ITO 14(3)(3), MUMBAI vs. ASHWINKUMAR CHHANGANLAL SATIYA, MUMBAI

आदेश / O R D E R

Per Bench The Revenue is aggrieved by the impugned orders both dated 09/09/2013 for Assessment years 2002-03 and 2003-04 of the ld. First Appellate Authority, Mumbai, whereas, the assessee has also preferred cross objections, which are arising out of the same orders.

2.2. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee an individual dealing in cloths, trading mainly in shirting, mainly on semi-wholesale basis. The assessee declared income of Rs.7,69,550/- (A.Y. 2002- 03) in his return filed on 05/09/2002. Identically, income of Rs.8,26,110/- was returned originally on 29/09/2003 along with audited accounts, computation of income. The returns were processed u/s 143(1) of the Act. The cases of the assessee were reopened u/s 147 of the Act for which notice u/s 148 was issued and served upon the assessee. The order u/s 143(3) r.w.s. 147 was passed on 23/12/2009 making addition of Rs.14,82,463/- to the business income of the assessee for A.Y. 2002-03 and Rs.15,71,255/- for A.Y. 2003-04, u/s 69 of the Act as unexplained investment. On appeal, before the ld. Commissioner of Income Tax (Appeals), after considering the facts, the addition to the extent of 90% was deleted and to fill the gap of difference of GP of the purchases as well as to plug any leakage of revenue, the addition was sustained/restricted to the tune of 10%. Thus, the Revenue is in appeal against deleting the addition of 90% and the assessee trough it cross objections has challenged retaining the remaining addition of 10% of the purchases.

2.3. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, we note that while making the addition, the ld. Assessing Officer broadly made the addition on the basis of statement recorded from Shri Rakesh Kumar Gupta & Ors. It is noted that survey action u/s 133A of the Act was carried out at the premises of group concern of Shri Rakesh Kumar Gupta & Ors and statement of Shri Rakesh Kumar Gupta was recorded. Retraction to the statement was made after two and a half month disowning the facts unearthed during survey and the contents of the statement. The ld. Assessing Officer made the addition in the hands of the purchaser party i.e. the assessee. It is noted that the ld. Assessing Officer did not provide opportunity of cross examination to the assessee in spite of specific request so made. The ld. Commissioner of Income Tax (Appeals) considered the decision from Hon’ble Apex Court in the case of Kishanchand Chelaram vs CIT (1980) 125 ITR 713 (SC), wherein, it was held that before the income tax authorities could rely upon any evidence, they are bound to produce it before the assessee so that the statement can be controverted and opportunity to cross examination should be given and if such opportunity was not provided, the addition which is based on such statement cannot survived. It is also noted that the assessee duly furnished the quantitative details of purchases and sales which were tallying with the opening stock, purchases, sales, closing stock. It is also observed that the addition has been made on the presumption that the assessee might have taken accommodation bills from the parties. It is also noted that remand report was called from the Assessing Officer and no response was given by the Assessing Officer, therefore, the ad-hoc addition was deleted to the extent of 90%. It is further noted that such ad-hoc addition was restricted to 10% to fill the gap of GP and to plug the leakage of revenue, if any. We are of the view that no such ad-hoc addition can stand on its legs which is based on merely statement and that to was contradicted by the assessee. It is further noted that identically in the case of M/s Neeta Textiles vs ITO etc (ITA No.6138, 7335, 6139, 7336, 6140, 7337/Mum/2013) order dated 27/05/2015, the appeals of the Revenue were dismissed. Identically, in the case of M/s C. Chhotalal & company vs ITO (ITA No.3960 to 3967/Mum/2012 and 4022 to 4024 and 4025, 3944, 3995 and 5065/Mum/2012) order dated 24/09/2013, the appeals of the Revenue were dismissed, wherein, additions were made on the statement of Shri Rakesh Kumar Gupta during the course of survey u/s 133A of the Act at his premises. In the order dated 27/05/2015, one of us, (Ld. Accountant Member) is signatory to the order. It is also noted that on identical fact in the case of M/s Jitendra Harshadkumar & Company vs ACIT (ITA No.3141/Mum/2012) order dated 13/11/2013, the appeals of the Revenue were dismissed. We are reproducing hereunder the relevant portion from order dated 13/11/2013, for ready reference:-

