JIVANLAL CORPORATION, MUMBAI V. ITO 13(3)(2), MUMBAI

ITA 2019/MUM/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7520 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 22-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARJU GARODIA
• Keywords: Bogus purchase; Unexplained expenditure; Opportunity of being heard; Principle of natural justice; Opportunity of cross examination; Third party statement; Accommodation entries
• Section: 133(6); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 2019/MUM/2017 ASSESSMENT YEAR: 2011 - 12 M/S JIVANLAL CORPORATION 409, WESTERN EDGE - II, WESTERN EXP. HIGHWAY, BORIVALI (EAST), MUMBAI - 400066. VS. ITO - 13(3)(2) [NOW 17(2)(1)] MUMBAI. PAN NO. AACFJ3353K APPELLANT RESPONDENT ASSESSEE BY : MR. BHUPENDRA SHAH , AR REVENUE BY : MS. ARJU GARODIA , DR DATE OF HEARING : 07/03 /2018 DATE OF PRONOUNCEMENT : 11/04/2018 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2011 - 12 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISS IONER OF INCOME TAX (APPEALS) - 28 , MUMBAI [ IN SHORT CIT(A)] AND ARISES OUT OF THE ASSESSMENT COMPLETED U /S 143 (3) OF THE INCOME TAX ACT 1961, (THE ACT). M/S JIVANLAL CORPORATION ITA NO. 2019/MUM/2017 2 2. 1 ST GROUND OF APPEAL THE 1 ST GROUND RAISED BY THE ASSESSEE IN THIS APPEAL IS AGAINST THE ORDER OF THE LD. CIT(A) CONFIRMING THE ADDITION OF RS.1,28,500/ - BEING 15% OF TOTAL EXPENSES AMOUNTING TO RS.8,57,182/ - . THE AO MADE THE ABOVE DISALLOWANCE ON THE GROUND THAT THESE EXPENSES WERE INCURRED IN CASH AND ARE NEITHER SUPPORTED BY VOUCHERS NOR BY THIRD PARTY BILLS. IN APPEAL, THE LD. CIT(A) AGREED WITH THE REASONS GIVEN BY THE AO AND CONFIRMED THE ABOVE DISALLOWANCE. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT THE LD. CIT( A) OVERLOOKED THE PROOF FILED BY THE ASSESEE BEFORE THE AO. ON THE OTHER HAND, THE LD. DR SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. IT IS FOUND THAT THE AD - HOC DISALLOWA NCE MADE BY THE AO @ 15% IS BASED ON SURMISES AND CONJECTURES. THEREFORE, WE DELETE THE DISALLOWANCE OF RS.1,28,500/ - MADE BY THE AO AND ALLOW THE 1 ST GROUND OF APPEAL. 3. THE 2 ND GROUND OF APPEAL THE 2 ND GROUND RAISED IN THIS APPEAL IS AGAINST THE ORD ER OF THE LD. CIT(A) CONFIRMING THE ADDITION OF RS.49,301/ - MADE BY THE AO IN RESPECT OF INTEREST PAID ON CAR LOAN. DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE AO OBSERVED THAT HUGE WITHDRAWALS WERE MADE BY ALL THE PARTNERS RUNNING INTO NEGATIVE CAPITAL BALANCE WITH THE FIRM. THEREFORE, HE DISALLOWED THE M/S JIVANLAL CORPORATION ITA NO. 2019/MUM/2017 3 ENTIRE INTEREST CLAIM OF RS.49,301/ - . IN APPEAL, THE LD. CIT(A) AGREED WITH THE REASONS GIVEN BY THE AO A ND CONFIRMED THE ABOVE DISALLOWANCE. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THAT INTEREST WAS PAID ON CAR LOAN AND THAT THE SAID VEHICLE WAS A BUSINESS ASSET. ON THE OTHER HAND, THE LD. DR SUP PORTS THE ORDER PASSED BY THE LD. CIT(A). WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE FIND THAT THE AO HAS MADE A DISALLOWANCE OF THE ENTIRE INTEREST OF RS.49,301/ - BY MAKING A GENERAL OBSERVATION THAT THE WITHDRA WALS WERE MADE FOR PERSONAL USE OF THE ASSESSEE AND NOT FOR THE BUSINESS PURPOSE. SUCH GENERAL OBSERVATION IS NEITHER SUPPORTED BY ACCOUNTS N OR BY DOCUMENTS. THEREFORE, WE DELETE THE DISALLOWANCE OF RS.49,301/ - AND ALLOW THE 2 ND GROUND OF APPEAL. 4. THE 3 RD GROUND OF APPEAL 4.1. THE GROUND RAISED BY THE ASSESSEE IN THIS APPEAL IS AGAINST THE ORDER OF THE LD. CIT(A) CONFIRMING THE DISALLOWANCE OF RS. 59,42,000/ - [ 25% OF THE ALLEGED BOGUS PURCHASES OF RS.2,37,69,470/ - ] MADE BY THE AO. 4.2 . BRIEFLY STATED, TH E FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO) ASKED THE ASSESSEE TO FURNISH DETAILS OF PURCHASES MADE FROM VARIOUS PARTIES. ACCORDINGLY, THE ASSESSEE SUBMITTED DETAILS RELATING TO PURCHASES OF RS.15.44 CRORES. M/S JIVANLAL CORPORATION ITA NO. 2019/MUM/2017 4 THE AO, IN ORDER TO VERIFY THE PURCHASE TRANSACTIONS ISSUED NOTICES U/S 133(6) TO FOLLOWING NINE PARTIES: SR. NO. NAME OF THE PARTY HAWALA PAN FY AMOUNT (RS.) 1. PIONEEER TRADING COMPANY APAPB1493F 2010 - 11 1,073,614 2. KUNAL STAINLESS STEEL INDUSTRIES & KUNAL ENTERPRISES ALEPB4997Q 2010 - 11 1,486,879 3. REVIKA TRADE IMPEX PRIVATE LTD. AADCR3729H 2010 - 11 1,648,828 4. UNIVERSAL TRADING COMPANY AJIPJ7859H 2010 - 11 1,808,793 5. J B INTERLINK ADVPT2496H 2010 - 11 2,003 , 610 6. YASH ENTERPRISE AAMPP5296R 2010 - 11 720,720 7. CHETAN CHEMICAL CORPORATION AAAPV5986C 2010 - 11 2,093,595 8. CHANDAN CHEMICAL AGENCY PVT. LTD. AAECC0951F 2010 - 11 5,656,204 9. TURBO SALES EXIM PVT. LTD. AADCT5700A 2010 - 11 7,277,277 TOTAL 23769470 HOWEVER, NOTICES ISSUED IN CASE OF FIVE PARTIES I.E. PARTIES AT SERIAL NO. 1, 4, 5, 8 AND 9 WERE RETURNED UNSERVED AND IN THE CASE OF BALANCE FOUR PARTIES THE AO DID NOT RECEIVE THE REPLY TILL THE DATE OF ASSESSMENT ORDER DATED 13.03.2014. THEN THE AO ASKED THE ASSESSEE TO PRODUCE THE SAID PARTIES FOR VERIFICATION AND CONFIRMATION. HOWEVER, THE ASSESSEE FAILED TO PRODUCE THE ABOVE PARTIES BEFORE THE AO FOR EXAMINATION. IN REPLY TO A QUERY RAISED BY THE AO, THE AR OF THE ASSESSEE VIDE LETTER DATED 03.02.2014 STATED THAT THEY HAD INDEED MADE PURCHASES FROM THE ABOVE NINE PARTIES AND FILED A COPY OF THE LEDGER ACCOUNT AND DELIVERY CHALLAN IN THIS REGARD. HOWEVER, THE AO WAS NOT CONVINCED WITH THE M/S JIVANLAL CORPORATION ITA NO. 2019/MUM/2017 5 ABOVE REPLY OF THE ASSESSEE AS IT FAILED TO SUBMIT BEFORE HIM THE LATEST ADDRESS OF THE ABOVE PARTIES OR IN THE ALTER NATIVE PRODUCE THEM BEFORE HIM FOR VERIFICATION OF THE PURCHASE TRANSACTIONS . HOWEVER, SINCE THE ASSESSEE HAD DISCLOSED THE SALES CORRESPONDING TO THE PURCHASES, THE AO OBS ERVED THAT THE ENTIRE AMOUNT OF BOGUS PURCHASES CANNOT BE TREATED AS UNPROVED PURCHASES. THUS HE RELIED ON THE DECISION IN SANJAY OIL CAKE V. CIT 316 ITR 274 (GUJ) AND ESTIMATED DISALLOWANCE @ 25% ON THE ABOVE ALLEGED BOGUS PURCHASES OF RS.2,37,69,470/ - AN D MADE AN ADDITION OF RS.59,42,000/ - . 4 .3 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT THE LD. CIT(A) AGREED WITH THE REASONS GIVEN BY THE AO AND CONFIRMED THE ADDITION OF RS.59,42,000/ - . 4.4 BEFORE US , THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT EVEN THOUGH THE APPELLANT HAD SUBMITTED ALL THE RELEVANT COPIES OF THE BILLS, PROOF OF DELIVERY OF MATERIALS PURCHASED FROM THE RESPECTIVE VENDORS, THE LD. CIT(A) CONFIRMED THE ADDITION OF RS.59,42,000/ - MEREL Y RELYING ON THIRD PARTY STATEMENT. IT IS ALSO STATED THAT THE APPELLANT HAD SUBMITTED THE STOCK REGISTER SHOWING THE MOVEMENT OF GOODS PURCHASED AND SOLD AND CLOSING STOCK WAS PROPERLY DERIVED FROM THE STOCK REGISTER AT THE END OF THE YEAR. THE LD. COUNSE L SUBMITS THAT THERE WAS NO JUSTIFICATION FOR MAKING A DISALLOWANCE @ 25% ON PURCHASES OF RS.2,37,69,470/ - JUST BECAUSE NOTICES U/S 133(6) WERE ISSUED BUT NOT SERVED ON FIVE SUPPLIERS AND FOR THE BALANCE PARTIES THE SAME WERE RECEIVED, HOWEVER, NO REPLY WA S RECEIVED FROM THEM. IT IS STATED THAT THE PAYMENTS FOR PURCHASES WERE MADE FROM THE BOOKS AND THE SAME CANNOT M/S JIVANLAL CORPORATION ITA NO. 2019/MUM/2017 6 BE TERMED AS UNEXPLAINED EXPENDITURE. THE LD. COUNSEL FURTHER SUBMITS THAT THE LD. CIT(A) SHOULD NOT HAVE CONFIRMED THE DISALLOWANCE MADE BY THE AO WITHOUT ALLOWING THE ASSESSEE TO CROSS - EXAMINE THE SAID PARTIES AND WITHOUT PROVIDING THE COPY OF THE STATEMENT OF THE SUPPLIERS RECORDED BY THE SALES TAX DEPARTMENT. THUS IT IS STATED THAT THE DISALLOWANCE SHOULD NOT HAVE BEEN MADE ONLY ON THE BASIS O F INFORMATION ON THE WEBSITE WWW.MAHAVAT.GOV.IN ABOUT SUSPICIOUS DEALERS. THE LD. COUNSEL FILES BEFORE US A PAPER BOOK CONTAINING INTER ALIA LEDGER ACCOUNT OF NINE SUPPLIERS AND BANK STATEMENTS HIGHLIGHTING THE PAYMENTS MADE TO THEM AND ALSO CONFIRMATION AND PAN OF SUPPLIERS. 4.5 ON THE OTHER HAND, THE LD. DR SUPPORTS THE ORDER PASSED BY THE LD. CIT(A) AND SUBMITS THAT THE INSTANT CASE THE AS SESSEE FAILED TO SUBMIT EVEN THE LATEST ADDRESS OF THE PARTIES AS A CONSEQUENCE OF WHICH LETTERS ISSUED BY THE AO TO FIVE PARTIES WERE RETURNED BY THE POSTAL AUTHORITIES AS UNSERVED. ALSO THE REMAINING FOUR PARTIES DID NOT FILE ANY REPLY BEFORE THE AO TILL THE DATE OF ASSESSMENT. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE ARE OF THE CONSIDERED VIEW THAT THE CONTENTIOUS ISSUES IN THE INSTANT CASE COULD BE RESOLVED BY PROPER HEARING BY THE AO. A PROPER HEARING MUS T ALWAYS INCLUDE A FAIR OPPORTUNITY TO THOSE WHO ARE PARTIES IN THE CONTROVERSY FOR CORRECTING OR CONTRADICTING ANYTHING PREJUDICIAL TO THEIR VIEW. CROSS - EXAMINATION IS ALLOWED BY PROCEDURAL RULES AND EVIDENTLY ALSO BY THE RULES OF NATURAL JUSTICE. ANY M/S JIVANLAL CORPORATION ITA NO. 2019/MUM/2017 7 WIT NESS WHO HAS BEEN SWORN ON BEHALF OF ANY PARTY IS LIABLE TO BE CROSS - EXAMINED ON BEHALF OF THE OTHER PARTY TO THE PROCEEDINGS. THE HON'BLE SUPREME COURT IN STATE OF KERALA VS. K.T. SHADULI GROCERY DEALER AIR 1977 SC 1627, RECOGNISED THE IMPORTANCE OF ORAL EVIDENCE BY HOLDING THAT THE OPPORTUNITY TO PROVE THE CORRECTNESS OR COMPLETENESS OF THE RETURN NECESSARILY CARRY WITH IT THE RIGHT TO EXAMINE WITNESSES AND THAT INCLUDES EQUALLY THE RIGHT TO CROSS - EXAMINE WITNESSES. IN ITO VS. M. PIRAI CHOODI (2012) 20 TAXMANN.COM 733 (SC), THE HON'BLE SUPREME COURT HAS HELD THAT ORDER OF ASSESSMENT PASSED WITHOUT GRANTING AN OPPORTUNITY TO ASSESSEE TO CROSS - EXAMINE, SHOULD NOT HAVE BEEN SET ASIDE BY HIGH COURT; AT MOST, HIGH COURT SHOULD HAVE DIRECTED ASSESS ING OFFICER TO GRANT AN OPPORTUNITY TO ASSESSEE TO CROSS - EXAMINE CONCERNED WITNESS. IN A SIMILAR CASE OF A BENEFICIARY OF ACCOMMODATION ENTRIES, THEIR LORDSHIPS OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF OM VINYLS P. LTD. VS. ITO [WRIT PETITION (L) NO. 3114 OF 2014] HA VE OBSERVED THAT IT WOULD BE OPEN TO THE ASSESSEE TO RAISE ALL PERMISSIBLE DEFENCES AND ALSO TO INSIST ON CROSS - EXAMINATION OF THE PERSONS WHO HAVE MADE A STATEMENT IMPLICATING THE ASSESSEE IN HAVING PARTICIPATED IN TAKING ACCOMMODATION ENTRIES. IN VIEW OF THE ABOVE FACTUAL SCENARIO , WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THE ABOVE ISSUE AND RESTORE THE MATTER TO THE FILE OF THE AO TO MAKE A DE NOVO ORDER AFTER EXAMINING THE PARTIES MENTIONED AT PARA 4.2 HEREINBEFORE AND ALLOWING CROSS - EXAMINATION TO THE ASSESSEE. IT IS M/S JIVANLAL CORPORATION ITA NO. 2019/MUM/2017 8 THE DUTY OF THE ASSESSEE TO FILE BEFORE THE AO THE RECENT ADDRESS OF THE ABOVE NINE PARTIES. WE DIRECT THE ASSESSEE TO FILE THE RELEVANT DOCUMENTS/EVIDENCE BEFORE THE AO. NEEDLESS TO SAY, THE AO WOULD G IVE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE FINALIZING THE FRESH ORDER. AS THE MATTER HAS BEEN RESTORED TO THE FILE OF THE AO FOR FRESH ADJUDICATION, WE ARE NOT ADVERTING TO THE CASE LAWS RELIED ON BY THE LD. COUNSEL. THUS THE 3 RD GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 6. IN THE RESULT THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11/04/2018. SD/ - SD/ - (SAKTIJIT DEY ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 11/04/2018 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI