RAVI SHAMBHULAL MANGE, MUMBAI V. ITO -17 (3) (1) , MUMBAI

ITA 28/MUM/2022

AI Insights

The case revolves around the appeal by Ravi Shambhulal Mange against the order of the Learned Commissioner of Income Tax (Appeals), which confirmed the addition of Rs. 2.95 crores as bogus labor expenses claimed by the assessee. The addition was initially made by the Assessing Officer based on information from the investigation wing about the involvement of M/s Allied Computer International Asia Ltd. in providing accommodation entries. The Tribunal found that the assessee had submitted sufficient documentary evidence to substantiate the genuineness of the transactions, including invoices, ledger accounts, and bank statements. However, the Tribunal noted that the Assessing Officer and the Ld.CIT(A) had relied heavily on the statement of a third party, Shri Shirish Shah, without providing the assessee an opportunity to cross-examine or access the statement, which constituted a violation of the principles of natural justice.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123362 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: D
• Next Hearing Date: 26-12-2022
• Assessment Year: 2011-2012
• Appeal Filed On: 09-01-2022
• Other Referred Cases: Commissioner of Income Tax vs. Odeon Builder (P) Ltd., Andaman Timber Industries v/s Commissioner of Central Excise, Kolkata-11, H. R. Mehta vs. ACIT, M/s Supertech Forgings (India) Pvt. Ltd. vs. Dy. CIT, PCIT, Surat-I vs. Tejua Rohit Kumar Kapadia, CIT vs M/s Nikunj Eximp Enterprises Pvt. Ltd., PCIT vs Vaman International P Ltd., PCIT vs Agson Global Pvt Ltd., ACIT vs Mahesh K. Shah
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MS ALLIED COMPUTER
• Keywords: Bogus purchase; Search and seizure; Principle of natural justice; Opportunity of cross examination; Corroborative evidences; Third party statement; Accommodation entries; TDS
• Section: 148; 132; 143(3); 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “D”, MUMBAI BEFORE SHRI AMIT SHUKLA, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA NO.28/MUM/2022 (A.Y: 2011-12) Ravi Shambhulal Mange Bharat Wood Works, 26 Sindhubaug A, Tilak Road Ghatkopar (E), Mumbai - 400077 PAN: AACPB4205G v. Income Tax Officer – 17(3)(1) Mumbai (Appellant) (Respondent) Assessee Represented by : Shri Hariom Tulsiyan Department Represented by : Shri Ashish Kumar Date of Hearing : 27.12.2022 Date of Pronouncement : 23.02.2023 O R D E R PER S. RIFAUR RAHMAN (AM) 1. This appeal is filed by assessee against order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter in short “Ld.CIT(A)”] dated 17.12.2021 for the A.Y.2011-12. 2 ITA NO.28/MUM/2022 (A.Y: 2011-12) Ravi Shambhulal Mange 2. Assessee has raised following grounds in his appeal: - “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in passing the order u/s. 250, without giving any fresh opportunity to the appellant passing the order on a part submission, which was filed about 11 months ago the final order. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in passing the order u/s. 250 ignoring Bombay High Court decision which calls for an opportunity of being heard should be given. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 2.95 crores, which was passed by the A.O. without any evidence and without following principles of natural justice and which was also bad in law. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming addition made by the A.O. though assessee had submitted all the details relating to the issue, has maintained regular books of accounts and A.O. neither found any discrepancy in the books of accounts nor rejected the books of accounts wholly or partly. 5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not justified in dismissing the appeal as neither A.O. nor learned CIT(A) provided to the assessee any material, document or statement etc. on which reliance was placed by the A.O. and which could have been controverted by the appellant. 6. The appellant craves leave to add, alter or delete all or modify any or all the above grounds of appeal.” 3. At the time of hearing, Ld. AR submitted that assessee is not pressing Ground Nos. 1 and 2, accordingly, these grounds of appeal are dismissed as not pressed. 4. With regard to Ground No. 3, 4 and 5 of grounds of appeal which are on merit, the relevant facts of the case are, assessee has declared 3 ITA NO.28/MUM/2022 (A.Y: 2011-12) Ravi Shambhulal Mange income of ₹.16,74,009/- which assessee has earned from house property and business income during the financial year. In this case, the information was received from DCIT-CC-2(2), Mumbai about the beneficiaries of accommodation entry provided by a concern which is operated by Shri Shirish Shah and the entry provider identified was M/s.Allied Computer International Asia Ltd., [in short “ACIAL”]. The assessee has claimed ₹.2,95,04,418/- as labour expense paid to ACIAL and the assessee has submitted the invoices and the ledger Account for the same. The assessee has also deducted TDS on labour payments and therefore, the assessee states that they have genuinely entered into transaction of labour with ACIAL. However, the assessment was completed u/s 143(3) on 28.12.2018 wherein the addition of ₹.2,95,04,418/- was made as bogus expense. The assessee pleads to delete the said addition as the same is added on the basis of assumptions and without considering the relevant supporting documents. 5. Subsequently, based on the information received from investigation wing, the Assessing Officer issued notices u/s. 148 of Income-tax Act, 1961 (in short “Act”) and assessee was show-caused as under: - “During the year under consideration, you have shown expenses in the form of labour charges from M/s. Allied Computer International Asia Ltd. for Rs.2,95,04,418/-. However, the said entity is found to 4 ITA NO.28/MUM/2022 (A.Y: 2011-12) Ravi Shambhulal Mange be bogus concern merely issuing bills without there being any delivery of goods / services. In light of said fact, you are hereby show caused as to why Rs.2,95,04,418/- should not be added in your total income." 6. In response, assessee submitted various invoices bills of ACIAL and submitted that all the transactions entered are labour charges and all these are genuine transactions and they also deducted TDS on labour payments made to them. After considering the submissions of the assessee Assessing Officer rejected the same with the observation that, search and seizure action u/s 132 carried out on Shri Shirish Shah wherein it was found that, Shri Shirish Shah is an entry operator and he was identified as one of the main person who was controlling ACIAL and providing accommodation entries through it. Assessing Officer observed that Shri Shirish Shah had systematically maintained user ID and password of bank accounts of various companies including that of assessee company. He observed that dummy directors were appointed for the paper/shell companies. All the characteristics of entry provider were evident in the ACIAL company. Further, he observed that tax audit report of ACIAL showed that it was involved in development and maintenance of software and its applications, whereas assessee has taken services as they have provided labour services. Accordingly, he came to the conclusion that ACIAL is only providing accommodation entries 5 ITA NO.28/MUM/2022 (A.Y: 2011-12) Ravi Shambhulal Mange without doing any services to the assessee. Further, he observed that bills/ invoices were present even at the time when search action was taken place at Shri Shirish Shah and ACIAL. Accordingly, claim of labour expenses made by the assessee are rejected and dismissed the claim. 7. Aggrieved assessee preferred an appeal before the Ld.CIT(A) and before the Ld.CIT(A) assessee has submitted as under: - “1. Assessee is carrying on a proprietary concern in the name of M/S Bharat Wood Works, engaged in the business of providing packaging services along with related services with respect to guidance and solution for material handling, quality and inventory control and recycling of packing materials. 1. Scrutiny proceedings were initiated for Assessment Year 2011-12 u/s 147. During the assessment proceedings, the assessee was asked to produce various documents and supporting vouchers relating to the expenses made in the form of labour charges to M/S.Allied Computer International Asia Ltd amounting to Rs.2,95,04,418/. The above mentioned party has been declared as an entry provider as per the information discovered by the Department after conducting a search & seizure on Shri Shirish Shah and thus the expenses were treated as bogus labour charges and thus they were disallowed as an expenditure. However, as per the records available with us, we have already submitted the invoices/bills and copy of ledger of the aforesaid party, thereby showing genuineness of the transaction. 2. Copy of Ledger of M/s. Allied Computer International Asia Ltd in the books of the assessee. (Annexure 1) 1. Copy of the bills/invoices issued by M/S. Allied Computer International Asia Ltd for FY 2010-11. (Annexure 2). 2. Copy of the assessee's Bank Statement highlighting the payments made to M/S. Allied Computer International Asia Ltd. (Annexure 3). 6 ITA NO.28/MUM/2022 (A.Y: 2011-12) Ravi Shambhulal Mange 1. The assessee was engaged in business with M/S Rajeshree Polyfil, a division of M/S Century Enka Ltd for providing services in respect of packing solution and packing of material. The assessee provided the packaging service services along with related services with respect to guidance and solution for material handling, quality and inventory control and recycling of packing materials and pallets to M/S. Rajeshree Polyfil at packaging division at Plant I and Plant 2 at Rajashree Nagar, Post Umalla, District Bharuch -393120, Gujurat. The assessee was provided with a Godown cum workshop in Plant premises by Rajeshree Polyfil for pallets and other related packing material storage, recycling process, to pallet and other packaging material and maintaining data related to location of pallets and related packing material to pallets. 2. The detailed process of services provided by the assessee is as under- The pallets from the godown are supplied to M/S Rajeshree Polyfil as per their daily requirement arising out of the sales order and Nylon Polyster yams are dispatched in a pallet room from Packaging Division situated at Plant I and Plant 2 and the same is transferred to their warehouse for storage and accordingly sold to the customers. Once the orders of the yarns are sold to the customers, its reusable packing material is collected by us from all of their customers situated at different locations and then the same is transferred to the godown. In the said godown cum workshop in Plant premises, the assesee's labourers take care of repairing pallets if required, and other related packing material for reuse. The cycle is repeated for every supply of pallets and related other packing material in respect of their sales orders, The above process is manual in nature and was carried out by the assessee in manual format till March, 2010. 1. In the long run, the assessee started receiving complaints from Rajashree Polyfil regarding the quality of services being detoriated day by day due to inefficient and unskilled man power used for all the-above mentioned process and the packing material was also sometimes not collected on time due to logistics problems, which lead to providing improper report to the company for their assessment and because of that the assessee was not able to cater more work from the customer and the profits were also decreasing. 7 ITA NO.28/MUM/2022 (A.Y: 2011-12) Ravi Shambhulal Mange To overcome the above situation the assessee assigned the work to M/S Allied Computer International Asia Ltd for a year to provide full proof and effective solution of all the above mentioned packaging process with the help of latest computer technology including services like logistics, collection of pallets and related packing materials, collection of all data from the company and their customers by deploying their skilled manpower and preparing daily and monthly reports and submit to the assessee and bill the assessee for the services. Correspondingly, the assessee billed for the services to M/S Rajashree Polyfill. The process was completely outsourced to M/S Allied Computer International Asia Ltd. Copy of the daily and monthly reports provided by M/S Allied Computer International Asia Ltd where the billing has been done on the basis of the dispatches of pallets sets made to M/S Rajashree Polyfill are attached herewith. (Annexure 4). 1. The services provided to the assessee by M/S Allied Computer International Asia Ltd were more of technology based and needed the engineers and technical staff as provided by them. They were rendered only for one year i.e. FY 2010-1 1. The services rendered to us were further provided to M/S Rajashree Polyfill for which they raised an invoice on the assessee and the payments made to M/S Allied Computer International Asia Ltd were done after deducting TDS at the-applicable rate. M/S Allied Computer International Asia Ltd charged Rs. 310/- per dispatch of pallets whereas the assessee charged the average rate of Rs. 340/per dispatch of the pallets. MENT Copy of the invoices issued to M/S Rajashree Polyfill for the said services and the copy of Acknowledgement of the TDS Returns filed by the assesse are attached herewith. (Annexure 5) 1. The assessee contends that without obtaining the professional services of M/S Allied Computer International Asia Ltd, it would not have been possible to provide the prompt and quality service to M/S. Rajashree Polyfill. Also, the assessee never was not aware of Mr. Shirish Shah and never dealt with him regarding any accommodation entries. Instead the assessee transacted with M/S Allied Computer International Asia Ltd in the normal course of business and as per his knowledge it was managed by Mr. Hirji Patel and his team. 2. The assessee further contends that if the said labour expenses with respect to M/S Allied Computer International Asia Ltd are 8 ITA NO.28/MUM/2022 (A.Y: 2011-12) Ravi Shambhulal Mange disallowed, then the Gross Profit of his business would increase from 4% to 39% for AY 2011-12 which is irrational and not in line with the market trends. Also, as per the Profit & Loss A/c, the assessee has not claimed any other expenses for logistics, labour wages, or any other direct expenses related to providing the above mentioned services, thus indicating that the aforesaid expenses incurred are genuine. 3. Further, we would like to bring to your notice that the Honorable Bombay High Court has deleted similar addition in the case of Nikunj Eximp Enterprises Pvt Ltd 35 taxmann.com 384 (Bombay). It was held that, "merely because the suppliers have not appeared before the Assessing Officer, one cannot conclude that the expenses were not made by the respondent assessee." Similar recent judgments are passed by Income Tax Appellate Tribunal, MumbaiD bench in the case ofDCIT 25(3) v/s Shri Rajeev G. Kalathil, and by the honorable Gujarat High Court in the case of Commissioner of Income Tax-l v/s M/S Nangalia Fabrics Private Limited. Accordingly, the contention of Ld. Assessing Officer treating the aforesaid labour charges as bogus is not acceptable. 1. Taking into consideration the above facts and statements we request you to kindly delete the addition made for aforesaid expenses towards labour charges. Please consider the above in your records and kindly let us know any further details which may be required by you.” 8. After considering the submissions of the assessee Ld.CIT(A) rejected the submissions of the assessee and sustained the additions made by the Assessing Officer with the following observations: - “5.2 However, the assessee claims that genuine transaction of labour was made with M/s Allied Computer International Asia Ltd. and further asserted that TDS was also duly deducted on the said labour payments. However, the appellant was not able to controvert the finding of the AO that the above company was found to be merely a shell company providing entries, and in fact had no capacity to render the services of the type claimed by the appellant. The Tax audit report of this company shows it as a software developer. How can such a company render the labour- oriented service of 'collecting of pellets' from various locations and returning it to the godowns for recycling? The entry provider, Shirish Shah had categorically 9 ITA NO.28/MUM/2022 (A.Y: 2011-12) Ravi Shambhulal Mange admitted the same before the Investigation wing, and the appellant has not submitted any evidence to controvert the same. The appellant has only re-submitted the paper evidence like the invoices, ledger account and the bank account statement. As stated by the AO, the Search & Seizure operations conducted on the premises of M/s Allied Computer International Asia Ltd., also established it as a dummy company merely providing the accommodation entries, and no infrastructure to provide the labour-oriented services was found. In light of the above discussion, the addition made of Rs.2,95,04,418/- is hereby confirmed, and the single ground of appeal is disallowed.” 9. Aggrieved assessee preferred appeal before us and at the time of hearing Ld. AR of the assessee submitted that Ld.CIT(A) sustained the addition made by the Assessing Officer by relying on the findings of the Assessing Officer that based on an alleged confessional statement by a third-party Shri. Shirish Shah that the assessee is one of the beneficiaries of accommodation entry provided by a concern which was operated by him even though there is nothing on record to show that he was director or shareholder or employee in the said concern/service provider company. This can be verified from the portal of Ministry of Corporate Affairs wherein the name of Shri Shirish Shah is not mentioned in the list of directors (Page No. 163 of the Paper-book 1). Further, Ld. AR submitted that Ld. CIT(A) failed to appreciate that the department has not placed on record the alleged statement of Shri Shirish Shah and the alleged content of his statement have not been made available to the assessee. Even though the alleged statement of Shri Shirish Shah was not on record, 10 ITA NO.28/MUM/2022 (A.Y: 2011-12) Ravi Shambhulal Mange the Ld CIT(A) has taken his stand on the content of the alleged statement without having a look at the statement. Further, he submitted that Ld.CIT(A) erred in relying on the alleged statement of Shri. Shirish Shah, without any independent enquiry or corroborative evidences against the claim of the assessee. It is therefore apparent that the material placed on the record was not sufficient enough to fasten the liability on the assessee when the assessee has denied the claims made in that statement and is alleging the same to be incorrect. It is further submitted that addition of labour expenses confirmed by the Ld.CIT(A) is wholly unjustifiable in as much as: - a. The alleged statement of Shri Shirish Shah was never placed on record b. The contents of the statement were never made available to the appellant. c. The assessee was never given an opportunity to cross examine the deponent which is against the principle of natural justice. d. Shri. Shirish Shah was tented person and his statement cannot be taken as face value. 10. Ld. AR prayed that the disallowance based on such bare statement is not warranted and sustainable. 11 ITA NO.28/MUM/2022 (A.Y: 2011-12) Ravi Shambhulal Mange 11. Ld. AR relied on the following decisions in support of his contentions: - (i). Commissioner of Income Tax vs. Odeon Builder (P) Ltd. (2019) 418 ITR 0315 (SC) (ii). Andaman Timber Industries v/s Commissioner of Central Excise, Kolkata-11, (2015) 127 DTR 241 (SC) (iii). H. R. Mehta vs. ACIT, (2016)138 DTR (Bom.) 217 (iv). M/s Supertech Forgings (India) Pvt. Ltd. vs. Dy. CIT. (2022) 217 TTJ (Asr) 161 12. Further, Ld. AR of the assessee submitted its written submissions, for the sake of clarity it is reproduced below: - “18. While confirming the disallowance of labour expenses paid to M/s Allied Computers International (Asia) Ltd, the Hon'ble CIT(A) has blindly relied on the findings of the Ld. A.O, that: a. M/s Allied Computer International (Asia) Limited was found to be bogus concern and merely issuing bills without there being any delivery of goods/services; b. The tax audit report of M/s Allied Computer International (Asia) Limited showed that it was involved in development and maintenance of software and its application whereas in the case of assessee M/s Allied Computer International (Asia) Limited provided labour services; c. Shri Shirish Shah had categorically admitted before the investigation wing that he is an entry provider and the appellant has not submitted any evidence to controvert the same; d. The search and seizure on M/s Allied Computer International (Asia) Limited established that it is a dummy company merely providing the accommodation entries 12 ITA NO.28/MUM/2022 (A.Y: 2011-12) Ravi Shambhulal Mange and no infrastructure to provide the labour-oriented service. 19. In this regard, it is submitted that: a. It is pertinent to note that the Ld. A.O. has nowhere given reference in which financial year the search and seizure action was undertaken, for which assessment year M/s Allied Computers International (Asia) Limited was considered as dummy company and in which assessment year infrastructure to provide labour service was not found. The findings and observations made by the Ld. A.O. is vague and inconclusive. During assessment proceedings the Ld. A.O. has not provided any documentary evidence to show that M/s Allied Computers International (Asia) Limited was dummy company and merely providing accommodation entries. The appellant had entered into such transaction during the FY 2010-11 only and have all the documentary evidences to support the claim. b. The perusal of various evidences filed by the messe available on mooed shows that services were utilized by the appellant for carrying on its business activities. Such evidence cannot be brushed aside being bogus expenses without any documentary evidences and relying on mere alleged statement of Shri Shirish Shah. c. Further, M/s Allied Computer International (Asia) Limited is a compatry engaged in software development and maintenance of software and its applications and operating successfully even nowadays. It is evident from the portal of Ministry of Corporate Affairs that, the said company is active listed company and also filed its annual return for the last financial year 2020-21. The screenshot downloaded from MCA website is enclosed (Page No 163 of the Paper-book 1). d. It can be seen from the MOA of Ms. Allied Computer International (Asia) Limited (Page Ne 164 to 186 of Paper-book), besides development of software, the company executes other work also. It is a businessman 13 ITA NO.28/MUM/2022 (A.Y: 2011-12) Ravi Shambhulal Mange decision how to run business, what types of services they can supply and how they can supply. The Ld. A.O. cannot enter the field of businessman, who is the best Judge as to whether it needs to avail / provide the said services. Each businessman is the best Judge to come to decision as to whether to provide said support services or not. Secondly, once such a decision has been taken by the businessman and made available the evidences of services provided/availed by it, the Ld. AO cannot doubt the same by commenting upon the nature of services provided/availed. In other words, the company is strong enough to provide services of development of software along with other comprehensive jobs which includes labour services, recycling of pallets and other related works of client which was of technical in nature. e. From the Statement of profit and loss account of M's Allied Computers International (Asia) Ltd. for the FY 2010-11 downloaded from MCA Website (Page No. 187 of Paper-book ), it is observed that the said concern has shown total revenue of Rs. 136.54 Cr. out of which Sales- Service and Part of Rs 8.23 Cr were accounted by the company. f. From all the above facts and circumstances, it proves that transaction with M/s Allied Computers International (Asia) Limited is genuine and cannot be considered as bogus without proving it or providing any documentary evidences proving it that M/s Allied Computers International (Asia) Limited is an entry operator with respect to such labour expenses. 20. The Honble CIT(A) has appreciated the contention of Ld. A.O as per para 6 of assessment order that bills were not authenticated as assessee merely produced invoices/bills in standard form where only one type of service is evident is not acceptable due to following: a. The appellant failed to understand the allegation made by Ld. A.O as the service provided in every month was similar in nature. It is therefore, same nature of labour services was mentioned on every bills. This can be evident from the works order signed with M/s. Allied 14 ITA NO.28/MUM/2022 (A.Y: 2011-12) Ravi Shambhulal Mange Computer International (Asia) Limited for the FY 2010- 11(Page No 26 of the Paper-book I). b. The Ld. A.O. failed to appreciate the other facts mentioned on hills in the form of TDS deducted, service tax, and payment made through banking channels. c. The Ld. A.O proceeded to make additions of labour expenses only on basis of surmises, conjecture and on the basis of suspicion flowing from the so-called general statement given by another party that they have provided accommodation entries and in doing so the 1.d. A.O. overlooked the fact that the appellant had discharged its onus to prove the genuineness of the transaction of labour work by submitting various documents as per para 7 above. In a computerized world, for achieving such huge sales turnover of labour service approximately 2.95 Cr. the assessee was required to take some support of labour services/Technical services. d. The books of accounts maintained by the assessee incorporated complete transactions with M/s. Allied Computer International (Asia) Ltd. and M/s Rajshree Polyfil and the same has been audited by a Chartered Accountants. The appellant correctly accounted his revenue from Mis Rajashree Polyfil. All the receipts and payments with respect to such transaction were also reflected in the bank statement of the appellant. Out of Rs. 2.95 cr, the assessee has paid Rs 98.21 lacs directly to M/s Allied Computer International (Asia) Limited and Rs. 197 Cr to the parties on behalf of M/s Allied Computer International (Asia) Limited for various services undertaken by said company to provide service to the appellant. The services of M/s Allied Computer International (Asia) Limited were hired to provide services directly to M/s Rajashree Polyfil which is one of reputed concern. e. It is further submitted that neither service provider nor service recipient were related parties of the appellant. The transactions were done at arm's length and there is no leakage of the revenue. All the payments and receipts 15 ITA NO.28/MUM/2022 (A.Y: 2011-12) Ravi Shambhulal Mange of such transactions were through proper banking channel which is within the Provisions of Law There is no evidence brought on record by the Ld. A.O to establish that the said payments were routed back to the appellant. f. It cannot be thought that such huge amount of labour services could have been carried out without incurrence of any costs against the same. All the legal compliances have been made by the appellant which proves the genuineness of expenses. g. The Ld. A.O. could not find any discrepancies in the books of accounts maintained by the appellant. It is pertinent to note that even after such a huge addition of Rs. 2.95 crore, the authorities has not rejected the books of accounts of the appellant. The Ld. A.O. has not doubted the sales labour services effected by the appellant and as such, the labour services incurred cannot be treated as bogus. 21. Reliance for the above proposition is being placed on following judgements: a. The Hon'ble Supreme Court in the case of PCIT, Surat-I vs. Tejua Rohit Kumar Kapadia (2019) 256 Taxman 213 (SC) (Page No. 60 to 61 of the Paper-book II). In this judgment, the court has held that where, the sales are accepted by the department against the information received from the investigation Wing regarding alleged bogus purchases and there is no evidence. in such a case, no addition can be made. Importantly, the Special leave petition filed by the revenue was dismissed vide order dated 04.05.2018. The relevant para is reproduced as under: 3. ..... b. In the judgment of Hon'ble Bombay High Court in the case of CIT vs M/s Nikunj Eximp Enterprises Pvt. Ltd. reported at 372 ITR 0619 (Bom) dated 17.12.2012 (Page No 62 to 65 of the Paper-book II) has held that: "2. ..... ... ... ... "7. ..... 16 ITA NO.28/MUM/2022 (A.Y: 2011-12) Ravi Shambhulal Mange c. The Bombay High Court (Jurisdictional) in the case of PCIT vs Vaman International P Ltd. 120201 422 ITR 520 (Bom) (Page No 66 to 74 of the Paper-book II) has held that: "17.1 ..... d. The Hon'ble Delhi High Court in the case of PCIT vs Agson Global Pvt Ltd. [2022] 441 ITR 550 (Delhi) (Page No 75 to 117 of the Paper-book II) has held that: Para 15.1 (vi) ....... 15.9. ..... e. The Jurisdictional Mumbai ITAT in the case of ACIT vs Mahesh K. Shah [2017] 184 TTJ 702 (Mum) (Page No 118 to 128 of the Paper-book II) has held that: 43.6 ... 22. It is, therefore, respectfully submitted that: a. The onus cast on the appellant was discharged by submitting the documentary evidences in the form of ledger account, works order, purchase bills, Sales bills and bank statements etc of the appellant. The receipts and payments were also routed through banking channel. There is no evidence brought on record by the Ld AO to establish that the said payments were routed back to the appellant. The Legal Compliance with respect to TDS deduction and service tax were also made correctly. b. The Ld. AO failed to provide any material / document on which reliance is placed by him. There is no credible material in the hands of the Ld. A.O to show that the expenses were claimed by the appellant are inflated. c. The A.O. has simply made above disallowance on the basis of recorded alleged statement of Shri. Shirish Shah who neither director nor employee of M/s Allied Computer International (Asia) Ltd and mere suspicion, conjectures and surmises. d. The Ld. A.O. failed to provide copy of statement of Shri Shirish Shah and also an opportunity to cross examine him. He also failed to show or supply any document which claimed that Mr Shirish Shah has been running a racket and involved in issuing bogus bills without delivery of good and services. e. There is no leakage of revenue as the parties were not associated with the appellant. 17 ITA NO.28/MUM/2022 (A.Y: 2011-12) Ravi Shambhulal Mange f. Hence, the re-assessment order has been framed in complete violation of principles of natural justice which prima facie unjustifiable and unsustainable and disallowance made by Ld. AO is not warranted. 23. Without prejudice to the above, it is noteworthy to mention that the Ld. Assessing Officer erred in disallowing the amount of Rs.2,95,04,418/- including service tax of Rs.26,85,280/- without appreciating the fact that the service-tax amount is not claimed as deduction. Hence, the Question of disallowance of an amount which was not claimed should not arise. Prayer: 25. In view of above submission and documentary evidences given hereinabove, the disallowance made is prima facie unjustifiable and unsustainable and deserves to be deleted.” 13. On the other hand, Ld. DR brought to our notice Para No. 5 of the Assessment Order and further he relied on the findings of the Ld.CIT(A). With regard to non-submission of statement of Shri Shirish Shah he submitted that the statements are very much available in ITBL portal and he supported the findings of the lower authorities. 14. Considered the rival submissions and material placed on record, we observe from the record that Assessing Officer has received information from investigation wing that Shri Shirish Shah who is the entry provider who arranges accommodation entries to various parties and as per their information assessee is one of the beneficiary. The Assessing Officer proceeded to make the addition heavily relying on the statement of Shri Shirish Shah. Even though assessee has submitted various 18 ITA NO.28/MUM/2022 (A.Y: 2011-12) Ravi Shambhulal Mange documents in support of its contention that the assessee has taken labour services in its operation and submitted various documents and also filed the evidences that assessee has deducted TDS while remitting the same. We observe from the record that even though Assessing Officer heavily relying on the statement of Shri Shirish Shah, however, he has not provided any statement or any cross examination opportunity to the assessee. Assessing Officer has merely relied on the statement without providing any document or any opportunity to the assessee, still rejected the claim made by the assessee. On verification of the Profit and Loss Account of the alleged entity ACIAL they are into software services and assessee also submits that assessee has taken services from them on labour services on the software line only. It is fact on record that assessee has submitted all relevant documents before the Assessing Officer and Ld.CIT(A), however, they have not found any discrepancies in the documents submitted by the assessee and they have gone ahead only with the presumption that assessee is one of the beneficiary of accommodation entries without giving any opportunity of cross examination or any evidence brought on record against assessee except presumption by relying on the third party statement. Further, it is brought to our notice that the search action was conducted in the case of 19 ITA NO.28/MUM/2022 (A.Y: 2011-12) Ravi Shambhulal Mange Shri Shirish Shah and taken a statement from him and it is not clear when these statements were taken and the same was not supplied to the assessee. The Assessing Officer proceeded with the confessional statement of a third party without giving any opportunity for the assessee or not made available to the assessee and proceeded to make the additions, this is not as per proper procedure as laid down by various courts particularly in the case CIT v. Odeon Builder (P.) Ltd., the Hon'ble Supreme Court held as under: - "3. However, on going through the judgments of the CIT, ITAT and the High Court, we find that on merits a disallowance of Rs.19,39.60,866/- was based solely on third party information, which was not subjected to any further scrutiny. Thus, the CIT (Appeals) allowed the appeal of the assessee stating:- "Thus, the entire disallowance in this case is based on third party information gathered by the Investigation Wing of the Department, which have not been independently subjected to further verification by the AO who has not provided the copy of such statements to the appellant, thus denying opportunity of cross examination to the appellant, who has prima discharged the initial burden of substantiating the purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and the fact of payment through cheques, & VAT Registration of the sellers & their Income Tax Return. In view of the above discussion in totality, the purchases made by the appellant from M/s Padmesh Realtors Pvt. Ltd is found to be acceptable and the consequent disallowance resulting in addition to income made for Rs. 19,39,60,866/-, is directed to be deleted." 4. The ITAT by its judgment dated 16th May, 2014 relied on the self-same reasoning and dismissed the appeal of the revenue. Likewise, the High Court by the impugned judgment dated 5th July, 2017, affirmed the judgments of the CIT and ITAT as concurrent 20 ITA NO.28/MUM/2022 (A.Y: 2011-12) Ravi Shambhulal Mange factual findings, which have not been shown to be perverse and, therefore, dismissed the appeal stating that no substantial question of law arises from the impugned order of the ITAT." 15. Further, we observe that completing the assessment without giving cross examination opportunity by the adjudicating authority even though the basis of impugned order is on the statement given by the third party. In this regard Hon'ble Supreme Court in the case of Andaman timber Industries v. Commissioner of Central Excise, [127 DTR 241 (SC)] held as under: - "6. According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the Appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the Appellant wanted to cross- examine those dealers and what extraction the Appellant wanted from them." 21 ITA NO.28/MUM/2022 (A.Y: 2011-12) Ravi Shambhulal Mange 16. Respectfully following the above said decisions, we are inclined to give the benefit to the assessee with the observation that the Assessing Officer first has not given proper opportunity to the assessee for cross examination and further, he has not brought on record any evidences to show that Shri Shirish Shah anywhere closely related to the alleged company ACIAL or how it is related to him. Further, he has not brought any evidences to link the assessee with Shri Shirish Shah who has alleged to have given accommodation entries without there being any link to the assessee and also without giving a proper opportunity to the assessee to cross examination. The Assessing Officer cannot proceed with making additions. Therefore, we are inclined to delete the additions made by the Assessing Officer. Grounds raised by the assessee are allowed. 17. In the result, appeal filed by the assessee is partly allowed. Order pronounced in the open court on 23 rd February, 2023 Sd/- Sd/- (AMIT SHUKLA) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 23/02/2023 Giridhar, Sr.PS 22 ITA NO.28/MUM/2022 (A.Y: 2011-12) Ravi Shambhulal Mange Copy of the Order forwarded to: 1. The Assessee 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum