Appeal Details
Counselvise Citation
[2017] 127 COUNSELVISE.COM (IT) 0055 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
1 year(s) 4 month(s) 11 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
22-08-2017
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
Not Allotted
Assessment Year
2009-2010
Appeal Filed On
11-04-2016
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL G , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN , JM ITA NO. 2628 / MUM/20 1 6 & 2629/MUM/2016 ( ASSESSMENT YEAR : 2009 - 10 & 2011 - 12 ) ITO 1 (3)(1), ROOM NO.541, 5 TH FLOOR AAYAKAR BHAVAN, M.K.ROAD, MUMBAI 400 020 VS. M/S. RUSHAIL PHARMADIN PVT. LTD., 105, SHARDA CHAMBERS, NEW MARINE LINES, MUMBAI PAN/GIR NO. AABCR8353D APPELLANT ) .. RESPONDENT ) ITA NO. 1314 / MUM/20 1 6 ITA NO.2634/MUM/2015 ITA NO. 1492 /MUM/2016 ITA NO.6117/M UM/2016 ( ASSESSMENT YEAR : 2009 - 10, 2010 - 11, 2011 - 12 & 2012 - 13 ) M/S. RUSHAIL PHARMADIN PVT. LTD., 105, SHARDA CHAMBERS, NEW MARINE LINES, MUMBAI VS. ITO 1 (3)(1), ROOM NO.541, 5 TH FLOOR AAYAKAR BHAVAN, M.K.ROAD, MUMBAI 400 020 PAN/GIR NO. AABCR8353D APPELLANT ) .. RESPONDENT ) REVENUE BY SHRI VIDHYADHAR ASSESSEE BY SHRI SATISH R MODY DATE OF HEARING 02 / 08 /201 7 DATE OF PRONOUNCEME NT 22 / 08 /201 7 / O R D E R PER BENCH : THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE AGAINST THE ORDER OF CIT(A) - 3, MUMBAI FOR THE A.Y. 2009 - 10, 2010 - 11, 2011 - 12 AND 2012 - 13 IN THE MATTER OF ORDER PASSED U/S. 143(3) R.W.S. 147 OF THE IT ACT. ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 2 2. CO MMON GRIEVANCE OF BOTH THE ASSESSEE AND REVENUE IN ALL THE YEARS PERTAIN TO ADDITION MADE ON ACCOUNT OF BOGUS PURCHASES, PART OF WHICH WAS DELETED BY THE CIT(A). 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. ON OBTAINING INFORMATION THAT ASSESSE E HAS MADE PURCHASES FROM THE BOGUS SUPPLIERS REOPENED THE ASSESSMENT AND THE ENQUIRED ABOUT SUCH BOGUS SUPPLIERS. AO ALSO ISSUED NOTICE U/S. 133(6) TO THESE CONCERNS AND THEREAFTER ADDED ENTIRE AMOUNT OF SUCH PURCHASES IN ASSESSEES INCOME U/S.69C. IN THE A.Y.2009 - 10, ADDITION SO MADE WAS U/S.69C WAS RS.69,13,003/ - . 4. BY THE IMPUGNED ORDER CIT(A) RESTRICTED THE ADDITION TO THE EXTENT OF 12 .5 % AFTER APPLYING VARIOUS JUDICIAL PRONOUNCEMENTS. THE CIT(A) HAS DEALT WITH THE ISSUE AT PARA 6 TO 8.36 OF HIS ORDE R AFTER GIVING HIS REASONING, THE CIT(A) RESTRICTED THE ADDITION IN RESPECT OF PROFIT EARNED ON SUCH BOGUS PURCHASE TO THE EXTENT OF 12.5% AMOUNTING TO RS.8,37,780/ - . 5. IN THE A.Y. 2010 - 11 SIMILAR ADDITION WAS MADE BY THE AO TO THE EXTENT OF RS.1,13,69,12 9/ - WHICH WAS RESTRICTED BY CIT(A) TO THE EXTENT OF 20%. 6. IN THE A.Y. 2011 - 12, ADDITION MADE BY AO U/S.69C AMOUNTS TO RS.1,29,22,428/ - WHICH WAS RESTRICTED BY THE CIT(A) TO THE EXTENT OF 12.5% AMOUNTING TO RS.11,09,892/ - . 7. IN THE A.Y.2012 - 13, AO MADE A DDITION U/S.69C AMOUNTING TO RS.1,15,625/ - . 8. BY THE IMPUGNED ORDER, CIT(A) RESTRICTED ADDITION TO THE EXTENT OF 12.5% OF SUCH PURCHASES. ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 3 9. AGAINST THE ABOVE ORDER S OF CIT(A), BOTH ASSESSEE AND REVENUE ARE IN FURTHER APPEAL BEFORE US. 10. WE FOUND THAT DETAILED FINDING HAS BEEN RECORDED BY CIT(A) IN ALL THE YEARS UNDER CONSIDERATION. IN THE A.Y.2009 - 10, THE FINDINGS RECORDED BY CIT(A) IN RESPECT OF BOGUS PURCHASES READS AS UNDER: - 6. I HAVE GIVEN MY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL ON RECORD AND DULY CONSIDERED THE FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. 7. GROUND NO. 1 TO 4 FILED ALONG FORM NO. 35 DATED 27.03.2014 AND REVISED GROUNDS 1 TO 3 FILED ON 24.02.2015 RELATES TO REOPENING OF THE CASE U/S 147/148 OF THE IT ACT THAT THE ASSESSMENT ORDER DATED 28.02.2014 IS ILLEGAL AND INVALID BEING PASSED FOR NOT TAKING INTO CONSIDERATION THAT FIRST SCRUTINY ASSESSMENT WAS COMPLETED ON 27.12.2011 U/S 143(3) OF INCOME TAX ACT, 1961 AND THEREFORE IT SHOUL D BE SET ASIDE. 7.1 THE APPELLANT SUBMITTED THAT AS PER REASONS RECORDED, IT APPEARS THAT THE SOLE REASON FOR REOPENING ITS CASE IS INFORMATION RECEIVED FROM THE INVESTIGATION WING WITHOUT APPLYING HIS MIND INDEPENDENTLY ON THE FACTS ALREADY AVAILABLE ON RECORD. THE REOPENING OF THE CASE UNDER THE AC IS NOT PERMISSIBLE IF THERE IS A REASON TO SUSPECT UNDER SECTION 147 OF THE ACT, THE WORDS ARE 'HAS REASON TO BELIEVE' AND NOT 'REASON TO SUSPECT'. THE BELIEF ENTERTAINED BY THE ASSESSING OFFICER MUST NOT BE A RBITRARY OR IRRATIONAL. IT MUST BE REASONABLE AND BASED ON REASONS WHICH ARE RELEVANT. IT MUST BE IN GOOD FAITH AND NOT IN MERE PRETENCE, SHOULD HAVE A RATIONAL CONNECTION AND RELEVANT BEARING ON THE FORMATION OF THE BELIEF, AND SHOULD NOT BE EXTRANEOUS OR IRRELEVANT. NO REASSESSMENT PROCEEDINGS CAN BE INITIATED MERELY ON SUSPICION. IN THE CASE OF APPELLANT, THE SOLE REASON FOR REOPENING THE ASSESSMENT IS THE INVESTIGATION CARRIED ON BY THE SALES TAX DEPARTMENT. THE LD. A.O. WHILE DRAWING AN ADVERSE INFEREN CE AGAINST THE APPELLANT RELIED ON THE STATEMENT RECORDED BY THE SALES TAX DEPARTMENT WITHOUT EVEN PROVIDING THE APPELLANT AN OPPORTUNITY TO CROSS EXAMINE THEM. HENCE, REOPENING OF THE ASSESSMENT IS MERELY ON THE SUSPICION AND WITHOUT ANY REASON TO BELIEVE AND THEREFORE THE NOTICE FOR REASSESSMENT IS BAD IN LAW. 7.2 THE APPELLANT FURTHER SUBMITTED THAT IT HAS ALREADY ACCOUNTED THE EXPENDITURE INCURRED ON PURCHASES MADE FROM THE ABOVE SAID PARTIES AND DEBITED THE SAME IN ITS PROFIT & LOSS ACCOUNT FOR THE YE AR ENDED AS ON 31.03.2009. THEREFORE, ISSUANCE OF NOTICE UNDER SECTION 148 OF THE ACT TO EXAMINE THE SAME, IN THE ABSENCE OF NEW MATERIAL, UNJUSTIFIED. ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 4 THE APPELLANT, THEREFORE, SUBMITS THAT THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) R.W.S. 147 OF TH E ACT PURSUANT TO THE NOTICE UNDER SECTION 148 IS AB - INITIO VOID. 7.3 RECORDS REVEALED THAT THE CASE WAS RE - OPENED BY ISSUE OF NOTICE U/S 148 OF THE IT ACT WHICH WAS DULY SERVED UPON APPELLANT. IN RESPONSE TO THE NOTICE U/S.148 OF THE IT ACT, THE APPELLANT HAD SUBMITTED THAT THE RETURN FILED EARLIER BE TREATED AS FILED IN RESPONSE TO NOTICE U/S 148 OF THE IT ACT. THE AO HAD ALSO GIVEN THE REASONS RECORDED FOR RE - OPENING OF THE IMPUGNED ASSESSMENT TO THE APPELLANT. 7.4 THE APPELLANT SUBMITTED THAT ASSESSMEN T HAD BEEN REOPENED SOLELY ON THE BASIS OF THE INFORMATION RECEIVED FROM SALES TAX DEPARTMENT. THE SALES TAX DEPARTMENT PROVIDED SUCH INFORMATION ON THE BASIS OF THE GENERAL STATEMENT OF 3 RD PARTY NAMED SH. DEVARSHI M GANATRA, PROPRIETOR OF M/S DEV ENTERPR ISES WHICH HAS BEEN RECORDED AT BACK OF THE APPELLANT AND COPIES OF SUCH STATEMENT HAD NOT BEEN PROVIDED TO THE APPELLANT FOR CONFRONTATION. THE APPELLANT WAS NOT ALLOWED AN OPPORTUNITY OF CROSS EXAMINATION, THUS RE - OPENING OF THE ASSESSMENT SOLELY ON THE BASIS OF STATEMENT OF 3 RD PARTY CANNOT BE SUSTAINED. FURTHER, THE STATEMENT OF 3 RD PARTY IS TOO GENERAL IN NATURE AND DOES NOT SPECIFY THE APPELLANT'S NAME NOR APPELLANT'S INVOLVEMENT IN ANY INGENUINE BILLS. THE DISPUTED PURCHASE STATED IN RECORDED REASONS DOES NOT MATCH WITH ACTUAL PURCHASE MADE BY APPELLANT. THE MERE RECEIPT OF AN INFORMATION FROM THE SALES TAX DEPARTMENT CANNOT BE TREATED AS A TANGIBLE MATERIAL SO AS TO REOPEN THE COMPLETED ASSESSMENT; 7.5 IT WAS FURTHER ARGUED THAT HE LD. AO HAD NOT IN DEPENDENTLY APPLIED HIS JUDICIAL MIND AND DID NOT FORM AN INDEPENDENT OPINION WHILE RE - OPENING THE ASSESSMENT AND MERELY FOLLOWED ON THE INCORRECT INFORMATION RECEIVED FROM SALES TAX DEPARTMENT. THE LD. AO, BEFORE REOPENING THE ASSESSMENT, OUGHT TO HAVE CO NSIDERED THE FACT THAT APPELLANT'S PURCHASE ARE SUPPORTED WITH SEVERAL VITAL DOCUMENTARY EVIDENCES SUCH AS PURCHASE BILLS, DELIVERY CHALLANS, BANK STATEMENTS, CORRESPONDING SALES, QUANTITY TALLY, ETC. AS THERE IS NO FRESH TANGIBLE MATERIAL AVAILABLE ON REC ORD AND IN ABSENCE OF FORMATION OF AN INDEPENDENT OPINION, THE NOTICE U/S 148 OF THE IT ACT IS ERRONEOUS AND CONSEQUENTIAL RE - ASSESSMENT ORDER U/S 147 OF THE IT ACT IS BAD IN LAW. 7.6 WHILE DEALING WITH THE SUBJECT, SCOPE AND EFFECT OF NOTICE U/S 147 OF T HE IT ACT AS SUBSTITUTED WITH EFFECT FROM 01 - 04 - 1989, THE HON'BLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS (P) LTD. 291 1TR 500 (SC) HAS HELD THAT UNDER THE SUBSTITUTED SECTION OF 147 OF THE IT ACT, EXISTENCE OF ONLY THE FIRST CONDITION I. E. 'ASSESSING OFFICER MUST HAVE REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT' IS SUFFICIENT AND '// THE ASSESSING OFFICER FOR WHATEVER REASON, HAS REASON TO BELIEVE THAT, INCOME HAS ESCAPED ASSESSMENT, IT CONFERS JURISDICTION ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 5 TO REOPEN THE ASSESSME NT'. IT WAS FURTHER HELD THAT SO LONG AS THE CONDITIONS OF SECTION 147 OF THE IT ACT ARE FULFILLED, THE AO IS FREE TO INITIATE THE PROCEEDINGS U/S 147 OF THE IT ACT AND EVEN FAILURE TO TAKE STEPS U/S 143(3) OF THE IT ACT WILL NOT RENDER THE AO POWERLESS TO INITIATE REASSESSMENT PROCEEDINGS, EVEN WHEN THE INTIMATION U/S 143(1) OF THE IT ACT HAS BEEN ISSUED. 7.7 THE APEX COURT HAS FURTHER HELD THAT SECTION 147 OF THE IT ACT AUTHORIZES AND PERMITS THE ASSESSING OFFICER TO ASSESS OR REASSESS INCOME CHARGEABLE TO TAX IF HE HAS REASON TO BELIEVE THAT INCOME FOR ANY ASSESSMENT YEAR HAS ESCAPED ASSESSMENT. THE WORD 'REASON' IN THE PHRASE 'REASON TO BELIEVE' WOULD MEAN CAUSE OR JUSTIFICATION. IF THE ASSESSING OFFICER HAS CAUSE OR JUSTIFICATION TO KNOW OR SUPPOSE THA T INCOME HAD ESCAPED ASSESSMENT, IT CAN BE SAID TO HAVE REASON TO BELIEVE THAT AN INCOME HAD ESCAPED ASSESSMENT. THE EXPRESSION CANNOT BE READ TO MEAN THAT THE ASSESSING OFFICER SHOULD HAVE FINALLY ASCERTAINED THE FACT BY LEGAL EVIDENCE OR CONCLUSION. THE FUNCTION OF THE ASSESSING OFFICER IS TO ADMINISTER THE STATUTE WITH SOLICITUDE FOR THE PUBLIC EXCHEQUER WITH AN INBUILT IDEA OF FAIRNESS TO TAXPAYERS. AS OBSERVED BY THE SUPREME COURT IN CENTRAL PROVINCES MANGANESE ORE CO. LTD. V. ITO [1991] 191 662, FOR I NITIATION OF ACTION UNDER SECTION 147(A) OF THE IT ACT (AS THE PROVISION STOOD AT THE RELEVANT TIME) FULFILLMENT OF THE TWO REQUISITE CONDITIONS IN THAT REGARD IS ESSENTIAL. AT THAT STAGE, THE FINAL OUTCOME OF THE PROCEEDING IS NOT RELEVANT. IN OTHER WORDS , AT THE INITIATION STAGE, WHAT IS REQUIRED IS 'REASON - TO BELIEVE', BUT NOT THE ESTABLISHED FACT OF ESCAPEMENT OF INCOME. AT THE STAGE OF ISSUE OF NOTICE, THE ONLY QUESTION IS WHETHER THERE WAS RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COULD HAVE FORM ED A REQUISITE BELIEF. WHETHER THE MATERIALS WOULD CONCLUSIVELY PROVE THE ESCAPEMENT IS NOT THE CONCERN AT THAT STAGE. THIS IS SO BECAUSE THE FORMATION OF BELIEF BY THE ASSESSING OFFICER IS WITHIN THE REALM OF SUBJECTIVE SATISFACTION {ITO VS SELECTED DALUR BAND COAL CO. (P.) LTD. [1996] 217 ITR 597 (SC); RAYMOND WOOLLEN MILLS LTD. V. ITO [1999] 236 ITR 34 (SC). 7.8 THE SCOPE AND EFFECT OF SECTION 147 OF THE IT ACT AS SUBSTITUTED WITH EFFECT FROM 01 - 04 - 1989, AS ALSO SECTIONS 148 TO 152 ARE SUBSTANTIALLY DIFF ERENT FROM THE PROVISIONS AS THEY STOOD PRIOR TO SUCH SUBSTITUTION. UNDER THE OLD PROVISIONS OF SECTION 147 OF THE IT ACT, SEPARATE CLAUSES (A) AND (B) LAID DOWN THE CIRCUMSTANCES UNDER WHICH INCOME ESCAPING ASSESSMENT FOR THE PAST ASSESSMENT YEARS COULD B E ASSESSED OR REASSESSED. TO CONFER JURISDICTION UNDER SECTION 147(A) OF THE IT ACT, TWO CONDITIONS WERE REQUIRED TO BE SATISFIED FIRSTLY THE ASSESSING OFFICER MUST HAVE REASON TO BELIEVE THAT INCOME PROFITS OR GAINS CHARGEABLE TO INCOME TAX HAVE ESCAPED A SSESSMENT, AND SECONDLY HE MUST ALSO HAVE REASON TO BELIEVE THAT SUCH ESCAPEMENT HAS OCCURRED BY REASON OF EITHER (I) OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY OR TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT OF THAT YEAR. B OTH ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 6 THESE CONDITIONS WERE CONDITIONS PRECEDENT TO BE SATISFIED BEFORE THE ASSESSING OFFICER COULD HAVE JURISDICTION TO ISSUE NOTICE UNDER SECTION 148 OF THE IT ACT READ WITH SECTION 147(A) OF THE IT ACT. BUT UNDER THE SUBSTITUTED SECTION 147 EXISTENCE OF O NLY THE FIRST CONDITION SUFFICES. IN OTHER WORDS, IF THE ASSESSING OFFICER FOR WHATEVER REASON HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT IT CONFERS JURISDICTION TO REOPEN THE ASSESSMENT. 7.9 IT WAS THUS HELD IN RAJESH JHAVERI (SUPRA) TH AT SO LONG AS THE INGREDIENTS OF SECTION 147 OF THE IT ACT ARE FULFILLED, THE ASSESSING OFFICER IS FREE TO INITIATE PROCEEDING UNDER SECTION 147 OF THE IT ACT AND FAILURE TO TAKE STEP; SECTION 143(3) WILL NOT RENDER THE ASSESSING OFFICER POWERLESS TO INITI ATE REASSESSMENT PROCEEDINGS EVEN WHEN INTIMATION UNDER SECTION 143(1) OF THE IT ACT HAD BEEN ISSUED. 7.10 IT MAY ALSO BE STATED HERE THAT DEPARTMENTAL AUTHORITIES AND THE APPELLATE AUTHORITIES SHOULD KEEP IN MIND THE FOLLOWING OBSERVATIONS MADE BY TH E FEDERAL COURT IN CHATWRAM V. C/T [1947] 15 1TR 302: 'THE INCOME - TAX ASSESSMENT PROCEEDINGS COMMENCE WITH THE ISSUE OF A NOTICE. THE ISSUE OR RECEIPT OF A NOTICE IS NOT, HOWEVER, THE FOUNDATION OF THE JURISDICTION OF THE INCOME - TAX OFFICER TO MAKE THE AS SESSMENT OR OF THE LIABILITY OF THE ASSESSEES TO PAY THE TAX. IT MAY BE URGED THAT THE ISSUE AND SERVICE OF A NOTICE UNDER SECTION 22(1) OR (2) MAY AFFECT THE LIABILITY UNDER THE PENAL CLAUSES WHICH PROVIDE FOR FAILURE TO ACT AS REQUIRED BY THE NOTICE. THE JURISDICTION TO ASSESS AND THE LIABILITY TO PAY THE TAX, HOWEVER, ARE NOT CONDITIONAL ON THE VALIDITY OF THE NOTICE. SUPPOSE A PERSON, EVEN BEFORE A NOTICE IS PUBLISHED IN THE PAPERS UNDER SECTION 22(1), OR BEFORE HE RECEIVES A NOTICE UNDER SECTION 22(2) OF THE INCOME - TAX ACT, GETS A FORM OF RETURN FROM THE INCOME - TAX OFFICER AND SUBMITS HIS RETURN, IT WILL BE FUTILE TO CONTEND THAT THE INCOME - TAX OFFICER IS NOT ENTITLED TO ASSESS THE PARTY OR THAT THE PARTY IS NOT LIABLE TO PAY ANY TAX BECAUSE A NOTICE HA D NOT BEEN ISSUED TO HIM. THE LIABILITY TO PAY THE TAX IS FOUNDED ON SECTIONS 3 AND 4 OF THE INCOME - TAX ACT, WHICH ARE THE CHARGING SECTIONS. SECTION 22, ETC., ARE THE MACHINERY SECTIONS TO DETERMINE THE AMOUNT OF TAX.' [EMPHASIS SUPPLIED] 7.11 THE ABO VE OBSERVATIONS WERE APPROVINGLY CITED BY THE SUPREME COURT IN CIT V. JAI PRAKASH SINGH [1996] 219 ITR 737 / 85 TAXMAN 407. IN ADDITION THE SUPREME COURT ALSO NOTICED ITS OBSERVATIONS MADE EARLIER IN ESTATE OF LATE RANGALAL JAJODIAV. C/7[1971] 79 ITR 505 W HICH ARE AS UNDER: - 'THE LACK OF A NOTICE DOES NOT AMOUNT TO THE REVENUE AUTHORITY HAVING HAD NO JURISDICTION TO ASSESS, BUT THAT THE ASSESSMENT WAS DEFECTIVE BY REASON OF NOTICE NOT HAVING BEEN GIVEN TO HER. AN ASSESSMENT PROCEEDING DOES NOT CEASE TO BE A PROCEEDING UNDER THE ACT MERELY BY ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 7 REASON OF WANT OF NOTICE. IT WILL BE A PROCEEDING LIABLE TO BE CHALLENGED AND CORRECTED.' 7.12 NOTICING THE AFORESAID TWO JUDGMENTS, THE SUPREME COURT IN JAI PRAKASH SINGH'S CASE (SUPRA) FURTHER HELD AS UNDER: - 'T HE PRINCIPLE THAT EMERGES FROM THE ABOVE DECISION IS THAT AN OMISSION TO SERVE OR ANY DEFECT IN THE SERVICE OF NOTICES PROVIDED BY PROCEDURAL PROVISIONS DOES NOT EFFACE OR ERASE THE LIABILITY TO PAY TAX WHERE SUCH LIABILITY IS CREATED BY DISTINCT SUBSTANTI VE PROVISIONS [CHARGING SECTIONS]. ANY SUCH OMISSION OF DEFECT MAY RENDER THE ORDER MADE IRREGULAR - DEPENDING UPON THE NATURE OF THE PROVISION NOT COMPLIED WITH - BUT CERTAINLY NOT VOID OR ILLEGAL.' 7.13 THE OBSERVATIONS MADE IN THE JUDGMENTS OF THE FEDERAL COURT IN CHATTURAM'S CASE (SUPRA) AND THE SUPREME COURT IN THE JUDGMENTS CITED ABOVE ARE TO BE UNDERSTOOD AS REMINDERS THAT WHENEVER A CASE IS SET UP BY THE ASSESSEE THAT THERE HAS BEEN NO VALID OR PROPER SERVICE OF THE NOTICE ISSUED UNDER SECTION 143(2)/1 47 OF THE IT ACT, BE IT FOR THE PURPOSE OF REGULAR ASSESSMENT UNDER SECTION 143(3) OF THE ACT OR RE - ASSESSMENT OR FOR THE PURPOSE OF A BLOCK ASSESSMENT UNDER CHAPTER XIV - B OR FOR THE PURPOSE OF AN ASSESSMENT UNDER SECTION 153A, SUCH A PLEA HAS TO BE EXAMIN ED THOROUGHLY AND IN - DEPTH BY TAKING A PRACTICAL AND REASONABLE VIEW OF THE MATTER, NOT INCONSISTENT WITH THE STATUTORY PROVISIONS, KEEPING IN MIND THE BASIC PRINCIPLE THAT THE LIABILITY TO PAY TAX, WHICH IS FOUNDED ON THE CHARGING PROVISIONS OF THE STATUT E, IS NOT TO BE NULLIFIED ON SPECIOUS OR UNJUSTIFIED PLEAS TAKEN BY THE ASSESSEE. 7.14 EVEN IN GKN DRIVESHAFTS (INDIA) LTD. V. INCOME - TAX OFFICER 259 ITR 19(SC) WHAT THE HON'BLE APEX COURT RULED WHILE DISMISSING SLP AGAINST ISSUANCE OF NOTICE U/S 148 WAS : 'INSOFAR AS THE APPEALS FILED AGAINST THE ORDER OF ASSESSMENT BEFORE THE COMMISSIONER (APPEALS), WE DIRECT THE APPELLATE AUTHORITY TO DISPOSE OF THE SAME, EXPEDITIOUSLY.' 7.15 THUS, IT CANNOT BE SAID THAT APEX COURT TREATED THE PROCEDURAL LAPSE AS FATA L TO NULLIFY THE RE - ASSESSMENT. IN ANY CASE, IN DATAMATICS LTD. V. ASSISTANT COMMISSIONER OF INCOME - TAX 110 ITD 24 (MUM), HON'BLE MUMBAI TRIBUNAL AFTER CONSIDERING GKN DRIVESHAFTS (SUPRA) HAS HELD AS UNDER : 'CONSIDERING THE ISSUE IN DETAIL, IN THE CASE O F ITO V. SMT. GURINDER KAUR [2006] 102 ITD 189 (DELHI), TRIBUNAL HELD THAT NON - COMMUNICATION OF THE REASONS IS NOT FATAL IN THE LIGHT OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OFS. NARAYANAPPA V. CIT[1967] 63 ITR 219, RENDERED BY A BENCH OF THREE JUDGES, WHICH WAS NOT ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 8 BROUGHT TO THE NOTICE OF THEIR LORDSHIPS WHILE CONSIDERING THE MATTER IN THE CASE OF GKN DRIVESHAFTS (INDIA) LTD, (SUPRA). SINCE THE TRIBUNAL HAS CONSIDERED THE DECISIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF GKN DRIVESHAF TS (INDIA) LTD. (SUPRA) AND ALSO THE CASE OF S. NARAYANAPPA (SUPRA), WE ARE OF THE VIEW THAT THE PLEA OF THE ASSESSEE THAT NON - COMMUNICATION OF THE REASONS IN SPITE OF REQUEST OF THE ASSESSEE MADE AFTER FILING THE RETURN, CANNOT BE TREATED AS FATAL. HENCE, THE APPEAL OF THE ASSESSEE ON THIS ADDITIONAL GROUND IS DISMISSED.' (EMPHASIS SUPPLIED) 7.16 IN VIEW OF THE ABOVE DISCUSSION AND THE FACT THAT THERE WAS AN TRANSACTIONS WITH CERTAIN PARTIES WHO HAVE NOT CAME FORWARD TO PROVE THE GENUINENESS OF TRANSAC TION AND WITHOUT CONFIRMING THE ACCOUNTS GROUNDS FOR REOPENING THE ASSESSMENT COULD NOT BE SAID TO BE IN VIOLATION OF ANY STATUTORY PROVISION AND EVEN IN LETTER AND SPIRIT, PRINCIPLES OF NATURAL JUSTICE WERE FOLLOWED AND THE APPELLANT. 7.17 IT IS UNDISPUT ED THAT ON THE BASIS OF SPECIFIC INFORMATION RECEIVED BY THE ID. A.O., ACTION U/S.147 OF THE IT ACT, COULD EASILY BE TAKEN, NO DOUBT AFTER FOLLOWING DUE PROCESS OF LAW. IN THE INSTANT CASE, THERE IS NO DISPUTE THAT NOTICE U/S 148 OF THE IT ACT WAS SERVED A FTER RECORDING APPROPRIATE REASONS AND AS PER RECORDS, REASONS FOR REOPENING WERE ALSO PROVIDED TO THE APPELLANT. THUS, IT CANNOT BE SAID THAT FACTUALLY OR LEGALLY, THERE AROSE ANY GROUND FOR CHALLENGING THE REASSESSMENT PROCEEDINGS. NONE THE LESS, IT IS A LSO IMPORTANT TO NOTE THE CASE LAWS ON THE SUBJECT WHICH SUPPORT THE ACTION TAKEN BY THE LD. A.O. 7.18 TO REITERATE, WHILE DEALING WITH THE SUBJECT OF SCOPE AND EFFECT OF NOTICE U/S 147 OF THE IT ACT AS SUBSTITUTED WITH EFFECT FROM 01 - 04 - 1989, THE HON'BLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS FPJ LTD. (SUPRA) HAS HELD THAT UNDER THE SUBSTITUTED SECTION OF 147 OF THE IT ACT, EXISTENCE OF ONLY THE FIRST CONDITION I.E. 'ASSESSING OFFICER MUST HAVE REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT' IS SUFFICIENT AND 'IF THE ASSESSING OFFICER FOR WHATEVER REASON, HAS REASON TO BELIEVE THAT, INCOME HAS ESCAPED ASSESSMENT, IT CONFERS JURISDICTION TO REOPEN THE ASSESSMENT'. IT WAS FURTHER HELD THAT SO LONG AS THE CONDITIONS OF SECTION 147 OF THE IT ACT ARE FULFILLED, THE AO IS FREE TO INITIATE THE PROCEEDINGS U/S 147 OF THE IT ACT AND FAILURE TO TAKE STEPS U/S 143{3J OF THE IT ACT WILL NOT RENDER THE AO POWERLESS TO INITIATE REASSESSMENT PROCEEDINGS, EVEN WHEN THE INTIMATION U/S, 143(1) HAS BE EN ISSUED. 7.19 IT IS THE DUTY OF THE ASSESSEE TO DISCLOSE FULL AND TRUE MATERIALS TO THE A.O, BUT FOR WHICH THE A.O. COULD INITIATE THE REASSESSMENT PROCEEDINGS. IT HAS BEEN HELD BY THE HON'BLE SUPREME COURT IN SHRL KRISHNA P. LTD. 221 ITR 538, 549 THAT EVERY DISCLOSURE IS NOT AND CANNOT BE TREATED TO BE A TRUE AND FULL DISCLOSURE. A DISCLOSURE MAY BE A FALSE ONE OR A TRUE ONE. IT MAY BE A FULL DISCLOSURE OR IT MAY NOT BE. THE ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 9 HON'BLE SUPREME COURT HELD THAT A PARTIAL DISCLOSURE MAY VERY OFTEN BE A MISLEA DING ONE. THEREFORE, WHAT IS REQUIRED IS A FULL AND TRUE DISCLOSURE OF ALL MATERIAL FACTS NECESSARY FOR MAKING ASSESSMENT FOR THAT YEAR. AS NOTED IN DETAIL EARLIER, I FIND FROM THE REASONS RECORDED BY THE LD. A.O. THAT THESE TRANSACTIONS WERE NOT DISCLOSED BY THE APPELLANT AND THEREFORE, PRIMA FACIE HE HAD VALID GROUNDS TO REOPEN THE CASE. 7.20 IT HAS BEEN HELD IN A NUMBER OF CASES THAT ONCE THE A.O. RECORDS THE MANDATORY REASONS BEFORE INITIATING REASSESSMENT PROCEEDINGS ON THE BASIS OF EVIDENCE BROUGHT T O HIS KNOWLEDGE, THE COURTS CANNOT STEP INTO HIS SHOES AS REGARDS THE SUFFICIENCY OF THE REASONS RECORDED. THE BELIEF MUST BE HONEST AND OF REASONABLE PERSON BASED ON REASONABLE GROUNDS. THE A.O. MAY ACT ON DIRECT OR CIRCUMSTANTIAL EVIDENCE; BUT HIS BELIEF MUST NOT BE BASED ON MERE SUSPICION, GOSSIP OR RUMOUR. I FIND FROM THE FACTS OF THE CASE THAT THE REASON IS BASED ON SPECIFIC FACTS. THE HON'BLE APEX COURT HAS HELD THAT THE COURT CAN ALWAYS EXAMINE THIS ASPECT (I.E. FORMATION OF BELIEF) THOUGH THE DECLAR ATION OR SUFFICIENCY OF THE REASONS FOR THE BELIEF CANNOT BE INVESTIGATED BY THE COURT. [(SHEO IMATH SINGH 82 ITR 147)(SC) ; BHAGWAN INDUSTRIAL P.LTD. 31STC 293 (SC) 7.21 HON'BLE SUPREME COURT IN THE CASE OF RAYMOND WOOL/EN MILLS LTD. VS. ITO 236 ITR 34, 35 (SC) HAS HELD THAT FOR DETERMINING WHETHER INITIATION OF REASSESSMENT PROCEEDINGS WAS VAIID, IT HAS ONLY TO BE SEEN WHETHER THERE WAS PRIMA FACIE SOME MATERIAL ON THE BASIS OF WHICH THE DEPARTMENT COULD REOPEN THE CASE. IT FURTHER HELD THAT THE SUFFICIE NCY OR CORRECTNESS OF THE MATERIAL IS NOT A THING TO BE CONSIDERED AT THIS STAGE. THE HON'BLE APEX COURT IN THE CASE OF SHRI KRISHNA P.LTD. (SUPRA) HAS ALSO HELD THAT THE ENQUIRY AT THE STAGE OF EXAMINING THE VALIDITY OF REASSESSMENT NOTICE IS ONLY TO SEE WHETHER THERE ARE REASONABLE GROUNDS FOR THE A.O. AND NOT WHETHER THE OMISSIONS/FAILURES AND THE ESCAPEMENT OF THE INCOME IS ESTABLISHED. THE HON'BLE COURT THEREFORE, CAUTIONED THAT IT WAS NECESSARY TO KEEP THIS DISTINCTION IN MIND. 7 .22 AT THIS JUNCTURE IT WOULD ALSO BE APPROPRIATE TO REPRODUCE THE EXPLANATION TO SECTION 147 OF THE IT ACT WHICH READS AS UNDER; - ' EXPLANATION - 2 - FOR THE PURPOSES OF THIS SECTION, THE FOLLOWING SHALL ALSO BE DEEMED TO BE CASES WHERE INCOME CHARGEABLE T O TAX HAS ESCAPED ASSESSMENT, NAMELY: (A) WHERE NO RETURN OF INCOME HAS BEEN FURNISHED BY THE ASSESSEE ALTHOUGH HIS TOTAL INCOME OR THE TOTAL INCOME OF ANY OTHER PERSON IN RESPECT OF WHICH HE IS ASSESSABLE UNDER THIS ACT DURING THE PREVIOUS YEAR EXCEEDED THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO INCOME - TAX; ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 10 (B) WHERE A RETURN OF INCOME HAS BEEN FURNISHED BY THE ASSESSEE BUT NO ASSESSMENT HAS BEEN MADE AND IT IS NOTICED BY THE AO THAT THE ASSESSEE HAS UNDERSTATED THE INCOME OR HAS CLAIMED EXCESSIVE LOSS , DEDUCTION, ALLOWANCE OR RELIEF IN THE RETURN; (C) WHERE AN ASSESSMENT HAS BEEN MADE, BUT - (I) INCOME CHARGEABLE O TAX HAS BEEN UNDER ASSESSED; ;OR (II) SUCH INCOME HAS BEEN ASSESSED AT TOO LOW A RATE; OR (III) SUCH INCOME HAS BEEN MADE THE SUBJ ECT OF EXCESSIVE RELIEF UNDER THIS ACT; OR (IV) EXCESSIVE LOSS OR DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE UNDER THIS ACT HAS BEEN COMPUTED.' 7.23 INTERPRETING AND HIGHLIGHTING THE SIGNIFICANCE OF THE SAID EXPLANATION IN CONSOLIDATED PHOTO & FINVES T LTD. VS. ASSTT. CIT (2006) 200 C77? (DEL) 433 : (2006)281 ITR 394 (DEL), IT HAS BEEN HELD: '9. THE ABOVE WOULD SHOW THAT CASES FALLING IN CL.(C) OF EXPLN. 2 IN WHICH INCOME CHARGEABLE TO TAX HAS BEEN UNDERASSESSED OR ASSESSED AT TOO LOW A RATE OR CASES IN WHICH INCOME HAS BEEN MADE THE SUBJECT OF EXCESSIVE RELIEF UNDER THE ACT OR WHERE EXCESSIVE LOSS OR DEPRECIATION ALLOWANCE OF ANY OTHER ALLOWANCE UNDER THE ACT HAS BEEN COMPUTED, WOULD CONSTITUTE CASES OF INCOME ESCAPING ASSESSEE. THERE IS CONSIDERABLE AUTHORITY FOR THE PROPOSITION THAT THE JURISDICTION OF THE AO TO INITIATE PROCEEDINGS WOULD DEPEND UPON WHETHER HE HAS REASONS TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. A LONG STRING OF DECISIONS RENDERED BY THE SUPREME COURT HAV E EMPHASIZED THAT THE BELIEF OF THE AO MUST BE IN GOOD FAITH AND MUST NOT BE A MERE PRETENCE. THE APEX COURT HAS FURTHER HELD THAT THERE MUST BE A NEXUS BETWEEN THE MATERIAL BEFORE THE AO AND THE BELIEF WHICH HE FORMS REGARDING THE ESCAPEMENT OF THE ASSESS EE'S INCOME. A WRIT COURT, THEREFORE, IS ENTITLED TO EXAMINE WHETHER THE AO'S BELIEF WAS IN GOOD FAITH AND WHETHER SUCH REASONS HAD A NEXUS WITH THE ACTION PROPOSED TO BE TAKEN. ' 7.24 THE PRESENT CASE IS NOT EVEN ONE OF CHANGE OF OPINION. QUESTION OF CHA NGE OF OPINION ARISES WHEN THE A.O. FORMS AN OPINION AND DECIDES NOT TO MAKE AN ADDITION AND HOLDS THAT THE APPELLANT WAS CORRECT IN HIS STAND. IT WILL BE APPROPRIATE IN THIS REGARD TO REFER TO EXPLANATION 1 TO SECTION 147 OF THE IT ACT WHICH READS AS UNDE R: - : 'EXPL.L PRODUCTION BEFORE THE AO OF ACCOUNT BOOKS OR OTHER EVIDENCE FROM WHICH MATERIAL EVIDENCE COULD WITH DUE DILIGENCE HAVE BEEN DISCOVERED BY THE AO WILL NOT NECESSARILY AMOUNT TO DISCLOSURE WITHIN THE MEANING OF THE FOREGOING PROVISO. 7.25 REFERRING TO THE SAID EXPLANATION IN CONSOLIDATED PHOTO & TTNVEST LTD. (SUPRA), IT HAS BEEN HELD: ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 11 '8. IT IS CLEAR FROM THE ABOVE THAT THE TWO CRITICAL ASPECTS WHICH NEED TO BE ADDRESSED IN ANY ACTION UNDER S. 147 ARE WHETHER THE AO HAS 'REASON TO BELIEVE' THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPADE ASSESSMENT AND WHETHER THE PROPOSED REASSESSMENT IS WITHIN THE PERIOD OF LIMITATION PRESCRIBED UNDER THE PROVISO TO S. 147. EXPLN .1 TO THE SAID PROVISION MAKES IT CLEAR THAT PRODUCTION OF ACCOUNT BOOKS OR OT HER EVIDENCE FROM WHICH THE AO COULD WITH DUE DILIGENCE DISCOVER MATERIAL EVIDENCE WOULD NOT NECESSARILY AMOUNT TO DISCLOSURE WITHIN THE MEANING OF THE PROVISO THAT STIPULATES AN EXTENDED PERIOD OF LIMITATION FOR ACTION IN CASES WHERE THE ESCAPEMENT ARISES OUT OF THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. 7.26 IN KANTAMANI VENKATA NARYANA & SONS VS. ADDL. ITO (1967 ) 63 ITR 638 (SC), THE APEX COURT HELD THAT IN PROCEEDIN GS UNDER ART.226 OF THE CONSTITUTION OF INDIA CHALLENGING THE JURISDICTION OF THE ITO TO ISSUE A NOTICE 'FOR REOPENING THE ASSESSMENT, THE HIGH COURT WAS ONLY CONCERNED WITH EXAMINING WHETHER THE CONDITIONS WHICH INVESTED THE ITO WITH THE POWERS TO R EOPEN THE ASSESSMENT EXISTED. IT IS NOT, OBSERVED THE COURT, WITHIN THE PROVINCE OF THE HIGH COURT TO RECORD A FINAL DECISION ABOUT THE FAILURE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS BEARING ON THE ASSESSMENT AND CONSEQUENT ESCAPEMENT OF INCOME FRO M ASSESSMENT AND TAX. THE COURT ALSO HELD THAT FROM A MERE PRODUCTION OF THE BOOKS OF ACCOUNT, IT COULD NOT BE INFERRED THAT THERE HAD BEEN FULL DISCLOSURE OF THE MATERIAL FACTS NECESSARY FOR THE PURPOSES OF ASSESSMENT. THE TERMS OF THE EXPLANATION, DECLAR ED THE COURT, WERE TOO PLAIN TO PERMIT AN ARGUMENT THAT THE DUTY OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS WOULD STAND DISCHARGED WHEN HE PRODUCES THE BOOKS OF ACCOUNT OR EVIDENCE WHICH HAS A MATERIAL BEARING ON THE ASSESSMENT. THE COU RT OBSERVED (P.644): IT IS THE DUTY OF THE ASSESSEE TO BRING TO THE NOTICE OF THE ITO PARTICULAR ITEMS IN THE BOOKS OF ACCOUNT OR PORTIONS OF DOCUMENTS WHICH ORE RELEVANT. EVEN IF IT BE ASSUMED THAT FROM THE BOOKS PRODUCED, THE !JO MAY NOT ON THAT ACCOUNT BE PRECLUDED FROM EXERCISING THE POWER TO ASSESS INCOME WHICH HAD ESCAPED ASSESSMENT' 7.27 TO THE SAME EFFECT IS THE DECISION OF THE SUPREME COURT IN MALEGAON ELECTRICITY CO. (P) LTD. VS. CIT (1970) 78 ITR 466 (SC) WHERE THE COURT OBSERVED (PAGE 471): 7T IS TRUE THAT IF THE ITO HAD MADE SOME INVESTIGATION, PARTICULARLY IF HE HAD LOOKED INTO THE PREVIOUS ASSESSMENT RECORDS, HE WOULD HAVE BEEN ABLE TO FIND OUT WHAT THE WRITTEN DOWN VALUE OF THE ASSETS SOLD WAS AND CONSEQUENTLY HE WOULD HAVE BEEN ABLE TO FIND OUT THE PRICE IN EXCESS OF THEIR WRITTEN DOWN VALUE REALIZED BY THE ASSESSEE. IT CON BE SAID THAT THE ITO IF HE HAD BEEN DILIGENT COULD HAVE GOT ALL THE NECESSARY INFORMATION FROM HIS RECORDS. BUT THAT IS NOT THE SAME THING AS SAYING THAT THE ASSESSEE HAD PLACED BEFORE THE ITO TRULY AND FULLY ALL MATERIAL FACTS ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 12 NECESSARY FOR THE PURPOSE OF ASSESSMENT. THE LAW CASTS A DUTY ON THE ASSESSEE TO 'DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THAT YEAR.' 7.28 IT HAS BEEN FURTH ER OBSERVED IN CONSOLIDATED PHOTO & FINVEST LTD. (SUPRA): '19.......THE ARGUMENT THAT THE PROPOSED REOPENING OF ASSESSMENT WAS BASED ONLY UPON A CHANGE OF OPINION HAS NOT IMPRESSED US. THE ASSESSMENT ORDER DID NOT ADMITTEDLY ADDRESS ITSELF TO THE QUESTION W HICH THE AO PROPOSES TO EXAMINE IN THE COURSE OF REASSESSMENT PROCEEDINGS. THE SUBMISSION OF MR. VOHRA THAT EVEN WHEN THE ORDER OF ASSESSMENT DID NOT RECORD ANY EXPLICIT OPINION ON THE ASPECTS NOW SOUGHT TO BE EXAMINED . IT MUST BE PRESUMED THAT THOSE ASPE CTS WERE PRESENT TO THE MIND OF THE AO AND HAD BEEN HELD IN FAVOUR OF THE ASSESSEE IS TOO FAR - FETCHED A PROPOSITION TO MERIT ACCEPTANCE. THERE MAY INDEED BE A PRESUMPTION THAT THE ASSESSMENT PROCEEDINGS HOVE BEEN REGULARLY CONDUCTED, BUT THERE CAN BE NO PR ESUMPTION THAT EVEN WHEN THE ORDER OF ASSESSMENT IS SILENT, ALL POSSIBLE ANGLES AND ASPECTS OF A CONTROVERSY HAD BEEN EXAMINED AND DETERMINED BY THE AO.' 7.29 IT IS WELL SETTLED THAT EVEN AN AUDIT OBJECTION ON THE POINT OF FACT CAN BE A VALID GROUND FOR R EOPENING OF ASSESSMENT. IN THE CASE OF NEW LIGHT TRADING CO. VS. C1T (2001) 170 CTR (DEL)138: (2002) 256 ITR 391 (DEL), A DIVISION BENCH OF THE COURT AFTER REFERRING TO THE DECISION OF SUPREME COURT IN CIT VS P.V.S. BEEDIES (P) LTD. (1999) 155 CTR (SC) 538 : (1999) 237 ITR 13 (SC) HAS HELD AS UNDER (AT P.393): 'IN THE CASE OF CIT VS. P.V.S. BEEDIES (P) LTD. (1999) 155 CTR (SC) 538: (1999) 237 ITR 13 (SC) THE APEX COURT HELD THAT THE AUDIT PARTY CAN POINT OUT A FACT, WHICH HAS BEEN OVERLOOKED BY THE ITO IN THE ASSESSMENT. THOUGH THERE CANNOT BE ANY INTERPRETATION OF LAW BY THE AUDIT PARTY, IT IS ENTITLED TO POINT OUT A FACTUAL ERROR OR OMISSION IN THE ASSESSMENT AND REOPENING OF A CASE ON THE BASIS OF FACTUAL ERROR OR OMISSION POINTED OUT BY THE AUDIT PARTY IS PERMISSIBLE UNDER LAW. AS THE TRIBUNAL HAS RIGHTY NOTICED, THIS WAS NOT A CASE FOR THE AO MERELY ACTING AT THE BEHEST OF THE AUDIT PARTY OR ON ITS REPORT. IT HAS INDEPENDENTLY EXAMINED THE MATERIAL COLLECTED BY THE AUDIT PARTY IN ITS REPORT AND HAS COME TO AN INDEPENDENT CONCLUSION THAT THERE WAS ESCAPEMENT OF INCOME. THE ANSWER TO THE QUESTION, THEREFORE, IN THE AFFIRMATIVE, IN FAVOUR OF TH REVENUE AND AGAINST THE ASSESSEE.' 7.30 SO MUCH SO THAT EVEN IN A CASE OF SCRUTINY ASSESSMENT, WHEN THERE IS NO D ISCUSSION ON THE ISSUE IN THE ASSESSMENT ORDER AND NO DETAILS WERE CALLED FOR BY THE A.O. OR FILED BY THE ASSESSEE ON THE ISSUE, NO FINDING EITHER POSITIVE OR NEGATIVE CAN BE SAID TO HAVE BEEN ARRIVED AT DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS . HENCE, THERE IS NO QUESTION OF CHANGE OF OPINION AS HELD IN THE FOLLOWING JUDGMENTS. ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 13 1. KALYANJI MAVJI & CO. VS. CIT 102 ITR 287 (SC) 2. ESSKAY ENGINEERING P. LTD. VS. CIT 247 ITR 818 3. ITO VS. PURUSHOTTAM DAS BANGUR & ANR. 224 ITR 362 (SC). 7.31 THE S ECOND QUESTION THAT COULD ARISE FOR CONSIDERATION IS WHETHER THE APPELLANT HAD MADE FULL AND TRUE DISCLOSURE OF MATERIAL FACTS. I HAVE ALREADY REPRODUCED ABOVE THE CONTENTIONS OF THE APPELLANT IN THIS REGARD AND THE OBJECTIONS RAISED. THERE IS NOTHING ON R ECORD AND NOT EVEN THE STAND OF THE APPELLANT THAT DETAILS AS RECORDED IN THE 'REASON TO BELIEVE' WERE FURNISHED WITH THE RETURN OF INCOME. 7.32 IN WRIT PETN. NO.9036 OF 2007, HONDA SIEL POWER PRODUCTS LTD. VS DY CIT & ANR. DECISION DT. 14 TH FEB. 2011 (RE PORTED AT (2011) 52 DTR (DEL) 353 - ED.) IT WAS HELD: '10...... THE TERM 'FAILURE' ON THE PART OF THE ASSESSEE IS NOT RESTRICTED ONLY TO THE IT RETURN AND THE COLUMNS OF THE IT RETURN OR THE TAX AUDIT REPORT. THIS IS THE FIRST STAGE. THE SAID EXPRESSION 'FA ILURE TO FULLY AND TRULY DISCLOSE MATERIAL FACTS' ALSO RELATE TO THE STAGE OF THE ASSESSMENT PROCEEDING, THE SECOND STAGE. THERE CAN BE OMISSION AND FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY MATERIAL FACTS DURING THE COURSE OF THE ASS ESSMENT PROCEEDINGS. THIS CAN HAPPEN WHEN THE ASSESSEE DOES NOT DISCLOSE OR FURNISH TO THE AO COMPLETE AND CORRECT INFORMATION AND DETAILS IT IS REQUIRED AND UNDER AN OBLIGATION TO DISCLOSE. BURDEN IS ON THE ASSESSEE TO MAKE FULL AND THE TRUE DISCLOSURE'. 7.33 FORMATION OF OPINION OF THE A.O. HAS TO BE CONSIDERED ON THE TOUCH STONE WHETHER THERE WAS REASONABLE BELIEF THAT INCOME HAD ESCAPED ASSESSMENT AND FOR THAT PURPOSE RELIANCE IS AGAIN PLACED ON THE JUDGEMENT OF HON'BLE SUPREME COURT IN RAYMOND WOLLEN MILLS LTD. VS ITO (SUPRA}. CONSIDERING THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE ABOVE CASE, THE QUESTION IS WHETHER THE A.O. HAD PRIMA FACIE REASON TO BELIEVE THAT THE INCOME HAD ESCAPED ASSESSMENT. I HAVE EARLIER REPRODUCED EXPLANATION 2(C) OF SECTION 147 OF THE IT ACT. IN VIEW OF THE FACTUAL AND LEGAL MATRIX NARRATED EARLIER, AS THERE WAS NO TRUE DISCLOSURE OF THE MATERIAL FACTS DURING THE COURSE OF ORIGINAL PROCEEDINGS, IT PRIMA FACIE CAN NOT BE STATED THAT THERE WAS NO REASON TO BELI EVE. THE VARIOUS JUDGEMENTS RELIED UPON ON BEHALF OF THE APPELLANT ARE DISTINGUISHABLE IN AS MUCH AS EITHER THERE WAS NO FAILURE TO DISCLOSE THE FULL AND TRUE RELEVANT INFORMATION AND/OR IT WAS MERELY A CHANGE OF OPINION IN THOSE CASES. SUSTENANCE IN THIS REGARD IS ALSO DRAWN FROM THE JUDGEMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S.GIRILAL & CO. VS. ITO 300 ITR 432 (BOM). ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 14 7.34 ANY FRESH INFORMATION RECEIVED BY THE A.O. CAN ENTITLE HIM TO ISSUE NOTICE U/S 148 OF THE IT ACT, IF ON THE BASIS OF SUCH INFORMATION HE HAS PRIMA FACIE REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. SO MUCH SO THAT IT WAS HELD BY THE HON'BLE SUPREME COURT IN CLAGGETT BRACHI CO.LD. VS CIT 177 ITR 409 (SC) THAT AN INFORMATION OBTAINED DURING ASSESSMENT PROCEEDI NGS OF A SUBSEQUENT YEAR CAN ALSO VALIDATE THE PROCEEDINGS INITIATED U/S.147 FOR EARLIER YEAR. SIMILARLY, HON'BLE BOMBAY HIGH COURT IN THE CASE OF ANUSANDHAN INVESTMENTS LTD. VS. M.R. SINGH, DOT, 287 ITR 482 HELD THAT A NOTICE ISSUED NOTICE U/S 148 OF THE IT ACT BASED ON ASSESSMENT OF SUBSEQUENT ASSESSMENT YEAR IS VALID EVEN IF THE APPEAL IS PENDING FOR SUCH ASSESSMENT. FURTHER, IN THE CASE OF PIAGGIO VEHICLES P. LTD. VS. DOT 290 ITR 377 (BOM), THE HON'BLE JURISDICTIONAL HIGH COURT HELD THAT IN A CASE OF R EOPENING AFTER 4 YEARS SUBSEQUENT SCRUTINY ASSESSMENTS, CONTRADICTION WAS DISCOVERED BETWEEN TAX AUDIT REPORT AND RETURN OF INCOME, IT WAS A CASE OF OMISSION AND/OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL FACTS FOR COMPUTATION O F ITS INCOME. IT IS ALSO HELD BY HON'BLE SUPREME COURT IN THE FOLLOWING CASES THAT FACTS WHICH COULD HAVE BEEN FOUND BY THE ITO BY FURTHER PROBING ARE COVERED UNDER FAILURE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS. [INDO - ADEN SALT MFG. AND TRADING CO. P. LTD. VS.CIT 159 ITR 624 (SC) R.B.BANSILAL ABIRCHAND FIRM VS. CIT 70 ITR 74 (SC)] 7.35 THUS, I HAVE NO HESITATION IN HOLDING THAT THE LD. A.O. HAD CORRECTLY REOPENED THE ASSESSMENT. HAVING HELD SO, IT COULD NOT ALSO BE SAID THAT REASSESSMENT FRA MED ON THE BASIS OF THE ABOVE SAID REOPENING WAS VIOLATIVE OF ANY STATUTORY PROVISION. SO FAR AS THE MERITS OF THE ADDITIONS IS CONCERNED, IT WILL BE DEALT WITH IN SUBSEQUENT PARAGRAPHS AND THEREFORE, FOR THE SAKE OF BREVITY, IT IS HELD THAT BOTH REOPENING AND REASSESSMENT WERE INFRA VIRES. 7.36 AS REGARDS TO REJECTION OF BOOKS OF ACCOUNTS UNDER SECTION 145 OF THE I T ACT, 1961 IS CONCERNED, THERE IS NO DISPUTE THAT CERTAIN PARTIES HAVE NOT CONFIRMED THE TRANSACTIONS AND RESPONDED TO THE DEPARTMENT. UNDER SUCH CIRCUMSTANCES, AUTHENTICITY OF BOOKS OF ACCOUNTS IS NOT FULLY ESTABLISHED. HOWEVER, THE ASSESSING OFFICER SHOULD HAVE MADE MORE EFFORTS TO PIN POINT THE MISTAKES IN THE BOOKS OF ACCOUNTS BEFORE REJECTING THE SAME. SINCE, THE CASE IS BEING TAKEN UP ON MERITS, I AM OF THE OPINION THAT INSTEAD OF PUTTING EMPHASIS ON TECHNICALITIES WE MUST LOOK THE CASE ON MERITS AND JUDICIOUS VIEW BE TAKEN. IN VIEW OF THE FACTS, GROUND NO. 1 TO 4 FILED ALONG FORM NO.35 DATED 27.03.2014 AND REVISED GROUNDS 1 TO 3 FILED ON 24.02.2015 ARE DISMISSED. 8. GROUND NO. 5 TO 8 FILED ALONG FORM NO.35 DATED 27.03.2014 RELATES TO ADDITION OF RS. 69,13,003/ - , MADE U/S 69C FOR ALLEGED BOGUS PURCHASES FROM 14 PARTIES. THE AO HAD MADE THE ADDITION AS THE PARTIES HAD NOT RESPONDED ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 15 TO THE NO TICES U/S 133(6) OF THE IT ACT. THE DETAILS OF THE PARTIES ARE AS UNDER: - SR. NO. NAME OF THE PARTY PAN NO. AMOUNT (RS.) 1. GROWELL ENTERPRISES AHQPP1838A 11,33,755.00 2. ALPESH TRADING COMPANY AIRPP3049H 9,08,221.00 3. SHREEJI SALES ADNPR 3792A 9,08,221.00 29,50,197.00 SR. NO. NAME OF THE PARTY PAN NO. AMOUNT (RS.) 1. TRISHANA MULTRADE PRIVATE LTD. BMFPS9038A 3,71,280.00 2. CAPRIHANS TRADE CENTRE ADXPD0923F 7,12,738.00 3. SMARTLINGK TRADEX P. LTD. AALCS441 1B 1,97,860.00 4. NISHA ENTERPRISES AWCPS3492N 98,020.00 5. MONIL IMPEX AAGPS5222E 1,53,010.00 6. MARUTI CORPORATION AOEC5997Q 4,34,780.00 7. TARA ENTERPRISES AWTPS0269A 1,86,363.00 8. BHUMI ENTERPRISES AVCPS0096H 1,09,200.00 9. DEEPAK SALES CORPORATION AOBPJ9865G 2,17,390.00 10. MAYOR TRADING COMPANY BMQPS9058H 66,7170.00 11. POOJA TRADERS AL1PS2588P 8,14,995.00 39,62,806.00 ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 16 8.1 DURING THE COURSE OF APPELLATE PROCEEDINGS, THE APPELLANT SUBMITTED THAT THE AO HAS DISALLOWED THE PURCHASES OF RS. 69,13,003/ - , FROM 14 PARTIES, WHICH HAS BEEN ADDED U/S 69C. THE TOTAL PURCHASES OF RS. RS. 69,13,003/ - , INCLUDES VAT OF RS. 2,66,760/ - , WHICH IS A GOVT. TAX AND SHOULD NOT BE INCLUDED IN THE AMOUNT OF PURCHASES. 8.2 I HAVE CONSIDERED THE SUBMISSION AND IT IS FOUND IN ORDER. THEREFORE, THE BOGUS PURCHASES WHICH ARE TO BE CONSIDERED REMAINS AT RS. 66,46,243/ - , INSTEAD OF THE PURCHASES OF RS. 69,13,003/ - , AS TAKEN BY THE APPELLANT IN THE ASSESSMENT ORDER. 8.3 THE A PPELLANT SUBMITTED THAT THE ADDITION MADE IN ASSESSMENT TREATED THE PURCHASE OF RS. 66,46,243/ - , FROM 14 PARTIES AS BOGUS PURCHASE AND ADDED IN THE INCOME OF THE APPELLANT. THE APPELLANT, DURING COURSE OF RE - ASSESSMENT, FURNISHED SEVERAL DOCUMENTARY EVIDEN CES SUCH AS BANK STATEMENTS, PURCHASE BILLS, LEDGER ACCOUNT, CONFIRMATIONS AND A/C PAYEE CHEQUE PAYMENTS, STOCK TALLY MADE TO SUCH PARTY TO JUSTIFY THE GENUINENESS OF THE RECORDED PURCHASE AND PAYMENTS THEREON. THE LD. AO, ON IGNORING THE ABOVE STATED DOCU MENTS, ERRED SERIOUSLY IN HOLDING THAT APPELLANT'S PURCHASE IS INGENUINE AND BOGUS. 8.4 THE APPELLANT MADE ONLY A/C PAYEE CHEQUE PAYMENTS AGAINST SUPPLIES AND HAD NOT MADE ANY UNACCOUNTED CASH PAYMENT FOR PURCHASE OF GOODS. THE NAME OF SUCH SUPPLIERS IS R EFLECTED IN THE BANK STATEMENTS OF THE APPELLANT. THE APPELLANT ALTERNATIVELY SUBMITS THAT EVEN IF IT IS PRESUMED THAT THE APPELLANT HAD NOT MADE PURCHASES FROM SUCH PARTY, THEN IT IS POSSIBLE THAT SUCH BROKERS WOULD HAVE PROCURED THE GOODS FROM OPEN (GREY ) MARKET AND SUPPLIED THE PHYSICAL GOODS WITH ALLEGED INGENUINE BILLS AGAINST WHICH THE APPELLANT MADE ONLY A/C PAYEE CHEQUE PAYMENTS. 8.5 AS REGARD THE APPELLANT'S ARGUMENT THAT THE PAYMENT WERE MADE BY THE APPELLANT COMPANY THROUGH BANKING CHANNEL, THE SAME IS IRRELEVANT SINCE THE MANY PARTIES HAVE STATED/FILED AFFIDAVIT STATING THEREIN THAT THE PAYMENTS RECEIVED WERE CREDITED TO THEIR ACCOUNT AND CASH WAS WITHDRAWN AND GIVEN BACK TO THE PARTIES AFTER TAKING THEIR COMMISSION. WITH SUCH FINDING ON RECORD CLEARLY INDICATE THAT SOME OF PARTIES ARE NOT GENUINE. 8.6 IN THIS REGARD IT IS ALSO PERTINENT TO MENTION THAT WHILE DEALING WITH THE CONCEPT OF BURDEN OF PROOF, ONUS OF PROVING IS ALWAYS ON THE PERSON WHO MAKES THE CLAIM AND NOT ON THE REVENUE AS BEING MA DE OUT BY THE LD. AR IN HIS SUBMISSION. WHILE DEALING WITH THE ISSUE OF DECIDING THE BURDEN OF PROOF, HON'BLE SUPREME COURT IN THE CASES OF CIT VS. DURGAPRASAD MORE 82 ITR 540 AND SUMATI DAYAL VS. CIT 214 ITR 801 HAS HELD THAT THE APPARENT MUST BE CONSIDER ED REAL UNTIL IT IS SHOWN THAT ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 17 THERE ARE REASONS TO BELIEVE THAT THE APPARENT IS NOT REAL AND THAT TAXING AUTHORITIES ARE ENTITLED TO LOOK INTO SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALITY AND THE MATTER HAS TO BE CONSIDERED BY APPLYING THE TEST OF HU MAN PROBABILITIES. THE HON'BLE COURT ALSO HELD THAT, IT IS NO DOUBT, TRUE THAT IN ALL CASES IN WHICH A RECEIPT IS SOUGHT TO BE TAXED AS INCOME, THE BURDEN LIES ON THE DEPARTMENT TO PROVE THAT IT IS WITHIN THE TAXING PROVISION AND IF A RECEIPT IS IN THE NAT URE OF INCOME, THE BURDEN TO PROVE THAT IT IS NOT TAXABLE BECAUSE IT FALLS WITHIN EXEMPTION PROVIDED BY THE ACT, LIES UPON THE ASSESSEE. IN THE CASE OF DURGAPRASAD MORE (SUPRA), THE HON'BLE COURT WENT ON TO ADD THAT A PARTY WHO RELIES ON A RECITAL IN A DEE D HAS TO ESTABLISH THE TRUTH OF THIS RECITAL, OTHERWISE IT WILL BE VERY EASY TO MAKE SELF SERVING STATEMENTS IN DOCUMENTS EITHER EXECUTED OR TAKEN BY A PARTY WHO RELIED ON THOSE RECITALS. IF ALL THAT AN ASSESSEE WHO WANTS TO EVADE TAX HAS TO HAVE SOME RECI TALS MADE IN A DOCUMENT EITHER EXECUTED BY HIM OR EXECUTED IN HIS FAVOUR THEN THE DOOR WILL BE LEFT WIDE OPEN TO EVADE TAX. THE HON'BLE COURT FURTHER HELD THAT THE TAXING AUTHORITIES WERE NOT REQUIRED TO PUT ON BLINKERS WHILE LOOKING AT THE DOCUMENTS PRODU CED BEFORE THEM. THEY WERE ENTITLED TO LOOK IN TO THE SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALITY OF THE RECITALS MADE IN THOSE DOCUMENTS. 8.7 IN YET ANOTHER CASE OF CASTING OF ONUS VIZ. JAMNAPRASAD KANHAIYALAL VS.CIT 130 ITR 244(SC), HON'BLE APEX C OURT WHILE CONSIDERING THE SCOPE OF IMMUNITY U/S. 24 OF F.NO.(2) ACT 1965 HELD THAT THE IMMUNITY PROVIDED CANNOT BE INVOKED IN ASSESSMENT PROCEEDINGS RELEVANT TO ANY PERSON OTHER THAN THE PERSON MAKING DECLARATION UNDER THE ACT. IN THAT CASE, THE FIRM JAMN APRASAD KANHAIYALAL HAD SHOWN CASH CREDITS IN THE NAMES OF 5 SONS OF KANHAIYALAL WHO HAD MADE VOLUNTARY DISCLOSURE UNDER THE VOLUNTARY DISCLOSURE SCHEME OF 1965 BUT THE LD. A.O. HAD NOT FOUND THE EXPLANATION SATISFACTORY REGARDING THE CREDIT WORTHINESS OF THE PARTIES AND THE SAME CAME TO BE CONFIRMED BY THE HON'BLE SUPREME COURT. IF AGAINST SUCH STRICT TERMS OF IMMUNITY, THE HON'BLE SUPREME COURT COULD CONFIRM THE REJECTION OF EXPLANATION OF CASH CREDIT, IN THE INSTANT CASE THE APPELLANT HAS FAILED TO EVEN CORROBORATE THE CLAIM BEFORE THE LD. A.O. 8.8 RELIANCE IS ALSO PLACED ON THE JUDGEMENT OF HON'BLE SUPREME COURT IN THE CASE OF SRI MEENAKSHI MILLS LTD 63 ITR 609 WHERE IT WAS HELD THAT THE I.T. AUTHORITIES ARE ENTITLED TO PIERCE THE VEIL OF CORPORATE ENTITY AND TO LOOK INTO REALITY OF TRANSACTION. IN THE CASE OF MCDOWELL & CO. 154 ITR 148(SC) IT WAS STATED THAT IMPLICATIONS OF TAX AVOIDANCE ARE MANIFOLD. FIRST, THERE IS SUBSTANTIAL LOSS OF MUCH NEEDED PUBLIC REVENUE. NE XT, THERE IS SERIOUS DISTURBANCE CAUSED TO THE ECONOMY OF THE COUNTRY DUE TO PILING OF MOUNTAINS OF BLACK MONEY, CAUSING INFLATION. THUS, THERE IS 'THE LARGE HIDDEN LOSS' TO THE COMMUNITY (AS POINTED OUT BY MASTER SHEATCROFT IN 18 MODERN LAW ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 18 REVIEW 209) BY SOME OF THE MEMBERS IN THE COUNTRY BEING INVOLVED IN THE PERPETUAL WAR WAGED BETWEEN THE TAX PAYER AND HIS EXPERT TEAM OF ADVISORS, AND ACCOUNTANTS ON THE ONE SIDE AND THE TAX GATHERER AND HIS PERHAPS NOT SO SUCCESSFUL ADVISORS ON THE OTHER SIDE. HON'BLE COURT FURTHER HELD THAT IT WAS FOR THE COURT TO TAKE STOCK TO DETERMINE THE NATURE OF NEW AND SOPHISTICATED LEGAL DEVICES TO AVOID TAX AND CONSIDER WHETHER THE SITUATION CREATED BY THE DEVICES WOULD BE RELATED TO THE EXISTING LEGISLATION WITH TH E AID OF EMERGING TECHNIQUES OF INTERPRETATION AS WAS DONE IN RAMSAY, BURMAH OIL AND DAWSON TO EXPOSE THE DEVICES FOR WHAT THEY REALLY ARE AND TO REFUSE TO GIVE JUDICIAL BENEDICTION. 8.9 THE ONUS TO PROVE THAT APPARENT, IS NOT THE REAL ONE, IS ON THE PARTY WHO CLAIMS IT TO BE SO, AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. DAULAT RAM RAWATMULL [1973] 87 ITR 349 AND CIT V. DURGA PRASAD MORE (SUPRA). IN THE LATTER CASE, IT HAS BEEN HELD BY THE APEX COURT THAT THOUGH AN APPARENT STATEMENT M UST BE CONSIDERED REAL UNTIL IT WAS SHOWN THAT THERE WERE REASONS TO BELIEVE THAT APPARENT WAS NOT THE REAL, IN A CASE WHERE AN AUTHORITY RELIED ON SELF SERVING RECITALS IN DOCUMENTS, IT WAS FOR THE PARTY TO ESTABLISH THE PROOF OF THOSE RECITALS; THE TAXIN G AUTHORITIES WERE ENTITLED TO LOOK INTO THE SURROUNDING CIRCUMSTANCES TO FIND OUT REALITY OF SUCH RECITALS. 8.10 IT IS ALSO A SETTLED LEGAL PROPOSITION THAT IF NO EVIDENCE IS GIVEN BY THE PARTY ON WHOM THE BURDEN IS CAST, THE ISSUE MUST BE FOUND AGAINST HIM. THEREFORE, ONUS IS ALWAYS ON A PERSON WHO ASSERTS A PROPOSITION OR FACT, WHICH IS NOT SELF EVIDENT. THE ONUS, AS A DETERMINING FACTOR OF THE WHOLE CASE CAN ONLY ARISE IF THE TRIBUNAL, WHICH IS VESTED WITH THE AUTHORITY TO DETERMINE, FINALLY ALL QUESTI ONS OF FACT, FINDS THE EVIDENCE PRO & CON, SO EVENLY BALANCED THAT IT CAN COME TO NO CONCLUSION, THEN, THE ONUS WILL DETERMINE THE MATTER. NEEDLESS TO SAY THAT THE ONUS IS HEAVY OR LIGHT, DEPENDING ON THE FACTS AND CIRCUMSTANCES OF EACH CASE. THERE CANNOT BE ANY DOUBT THAT ONUS AS A DETERMINING FACTOR COMES INTO PLAY WHERE, EITHER THERE IS NO EVIDENCE ON EITHER SIDE, OR WHERE IT IS EQUALLY WORTHLESS OR WHERE IT IS EQUALLY BALANCED. IT IS IMPERATIVE TO MENTION HERE THAT WHERE SUCH IS NOT THE CASE AND ALL AVA ILABLE EVIDENCE IS CONSIDERED, WITHOUT REFERENCE TO THE ONUS AND WITHOUT RELYING ON THE CIRCUMSTANCES THAT ONUS LIES ON A PARTICULAR PARTY, THE ISSUE IS DETERMINED ; 6'N FACTS AND THE ONUS CANNOT BE SAID TO HAVE INFLUENCED THE DECISIONS. HOWEVER, IN THE IN STANT CASE, THE APPELLANT HAS MISERABLY FAILED TO LEAD EVIDENCE AND HENCE, ONUS IS A DETERMINING FACTOR. 8.11 THE HON'BLE SUPREME COURT, IN THE CASE OF CHUHARMAL V. CIT [1988] 1 250 / 38 TAXMAN 190 HIGHLIGHTED THE FACT THAT THE PRINCIPLE OF EVIDENCE ARE NOT TO BE IGNORED BY THE AUTHORITIES, BUT AT THE SAME TIME, HUMAN PROBABILITY HAS TO BE THE GUIDING PRINCIPLE, SINCE THE AO IS NOT FETTERED, BY TECHNICAL RULES OF EVIDENCE, AS HELD BY THE HON'BLE SUPREME ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 19 COURT IN THE CASE OF DHAKESWARI COTTON MILLS LTD. V . CIT [1954] 26 ITR 775. THE HON'BLE SUPREME COURT, IN THE CASE OF CHUHARMAL (SUPRA) HELD THAT WHAT WAS MEANT BY SAYING THAT EVIDENCE ACT DID NOT APPLY TO THE PROCEEDINGS UNDER INCOME - TAX ACT,1961, WAS THAT THE RIGOURS OF RULES OF EVIDENCE, CONTAINED IN TH E EVIDENCE ACT WAS NOT APPLICABLE; BUT THAT DID NOT MEAN THAT WHEN THE TAXING AUTHORITIES WERE DESIROUS OF INVOKING THE PRINCIPLES OF EVIDENCE ACT, IN PROCEEDINGS BEFORE THEM, THEY WERE PREVENTED FROM DOING SO. IT WAS FURTHER HELD BY THE HON'BLE APEX COURT THAT ALL THAT SECTION 110 OF THE EVIDENCE ACT, 1872 DID, WAS TO EMBODY A SALUTARY PRINCIPLE OF COMMON LAW JURISPRUDENCE VIZ, WHERE A PERSON WAS FOUND IN POSSESSION OF ANYTHING, THE ONUS OF PROVING THAT HE WAS NOT ITS OWNER, WAS ON THAT PERSON. THUS, THIS PRINCIPLE COULD BE ATTRACTED TO A SET OF CIRCUMSTANCES THAT SATISFIES ITS CONDITIONS AND WAS APPLICABLE TO TAXING PROCEEDINGS. 8.12 THE LD. AR HAS RELIED ON A NUMBER OF DECISIONS INCLUDING IN THE CASE OF NIKUNJ EXIMP IN ITA NO. 5604 OF 2010 (BOMBAY HIGH C OURT) TO SUGGEST THAT NO ADDITION COULD BE MADE ON ACCOUNT OF DISALLOWANCE OF PURCHASES. 8.13 HAVING GONE THROUGH THE ABOVE CASE LAWS, IT IS SEEN THAT IN NONE OF THOSE CASES SO MUCH OF INVESTIGATION WAS DONE INCLUDING THOSE BY ANOTHER GOVERNMENT AUTHORITY , VIZ., MAHARASHTRA SALES TAX AUTHORITY BEFORE WHOM AFFIDAVIT WAS FILED STATING THAT ONLY BOGUS BILLS WERE SUPPLIED WITHOUT DELIVERY OF GOODS. FURTHER, NO VEHICLE NUMBERS HAVE BEEN GIVEN IN SO FAR AS DELIVERY OF THE PURCHASES ARE CONCERNED AND THEREFORE, I T IS CERTAIN THAT NO SUCH PURCHASES WERE ACTUALLY MADE FROM THE PARTY FROM WHOM BILLS WERE PROCURED AND HENCE, NO DELIVERY COULD HAVE BEEN MADE. AS SEEN LATER, LD. A.O. HAS HIMSELF HELD THAT THE TRANSACTIONS FROM THE SUPPLIER WERE NOT GENUINE BUT THE APPEL LANT'S PURCHASES WERE NOT SHAM. HOWEVER, ADDITION WAS MADE AS THE EXPENDITURE REMAINED UNPROVED. 8.14 IN THE CASE BEFORE THE HON'BLE BOMBAY HIGH COURT IN NIKUNJ EXIMP (SUPRA), THE SUPPLIERS HAD NOT APPEARED BEFORE THE ASSESSING OFFICER AND FROM THE JUDGME NT IT APPEARS THAT IT WAS NOT A CASE OF THE SUPPLIERS BEING NON EXISTENT. HOWEVER, IN THE PRESENT CASE IN APPEAL, THE ALLEGED SUPPLIERS HAVE BEEN FOUND TO BE NON - EXISTENT. THIS IS NOT MERELY A CASE WHERE THE SUPPLIER HAS FAILED TO APPEAR BEFORE THE ASSESSI NG OFFICER. HENCE, THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT RELIED UPON BY THE APPELLANT WOULD BE OF NO HELP. 8.15 THE ASSESSES OFTEN RELY ON THE DECISION OF HON'BLE ITAT MUMBAI BENCH IN THE CASE OF RAJEEV G. KALATHIL IN ITA NOS. 6727/MUM/2012 AND CO NO. 06/MUM/2014 WHERE VIDE ORDER DATED 20 - 08 - 2014, THE ADDITION MADE ON ACCOUNT OF BOGUS PURCHASES WERE DELETED. HOWEVER, I FIND THAT THE FINDING OF THE HON'BLE ITAT IS BASED ON THE PECULIAR FACTS ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 20 OF THE CASE AS IN THAT CASE, GOODS RECEIVED BY THE ASSESSE E FROM THE SUPPLIER WAS ADMITTED TO HAVE BEEN TRANSPORTED BY THE TRANSPORTER. HOWEVER, IN THE PRESENT CASE, NO SUCH PROOF OF DELIVERY THROUGH A PARTICULAR LORRY NUMBER HAS BEEN PROVIDED AS FAR AS THE APPELLANT'S PURCHASE IS CONCERNED. THUS, THE DECISION RE NDERED IN THE CASE OF RAJEEV G. KALATHIL (SUPRA) CANNOT BE SAID TO BE APPLICABLE IN THIS CASE. SIMILARLY, DECISION OF THE HON'BLE BOMBAY HIGH COURT IN NIKUNJ EXIMP (ITA NO. 5604 OF 2010) WAS RENDERED ON THE ISSUE WHETHER ANY SUBSTANTIAL QUESTION OF LAW WAS INVOLVED IN THAT CASE. IN FACT, IN A LATER DECISION IN NIKUNJ EXIMP (2014) 48 STPSX TAXMANN.COM 20 (BOM), HON'BLE BOMBAY HIGH COURT ON THE VERY SAME ISSUE OF OBTAINING BOGUS BILLS DISMISSED THE ASSESSEE'S WRIT PETITION FILED AGAINST NOTICE U/S.148 OF TH E IT ACT, 1961. 8.16 HON'BLE BOMBAY HIGH COURT IN THE CASE OF KILLICK NIXON LTD. V. DEPUTY COMMISSIONER OF INCOME - TAX [2012] 20 TAXMANN.COM 703 (BOM.) WAS SIMILARLY FACED WITH THE QUESTION OF SHAM TRANSACTIONS AND IT INTER ALIA, HELD AS UN DER: , 'SECTION 254 OF THE INCOME - TAX ACT, 1961, READ WITH RULE 11 OF THE INCOME - TAX (APPELLATE TRIBUNAL) RULES, 1963 - APPELLATE TRIBUNAL - ORDERS OF - ASSESSMENT YEAR 2001 - 02 - ASSESSEE TRANSFERRED CERTAIN LA ND TO BANK - ASSESSEE CLAIMED TO HAVE INCURRED LONG - TERM AND SHORT - TERM CAPITAL LOSSES ON SHARE TRADING TRANSACTIONS - ACCORDINGLY, IT SET OFF SAID LOSSES AGAINST CAPITAL GAIN EARNED ON SALE OF LAND - ASSESSING OFFICER FOUND THAT ASSESSEE ENTERED INTO SHAM AND BOGUS SHARE TRADING TRANSACTIONS RESULTING IN CAPITAL LOSS WITH PURPOSE TO REDUCE TAX LIABILITY AROSE ON CAPITAL GAIN - ASSESSING OFFICER, THEREFORE, DISCARDED CAPITAL LOSSES - COMMISSIONER (APPEALS) CONFIRMED ORDER OF ASSESSING OFFICER - TRIBUNAL ALSO CONFIRMED ORDER OF ASSESSING OFFICER, AND WHILE DOING SO, REFERRED TO A DECISION OF SUPREME COURT IN CASE OF SUMATI DAYAL V. CIT [1995] 214 ITR 801 / 80 TAXMAN 89 TO HELD THAT EVIDENCE PRODUCED MUST BE ANALYSED BY APPLYING THEORY OF SURROUNDING CIRCUMSTAN CES AND HUMAN PROBABILITIES - ASSESSEE ALLEGED THAT WITHOUT BRINGING SAID CASE TO NOTICE OF PARTIES, REVENUE HAD CAUSED PREJUDICE TO ITS CASE; ALL IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE AND OF RULE 11 - WHETHER SINCE DECISION OF SUPREME COURT IN SUM ATI DAYAL CASE (SUPRA) WAS CITED BY TRIBUNAL ONLY FOR PURPOSE OF REITERATING WELL SETTLED AND ESTABLISHED POSITION OF LAW, IT COULD NOT BE SAID TO HAVE CAUSED PREJUDICE TO ASSESSEE - HELD, YES - WHETHER WHEN A TRANSACTION IS SHAM AND NOT GENUINE AS IN INST ANT CASE, THEN IT COULD NOT BE CONSIDERED TO BE A PART OF TAX PLANNING OR LEGITIMATE AVOIDANCE OF TAX LIABILITY - HELD, YES - WHETHER FURTHER SINCE ISSUES IN INSTANT CASE WERE PURELY QUESTIONS OF FACTS ON WHICH THERE WERE CONCURRENT FINDINGS OF AUTHORITIES BELOW, IT WAS TO BE HELD THAT THERE WAS NO QUESTION OF LAW TO BE CONSIDERED - HELD, YES [IN FAVOUR OF REVENUE]. ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 21 14. SO FAR AS THE PRINCIPLE LAID DOWN IN THE MATTER OF OMAR SALAY MOHAMED SALT (SUPRA) IS CONCERNED THERE CAN BE NO DISPUTE ABOUT THE PROPOSITIO N LAID DOWN THEREIN. HOWEVER WE HAVE NOT BEEN SHOWN HOW THE TRIBUNAL WAS IN BREACH OF THE SAME. WE FIND THAT THE TRIBUNAL HAS CONSIDERED THE EVIDENCE OF PURCHASE AND SALE OF SHARES TO BOOK LONG TERM AND SHORT TERM LOSSES AND TAKING ALL THE EVIDENCE TOGETHE R INCLUDING THE SURROUNDING CIRCUMSTANCES REACHED A FINDING THAT THE PURCHASE AND SALE OF SHARES IS NOT GENUINE. SO FAR AS THE DECISION OF THE SUPREME COURT IN VODAFONE INTERNATIONAL HOLDINGS B.V. V. UNION OF INDIA [2012] 204 TAXMAN 408 /17 TAXMANN.COM 202 IS CONCERNED, THE COURT CONSIDERED ITS DECISIONS IN THE MATTERS OF ME DOWEL! & CO. LTD. V. COMMERCIAL TAX OFFICER [1985] 154 ITR 48/22 TAXMAN 11 (SCI UNION OF INDIA V. AZADI BACHAO ANDOLAN [2004] 10 SCC 1 AND THE MATHURAM AGARWAL V. STATE OF MADHYA PRADES H [1999] 8 SCC 667 AND CONCLUDED THAT WHERE THE TRANSACTION IS NOT GENUINE BUT A COLOURABLE DEVICE THERE COULD BE NO QUESTION OF TAX PLANNING. THE SUPREME COURT IN THE AFORESAID CASE AFTER CONSIDERING THE AFORESAID TWO DECISIONS CONCLUDED AS FOLLOWS: 'THE MAJORITY JUDGMENT IN MCDOWELL HELD THAT 'TAX PLANNING MAY BE LEGITIMATE PROVIDED IT IS WITHIN THE FRAMEWORK OF LAW' (PARA - 45). IN THE LATTER PART OF PARA 45, IT HELD THAT 'COLOURABLE DEVICE C.ANNNT HE A PART OF TAX PLANNING AND IT IS WRONG TO ENCOURAGE TH E BELIEF THAT IT IS HONOURABLE TO AVOID PAYMENT OF TAX BY RESORTING TO DUBIOUS METHODS'. IT IS THE OBLIGATION OF EVERY CITIZEN TO PAY THE TAXES WITHOUT RESORTING TO SUBTERFUGES. THE ABOVE OBSERVATIONS SHOULD BE READ WITH PARA 46 WHERE THE MAJORITY HOLDS 'O N THIS ASPECT ONE OF US, CHINAPPA REDDY, J. HAS PROPOSED A SEPARATE OPINION WITH WHICH WE AGREE'. THE WORDS 'THIS ASPECT' EXPRESS THE MAJORITY'S AGREEMENT WITH THE JUDGMENT OF REDDY, J. ONLY IN RELATION TO TAX EVASION THROUGH THE USE OF COLOURABLE DEVICES AND BY RESORTING TO DUBIOUS METHODS AND SUBTERFUGES. THUS, IT CANNOT BE SAID THAT ALL TAX PLANNING IS ILLEGAL/ILLEGITIMATE/IMPERMISSIBLE. MOREOVER, REDDY, J. HIMSELF SAYS THAT HE AGREES WITH THE MAJORITY. IN THE JUDGMENT OF REDDY, J. THERE ARE REPEATED REF ERENCES TO SCHEMES AND DEVICES IN CONTRADISTINCTION TO 'LEGITIMATE AVOIDANCE OF TAX LIABILITY (PARAS 7 - 10, 17 AND 18). IN OUR VIEW, ALTHOUGH CHINNAPPA REDDY, J. MAKES A NUMBER OF OBSERVATIONS REGARDING THE NEED TO DEPART FROM THE 'WESTMINSTER' AND TAX AVOI DANCE - THESE ARE CLEARLY ONLY IN THE CONTEXT OF ARTIFICIAL AND COLOURABLE DEVICES. READING MCDOWELL, IN THE MANNER INDICATED HEREINABOVE, IN CASES OF TREATY SHOPPING AND/OR TAX AVOIDANCE, THERE IS NO CONFLICT BETWEEN MCDOWELL AND AZADI BACHAO OR BETWEEN MC DOWELL AND MATHURAM AGARWAL.' 15. THE AFORESAID OBSERVATIONS OF THE SUPREME COURT MAKES IT VERY CLEAR THAT A COLOURABLE DEVICE CANNOT BE A PART OF TAX PLANNING. THEREFORE WHERE A TRANSACTION IS SHAM AND NOT GENUINE AS IN PRESENT CASE THEN IT CANNOT BE CONSIDERED TO BE A PART OF TAX PLANNING OR ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 22 LEGITIMATE AVOIDANCE OF TAX LIABILITY. THE SUPREME COURT IN FACT CONCLUDED THAT THERE IS NO CONFLICT BETWEEN ITS DECISIONS IN THE MATTER OF MCDOWELL (SUPRA), AZADI BACHAO (SUPRO) AND MATHURAM AGARWAL (SUPRA). IN THE PRESENT CASE THE PURCHASE AND SALE OF SHARES, SO AS TO TAKE LONG TERM AND SHORT TERM CAPITAL LOSS WAS FOUND AS A MATTER OF FACT BY ALL THE THREE AUTHORITIES TO BE A SHAM. THEREFORE AUTHORITIES COME TO A FINDING THAT THE SAME WAS NOT GENUINE. SO FAR AS THE QUESTION NOS. (II), (HI) (IV) AND (V) ARE CONCERNED, WE HOLD THAT THESE ARE PURE QUESTIONS OF FACTS AND AS THERE ARE CONCURRENT FINDING OF THE AUTHORITIES BELOW, NO QUESTION OF LAW ARISES FOR THIS COURT TO INTERFERE.' 8.17 HON'BLE ALLAHABAD HIGH COURT WHILE DEALING WITH THE ISSUE OF BOGUS PURCHASE IN THE CASE OF SRI GANESH RICE MILLS V. COMMISSIONER OF INCOME - TAX [2007] 294 ITR 316 (ALL.), HELD AS UNDER : 'WHERE ASSESSING OFFICER HAD RECORDED A FINDING THAT IN ORDER TO LOWER PROFITS, BOGUS PURCHASES H OD BEEN INTRODUCED AND TRIBUNAL UPHELD SUCH FINDING, ADDITION ON ACCOUNT OF DISALLOWANCE OF SUCH PURCHASES WAS JUSTIFIED [ASSESSMENT YEAR 1984 - 85] . THE ASSESSEE WAS ENGAGED IN THE PRODUCTION OF GRAM, PULSES, RICE CHUNNI - BHUSI, ETC. THE ASSESSING OFFICER TR EATED FIVE PURCHASES AS BOGUS. THAT WAS DONE AFTER MAKING ENQUIRIES WHEREIN HE FOUND THAT THE PARTIES MENTIONED AT ITEM NOS. 4 AND 5 NEVER EXISTED. HE THEREFORE, MADE ADDITION. THE TRIBUNAL ALSO HELD THAT THE PURCHASES WERE BOGUS. HELD THAT IT WAS NOT THE CASE OF THE ASSESSEE THAT HE WAS A TRADER. ON THE OTHER HAND, THE ASSESSEE WAS A MANUFACTURER AND IN MANUFACTURING PROCESS, CHUNI - BHUSI ALSO GOT MANUFACTURED AS A BY PRODUCT. IT WAS NOT THE CASE OF THE ASSESSEE THAT IT HAD MADE THE PURCHASES OF CHUNI - BHUSI FROM OTHER PERSONS ALSO. THE ASSESSING OFFICER HAD RECORDED A FINDING THAT IN ORDER TO LOWER THE PROFITS, THE BOGUS PURCHASES HAD BEEN INTRODUCED. TAKING INTO CONSIDERATION THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE, THE FINDINGS RECORDED BY THE TRIBU NAL COULD NOT BE SAID TO BE BASED ON IRRELEVANT MATERIAL AND CONSIDERATION. THE ASSESSEE BEING O MANUFACTURER OF CHUNI - BHUSI HOD NOT BEEN ABLE TO ESTABLISH THE PURCHASES IN QUESTION WHICH HOD BEEN MADE FROM THE NON - EXISTENT FIRMS. FURTHER, THE TWO FIRMS OW NED BY THE BROTHERS OF THE PARTNERS OF THE ASSESSEE - FIRM WERE SAID TO HAVE PURCHASED THE GOODS FROM THE NON - EXISTENT FIRMS AND EVEN THE INVOICES/BILLS HAD BEEN PREPARED BY THE MUNIM OF THE APPLICANT. MERELY BECAUSE THE APPLICANT HAD BEEN DEALING WITH THE F IRM, THAT WOULD NOT MAKE THE PURCHASES OF CHUNHBHUSI GENUINE WHEN THERE WAS SUFFICIENT EVIDENCE TO THE CONTRARY. SO FAR AS THE QUESTION OF DEDUCTION OF PURCHASES FROM THE CORRESPONDING SALES WAS CONCERNED, THE ASSESSEE BEING A MANUFACTURER OF CHUNI - BHUSI A ND PURCHASES HAVING BEEN FOUND TO BE BOGUS AND AS THERE WERE NO OTHER PURCHASES OF CHUNI - BHUSI, THE BENEFIT OF DEDUCTION OF SUCH PURCHASES HAD RIGHTLY BEEN DISALLOWED.' ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 23 8.18 SIMILARLY, IN THE CASE OF KHANDELWAL TRADING CO. V. ASSISTANT COMMISSIONER OF INCO ME - TAX [1996] 55 TTJ 261 (JR.), IT WAS OBSERVED AND HELD AS UNDER: '7. WE TAKE UP THE FIRST CONTENTION OF SHRI SINGHVI. IT WAS CONTENDED THAT ONLY GROSS PROFIT RATE SHOULD HAVE BEEN APPLIED AND THE ADDITION SHOULD HAVE BEEN TO THAT EXTENT ONLY. 8. LET US ASSUME THAT THE IMPUGNED PURCHASES IN THIS CASE ARE BOGUS WHAT CAN BE THE CAUSES AND EFFECTS ? EITHER CORRESPONDING BOGUS SALES HAVE TO BE ACCOUNTED FOR, OR, THE CLOSING STOCK TO THAT EXTENT HAVE TO BE INCREASED. BUT IF EITHER IS DONE, THE VERY PURPOSE OF ENTERING 'BOGUS' PURCHASES IS DEFEATED. WHAT CAN BE THE PURPOSE TO ENTER A BOGUS PURCHASE IN THE BOOKS, OBVIOUSLY TO SHOW LESSER PROFIT THAN ACTUALLY EARNED. THIS IN TURN COULD BE TO BRING THE GROSS PROFIT RATE TO NEAR ABOUT THE EARLIER YEARS' PERFORMANCE IN ORDER TO AVOID A DEEPER PROBE BY THE TAXINQ AUTHORITIES AND/OR TO AVOID PAYING HIGHER TAXES. THUS, WHEN ONCE BOGUS PURCHASE IS ENTERED IN THE BOOKS WITHOUT A CORRESPONDING SALES OR INCREASE IN STOCKS, THE OBVIOUS RESULT WOULD BE LOWERING OF G.P. RATE. I F THESE BOGUS PURCHASES ARE REMOVED, THE G.P. RATE WOULD AUTOMATICALLY GO UP. UNDER THE ASSUMPTION THAT THE PURCHASES ARE BOGUS, ONE SITUATION VISUALISED IS THAT THERE ARE NO CORRESPONDING SALES, THEN ADDITION AT WHAT RATE CAN BE MORE JUSTIFIABLE THAN BY T HE BOGUS PURCHASE ITSELF? 9. LIKEWISE, THERE CAN BE ANOTHER SITUATION ALSO. THE PURCHASE MAY BE BOGUS AND CORRESPONDINGLY THERE MAY BE A BOGUS SALES ALSO, AND SINCE BOTH ARE BOGUS, THE GP RATE IS OBVIOUSLY MANIPULATED TO AFFECT THE OVERALL RESULT. THEN, A CCEPTING SHRI SANGHVI'S CONTENTION WOULD FURTHER MAKE THE ACCOUNTS BOGUS. SIMILARLY, THERE MAY BE MANY SUCH SITUATIONS BECAUSE, ACCOUNTANCY IS ESSENTIALLY AN ART AND NOT A SCIENCE. 10. THE POINT WE ARE TRYING TO DRIVE HOME IS THAT WHEN A BOGUS ENTRY IS FO UND IN ACCOUNTS, THERE CANNOT BE A BETTER SOLUTION THAN TO REMOVE THAT ENTRY. THE LEGITIMATE WAY OF REMOVING THE ENTRY WOULD BE, AS EVERY STUDENT OF ACCOUNTANCY WOULD AGREE, IS TO DO WHAT HAS BEEN OMITTED TO BE DONE OR UNDO WHAT HAS BEEN WRONGLY DONE. 11. NOW, SO FAR WE WERE ONLY ASSUMING THAT THE PURCHASES ARE BOGUS. COMING TO THE FACTS OF THE CASE, WERE THE PURCHASES WORTH RS. 86,500 REALLY BOGUS ? THERE IS NO DOUBT ABOUT IT. THE INVESTIGATIONS GOT DONE BY THE ASSESSING OFFICER LEAVE HARDLY ANY DOUBT ABO UT IT. THE FAILURE ON THE PART OF THE ASSESSEE TO SHOW CAUSE STRENGTHENS THE DEPARTMENT'S CASE. THIS STOIC SILENCE OF THE ASSESSEE ALSO BLUNTS THE ASSESSEE'S ARGUMENT THAT SHRI HUKAMCHAND'S STATEMENT WAS RECORDED AT ITS BOCK. IT MAY HAVE BEEN RECORDED AT ITS BACK, BUT THE RESULTS THEREOF WERE INFORMED TO THE ASSESSEE AND THAT IS WHAT THE ASSESSEE WAS ASKED TO ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 24 EXPLAIN AND FAILED TO DO SO. THUS, NOW WE ARE NOT ASSUMING BUT ARE CONCLUDING THAT THE PURCHASES OF RS. 86,500 WERE IN FACT BOGUS. IN CASE OF BOGU S ENTRIES, IN OUR OPINION, WHAT COULD BE THE BEST REMEDY, HAS BEEN DISCUSSED ABOVE. THE ASSESSING OFFICER HAS SIMPLY DONE THAT. WE ARE UNABLE TO APPRECIATE SHRI SINGHVI'S CONTENTION. HAD THERE BEEN SUPPRESSION OF SALES, PROBABLY, DEPENDING ON THE FACTS OF THE CASE, THE \ ADDITION TO THE EXTENT OF G.P. RATE WOULD HAVE BEEN SUFFICIENT. BUT IN CASE OF BOGUS PURCHASES WE DO NOT SEE A BETTER SOLUTION THAN THE ONE ADOPTED BY THE ASSESSING OFFICER. 12. BUT WHAT ABOUT THE QUANTITATIVE RECORD WHICH IS SAID TO HAVE TALLIED ? IN THE INSTANT CASE THE ASSESSEE HAS MAINTAINED THE STOCK REGISTER BUT THE SAME HAS BEEN TEST - CHECKED BY THE ASSESSING OFFICER. THERE IS NO SPECIFIC DISCUSSION OR FINDING AS REGARDS QUANTITATIVE TALLY. HOWEVER, WHEN IN SUBSTANCE THE TRANSACTIONS HAVE BEEN PROVED TO BE BOGUS THE UNVERIFIED QUANTITATIVE TALLY CANNOT LEAD US TO CONCLUDE OTHERWISE. UNDER THE CIRCUMSTANCES OF THIS CASE, WE ARE NOT INCLINED TO GIVE MUCH WEIGHTAGE TO THIS CONTENTION OF THE ASSESSEE.' 8.19 FURTHER, IN DEORIA OXYGEN COM PANY V. COMMISSIONER OF INCOME - TAX [2007] 160 TAXMAN 427 (ALL), IT WAS OBSERVED AND HELD AS UNDER: '40. THIS LEAVES US TO THE QUESTION AS TO WHETHER THE TRIBUNAL SHOULD HAVE GIVEN DUE REGARD TO THE LEGITIMATE OUTGOINGS IN THE FORM OF THE ENTIRE PURCHASES O F GAS CYLINDERS OR NOT. THE PRINCIPLE REGARDING MAKING OF A BEST JUDGMENT ASSESSMENT HAS BEEN WELL SETTLED BY THE APEX COURT IN THE CASE OF DHAKESWARI COTTON MILLS LTD. V. CIT [1954] 26 ITR 775 WHEREIN THE APEX COURT HAS HELD AS FOLLOWS ; 'AS REGARDS THE SECOND CONTENTION, WE ARE IN ENTIRE AGREEMENT WITH THE LEARNED SOLICITOR - GENERAL WHEN HE SAYS THAT THE INCOME - TAX OFFICER IS NOT FETTERED BY TECHNICAL RULES OF EVIDENCE AND PLEADINGS, AND THAT, HE IS ENTITLED TO ACT ON MATERIAL WHICH MAY NOT BE ACCEPTED AS EVIDENCE IN A COURT OF LAW, BUT THERE THE AGREEMENT ENDS; BECAUSE IT IS EQUALLY CLEAR THAT IN MAKING THE ASSESSMENT UNDER SUB - SECTION (3) OF SECTION 23 OF THE ACT, THE INCOME - TAX OFFICER IS NOT ENTITLED TO MAKE A PURE GUESS AND MAKE AN ASSESSMENT WITHOUT REFERENCE TO ANY EVIDENCE OR ANY MATERIAL AT ALL. THERE MUST BE SOMETHING MORE THAN BARE SUSPICION TO SUPPORT THE ASSESSMENT UNDER SECTION 23(3). THE RULE OF LAW ON THIS SUBJECT HAS, IN OUR OPINION, BEEN FAIRLY AND RIGHTLY STATED BY THE LAHORE HIGH COURT I N THE CASE OF SETH GURMUKH SINGH V. CIT [1944] 12 ITR 393 . ...' (782) 41. IN THE PRESENT CASE WE FIND THAT THE COMMISSIONER OF INCOME - TAX (APPEALS) AS ALSO THE TRIBUNAL HAS RECORDED A CATEGORICAL, FINDING OF FACT THAT THE APPLICANT DID NOT MAKE PURCHASES TO THE EXTENT HE HAS SHOWN. THE PURCHASES IN QUESTION HAVE CONCLUSIVELY BEEN PROVIDED TO BE BOGUS. IF THE PURCHASES OF THE GAS CYLINDERS HAVE NOT BEEN MADE AND ON THE OTHER HAND HAVE BEEN FOUND TO BE BOGUS BY ALL THE AUTHORITIES INCLUDING THE TRIBUNAL, THE QUESTION OF LEGITIMATE OUTGOINGS IN THE FORM ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 25 OF PURCHASES OF THE GAS CYLINDERS WOULD NOT ARISE. THEREFORE, THE TRIBUNAL WAS JUSTIFIED IN NOT GIVING BENEFIT OF THE ALLEGED AMOUNT SPENT TOWARDS THE PURCHASES OF GAS CYLINDERS.' 8.20. IN SAMURAI SOFTWARE (P .) LTD. V. COMMISSIONER OF INCOME - TAX [2008] 299 ITR 324 (RAJ.), IT WAS HELD AS UNDER: '8. THE TRIBUNAL CONSIDERED THE MATTER IN PARAGRAPH 6 OF ITS ORDER THUS: '6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES, PERUSED THE MATERIAL AVA ILABLE ON RECORD AND THE DECISION RELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. WE FIND THAT AS A RESULT OF SEARCH ON THE ASSESSEE - COMPANY, THE PURCHASES TOTALLING TO RS. 4,37,048 WERE NOT FOUND RECORDED IN THE SEIZED BOOKS OF ACCOUNT OF THE ASS ESSEE - COMPANY. NO SURRENDER WAS MADE ON BEHALF OF THE COMPANY BY ANY OF THE DIRECTORS OF THE ASSESSEE - COMPANY. THE SURRENDER WAS MADE BY SHRI MAHESH TOSHNIWAL, ONE OF THE DIRECTORS OF THE COMPANY IN HIS INDIVIDUAL CAPACITY AND NOT ON BEHALF OF THE ASSESSEE - COMPANY AND THE SAME WAS CONSIDERED IN HIS PERSONA! ASSESSMENT. UNDER THE LAW, THE COMPANY IS A SEPARATE JURIDICAL PERSON. THE SURRENDER MADE BY SHRI MAHESH TOSHNIWAL, IN HIS INDIVIDUAL CAPACITY IS NOT BINDING ON THE ASSESSEE - COMPANY. SHRI MAHESH TOSHNIWA L IN HIS PERSONAL STATEMENTS, HAS NOWHERE STATED THAT THE SURRENDER WAS MADE ON BEHALF OF THE ASSESSEE - COMPANY. WE ALSO FIND THAT EVEN IN THE RETURN FILED IN RESPONSE TO A NOTICE UNDER SECTION 148, THE ASSESSEE - COMPANY DID NOT INCLUDE THE SAID AMOUNT OF BO GUS PURCHASES. THE ASSESSEE - COMPANY HAS NOT PLACED ANY MATERIAL AS TO SHOW THAT THE SAID PURCHASES, IN FACT, BELONG TO SHRI MAHESH TOSHNIWAL AND NOT THE ASSESSEE - COMPANY. UNDER THESE CIRCUMSTANCES, WE DO NOT FIND ANY MERIT IN THE PLEA OF THE LEARNED AUTHOR ISED REPRESENTATIVE THAT SINCE THE SAID AMOUNT OF PURCHASES HAS BEEN ADDED IN THE HANDS OF SHRI MAHESH TOSHNIWAL, NO ADDITION CAN BE MADE IN THE HANDS OF THE ASSESSEE - COMPANY. IT IS A SETTLED TAW THAT THE TAX HAS TO BE LEVIED ON THE REAL PERSON. UNDER THES E CIRCUMSTANCES AND KEEPING IN VIEW THE DECISION OF REPRESENTATIVE IN THE CASE OFCITV. LA MEDICO [2001] 250ITR 575, WE ARE OF THE VIEW THAT THE ASSESSEE - COMPANY HAS DEBITED BOGUS PURCHASES IN ITS BOOKS OF ACCOUNT WHICH THE ASSESSEE - COMPANY COULD NOT SUBSTA NTIATE AND, ACCORDINGLY, THE COMMISSIONER OF INCOME - TAX (APPEALS) WAS NOT JUSTIFIED IN DELETING THE ADDITION OF RS. 4,37,048, WHICH IS DIRECTED TO BE REVERSED AND ADDED IN THE INCOME OF THE ASSESSEE - COMPANY. CONSEQUENTLY, THE ADDITION MADE BY THE ASSESSING OFFICER AMOUNTING TO RS. 4,37,048 IS UPHELD. THE GROUND TAKEN BY THE REVENUE, IS THEREFORE, ALLOWED.' 9. THE TRIBUNAL, THUS, BY ITS ORDER DATED JUNE 10, 2002, SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) AND RESTORED THE ADDITION OF RS . 4,37,048 IN THE HANDS OF THE APPELLANT - COMPANY AS WAS DONE BY THE ASSESSING OFFICER. ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 26 10. IN SO FAR AS THE ADDITION OF RS. 4,37,048 IN THE HANDS OF THE APPELLANT COMPANY IS CONCERNED, WE ARE SATISFIED WITH THE REASONS GIVEN BY THE TRIBUNAL IN PARAGRAPH 6 OF ITS ORDER. THE ADDITION OF THE AMOUNT OF RS. 4,37,048 IN THE HANDS OF THE APPELLANT - COMPANY CANNOT BE SAID TO BE UNJUSTIFIED.'. 8.21 IN THE CASE OF INDIAN WOOLLEN CARPET FACTORY VS. INCOME - TAX APPELLATE TRIBUNAL [2002] 125 TAXMAN 763 (RAJ.) IT WAS HELD AS UNDER: IF THE TRANSACTIONS WERE GENUINE AND IF THE PARTIES HAD MIGRATED SOMEWHERE ELSE, THEIR LATEST ADDRESSES SHOULD HAVE BEEN SUPPLIED AND BURDEN WAS ON THE ASSESSEE TO PROVE THE GENUINENESS OF THE TRANSACTIONS, WHEN THE ASSESSEE CLAIMED THAT T HE PURCHASES WERE GENUINE. IT WAS TRUE THAT NO LOAN HAD BEEN TAKEN FROM THOSE PARTIES. THE CASE BEFORE THE ASSESSING OFFICER WAS THAT THE ASSESSEE CLAIMED SOME PURCHASES FROM SOME PARTIES, WHOM HE COULD NOT PRODUCE OR THOSE PARTIES WERE NOT AVAILABLE WHEN THE SUMMON UNDER SECTION 131 WAS ISSUED. THEREFORE, THE INITIAL DISPUTE WAS WITH REGARD TO GENUINENESS OF THE TRANSACTION REGARDING PURCHASE OF WOOL FROM THE PARTIES, THE ASSESSEE HAD FAILED TO DISCHARGE THE ONUS TO PROVE THE GENUINENESS OF THE TRANSACTION S, MERE MENTIONING OF SECTION 68 DID NOT AFFECT THE ADDITION MADE WHEN TRANSACTIONS WERE FOUND BOGUS.' 8.22 IN SANJAY OILCAKE INDUSTRIES VS. COMMISSIONER OF INCOME - TAX [2009] 316 ITR 274 (GUJ), IT WAS HELD AS UNDER : '12. THUS, IT IS APPARENT THAT B OTH THE COMMISSIONER (APPEALS) AND THE TRIBUNAL HAVE CONCURRENTLY ACCEPTED THE FINDING OF THE ASSESSING OFFICER THAT THE APPARENT SELLERS WHO HAD ISSUED SALE BILLS WERE NOT TRACEABLE. THAT GOODS WERE RECEIVED FROM THE PARTIES OTHER THAN THE PERSONS WHO HAD ISSUED BILLS FOR SUCH GOODS. THOUGH THE PURCHASES ARE SHOWN TO HAVE BEEN MADE BY MAKING PAYMENT THEREOF BY ACCOUNT PAYEE CHEQUES, THE CHEQUES HAVE BEEN DEPOSITED IN HANK ACCOUNTS OSTENSIBLY IN THE NAME OF THE APPARENT SELLERS, THEREAFTER THE ENTIRE AMOUNT S HAVE BEEN WITHDRAWN BY BEARER CHEQUES AND THERE IS NO TRACE OR IDENTITY OF THE PERSON WITHDRAWING THE AMOUNT FROM THE BANK ACCOUNTS, IN THE LIGHT OF THE AFORESAID NATURE OF EVIDENCE IT IS NOT POSSIBLE TO RECORD A DIFFERENT CONCLUSION, DIFFERENT FROM THE ONE RECORDED BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL CONCURRENTLY HOLDING THAT THE APPARENT SELLERS WERE NOT GENUINE, OR WERE ACTING AS CONDUIT BETWEEN THE ASSESSEE - FIRM AND THE ACTUAL SELLERS OF THE RAW MATERIALS. BOTH THE COMMISSIONER (APPEALS) AN D THE TRIBUNAL HAVE, THEREFORE, COME TO THE CONCLUSION THAT IN SUCH CIRCUMSTANCES, THE LIKELIHOOD OF THE PURCHASE PRICE BEING INFLATED CANNOT BE RULED OUT AND THERE IS NO MATERIAL TO DISLODGE SUCH FINDING. THE ISSUE IS NOT WHETHER THE PURCHASE PRICE REFLEC TED IN THE BOOKS OF ACCOUNT MATCHES THE PURCHASE PRICE STATED TO HAVE BEEN PAID TO OTHER PERSONS. THE ISSUE IS WHETHER THE PURCHASE PRICE PAID BY THE ASSESSEE IS REFLECTED AS RECEIPTS BY THE RECIPIENTS. THE ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 27 ASSESSEE HAS, BY SET OF EVIDENCE AVAILABLE ON REC ORD, MADE IT POSSIBLE FOR THE RECIPIENTS NOT BEING TRACEABLE FOR THE PURPOSE OF INQUIRY AS TO WHETHER THE PAYMENTS MADE BY THE ASSESSEE HAVE BEEN ACTUALLY RECEIVED BY THE APPARENT SELLERS. HENCE, THE ESTIMATE MADE BY THE TWO APPELLATE AUTHORITIES DOES NO T WARRANT INTERFERENCE. EVEN OTHERWISE, WHETHER THE ESTIMATE SHOULD BE AT A PARTICULAR SUM OR AT A DIFFERENT SUM, CAN NEVER BE AN ISSUE OF LAW.' 8.23 IN THE CASE OF ASSISTANT COMMISSIONER OF INCOME - TAX V. TRIBHOVANDAS BHIMJI ZAVERI [2000] 74 ITD 92 (M UM.), HON'BLE MUMBAI BENCH OF ITAT WHILE DEALING WITH THE ISSUE OF BOGUS PURCHASES WHERE SIMILAR ARGUMENTS WERE ADVANCED TO BUTTRESS THE CLAIM OF PURCHASES, HELD AS UNDER: 'CONSIDERING THE NUMBER OF COINCIDENCES INVOLVED IN THE SCHEME, WE ARE OF THE VIEW THAT THE ENTIRE SCHEME HAS BEEN PLANNED AND COORDINATED BY THE ASSESSEE - FIRM. IN THE CASE OF HOMI JEHANGIR GHEESTA V. CIT [1961] 41 ITR 135 , THE APEX COURT HELD THAT WHILE DECIDING AN ISSUE, THE TRIBUNAL CAN CONSIDER PROBABILITIES PROPERLY ARISING FROM TH E FACTS ALLEGED OR PROVED AND BY DOING SO THE TRIBUNAL DOES NOT INDULGE IN CONJECTURES, SURMISES OR SUSPICIONS. THE APEX COURT EXPRESSED A SIMILAR VIEW IN THE CASE OF SUMATI DAYAL V. CIT [1995] 214 ITR 801/80 TAXMAN 89 (SC) AND HELD THAT THE DECISION OF AN ADJUDICATING BODY BASED ON SURROUNDING CIRCUMSTANCES AND HUMAN PROBABILITIES IS NOT BAD IN LAW AND DESERVES TO BE UPHELD. IN THE CASE OF MCDOWELL & CO. LTD. V. CTO [1985] 154 ITR 148/22 TAXMAN 11, THE APEX COURT HELD THAT COLOURABLE DEVICES ARE NOT PART O F LEGITIMATE TAX PLANNING. GOING BY THE RATIO OF THESE DECISIONS, WE ARE OF THE VIEW THAT THE ASSESSEE - FIRM CANNOT BE DISSOCIATED FROM THE SCHEME OF DECLARATION OF GOLD UNDER THE AMNESTY SCHEME IN THE NAMES OF THE FAMILY MEMBERS OF THE PARTNERS OF THE ASSE SSEE - FIRM, AS DIFFERENT INDIVIDUALS COULD NOT HAVE HIT UPON THE SAME IDEA OF ACQUIRING GOLD IN THE YEAR OF ACCOUNT RELEVANT FOR THE ASSESSMENT YEAR 1978 - 79 AND DECLARING SUCH GOLD UNDER THE AMNESTY SCHEME AND GETTING THE GOLD VALUED BY THE SAME VALUER ON T HE SAME DAY AND FILING THEIR RETURNS UNDER THE AMNESTY SCHEME ON THE SAME DAY, I.E., 30 - 3 - 1987, AND SUBSEQUENTLY GETTING THE GOLD CONVERTED INTO ORNAMENTS THROUGH KARIGARS ON MORE OR THE SAME DAY AND SUBSEQUENTLY SELLING THE ORNAMENTS TO THE ASSSESSEE - FIRM IN THE SAME YEAR OF ACCOUNT WITHOUT THE PLANNING, CONTROLLING AND COORDINATION OF A CENTRAL AGENCY AND THAT AGENCY IN THESURROUNDING CIRCUMSTANCES APPEARS TO BE ONLY THE ASSESSEE - FIRM. THE APEX COURT HAS HELD IN THE CASE OFJAMNAPRASAD KANHAIYALAL ( SUPRA) THAT THERE IS NO DOUBLE TAXATION IN TAXING THE PERSON TO WHOM THE INCOME ACTUALLY BELONGED WITH THE PERSONS WHO FALSELY DECLARED THEM IN THEIR RETURNS FILED UNDER THE VOLUNTARY DISCLOSURE SCHEME. THAT IS A RISK WHICH AN ASSESSEE RESORTING TO UNFAIR TAX SAVING DEVICES HAS NECESSARILY TO RUN AND AN ASSESSEE WHO HAS RESORTED TO SUCH DEVICES HAS TO THANK HIMSELF FOR IT.' ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 28 8.24 AS REGARDS THE ISSUE OF CROSS - EXAMINATION, IN T. DEVASAHAYA NADAR V. CIT [1964] 51 ITR 20 (MAD.), IT WAS HELD: 'IT CANNOT BE LAID DOWN AS A GENERAL PROPOSITION OF LAW THAT THE INCOME - TAX DEPARTMENT CANNOT RELY UPON ANY EVIDENCE WHICH HAS NOT BEEN SUBJECTED TO CROSS - EXAMINATION. AN ITO OCCUPIES THE POSITION OF A QUASI - JUDICIAL TRIBUNAL AND IS NOT BOUND BY THE RULES OF THE EVIDEN CE ACT, BUT HE MUST ACT IN CONSONANCE WITH NATURAL JUSTICE, AND ONE SUCH RULE IS THAT HE SHOULD NOT USE ANY MATERIAL AGAINST AN ASSESSEE WITHOUT GIVING THE ASSESSEE AN OPPORTUNITY TO MEET IT. HE IS NOT BOUND TO DIVULGE THE SOURCE OF HIS INFORMATION. THERE IS NO DENIAL OF NATURAL JUSTICE IF THE ITO REFUSES TO PRODUCE AN INFORMANT FOR CROSS - EXAMINATION THOUGH IF A WITNESS IS EXAMINED IN THE PRESENCE OF THE ASSESSEE, THE ASSESSEE MUST BE ALLOWED TO CROSS - EXAMINE HIM. THE RANGE OF NATURAL JUSTICE IS WIDE AND WH ETHER OR NOT THERE HAS BEEN VIOLATION OF NATURAL JUSTICE WOULD DEPEND ON THE FACTS AND CIRCUMSTANCES OF THE CASE.' 8.25 THE SUPREME COURT HAD ALSO AN OCCASION TO CONSIDER THE APPLICABILITY OF THE PRINCIPLES OF NATURAL JUSTICE IN R.S. DOSS V. UNION OF INDIA AIR 1967 SC 593. REFERRING TO THE SAME, THE SUPREME COURT IN CHAIRMAN, BOARD OF MINING EXAMINATION V. RAMJEE AIR 1977 SC 965, INTER ALIA, HELD AS FOLLOWS: 'NATURAL JUSTICE IS NO UNRULY HORSE, NO LURKING LAND MINE, NOR A JUDICIAL CURE ALL. IF FAIRNESS IS SHOWN BY THE DECISION MAKER TO THE MAN PROCEEDED AGAINST, THE FORM, FEATURES AND THE FUNDAMENTALS OF SUCH ESSENTIAL PROCESSUAL PROPRIETY BEING CONDITIONAL BY THE FACTS AND CIRCUMSTANCES OF SUCH SITUATION, NO BREACH OF NATURAL JUSTICE CAN BE COMPLAINED OF. UNNATURAL EXPANSION OF NATURAL JUSTICE, WITHOUT REFERENCE TO THE ADMINISTRATIVE REALITIES AND OTHER FACTORS OF A GIVEN CASE, CAN BE EXASPERATING. WE CAN NEITHER BE FINICAL NOR FINANCIAL BUT SHOULD BE FLEXIBLE YET FIRM IN THIS JURISDICTION. . . .'' 8.2 6 IN GTC INDUSTRIES LTD. V. ASSISTANT COMMISSIONER OF INCOME - TAX [1998] 65 ITD 380 (BOM), IT WAS HELD AS UNDER: '105. IN OUR OPINION RIGHT TO CROSS - EXAMINE THE WITNESS WHO MADE ADVERSE REPORT, IS NOT AN INVARIABLE ATTRIBUTE OF THE REQUIREMENT OF THE DIC TUM, 'AUDI ALTERAM PARTEM'. THE PRINCIPLES OF NATURAL JUSTICE DO NOT REQUIRE FORMAL CROSS - EXAMINATION. FORMAL CROSS - EXAMINATION IS A PART OF PROCEDURAL JUSTICE. IT IS GOVERNED BY THE RULES OF EVIDENCE, AND IS THE CREATION OF COURT. IT IS PART OF LEGAL AND STATUTORY JUSTICE, AND NOT A PART OF NATURAL JUSTICE, THEREFORE, IT CANNOT BE LAID DOWN AS A GENERAL PROPOSITION OF LAW THAT THE REVENUE CANNOT RELY ON ANY EVIDENCE WHICH HAS NOT BEEN SUBJECTED TO CROSS - EXAMINATION. HOWEVER, IF A WITNESS HAS GIVEN DIRECTL Y INCRIMINATING STATEMENT AND THE ADDITION IN THE ASSESSMENT IS BASED SOLELY OR MAINLY ON THE BASIS OF SUCH STATEMENT, IN THAT EVENTUALITY IT IS INCUMBENT ON THE ASSESSING ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 29 OFFICER TO ALLOW CROSS - EXAMINATION. ADVERSE EVIDENCE AND MATERIAL, RELIED UPON IN TH E ORDER, TO REACH THE FINALITY, SHOULD BE DISCLOSED TO THE ASSESSEE. BUT THIS RULE IS NOT APPLICABLE WHERE THE MATERIAL OR EVIDENCE USED IS OF COLLATERAL NATURE. '(EMPHASIS SUPPLIED IN ALL QUOTATIONS) . 8.27 TO SUM UP, I WOULD LIKE TO QUOTE THE LANDMAR K CASE OF STATE BANK OF INDIA V. 5.K. SHARMA AIR 1996 SC 364 WHERE THE HON'BLE APEX COURT OBSERVED: 'JUSTICE MEANS JUSTICE BETWEEN THE PARTIES. THE INTEREST OF JUSTICE EQUALLY DEMAND THAT THE GUILTY SHOULD BE PUNISHED AND THAT TECHNICALITIES AND IRREGULARI TIES WHICH DO NOT OCCASION FAILURE OF JUSTICE ARE NOT ALLOWED TO DEFEAT THE ENDS OF JUSTICE. PRINCIPLES OF NATURAL JUSTICE ARE BUT THE MEANS TO ACHIEVE THE END OF JUSTICE. THEY CANNOT BE PERVERTED TO ACHIEVE FROM OPPOSITE END.' 8.28 IN BHOLANATH POLYFAB P VT. LTD. 355 ITR 290 (GUJ), THE FACTS OF THE CASE WERE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING IN FINISHED FABRICS. FOR THE A.Y. 2005 - 06, THE ASSESSING OFFICER HELD THAT THE PURCHASES WORTH RS. 40,69,546/ - WERE UNEXPLAINED. HE, THEREFORE, DISALLOWED SUCH EXPENDITURE CLAIMED BY THE ASSESSEE AND COMPUTED THE TOTAL INCOME OF RS. 41,10,187/~. THE ISSUE WAS CARRIED IN APPEAL BY THE ASSESSEE BEFORE THE LD. CIT(A) WHO REJECTED THE APPEAL, UPON WHICH THE ASSESSEE WENT IN FURTHER APPEAL BEFORE THE H ON'BLE TRIBUNAL. THE HON'BLE TRIBUNAL SUBSTANTIALLY ALLOWED THE ASSESSEE'S APPEAL. IN SO FAR AS THE QUESTION OF BOGUS PURCHASE IS CONCERNED, THE HON'BLE TRIBUNAL CONCURRED WITH THE REVENUE'S VIEWS THAT SUCH PURCHASES WERE MADE FROM BOGUS PARTIES. THE TRIBU NAL NOTED THAT THE ASSESSING OFFICER HAD ISSUED NOTICE TO ALL PARTIES FROM WHOM SUCH PURCHASES WERE ALLEGEDLY MADE. SUCH NOTICES WERE RETURNED UNSERVED BY THE POSTAL AUTHORITIES WITH THE REMARK THAT THE ADDRESS WAS INCOMPLETE. THE INSPECTOR DEPUTED BY THE INCOME - TAX DEPARTMENT ALSO COULD NOT FIND ANY OF THE PARTIES AVAILABLE AT THE GIVEN ADDRESSES. THE ASSESSEE WAS UNABLE TO PRODUCE ANY CONFIRMATION FROM ANY OF THE PARTIES. THOUGH THE ASSESSEE HAD CLAIMED TO HAVE MADE PAYMENT BY ACCOUNT PAYEE CHEQUES, UPON VERIFICATION IT WAS FOUND THAT THE CHEQUES WERE ENCASHED BY SOME OTHER PARTIES AND NOT BY THE SUPPOSED SELLERS. 8.29 HAVING COME TO SUCH A CONCLUSION, HOWEVER, THE TRIBUNAL WAS OF THE OPINION THAT THE PURCHASES MAY HAVE BEEN MADE FROM BOGUS PARTIES, NEVER THELESS, THE PURCHASES THEMSELVES WERE NOT BOGUS. THE TRIBUNAL ADVERTED TO THE FACTS AND DATA ON RECORD AND CAME TO THE CONCLUSION THAT THE ENTIRE QUANTITY OF OPENING STOCK, PURCHASES AND THE QUANTITY MANUFACTURED DURING THE YEAR UNDER CONSIDERATION WERE S OLD BY THE ASSESSEE. THE PURCHASES OF THE ENTIRE 1,02,514 METERS OF CLOTH WERE SOLD DURING THE YEAR UNDER CONSIDERATION. THE HON'BLE TRIBUNAL, THEREFORE, ACCEPTED THE ASSESSEE'S CONTENTION THAT THE FINISHED GOODS WERE PURCHASED BY THE ASSESSEE, MAY BE NOT FROM THE PARTIES SHOWN IN THE ACCOUNTS, BUT FROM OTHER SOURCES. IN THAT VIEW OF THE MATTER, THE ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 30 TRIBUNAL WAS OF THE OPINION THAT NOT THE ENTIRE AMOUNT, BUT THE PROFIT MARGIN EMBEDDED IN SUCH AMOUNT WOULD BE SUBJECTED TO TAX. THE TRIBUNAL RELIED ON ITS EARL IER DECISION IN THE CASE OF SANKET STEEL TRADERS VS. ITO [IT APPEAL NOS. 2801 & 2937 (AHD) OF 2008, DATED 20 - 05 - 2011] AND ALSO MADE REFERENCE TO THE TRIBUNAL'S DECISION IN THE CASE OF VIJAY PROTEINS LTD. VS. ASSTT.CIT [1996] 58 ITD 428 (AHD). ON APPEAL BY THE DEPARTMENT, THE HON'BLE GUJARAT HIGH COURT HELD AS FOLLOWS: 'WE ARE OF THE OPINION THAT THE TRIBUNAL COMMITTED NO ERROR. WHETHER THE PURCHASES THEMSELVES WERE BOGUS OR WHETHER THE PARTIES FROM WHOM SUCH PURCHASES WERE ALLEGEDLY MADE WERE BOGUS IS ES SENTIALLY A QUESTION OF FACT. THE TRIBUNAL HAVING EXAMINED THE EVIDENCE ON RECORD CAME TO CONCLUSION THAT THE ASSESSEE DID PURCHASE THE CLOTH AND SELL THE FINISHED GOODS. IN THAT VIEW OF THE MATTER, AS NATURAL COROLLARY, NOT THE ENTIRE AMOUNT COVERED UNDER SUCH PURCHASE, BUT THE PROFIT ELEMENT EMBEDDED THEREIN WOULD BE SUBJECT TO TAX. THIS WAS THE VIEW OF THIS COURT IN THE COSE OF SANJAY OILCAKE INDUSTRIES VS. OT (2009) 316 ITR 274 (GUJ.J. SUCH DECISION IS ALSO FOLLOWED BY THIS COURT IN A JUDGMENT DATED AUG UST 16, 2011, IN TAX APPEAL NO. 679 OF 2010 IN THE CASE OF CIT VS. KISHOR AMRUTLAL PATEL. IN THE RESULT, TAX APPEAL IS DISMISSED'. 8.30 THE FACTS IN THE PRESENT CASE ARE SIMILAR TO THE FACTS IN THE ABOVE MENTIONED CASE. IN THE PRESENT CASE, THE LD. AO HAS SHOWN THAT THE PARTY IN QUESTION WAS NON - EXISTENT. THE APPELLANT HAS NOT BEEN ABLE TO DISPROVE THE FINDINGS OF THE LD. AO REGARDING THE NON - EXISTENCE OF THE PARTY. LD. AO HAS, AFTER EXAMINING THE EVIDENCES, FOUND THAT THE APPELLANT DID PURCHASE THE GOODS, ALTHOUGH NOT FROM THE PARTY IN QUESTION AND SHE HAD ALSO SHOWN SALES OF THE GOODS AND HAD OFFERED THE INCOME ON SUCH SALE OF GOODS. IN THIS CASE, I ALSO FIND THAT LD. AO HAS OBSERVED THAT QUANTITATIVE DETAILS WERE MAINTAINED AND THE APPELLANT BEING A TRAD ER OF GOODS, LD. A.O. NOT HAVING DOUBTED THE GENUINENESS OF SALES, COULD NOT HAVE GONE AHEAD AND MADE ADDITION IN RESPECT OF ENTIRE PURCHASES ESPECIALLY WHEN HE HIMSELF RECORDED A FINDING THAT THE APPELLANT MADE THE PURCHASES FROM SOME OTHER PARTY. THUS, T HE ISSUE WOULD BOIL DOWN TO FINDING OUT THE ELEMENT OF PROFIT EMBEDDED IN BOGUS PURCHASES WHICH THE APPELLANT WOULD HAVE MADE FROM SOME UNKNOWN ENTITIES. HENCE, FOLLOWING THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN BHOLANATH POLYFAB PVT. LTD. (SUPRA) , THE PROFIT MARGIN EMBEDDED IN SUCH AMOUNTS OF PURCHASES COULD ONLY BE DISALLOWED AND SUBJECTED TO TAX. 8.31 SIMILARLY, IN YET ANOTHER DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT SHETH (2013) 38 TAXMANN.COM 385 (GUJ), HON'BLE COUR T WAS SEIZED WITH A SIMILAR ISSUE WHERE THE A.O. HAD FOUND THAT SOME OF THE ALLEGED SUPPLIERS OF STEEL TO THE ASSESSEE HAD NOT SUPPLIED ANY GOODS BUT HAD ONLY PROVIDED SALE BILLS AND HENCE, ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 31 PURCHASES FROM THE SAID PARTIES WERE HELD TO BE BOGUS. THE A.O. IN THAT CASE ADDED THE ENTIRE AMOUNT OF PURCHASES TO GROSS PROFIT OF THE ASSESSEE. LD. CIT(A) HAVING FOUND THAT THE ASSESSEE HAD INDEED PURCHASED THOUGH NOT FROM NAMED PARTIES BUT OTHER PARTIES FROM GREY MARKET, PARTIALLY SUSTAINED THE ADDITION AS PROBABLE P ROFIT OF THE ASSESSEE. THE TRIBUNAL HOWEVER, SUSTAINED THE ADDITION TO THE EXTENT OF 12.5%. TAKING INTO ACCOUNT THE ABOVE FACTS, THE HON'BLE GUJARAT HIGH COURT HELD THAT SINCE THE PURCHASES WERE NOT BOGUS, BUT WERE MADE FROM PARTIES OTHER THAN THOSE MENTIO NED IN BOOKS OF ACCOUNTS, ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES COULD BE ADDED TO THE ASSESSEE'S INCOME AND AS SUCH NO QUESTION OF LAW AROSE IN SUCH ESTIMATION. WHILE ARRIVING AT THE ABOVE CONCLUSION, THE HON'BLE COURT ALSO RELIED ON THE DECIS ION IN THE CASE OF VIJAY M. MISTRY CONSTRUCTION LTD. 355 ITR 498 (GUJ) AND FURTHER APPROVED THE DECISION OF AHMEDABAD BENCH, ITAT IN THE CASE OF VIJAY PROTEINS 58 ITD 428. 8.32 IN THE CASE OF VIJAY PROTEINS (SUPRA), THE HON'BLE ITAT WAS SEIZED WITH A CA SE OF BOGUS SUPPLIERS OF OIL CAKES WHERE 33 PARTIES WERE FOUND TO BE BOGUS BY THE DEPARTMENTAL AUTHORITIES EVEN THOUGH PAYMENTS WERE MADE TO THE SAID PARTIES BY CROSS CHEQUES AND IN FACT THE A.O. IN THAT CASE HAD BROUGHT ADEQUATE MATERIAL ON RECORD TO PROV E THAT THE CROSS CHEQUES HAD NOT BEEN GIVEN TO PARTIES FROM WHOM SUPPLIES WERE ALLEGEDLY PROCURED BUT THESE WERE ENCASHED FROM A BANK ACCOUNT IN THE NAME OF ANOTHER ENTITY, POSSIBLY HAWALA DEALER. SUBSEQUENTLY, THE MONEY DEPOSITED IN THAT ACCOUNT WAS WITHD RAWN IN CASH ALMOST ON THE SAME DAY. THE TRIBUNAL HOWEVER, HELD THAT IF THE PURCHASES WERE LADE FROM OPEN MARKET WITHOUT INSISTING FOR GENUINE BILLS, THE SUPPLIERS MAY BE WILLING TO SELL THE PRODUCT AT A MUCH LESS RATE AS COMPARED TO A RATE WHICH THEY MAY CHARGE IN WHICH THE DEALER HAS TO GIVE GENUINE SALE INVOICE IN RESPECT OF THAT SALE. KEEPING ALL SUCH FACTORS IN MIND, THE TRIBUNAL ESTIMATED AN ELEMENT OF PROFIT PERCENTAGE OF THE OVERALL PURCHASE PRICE ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS THROUGH FICTI TIOUS INVOICES. 8.33 FURTHER, IN THE CASE OF M/S SANKET STEEL TRADERS (ITA NO. 2801/AHD/ 2008 DATED 20 - 05 - 2011 IT WAS, INTER - ALTO, STATED AS UNDER: < '3. AT THE TIME OF HEARING BEFORE US, IT IS SUBMITTED BY THE LEARNED COUNSEL THAT THE ADDITION SUSTAINED IS EXCESSIVE, IN SUPPORT OF THIS CONTENTION HE REFERRED TO THE DECISION OF THE TRIBUNAL IN THE CASE OF ITO VS. SUN STEEL 92 TTJ (AHD) 1126 WHEREIN THE TRIBUNAL HAS SUSTAINED THE ADDITION OF RS.50,000/ - ON ACCOUNT OF BOGUS PURCHASES. HOWEVER, WE FIND THAT T HE FACTS IN THE ABOVE CASE WERE DIFFERENT. IN THE ABOVE CASE, THE ASSESSEE HAS SHOWN PURCHASES OF RS. 27,39,410/ - F SALE OF RS.28,17,207/ - AND GROSS PROFIT AT RS.94,740/ - . THE ASSESSING OFFICER MADE THE ADDITION OF RS.27,39,407/ - FOR BOGUS PURCHASES. IF THE ABOVE SUM IS ADDED TO THE GROSS PROFIT, THE GROSS PROFIT WORKS OUT RS.2,83,41,247/ - WHICH WAS MORE THAN THE SALE ITSELF. THE TRIBUNAL HELD ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 32 THAT IT IS IMPOSSIBLE THAT THE GROSS PROFIT IS MORE THAN THE SALE ITSELF. THE TRIBUNAL ALSO FOUND THAT THE ASSESSEE H AS MAINTAINED THE QUANTITATIVE DETAILS IN RESPECT OF MATERIALS PURCHASED AND SOLD. CONSIDERING PECULIAR FACTS OF THAT CASE, THE TRIBUNAL ARRIVED AT THE CONCLUSION THAT IT WOULD BE FAIR AND REASONABLE TO ESTIMATE THE ADDITION AT RS.50,000/ - AS AGAINST THE A DDITION OF RS.27,39,407/ - MADE BY THE ASSESSING OFFICER. HOWEVER, THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) CONSIDERING THE FACTS OF THE ASSESSEE'S CASE, HAS SUSTAINED THE ADDITION AT 12.5%. WHILE DOING SO, HE HAS ALSO RELIED UPON THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. VIJAY PROTEINS LTD. 55 TTJ (AHD) 76. IN THE CASE OF M/S. VIJAY PROTEINS LTD. THE TRIBUNAL HAS SUSTAINED THE ADDITION OF 25% OF THE BOGUS PURCHASES. HOWEVER, CONSIDERING THE FACTS OF THE ASSESSEE'S CASE THE CIT(A) RESTRICTED TH E DISALLOWANCE TO 12,5% AS AGAINST 25% MADE IN THE CASE OF M/S. VIJAY PROTEINS LTD. FROM THESE FACTS IT IS EVIDENT THAT THE CIT(A) HAS SUSTAINED THE ADDITION AT 12,5% OF THE NON - GENUINE PURCHASES CONSIDERING THE FACTS OF THE ASSESSEE'S CASE. WE, THEREFORE, DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE CIT(A) IN THIS REGARD. THE SAME IS SUSTAINED . AFTER CONSIDERING THE FACTS AND THE ARGUMENTS OF BOTH THE SIDES, WE ORE OF THE OPINION THAT IT WOULD MEET ENDS OF JUSTICE, IF THE DISALLOWANCE I S SUSTAINED AT 12.5% OF THE PURCHASE FROM THESE TWO PARTIES. THE ASSESSING OFFICER IS DIRECTED TO WORK OUT THE DISALLOWANCE ACCORDINGLY.' SINCE THE FACTS OF THE ASSESSEE'S CASE ARE IDENTICAL, WE RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE ITAT, DIREC T THE ASSESSING OFFICER TO DISALLOW 12.5% OF THE PURCHASES MADE DURING THE YEAR UNDER CONSIDERATION.' 8.34 SIMILAR CASES HAVE BEEN DEALT WITH BY THE CIT (A), MUMBAI AND THE APPEAL HAS BEEN HEARD BY THE JURISDICTIONAL ITAT, MUMBAI AND HELD IN THE FOLLOWIN G CASES ABOUT THE NATURE AND TREATMENT IN SUCH CASES: 1. THE ITAT 'G' BENCH, MUMBAI IN CASE OF GANPATRAJ A. SANGHVI VS. ACIT [ITA NO. 2826/MUM/2013] HAS HELD THAT 'THERE IS NO SCOPE FOR ASSUMPTION AND PRESUMPTIONS FOR ANYTHING CAN BE IMPLIED. ADDITION CAN NOT BE SUSTAINED ON THE BASIS OF PREPONDERANCE OF PROBABILITIES. SUSPICION HOWEVER STRONG IT MAY BE CANNOT FORM BASIS OF ADDITION. ADDITION CANNOT BE MADE MERELY ON SUSPICION SURMISES AND CONJECTURES IN THE HANDS OF THE ASSESSEE.' . 2. THE ITAT 'D' BENCH, MUMBAI IN CASE OF ITO VS. SHRI. DEEPAK 7 POTATLAL GALA [ITA NO.5920/MUM/2013] HAS HELD THAT 'IN ALL THE ABOVE SAID CASES, THE CO - ORDINATE BENCHES OF THE TRIBUNAL HAS HELD THAT THE AO WAS NOT JUSTIFIED IN MAKING THE ADDITION ON THE BASIS OF STAT EMENTS GIVEN BY THE THIRD PARTIES BEFORE THE SALES TAX DEPARTMENT, WITHOUT CONDUCTING ANY OTHER INVESTIGATION. IN THE INSTANT CASE ALSO, THE ASSESSING OFFICER HAS MADE THE IMPUGNED ADDITION ON THE BASIS OF ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 33 STATEMENTS GIVEN BY THE PARTIES BEFORE THE SALES T AX DEPARTMENT. WE NOTICE THAT THE LD.CIT(A) HAS TAKEN NOT? OF THE FACT THAT NO SALES COULD BE EFFECTED WITHOUT PURCHASES. HE HAS FURTHER PLACED RELIANCE ON THE DECISION RENDERED BY HON'BLE GUJARAT HIGH COURT IN THE CASE OF OT VS. M.K. BROTHERS (163 ITR 249 ). HE HAS FURTHER PLACED RELIANCE ON THE DECISION BY THE TRIBUNAL IN THE CASE OF ITO VS. PREMANAND (2008) (25 SOT 11) (JODH), WHEREIN IT HAS BEEN HELD THAT WHERE THE AO HAS MADE ADDITION MERELY ON THE BASIS OF OBSERVATIONS MADE BY THE SALES TAX DEPT AND HA S NOT CONDUCTED ANY INDEPENDENT ENQUIRIES FOR MAKING THE ADDITION ESPECIALLY IN A CASE WHERE THE ASSESSEE HAS DISCHARGED ITS PRIMARY ONUS OF SHOWING BOOKS OF ACCOUNTS, PAYMENT BY WAY OF ACCOUNT PAYEE CHEQUE AND PRODUCING VOUCHERS FOR SALE OF GOODS, SUCH AN ADDITION COULD NOT BE SUSTAINED.' 3. THE ITAT 'D' BENCH, MUMBAI IN CASE OF RAMESH KUMAR & CO. VS. ACIT [ITA NO.2959/MUM/2014] HAS HELD THAT 'ONCE THE ASSESSEE HAS BROUGHT ON RECORD THE DETAILS OF PAYMENTS BY ACCOUNT PAYEE CHEQUE, IT WAS INCUMBENT ON THE AO TO HAVE VERIFIED THE PAYMENT DETAILS FROM THE BANK OF THE ASSESSEE AND ALSO FROM THE BANK OF THE SUPPLIERS TO VERIFY WHETHER THERE WAS ANY IMMEDIATE CASH WITHDRAWAL FROM THEIR ACCOUNT. NO SUCH EXERCISE HAS BEEN DONE. THE ID. CIT(A) HAS ALSO CONFIRMED TH E ADDITION MADE BY THE AO BY GOING ON THE SUSPICION AND THE BELIEF THAT THE SUPPLIERS OF THE ASSESSEE ARE HAWALA TRADERS. WE ALSO FIND THAT NO EFFORT HAS BEEN MADE TO VERIFY THE WORK DONE BY THE ASSESSEE FROM THE MUNICIPAL CORPORATION OF GREATER MUMBAI. WE AGREE WITH THE SUBMISSIONS OF THE ID. COUNSEL THAT IF THERE WERE NO PURCHASE, THE ASSESSEE WOULD NOT HAVE BEEN IN A POSITION TO COMPLETE THE CIVIL WORK.' IT WAS FURTHER HELD THAT 'THE PAYMENTS HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUE WHICH ARE DULY REFLECTE D IN THE BANK STATEMENT OF THE ASSESSEE. THERE IS NO EVIDENCE TO SHOW THAT THE ASSESSEE HAS RECEIVED CASH BOOK FROM THE SUPPLIERS. THE ADDITIONS HAVE BEEN MADE MERELY ON THE REPORT OF THE SALES TAX DEPARTMENT BUT AT THE SAME TIME IT CANNOT BE SAID THAT PUR CHASES ARE BOGUS. WE, THEREFORE, SET ASIDE THE FINDINGS OF THE LD.CLT(A) AND DIRECT THE AO TO DELETE THE ADDITIONS OF RS.4,98,80,892/ - .' 4. THE ITAT 'D' BENCH, MUMBAI IN CASE OF ACIT VS. RAMILA PRAVIN SHAH [ITA NO.5246/MUM/2013] HAS HELD THAT 'FURTHER, IT HAS TO BE APPRECIATED THAT (I) PAYMENTS WERE THROUGH BANKING CHANNEL AND BY CHEQUE, (II) NOTICES COMING BACK, DOES NOT MEAN, THOSE PARTIES ARE BOGUS, THEY ARE JUST DENYING THEIR BUSINESS TO AVOID SALES TAX/VAT ETC,(III) STATEMENT BY THIRD PARTIES CANNOT B E CONCLUDED ADVERSELY IN ISOLATION AND WITHOUT CORROBORATING EVIDENCES AGAINST APPELLANT, (IV) NO CROSS EXAMINATION HAS BEEN OFFERED BY AO TO THE APPELLANT TO CROSS EXAMINE THE RELEVANT PARTIES.' ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 34 IT WAS FURTHER HELD THAT, 'ON A CONSPECTUS OF THE MATTER, W E DO NOT FIND ANY INFIRMITY IN THE DECISION OF THE LD.CIT(A) ON THIS ISSUE.' 8.35 AS NARRATED EARLIER, THE LD. A.O. IN THIS CASE HAS HIMSELF HELD THAT THE PURCHASES WERE NOT BOGUS THOUGH THE PARTY FROM WHOM THE PURCHASES WERE MADE BY THE APPELLANT WAS FOU ND TO BE BOGUS AND THAT IS THE REASON FOR WHICH IT WAS NOT PRODUCED DURING THE ASSESSMENT PROCEEDINGS. THE APPELLANT HAS NOT FILED ANY CONFIRMATION OF PARTIES TO PROVE THE IDENTITY OF THE PARTIES OR PROVE THE GENUINENESS OF THE PURCHASES. THE APPELLANT FIL ED ITS WRITTEN SUBMISSION STATING THEREIN THAT THE PURCHASES WERE MADE IN REGULAR COURSE OF BUSINESS. THE MOTIVE BEHIND OBTAINING BOGUS BILLS THUS, APPEARS TO BE INFLATION OF PURCHASE PRICE SO AS TO SUPPRESS TRUE PROFITS. CONSIDERING THE FACTS OF THE CASE AS WELL AS THE VARIOUS CASE LAWS CITED (SUPRA) ESPECIALLY IN THE CASES OF CIT VS. SIMIT P. SHETH , BHOLANATH POLY FAB AND SANKET STEEL TRADERS (SUPRA), 1 ESTIMATE THE EMBEDDED PROFIT TO THE EXTENT OF 12.5% OF THE NET PURCHASES~'SHOWN FROM THE BOGUS SUPPLIER DURING THE YEAR AS PER THE CHART BELOW, AS THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES. SR. NO. NAME OF THE PARTY PAN NO. AMOUNT (RS.) 1. GROWELL ENTERPRISES AHQPP1838A 11,33,755.00 2. ALPESH TRADING COMPANY AIRPP3049H 9,08,221.00 3. S HREEJI SALES ADNPR3792A 9,08,221.00 4. TRISHANA MULTRADE PRIVATE LTD. BMFPS9038A 3,71,280.00 5. CAPRIHANS TRADE CENTRE ADXPD0923F 7,12,738.00 6. SMARTLINGKTRADEX P. LTD. AALCS4411B 1,97,860.00 7. NISHA ENTERPRISES AWCPS3492N 98,020.00 8. MONIL IMPEX AAGPS5222E 1,53,010.00 9. MARUTI CORPORATION AOEC5997Q 4,34,780.00 10 TARA ENTERPRISES AWTPS0269A 1,86,363.00 11. BHUMI ENTERPRISES AVCPS0096H 1,09,200.00 12. DEEPAK SALES CORPORATION ADBPJ9865G 2,17,390.00 ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 35 13. M AYOR TRADING COMPANY BMQPS9058H 66,7170.00 14. POOJA TRADERS ALIPS2588P 8,14,995.00 TOTAL 69,13,0037 - 8.36 THE TOTAL PURCHASES OF RS. RS. 69,13,003/ - , INCLUDES VAT OF RS. 2,66,760/, WHICH IS A GOVT. TAX AND SHOULD NOT BE INCLUDED IN THE AMOUNT OF PURCHASES. THEREFORE, THE AMOUNT OF PURCHASE IS BEING TAKEN TO RS. 66,46,243/ - AS PURCHASES. SINCE, THE AO HAS NOT DETERMINED AND GP DURING YEAR, NETTING OF GP ON THESE TRANSACTION IS NOT BEEN TAKEN IN THIS CASE. THEREFORE, ADDITION @ 12.5% OF SUCH PURC HASES OF RS. 66,46,243/ - , WHICH COMES OUT TO RS. 8,30,780/ - IS CONFIRMED. ACCORDINGLY, GROUNDS NO. 5 TO 8 FILED ALONG FORM NO.35 DATED 27.03.2014 ARE PARTLY ALLOWED. 1 1 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDER OF THE AUTH ORITIES BELOW AND FOUND FROM RECORD THAT ON THE BASIS OF INFORMATION FROM SALES TAX DEPARTMENT, AO REOPENED THE ASSESSMENT AND THEREAFTER HE MADE AN INDEPENDENT ENQUIRY WITH REGARD TO THE GENUINENESS OF THE SUPPLIERS AND IT WAS FOUND THAT THESE SUPPLIERS D O NOT 5 EXIST AND HAVE NOT SUPPLIED THE GOODS TO THE ASSESSEE. FROM THE RECORD, WE FOUND THAT THE ASSESSEE COMPANY IS IMPORTING CHEMICALS AND DISINFECTANTS PRODUCTS, AND CONDUCTS HIS BUSINESS OF MARKETING BY HOLDING SEMINARS, MEETING WITH HOSPITAL REPRESENT ATIVES, PARTICIPATING IN EXHIBITIONS ETC., THE ASSESSEE HAS FURNISHED COPY OF TAX AUDIT REPORT, PROFIT AND LOSS ACCOUNT AND BALANCE SHEET ETC., THE ASSESSEE FILED PURCHASE BILL, PAYMENT MADE BY CHEQUES TO ALL SUPPLIERS THEIR LEDGER ACCOUNTS, PAN CARD, BANK STATEMENTS, PURCHASE CONFIRMATION OF SUPPLIERS. THE LD. AO DID NOT ACCEPT AFORESAID EVIDENCE AND THEREFORE MADE ABOVE ADDITIONS. AFTER MAKING INDEPENDENT ENQUIRY, HE FOUND THE SUPPLIER BOGUS, ITA NO. 2628/MU M/2016 AND OTHER 5 APPEALS M/S. RUSHAIL PHARMADIN PVT. LTD., 36 THEREFORE, ADDED THE ENTIRE AMOUNT IN ASSESSEES INCOME, HOWEVE R, THE AO HAS NOT DISPUTED THE SALES MADE BY THE ASSESSEE OUT OF SUCH PURCHASES. 12 . WE FOUND THAT IN EACH YEAR, THE CIT(A) HAS GIVEN DETAILED FINDING FOR UPHOLDING ADDITION OF 12.5%. HOWEVER, IN THE ASSESSMENT YEAR 2010 - 11, THE CIT(A) HAS GIVEN DUE JUSTI FICATION FOR UPHOLDING ADDITION OF 20% OF THE BOGUS PURCHASES. NOTHING WAS PLACED ON RECORD EITHER BY THE LEARNED AR OR DR SO AS TO PERSUADE US TO DEVIATE FROM THE FINDINGS RECORDED BY CIT(A). CONSIDERING THE VARIOUS JUDICIAL PRONOUNCEMENTS RELIED ON BY CI T(A) AND FILED BY LEARNED AR BEFORE US, WE DO NOT FIND ANY JUSTIFICATION FOR INTERFERING IN THE ORDER OF CIT(A) IN ALL THE YEARS UNDER CONSIDERATION. 1 3 . IN THE RESULT ALL THE APPEALS OF THE ASSESSEE AND REVENUE ARE DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 22 / 08 /2017 S D/ - ( SANDEEP GOSAIN ) S D/ - ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 22 / 08 /201 7 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT . REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//
Other Referred Cases
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1:1 Consultation on Salary Structuring
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1:1 Consultation on Tax Litigation
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1:1 Consultation on Business Valuations
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Declaration of Gift
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Assignment of Registered Trademark
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