ACIT 4(3)(1), MUMBAI V. PANACHE EXPORTS P.LTD, MUMBAI

ITA 3610/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9260 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 17-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTAL
• Keywords: Reopening of assessment; Bogus purchase; Charitable institution; Principle of natural justice; Opportunity of cross examination; Third party statement; Onus to prove; Reassessment proceedings

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI RAVISH SOOD , JM ITA NO. 3610 / MUM/20 1 7 ( ASSESSMENT YEAR : 2008 - 09 ) ACIT 4 (3)(1) R.NO.649, 6 TH FLOOR, AAYAKAR BHAVAN MUMBAI 400 020 VS. M/S. PANACHE EXPORTS PVT. LTD., 108A, PARAVATI INDUSTRIAL PREMISES CO - OP SOCIETY LTD., LOWER PAREL (W), MUMBAI 400 013 PAN/GIR NO. AAACP6106D APPELLANT ) .. RESPONDENT ) CO NO. 211/ MUM/20 17 ( ASSESSMENT YEAR : 2008 - 09 ) M/S. PANACHE EXPORTS PVT. LTD., 10 8A, PARAVATI INDUSTRIAL PREMISES CO - OP SOCIETY LTD., LOWER PAREL (W), MUMBAI 400 013 VS. ACIT 4 (3)(1) R.NO.649, 6 TH FLOOR, AAYAKAR BHAVAN MUMBAI 400 020 PAN/GIR NO. AAACP6106D APPELLANT ) .. RESPONDENT ) REVENUE BY SHRI RAJAT MITTAL ASSESSEE BY SHRI SUNIL M. LALA / SHRI TUSHAR HATHIRAMANI DATE OF HEARING 14 / 09 /201 7 DATE OF PRONOUNCEME NT 25 / 09 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 9, MUMBAI DATED 06/02/2017 IN THE MATTER OF ORDER PASSED U/S.143(3) R.W.S. 147 OF THE IT ACT. 2. IN THIS APPEA L, REVENUE IS AGGRIEVED FOR DELETING ADDITION MADE BY AO ON ACCOUNT OF BOGUS PURCHASES AMOUNTING TO RS.33 ,76,271/ - . IN THE CROSS ITA NO.3610/MUM/2017 & CO NO.211/MUM/2017 M/S . PANACHE EXPORTS PVT.LTD., 2 OBJECTION, ASSESSEE IS AGGRIEVED BY THE ORDER OF CIT(A) UPHOLDING REOPENING OF ASSESSMENT. 3. RIVAL CONTENTIONS HAVE BEEN HEA RD AND RECORD PERUSED. 4. DURING THE COURSE OF REASSESSMENT PROCEEDINGS, AO FOUND THAT ASSESSEE HAS PURCHASED GOODS FROM THE PARTIES WHO HAVE BEEN DECLARED AS BOGUS BY THE SALES TAX DEPARTMENT, ACCORDINGLY SAME WAS ADDED IN ASSESSEES INCOME. AO OBSERVED T HAT F ROM A PERUSAL OF THE PROFIT & LOSS A/C , IT IS NOTICED THAT DURING THE YEAR, THE ASSESSE E HAS CLAIMED EXPENSES OF RS.17,43,80 ,469/ - UNDER THE HEAD P URCHASES OF DIAMOND'. DURING THE COURSE OF THE REASSESSMENT PROCEEDINGS, THE ASSESSE E WAS ASKED TO FILE DOCUMENTARY EVIDENCES TO JUSTIFY THE GENUINENESS OF THE PURCHASES MADE FROM AFORESAID PARTIES . IN REPLY, THE ASSESS E E FILED CERTAIN DETAILS AND ALSO ASKED THE AO TO GIVE COPIES OF ALL MATERIALS AND EVIDENCES ON THE BASIS OF WHICH AO FORME D HIS OPINION TO MAKE THE ADDITION IN RESPECT OF SUCH PURCHASES. HOWEVER, NOTHING WAS FURNISHED TO THE ASSESSEE . 5. IN VIEW OF ABOVE OBSERVATION, T HE AO ESTIMATED PROFIT OF 6% ON SUCH PURCHASES OF RS.5,62,71,184/ - AND MADE ADDITION OF RS.33,76,271/ - . 6. B Y THE IMPUGNED ORDER, CIT(A) DELETED THE ADDITION AFTER OBSERVING AS UNDER: - 6.3.7. ON THE ABOVE FACTS, IT IS OBVIOUS THAT THE AO WHILE SUPPOSEDLY ACTING ON A REPORT OF THE INVESTIGATION WING AND SOME ALLEGED THIRD PARTY EVIDENCE, NEVER MADE THE SAID REPOR T AND EVIDENCE AVAILABLE TO THE APPELLANT. THUS, THE APPELLANT WAS DENIED A CHANCE TO REBUT THE EVIDENCE BY CROSS EXAMINING THOSE, WHO HAD ALLEGEDLY GIVEN STATEMENTS THAT COULD INCRIMINATE THE APPELLANT. ALL THIS IS A CLEAR VIOLATION OF THE PRINCIPLES OF ITA NO.3610/MUM/2017 & CO NO.211/MUM/2017 M/S . PANACHE EXPORTS PVT.LTD., 3 N ATURAL JUSTICE, A FUNDAMENTAL POINT TO THE VALIDITY OF THE PROCEEDINGS BEFORE THE AO. 6.3,8. THE FACTS OF THE APPELLANT'S CASE ARE IDENTICAL TO THOSE OF IN THE CASE OF H.R.MEHTA DECIDED B UT THE BOMBAY HIGH COURT THROUGH AN ORDER DATED 30/06/2016 IN ITA NO .58 0/2001. IN THAT CASE, THE ASSE SSEE HAD ADDUCED EVIDENCE BY WAY OF BANK RECORD TO SHOW THAT LOAN HAD BEEN RECEIVED FROM A CREDITOR THROUGH BANKING CHANNELS. THE CREDITOR WAS NOT PHYSICALLY TRACEABLE, AS MUCH TIME HAD ELAPSED AND HIS ADDRESS HAD CHANGED. THE ASSESSMENT HAD BEEN REOPENED ON THE BASIS OF THIRD PARTY EVIDENCE COLLECTED IN A SEARCH ACTION IN THE CASE OF A CHARITABLE TRUST. DESPITE SPECIFIC REQUEST IN THIS REGARD, THE AO CONCERNED DID NOT PROVIDE TO H R MEHTA A COPY OF THE APPRAISAL REPORT AND THIRD PARTY STATEMENT ETC. AND PROCEEDED TO TREAT THE LOAN AS UNEXPLAINED. THE HON'BLE HIGH COURT STRUCK DOWN THE ORDER OF REASSESSMENT BY OBSERVING THAT REVENUE WAS JUSTIFIED IN MAKING THE ADDITION WITHOUT HAVING FIRST GIVEN THE ASSESSEE AN OPPORTUNITY TO CROSS EXAMINE THE DEPONENTS ON THE STATEMENTS RELIED UPON BY THE ACIT. THE RELEVANT DISCUSSION, CONTAINED IN PARAHRAPHS 16 & 17 OF THE HIGH COURT'S ORDER, IS REPRODUCED BELOW: '16. IN THE INSTANT CASE ALTHOUGH THE APPELLANT ASSESSEE HAS CALLED UPON US TO DRAWN INFERENCE THAT THE BURDEN SHIFTED TO THE REVENUE IN THE PRESENT CASE ONCE IT WAS ESTABLISHED THAT THE PAYMENTS WERE MADE AND REPAID BY CHEQUE WE NEED NOT HASTEN AND ADOPT THAT VIEW AFTER HAVING GIVEN OUR THOUGHT TO VARIOUS ISSUED RAISED AND THE DECIS IONS CITED BY MR.TRALSHAWALLA AND FINDING THAT ON A VERY FUNDAMENTAL ASPECT, THE REVENUE WAS NOT JUSTIFIED IN MAKING ADDITION AT THE TIME OF REASSESSMENT WITHOUT HAVING FIRST GIVEN THE ASSESSEE AN OPPORTUNITY TO CROSS EXAMINE THE DEPONENT ON THE STATEMENTS RELIED UPON BY THE ACIT. QUITE APART FROM DENIAL OF AN OPPORTUNITY OF CROSS EXAMINATION, THE REVENUE DID NOT EVEN PROVIDE THE MATERIAL ON THE BASIS OF WHICH THE DEPARTMENT SOUGHT TO CONCLUDE THAT THE LOAN WAS A BOGUS TRANSACTION. 17. IN OUR VIEW IN THE LI GHT OF THE FACT THAT THE MONIES WERE ADVANCED APPARENTLY BY THE ACCOUNT PAYEE CHEQUE AND WAS REPAID VIDE ACCOUNT PAYEE CHEQUE THE LEAST THAT THE REVENUE SHOULD HAVE DONE WAS TO GRANT AN OPPORTUNITY TO THE ASSESSEE TO MEET TH E CASE AGAINST HIM BY PROVIDING THE MATERIAL OUGHT TO BE USED AGAINST ASSESSEE IN ARRIVING BEFORE PASSING THE ORDER OF ASSESSMENT. THIS NOT HAVING BEEN DONE, THE DENIAL OF SUCH OPPORTUNITY GOES TO ROOT OF THE MATTER AND STRIKES AT THE VERY FOUNDATION OF THE REASSESSMENT AND THEREFOR E RENDERS THE ORDERS PASSED BY THE CIT(A) AND THE TRIBUNAL VULNERABLE. IN OUR VIEW THE ASSESSEE WAS BOUND TO BE PROVIDED WITH THE MATERIAL USED AGAINST HIM APART FROM BEING PERMITTING HIM TO CROSS EXAMINE THE DEPONENTS. DESPITE THE REQUEST DT. 15 LH FEBRU ARY, 1996 SEEKING AN OPPORTUNITY TO CROSS EXAMINE THE DEPONENT AND FURNISH THE ASSESSEE WITH COPIES OF STATEMENT AND DISCLOSE MATERIAL, THESE WERE DENIED TO HIM. IN THIS VIEW OF THE MATTER WE ARE INCLINED TO ALLOW THE APPEAL ON THIS VERY ISSUE.' 6.3.9. OP PORTUNITY OF CROSS EXAMINATION OF WITNESSES IS AN ESSENTIAL INGREDIENT OF THE PRINCIPLE OF NATURAL JUSTICE. THIS HAS BEEN AFFIRMED BY THE HON'BLE SUPREME COURT IN THE CASE OF ANDAMAN TIMBER INDUSTRIES [CIVIL APPEAL NO.4228 OF 2006, DATE OF PRONOUNCEMENT - SEPTEMBER 02, 2015]. IN THAT CASE, THE HON'BLE SUPREME COURT HELD THAT NOT ALLOWING ASSESSEE THE OPPORTUNITY TO CROSS - EXAMINE WITNESSES, WHOSE STATEMENTS WERE MADE THE ITA NO.3610/MUM/2017 & CO NO.211/MUM/2017 M/S . PANACHE EXPORTS PVT.LTD., 4 BASIS OF A DEMAND, IS A SERIOUS FLAW WHICH MAKES ORDER A NULLITY, AS IT AMOUNTS TO VIOLA TION OF PRINCIPLES OF NATURAL JUSTICE. 6.3.10. IN THE CASE OF KISHINCH AND CHE LL ARAM VS. CIT, BOMBAY CITY II [1980] 125 ITR 713 (SC), IT HAS BEEN HELD BY THE APEX COURT THAT IN INCOME TAX PROCEEDINGS WHEN AN EVIDENCE IS TO BE USED AGAINST THE ASSESSEE AND IF IT IS NOT SHOWN TO THE ASSESSEE AND IF NO OPPORTUNITY TO CONTROVERT IS GIVEN TO THE ASSESSEE, THAT EVIDENCE IS NOT ADMISSIBLE. IT FURTHER HELD - THE DEPARTMENT OUGHT TO HAVE CALLED UPON THE MANAGER TO PRODUCE THE DOCUMENTS AND PAPERS ON THE BASIS OF WHICH HE MADE THE STATEMENTS AND CONFRONTED THE ASSESSEE WITH THOSE DOCUMENTS AND PAPERS. BEFORE THE INCOME TAX AUTHORITIES COULD RELY UPON THE EVIDENCE, THEY WERE BOUND TO PRODUCE IT BEFORE THE ASSESSEE SO THAT THE ASSESSEE COULD CONTROVERT THE STATEMENTS CONT AINED IN IT BY ASKING FOR AN OPPORTUNITY TO CROSS EXAMINE THE MANAGER OF THE BANK WITH REFERENCE TO THE STATEMENTS MADE BY HIM. 6.3.11. ON PRINCIPLES OF NATURAL JUSTICE, IT HAS BEEN HELD BY THE APEX COURT IN THE CASE OF SWADESH COTTON MILLS VS UNION OF BUL IN IN 1981 AIR 818 THAT PHRASE 'NATURAL JUSTICE' IS NOT CAPABLE OF A STATIC AND PRECISE DEFINITION,' 'TWO FUNDAMENTAL MAXIMS OF NATURAL JUSTICE HAVE NOW BECOME DEEPLY AND INDELIBLY INGRAINED IN THE COMMON CONSCIOUSNESS OF MANKIND AS PREEMINENTLY NECESSARY TO ENSURE THAT LAW IS APPLIED IMPARTIALLY OBJECTIVELY AND FAIRLY. THESE TWIN PRINCIPLES ARE (I) AUDIALTERMPARTEM AND (II) NEMOJUDEX IN RE SUA. AUDI ALTERMPARTEM IS A HIGHLY EFFECTIVE RULE DEVISED BY THE COURTS TO ENSURE THAT A STATUTORY AUTHORITY ARRIVES AT A JUST DECISION AND IT IS CALCULATED TO ACT AS A HEALTHY CHECK ON - THE ABUSE OR MISUSE OF POWER.' 'THE MAXIM AUDIALTERMPARTEM HAS MANY FACETS. TWO OF THERE ARE (A) NOTICE OF CASE TO BE MET AND (B) OPPORTUNITY TO EXPLAIN. 'IN FACTS AND CIRCUMSTANCES OF A PARTICULAR CASE WHEN NON - COMPLIANCE WITH THE IMPLIED REQUIREMENTS OF THE AUDIALTERMPARTEM, RULE OF NATURAL JUSTICE AT THE PRE DECISIONAL STAGE, THE IMPUGNED ORDER CAN BE STRUCK DOWN AS INVALID ON THAT SCORE ALONE.' 6.3.12. IT HAS BEEN ALSO HELD BY THE APE X COURT IN THE CASE OF DELHI TRANSPORT CORPORATION VS DTC MAZDOOR CONGRESS, IN 1991. AIR 101 THAT THE AUDIALTERMPARTEM, RULE WHICH IS ESSENCE ENFORCES THE EQUALITY CLAUSE OF ARTICLE 14 OF THE CONSTITUTION AND IS APPLICABLE NOT ONLY TO QUASI - JUDICIAL ORDERS BUT TO ADMINISTRATIVE ORDERS AFFECTING PREJUDICIALLY THE PARTY IN QUESTION. 6.3.13. A SIMILAR MATTER CAME UP BEFORE THE HON'BLE SUPREME COURT IN THE CASE OF M/S. GIRA ENTERPRISES & ANOTHER (CIVIL APPEAL NOS. 433 - 434 0/2006) DATED 21/08/2014. IN THAT CASE , IT WAS ALLEGED THAT PRICES DECLARED FOR IMPORT PURPOSES HAD BEEN SUPPRESSED. THE CASE WAS BASED ON EVIDENCE CONTAINED IN A COMPUTER PRINTOUT, REPORTEDLY PREPARED ON THE BASIS OF IMPORT DATA, ALLEGEDLY COLLECTED FROM MUMBAI PORT. THIS PRINT OUT SHOWED IMP ORT PRICES, HIGHER THAN THOSE DECLARED BY THE ASSESSEE. THIS PRINTOUT WAS NOT MADE AVAILABLE TO THE ASSESSEE IN THE COURSE OF ADJUDICATION PROCEEDINGS. AFTER HEARING THE MATTER, THE HON'BLE SUPREME COURT WENT ON TO SET ASIDE THE ORDER WITH BELOW EXTRACTED OBSERVATIONS: '22. ...THE RESPONDENT (REVENUE) DID NOT SUPPLY THE INFORMATION (ALLEGED COMPUTER P RINTOUT) WHICH FORMED THE BASIS OF THE CONCLUS ION THAT THE APPELLANTS HEREIN UNDER - ITA NO.3610/MUM/2017 & CO NO.211/MUM/2017 M/S . PANACHE EXPORTS PVT.LTD., 5 VALUED THE GOODS IMPORTED. I N SUCH A SITUATION, THE APPELLANTS OBVIOUSLY CANNOT AND DID NOT HAVE ANY OPPORTUNITY OF ESTABLISHING THAT THE CLAIM OF THE REVENUE IS UNSUSTAINABLE IN LAW. IF THE INFORMATION, WHICH FORMED THE BASIS FOR THE REVENUE TO REJECT THE APPELLANT'S VALUATION IS SUPPLIED TO THE APPELLANTS,THE APPELLANTS PERHA PS WILL HAVE THE OPPORTUNITY TO DISPUTE THE COMPARABILITY OF THE IMPORT TRANSACTIONS ALLEGEDLY CONTAINED IN THE COMPUTER PRINTOUT ON VARIOUS COUNTS MAY NOT BE POSSIBLE TO CATALOGUE. - . 23. IN THE ABSENCE OF ANY MATERIAL PRODUCED BY THE REVENUE IN PROOF OF THE ALLEGED COMPARABLE IMPORTS AT A HIGHER VALUE, THE IMPUGNED ORDER WHICH EVENTUALLY CONFIRMED THE ORIGINAL ORDER OF ASSESSMENT..... CANNOT BE SUSTAINED FOR TWO REASONS - (1) THE MERE EXISTENCE OF AN ALLEGED COMPUTER PRINTOUT IS NOT PROOF OF THE EXISTENC E OF COMPARABLE IMPORTS; (2) ASSUMING SUCH A PRINTOUT EXISTS AND THE CONTENTS THEREOF ARE TRUE, THE QUESTION STILL REMAINS WHETHER THE TRANSACTION OF THE APPELLANT. THE APPELLANT WILL HAVE TO BE GIVEN REASONABLE OPPORTUNITY TO ESTABLISH (IF HE CAN) THAT TH E TRANSACTIONS ARE NOT COMPARABLE.' 6.3.14 GOING BY THE DISCUSSION CONTAINED ABOVE, IT IS OBVIOUS THAT THE INFERENCE DRAWN BY THE AO AGAINST THE APPELLANT IS NOT SUSTAINABLE FOR THE SIMPLE REASON THAT THE PRINCIPLES OF NATURAL JUSTICE HAVE NOT BEEN FOLLOW ED. FIRST AND FOREMOST, THE APPELLANT HAS NOT BEEN GIVEN ANY ACCESS TO THE MATERIAL (REPORTS, INTIMATIONS, STATEMENTS ETC.) USED AGAINST IT. SECONDLY, BY WITHHOLDING THE SAID MATERIAL, THE AO HAS DENIED OF THE APPELLANT AN OPPORTUNITY TO REBUT THE EVIDENCE ' BY CROSS EXAMINING THE WITNESSES, STATEMENTS, IF ANY MADE BY WHOM, INCRIMINATED THE APPELLANT. ON BOTH COUNTS THE IMPUGNED ASSESSMENT ORDER FAILS SQUARELY. THE FOLLOWING TABLE PROVIDES DETAILS OF THE AVERAGE VALUE ADDITION MADE BY THE APPELLANT ON ITS RAW MATERIALS. IT WILL BE SEEN FROM THE SAME THAT IN FACT THE VALUE ADDITION IS HIGHER IN THE CASE OF JEWELLERY MANUFACTURED FROM RAW MATERIALS PURCHASED FROM THE ALLEGEDLY BOGUS PARTIES. PANACHE EXPORTS PRIVATE LIMITED ASSESSMENT YEAR 2008 - 09 CO MPARISON OF AVERAGE VALUE ADDITION % IN RESPECT OF SALES MADE OUT OF PURCHASES DURING THE YEAR DATE PARTY NAME STATUS AS PER IT DIACT AMOUNT AVGVA % 07.04.2007 EXOTIC JEWELS ALLOWED 441.66 31,60,519 17.40 05.04.2007 MELSTAR EXPORT ALLOWED 496.28 35,51,380 17.40 02.05.2007 MANCHESTER OVERSEAS ALLOWED 380.74 44,16,584 15.59 03.05.2007 FINE STAR ALLOWED 288.26 33,43,816 16.60 04.05.2007 RAHUL EXPORT ALLOWED 916.34 45,81,700 9.74 07.05.2007 MANCHESTER OVERSEAS ALLOWE D 465.27 53,97,132 9.77 05.06.2007 EXOTIC JEWELS ALLOWED 353.02 30,18,674 9.77 12.06.2007 MELSTAR EXPORT ALLOWED 221.41 19,19,182 14.88 ITA NO.3610/MUM/2017 & CO NO.211/MUM/2017 M/S . PANACHE EXPORTS PVT.LTD., 6 19.06.2007 MELSTAR EXPORT ALLOWED 610.37 44,72,791 16.59 25.06.2007 EXOTIC JEWELS ALLOWED 237.86 21,53,109 15.81 06.07.2007 RAM DIAMONDS ALLOWED 69.43 9,85,906 15.81 25.06.2007 MANCHESTER OVERSEAS ALLOWED 298.17 26,99,035 18.15 06.07.2007 RAM DIAMONDS ALLOWED 150.89 21,01,365 18.15 21.07.2007 RAM DIAMONDS ALLOWED 2 22.12 13,29,056 16.11 21.07.2007 FINE STAR ALLOWED 42.88 24,44,160 15.26 26.07.2007 MELSTAR EXPORT ALLOWED 64.45 9,66,750 15.26 26.07.2007 MEISTAR EXPORT ALLOWED 21.64 6,81,660 15.26 01.08.2007 DIAM INTERNATIO NAL ALLOWED 209.92 14,66,702 18.24 02.08.2007 DIAM INTERNATIONAL ALLOWED 33.92 7,03,842 18.24 06.08.2007 MEISTAR EXPORT ALLOWED 204.51 21,89,405 18.85 10.08.2007 MEISTAR EXPORT ALLOWED 238.08 21,41,690 23.79 20.08.2007 RAM DIAMONDS ALLOWED 183.05 24,67,434 21.22 03.09.2007 DIAM INTERNATIONAL ALLOWED 247.9 27,79,467 21.39 05.09.2007 MEISTAR EXPORT ALLOWED 83 8.37 49,86,063 21.41 19.09.2007 RAM DIAMONDS ALLOWED 227.32 17,34,108 21.32 22.09.2007 MEISTAR EXPORT ALLOWED 105.9 24,72,414 24.68 03.10.2007 MEISTAR EXPORT ALLOWED 202.15 33,45,784 22.03 05.10.2007 ROSE IMPEX ALLOWED 223.63 1 8,86,524 21.92 09.10.2007 MEISTAR EXOORT ALLOWED 177.11 29,57,404 22.40 01.11.2007 MEISTAR EXPORT ALLOWED 212.55 36,61,034 22.40 15.10.2007 MEISTAR EXPORT ALLOWED 537.03 38,55,489 21.03 25.10.2007 RAM DIAMONDS ALLOWED 146.27 18 ,28,375 21.03 02.11.2007 RAM DIAMONDS ALLOWED 161.19 25,63,066 20.06 03.11.2007 ROSE IMPEX ALLOWED 251.81 39,45,616 20.06 03.11.2007 RAHUL EXPORT ALLOWED 196.55 29,48,416 20.09 10.12.2007 RAHU! EXPORT ALLOWED 366.18 19, 34,030 20 .09 01.01.2008 MEISTAR EXPORT ALLOWED 196.43 19,96,088 21.75 ITA NO.3610/MUM/2017 & CO NO.211/MUM/2017 M/S . PANACHE EXPORTS PVT.LTD., 7 01.01.2008 MEISTAR EXPORT ALLOWED 45.83 10,67,728 21.75 02.01.2008 MANCHESTER OVERSEAS ALLOWED 138.54 22,81,913 21.75 04.01.2008 EXOTIC JEWELS ALLOWED 332.76 17,46,089 21.75 05.01.2008 MEISTAR EXPORT ALLOWED 209.07 35,21,181 29.54 17.01.2008 AADI IMPEX ALLOWED 571.25 39,64,575 25,00 09.02.2008 DIAM INTERNATIONAL ALLOWED 414.98 19,50,406 33.00 09.02.2008 MEISTAR EXPORT ALLOWED 4 01. 17 18,85,499 34.58 11.02.2008 MEISTAR EXPORT ALLOWED 273.27 29,52,915 33.27 AVG. VALUE ADDITION % FOR ALLOWED PARTIES 20.00 DATE PARTY NAME STATUS AS DIACT AMOUNT AVG VA % 03.05.2007 DAKSH DIAMONDS DISALLO WED 190.54 32,57,063 15.59 05.05.2007 LITTLE DIAM DISALLOWED 917.3 45,86,500 15.44 22.06.2007 DAKSH DIAMONDS DISALLOWED 240.18 21,74,109 19.93 22.06.2007 MANCHESTER OVERSEAS DISALLOWED 307.18 27,80,593 17.43 21.07.2007 LITTLE DIAM DISALLOWED 43.26 24,65,820 15.26 06.08.2007 TOAKSH DIAMONDS DISALLOWED 212.81 34,60,054 19.19 21.08.2007 MILLENNIUM STAR DISALLOWED 146.02 21,58,906 21.22 03.09.2007 KITTLE DIAM DISALLOWED 417.97 32,25,981 24.14 15.09.2007 RAR E DIAMONDS PVT LTD DISALLOWED 132.3 15,38,059 21.41 06.10.2007 RARE DIAMONDS PVT LTD DISALLOWED 197.4 18,77,944 21.92 20.10.2007 MILLENNIUM STAR DISALLOWED 164.79 18,70,543 23.76 23.10.2007 RARE DIAMONDS DISALLOWED 167.85 13,83,08 2 23.76 24,10,2007 MILLENNIUM STAR DISALLOWED 140.44 23,00,225 23.76 07.01.2008 LITTLE DIAM DISALLOWED 33.83 7,85.104 21.75 05.01.2008 RARE DIAMONDS PVT LTD DISALLOWED 114.19 16,13,382 29.54 10.01.2008 LITTLE DIAM DISALLOWED 212.63 33,19,459 29.54 21.01.2008 DAKSH DIAMONDS DISALLOWED 220.44 20,20,180 34.98 ITA NO.3610/MUM/2017 & CO NO.211/MUM/2017 M/S . PANACHE EXPORTS PVT.LTD., 8 02.02.2008 LITTLE DIAM DISALLOWED 215.33 15,50,336 27,25 16.02.2008 MINAL GEMS DISALLOWED 151.24 26,79,291 35.00 29.02.2008 NICE DIAMONDS DISALLOWED 510 47,43,510 35.00 10.03.2008 IMPEX GEMS DISALLOWED 429.18 17,93,972 32.13 27.03 .2008 IMPEX GEMS DISALLOWED 260 11,70,000 35.27 AVG. VALUE ADDITION % FOR DISALLOWED PARTIES 24.57 THUS, THE QUESTION OF OVER INVOICING OF PURCHASES DOES NOT ARISE. THE ASSESSING OFFICER HAS NOT BROUGHT ON RECORD ANY PROOF TO ACTUALLY SUBSTANTIATE HIS CONTENTION THAT THE APPELLANT HAS INFLATED ITS PURCHASES. ON THE OTHER HAND, THE FACTS GIVEN ABOVE PROVE THAT IN FACT THE VALUE ADDITION IS HIGHER IN CASE OF SALES MADE FROM PURCHASES FROM THE ALLEGED BOGUS PARTIES 6.3.29 . IT I S WELL SETTLED THAT NO DISALLOWANCE CAN BE MADE AS A LEAP IN THE DARK. THE AO I S NOT ENTITLED TO MAKE A GUESS WITHOUT EVIDENCE. THE ASSESSMENT OF ANY PARTICULAR YEAR CANNOT BE BASED ON MERE SUSPICION OR BARE GUESS , BUT ON A LEGITIMATE MATERIAL F ROM WHICH A REASONABLE INFERENCE OF ANY EXPENDITURE BEING OF THE D ISALLOWABLE NATURE COULD BE DRAWN AND THAT THE INITIAL BURDEN OF FINDING SUCH MATERIAL IS ON THE AO AS HELD BY HON'BLE HIGH COURT ORISSA IN THE CASE OF BANSIDHAR ONKARMALL VS. GIF (1953) 23 1TR 353(O RI SSA) W HERE IT OBSERVED AS UNDER : - THERE WAS NO DOUBT THAT THE VIEW TAKEN BY THE INCOME - TAX AUTHORITIES BASES ON THE ALLEGED PRESUMPTION WAS ERRONEOUS IN LAW. 'PAST HISTORY' MAY BE LEGITIMATE MATERIAL, BUT THAT IS NOT SUFFICIENT BY ITSELF WITHOUT MORE, TO JUSTIFY ASSESSMENT IN A PARTICULAR YEAR. T H ERE MUST BE SOME MATERIAL RELATABLE T O THE ACCOUNTING YEAR WHICH TAKE N WITH THE 'PAST HISTORY' MAY REASONABLY ENTITLE THE, INCOME - TAX AUTHORITIES TO HOLD T HAT TH ERE MUST IN FACT HAVE BEEN SOME CONCEALED INCOME DU RING THE ACCOUNTING YEAR AND WHICH IS LIABLE TO ASSESSMENT. TO BASE AN ASSESSMENT BARELY ON A PRESUMPTION RELATING TO CAPITAL FOUND TO EXIST IN SOME PREVIOUS YEAR APPEARED TO BE UNWARRANTED. THE INCOME - TAX - AUTHORITIES PROCEEDED ON THE VIEW THAT THE BURDEN OF PROOF WAS ON THE ASSESSEE TO SHOW THAT THE 'PAST CAPITAL' HAS DISAPPEARED, FOR WHICH THERE WAS NO JUSTIFICATION, AND NO AUTHORITIES HAS BEEN SHOWN. I T IS WELL THE ASSESSMENT OF ANY PARTICULAR YEAR MUST BE BASED NOT ON MERE SUSPICION OR BARE GUESS, BUT O N LEGITIMATE MATERIAL FROM WHICH A REASONABLE INFERENCE OF INCOME HAVING BEEN EARNED DURING THE ACCOUNTING YEAR IN QUESTION COULD BE DRAWN, AND THAT THE INITIAL BURDEN OF FINDING SUCH MATERIAL, HOWEVER SLIGHT, WAS ON THE. INCOME - TAX AUTHORITIES AND NOT ON THE ASSESSEE. THE FACTS BEFORE THE INCOME - TAX AUTHORITIES - WERE NOT SUFFICIENT TO SHIFT THE BURDEN OF PROOF ON TO THE ASSESSEE. T HE RE FACTS DID NOT NECESSARILY JUSTIFY ANY PRIMA FACIA INFERENCE THAT THE PAST CAPITAL PRODUCED INCOME DURING THE ACCOUNTING YEA R. BEFORE SUCH AN INFERENCE COULD BE DRAWN, SOME F OUNDATION MUST HE LAID FOR THE ASSUMPTION THAT THERE WAS IN COME FROM SUCH CAPITAL DURING TH E ACCOUNTING YEAR. ITA NO.3610/MUM/2017 & CO NO.211/MUM/2017 M/S . PANACHE EXPORTS PVT.LTD., 9 THEREFORE, ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE, THE 'TRIBUNAL ERRED ON THE ADDITI ONS OF AMOUNTS IN QUESTION.' 6.3.30. THUS, KEEPING IN VIEW THE PRESENT FACTS OF THE CASE AND APPLYING THE RATIO OF THE VARIOU S DECISIONS OF HON'BLE JURISDICTIONAL IT AT OF MUMBAI AS WELL AS JURISDICTIONAL. COURT OF MUMBAI WHERE VARIOUS LEGAL ISSUES ARISI NG OUT OF ADDITIONS OF SIMILAR NATURE HAVE BEEN THREAD - BARE DISCUSSED AND ALSO OTHER DECISION OF HON'BLE HIGH COURTS/ SUPREME COURT, IT WILL BE DIFFICULT TO SUSTAIN THE ADDITIONS MADE BY THE AO ONLY ON THE GROUND O STATEMENT OF BHANWAR LAL JAIN. ON THE ONE HAND THE APPELLANT HAS STRONGLY SUBMITTED THAT THEY HAVE MADE PURCHASES AND THE ENTIRE PAYMENT THROUGH BANKING CHANNEL, BUT ON THE OTHER HAND, THE AO HAS NOT BEEN ABLE TO BRING ON RECORD THE DETAILS OF CASH ACTUALLY PAID BY THE APPELL ANT TO SHRI BHANWARLAL JAIN CONCERNS TO GET ANY ENTRY FOR BOGUS PURCHASES , IN VIEW OF THIS IT DOES NOT APPEAR TO BE JUSTIFIABLE TO MAKE ANY ESTIMATED ADDITION OF ANY PERCENTAGE ON THE TOTAL TRANSACTIONS/ PURCHASES AS REFERRED EARLIER. * THE AO HAS NOT MAD E OUT ANY CASE THAT DUE TO CERTAIN TRANSACTION/ PURCHASES FROM THE ALLEGED CONCERN OF BHANWARLAL JAIN, THERE WAS ANY FALL IN GP/NP RATIO OF THE APPELLANT AND UNLESS THE SAME IS CORRELATED BY THE AO, SUSTAINING OF ANY ADDITION ON PERCENTAGE BASIS ON THE REL EVANT TRANSACTIONS, CANNOT BE LEGALLY JUSTIFIED. THE AO HAS NOT MADE OUT' ANY COMPARATIVE ST UDY OF GP OR NP RATIO RESULTS OF VARIOUS ASSESSMENT YEARS TO ARRIVE AT ANY CONCLUSION THAT THERE WAS ANY FALL IN GP/NP RATIO IN THE CURRENT AY. ... KEEPING IN VIEW ALL THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS VARIOUS JUDICIAL PRONOUNCEMENTS INCLUDING THE DECISION OF JURISDICTIONAL IT AT AS WELL AS HIGH COURT OF MUMBAI WHICH ARE BINDING, 1 FEEL THAT THE ADDITION MADE BY THE AO FOR THE REASONS STATED IN THE ASSESSMENT ORDER CANNOT BE SUSTAINED. ACCORDINGLY, THE ADDITION OF AMOUNT OF RS.33,76,271/ - IS DIRECTED TO BE DELETED. IN THE RESULT, APPELLANT'S THESE GROUNDS OF APPEAL ARE ALLOWED . 7. AGAINST THE ABOVE ORDER OF CIT(A) , REVENUE IS IN FURTHER APPEAL BEFO RE US. 8. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM RECORDS THAT AO HAS MADE ADDITION BY ESTIMATING GROSS PROFIT ON BOGUS PURCHASES AMOUNTING TO RS.33,76,271/ - . 9. BY THE IMPUGNED ORD ER, CIT(A) DELETED THE ADDITION AFTER OBSERVING THAT ASSESSEE HAS NOT GIVEN COPY OF STATEMENT AND OTHER DOCUMENTS BY ITA NO.3610/MUM/2017 & CO NO.211/MUM/2017 M/S . PANACHE EXPORTS PVT.LTD., 10 RELYING ON WHICH AO HAS MADE ADDITION. THUS, THE OPPORTUNITY TO CROSS EXAMINATION WAS NOT GIVEN BY THE AO. THE CIT(A) RELIED ON THE DECISIO N OF THE BOMBAY HIGH COURT IN CASE OF HR MEHTA DATED 30/06/2016 AND HELD THAT NOT GIVING OPPORTUNITY TO CROSS EXAMINE THE DEPONENTS OF THE STATEMENT RELIED BY THE AO WOULD RENDER ADDITION MADE BY AO NULL AND VOID. EVEN ON MERITS, CIT(A) DEALT WITH THE ISSU E THREADBARE AND AFTER TAKING INTO ACCOUNT AVERAGE VALUE ADDITION MADE BY THE ASSESSEE IN RESPECT OF EACH AND EVERY ITEM OF RAW MATERIALS SO PURCHASED FROM THE ALLEGED SUPPLIERS REACHED TO THE CONCLUSION THAT THERE IS NO EVIDENCE OF OVER INVOICING OF PURCH ASES ALLEGED BY THE AO. DETAILED FINDING SO RECORDED BY CIT(A) ARE AS PER MATERIAL ON RECORD AND HAS NOT BEEN CONTROVERTED BY LEARNED DR BY BRINGING ANY POSITIVE MATERIAL ON RECORD. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE IN THE FINDINGS RECORD ED BY CIT(A) RESULTING INTO DELETION OF ADDITION OF RS.33,76,271/ - . IN THE RESULT, APPEAL FILED BY REVENUE IS DISMISSED. 10. IN THE CROSS OBJECTION, ASSESSEE IS AGGRIEVED BY THE ACTION OF CIT(A) UPHOLDING THE REOPENING OF ASSESSMENT. AS WE HAVE ALREADY DEC IDED THE ISSUE ON MERIT, WE ARE NOT GOING IN THE LEGAL GROUND SO RAISED BY THE ASSESSEE WHICH HAS NOW BECOME INFRUCTUOUS. 11. IN THE RESULT, APPEAL FILED BY REVENUE AND CROSS OBJECTION FILED BY ASSESSEE ARE DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 25 / 09 /2017 S D/ - S D/ - ( RAVISH SOOD ) ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 25 / 09 /201 7 ITA NO.3610/MUM/2017 & CO NO.211/MUM/2017 M/S . PANACHE EXPORTS PVT.LTD., 11 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2 . THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//