counsel for the assessee company submitted that the case was reopened merely on the basis of information received from the Sales Tax Authorities. The Revenue relied upon the statement of a third party i.e. M/s Milestone Corporation. The ld. Counsel submitted that the assessee company has no dealings with the said party M/s Milestone Corporation. The assessee company has purchased the material from M/s Big Step International. The said statement of M/s Milestone Corporation has not been confronted to the assessee company. Cross examination was not allowed to the assessee company. The assessee company has raised objection on this point before the A.O. and even complete details were furnished vide assessee company’s letter dated 23rd July, 2013, which is placed in paper book page 12 to 14. The assessee company has also produced the ledger accounts of the said M/s Big Step International vide paper book page 15 as well as tax invoice of Big Step International vide paper book page 16 to 20 which are also placed on record. It was also submitted that stock register was produced to show the goods received which is placed on paper book page 21 to 24. Similarly, other invoices have also been produced vide paper book page 25 to 42 along with ITA 6408/Mum/2014 9 daily sales book. The assessee company submitted that the goods supplied by the said party was not up to the mark and hence the assessee company did not pay them. The assessee company has also withdrawn the claim of VAT adjustment. The amount has been written back and taxes have been to the Revenue in the financial year 2011-12. The ld. Counsel has also relied upon various case laws.
The ld. D.R., on the other hand, submitted that the assessee company is not able to co-relate purchases with the relevant sales. The assessee company has not given complete details at the time of the assessment proceedings. No payment has been made to the said party on the ground that quality was deficient which is an afterthought.
In the rejoinder, the ld. Counsel submitted that the assessee company has maintained complete stock records which are produced before the authorities below as well before the Tribunal. These records are maintained electronically. Due taxes have been paid to the Revenue.
We have considered the rival contentions and also perused the material available on record. We have observed that the assessee company has made purchases from M/s Big Step International to the tune of 5,70,214/- which has been doubted by the Revenue based on the information received from Sales Tax Authorities. The Sales Tax Authorities have forwarded the information to the Revenue and based upon this the case was reopened with in a period of four years from the end of the relevant assessment year. Original assessment was not framed u/s. 143(3) of the Act rather the return of income was processed u/s 143(1) of the Act. No opinion was formed by the A.O. while processing the return u/s 143(1) of the Act. The ld. CIT(A) upheld the reopening of assessment relying on the decision of Hon’ble Supreme Court in the case of M/s Rajesh Jhaveri Brokers Pvt. Ltd.(supra). The A.O. has ITA 6408/Mum/2014 10 received tangible material from the Investigation Wing. However, we have observed that copy of statement recorded which was relied upon by the Revenue of M/s Milestone Corporation was not forwarded to the assessee company nor cross examination was offered to the assessee company, while the assessee company has purchased the material from M/s Big Step International and the assessee company contended that there is no dealings with M/s Milestone Corporation. The revenue has contended that the assessee company has not provided the complete details to the authorities below to reconcile the purchases made with the sales recorded in the books of the accounts . It is the contention of the assessee company that it has duly submitted the details with the AO whereby proper reconciliation of purchases made from Big Step International with corresponding sales in books of accounts have been furnished. The GP ratio in the impugned assessment year is also stated to be better in comparison to last three years as set out in preceding para’s. In our considered view interest of justice will be best served in the instant appeal if the matter is set aside and restored to the file of AO for necessary verification and reconciliation regarding the purchases made by the assessee company from M/s Big Step International to the tune of Rs.5,70,214/- with corresponding sales recorded in books of accounts to match and reconcile the same, hence, the order of learned CIT(A) is set aside and matter is restored to the file of the A.O. for de novo determination of the issue on merits to reconcile and match the sales with corresponding purchases from M/s Big Step International as recorded in the books of accounts . The assessee company is also directed to produce necessary evidences and explanation before the A.O. in its defense. Needless to say the A.O. shall provide proper and sufficient opportunity of being heard to the assessee company in accordance with the principles of natural justice in accordance with law. We order accordingly.
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In the result, the appeal filed by the assessee company in ITA N0. 6408/Mum/2014 for the assessment year 2009-10 is allowed for statistical purposes.
Order pronounced in the open court on 25th July , 2016. आदेश क� घोषणा खुले �यायालय म� �दनांकः 25-07-2016 को क� गई ।