ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-4, LUDHIANA, AAYAKAR BHAWAN V. SHAKTI INDUSTRIES, -

ITA 178/CHANDI/2024

AI Insights

The case involves an appeal by the Revenue against the order of the CIT(A) which had deleted the addition made by the AO on account of alleged bogus purchases by the assessee, M/s Shakti Industries. The AO had initially made the addition based on a statement from Shri Ram Parkash Bhatia, an alleged entry provider, who admitted to providing only accommodation entries. The CIT(A) found that the AO had not properly considered the evidence provided by the assessee, which included detailed records of purchases and sales, and that the statement of Shri Bhatia lacked independent evidentiary value as it was not taken under oath and the assessee was not allowed to cross-examine him. The Tribunal agreed with the CIT(A) and dismissed the Revenue's appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 314640 (ITAT-CHANDIGARH)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Other Referred Cases: Prime Steel Industries Pvt. Ltd. Vs DCIT, Ganesh Dass Piara Lal Jain Vs ITO, PCIT Vs Shapoorji Pallonji and Co. ltd., SEL Manufacturing Co. Ltd. Vs DCIT, Jatinder Kumar Jain Vs ITO, Manoj Sharma Vs ITO, CIT Vs S.Khadar Khan Son, Paul Mathews & Sons Vs. CIT, Pullangode Rubber Produce Co. Ltd. v. State of Kerala, CIT Vs S.Khadar Khan Son, Andaman Timber Industries V CCE
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KUSUM BA NSAL
• Assessee Lawyers: NAVNEET SEHGAL
• Keywords: Business income; Question of law; Cost of acquisition; Bogus purchase; Principle of natural justice; Search and seizure; Accommodation entries; Block assessment; Bogus
• Section: 148; 143(3); 142(1); 131; 133(6); 69C; 133A

Judgement Text

"आयकर अपील य अ धकरण , च\u0010डीगढ़ \u0014यायपीठ , च\u0010डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, ‘B’ CHANDIGARH BEFORE SHRI RAJPAL YADAV, VICE PRESIDENT AND SHRI KRINWANT SAHAY, ACCOUNTANT MEMBER आयकर अपील सं/. ITA No. 178/CHD/2024 नधा\u0011रण वष\u0011 / Assessment Year: 2013-14 The ACIT, Circle – 4, Ludhiana. Vs M/s Shakti Industries, Jagera Road, Ludhiana. \u0016थायी लेखा सं/.PAN NO: ABAFS2012H अपीलाथ\u001a/Appellant \u001b यथ\u001a/Respondent Assessee by : Shri Navneet Sehgal, CA Revenue by : Smt. Kusum Bansal, CIT DR Date of Hearing : 23.04.2025 Date of Pronouncement : 07.05.2025 HYBRID HEARING O R D E R PER RAJ PAL YADAV, VP The Revenue is in appeal before the Tribunal against the order of the ld. Commissioner of Income Tax (Appeals) [in short ‘the CIT (A)’] dated 27.12.2023 passed for assessment year 2013-14. ITA 178/CHD/2024 A.Y. 2013-14 2 2. The grounds of appeal taken by the Revenue read as under: “1. That the Ld. C1T (A) NFAC New Delhi has erred in ignoring the fact that Shri.Ram Prakash Bhntia under oath explained the modus operandi of bogus billings and that he provided bogus billscal to the assessee (One of the beneficiary of the accommodation entry nexus) through various business concerns managed by him and earned commission for the same. 2. That the Ld. CIT(A) has erred in not appreciating the facts that there was no response u/s 133(6) from any of the parties - M/s Chaudhary Company, M/s Chaudhary Traders, M/s Jai Bharat Foods, M/s Pankaj Mart Pvt. Ltd., M/s Prakash Foods, M/s Punjab Foods seeking details w.r.t. M/s Shakti Industries and the concerns itself. 2.1 That the Ld. CIT(A) has erred in not appreciating the facts that the above mentioned firms are having the same PAN number which are managed by Shri Ram Prakash Bhatia from whom the assessee has stated to have made the purchases. 3. Ld. CIT(A) has erred in not appreciating the fact that res-judicata does not apply to the Income Tax Proceedings. 4. That the Appellant craves, leave for permission to add, amend, or alter any ground of appeal at the time of hearing. 3. Though Revenue has taken four grounds of appeal alongwith sub-grounds, but in brief, the solitary grievance of the Revenue is that ld. CIT(A) has deleted the addition of Rs.8,61,59,727/- which was added by the AO with the aid of Section 69C by disallowing the purchase expenditure. 4. The brief facts of the case are that assessee has filed its return of income on 28.09.2013 declaring a total income of ITA 178/CHD/2024 A.Y. 2013-14 3 Rs.17,80,010/-. The assessment of the assessee was made under Section 143(3) on 31.12.2015. The AO has received information that assessee has made purchases from various concerns of alleged entry providers Shri Ram Parkash Bhatia. A survey was carried out at the premises of M/s Jai Bharat Foods, M/s Choudhary & Co. and M/s Punjab Food, managed and controlled by Shri Ram Parkash Bhatia. In his statement, he admitted that he has not sold anything, rather provided the bills. Armed with that information, the assessment of the assessee is reopened by issuance of a notice under Section 148 on 31.03.2021. Simultaneously, assessment for assessment year 2012-13 was also reopened. 5. In response to the notice of hearing under Section 148 of the Income Tax Act, assessee has filed its return of income and declared the same income as was declared under Section 139(1) of the Income Tax Act. The notices under Section 143(2) and 142(1) were issued upon the assessee. The AO has gone through the record carefully. He observed that during the course of survey, statement of Shri Ram Parkash Bhatia was ITA 178/CHD/2024 A.Y. 2013-14 4 recorded on 08.08.2014 under Section 131(1A) of the Income Tax Act. Shri Ram Parkash Bhatia ‘on oath’ has deposed that purchases allegedly made from his six concerns are not genuine. He has provided only accommodation entries. Ld. AO has taken note of these purchases in paragraph No.4.3 at page 4 of the assessment order. Thereafter, he observed that he has called for information under Section 133(6) of the Income Tax Act vide its notice dated 11.03.2022 but none of the supplier has responded to this notice of the AO. Accordingly, AO has passed the assessment order. He disallowed the purchase cost from these concerns and made an addition of Rs.8,61,59,727/-. 6. Dissatisfied with the above, assessee carried the matter in appeal. It has filed written submissions which has been reproduced by the ld. CIT(A) in the detailed order running into 46 pages. He deleted the addition made by the AO. 7. Dissatisfied with the order of the CIT(A), Revenue is in appeal before the Tribunal. The ld. CIT-DR has relied upon the assessment order. She emphasized that if statement of Shri Ram Parkash Bhatia is being perused, then it would be ITA 178/CHD/2024 A.Y. 2013-14 5 implicitly clear that he has not supplied any goods to the assessee through his six concerns and therefore, the deduction of cost of alleged bogus purchases is not to be allowed to the assessee. She took us through complete statement of Shri Bhatia. She submitted that ld. CIT(A) has erred in deleting the addition whereas AO has rightly disallowed the purchase cost to the assessee. 7.1 The ld. Counsel for the assessee, on the other hand relied upon the order of the ld. CIT(A) and also took us through the Paper Book running into 254 pages. He submitted that complete details have been produced before the AO for buttressing the case of the assessee. He also relied upon order of the ITAT in the case of Prime Steel Industries Pvt. Ltd. Vs DCIT rendered in ITA 275/CHD/2024 wherein similar additions have been deleted. He also relied upon following decisions : i) Ganesh Dass Piara Lal Jain Vs ITO 82 taxmann.com 354 (Chandigarh-Tribunal) ii) PCIT Vs Shapoorji Pallonji and Co. ltd. 141 taxmann.com 509 (S.C.) ITA 178/CHD/2024 A.Y. 2013-14 6 iii) SEL Manufacturing Co. Ltd. Vs DCIT 162 taxmann.com 904 (Chandigarh-Tribunal) iv) Jatinder Kumar Jain Vs ITO 142 taxmann.com 234 (Chandigarh-Tribunal) v) Manoj Sharma Vs ITO 103 taxmann.com 105 (Delhi- Tribunal ) 8. We have duly considered the rival contentions and gone through the record carefully. A perusal of the record would indicate that whole dispute revolves around two sets of circumstantial evidences. On the one hand, copy of the audited accounts of the assessee which include total purchase and total sales during the year, not only from these six concerns but a large number of other individuals/entities, the details of payments through banking channel, details of VAT and Central Excise on the goods purchased by the assessee and the total sales made by it. The assessee has paid Central Excise at the barrier of the Punjab for arrival of the goods, the details of the vehicles vide which goods have been transferred, the profit ratio comparison between this assessment year and earlier years in the line of assessee's business. ITA 178/CHD/2024 A.Y. 2013-14 7 8.1 On the other hand, the AO is armed with a statement of one of the supplier of the assessee amongst other and such statement was taken during the course of survey. The evidentiary value of this statement in comparison to voluminous evidence produced by the assessee is to be weighed and then it is to be find out whether scale would tilt in favour of the assessee as has been accepted by the CIT(A) or in favour of the AO. 9. Let us first deal with the statement possessed by the AO. A perusal of this statement would reveal that it was recorded on 08.08.2014 at 5.30. In the proforma, Section 132(4)/133A has been scored off and in place 133(1A) is being mentioned by the Authorized Officer Dr. Vinod Sharma. There is no dispute with regard to the fact that this statement was taken during the course of survey. No doubt, Section 131(1A) is being mentioned in the statement, but whether, the Act authorized the officer to take statement ‘on oath’ during the course of survey under Section 133A. This position has been analytically examined by Hon'ble Chennai High Court in the case of CIT Vs S.Khadar Khan Son reported in 300 ITR 157 (Madras). The ITA 178/CHD/2024 A.Y. 2013-14 8 Hon'ble Court has made reference to the judgement of Hon'ble Kerala High Court in the case of Paul Mathews & Sons Vs. CIT 263 ITR 101. The questions formulated by the Chennai High Court for consideration, which are being reproduced as under : “(i) Whether, on the facts and in the circumstances of the case, the Income-tax Tribunal is right in law in holding that the statement made during a survey under section 133A of the income-tax Act has no evidentiary value ? ii) Whether, on the facts and in the circumstances of the case, the Income-tax Tribunal is right in not considering the fact that the branch contractors' agent account book in which entries were made subsequent to the survey and not found during the survey nor proceed the survey, could be relied upon ? (iii) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in not considering the fact that the voluntary statement made without any coercion or duress given during the course of survey action under section 133A could form the basis of the assessment ?\" 10. A perusal of these questions would indicate that issue before the Hon'ble Court was whether on the strength of the statement recorded during the course of survey and an admission made by the deponent in his statement, addition could be made in the hands of the person upon whom survey was conducted “. After a detailed examination and reference to Section 132, where search is being conducted, Hon'ble Court has replied these questions in favour of the assessee and against the Revenue. We deem it appropriate to take note of ITA 178/CHD/2024 A.Y. 2013-14 9 the observations of the Hon'ble Court on page No. 165 of the Journal, which read as under : “What is more relevant, in the instant case, is that the attention of the Commissioner and the Tribunal was rightly invited to the circular of the Central Board of Direct Taxes dated 10.3.2003 with regard to the confession of additional income during the course of search and seizure and survey operations. The said circular dated 10.3.2003 reads as follows: \" Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing returns of income. In these circumstances, on confessions during the course of search & seizure and survey operations do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income-tax Department. Similarly, while recording statement during the course of search & seizure and survey operations no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely. Further, in respect of pending assessment proceedings also, assessing officers should rely upon the evidences/materials gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders.\" From the foregoing discussion, the following principles can be culled out:- (i) An admission is extremely an important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect and that the assessee should be given a proper opportunity to show that the books of accounts do not correctly disclose the correct state of facts, vide decision of the Apex Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala [(1973) 91 I.T.R. 18]; (ii) In contradistinction to the power under section 133A, section 132(4) of the Income-tax Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income-tax Act. On the other hand, whatever statement is recorded under section 133A of the Income-tax Act it ITA 178/CHD/2024 A.Y. 2013-14 10 is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law, vide Paul Mathews and Sons v. Commissioner of Income-tax [(2003) 263 I.T.R. 101]; (iii) The expression \"such other materials or information as are available with the Assessing Officer\" contained in Section 158BB of the Income-tax Act, 1961, would include the materials gathered during the survey operation under Section 133A, vide Commissioner of Income-tax v. G.K.Senniappan [(2006) 284 I.T.R. 220]; (iv) The material or information found in the course of survey proceeding could not be a basis for making any addition in the block assessment, vide decision of this Court in T.C.(A) No.2620 of 2006 (between Commissioner of Income-tax v. S.Ajit Kumar); [2008] 300 ITR 153 (Mad) (v) Finally, the word \"may\" used in Section 133A (3)(iii) of the Act, viz., \"record the statement of any person which may be useful for, or relevant to, any proceeding under this Act, as already extracted above, makes it clear that the materials collected and the statement recorded during the survey under Section 133A are not conclusive piece of evidence by itself. For all these reasons, particularly, when the Commissioner and the Tribunal followed the circular of the Central Board of Direct Taxes dated 10.3.2003, extracted above, for arriving at the conclusion that the materials collected and the statement obtained under Section 133A would not automatically bind upon the assessee, we do not see any reason to interfere with the order of the Tribunal. Accordingly, finding no substantial question of law arises for consideration, the tax case appeal stands dismissed.” 11. The Hon'ble Kerala High Court has held that whatever statement is recorded under Section 133A, during the course of survey, it has no independent evidentiary value. It is only a corroborative piece of evidence. If Section 133A is being perused, it does not empower the authorized officer to administer the oath and therefore, by scoring off Section ITA 178/CHD/2024 A.Y. 2013-14 11 132(4)/133A from the verification used while recording the statement, does not give a colour to that statement addition admissible in evidence. It is pertinent to note that at the most, this statement could bind the deponent who has given the statement, but it is not a gospel truth to a third person. 11.1 It is pertinent to note that Shri Ram Parkash Bhatia was never put to cross-examination during the assessment proceedings. The assessee had prayed for such an opportunity but he was not produced before the AO for cross-examination. Hon'ble Supreme Court has considered this aspect in the case of Andaman Timber Industries V CCE in Civil Appeal No. 4228 of 2006 dated 02.09.2015 and has given following observation: \"……..According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable.\" ITA 178/CHD/2024 A.Y. 2013-14 12 11.2 According to this judgement, if the deponent was not put to cross-examination, then statement of such a witness cannot be used against the interest of any other person. In the present case, this statement was recorded from the back of the assessee and the assessee was not given an opportunity to cross-examine the deponent. Therefore, the statement is to be excluded from the evidence used against the assessee. If the statement is excluded, then nothing remains with the AO for making the addition. 11.3 Contrary to the above, let us appreciate the details submitted by the respondent. The assessee has submitted that he has produced purchase bills, transport receipts and the State Barrier Certificate where 2% of Central Sales Tax amounting to Rs.17.22 lacs is charged from the assessee. For argument sake, if it is taken that purchases of Rs.861 lacs have not been made by the assessee, then how sales would come to Rs.920 lacs and assessee has paid total Sales Tax i.e. of Rs.72.88 lacs. The sales of the assessee are not being doubted by the AO. If sales are not doubted, then how ITA 178/CHD/2024 A.Y. 2013-14 13 assessee would achieve those sales if purchases are being excluded from that figure. The AO has not appreciated this aspect which has been considered by the ld. CIT(A). The assessee has demonstrated that it has opening stock of mustard at 3615 qtls. It has made purchases of 82202 qtls of mustard and it has produced 82905 qtls. Of oil from the total purchases. It has shown closing stock of 2912 qtls. The purchases from this group is only 24820 qtls. The concerns of Shri Ram Parkash Bhatia might be arranging the mustard from various parts of the State of Haryana and Rajasthan, that is why he might have deposed rightly he is not maintaining any stock. The assessee has placed on record copies of Transport Bills alongwith details of the vehicle number, name and address of the transporters. Such bills are available on page No. 89 to 98 of the Paper Book. The AO has not verified any of these details. 11.4 According to the AO, he has issued notice under Section 133(6) to the alleged suppliers, but perusal of the assessment order would indicate that this notice was issued on 11.03.2022 ITA 178/CHD/2024 A.Y. 2013-14 14 whereas he has passed the assessment order on 31.03.2022. Hardly time of 20 days was there with the AO to collect information from the alleged supplier. If he wants to really cross verify the details, then instead of notice, he should have issued summons under Section 131 of the Income Tax Act. But instead of taking any enquiry, he simply based his finding on the alleged statement of Shri Ram Parkash Bhatia which does not have much independent evidentiary value and such statement was recorded from the back of the assessee. The assessee was not given opportunity to cross examine that statement. It is also important to note that if this disallowance of purchase cost is assessed as income of the assessee, then profit ratio would rise to such a level, which is abnormal in the line as well as of the assessee in earlier years/subsequent years. The revenue has accepted similar profit ratio in subsequent year when re-opening was made on same evidence but no addition was made. Therefore, after perusal of the order of the CIT(A), we are of the view that ld. First Appellate ITA 178/CHD/2024 A.Y. 2013-14 15 Authority has appreciated the facts and circumstances in right perspective and no interference is called for. 15. In the result, appeal of the Revenue is dismissed. Order pronounced on 07.05.2025. Sd/- Sd/- (KRINWANT SAHAY) (RAJPAL YADAV) ACCOUNTANT MEMBER VICE PRESIDENT “Poonam” आदेश क\u0002 \u0003ितिलिप अ ेिषत/ Copy of the order forwarded to : 1. अपीलाथ\u000f/ The Appellant 2. \u0003\u0010यथ\u000f/ The Respondent 3. आयकर आयु\u0014/ CIT 4. िवभागीय \u0003ितिनिध, आयकर अपीलीय आिधकरण, च\u0018डीगढ़/ DR, ITAT, CHANDIGARH 5. गाड फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar "