Data Processing Forms Pvt. Ltd., Ahmedabad V. The Dy. CIT., Circle-1(1)(2), Ahmedabad

ITA 2812/AHD/2016

AI Insights

The case involves Data Processing Forms Pvt. Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals) confirming the additions made by the Assessing Officer under Section 147/148 of the Income Tax Act, 1961. The additions were based on the finding that the assessee had made bogus purchases from two entities, M/s. Param Trading Company and M/s. Rheem Tradelink Pvt. Ltd., amounting to Rs. 21.30 crores. The Tribunal noted that the assessee was given a chance to cross-examine the persons whose statements were used to substantiate the claim of bogus purchases, and directed the CIT(A) to conduct the cross-examination and then re-evaluate the case.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 125353 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 05-03-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 25-10-2016
• Other Referred Cases: Praful Chunibhai Patel V/s ACIT, Raymond Woolen Mills Ltd. vs. ITO, Kedarnath Babbar vs. ACIT, Mc Dowell & Co. v. CTO, PCIT vs. Swati Bajaj, Shyam Sunder Bajaj vs. ITO, Shri Dinesh Kumar (HUF) vs. ITO, Sumati Dayal vs. CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Bogus purchase; Capital asset converted into stock in trade; Principle of natural justice; Additional evidence; Penny stocks
• Section: 145; 6; 143(3); 142(1); 234B; 143(1); 143(2); 13; 145(3); 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I. T .A . N o .2 81 2 / Ah d/2 0 1 6 ( A s se ss m e nt Y e a r : 20 12- 1 3 ) Da t a P r o c e s s i ng F o r m s Pv t . Lt d. Da t a H o u s e , V ej a lp ur R o a d , Ve j al p u r , A h m ed a b a d- 38 00 5 1 V s. The D y. C I T , C ir cl e - 1( 1) ( 2) , A h m e da ba d [P AN N o.A A AC D 5 4 8 0E] (Appellant) .. (Respondent) Appellant by : Shri Rajesh C. Shah, A.R. Respondent by: Shri N. J. Vyas, Sr. D.R. D a t e of H ea r i ng 06.03.2023 D a t e of P r o no u n ce me nt 05.06.2023 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals)-1, (in short “Ld. CIT(A)”) Ahmedabad, in Appeal No. CIT(A)-1/DCIT Circle- 1(1)(2)/730/2014-15 vide order dated 30.08.2016 passed for Assessment Year 2012-13. 2. The assessee has taken the following grounds of appeals:- “1. That the CIT (Appeals) erred in upholding the validity of the reassessment made by the AO u/s. 143(3) r.w.s. 147 of the I. T. Act although the A.O. had failed to record his own satisfaction about the correctness of the information received by the A.O. and although there was no nexus between the reasons recorded and the nature of addition made and thereby erred in confirming the addition of ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 2 - Rs.2,41,18,024 on the ground of alleged lower GP shown during the year. It is, therefore, submitted that the reassessment made by the AO be held to be bad-in-law and the consequential assessment made be cancelled. WITHOUT PREJUDICE TO THE ABOVE, 2. In the CIT (Appeals) further erred in confirming the addition of Rs. 2,41,18,024 made by the A.O on the ground of alleged lower GP of 10.75% as against the G.P. of 15.25% in the immediately preceding year without ensuring the compliance/non-compliance of the pre-conditions prescribed u/s 145(1) or the accounting standards or policies notified u/s 145(2) of the Act. It is submitted that the addition of Rs. 24118024 made on the ground of lower GP is bad-in- law and on facts of the case as the purchases and sales are supported by quantitative records and the rejection of books of account by the A.O. is also not in accordance with the provisions of section 145(3) of the Act and consequently, the same be deleted and that the assessment may be directed to be modified accordingly. 3. That the CIT(Appeals) further erred in confirming the disallowance in respect of the Employees' contribution to P.F. and ESI aggregating to Rs.85004/- on the ground of a delay in depositing the said amounts before the ‘Due Dates’ under the E.S.I. Act and Employees' P.F. Act. It is submitted that in view of conflicting decisions on the issue, the benefit should be given to the assessee and accordingly, the same should be allowed since the maximum delay ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 3 - was of 10 days from the 'Due Date' and that the assessment may be directed to be modified accordingly 4. That the CIT (Appeals) also erred in confirming the charging of Interest of Rs 2515510/- u/s 234B of the IT Act on the ground of being of consequential nature without appreciating the fact that this Interest was absolutely against the provisions of section 234B(1) and 234B(3) of the Act since in the Intimation as 143(1) of the Act dt. 31- 7-2014, the appellant was granted refund of Rs. 1323785/- on 11-8- 2014 and no such interest was chargeable charged at all. It is therefore, submitted that the interest of Rs.2515510 charged u/s 234B(3) is bad-in-law and on facts and, therefore, the same be cancelled. 5. That the CIT (Appeals) also erred in confirming the charging of Interest of Rs.52921/- u/s 234D of the Act for 8 months on the ground of being of consequential nature without appreciating the fact that the refund of Rs.1323790 was issued on 11-8-2014 and, therefore, correct interest that can be charged comes to Rs. 46332/- for the period 11-8-2014 to 25-2-2015 and, therefore, the same be reduced to Rs.46332/-.” 3. Ground No.1:- We shall first deal the assessee’s challenged to validity of reopening of the present assessment. 4. The brief facts relating to this ground of appeal are that the ADIT (Inv.) Unit-III, Kolhapur was investigating suspicious transactions regarding large value of cash transactions in various specific bank accounts. The ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 4 - ADIT (Inv.), Kolhapur vide letter dated 15.05.2014 intimated the Assessing Officer that during the course of investigation in respect of cash transactions, it was found that certain parties are indulging in Hawala Business. During the course of such investigation by ADIT (Inv.), Kolhapur, statement of master mind of Hawala racket, Shri Suresh Parekh was recorded. Further, statements were also recorded of Shri Yogesh Koli Director of RHEEM Tradelink Pvt. Ltd., who in the statement recorded on 13.07.2012 categorically stated that he is only a name lender and all the business activity including maintenance of regular books of accounts are carried out by Dinesh Parekh, who is a brother of Shri Suresh Parekh, who is a master mind behind the Hawala racket. Similarly, statement of Shri Kiran Patil, proprietor of M/s. Param Trading Company was recorded on 11.07.2012 in which he categorically stated that he received salary from Shri Dinesh Parekh and he is not aware of any activities carried out under the name of