“Out of these seven appeals, six appeals are cross appeals for assessment years 2006-07, 2007-08 and 2008-09 which are directed against three separate orders dated 20-4-2012 for A.Y. 2006-07, dated 19-4-2012 for A.Y. 2007-08 and dated 20-4-2012 for A.Y. 2008-09 passed by the ld. CIT(A) - 25, Mumbai and the seventh appeal is the appeal of the assessee which is directed against the order of ld. CIT(A) - 25, Mumbai dated 20-04-2012 for A.Y. 2005-06. Since common issues are involved therein, the same have been heard together and are being disposed of by this single consolidated order for the sake of convenience.

2. The common issue involved in these appeals relating to the additions made by the A.O. on account of unexplained/unproved purchases and sustained partly by the ld. CIT(A) is raised in the following grounds:-

A.Y. Addition made Addition Assessee’s Revenue’s by the A.O. (Rs.) sustained by the ground No. ground no. ld. CIT(A) (Rs.) 2005-06 2,73,700 28,000/- 1 - 2006-07 26,45,012 2,65,000 1 1 2007-08 34,24,522 3,43,000 1 1 2008-09 13,30,906 1,34,000 1 1 3. The assessee in the present case is a partnership firm which is engaged in the business of dealers and merchants of cloth materials. The returns of income for the years under consideration were filed by it declaring total income of Rs. 4,18,570/-, Rs. 10,84,410/-, Rs. 10,96,473/- and Rs. 11,77,145/- for assessment years 2005-06, 2006-07, 2007-08 and 2008-09 respectively. The returns of income filed for assessment years 2005-06 and 2006-07 were accepted by the A.O. initially u/s 143(1) of the Income Tax Act, 1961 (the Act). In the case of Shri Rakesh Kumar Gupta, one of the suppliers of the assessee firm, a survey u/s 133-A of the Act was carried out on 13/14- 2-2009. In his statement recorded during the course of survey, Shri Rakesh Kumar Gupta stated that he was providing accommodation sales bills for purchases in the name of three proprietary concerns M/s Manoj Mills, M/s Astha Silk Industries and M/s Shree Ram Sales & Synthetics belonging to him and his family members. The said statement, however, was retracted by Shri Rakesh Kumar Gupta in part through written communication to the A.O. and also by sworn in affidavits filed by him and his family members who were proprietors of these concerns. In the affidavits, Shri Rakesh Kumar Gupta/his family members stated in categorical terms that the purchases made by the assessee were genuine. The assessee also produced evidences to show payment for purchases made by account payee cheques. In the course of the assessment proceedings, the assessee further produced the quantitative statements showing tally of purchases and sales with books of accounts in order to establish the genuineness of purchases. The assessee pleaded that no adverse inference could be drawn against it on the basis of general statement of third party without any specific reference of the assessee and survey action in the case of a third party only. It was contended that no further inquiry was carried out either in the case of assessee or Shri Rakesh Kumar Gupta inspite of the fact that the statement was subsequently retracted in part and purchases made by the assessee were confirmed by the affidavits of these persons (i.e. seller). The Assessing Officer did not accept the stand of the assessee that the purchases were genuine and there was no inflation of purchases. Accordingly, he completed the assessment for A.Y. 2007-08 u/s. 143(3) making addition of Rs. 34,24,522/- u/s. 69 of the Act holding it to be the unexplained investment in the goods purchased.

4. The additions made by the A.O. on account of unexplained purchases/investments were challenged by the assessee in the appeals filed before the ld. CIT(A). Elaborate submissions were made on behalf of the assessee in support of its case on this issue which as summarized by the ld. CIT(A) in his impugned order for A.Y. 2007-08 , were as under:-

“1) The assessee had made genuine purchases and payment were made by A/c payee cheques which were confirmed.

2) Bank confirmations were filed stating that payment were credited in seller’s account.

3) Quantitative tally of purchases, sales and stocks given to AO and also appellate proceeding.

4) Purchases and corresponding sales have been established before AO and also produced before CIT(A) for verification supported by delivery challan.

5) Impugned sellers have confirmed the sales to the assessee in affidavits as well as written communication to the AO.

6) The AO’s case is solely based on general statement of Gupta in the year 2009(which was modified by affidavit) without any reference of any specific person. The AO neither carried out any further inquiry with Gupta or assessee nor provide any opportunity to cross examine Gupta inspite of request.

7) As per recent decision of jurisdictional ITAT Mumbai in the case of free India Assurance Services Ltd. vs. DCIT(62 DTR - 349-Mumbai year 2011) in similar cases no addition can be made if payments were made by the A/c Payee cheques in case of a accommodation Purchases.”

It was also submitted as an alternative contention by the assessee before the ld. CIT(A) that the entire purchases treated as unproved by the A.O. could not be added to its total income and the addition on this issue should be restricted only to the extent of some percentage as done by the ld. CIT(A) in the case of other assessees wherein similar issue was involved.

5. After considering the submissions of the assessee, the ld. CIT(A) decided this issue vide para No. 4 to 4.2 of his impugned order for A.Y. 2007- 08 as under:-

“4. I have gone through the assessment order as well as the submissions given by the assessee and also judicial pronouncements of Honbie ITAT’s and Hon’ble High Court and decisions of Ld. CIT(A) of Mumbai region as relied upon by the id. AR and issue in dispute is adjudicated in light thereof. It is seen that in this case sales are identifiable and quantitative tally was available on record. The rejection of alleged disputed purchases is based on the general statement of the third party made in the year 2009 without any reference to the assessee or any specific person where as instant year is 2006-07. The said persons were neither made available for examination or cross examination nor the material found from the third party was made available to the assessee inspite of request from the assessee. However, before their AO, the said three parties have confirmed by written communication that they had sold the said goods to the assessee. The said parties had retracted their statements in part subsequent to survey action by written communications. They also furnished affidavits before their A.O. confirming genuine sale to certain parties. All the above mentioned 3 persons have filed affidavits stating that as far as assessee is concerned these persons actually made the sales to the assessee and consequently purchases made by the assessee were genuine. The assessee had shown that the items shown to be purchased from these 3 concerns which were disputed by the AO, have been duly recorded in books of accounts and sold by the assessee to other persons/retailers or are part of closing stock, and this facts has been brought on record by the assessee even during the course of assessment proceedings and remand proceeding and this fact remains uncontroverted even now as of date. It is undisputed that no survey action or any further inquiry was carried out in the case of the assessee. It is seen that neither any meaningful inquiry or investigation was carried out either in the case of the assessee or Gupta’s after survey action or during assessment proceeding as well as remand proceeding. The sole reliance was placed on initial general statements of Shri Rakeshkumar Gupta. No counter inquiry or investigation was carried out after retraction. Since the assessee furnished quantitative tally of purchases, sales and stock, the AO had observed on page 8 of assessment order itself that the assessee might have purchased goods from some other parties and to set right the records, the assessee obtained accommodation purchase bills. Hence, this clearly establishes that there were purchases by the assessee (although now disputed) and its consequent sales, which had been offered for taxation by the assessee. In given facts the AO could not have treated the entire purchases of Rs. 34,24,522/- as unexplained when AO had observed on page 8 of the assessment order itself that these purchases could possibly have been made from other parties. The facts and decision in the case of Free India Assurance Pvt. Ltd. vs. DCIT by the Hon’ble jurisdiction ITAT, Mumbai (62DTR 349-mumbai 2011) did not allow any addition or disallowance in such facts. Thus, the issue to be decided is that in such cases where one party initially denying the sales by general sweeping statement in peculiar circumstances without referring to any specific person after 2 years and that too in survey and the other party affirms of having received the goods and of having made the payments by account payee cheque and subsequently of having sold to 3rd parties and accounting these sales/closing stock as income, can the entire purchases be added back as unexplained or only an adhoc addition, if at all, be made to cover the leakage. However, facts of the case are more favourable to the assessee for the reason that the said parties had confirmed sales to the assessee by affidavits and receipts of purchase price was by account payee cheque. More so, these parties were not examined or cross examined either during the course of assessment proceedings or remand proceedings inspite of assessee’s requests. The irregularities carried out by the said sellers cannot be imposed upon the assessee because the assessee cannot exercise control over third party.

4.1 In my opinion, keeping in view the totality of facts and circumstances of the case, although the purchases from Mr. Rakesh kumar Gupta, proprietor of Manoj Silk Mills, Mrs. Hema Gupta, proprietress Shree Ram Sales & Synthetics and Mr. Mohit Gupta, the proprietor of Ashta Silk Industries are disputed, but when the assessee has sold these very items and accounted for as sales/closing stock and consequential income offered for taxation — the only addition to be made can be for possible leakage relating to purchases, as they have become the subject matter of dispute i.e. whether assessee in fact purchased from one Mr. Rakesh kumar Gupta, proprietor of Manoj Silk Mills, Mrs. Hema Gupta, proprietress of Shree Ram Sales & Synthetics and Mr. Mohit Gupta, proprietor of Astha Silk Industries or from some other parties or from the open market and then effected the sales. Otherwise, the corresponding sales/closing stock has to be reduced which will give absurd results of negative income. The issue has another facet also. The AO had made the addition u/s. 69 of the Act for these disputed purchases. For the sake of clarity, section 69 of the I.T. Act is reproduced below:

Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of investments or the explanation offered by him is not, in the opinion of the AO, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year From the above, it can be seen that addition u/s. 69 cannot be made in the case of the assessee as the purchases effected by the assessee are recorded and accounted in the books of accounts. Here is not a case where the investments/purchases are not recorded in the books of accounts. Therefore, no addition u/s. 69 can be made in the given facts of the case. However, it is true that according to the AO the purchases shown by the assessee from the aforesaid parties are in doubt as the counter parties are stated to be ‘accommodation bill provider’. At the same time the sales/closing stock shown by the assessee have not been doubted by the AO. The GP rate disclosed by the assessee is not doubted. It is not the case of the AO that the GP rate is low in comparison of other assessee’s or proceeding years. The quantitative tally of purchases and sales / stock could not be rebuted. Similarly the AO had accepted the existences of purchases in quantity, albeit not from the ‘Guptas’. Therefore, the logical corollary of this is that purchases have been made by the assessee perhaps may not be from the parties from whom he has shown the purchases as stated by the A.O. or concern parties might have given delivery of goods through others. So long as sales/closing stock are not proved as bogus, the existence of purchase cannot be denied. If the purchases are not effected rough Shri Rakeshkumar Gupta & others, one logical inference that can be drawn as also drawn by the AO is that the same might have been made from the open market/unregistered dealers and then covered by the bills taken from Shri Rakeshkumar Gupta & others. There is another possibility that these parties (i.e. Gupta’s) might have provided the goods through open market or other sellers who sells goods without bills or in cash. In fact the said parties had stated in affidavit that their purchases were in cash and sold to the assessee. One cannot deny that goods in grey market i.e. without bill and by cash is available at lesser price. Such type of trading is well prevailing and known. It is a matter of common knowledge that goods are also sold by one party without taking delivery in own godown, i.e. delivery through other party. Such type of indirect trading is prevailing by charging 1 to 2 percentage commission and assessed as such in so many cases. The accounts of the assessee are audited. The audit report contains quantitative details of closing stock followed by meter wise details of opening stock, purchases, sales and closing stock (in assessment proceedings). During the course of assessment proceedings the assessee had furnished quantitative tally of stock, purchases and sales. The ‘assessee’ also produced delivery challans. Even during the course of appellate proceeding trail of purchase and corresponding sales was demonstrated randomly. The payments have been made by account payee cheques and bank also certified thereto. There is no evidence on record that the payments made by the assessee have come back to him in cash. The assessee is able to correlate purchases with corresponding sales/closing stock. The AO has merely relied upon the general statement of Shri Rakeshkumar Gupta and others which was subsequently retracted in part by way of written communication and affidavits. Therefore, in my considered view the purchases shown by the assessee cannot be held to be bogus or non est (non existence) purchases SQ long as the sales/closing stock shown by the assessee are not held bogus. It is not the case of the AO that the sales/closing stocks shown by the assessee are unproved and bogus. Therefore, the addition made on account of disputed purchases of Rs. 34,24,522/- cannot be sustained. As stated above, the one possible logical inference can be that the assessee might have made purchases from open market through these parties (the AO himself had stated so in assessment order) and obtained accommodation bills from the aforesaid concerns which might have resulted in reduced GP on sale of such items as compared to others. There is also possibility of delivery of goods from other party in grey market arranged by the said disputed sellers. Under such facts and in the circumstances of the case, the only addition that can be made is on account of estimation of profits on such purchases covering the GP difference between the purchases made from Manoj Mills, Astha Silk Industries and Shree Ram Sales & Synthetics and other parties and other leakage of revenue, if any. In this case, the dispute is limited to purchases from aforesaid three parties and entire disallowance of purchases from these parties cannot be sustained for reasons discussed in hereinabove and in preceding paras. The judicial pronouncements rendered by Hon’ble High Court and Hon’ble I.T.A.T relied upon by the assessee as reproduced in para 3.3 of this order did not upheld the addition in given facts. However, the decisions of different 5 Commissioners of Income-tax (Appeals) as relied upon by the Ld. A.R. and summary reproduced in para 3.4 of this order are based on identical facts i.e. purchases from these parties only and therefore I am of the considered view that the same should be followed which takes care of leakage, if any.

4.2 In light of facts and circumstances of the case discussed hereinabove and judicial decisions and orders of different Commissioners of Income-tax (Appeals) relied upon by the assessee, estimate of profit @ 10% of disputed purchases will be fair and reasonable to cover up the difference of GP of purchases from Manoj Mills, Astha Silk Industries and Shree Ram Sales & Synthetics and from other parties as well as to plug any leakage of revenue. Therefore, addition @ 10% of disputed purchases i.e. Rs. 3,42,452/- (rounded off to Rs. 3.43,000/-) is confirmed and balance amount of addition is deleted. In terms of discussion made as above, the assessee gets partial relief accordingly.

The ld. CIT(A) thus restricted the addition made by the A.O. on account of unproved purchases/investments to 10% of the disputed purchases in A.Y. 2007-08 and followed the said order in the remaining assessment years i.e 2005-06, 2006-07 and 2008-09 to restrict the additions to 10% disputed purchases. Aggrieved by the orders of the ld. CIT(A), the assessee and Revenue both are in appeals before us.

6. The addition to ground No. 1 raised originally inn its appeal on this issue, the Revenue has also raised a common additional ground in its appeals for assessment years 2006-7, 2007-08 & 2008-09 which reads as under:-

On the facts and in the circumstances of the case, the Ld. CIT(A) after having accepted the fact that the purchase made from or through Shri Rakesh Kumar Gupta and his family members are bogus, erred in law in not confirming the addition at least to the extent of peak of the purchases made from such parties on account of bogus purchases made in cash from the open market out of unaccounted cash, in view of the decision held in Ahmedabad Hon’ble ITAT’s C- Bench decided in the case of Vijay Proteins Ltd. vs. ACIT 58 ITD 428.

“8. We have carefully considered the rival submissions in the light of material placed before us. It will be relevant to reproduce the letter received by the AO from Shri Rakesh Kumar Gupta, which is also reproduced in the assessment order:

“I am in receipt of your summons u/s. 131 of the I.T.Act. 1961 in the case of M/s. Jitendra Harshad Kumar Textile Pvt. Ltd. asking me to attend before your goodself with the details of my account with the said M/s. Jitendra Harshad Kumar Textile Pvt. Ltd. for A.Y.2002-03 & 2007-08.

As you are aware that my assessing officer had recorded alleged statement u/s. 133A and 131 of the I.T.Act. 1961 1 have been receiving witness summons from all four corners of the city on the ground that I have given accommodation bill, though I have denied the content of the statements recorded by A.O. u/s. 133A & 131 vide my letter dated 27.4.2009 and my affidavit dated 20.2.2009 submitted to ward 14(3)(2). It is physically impossible for me to attend before various income tax authorities, as I am not feeling well, it will not possible for me to attend before your goodself in response to your above mentioned summons.

As regards M/s. Jitendra Harshad Kumar Textiles Pvt. Ltd. is concerned. I have already given my affidavit wherein I have specifically stated that I have sold the goods to M/s. Jitendra Harshad Kumar Textiles P. Ltd. and the consideration is received to me by cross order cheque. Copy of the said ledger account is already submitted the department.”

8.1 From the above letter it is clear that the same was written in response to notice issued by the AO. Not only Shri Rakesh Kumar Gupta has stated that he has retracted from the statement recorded during the survey but also filed an affidavit dated 20/2/2009 and letter dated 27/4/2009 to deny the statement made during the survey under section 133A. He has further confirmed that the sales made by the assessee were effected and the consideration was received by cross order cheques. Thus it is clear that there is no material on record to say that the purchases made by the assessee from the said concern were bogus except the general statement recorded by the Department in the case of Shri Rakesh Kumar Gupta, which was later on retracted. In absence of any material brought on record against the submissions made by Shri Rakesh Kumar Gupta in his letter dated 20/12/2009 filed before the AO of the assessee the addition, if any, made in the case of the assessee will be based on presumption only and it cannot be sustained in the eyes of law. As against that assessee has submitted various evidences to show that the actual delivery of the goods was received by the assessee from the said party which has not been discarded by the AO. The addition sustained by Ld. CIT(A) is also on presumption basis. Therefore, keeping in view the facts and circumstances of the case, we are of the opinion that additions made by the AO deserves to be deleted in its entirety. We decide accordingly.”

8. The above decision of the Tribunal in the case of Jeetendra Harshadkumar Textiles has been subsequently followed by the Tribunal to decide a similar issue in favour of the assessee in the case of M/s Pramit Textiles vs. ITO (ITA No. 3948 to 3953/Mum/2012 and to 4015 and 4020 to 4021/Mum/2012 dated Ist October, 2013). As the issue involved in the present case as well as all the material facts relevant thereto are similar to the case of Jeetendra Harshadkumar Textiles and M/s Pramit Textiles (supra), we respectfully follow the orders of the co-ordinate Benches of this Tribunal in the said cases and delete the entire addition made by the A.O. on account of unexplained/unproved purchases in all the four years under consideration. Ground No. 1 of assessee’s appeal for assessment years 2005- 06, 2006-07, 2007-08 & 2008-09 is accordingly allowed whereas ground No. 1 of the Revenue’s appeal for assessment years 2006-07, 2007-08 and 2008- 09 is dismissed.”

2.4. We are also reproducing hereunder the relevant portion from the order dated 27/05/2015 for ready reference in the case of M/s Neeta Textiles (supra):-

The aforesaid appeals have been filed by the assessee as well as Revenue against separate impugned order of even date 02- 09-2013, passed by the ld. CIT(A)- 25, Mumbai for quantum of assessment passed u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 for the assessment years 2005-06, 2007-08 and 2008-09.

2. Since common issues are involved in all these appeals, therefore, they were heard together and are being disposed off by way of this consolidated order for the sake of convenience. For ready reference, the cross appeals for A.Y. 2005-06 is being taken up as lead appeal.

2. Your Appellant, therefore, prays that the addition of Rs.1,17,624/- should be deleted.”

Whereas grounds raised by the Revenue for A.Y. 2005-06 read as under:-

“The Ld.CIT(A) has erred in law as well as on fact by not sustaining addition u/s 69 after having accepted the finding in principle that the purchases were made from undisclosed/unverifiable/ unidentifiable parties in the grey market by investing in cash and the purchases from the group concerns of Shri Rakesh Gupta & family were only accommodation entries and not actual purchases.

2. On the facts and In the circumstances of the case, the Ld.CIT(A) after having accepted the fact that the purchases made from 0 through Shri Rakeshkumar Gupta and his family members are bogus, erred in law in not confirming the addition at least to the extent of peak of the purchases made from such from such parties on account of bogus purchases made in cash from the open market out of unaccounted cash, in view of the decision held by the Hon'ble ITAT's C-Bench, Ahmedabad, in the case of VIJAY Proteins Ltd.”

(i) ITA No. 3142/M/12, ITA No. 4349/M/12, ITA No. 3143/M/12, ITA No. 4350/M/12, ITA No. 3144/M/12 & 4351/M/12 order dated 13-11-2013 in the case of M/s Jitendra Harshadkumar vs. ACIT & vice versa.

(ii) to 3953/M/12, ITA No. 4012 to 4015 to 4021/M/12 order dated 01-10-2013 in the case of Pramit Textiles vs. ITO & vice versa.

(iii) to 3967/M/12, ITA No. 4022 to 4024/M/12, ITA No. 4025/M/12 & ITA Nos. 3944,3955 and 5065/M/12 in the case of C. Chotalal & Co. vs. ITO and vice versa.

“I have perused the assessment order, remand report, written submissions of appellant, and the facts and circumstance of the case. On plain reading of the assessment order, I find that the AO has basically relied on the statements recorded of Shri Rakeshkumar M. Gupta & others during the course of survey action u/s 133A and subsequently re-affirmed on oath u/s 131 of the Act, to make additions in hands of purchaser party i.e. the appellant in this case. The said additions are made based on documents impounded during survey proceedings to arrive at total purchases made by appellant during the year at Rs. 20,10,972/-. However, the appellant has submitted the break-up of its purchases from Gupta party (Rs. 11,76,242/- & NonGupta party (Rs. 11,71,970/-) aggregating to Rs. 23,48,212/-, which figure also tallies with the purchase figure shown in its P&L account. Further, the appellant has submitted ledger statement of Gupta party (M/s Astha Silk Industries) in its books showing total purchases at Rs. 11,76,242/-. In these circumstances, even assuming the entire purchases from Gupta party is to be treated as bogus, the additions on that account cannot exceed Rs. 11,76,242/-.

6.1 Further observe that the appellant has not maintained the stock register. However, since it has shown sales of Rs. 25.44 lakhs, as against purchases of Rs. 23.48 lakhs in its P&L account, it has to be accepted that there can be no sales without corresponding purchases, and when the sale of appellant is not disputed, the additions of entire alleged purchases is also not justified.

6.2 A logical conclusion which may be drawn in such situation is that the appellant has recorded some sales in its books of accounts which materials might have been purchased by it in grey market without bills, and to regularize such purchases in grey market, the appellant might have taken accommodation bills from the said parties for purchase of specified material. The AO has not denied such possibility by quoting the words "hawala purchases/ or to accommodate the purchases made out of the books" in para 17 of the assessment order. In these circumstances, the additions can only be made at certain percentage of GP/ NP or at an adhoc amount, in consonance with the appellate orders of various CITs(A) in cases of purchases from Mr. Rakeshkumar Gupta, the copies of which are submitted by the appellant.

6.3 Looking at the facts and circumstances of the case as a whole, I am of the considered view that the cause of justice would be met by making addition at 10% of such purchases in order to fill in the gap of difference of GP in recording the said purchases as well to plug any leakage of revenue. The AO has made additions of alleged purchases from Gupta party at Rs. 20,10,972/-, however as discussed above, the said purchases are accepted at Rs. 11,76,242/-. Hence, the additions is restricted to 10% of said purchases of Rs. 11,76,242/- i.e. Rs. of Rs. 1,17,624/- and the balance addition of Rs. 18,93,348/- (i.e. 20,10,972/- - 1,17,624/- is deleted.”

7. Against this, both assessee as well as Revenue have preferred these appeals before us.

7. We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that a similar issue involving identical facts has already been considered and decided in favour of the assessee by the Mumbai “I Bench of this Tribunal in the case of Jeetendra Harshadkumar Textiles (ITA No. 771 & 2211/Mum/2011 dated 21-11-2012) vide para 8 & 8.1 which read as under:-

“8. We have carefully considered the rival submissions in the light of material placed before us. It will be relevant to reproduce the letter received by the AO from Shri Rakesh Kumar Gupta, which is also reproduced in the assessment order:

“1 am in receipt of your summons u/s. 131 of the I.T.Act. 1961 in the case of M/s. Jitendra Harshad Kumar Textile Pvt. Ltd. asking me to attend before your goodself with the details of my account with the said M/s. Jitendra Harshad Kumar Textile Pvt. Ltd. for A.Y.2002-03 & 2007-08.

As you are aware that my assessing officer had recorded alleged statement u/s. 133A and 131 of the I.T.Act. 1961 1 have been receiving witness summons from all four corners of the city on the ground that I have given accommodation bill, though I have denied the content of the statements recorded by A.O. u/s. 133A & 131 vide my letter dated 27.4.2009 and my affidavit dated 20.2.2009 submitted to ward 14(3)(2). It is physically impossible for me to attend before various income tax authorities, as I am not feeling well, it will not possible for me to attend before your goodself in response to your above mentioned summons.

As regards M/s. Jitendra Harshad Kumar Textiles Pvt. Ltd. is concerned. I have already given my affidavit wherein I have specifically stated that I have sold the goods to M/s. Jitendra Harshad Kumar Textiles P. Ltd. andthe consideration is received to me by cross order cheque. Copy of the said ledger account is already submitted the department.”

8.1 From the above letter it is clear that the same was written in response to notice issued by the AO. Not only Shri Rakesh Kumar Gupta has stated that he has retracted from the statement recorded during the survey but also filed an affidavit dated 20/2/2009 and letter dated 27/4/2009 to deny the statement made during the survey under section 133A. He has further confirmed that the sales made by the assessee were effected and the consideration was received by cross order cheques. Thus it is clear that there is no material on record to say that the purchases made by the assessee from the said concern were bogus except the general statement recorded by the Department in the case of Shri Rakesh Kumar Gupta, which was later on retracted. In absence of any material brought on record against the submissions made by Shri Rakesh Kumar Gupta in his letter dated 20/12/2009 filed before the AO of the assessee the addition, if any, made in the case of the assessee will be based on presumption only and it cannot be sustained in the eyes of law. As against that assessee has submitted various evidences to show that the actual delivery of the goods was received by the assessee from the said party which has not been discarded by the AO. The addition sustained by Ld. CIT(A) is also on presumption basis. Therefore, keeping in view the facts and circumstances of the case, we are of the opinion that additions made by the AO deserves to be deleted in its entirety. We decide accordingly.”

8. The above decision of the Tribunal in the case of Jeetendra Harshadkumar Textiles has been subsequently followed by the Tribunal to decide a similar issue in favour of the assessee in the case of M/s Pramit Textiles vs. ITO (ITA No. 3948 to 3953/Mum/2012 and to 4015 and 4020 to 4021/Mum/2012 dated Ist October, 2013). As the issue involved in the present case as well as all the material facts relevant thereto are similar to the case of Jeetendra Harshadkumar Textiles and M/s Pramit Textiles (supra), we respectfully follow the orders of the co-ordinate Benches of this Tribunal in the said cases and delete the entire addition made by the A.O. on account of unexplained/unproved purchases in all the four years under consideration. Ground No. 1 of assessee’s appeal for assessment years 2005-06, 2006-07, 2007-08 & 2008-09 is accordingly allowed whereas ground No. 1 of the Revenue’s appeal for assessment years 2006-07, 2007-08 and 2008-09 is dismissed.

2.5. We note that in the aforesaid cases, the one of the suppliers/party is alleged to be the firm Shri Rakesh Kumar Gupta, (proprietor of Manoj Mills ) and other group concerns, wherein, survey action u/s 133 of the Act was carried out. Statement of Shri Rakesh Kumar M. Gupta was recorded, wherein, he tendered that he was providing accommodation sale bill for the purchases and later on retracted the statement in written communication to the Assessing Officer. The facts are identical in the present appeal also. Following the aforesaid decisions of the Co- ordinate Benches and in the absence of any contrary decisions, the appeals of the Revenue are having no merit.

2.6. So far as, the cross objections of the assessee is concerned, since, identical issue has been deliberated upon and no merit was found with respect to retaining even 10% against which the assessee is in cross objections, we allow the cross objection of the assessee as the part addition was retained simply to cover up the leakage of the revenue, if any. This issue has been deliberated upon by the Tribunal in the case of M/s Neeta Textiles vs ITO (ITA No.1638/Mum/2013 etc.) order dated 27/05/2015, wherein, confirmation of addition to the extent of 10% was challenged by the assessee and the Tribunal vide aforesaid order dated 27/05/2015 decided in favour of the assessee. Even otherwise, no concrete finding has been given by the ld. Commissioner of Income Tax (Appeals) even retaining the addition to the extent of 10% out of ad-hoc addition which was merely based upon the statement that too was retracted and no further enquiries were carried out in the case of the assessee or in the case of Shri Rakesh Kumar Gupta. Even otherwise, mere statement cannot be the basis of addition unless and until it is co-related with evidence, if any found from the premises, during survey. Thus, the Cross objections of the assessee are allowed.

Finally, the appeals of the Revenue are dismissed and the cross objections of the assessee are allowed.

This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 09/02/2016.