RAJESH AMBALAL SHAH, MUMBAI V. ITO WD 3(5), KALYAN

ITA 2320/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9058 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 03-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARJU GARADIA
• Keywords: Bogus purchase; Opportunity of being heard; Principle of natural justice
• Section: 69C; 143(3); 133(6); 68; 148

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. 2320/MUM/2017 ASSESSMENT YEAR: 2009 - 10 SHRI RAJESH AMBALAL SHAH 28, TAPASYA HSG SCTY, ABOVE ICICI BANK, G.M. ROAD, PESTOM SAGAR, CHEMBUR, MUMBAI - 400089. VS. ITO - 3(5) 2 ND FLOOR, RANI MANISON, MURBAD ROAD KALYAN (W) KALYAN - 421301 PAN NO. ANLPS6347J APPELLANT RESPONDENT ITA NO. 3132/MUM/2017 ASSESSMENT YEAR: 2009 - 10 ITO - 3(5) 2 ND FLOOR, RANI MANISON, MURBAD ROAD KALYAN (W) KALYAN - 421301 VS. SHRI RAJESH AMBALAL SHAH A - 504, SANSKARDI APARTMENT, LAL CHAUKY, AGRA ROAD, KALYAN (W) - 421301 PAN NO. ANLPS6347J APPELLANT RESPONDENT ITA NO. 2321/MUM/2017 ASSESSMENT YEAR: 2011 - 12 SHRI RAJESH AMBALAL SHAH 28, TAPASYA HSG SCTY, ABOVE ICICI BANK, G.M. ROAD, PESTOM SAGAR, CHEMBUR, MUMBAI - 400089 VS. ITO - 3(5) 2 ND FLOOR, RANI MANISON, MURBAD ROAD KALYAN (W) KALYAN - 421301 SHRI RAJESH AMBALAL SHAH ITA NO. 2320, 3132, 2321 & 3133 /MUM/2017 2 PAN NO. ANLPS6347J APPELLANT RESPONDENT ITA NO. 3133/MUM/2017 ASSESSMENT YEAR: 2011 - 12 ITO - 3(5) 2 ND FLOOR, RANI MANISON, MURBAD ROAD KALYAN (W) KALYAN - 421301 VS. SHRI RAJESH AMBALAL SHAH A - 504, SANSKARDI APARTMENT, LAL CHAUKY, AGRA ROAD, KALYAN (W) - 421301 PAN NO. ANLPS6347J APPELLANT RESPONDENT REVENUE BY : MS. ARJU GARADIA , DR ASSESSEE BY : NONE DATE OF HEARING : 07/09 /2017 DATE OF PRONOUNCEMENT : 11/10/2017 ORDER PER N.K. PRADHAN, A.M. THE ABOVE FOUR CROSS APPEALS - TWO BY THE ASSESSEE AND TWO BY THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 3, NASIK AND ARISE OUT OF THE ASSESSMENT COMPLETED U/S 143(3) R.W.S. 147 OF THE INCOME TAX ACT 1961 (THE ACT). AS COMMON ISSUES ARE INVOLVED, WE ARE PROCEEDING TO DISPOSE THEM OFF THROUGH A C ONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. THE GROUND RAISED BY THE ASSESSEE IN THIS APPEAL IS THAT THE LD. CIT(A) HAS ERRED IN ESTIMATING NET PROFIT @ 6% ON THE ALLEGED UNPROVED PURCHASES DISREGARDING THE SUBMISSION AND DOCUMENTARY EVIDENCE OF SHRI RAJESH AMBALAL SHAH ITA NO. 2320, 3132, 2321 & 3133 /MUM/2017 3 THE ASSESSEE. ALSO IT IS STATED THAT THE REOPENING MADE BY THE AO U/S 147/148 BE QUASHED. 3. THE CROSS APPEAL FILED BY THE REVENUE IS THAT THE LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE MADE U/S 69C (I) FROM RS.71,25,181/ - TO RS.4,27,510/ - IN A.Y. 2 009 - 10 AND (II) FROM RS. 1,95,17,832/ - TO RS. 11,71,069/ - IN A.Y 2011 - 12 WITHOUT APPRECIATING THE DECISION OF THE HONBLE GUJARAT HIGH COURT AND APPROVED BY THE HONBLE SUPREME COURT IN THE CASE OF N.K. PROTEINS LTD. VS. DCIT IN SLP (CC NO.769 OF 2017) WHE REIN IT HAS BEEN HELD THAT WHEN THE ENTIRE PURCHASES HAVE BEEN FOUND TO BE BOGUS THEN CONFIRMING DISALLOWANCE ON PERCENTAGE BASIS GOES AGAINST THE PRINCIPLE OF SECTION 68 AND 69C. 4. LET IT BE STATED THAT THE FACTS FOR BOTH THE ASSESSMENT YEARS ARE SIMILA R. WE BEGIN WITH THE AY 2009 - 10. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER (AO) RECEIVED INFORMATION FROM THE SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA THAT THE ASSESSEE HAD OBTAINED BOGUS PURCHASE BILLS FROM THE FOLLOWING PARTIES: SL. NO. NAME OF THE ENTRY PROVIDER MAHARASHTRA VAT NO. AY AMOUNT IN THE BILLS TAKEN BY THE ASSESSEE (RS.) 1. SUNDER CORPORATION 27450609394V 2009 - 10 11,91,910/ - 2. VRUKSHA ENTERPRISES 27530620893V 2009 - 10 6,53,193/ - 3. CHAITANYA ENTERPRISES 27360694658V 2009 - 10 3,58,053/ - 4. KRISHI ENTERPRISES 27490662722V 2009 - 10 4,10,120/ - 5. BRIGHT ENTERPRISES 27110698627V 2009 - 10 8,34,104/ - 6. SHREYAS MARKETING AGENCY 27200244472V 2009 - 10 12,18,072/ - 7. SHREE GANESH TRADING CO. 27270244094V 2009 - 10 24,59,729/ - TOTAL 71,25,181/ - SHRI RAJESH AMBALAL SHAH ITA NO. 2320, 3132, 2321 & 3133 /MUM/2017 4 SIMILAR PURCHASES MADE FOR THE AY 2011 - 12 ARE AS UNDER: TIN OF H AWALA D EALER NAME OF HAWALA DEALER PAN OF HAWALA DEALER A .Y. AMOUNT IN R S. 1 2 3 4 5 27910623885V DONEAR TRADING PVT. LTD. AACCD4946K 2011 - 12 3,393,447 27050634058V LINUS SALES AGENCY PVT. LTD. AABCL2934N 2011 - 12 3,409,568 27190653866V UNIVERSAL TRADING COMPANY AJIPJ7859H 2011 - 12 307,652 27530620893V VRUKSHA ENTERPRISES BGMPS2816M 2011 - 12 4,160,944 27360694658V CHAITANAYA ENTERPRISES AJXPS1279D 2011 - 12 236,420 27930587111V NEWZONE MULTITRADE PVT. LTD. AAECM7719B 2011 - 12 620,460 27200244472V SHREYAS MARKETING AGENCY AADHK8405J 2011 - 12 831,822 27270244094V SHREE GANESH TRADING CO. AALPM8933D 2011 - 12 1,052,337 27070741426V JAY GANESH ENTERPRISE AVNPM8339E 2011 - 12 1,531,770 27330145897V SHREEJI ENTERPRISES ADIPM8293L 2011 - 12 1,634,923 27110698627V BRIGHT ENTERPRISES AMWPM2356H 2011 - 12 2,338,489 TOTAL 19,517,832 ON THE BASIS OF ABOVE INFORMATION, THE AO RECORDED THE REASONS AND REOPENED THE ASSESSMENT WHICH WAS MADE EARLIER U/S 143(1) BY ISSUING NOTICE U/S 148 OF THE ACT. THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF SUPPLYING BUILDING MATERIAL UNDER THE PROPRIETARY CONCERN M/S JARS TRADING CORPORATION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE AO ASK ED THE ASSESSEE TO FILE COPIES OF PURCHASE BILLS, LORRY RECEIPTS, OCTROI PAYMENT SHRI RAJESH AMBALAL SHAH ITA NO. 2320, 3132, 2321 & 3133 /MUM/2017 5 RECEIPTS IN RESPECT OF THE SAID TRANSACTIONS WITH THE ABOVE PARTIES DURING THE YEAR UNDER CONSIDERATION. THEN THE AO ISSUED NOTICE U/S 133(6) TO THE ABOVE PARTIES TO VERIFY THE GENUINENESS OF THE TRANSACTIONS. MOST OF THE NOTICES ISSUED BY HIM WERE RETURNE D BACK BY THE POSTAL AUTHORITIES AS UNSERVED. THE AO ALSO OBSERVED THAT THE ASSESSEE WAS NOT ABLE TO PRODUCE THE COPIES OF CONFIRMATION FROM THE ABOVE PARTIES REGARDING GOODS PURCHASED AND ALSO THE LEDGER EXTRACT OF THE ASSESSEE IN THE BOOKS OF THE ABOVE P ARTIES. IN VIEW OF THE ABOVE FACTS, THE AO MADE AN ADDITION OF RS.71,25,181/ - U/S 69C TO THE TOTAL INCOME SHOWN BY THE ASSESSEE. 5. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS HELD THAT (I) IN THE AY 2009 - 10, THE BOGUS PURCHASES ARE OF RS.71.25 LAKHS OUT OF TOTAL PURCHASES OF RS.1.93 CRORE WHICH AMOUNT TO 37% AND IN THE AY 2011 - 12 THE SAID PURCHASES ARE OF RS.1.95 CRORE OUT OF TOTAL PURCHASES OF RS.2.98 CRORE WHICH AMOUNT TO AROUND 66%, (II) WI THOUT THE IMPUGNED PURCHASES, THE SALE AND THE PROFIT ON SALE AS SHOWN BY THE ASSESSEE WOULD NOT BE POSSIBLE. THE LD. CIT(A) RELIED ON THE DECISION IN THE CASE OF SHRI JITENDRA MOTANI (ITA NO.5927/MUM/2009 FOR AY 2006 - 07 AND ITA NO.3024 TO 3028/MUM/2008 FOR AY 2001 - 02 TO 2003 - 04 AND 2005 - 06) AND THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN CIT VS. SIMIT P. SHAH 356 ITR 451 AND ESTIMATED THE PROFIT @ 6% ON THE BOGUS PURCHASES OF RS.71,25,181/ - AND IT COMES TO RS.4,27,510/ - FOR THE AY 2009 - 10. THE SHRI RAJESH AMBALAL SHAH ITA NO. 2320, 3132, 2321 & 3133 /MUM/2017 6 PROF IT ESTIMATED BY THE LD. CIT(A) FOR THE AY 2011 - 12 COMES TO RS.11,71,069/ - . 6. THOUGH THE CASE WAS FIXED FOR HEARING BEFORE THE TRIBUNAL, NEITHER THE ASSESSEE NOR HIS AUTHORIZED REPRESENTATIVE APPEARED. 7. BEFORE US, THE LD. DR SUBMITS THAT FOLLOWING THE JUDGMENT OF THE HONBLE SUPREME COURT IN N.K. PROTEINS LTD . (SUPRA), THE LD. CIT(A) SHOULD HAVE CONFIRMED THE DISALLOWANCE MADE BY THE AO U/S 69C. THERE IS NO REASON TO RESTRICT THE DISALLOWANCE TO 6%. 8. W E HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISIONS ARE GIVEN BELOW. REGARDING THE OBJECTION RAISED BY THE AS SESSEE TO THE REOPENING U/S 147/ 148 WE MAY MENTION HERE THAT THE RETURN OF INCOME FILED BY THE ASSESSEE FOR THE AY 2009 - 10 AND 2011 - 12 WERE PROCESSED U/S 143(1) ONLY. IN THE CASE OF ACIT VS. RAJESH JHAVERI STOCK BROKERS P. LTD . 291 ITR 500 (SC), THE HONBLE SUPREME COURT HAS HELD THAT INFORMATION U/S 143(1)(A) IS NO T AN ASSESSMENT AND THE NOTICE U/S 148 ISSUED BY THE AO WAS VALID. THEREFORE, IN THE INSTANT CASE AFTER RECEIPT OF INFORMATION FROM THE SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA, THE AO HAS RIGHTLY ISSUED THE NOTICE U/S 148. THUS THE GROUND RAISED BY THE ASSESSEE AGAINST THE ISSUANCE OF NOTICE U/S 148 BY THE AO FOR THE AY 2009 - 10 AND 2011 - 12 ARE DISMISSED. 8.1 THEN WE DISCUSS THE OTHER GROUND RAISED BOTH BY THE ASSESSEE AND THE REVENUE. SHRI RAJESH AMBALAL SHAH ITA NO. 2320, 3132, 2321 & 3133 /MUM/2017 7 IN THE CASE OF N.K PROTEINS LTD . (SUPRA), THERE WAS SEARCH PROC EEDINGS CONDUCTED BY THE REVENUE AT THE OFFICE PREMISES OF THE ASSESSEE WHEREIN BLANK SIGNED CHEQUE BOOKS AND VOUCHER OF NUMBER OF CONCERNS WERE FOUND. ACCORDINGLY, THE PURCHASES MADE FROM THESE CONCERNS WERE TREATED AS BOGUS BY THE AO AND THE ENTIRE DEPOS ITS IN BANK ACCOUNTS OF THESE PARTIES WERE TREATED AS ASSESSEES INCOME ON PROTECTIVE BASIS. ON APPEAL, THE ITAT RESTRICTED THE ADDITION ON ACCOUNT OF ALLEGED BOGUS PURCHASES AT 25% I.E. RS.73,23,322/ - OF THE TOTAL PURCHASES AMOUNTING TO RS.2,92,93,288/ - . ON FURTHER APPEAL, THE HONBLE HIGH COURT MODIFIED THE ORDER OF THE TRIBUNAL AND DIRECTED FOR ADDITION OF ENTIRE BOGUS PURCHASES. AFTER HEARING THE COUNSELS, THE HONBLE SUPREME COURT DISMISSED THE SLP FILED BY THE ASSESSEE AND CONFIRMED THE DECISION OF TH E HIGH COURT FOR ADDITION OF ENTIRE INCOME ON ACCOUNT OF BOGUS PURCHASES. 8.2 WE ARE OF THE CONSIDERED VIEW THAT THE CONTENTIOUS ISSUES IN THE INSTANT CASE COULD BE RESOLVED BY EXAMINING THE ABOVE PARTIES. IT IS THE DUTY OF THE AO TO ENFORCE ATTENDANCE OF A WITNESS IF HIS EVIDENCE IS MATERIAL. AT THE SAME TIME THE ASSESSEE MUST FURNISH THE COMPLETE ADDRESS OF SUCH PERSON. A PROPER HEARING MUST ALWAYS INCLUDE A FAIR OPPORTUNITY TO THOSE WHO ARE PARTIES IN THE CONTROVERSY FOR CORRECTING OR CONTRADICTING ANY THING PREJUDICIAL TO THEIR VIEW. CROSS - EXAMINATION IS ALLOWED BY PROCEDURAL RULES AND EVIDENTLY ALSO BY THE RULES OF NATURAL JUSTICE. ANY WITNESS WHO HAS BEEN SWORN ON BEHALF OF ANY PARTY IS LIABLE TO BE CROSS - EXAMINED ON BEHALF OF THE OTHER PARTY TO THE P ROCEEDINGS. SHRI RAJESH AMBALAL SHAH ITA NO. 2320, 3132, 2321 & 3133 /MUM/2017 8 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 - EXAMI NE 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 ASSESSING OFFICER TO GRANT AN OPPORTUNITY TO ASSESSEE TO CROSS - EXAMINE CONCERNED WITNESS. THE IMPORTANCE OF CROSS - EXAMINATION HAS BEEN EMPHASIZED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF OM VINYLS P. LTD. VS. ITO [WP(L) NO. 3114 OF 2014]. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE AO TO MAKE A FRESH ASSESSMENT IN THE LIGHT OF OUR OBSERVATION HEREINBEFORE AFTER GIVING OPPORTUNITY TO THE ASSESSEE TO CROSS - EXAMINE THE CONCERNED PARTIES. WE ALSO DIRECT THE ASSESSEE TO FILE THE RELEVANT DOCUMENTS/EVIDENCE BEFORE THE AO. NEEDLESS TO SAY THE AO WOULD GIVE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE FINALIZING THE ASSESSMENT ORDER. SHRI RAJESH AMBALAL SHAH ITA NO. 2320, 3132, 2321 & 3133 /MUM/2017 9 9. IN THE R ESULT, THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 11/10/2017. SD/ - SD/ - ( SAKTIJIT DEY ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 11/10/2017 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