M/s. Param Trading Company and the business activities of M/s. Param Trading Company are being looked being looked after by Shri Suresh Parekh and Shri Dinesh Parekh and he is only a name lender. Shri Suresh Parekh submitted a list of beneficiaries to whom such bills were issued and cash was returned back against cheque received from such beneficiaries towards bills issued. Accordingly, the Assessing Officer formed the view that assessee had debited bogus purchases / expenses from the aforesaid two parties i.e. M/s. Param Trading Company and M/s. RHEEM Tradelink Pvt. Ltd. amounting to Rs. 21,31,49,900/-. Accordingly, since Assessing Officer was of the view that the assessee had debited bogus purchases / expenses from these parties, as is evident from statements ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 5 - recorded of such persons, he initiated re-assessment proceedings under Section 147 of the Act. 5. The assessee challenged re-opening of assessment proceedings before Ld. CIT(Appeals), who dismissed the same with the following observations:- “2.3. On careful consideration of observation of Assessing Officer and contention of Appellant, it is observed that the case of the Appellant is reopened on the basis of information regarding bogus purchase received from ADIT(Inv.), Unit-III, Kolhapur. The notice u/s 148 of the Act is issued on 03/06/2014 i.e within four years from the end of Assessment Year and accordingly the argument of the Appellant that the relevant particulars were available during the course of original assessment made u/s 143(3) of the Act and accordingly present re-assessment u/s 147 of the Act in the absence of any failure on the part of Appellant to disclose material facts is required to be quashed is not acceptable. The reopening of assessment for the year under consideration carried out within four years from the end of the Assessment year and accordingly this ground of the Appellant challenging validity of re-assessment carried out u/s 143(3) r.w.s 147 of the Act is not acceptable. The Hon'ble Gujarat High court in the case of Praful Chunibhai Patel V/s ACIT 236ITR 832 has held as under:- “On a proper interpretation of section 147 of the Act, it would appear that the power to make assessment or reassessment ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 6 - within four years of the end of the relevant assessment year would be attracted even in cases where there has been a complete disclosure of all relevant facts upon which a correct assessment might have been based in the first instance, and whether it is an error of fact or law that has been discovered or found out justifying the belief required to initiate the proceedings. The words "escaped assessment" where the return is filed, are apt to cover the case of discovery of a mistake in the assessment caused by either an erroneous construction of the transaction or due to its non-consideration or caused by a mistake of law applicable to such transfer or transaction even where there has been a complete disclosure of all relevant facts upon which a correct assessment could have been based. The provisions of section 147 require that the Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment. The word ‘reason’ in the phrase ‘reason to believe’ would mean cause or justification. If the Assessing Officer has a cause or justification to think or suppose that income had escaped assessment, he can be said to have a reason to believe that such income had escaped assessment. The words ‘reason to believe’ cannot mean that the Assessing Officer should have finally ascertained the facts by legal evidence. They only mean that he forms a belief from the examination he covers or finds ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 7 - or satisfies himself that the taxable income has escaped assessment, it would amount to saying that he had reason to believe that such income had escaped assessment. The justification for his belief is not to be judged from the standards of proof required for coming to a final decision. A belief though justified for the purpose of initiation of the proceedings under section 147, may ultimately stand altered after the hearing and while reaching the final conclusion on the basis of the intervening enquiry. At the stage where he finds a cause or justification to believe that such income has escaped assessment, Assessing Officer is not required to base his belief on any final adjudication of the matter. The function of the Assessing Officer is to administer the Act with solicitude for public treasury and with fairness to the taxpayers. He is necessarily armed with great powers. Up to four years an assessment is open to his unreserved consideration on his formation of the requisite belief. If he has such reason, he has the power, and it is his duty, to reopen the door and demand the amount legally owing. His formation of belief is not a judicial decision, but an administrative decision. It does not determine any thing at this initial stage, but the Assessing Officer has a duty to proceed so as to obtain what the taxpayer was always bound to pay if the increase is justified at all. The decision to initiate the proceedings is not to be preceded by any judicial or quasi-judicial enquiry. His ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 8 - reasoning may be the result of official information or his own investigation or may come from any source that he considers reliable. His reason is not to be judged by a court by the standard of what the ideal man would think. He is the actual man trusted by the Legislature and charged with the duty of forming of a belief, for the mere purposes of determining whether he should proceed to collect what is strictly due by law, and no other authority can substitute its standard of sufficient reason in the circumstances, or his opinion or belief for his. Unless the ground or material on which his belief is based, is found to be so irrational as not to be worthy of being called a reason by any honest man, his conclusion that it constitutes a sufficient reason, cannot be overridden. What is, therefore, to be ascertained is, whether the alleged reason really existed, and if it did, whether it was so irrational as to be outside the limits of his administrative discretion with which the Assessing Officer is invested so as to be really in disregard of the statutory condition. If the Assessing Officer honestly comes to a conclusion that a mistake has been made, it matters nothing so far as his jurisdiction to initiate the proceedings under section 147 is concerned, that he may have come to an erroneous conclusion whether on law or on facts. His jurisdiction to initiate proceedings under section 147 for assessment and reassessment is, even in such case correctly and rightly exercised, though he may have taken an erroneous view of the law with regard to the mistake committed at the ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 9 - first assessment proceedings that he has found out. Therefore, unless it is shown that the Assessing Officer never enquired into the matter at all or that he never honestly believed that a mistake has been made, the result of his investigation and initiation of the proceedings under section 147 cannot be challenged on the ground of want of jurisdiction. The Assessing Officer has to determine the facts and the law in order to give him jurisdiction to proceed and if in the determination of this he goes wrong, proper remedy for the assessee would be to go up in appeal and to have the case referred to the High Court under the provisions of the Act. A writ of prohibition under article 226 could not be issued against the Assessing Officer in such cases. In the instant case from the first assessment it appeared to the Assessing Officer, while making an order in respect of the assessment year 1993- 94, that the amount of taxable income in the form of capital gains in respect of the transfer of the land which was treated as stock-in-trade on 19-9-1990, in favour of the firm and the tax payable thereon not being ascertained, there was escapement of income. Since the Assessing Officer at the first assessment in the year 1991-92 never really formed an opinion on the question whether there was a transfer on 19-9-1990 of the land in question to the firm and that the amounts credited to the accounts of the partners who had contributed the lands to the firm, were meant to be the price of the land which was to be actually paid from the collections received by the firm ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 10 - from membership fees as soon as received, there was no question of any change of opinion when on the relevant facts being found the Assessing Officer while protectively assessing the assessee for the year 1993-94, noted that this was a case for issuance of a notice under section 148, which came to be issued thereafter. When the amount of taxable income and of the tax payable thereon were not ascertained at all by the Assessing Officer in respect of the transfer made by the assessee in favour of the firm on 19-9-1990, there obviously was no opinion formed in that regard and, consequently, there would not arise any question of a mere change of opinion. In cases where the Assessing Officer had overlooked something at the first assessment, there can be no question of any change of opinion when the income which was chargeable to tax is actually taxed as it ought to have been under the law but was not, due to an error committed at the first assessment. The Assessing Officer, therefore, clearly had a reason to believe that the income chargeable to tax in the form of capital gains in respect of the transfer that took place on 19-9-1990, had escaped assessment in the relevant assessment year. The initiation of the proceedings under section 147 could not, therefore, be assailed on the ground that it was without jurisdiction. The Legislature has entrusted the Assessing Officer with a jurisdiction which includes the jurisdiction to determine whether the preliminary state of facts exists as well ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 11 - as the jurisdiction, on finding that it does exist, to proceed further to assess, reassess or recompute as indicated in section 148. The Assessing Officer had formed his belief on discovery of the earlier error which resulted in the said income having escaped assessment which constituted the fact primary to giving him jurisdiction to proceed with the matter for assessment or reassessment. If his decision on the question whether there was sufficient justification or cause for formation of the belief in view of the error committed in the first assessment was wrong, the only remedy would be by way of an appeal against his ultimate order and not by a writ of prohibition; for, the Assessing Officer had not assumed jurisdiction not vested in him, but had merely exercised jurisdiction, the existence of which is necessarily involved by the scope of his functions under the Act, pursuant to the said provision of section 147. In view of the facts noted above, it was utterly impossible to say that there was no evidence of primary facts upon which the Assessing Officer might apply his mind and exercise his power and proceed further under the said provision. It was not for the High Court in exercise of its extraordinary jurisdiction under the Constitution, to examine the sufficiency of the reason which led the Assessing Officer to believe that the income had escaped assessment. Under the circumstances, there was no merit in the petition and the same was dismissed.” ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 12 - Considering the facts discussed herein above, reassessment notice and order passed by Assessing Officer is valid order and this ground of appeal of the Appellant is dismissed.” 6. The assessee is in appeal before us against the order passed by Ld. CIT(Appeals) dismissing the assessee’s challenge to reopening of assessment. Before us, the Counsel for the assessee submitted that in the reasons recorded, there is no specific allegation of inflated purchases. Secondly, he submitted that reopening has been done on the basis of statement recorded of certain persons and such statements are inadmissible since statements are not in capacity of proprietor / director of M/s. Param Trading and M/s. RHEEM Tradelink Pvt. Ltd. Further, he submitted that the Assessing Officer issued notices under Section 148 immediately on receipt of the letter from ADIT without carrying out any verification of the information received from the ADIT on 03.06.2014. Accordingly, for the reasons cited above the Counsel for the assessee submitted that the re- assessment proceedings are liable to be set-aside. 7. On going through the arguments put forth by the Counsel for the assessee and summary of arguments placed before us, we are of the considered view that Ld. CIT(Appeals) has not erred in facts and in law in holding that the re-assessment proceedings were validly initiated by the Assessing Officer. In the present facts, the Assessing Officer observed that the assessee had made substantial purchases amounting to Rs. 21.30 crores from the aforesaid two parties i.e. M/s. Param Trading and M/s. Rheem Tradelink Pvt. Ltd. Further, during the course of investigation in the case of Sangli based Hawala dealers, the statements of master mind behind Hawala ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 13 - racket namely Shri Suresh Parekh and Shri Dinesh Parekh were recorded in which they have categorically stated that they were involved in providing accommodation entries to various business houses. The aforesaid Hawala dealers have provided a list of entities, details of proprietors and the bank accounts and total turnover of accommodation bills provided to such entities etc. From the list provided by the Hawala operators, the Assessing Officer observed that the assessee had debited bogus purchases / expenses from the aforesaid two entities to the tune of Rs. 21,30,49,900/-. We further observed that in the final assessment order passed under Section 147/148 of the Act, the additions have been confirmed with respect to the aforesaid bogus purchases. It is a well settled law that in order to initiate re- assessment proceedings, only a prima facie belief is required to initiate re- assessment proceedings. In the case of Raymond Woolen Mills Ltd. vs. ITO 236 ITR 34 (SC), the Hon’ble Supreme Court held that what was to be seen was whether there was prima facie material on the basis of which the department could reopen the case. The sufficiency or correctness of the material was not a thing to be considered at this stage. The Supreme Court held that it could not strike down the reopening of the case in the instant facts and it would be open to the assessee to prove that the assumption of facts made in the notice was erroneous. In the case of Kedarnath Babbar vs. ACIT 139 taxmann.com 129 (Delhi), the Delhi High Court held that where Assessing Officer on perusal of tax evasion petition received from investigation observed that significant sums from over draft account of petitioner was being transferred to the petitioners is not as interest free loan and interest expenses incurred on said over draft was being fraudulently claimed as revenue expenditure to reduce taxable income of the petitioner, ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 14 - since there was prima facie material on record for reopening assumption, issue of reopening notice was justified. In view of the above judicial precedents, the legal position is clear that at the stage of issuance of notice, the Assessing Officer needs to only form a prima facie belief that on the basis of material on record, income had escaped assessment and hence issuance of reopening notice was justified. In the instant case, we observe that the Assessing Officer was in receipt of information that assessee had made bogus purchases to the tune of Rs. 21.30 crores on the basis of information received from ADIT (Inv.), Kolhapur. Accordingly, we are of the considered view, that in the instant facts the Assessing Officer had sufficient material / information in his position to form a prima facie belief that income had escaped assessment and hence issuance of notice for reopening the re-assessment proceedings was justified, looking into the facts of the instant case. Accordingly, looking into the facts of the instant case, we are of the considered view that Ld. CIT(Appeals) has not erred in facts and in law in holding that re-assessment proceedings have been validly initiated under Section 147 of the Act. In the result, Ground No.1 of the assessee’s appeal is dismissed. Ground No. 2:- Merits of the case and G.P. addition 8. The brief facts in relation to this ground of appeal are that during the course of assessment, the Assessing Officer observed that the assessee had made bogus purchases amounting to Rs. 21.30 crores from two parties i.e. M/s. Param Trading Company and M/s. Rheem Tradelinks Pvt. Ltd. The Assessing Officer observed that from a perusal of the statement of Shri Suresh Parekh, who was the master mind behind a Hawala racket and also ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 15 - from the statements recorded of Shri Yogesh Koli, Director of Rheem Tradelink Pvt. Ltd. and also from the statement of Shri Kiran Patil, proprietor of M/s. Param Trading Company, it is evident that the purchases made by the assessee from M/s. Param Trading Company and M/s. Rheem Tradelink Pvt. Ltd. are bogus in nature. From the statement of Shri Suresh Parekh, it is evident that he had indulged in activity of providing accommodation bills / entries to various business houses and he further submitted a list of beneficiaries to whom such bills were issued and cash was returned back against the cheques received from such beneficiaries towards bills issued. Further, from the details / information provided by Shri Suresh Parekh, he categorically admitted that in the transactions between M/s. Param Trading Company and M/s. Rheem Tradelinks Pvt. Ltd. with the assessee, the same were only accommodation entries and in respect of such bills issued, no physical goods were sold to the assessee and further there was no physical movement of goods. In the assessment order, the Assessing Officer observed that it cannot be denied that the assessee had made purchases and had also made sales in respect of certain educational books etc. However, what is doubtful is that such purchases were not made from the aforesaid two parties i.e. M/s. Param Trading Company and M/s. Rheem Trdelinks Pvt. Ltd. The Assessing Officer was of the view that in the facts it was found that the parties were either withdrawing cash after routing some cheques through the above mentioned parties and cash were withdrawn from this account. In short, the cheque payments made by the assessee are finally withdrawn in cash and the some are handed over to the assessee. Accordingly, the Assessing Officer held that the assessee has failed to prove that the purchases made from M/s. Param Trading Company ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 16 - and M/s. Rheem Tradelink Pvt. Ltd. are genuine. This assertion is also supported from the fact that while the assessee has submitted that it is operating on a very low profit margin basis, but the purchases of articles are made from Sangli and the assessee has transported the goods all the way from Sangli to Ahmedabad, only for carrying out a quality check and then again such goods were transported all the way from Ahmedabad to Nasik, Kolhapur, Nandurbar, Jalgon etc. i.e. for final supply to all the stations / places which are in and around Sangli. The above circumstances show that the assessee has not purchased the articles from aforesaid parties. The Assessing Officer further observed that from analysis of the data, it is evident that the Gross Profit (G.P.) has not reduced because of higher turnover as stated by the assessee, but it has reduced in the year where the assessee had made huge purchases from entry providers mentioned above. The Assessing Officer observed that in A.Y. 2011-12, when the assessee was carrying out the same activity, it had declared Gross Profit (G.P.) at 15.25%. But in the impugned assessment order, when the assessee was having transaction with entry providers, the G.P. reduced to 10.75%. Since the purchases from M/s. Param Trading Company and M/s. Rheem Tradelink Pvt. Ltd. amounting to Rs. 21.30 crores constituted almost 40% of the total turnover and is found to be bogus in nature, it is conclusively proved that purchases of Rs. 21.30 crores stated to be made from M/s. Param Trading Company and M/s. Rheem Tradelink Pvt. Ltd. are entered in the books only to inflate the cost of purchases and no real / physical purchases from M/s. Param Trading Company and M/s. Rheem Tradelink Pvt. Ltd. was actually made. Accordingly, the Assessing Officer rejected the book result declared by the assessee under Section 145 of the Act and ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 17 - considering the fact that the assessee had declared G.P. at 15.25% in the immediately preceding year where no trading transaction was done with the entry providers, he held that it is reasonable to adopt G.P. at 15.25% for the impugned assessment year, as well. Accordingly, by applying the G.P. rate of 15.25%, as against the G.P. rate of 10.75% declared by the assessee, the difference amounting to Rs. 2,41,18,024/- was added to the total income of the assessee. 9. In appeal, Ld. CIT(Appeals) upheld the order of Ld. CIT(Appeals) and dismissed the appeal of the assessee with the following observations:- “3.6. I have carefully considered the Assessment Order and the submission filed by the Appellant. The Assessing Officer has referred to information received from The ADIT (Inv.) Unit-III, Kolhapur, vide letter dated 15/05/2014, has intimated that during the course of investigation in respect of cash transactions, certain parties were indulging in Hawala Business. It is found that Assessee Company has obtained bogus bills from Param Trading and Rheem Tradelinks and in turn it has stated to sold to Maharashtra Prathmik Shikshan Parishad, Sarva Shiksha Abhiyan at its various centers. During the course of such investigation, the statement of master-mind of hawala racket Shri Suresh Parekh was recorded. Statements were also recorded Shri Yogesh Maruti Koli, Director of Rheem Tradelink Pvt. Ltd. who in his statement, recorded on 13/07/2012, in reply to Q. No. 5, categorically stated that he is only a name lender and all the business activities including maintenance of regular books of account are carried out by Shri Dinesh Amrutlal Parekh, brother of Shri ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 18 - Suresh Amrutlal Parekh who is master-mind behind the hawala racket. Similarly, statement of Shri Kiran Rajgonda Patil, Prop M/s. Param Trading Co. was recorded on 11/07/2012. In the said statement he has categorically stated that he received salary from Shri Dinesh Amrutlal Parekh and he is not aware of any activities carried out under the name of M/s. Param Trading Co., the business activity of M/s. Param Trading Co. are being looked after by Shri Suresh Amrutlal Parekh and Shri Dinesh Amrutlal Parekh and he is only a name lender. Statement of Shri Suresh Amrutal Parekh and in reply to Q. No. 12 had admitted that he had indulged in the activity of providing accommodation bills/entries to various business houses/ business concerns/ entities/persons. 3.7. The Assessing Officer has further contended that the Appellant has made payment/purchased goods from above parties in the year under consideration aggregating to Rs. 213049900/-. The Assessing Officer has referred to statement of Statement of Shri Suresh Amrutal Parekh and in reply to Q. No. 12 had admitted that he had indulged in the activity of providing accommodation bills/entries to various business houses/ business concerns/ entities/persons. For this purpose various bank accounts in the names of different persons i.e. friends, their employees, their family members etc were opened and operated. Shri Suresh A Parekh, also provided a list of entities their proprietor /partner/ director etc., bank accounts and total turnover of accommodation bills provided through such entities and the details in Annexure-A which were provided to the appellant at the time of the ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 19 - assessment proceedings. He further submitted a list of beneficiary to whom such bills were issued and cash was returned back against the cheque received from such beneficiary towards bills issued. The persons also deposed before the authority that it has either withdrawn cash from the bank account or issued cheques to the other entities operating under his control and guidance and finally returned the amount back in cash after deducting his meager commission. The withdrawal of the cash by the above parties are indicated in tabular form at page 13-14 of this order where it can be seen and confirmed that the modus operand! as stated by the above parties are correct and appellant is beneficiary of the same. The A.O. has also held that the assesses failed to prove that the purchases made from Param Trading Company and Rheem Trade/ink Pvt. Ltd. were genuine. Another important feature of the assesses s purchases and sales from the above parties is also very intriguing and complicated. As stated above, the purchases were made from Sangli and the assessee had transported the goods all the way from Sangali to Ahmedabad only for a check and such goods again transported all the way from Ahmedabad to Nasik, Jalgon, Nandurbar, Kohlapur etc. all the stations are in and around Sangli. This all have been done by the appellant for the reason known to him. The facts of the case clearly points to what the A.O. has been dealing in the relevant para of his assessment order. 3.8. The assessee has shown transactions with the entry provider only during the year which resulted in lower G.P. of 10.75%. As ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 20 - stated above, the purchases shown to have been made from Param Trading Company and Rheem Tradelink Pvt. Ltd. amounting to Rs. 21,30,49,900/- which is almost 40% of the total turnover are found to be bogus in nature by the AO. Considering the fact that the assessee has made sales to the government authority, it was held by the A.O. that the purchases shown to have been made from Param Trading Company and Rheem Tradelink Pvt. Ltd. is to inflate the purchases or to reduce the real profit earned by the assessee. For the reason discussed above, it is conclusively proved that the purchases of Rs. 21,30,49,9007-stated to be made from Param Trading Company and Rheem Trade/ink Pvt. Ltd. are entered in the books only to inflate the purchases and no real purchase from Param Trading Company and Rheem Tradelink Pvt. Ltd. as is evident from the enquiries conducted by the ADIT (Inv.) Unit-Ill, Kolhapur. In the above circumstances, the book result declared by the assessee is rejected u/s. 45 of the Act by the AO. As stated above, there is no denying the fact that the assessee has made sales, as the sales made by the assessee are to Maharashtra Government. The only question here is that whether the expenditure debited by the assessee in the P&L A/c. towards purchase made are genuine or not. From the detailed discussion made above, it is held by the A.O. that the purchases shown to have been made from hawala are not genuine even though the assessee might have purchased such material from others which gives it more profit than actually declared by the assessee. Considering the fact that the assessee has declared G.P. at ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 21 - 15.25% in the immediately preceding year where no trading transactions are with the entry providers the assessee's nature of business is a/so not changed, the A.O. has considered it reasonable to adopt the G.P. at 15.25% as declared by the assessee itself in the immediately preceding year is reasonable. By applying the G.P. at 15.25% the G.P. works out to Rs. 8,19,18,213/- as against the same the assessee has shown G.P. at Rs. 5.78,.00,789/-, the difference of Rs. 2,41,18,024/- is added to the total income by the A.O. 3.9. On the other hand, Appellant has argued that purchases are supported by bills, vouchers, along with delivery challans and same are not found to be incorrect by Assessing Officer. The payment made against above purchases were reflected in bank statements hence Appellant contended that addition cannot be made solely relying on statement of third parties which are general in nature and without bringing any corroborative evidence that such purchases are in fact non-genuine and cash has been received against such purchases. The Appellant has also argued that when Assessing Officer is relying upon statement of third parties and Appellant has asked for cross examination of such party, the onus is on Department to produce such party for allowing cross examination to Appellant and addition made without such cross examination cannot be sustained in view of decision of Hon'ble Gujarat High Court in the case of Chartered Speed Pvt. Limited (Tax Appeal No. 126 of 2015, referred supra). ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 22 - The Appellant has also argued that it is engaged in trading and printing of booklets and sales made out of above referred purchases are accepted by Assessing Officer as such and held as genuine sale, corresponding purchase cannot be treated as non- genuine. Even the Tax Audit Report also gives details of opening stock, inward quantity, closing quantity and sales quantity, which are not disputed by Assessing Officer. Once books of account of Appellant are accepted as such, addition of bogus purchase cannot be made. The appellant made a request for admitting the additional evidences under Rule 46A of I.T. Rules, stating that during the course of assessment proceedings, the appellant was unable to submit certain details. The appellant requested to get these verified by AO as the same was not available at the time of assessment proceedings. The same has been admitted as additional evidence in the interest of the natural justice as it was closely connected to the issue, the same were sent to the A.O. for his verification and necessary enquiries related to the issue. ” ...... 3.11. Having considered the above facts in totality, the goods were procured and used in trading business, the inward -outward register showing movement of goods, there cannot be sales without having purchase of the goods. It is also disputed by AO that the payments made to these parties had flown back to the appellant. Therefore, the totality of facts show that it was a case where the goods received from the parties other than the above two parties who has issued the bills. It is to be presumed that the appellant had procured goods from ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 23 - parties or source and in order to regularize such purchases, he had taken bills from the aforesaid two parties. The total sale made by the appellant is accepted by A.O. Under the circumstances, one has to believe that the purchases made from said two parties were not bogus but they were made from the parties other than those mentioned in the books of accounts. Therefore, when the purchases themselves were not completely held bogus and non-existent by the A.O., the entire amount of purchases should not be added back to the income of the appellant but only reasonable profit embedded therein could be added. The A.O. has done the same by estimating the reasonable profit embedded therein on the basis of the result of the previous year of the appellant company. The same is substantiated by the following decisions of the jurisdictional Hon'ble ITAT and Hon'ble High Court as under: ...... 3.12. In short, not the entire purchase price hut only profit element can be added to the income of the assessee. The estimation of rate of profit would necessarily vary with the nature of business and no uniform yardstick can be adopted. Since in the present case, the appellant is engaged in the business of printing of forms and booklets and the GP disclosed by the appellant in the P.Y. relevant to A.Y. 2010-11 the assessee was carrying on the same activity where it has declared G.P. at 15.25%. In view of the detailed discussion, submissions of the appellant and the decisions and judgment cited of various Court's the disallowance of the entire purchase made, would not on sound footings. But at the same time it is also a fact that the ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 24 - appellant have inflated its purchases for which some disallowance are required. For similar facts the Hon'ble ITAT Ahmedabad in the case of Gujarat Ambuja Export Ltd Vs. ACIT in IT(SS)A 123, 124 & 481/Ahd/2012 dtd. 17.4.2013 has confirmed the disallowance of such purchases and subsequently this was confirmed by the Hon'ble Gujarat High Court in Tax Appeal No,845/A/2013 vide order dtd.10.2.2014. Thus considering the decisions, it would be fair and reasonable to make the G.P. at 15.25% as taken by the A.O. by applying the G.P. at 15.25% the G.P. works out to Rs. 8,19,18,213/- as against the same the assessee has shown G.P. at Rs. 5,78,00,189/-, the difference of Rs. 2,41,18,024/- is added to the total income. Thus, the addition made by the A.O. of Rs. 2,41,18,024/- is confirmed. The ground of the appellant is dismissed. 10. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(Appeals) confirming the addition in the hands of the assessee. Before us, the Counsel for the assessee primarily reiterated the arguments which were taken by the assessee before the lower authorities. The Counsel for the assessee submitted that from the facts / evidences placed on record it is evident that the assessee has been able to establish that all the purchases made by the assessee were genuine. The arguments of the Counsel for the assessee may be summed up as below:- A statement showing the details of the Purchase Tax Invoices received from Rheem Tradelinks Pvt. Ltd. and Param Trading Company for the F.Y. 2011- 12 along with the Copies of Tax Invoices, Delivery Notes and Lorry ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 25 - Receipts of Samarth Roadways and Pavan Transport, proves that purchases were genuinely made. A Statement showing the details of Educational Booklet sets sold to Sarva Shiksha Abhiyan, Maharashtra during the year 2011-12 along with the copies of the relevant bills , Transport Receipts i.e. L.R., Octroi Exemption certificate (Free Pass) on sample basis, where applicable, also supports the genuineness of the transaction. Copies of various orders received from various centers of Maharashtra Prathmik Shikshan Parishad. Sarva Shiksha Abhiyan also point towards the genuineness of sale of articles. Copies of various Inspection Reports issued by Superintendence Company of India (Pvt.) Ltd. along with their bills addressed to The Education Officer (Primary) of various Jilla Parishad (on sample basis), also supports that the transactions were genuine. Copies of Assessment orders under Gujarat VAT Act showing acceptance of purchases and sales also supports the genuineness of the aforesaid transaction. The above evidences have not been controverted or challenged by the A.O. and, therefore, clearly prove that the appellant had actually purchased and received the booklets from Rheem Tradelinks Pvt. Ltd. and Param Trading Company and sold and delivered the same to Maharashtra Prathmik Shikshan Parishad , Sarva Shiksha Abhiyan at its various centers and received sale proceeds thereof after necessary inspection by a third party as ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 26 - well as T.D.S. as per the provisions of law for which credit has been given in the A.O. 11. In response, the Ld. D.R. placed reliance on the observations made by Ld. CIT(Appeals) and Ld. Assessing Officer in their respective orders. 12. We have heard the rival contentions and perused the material on record. In the case of PCIT vs. Swati Bajaj 139 taxmann.com 352 (Calcutta), the Calcutta High Court held that the report submitted by the Investigation Department could not be brushed aside and it is the duty of the Department to give due weightage to the report submitted by the Investigation Department. In this regard, the Hon’ble Calcutta High Court made the following observations in its order:- “The report submitted by the Investigation department could not be thrown out on the grounds urged on behalf of the assessees. The assessees have not been shown to be prejudiced on account of non- furnishing of the investigation report or non-production of the persons for cross examination as the assessee has not specifically indicated as to how he was prejudiced, coupled with the fact as admitted by the revenue, the statements do not indict the assessee. That apart, the investigation has commenced targeting the individuals who dealt with the penny stocks and after examining the modus seeing the cash trail the report has been submitted recommending the same to be placed before the DGIT (Investigation) of all the States of the country. It is thereafter the concerned Assessing Officers have been informed to consider as to the bona ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 27 - fideness and genuineness of the claims of LTCG/LTCL of the respective assessees qua the findings which emanated during the investigation conducted on the individuals who dealt with the penny stocks. Therefore, the assessments have commenced by the Assessing Officers calling upon the assessee to explain the genuineness of the claim of LTCG/LTCL made by them. In all the assessment orders, substantial portion of the investigation report has been noted in full. A careful reading of the same would show that the assessee has not been named in the report. If such be the case, unless and until the assessee shows and proves that she/he was prejudiced on account of such report/statement mere mentioning that non-furnishing of the report or non-availability of the person for cross examination cannot vitiate the proceedings. The assessees have miserably failed to prove the test of prejudice or that the test of fair hearing has not been satisfied in their individual cases. In all the cases, the assessees have been issued notices under sections 143(2) and 142(1) they have been directed to furnish the documents, the assessee have complied with the directions, appeared before the Assessing Officer and in many cases represented by Advocates/Chartered Accountants, elaborate legal submissions have been made both oral and in writing and thereafter the assessments have been completed. Nothing prevented the assessee from mentioning that unless and until the report is furnished and the statements are provided, they would not in a position to take part in the inquiry which is being conducted by the Assessing Officer in scrutiny assessment under section 143(3). The assessee were conscious of the fact that they have not been named in ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 28 - the report, therefore made a vague and bold statement that the non- furnishing of report would vitiate the proceedings. Therefore, merely by mentioning that statements have not been furnished can in no manner advance the case of the assessee. If the report was available in the public domain as has been downloaded and produced by the revenue, nothing prevented the assessees who are ably defended by the Chartered Accountants and Advocates to download such reports and examine the same and thereafter put up their defence. Therefore, the based on such general statements of violation of principles of natural justice the assessees have not made out any case. [Para 65]” 13. The above principal was again upheld by the Calcutta Tribunal in the case of Shyam Sunder Bajaj vs. ITO 145 taxmann.com 315 wherein the ITAT held that the report of Investigation Wing, wherein the Investigation Wing of the Department had stated the modus operandi of rigging the prices of penny stocks and generation of capital gain / trading loss therefrom, had to be given due weightage. We further observe, the Pune ITAT in the case of Shri Dinesh Kumar (HUF) vs. ITO 149 taxmann.com 98 (Pune Tribunal) has made the following observations on the reliance which needs to be placed on the report submitted by the Investigation Wing. The relevant extract of the ruling are reproduced below for ready reference:- “9. We also find that Hon'ble Supreme Court in the case of Mc Dowell & Co. v. CTO [1985] 22 Taxman 11/154 ITR 148/47 CTR 126 has given a strong verdict against any such arrangements by stating that "colourable devices cannot be a part of tax planning and it is wrong to encourage or entertain the belief that it is honorable to ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 29 - avoid the payment of taxes by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges. In view of Hon'ble Apex Court's verdict, and after examining the entire arrangement as appearing in the facts of this case, it is held that this is merely a colourable device for claiming bogus long term capital gain and exemption u/s 10(38) of the Act. The assessee has not filed any written submissions nor any evidences on record is there to show that whatever has been stated in the assessment order and in the order of the ld. CIT(A) is not true. The assessee has also not submitted any submissions as regarding the investigations conducted by the ld. A.O. We find that there is a direct investigation report of the Investigation Wing, Kolkata. There is the investigation report of the SEBI which is also on record and all these reports have clearly stated that there is an illegal racket going on where the prices of shares of lesser known company having no financial credentials are jacked up and the prices kept on raising till desired level and thereafter are routed through entry providers in order to obtain bogus long term capital gain and claiming exemption u/s 10(38) of the Act. This is nothing but tax evasion which is not permissible within the frame work of the Income-tax Act. It is further true that the A.O has recorded the statement of various entry providers which were recorded during the course of investigation by the Investigation Wing and they have admitted that they were dealing in penny stocks including shares of Mishka which were jacked up for the purposes of providing bogus long term capital gain. The assessee was even confronted with the statement of these entry providers who ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 30 - themselves have admitted that they were engaged in providing such accommodation entries for bogus long term capital gain in lieu of commission in the shares of Mishka in which the assessee has transacted. We also find that thorough investigation has been made by the A.O by even getting informations from the Bombay Stock Exchange and National Stock Exchange regarding purchases and sales of shares made by the assessee. We further find that the transactions of allotment of shares was an off-market transaction and not carried through the recognized exchange.” 14. In the case of Sumati Dayal vs. CIT (1995) 80 Taxman 89 (SC), the Hon’ble Supreme Court has stressed upon the surrounding circumstances and application of test of human probabilities in the given set of facts while deciding the issue, in the following words:- “The transaction about purchase of winning ticket took place in secret and direct evidence about such purchase would be rarely available. An inference about such a purchase had to be drawn on the basis of the circumstances available on the record. Having regard to the conduct of the appellant as disclosed in her sworn statement as well as other material on the record, an inference could reasonably be drawn that the winning tickets were purchased by the appellant after the event. The majority opinion after considering surrounding circumstances and applying the test of human probabilities had rightly concluded that the appellant's claim about the amount being her winning from races, was not genuine. It could not be said that the explanation offered by the appellant in respect of ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 31 - the said amounts had been rejected unreasonably and that the finding that the said amounts were income of the appellant from other sources was not based on evidence.” 15. Now coming to the facts of the instant case, we observe that the Investigation Wing of the Department after detailed enquiry and after taking the statement of various Hawala operators on record and on the basis of evidence furnished by such Hawala operates, had come to the conclusion that the assessee had made bogus purchases from the two parties i.e. M/s. Param Trading Company and M/s. Rheem Tradelink Pvt. Ltd. Further, in view of the judicial precedents cited above, we are of the considered view that the report submitted by the Investigation Wing cannot be brushed aside / ignored by simply placing reliance on the submissions of the assessee. Further, we also of the considered view that Ld. CIT(Appeals) and the Assessing Officer have correctly observed that when the assessee is admittedly operating on such a low profit margin, since as per the assessee’s own admission, the G.P. rate reduced during the impugned assessment year owing to increase in volume of sales, there seems to be no justifiable reason for substantially increasing the transportation cost by transporting the articles from Sangli to Ahmedabad and then again taking the articles back from Ahmedabad to various locations surrounding the area of Sangli. As noted above, the Hon’ble Supreme Court in the case of Sumati Dayal vs. CIT (Supra) has stressed the importance of surrounding circumstances and human probabilities, looking into the facts of each case. However, we also observe that in the instant facts the assessee had made a specific requisition for allowing the opportunity of cross-examination of the concerned persons on the basis of whose statement the additions have been made in the hands ITA No. 2812/Ahd/2016 Data Processing Forms Pvt. Ltd. vs. DCIT Asst.Year –2012-13 - 32 - of the assessee (by holding that the purchases from M/s. Param Trading Company and M/s. Rheem Tradelink Pvt. Ltd. is bogus). Accordingly, in the interest of justice, the matter is being set-aside to the file of Ld. CIT(Appeals) so as to offer the assessee an opportunity of cross-examining the concerned persons on the basis of whose statements the aforesaid addition have been made in the hands of the assessee. Accordingly, the matter is being set-aside to the file of Ld. CIT(Appeals) with the aforesaid directions to afford the assessee an opportunity of cross-examination and thereafter pass appropriate order in accordance with law, taking into consideration the surrounding facts and circumstances of the case. 16. In the result, the appeal of the assessee is allowed for statistical purposes. This Order pronounced in Open Court on 05/06/2023 Sd/- Sd/- (WASEEM AHMED) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 05/06/2023 TANMAY, Sr. PS TRUE COPY आदेश क त ल प अ े षत/ Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील!य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad