FANCY WEAR, KHARGHAR V. ITO 24(3)(1), MUMBAI

ITA 1596/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9279 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 21-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGSHEN
• Assessee Lawyers: SANJAY R PARIKH
• Keywords: Bogus purchase; Rejection of books of accounts; Unexplained expenditure; Principle of natural justice; Question of law; Accommodation entries
• Section: 69C; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUM BAI , , BEFORE S/SHRI RAJENDRA, A.M. AND SANDEEP GOSAIN,J.M . ./ ././ ./ ITA NO.1596/MUM/2016 / ASSESSMENT YEAR: 2010-11 ./ ././ ./ ITA NO.1597/MUM/2016 / ASSESSMENT YEAR: 2011-12 M/S. FANCY WEAR 122, MEGH TOWER, 12TH FLOOR, GEN. A.K. VAIDYA MARG, FILM CITY ROAD GOREGAON-E,MUMBAI-400 063. PAN: AACFF 0727 F VS. INCOME TAX OFFICER WARD-24(3)(1), NOW-31(1)(4) MUMBAI. ( / // / APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI M.C. OMI NINGSHEN-CIT-DR ASSESSEE BY: SHRI SANJAY R. PARIKH / // / DATE OF HEARING: 04/08/2017 !' / DATE OF PRONOUNCEMENT: 20.09.2017 , ,, , 1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , ,, , / // / PER RAJENDRA,AM: CHALLENGING THE ORDER DATED 21/01/2016 OF CIT(A)- 42, MUMBAI THE ASSESSEE IS IN APPEAL FOR THE ABOVE MENTIONED TWO ASSESSMENT YEARS (AY.S). TH E ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING OF READYMADE-GARMENTS.AS THE ISSUES INVOLVE D IN BOTH THE YEARS ARE,SO,WE ARE ADJUDICATING BOTH THE APPEALS TOGETHER.THE DETAILS OF DATE OF FILING OF RETURN, INCOME DECLARED, ASSESSED INCOME, DATES OF ASSESSMENT ORDERS ETC. CAN TABULATED AS UNDER :- A.Y. ROI FILED ON INCOME DECLARED ASSESSMENT DT. AS SESSED INCOME 2010-11 14.10.2011 RS.2,15,171/- 26/03/2014 RS.5.51 CRORESS 2011-12 29.09.2011 RS.1,05,187/- 26/03/2014 RS.4.81 CRORESS ITA/1596/MUM/2016-AY.2010-11. BRIEF FACTS: 2. EFFECTIVE GROUND OF APPEAL IS ABOUT DISALLOWANCE 25 % OF TOTAL PURCHASES AND MAKING AN ADDITION OF RS. 1.37 CRORES TO THE TOTAL INCOME OF THE ASSESSEE.THE RETURN,FILED BY THE ASSESSEE, WAS INITIALLY PROCESSED U/S.143(1) OF THE ACT. SUBS EQUENTLY,THE AO RECEIVED INFORMATION FROM THE SALES TAX DEPARTMENT (STD) AS WELL AS FROM DGIT (INV.), MUMBAI THAT THE ASSESSEE HAD RECEIVED ACCOMMODATION EN TRIES PURCHASES FROM SUSP ICIOUS PARTIES.THE AO INITIATED PROCEED -INGS U/S. 147 OF THE ACT,AFTER RECORDING REGIONS T HEREOF. ON REQUEST OF THE ASSESSEE THE AO PROVIDED THE REASONS RECORDED FOR ISSUING THE NOTIC E U/S. 148.HE CALLED FOR VARIOUS DETAILS DURING THE ASSESSMENT PROCEEDINGS. HE OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION THE 1596-97/M/16-FANCYWEAR 2 ASSESSEE HAD DEBITED PURCHASES TOTALLING TO RS. 16. 22 CRORES, THAT PERUSAL OF THE DETAILS SUBMITTED BY THE ASSESSEE ABOUT THE PURCHASES REVEA LED THAT IT HAD PURCHASED GOODS FROM SHREE ENTERPRISES(SE) AND SHREEJI ENTERPRISES (SJE) AMOUNTING TO RS. 1.63 CRORES AND RS. 2.28 CRORES,THAT THE STD HAD CONDUCTED INDEPENDENT ENQUIRIES IN EACH OF THE HAWALA PARTIES AND CONCLUSIVELY PROVED THAT THOSE PARTIES WERE ENG AGED IN THE BUSINESS OF PROVIDING ACCOMMODATION ENTRIES ONLY, THAT THE STD HAD PROVID ED MANY DOCUMENTS WHICH RELATED TO THE ABOVE-MENTIONED PARTIES FROM WHOM THE ASSESSEE HAD MADE PURCHASES, THAT ALL THE DOCUMENTS ESTABLISHED BEYOND DOUBT THAT THOSE PARTI ES DID NOT SUPPLY ANY GOODS TO THE ASSESSEE, THAT THE SUPPLIERS WERE ISSUING BOGUS BIL LS WITHOUT DELIVERING ANY GOODS OR SERVICES, THAT THE PAYMENTS RECEIVED BY THOSE PARTIES WERE RE TURN TO THE ASSESSEE IN CASH AFTER DEDUCTING SMALL COMMISSION. WITH REGARD TO THE NOTICES ISSUED U/S. 133 (6) OF T HE ACT, HE OBSERVED THAT THE POSTAL AUTHORITIES HAD WRITTEN THE NOTICES WITH THE MARK N OT KNOWN OR NOT CLAIMED,THAT THE ASSESSEE WAS ASKED TO PROVIDE THE WHEREABOUTS OF THE PARTIES OR TO PRODUCE THE PARTIES FOR VERIFICATION, THAT INSTEAD OF PROVIDING A NEW ADDRESSES OF THE PA RTIES THE ASSESSEE ITSELF SUBMITTED THE LEDGER OF THE SUPPLIERS, THAT THE SAME COULD NOT BE RELIED UPON AS IT HAD NOT PRODUCED THE PARTIES OR HAD PROVIDED THE NEW ADDRESSES,THAT IT H AD NOT PURCHASED GOODS FROM ABOVE- MENTIONED PARTIES. ACCORDINGLY,THE AGGREGATE OF THE PURCHASES, TOTALLING TO RS. 3.9 CRORES WAS TREATED UNEXPLAINED EXPENDITURE U/S. 69C OF THE ACT AND WAS ADDED TO THE RETURNED INCOME OF THE ASSESSEE. HE FURTHER OBSERVED THAT APART FROM THE ABOVE PURCH ASES FROM ALL PARTIES THE ASSESSEE HAD PURCHASED GOODS FROM TWO MORE ENTITIES NAMELY RIDHI ENTERPRISES (RE) AND VARDHMAN ENTERPRISES(VE) OF RS. 1.01 CRORES AND RS. 55.50 LA KHS, THAT NAMES OF BOTH THE ENTITIES WERE APPEARING ON THE WEBSITE OF THE STD IN THE LIST OF THE DEFAULTERS. HE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE PURCHASES FROM THE ABOVE-MENT IONED TWO PARTIES SHOULD NOT BE TREATED AS NON-GENUINE. IN ITS REPLY,THE ASSESSEE STATED TH AT IT HAD MADE THE PAYMENT TO RE AND VE THROUGH BANKING CHANNELS,THAT THE PARTIES APPEARING IN THE WEBSITE OF STD PER DEFAULTERS ON ACCOUNT OF VIOLATION OF THE PROVISIONS OF THE ACT,T HAT THEY WERE NOT HAWALA OPERATORS. HOWEVER,THE AO OBSERVED THAT THE ASSESSEE HAD NOT P RODUCED THOSE PARTIES BEFORE HIM THOUGH THE COPY OF THE LEDGER WAS PRODUCED. HE HELD THAT P URCHASES MADE, AMOUNTING RS.1.57 CRORES,FROM RE IN VE, WERE NOT GENUINE. INVOKING TH E PROVISIONS OF SECTION 69C OF THE ACT,HE MADE A FURTHER ADDITION OF RS. 1,57, 31,000/ -TO THE INCOME OF THE ASSESSEE. 1596-97/M/16-FANCYWEAR 3 3. AGGRIEVED BY THE ORDER OF THE ORDER,THE ASSESSEE PR EFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA) AND MADE ELABORATE SUBMIS SIONS. HE HELD THAT ASSESSEE WAS A NEW ASSESSEE AND IN THE YEAR UNDER CONSIDERATION IT HAD STARTED ITS BUSINESS, THAT IT HAD CLAIMED ONLY 6 MAJOR SUPPLIERS SELLING GOODS WORTH MORE THA N RS.50,000/- TO IT, THAT SIMILARLY ONLY 3 MAJOR BUYERS OF THE ASSESSEE HAD BOUGHT GOODS FROM IT WORTH MORE THAN RS.1 LAKH FROM IT, THAT THE ACCOMMODATION ENTRY BUSINESS NORMALLY WOUL D HELP BUYER TO NOT ONLY GET A BILL OF PURCHASE TO INFLATE ITS EXPENSES BUT WOULD ALSO HEL P IT TO AVOID PAYMENT OF VAT,THAT THE TAX EVADED WOULD OSTENSIBLY PAY VAT TO THE ENTRY PROVID ERS AND WOULD GET IT BACK IN CASH AND WHEN THE TAX EVADER WOULD COLLECT VAT ON ITS OWN SA LE IT COULD CLAIM A SET OFF WITH THE VAT PAID ON PURCHASES, THAT IN EFFECT OF VAT COLLECTED WOULD BECOME TAX-FREE RECEIPT IN THE HANDS OF THE ASSESSEE, THAT IT HAD CLAIMED TO HAVE PURCHA SED GOODS WORTH RS. 10.51 CRORES, THE ASSESSEE HAD FILED CERTAIN DETAILS TO RELATE IT S PURCHASES WITH SALES.IN THAT REGARD THE FAA OBSERVED THAT IT HAD NOT DECLARED ANY OPENING STOCK OR CLOSING STOCK OF GOODS,THAT IT HAD BASICALLY HANDLED THE PURCHASES OF CLOTHES RACK PRI VATE LTD.,THAT THE PURCHASE BILLS HAD NO INDICATION OF THE SIZE OR DESIGN OR COLOUR OF THE T -SHIRTS,LADIES DENIM,LADIES SHIRTS ETC.ABOUT THE COPIES OF THE ACKNOWLEDGEMENT OF THE RETURNS OF SE AND SJE BY THE STD,HE HELD THAT IT HAD NOT FILED THE EVIDENCE OF FULL PAYMENT OF SALES TAX PAYABLE BY THE SUPPLIERS,THAT THE GENUINENESS OF A TRANSACTION WAS ALWAYS QUESTION OF FACT, THAT PRIMARY ONUS WAS ON THE ASSESSEE TO PROVE THE PURCHASES MADE BY IT, THAT IN THE CASE OF SUSPECT HAWALA DEALERS IT WOULD RELY ON CERTAIN CASE LAWS, THAT A CASE WOULD BE DEC IDED AS PER THE FACTS OF ITS OWN AND THE PRECEDENT WAS ONLY WHAT WAS ANSWERED AFTER RAISING A QUESTION OF LAW, THAT THE CASES RELIED UPON BY THE ASSESSEE WERE DIFFERENT AS FAR AS FACTS ARE CONCERNED. HE MADE A REFERENCE TO CASES OF NIKUNJ EXIMP ENTERPRISES PRIVATE LIMITED ( 372 ITR 619),SIMIT P SETH(356ITR 451), BHOLANATH POLY FAB (P.) LTD.(355 ITR 290),VIJAY PRO TEINS LTD.(58 TAXMANN.COM.44), SRI GANESH RICE MILLS (294 ITR 316), TRISTAR JEWELLERY EXPORTS PRIVATE LTD (ITA/8292/MUM/ 2011,DATED 31/7/2015). HE FURTHER ANALYSED THE CASE S DECIDED BY THE TRIBUNAL. WITH REGARD TO THE CLAIM OF THE ASSESSEE REGARDING THE RIGHT TO CROSS-EXAMINE THE HAWALA DEALERS, HE HELD THAT REQUEST WAS NOT REASONABLE,TH AT THE ASSESSEE HAD FILED ITS RETURN AND CLAIMED THE IMPUGNED DEALERS AS ITS SUPPLIERS, THAT THE DEALERS WERE THE WITNESS OF THE ASSESSEE TO HOME THE ASSESSEE SOUGHT TO JUSTIFY ITS BOOKS OF ACCOUNTS,THAT THE AO HAD MERELY VERIFIED THE CLAIM OF THE ASSESSEE AND FOUND IT TO BE UNTRUE,THAT THE ONUS WAS AGAIN ON THE ASSESSEE TO SUBSTANTIATE THE RETURN OF INCOME,THAT THE AO HAD NOT REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND HAD ALSO NOT BE DISBEL IEVED THE SALES, THAT THE PURCHASES WERE NOT 1596-97/M/16-FANCYWEAR 4 PROVED THOUGH THE ASSESSEE HAD CO-RELATED THE PURCH ASES AND SALES,THAT SUPPLIERS WERE SUSPECT HAWALA DEALERS,THAT THE ALLEGED DEALERS CLAIMED THA T THEY HAD ONLY ISSUED ACCOMMODATION ENTRIES, THAT THE ASSESSEE HAD NOT PROVIDED THE NEW ADDRESSES OF THE SUPPLIERS, THAT THE SALES OF THE ASSESSEE WERE VERIFIED AS SAME WERE TO EXISTING ASSESSEES. REFERRING TO THE DECISIONS OF THE HONORABLE HIGH COURTS OF GUJARAT AND ALLAHABAD, HE HELD THAT AN ADDITION OF 25% OF THE PURCHASE PRICE INVOLVED WAS JUSTIFIABLE. IN SHORT, HE RESTRICTED THE DISALLOWANCE TO RS. 1.37 CRORES AND GIVING A RELIEF OF RS. 4.12 CRORES TO TH E ASSESSEE. 4 .BEFORE US,THE AUTHORISED REPRESENTATIVE (AR) CONTE NDED THAT THE DEPARTMENT AUTHORITIES HAD NOT DOUBTED THE SALES MADE BY THE ASSESSEE, THA T IT HAD PRODUCED ALL THE NECESSARY DOCUMENTS BEFORE THE AO/FAA, THAT SUPPLIERS HAD FIL ED THEIR SALES TAX AND INCOME TAX RETURNS, THAT IT HAD FILED THE CONFIRMATION OF THE SUPPLIERS , THAT THE ASSESSEE HAD ASKED FOR CROSS- EXAMINATION, THAT THE F AA WAS INFORMED ABOUT NOT P ROVIDING THE CHANCE OF CROSS EXAMINATION, THAT THERE WAS A CLEAR VIOLATION OF PR INCIPLES OF NATURAL JUSTICE, THAT MATERIAL RECEIVED FROM THE STD WAS NEVER REVEALED TO THE ASS ESSEE IN SPITE OF THE FACT THAT REQUEST WAS MADE IN THAT REGARD, THAT PAYMENTS WERE MADE THROUG H BANKING CHANNELS, THAT PROVISIONS OF SECTION 69C WERE NOT APPLICABLE TO THE FACTS OF THE CASE, THAT THE SOURCE OF INVESTMENT WERE NEVER IN DOUBT.HE RELIED UPON THE CASES OF ON ANDA MAN TIMBER INDUSTRIES (CIVIL APPEAL NO. 42 TO 8 OF 2006, DATED 02/09/2015),NIKUNJ EXIMP ENT ERPRISES PRIVATE LIMITED (SUPRA), PAREKH CORPORATION UI BUILDING(32 CCH 129),GLORIOUS CLUB P VT.LTD.(39CCH248), SHRI DEEPAK POPATLAL GALA(ITA/5920/MUM/2013 &6203/MUM/2013,DATE D 27/03/2015). THE DEPARTMENTAL REPRESENTATIVE (DR)SUPPORTED THE ORDER OF FAA AND S TATEDDTHAT PROFIT EMBEDDED IN THE ALLEGED BOGUS TRANSACTIONS HAD BEEN RIGHTLY UPHELD BY THE FAA. ON A QUERY BY THE BENCH, ABOUT FILING OF CROSS APPEALS BY THE AO FOR THE ABO VE-MENTIONED ASSESSMENT YEARS, THE DR MADE ENQUIRIES WITH THE AO AND INFORMED THAT NO PEA CE WERE FILED BY THE DEPARTMENT. 5 .WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL BEFORE US AND WILL LIKE TO DECIDE THE MATTER ON THE BASIS OF THE FACTS OF THE CASE UNDER CONSIDERATION.WE ARE AWARE THAT DIFFERENT BENCHES OF THE TRIBUNAL HAVE DEALT THE IS SUE OF BOGUS PURCHASES IN DIFFERENT MANNERS DEPENDING UPON CERTAIN FACTS. BUT,ALL THE MATTERS A RE FACT BASED AND ORDERS ARE LIMITED TO THOSE FACTS ONLY,AS STATED BY THE FAA.IN ONE OF THE CASES ,WHERE ONE OF US WAS PARTY TO THE ADDITION MADE BY THE AO FOR ALLEGED BOGUS PURCHASES,IT WAS H ELD THAT CONSIDERING THE FACTS OF THAT CASE THE ASSESSEE HAD NOT PROVED THE GENUINENESS OF THE TRANSACTION AND THAT THE ORDER OF THE FAA WAS JUSTIFIABLE.BUT IN ANOTHER CASE ADDITION MA DE BY THE AO WERE DELETED DEPENDING ON 1596-97/M/16-FANCYWEAR 5 THE FACTS OF THAT MATTER.IN SHORT,NO CASE CAN BE TR EATED AS A PRECEDENT OF BINDING NATURE,AS FAR AS ALLEGED BOGUS PURCHASES ARE CONCERNED. 5.1. WE FIND THAT IN THE CASE UNDER CONSIDERATION,THE AO HAD ISSUED NOTICE U/S.147 OF THE ACT FROM THE STD AND THE INVESTIGATION WING OF THE DEPA RTMENT,THAT THE ASSESSEE HAD PURCHASED GOODS FROM TWO OF THE ENTITIES WHO WERE CONSIDERED HAWALA-DEALERS BY THE STD,THAT THE NAMES OF TWO MORE ENTITIES WERE APPEARING IN THE LI ST OF THE STD UNDER THE HEAD DEFAULTERS.CONSIDERING THE ABOVE PIECES OF INFORMAT ION,THE AO INITIATED RE- ASSESSMENT PROCEEDINGS AND CALLED FOR VARIOUS DETAILS ABOUT TH E PURCHASES MADE BY THE ASSESSEE.IN RESPONSE,THE ASSESSEE HAD FURNISHED COPIES OF PURC HASE BILLS,DELIVERY CHALLANS,BANK STATEMENTS SHOWING PAYMENTS MADE BY THE PARTIES,CON FIRMATION OF LEDGER ACCOUNTS OF THE SUPPLIERS,SALES TAX RETURNS AND SALES TAX CHALLANS OF THE SUPPLIERS AND THEIR RETURNS OF INCOME. THE AO HAD ISSUED NOTICES U/S.133(6)OF THE ACT TO T HE SUPPLIERS THAT WERE RETURNED BY THE POSTAL AUTHORITIES WITH REMARK NOT KNOWN OR NOT CLA IMED.THE ASSESSEE HAD ASKED FOR CROSS EXAMINATION OF THE SUPPLIERS VIDE LETTER,DATED 24/0 3/2014.THE AO DID NOT FURNISH THE COPY OF THE STATEMENTS OF THE SUPPLIERS TO THE ASSESSEE NOR DID HE ALLOW CROSS EXAMINATION OF THE ENTITIES WHOM HE HAD HELD HAWALA-DEALERS.FINALLY,HE HELD THAT THE PURCHASES MADE BY THE ASSESSEE FROM THOSE PARTIES WERE NOT GENUINE AND T HAT ENTIRE PURCHASES SHOULD BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE.IN THE APPELLATE PROCE EDINGS, THE ASSESSEE REFERRED TO THE COPIES OF THE SALES TAX RETURNS OF THE SUPPLIERS AS WELL A S THE COPIES OF THEIR INCOME TAX RETURNS.IT WAS EMPHASISED THAT THE SALES MADE BY THE ASSESSEE WERE ACCEPTED BY THE AO.THE FAA WAS SPECIFICALLY INFORMED ABOUT NON-FURNISHING OF MATER IAL FOR TREATING THE SUPPLIERS BOGUS.HE REDUCED THE ADDITION TO 25% OF THE PURCHASES. 5.2. WE ARE OF THE OPINION,THAT PRINCIPLES OF NATURAL JU STICE SHOULD ALWAYS BE OBSERVED WHILE FASTENING TAX LIABILITY UPON AN ASSESSEE.THERE IS N O DOUBT THAT REOPENING WAS BASED ON VALID REASONS.THE AO HAD NECESSARY PRIMA FACIE MATERIAL J USTIFYING ISSUE OF NOTICE U/.148 OF THE ACT.BUT,IT IS ALSO NOTEWORTHY THAT MATERIAL WAS AVA ILABLE TO THE AO ONLY AND IT WAS NEVER SHARED WITH THE ASSESSEE.WHEN IT CAME TO KNOW ABOUT THE INFORMATION PROVIDED BY THE STD AND RETURNING OF NOTICES U/S.133(6),IT MADE A REQUE ST FOR CROSS EXAMINING THE PARTIES WHO WERE TREATED AS HAWALA-DEALERS BY THE STD.THE AO WA S RELYING UPON THE INQUIRIES MADE BY THE STD ABOUT TWO OF THE SUPPLIERS I.E. SE AND SJE. IF HE WAS RELYING UPON THE STATEMENTS OF THOSE PARTIES,IT WAS HIS DUTY TO PROVIDE THE COPIES OF THEIR STATEMENTS TO THE ASSESSEE AND TO AFFORD CROSS EXAMINATION OF THE SUPPLIERS.THE AO HA D INCREASED THE INCOME OF THE ASSESSEE FROM RS.2.15 LAKHS TO RS.5.51 CRORESS I.E.ROUGHLY 2 50% ON THE BASIS OF THE INQUIRIES 1596-97/M/16-FANCYWEAR 6 CONDUCTED BY A DIFFERENT AGENCY AND STATEMENTS RECO RDED BY IT.THERE IS NO BAR ON UTILISING THE MATERIAL GATHERED BY OTHER GOVERNMENT AGENCIES AND MAKING ADDITIONS ON THE BASIS OF SUCH MATERIAL.BUT,WHEN THE AO WAS INTENDING TO MAKE SUCH A HUGE ADDITION HOW COULD HE DEPRIVE THE ASSESSEE TO HAVE ACCESS TO THE MATERIAL THAT WA S BEING USED AGAINST IT.THERE IS NO PROVERBIAL WHISPER, ABOUT THE REQUEST MADE BY THE A SSESSEE FOR CROSS EXAMINATION OF THE SUPPLIERS,IN THE ASSESSMENT ORDER.THE AO HAS NOT UT TERED A SINGLE WORD ABOUT IT FOR THE REASONS BEST KNOWN TO HIM.THE BASIC PRINCIPLES OF N ATURAL JUSTICE MANDATE THAT THE ASSESSEES SHOULD NOT BE GIVEN A FAIR CHANCE TO DEFEND ITSELF. E. THEY SHOULD BE SUPPLIED THE MATERIAL THAT IS PROPOSED TO BE USED AGAINST THEM.THUS,THERE IS A CLEAR CUT VIOLATION OF BASICS OF TAX JURISPRUDENCE AS FAR AS PURCHASES MADE FOR SE AND S JE IS CONCERNED. 5.3. NOW,WE WOULD LIKE TO CONSIDER THE FACTS OF TWO OTHE R SUPPLIERS.AS PER THE AO THEIR NAMES WERE APPEARING IN THE LIST OF DEFAULTERS ON THE WEB SITE OF THE STD. HE HAD NO OTHER INFORMATION OTHER THAN THE WEBSITE.DEFAULT OF THE S TD CAN BE ON SEVERAL COUNTS.HOW DOES IT PROVE THAT GOODS PURCHASED FROM THOSE TWO PARTIES W ERE NOT GENUINE. A DEFAULT UNDER THE SALES TAX ACT,IN ITSELF,CANNOT BE EQUATED WITH NON GENUINENESS OF THE TRANSACTION ENTERED BY AN ENTITY WITH OTHER PARTY UNLESS AND UNTIL SOME POSIT IVE CORROBORATIVE EVIDENCE ARE BROUGHT ON RECORD.COLLECTING VAT FROM THE BUYER AND NOT DEPOSI TING IT IN GOVERNMENT TREASURY AT ALL OR NOT DEPOSITING IT ON DUE DATES,NON FILING OF RETURN S,NON PAYMENT OF TAXES OR NON PAYING PENALTY/INTEREST CAN BE SOME OF THE DEFAULTS. WHAT WAS THE EXACT NATURE OF DEFAULT AND HOW IT RESULTED IN ARRIVING AT THE CONCLUSION THAT THE SAL ES MADE BY RE AND VE (1.56 CRORESS)TO THE ASSESSEE WERE NON GENUINE IS NOT KNOWN.EVEN IF IT I S PRESUMED THAT SOMETHING SERIOUS ABOUT THE TRANSACTION WAS AVAILABLE ON THE WEBSITE,THEN T HE FACT IS NOT EMERGING OUT OF THE ASSESS - MENT ORDER.SECONDLY IF THE INFORMATION WAS SO CONCL USIVE,THE ASSESSEE SHOULD HAVE BEEN CONFRONTED WITH IT.IN SHORT,THE ADDITION OF CRORES OF RUPEES WAS MADE,WITHOUT REFERRING TO ANY INCRIMINATING AND BASIC MATERIAL. 5.4. IT IS A FACT THAT ALL THE PAYMENTS TO THE SUPPLIERS HAVE BEEN MADE THROUGH BANKING CHANNELS. NO EVIDENCES HAS BEEN BROUGHT ON RECORD P ROVING THAT THE SUPPLIERS HAD WITHDRAWN CASH IMMEDIATELY AFTER DEPOSITS OF CHEQUES OF THE A SSESSEES.OTHERWISE A PROBABLE PRESUMP - TION COULD HAVE BEEN REACHED THAT THE MONEY TRAIL P ROVED RETURNING OF MONEY TO THE ASSESSEE FROM THE SUPPLIERS.WE ARE AWARE THAT PAYMENT BY CHE QUES IN ITSELF IS NOT CONCLUSIVE. BUT,THE SURROUNDING CIRCUMSTANCES ARE SUCH THAT PROVE THAT THE AO/FAA HAD MADE/ UPHELD THE ADDITION NOT ON EVIDENCE BUT ON SURMISES AND SUSPIC ION.IT IS SAID THAT SUSPICION OF HIGHEST DEGREE CANNOT TAKE PLACE EVIDENCE AND IN THE CASE U NDER CONSIDERATION THE AO/FAA HAVE NOT 1596-97/M/16-FANCYWEAR 7 BROUGHT SUFFICIENT MATERIAL THAT COULD JUSTIFY HUGE ADDITION MADE TO THE INCOME OF THE ASSESSEE. 5.5. THE ASSESSEE HAD SPECIFICALLY,IN THE WRITTEN SUBMIS SIONS,MADE BEFORE THE FAA, HAD STATED THAT THE AO HAD PROVIDED IT THE MATERIAL THAT LED T O ADDITION,THAT CROSS EXAMINATION WAS ALSO NOT ALLOWED.THE FAA.S HAVE ALL THE POWER OF THE AO. HE COULD HAVE CALLED FOR A REMAND REPORT FROM THE AO OR COULD HAVE SUPPLIED THE ASSES SEE THE STATEMENTS OF THE SUPPLIERS,AFTER OBTAINING THE SAME FROM THE AO,SO THAT THE ASSESSE COULD HAVE KNOWN THE BASIS FOR THE ABNORMAL ADDITIONS.BUT,HE HELD THAT THE HAWALA DEAL ERS WERE WITNESS OF THE ASSESSEE AND THAT THEY HAD CLAIMED THAT THEY HAD ISSUED ONLY ACCOMMOD ATION ENTRIES.THE AO HAD REOPENED THE ASSESSMENT ON THE BASIS OF THE STATEMENTS OF THE AL LEGED HAWALA DEALERS AND THE INQUIRIES CONDUCTED BY THE STD.THUS,IT WAS THE AO WHO HAD TAK EN HELP OF THE MATERIAL RECEIVED FROM AN OUTSIDE AGENCY.IT IS NOT KNOWN AS TO WHETHER THE SUPPLIERS HAD MADE A GENERAL STATEMENT OR SPECIFICALLY NAMED THE ASSESSEE TO WHOM THEY HAD IS SUED BOGUS BILLS.IF THE AO HAD CLINCHING EVIDENCE IN FORM OF THE STATEMENTS OF THE HAWALA DE ALERS WHY A COPY OF THEIR STATEMENT WAS NOT GIVEN,IS NOT KNOWN.THE FAA EMPHASIZED THE FACT THAT THE SUPPLIER HAD ADMITTED ISSUING BOGUS BILLS.IF IT WAS SO,THEN AT LEAST,A CHANCE OF CROSS EXAMINING THEM SHOULD HAVE BEEN GIVEN TO THE ASSESSEE.THE FAA HAD MENTIONED THAT T HE SUPPLIERS HAD NOT FULLY PAID THE SALES TAX.IT MEANS THAT THEY HAD PAID SOME TAXES.IF IT IS SO,HOW THEY CAN BE LABELED AS HAWALA DEALERS.EVEN IF IT IS PRESUMED THAT SALES TAX PAID BY THEM DID NOT RELATE TO THE PURCHASES MADE BY THE ASSESSEE,THE SAID FACT SHOULD HAVE BEEN BROU GHT ON RECORD.THE FAA OR THE AO HAVE NOT MADE ANY INQUIRY ABOUT THE PAYMENT OF SALES TAX VIS-A-VIS PURCHASES MADE BY THE ASSESSEE.PROVIDING CROSS EXAMINATION IS ONE ASPECT OF THE ISSUE,THE OTHER ASPECT IS NON FURNISHING OF MATERIAL RECEIVED FROM THE STD.ONCE T HE AO DECIDED TO USE THE MATERIAL AGAINST THE ASSESSEE, IT WAS HIS DUTY TO SUPPLY THE COPY OF SAME TO THE ASSESSEE SO THAT IT COULD FILE EXPLANATION.THE FAA HAS NOT AT ALL DEALT WITH THE ISSUE OF NON SUPPLY OF STATEMENTS OF THE SUPPLIERS TO THE ASSESSEE.SO,IT CAN BE SAFELY S AID THAT THE ASSESSEE HAD DISCHARGED THE ONUS OF PROVING THE GENUINENESS OF THE TRANSACTIONS BY P RODUCING COPIES OF PURCHASE BILLS,DELIVERY CHALLANS,BANK STATEMENTS SHOWING PAYMENTS MADE BY T HE PARTIES,CONFIRMATION OF LEDGER ACCOUNTS OF THE SUPPLIERS,SALES TAX RETURNS AND SAL ES TAX CHALLANS OF THE SUPPLIERS,INCOME TAX RETURNS. AFTER THE SUBMISSIONS MADE BY THE ASSESSE E ALONG WITH THE ABOVE DOCUMENTS,THE BALL WAS IN THE COURT OF THE AO TO DISCHARGE HIS ONUS-ES PECIALLY WHEN HE WANTED TO INVOKE THE PROVISIONS OF SECTION 69C OF THE ACT. 1596-97/M/16-FANCYWEAR 8 5.6. IN OUR OPINIOIN,THE INFORMATION RECEIVED BY THE AO WAS A VERY GOOD STARTING POINT FOR FURTHER INVESTIGATION.BUT,HE DID NOT TAKEN IT TO TH E LOGICAL END.IT CAN BE SAID THAT HE LEFT THE STARTING POINT AS AND WHERE IT WAS.WITHOUT REBUTTIN G THE EVIDENCES PRODUCED BY THE ASSESSEE,THE AO MADE THE ADDITION AND THE FAA PARTL Y UPHELD IT.THE FAA MENTIONED THAT COPIES OF SALES TAX RETURNS AND INCOME TAX RETURNS OF THE SUPPLIERS WERE MADE AVAILABLE TO THE AO.IF THE SALES TAX RETURNS WERE THERE THEN AO/FAA SHOULD HAVE MADE FURTHER INQUIRY TO PROVE THAT TRANSACTIONS WERE NOT GENUINE.NON-PAYMEN T OF FULL SALES TAX BY THE SUPPLIER,AS ALLEGED BY THE FAA,CANNOT LEAD THE CONCLUSION THAT THE GOODS PURCHASED BY THE ASSESSEE WERE NOT GENUINE.NO INQUIRY WAS MADE WITH THE AO.S OF TH E SUPPLIERS THOUGH THE COPIES OF THEIR RETURNS OF INCOME WERE FILED DURING THE ASSESSMENT PROCEEDINGS.WHETHER THE AO.S OF THE SUPPLIERS HAD ACCEPTED THEIR RETURNS OR HAD THEY RE JECTED THEIR BOOKS OF ACCOUNTS AND HELD THAT SALES MADE BY THEM WERE NOT GENUINE,IS NOT KNOWN.TH US,THE AO AND THE FAA HAVE NOT MADE ANY FURTHER INVESTIGATION TO PROVE THE ALLEGED NON GENUINENESS OF THE TRANSACTIONS. 5.7. IT APPEARS THAT THE ONLY THING THAT HAS TILTED THE SCALE AGAINST IT IS RETURNING BACK OF NOTICES, ISSUED BY THE AO,U/S.133(6)OF THE ACT.BUT,THIS ITSE LF IS NOT SUFFICIENT TO HOLD THAT PURCHASES MADE BY IT WERE BOGUS.IN THE CASE OF NIKUNJ EXIM EX PORT,THE HONBLE BOMBAY HIGH COURT HAS HELD THAT NON SERVICE OF NOTICE DOES NOT CONCLU SIVELY PROVE THE NON GENUINENESS OF A TRANSACTTION.BY PRODUCING VARIOUS DOCUMENTS THE ASS ESSEE HAD PROVED THAT BALANCE OF CONVENIENCE WAS IN ITS FAVOUR.THE ARGUMENT OF THE A SSESSEE THAT THE SUPPLIERS DID NOT DEPOSIT VAT AFTER COLLECTING FROM IT SHOULD HAVE BEEN INVES TIGATED,IF THE AO WANTED TO MAKE HUGE ADDITION.IN OUR OPINION,THE AO HAD COMPLETED THE AS SESSMENT WITHOUT MARSHALING THE FACTS PROPERLY AND ONLY ON THE BASIS OF GENERAL INFORMATI ON PROVIDED BY THE STD.THE NON FILING OF APPEALS AGAINST THE ORDERS OF THE FAA , WHEREIN HE HAD DELETED 75% OF THE ADDITIONS MADE BY THE AO,INDICATE THAT THE DEPARTMENT ITSELF WAS NOT CONVINCED ABOUT THE APPROACH ADOPTED BY THE AO IN MAKING ADDITIONS.EVEN THE ORDER OF THE FA A IS NOT IN ACCORDANCE WITH THE PRINCIPLES OF NATURAL JUSTICE,AS STATED EARLIER. 5.8. FOR VIOLATION OF PRINCIPLES OF NATURAL JUSTICE ALON E,THE ORDER CAN BE HELD TO BE INVALID.HERE,WE WOULD LIKE TO RELY UPON THE CASES R EFERRED TO BY THE AR BEFORE US-ESPECIALLY THE CASE OF ANDAMAN TIMBERS(SUPRA) AND IT READS AS UNDER: ACCORDING TO US,NOT ALLOWING THE ASSESSEE TO CROS S EXAMINE THE WITNESS BY THE ADJUDICATING AUTHORITY THOUGH THE STATEMENTS OF THO SE WITNESSES WERE MADE THE BASIS OF IMPUGNED ORDER IS A SERIOUS FLAW WHICH MAKES THE OR DER NULLITY IN AS MUCH 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 COMMISS IONER WAS BASED UPON THE STATEMENTS GIVEN BY THE AFORESAID TWO WITNESSES. EVEN WHEN THE ASSES SEE DISPUTED THE CORRECTNESS OF THE 1596-97/M/16-FANCYWEAR 9 STATEMENTS AND WANTED TO CROSS-EXAMINE, THE ADJUDIC ATING 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 M ENTIONED THAT SUCH AN OPPORTUNITY WAS SOUGHT BY THE ASSESSEE. HOWEVER NO SUCH OPTION WAS GRANTED AND THE AFORESAID PLEA IS NOT EVEN DEALT BY THE ADJUDICATING AUTHORITY.. 6. BUT,WE WILL LIKE TO DECIDE THE ISSUE ON MERITS ALSO .THE AO OR THE FAA HAVE NOT REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE NOR HAVE DOUBTED THE PURCHASES MADE BY IT.THE RECOGNISED PRINCIPLES OF ACCOUNTANCY AND TAX JURISPRUDENCE HOL D THAT NO SALES CAN TAKE PLACE WITHOUT PURCHASES.THUS,THE CASE UNDER APPEAL IS NOT ABOUT N ON GENUINENESS OF PURCHASES ITSELF,BUT IT IS ABOUT NON GENUINENESS OF SUPPLIERS.WHETHER PROVISIO NS OF SECTION 69C OF THE ACT CAN BE APPLIED IN THE MATTERS WHERE ALL THE PURCHASE AND S ALES TRANSACTIONS PART OF REGULAR BOOKS OF ACCOUNTS.BASIC PRECONDITION FOR INVOKING THE SECTIO N 69C IS THAT THE EXPENDITURE INCURRED BY THE ASSESSEE SHOULD BE OUT OF BOOKS OF ACCOUNTS. HE RE,THE PAYMENTS TO THE SUPPLIERS,AS STATED EARLIER,HAVE BEEN MADE BY CHEQUES.SO,IT CANNOT BE H ELD THAT EXPENSES WERE INCURRED BY THE ASSESSEE OUTSIDE THE BOOKS OF ACCOUNTS. SECTION 69C WAS INTRODUCED IN TO THE STATUTE WITH A SPECIFIC PURPOSE. A BARE READING OF THE SECTION MAK ES IT CLEAR THAT IF THE ASSESSEE INCURRED ANY EXPENDITURE, BUT OFFERED NO EXPLANATION ABOUT THE S OURCE OF SUCH EXPENDITURE OR PART THEREOF, OR THE EXPLANATION SO OFFERED IS NOT SATISFACTORY, SUCH EXPENDITURE MAY BE DEEMED TO BE THE INCOME OF THE ASSESSEE.THE ASSESSEE HAS OFFERED SAT ISFACTORY EXPLANATION ABOUT THE SOURCE OF THE EXPENDITURE IN THE CASE BEFORE US.IN THE CASE O F PAREKH CORPORATION UI BUILDING(32 CCH 129)THE TRIBUNAL HAS DISCUSSED THE APPLICABILITY OF PROVISIONS OF SECTION 69C OF THE ACT AND HAS HELD AS UNDER: . IN SO FAR AS THE APPLICATION OF 69C IS CONCERNE D, WE FIND THAT THE SAME CANNOT BE ATTRACTED BECAUSE SECTION 69C APPLIES HERE IN ANY F INANCIAL YEAR AND ASSESSEE HAS INCURRED ANY EXPENDITURE AND HE OFFERS NO EXPLANATION ABOUT THE SOURCE OF SUCH EXPENDITURE OR PART THEREOF, OR THE EXPLANATION, IF ANY, OF BY THE ASSE SSEE IS NOT SATISFACTORY. IT IS THEN THAT THE AMOUNT COVERED BY SUCH EXPENDITURE OR PART THEREOF IS DEEMED AS INCOME OF THE ASSESSEE FOR SUCH FINANCIAL YEAR. THE BEDROCK FOR MAKING AN ADDI TION UNDER SECTION 69C IS THAT THERE MUST HAVE BEEN SOME EXPENDITURE INCURRED BY THE ASSESSEE , THE SOURCE OF WHICH IS NOT DISCLOSED. IF OUR SUCH EXPENDITURE IS RECORDED IN THE BOOKS OF AC COUNTS, THERE CANNOT BE ANY REASON TO INVOKE THE PROVISIONS OF SECTION 69C OF THE ACT. IN THAT VIEW OF THE MATTER IS IT IS HELD THAT PROVISIONS OF SECTION 69C WERE STRONGLY RESTORE BY THE AO FOR MAKING THIS ADDITION. IN LIGHT OF THE ABOVE,WE FIND THAT NO ADDITION COUL D HAVE BEEN MADE U/S.69 C OF THE ACT. 7. CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE UNDER APPEAL,WE HOLD THAT THE FAA WAS NOT JUSTIFIED IN CONFIRMING THE ORDER OF TH E AO PARTLY AND RETAINING THE ADDITION TO THE EXTENT OF 25% OF THE SALES.THE ORDERS OF THE AO AND FAA ARE NOT VALID BECAUSE OF VIOLATION OF PRINCIPLES OF NATURAL JUSTICE.BESIDES, THE ADDITION MADE U/S.69C IS ALSO NOT MAIN- TAINABLE.SO,REVERSING THE ORDER OF THE FAA,WE DECID E THE EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. 1596-97/M/16-FANCYWEAR 10 WE WOULD LIKE TO EMPHASISE THAT OUR ORDER IS LIMITE D TO THE FACTS OF THE PRESENT CASE AND IT SHOULD NOT BE TREATED AS A PRECEDENT. ITA/1597/MUM/2016-AY.2011-12: 8 .FACTS AND CIRCUMSTANCES OF THE CASE UNDER CONSIDER ATION ARE IDENTICAL TO THE FACTS OF EARLIER AY.-EXCEPT FOR THE AMOUNT OF ADDITION.DURING THE YE AR,THE AO HAD ASSESSED THE INCOME OF THE ASSESSEE AT RS. 4.81 CRORESS,AS AGAINST THE INC OME OF RS.1.05 LAKHS RETURNED BY IT. FOLLOWING OUR ORDER FOR THE EARLIER YEAR,WE ALLOW T HE EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. AS A RESULT,APPEALS FILED BY THE ASSESSEE FOR BOTH THE AY.S STAND ALLOWED. ORDER PRONOUNCED IN T HE OPEN COURT ON 20 TH SEPTEMBER, 2017. 20 , 2017 SD/- SD/- ( /SANDEEP GOSAIN) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 20.09.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR H BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.