M/s. C.B. Suratwala & Sons, Surat V. The Addl.CIT,Range-7, Surat

ITA 3713/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8631 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 09-03-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 21-09-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOVIND SINGHAL
• Assessee Lawyers: M K PATEL
• Keywords: Gross profit estimation; Principle of natural justice; Audi alteram partem
• Section: 143(3); 133A; 143(1); 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A, AHMEDABAD BEFORE SHRI BHAVNESH SAINI, JM & SHRI A.N. PAHUJA, AM I.T.A. NO.3713/AHD/2007 (ASSESSMENT YEAR 2004-05) M/S CB SURATWALA & SONS VS ADDL CIT, RANGE-7 7/4715, NEAR SUPER CINEMA SURAT STATION ROAD, SURAT-395 003 [PAN : AABFC7000M] (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI, M.K. PATEL, AR. REVENUE BY : SHRI GOVIND SINGHAL, DR O R D E R AN PAHUJA : THIS APPEAL BY THE ASSESSEE AGAINST AN ORDER DATED 09-07-2007 OF THE CIT(A)-IV, SURAT, RAISES THE FOLLOWING GROUNDS : (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AS WELL AS LAW ON THE SUBJECT, THE LEARNED ADDL.C.I.T. RANGE-7 , SURAT, ERRED IN APPLYING THE RATIO OF VIJAY PROTEINS V/S C IT REPORTED IN 55 TTJ 76, BY TREATING THE PURCHASES MADE FROM M /S DAS & SONS & M/S SHAH BROTHERS AS UNVERIFIABLE AND ADDE D RS.27,00,000/- & RS.1,18,466/- RESPECTIVELY WITHOUT ANY COGENT EVIDENCE. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, AS WELL AS LAW ON THE SUBJECT, THE LEARNED ADDL C.I.T. RANGE-7 , SURAT ERRED IN DISALLOWING INTEREST OF RS.15,593/- TREATI NG THE SAME AS NOT CHARGED ON LOANS & ADVANCES GIVEN TO VARIOUS PERSONS. (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, AS WELL AS LAW ON THE SUBJECT, THE LEARNED ADDL.C.I.T. RANGE-7 , SURAT ERRED IN DISALLOWING RS.9,065/- TREATING THE SAME A S PAID TOWARDS PENALTY AND THEREFORE, NOT ALLOWABLE. (4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, AS WELL AS LAW ON THE SUBJECT, THE LEARNED C.I.T.(A)-IV, SURAT , ERRED IN CONFIRMING THE ABOVE ADDITIONS. ITA NO.3713/AHD/2007 2 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCOME OF RS.2,38,262/- FILED ON 29-10-2004 BY THE ASSESSEE, ENGAGED IN THE BUSINESS OF TRADING IN MILLGIN AND BALL BEARINGS AFTER BEING PR OCESSED U/S 143(1) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERERED TO AS T HE ACT), WAS TAKEN UP FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF TH E ACT ON 29-04-2005. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE AC ON 29 -12-2006,DETERMINING AN INCOME OF RS. 35,32,810/-. INTER ALIA, ON THE BASI S OF DOCUMENTS FOUND DURING THE COURSE OF SURVEY AND SUBSEQUENT ENQUIRIES, FIRMS M/ S DAS & SONS AND M/S SHAH BROS. WERE TREATED AS BENAMI OF THE ASSESSEE AND CO NSEQUENTLY, ADDITIONS OF RS. 1,64,355/- +RS. 30,600/- + RS.27,00,000/- + RS.1,18 ,466/- WERE MADE APART FROM ADDITION OF RS. 2,56,465/- ON ACCOUNT OF LOW GP AND DISALLOWANCE OF INTEREST AND SALES TAX PENALTY. ON APPEAL, THE LD. CIT(A) UPHE LD THE ADDITIONS OF RS.27,00,000/- & RS.1,18,466/-BESIDES UPHOLDING DIS ALLOWANCE OF INTEREST AND SALES TAX PENALTY. 3. FACTS,IN BRIEF, AS PER RELEVANT ORDERS ARE THAT IN THIS CASE A SURVEY WAS UNDERTAKEN U/S 133A OF THE ACT ON 11-03-2004 IN THE BUSINESS PREMISES OF THE ASSESSEE, WHEN IT WAS NOTICED THAT ASSESSEE HAD MAD E PURCHASES TO THE TUNE OF RS.1,08,00,000/- FROM M/S DAS & SONS AND FOR RS.4,7 3,864/- FROM M/S SHAH BROS & CO. THOUGH THESE PURCHASES WERE REFLECTED IN THE COMPUTERIZED ACCOUNTS, PURCHASE INVOICES WERE NOT AVAILABLE. IT TRANSPIR ED DURING THE SURVEY THAT ONE SHRI NAYAN G GAEKWAD WAS THE PROPRIETOR OF DAS & SO NS, WHO WAS RELATED TO ONE OF THE PARTNERS OF THE ASSESSEE FIRM. SHRI NAY AN GAEWAD WAS FOUND TO BE A MAN OF LITTLE MEANS AND PRIOR TO SURVEY HE WAS NOT ASSESSED TO TAX NOR DID HE MAINTAIN BANK ACCOUNT FOR THE CONCERN. THE CHEQUES TOTALING RS.28,23,874/- ISSUED BY THE ASSESSEE IN FAVOUR OF M/S DAS & SONS AND M/S SHAH BROTHERS WERE FOUND ENCASHED THROUGH DISCOUNTERS.ON VERIFICA TION OF THE ASSESSEES BANK ACCOUNT NO.200132 WITH DENA BANK, VISHNAGAR BRANCH , SURAT, THE AO FOUND THAT THE CHEQUES ISSUED BY THE ASSESSEE IN THE NAME OF M/S DAS & SONS AND M/S SHAH BROS WERE CLEARED BY 13 DIFFERENT BANKS. ON F URTHER ENQUIRIES AND INFORMATION RECEIVED FROM THE BANKS, THE AO ISSUED SUMMONS TO PARTIES, WHO ITA NO.3713/AHD/2007 3 HAD DISCOUNTED THE CHEQUES. THESE PERSONS IN THEIR STATEMENTS ADMITTED THAT CHEQUES WERE DISCOUNTED BY THEM AND CASH WAS HANDED OVER TO ONE SHRI MUNNABHAI, THE PERSON FROM THE ASSESSEE FIRM. ACCO RDINGLY, THE AO CONCLUDED THAT THE ASSESSEE DID NOT PURCHASE GOODS FROM M/S D AS & CO AND M/S SHAH BROS; INSTEAD THE ASSESSEE MIGHT HAVE PURCHASED GOO DS FROM GREY MARKET BY PAYING CASH AND TO GIVE COLOUR OF GENUINENESS, OBTA INED PURCHASE BILLS FROM THESE RELATED CONCERNS. THE AO FURTHER FOUND THAT THE BANK ACCOUNT OF M/S DAS & SONS WAS OPERATED FROM 07-05-2004, I.E. MUCH AFTE R THE DATE OF SURVEY. ON PERUSAL OF CONTRA COPY OF ACCOUNT FROM THE ALLEGED SUPPLIERS THROUGH M/S DAS & SONS, IT WAS FOUND THAT ALL THE SUPPLIERS WERE BOMB AY BASED PARTIES AND THE PAYMENTS MADE BY WAY OF CHEQUE TO M/S DAS & SONS WE RE DISCOUNTED AND CASH PAID BACK TO ONE OF THE PARTNERS SHRI AJAY SURATWAL A. SIMILAR WAS THE POSITION IN RESPECT OF SHAH BROTHERS. IT WAS NOTICED THAT M/S DAS & SONS HAS SHOWN ONLY COMMISSION INCOME IN THEIR RETURN OF INCOME. ON THE BASIS OF THESE FACTS, THE AO TREATED M/S DAS & SONS AS THE BENAMI CONCERN OF THE ASSESSEE AND ACCORDINGLY NET PROFIT OF M/S DAS & SONS, WAS ADDED TO THE INCOME OF THE ASSESSEE , RESULTING IN AN ADDITION OF RS.1,64,355/ -. SINCE THE ENTIRE PURCHASES MADE BY THE ASSESSEE DURING THE YEAR FROM M/S DAS & SONS WERE UNVERIFIABLE,RELYING UPON THE DECISION IN THE CAS E OF VIJAY PTROTEINS VS CIT 55 TTJ 76, 25% OF THE TOTAL PURCHASES OF RS.1,08,00,00 0/- AMOUNTING TO 27 LAKHS WERE ADDED TO THE INCOME OF THE ASSESSEE. LIKE WIS E ADDITION OF RS. 30,600/- AND RS.1,18,466/- WAS MADE IN RELATION TO M/S SHAH BROTHERS. 4. ON APPEAL, THE LD. CIT(A), UPHELD THE ADDITION I N THE FOLLOWING TERMS: I HAVE CONSIDERED THE SUBMISSIONS. IT IS SEEN TH AT THE PROPRIETOR OF M/S DAS & SONS, SHRI NAYAN GAEKWAD CL EARLY STATED THAT HE WAS NOT MAINTAINING ANY BOOKS OF ACCOUNTS N OR WAS FILING THE RETURN OF INCOME TILL DATE. WHEN REQUIRED TO C LARIFY THE SALES AND RECEIPT FIGURES MENTIONED IN THE UNSIGNED STATEMENT FURNISHED BY HIM, HE STATED THAT WHATEVER PAYMENT WAS RECEIVED B Y HIM FROM THE APPELLANT WERE SHOWN AS RECEIPT AND THE SALES FIGUR ES WERE THE AMOUNT OF BEARINGS SOLD TO THE APPELLANT. HE WAS N OT MAINTAINING ANY BOOKS OF ACCOUNTS, BANK ACCOUNT OR ANY OTHER BU SINESS RELATED ITA NO.3713/AHD/2007 4 DETAILS. IT IS ALSO SEEN THAT SUMMONS U/S 131 OF T HE IT ACT ISSUED TO SHRI RUPESH SHAH, PROPRIETOR OF M/S SHAH BROTHERS W AS NOT COMPLIED WITH AS PER THE REPORT OF THE INSPECTOR OF THE OFFICE HE WAS ENGAGED IN THE BUSINESS OF CATERING AND HAD NEVER C ONDUCTED ANY BUSINESS WITH THE APPELLANT. IT IS ALSO IMPORTANT TO NOTE THAT THE BANK ACCOUNT OF M/S DAS & SONS WAS STARTED ON 7.5.2 004 ONLY WHICH WAS ONLY AFTER THE DATE OF SURVEY. FURTHER, ALL THE PARTIES FROM WHOM M/S DAS & SONS HAD CLAIMED TO HAVE PURCHA SED MATERIAL FURTHER SUPPLIES TO THE APPELLANT FIRM WER E MUMBAI BASED PARTIES AND ALL THE PAYMENTS WERE MADE BY THE APPEL LANT TO M/S DAS & SONS WERE DISCOUNTED THROUGH SHROFF AND CASH WAS PAID BACK TO SHRI AJAY SURATWALA, ONE OF THE PARTNERS OF THE APPELLANT FIRM AS WAS EVIDENT FROM THE STATEMENT OF THE SHROF F. THIS IS CONTRARY TO THE STAND TAKEN BY THE APPELLANT THAT T HE PAYMENTS TO M/S DAS & SONS WERE MADE BY ACCOUNT PAYEE CHEQUES. THE CHEQUES ISSUED TO M/S DAS & SONS AND M/S SHAH BROTH ERS WERE3 CLEARED BY 13 DIFFERENT BANKS AND NONE OF THESE CHE QUES WERE CREDITED TO THE BANK ACCOUNT OF M/S DAS & SONS. SI MILAR IS THE POSITION WITH M/S SHAH BROTHERS WHERE THE CHEQUES A MOUNTING TO RS.20,06,000/- WERE DISCOUNTED BY SHRI M.C. SHAH, W HO WAS IN THE BUSINESS OF CHEQUE DISCOUNTING. THEREFORE, THE AO S CONCLUSION THAT PURCHASES OF MATERIAL STATED TO HAVE BEEN MADE FROM M/S SHAH BROTHERS AND M/S DAS & SONS IS BASED ON THE DO CUMENTARY EVIDENCE IN THE FORM OF DISCOUNTED CHEQUQES WHICH W ERE SUMMONED BY THE AO FROM 13 DIFFERENT BANKS. THE EN TIRE AMOUNT OF PAYMENTS TO M/S DAS & SONS AND M/S SHAH BROTHERS MADE BY CHEQUE BY THE APPELLANT CAME BACK TO THE APPELLANT FIRM IN THE FORM OF CASH AFTER DISCOUNTING OF CHEQUES THROUGH THE SH ROFFS WHICH IS EVIDENT FROM ENDORSEMENTS MADE BY THE PARTNER OF TH E APPELLANT FIRM. THERE IS NO DOUBT THAT THE APPELLANT HAS MAD E PURCHASES SINCE SALES OF THESE PURCHASES HAS NOT BEEN DISPUTE D BY THE AO, HOWEVER, IT IS PROVED FACT THAT THESE PURCHASES WER E NOT MADE FROM M/S SHAH BROTHERS OR M/S DAS & SONS WHICH WOULD MEA N THAT THE APPELLANT PROCURED THE MATERIAL FROM GREY MARKET AN D CLAIMED TO HAVE MADE THESE PURCHASES FROM M/S DAS & SONS AND M /S SHAH BROTHERS WHO ONLY ISSUED BILLS. THE PURCHASES FROM GREY MARKET WOULD OBVIOUSLY BE AT A LOWER RATE THAN THE MARKET PRICE WHICH MEANS THAT THE APPELLANT FIRM HAS INFLATED THE PURC HASES. SINCE, THE PAYMENTS MADE BY CHEQUES TO THESE TWO PARTIES C AME BACK TO THE APPELLANT BY DISCOUNTING THE CHEQUES, THE AOS ACTION IN TREATING THE PURCHASES AS INFLATED AND DISALLOWING 25% OF THE TOTAL PURCHASE PRICE BY APPLYING THE RATIO OF DECISION OF HONBLE ITAT, AHMEDABAD IN THE CASE OF M/S VIJAY PROTEINS IS IN O RDER AND DISALLOWANCE ON ACCOUNT OF SUCH INFLATED PURCHASES AT RS.27 LACS IN RESPECT OF PURCHASES CLAIMED TO HAVE BEEN MADE TO M /S DAS & ITA NO.3713/AHD/2007 5 SONS AND RS.1,18,466/- OUT OF PURCHASES CLAIMED TO HAVE BEEN MADE FROM M/S SHAH BROTHERS IS HEREBY CONFIRMED . 5. HOWEVER, ADDITIONS OF RS. 1,64,355/- AND RS. 30,600/- WERE DELETED BY THE LD. CIT(A) BESIDES GP ADDITION WHILE DISALLOWANCE O F INTEREST AND PENALTY WERE UPHELD. 6. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD.CIT(A) IN RELATIONS TO ADDITIONS UPHELD BY H IM. AT THE OUTSET, THE LD. AR ON BEHALF OF THE ASSESSEE CONTENDED THAT A DETAILED SH OWCAUSE NOTICE IN THIS CASE WAS ISSUED BY THE AO ON 26-12-2006 WHILE ASSESSMENT WAS COMPLETED VIDE ORDER DATED 29-12-2006. APPARENTLY, SUFFICIENT OPP ORTUNITY HAS NOT BEEN GIVEN BY THE AO BEFORE MAKING THE AFORESAID ADDITIONS. ON T HE OTHER HAND, THE LD. DR DID NOT OPPOSE THESE SUBMISSIONS ON BEHALF OF THE ASSES SEE WHILE SUPPORTING THE FINDINGS OF LD. CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. AS CONTENDED BY THE LD. AR ON BEHALF OF THE ASSESSE E, AFTER ISSUING SHOW CAUSE NOTICE ON 26-12-2006, THE AO COMPLETED THE ASSESSME NT IN A HURRIED MANNER ON 29-12-2006 WITHOUT ALLOWING SUFFICIENT OPPORTUNITY TO THE ASSESSEE WHILE IN THE GROUNDS OF APPEAL BEFORE THE LD. CIT(A), IT WAS CO NTENDED THAT ADDITIONS HAD BEEN MADE WITHOUT ANY COGENT EVIDENCE. WE ARE OF T HE OPINION THAT A MERE RITUAL OR EMPTY FORMALITY WILL NOT BE AN OPPORTUNIT Y AS CONTEMPLATED BY LAW. IT WILL BE A 'PRETENCE' OR 'MAKE BELIEVE'. THIS IS NOT A CA SE OF A MERE ROUTINE OR SIMPLE MATTER. HONBLE JUSTICE KRISHNA IYER J., AS HE THEN WAS, STATED IN A. IBRAHIM KUNJU'S CASE, AIR 1970 KER 65 AT PAGE 67: '. . . . OPPORTUNITY SHOULD BE REAL AND NOT RITUALI STIC, EFFECTIVE AND NOT ILLUSORY AND MUST BE FOLLOWED BY A FAIR CONSIDERATION OF THE EXP LANATION OFFERED AND THE MATERIALS AVAILABLE, CULMINATING IN AN ORDER WHICH DISCLOSES REASONS FOR THE DECISION SUFFICIENT TO SHOW THAT THE MIND OF THE AU THORITY HAS BEEN APPLIED RELEVANTLY AND RATIONALLY AND WITHOUT RELIANCE ON F ACTS NOT FURNISHED TO THE AFFECTED PARTY. ITA NO.3713/AHD/2007 6 NATURAL JUSTICE, I MUST WARN, CANNOT BE PERVERTED I NTO ANYTHING UNNATURAL OR UNJUST AND CANNOT THEREFORE BE TREATED AS A SET OF DOGMATIC PRESCRIPTIONS APPLICABLE WITHOUT REFERENCE TO THE CIRCUMSTANCES O F THE CASE. THE QUESTION MERELY IS, IN ALL CONSCIENCE HAVE YOU BEEN FAIR IN DEALING WITH THAT MAN ? IF YOU HAVE BEEN ARBITRARY, ABSENT-MINDED, UNREASONABLE OR UNSPEAKING, YOU CANNOT DENY THAT THERE HAS BEEN NO ADMINISTRATIVE FAIR PLA Y. ' 7.1. AS REGARDS PRINCIPLES OF NATURAL JUSTIC E, WE NOTICE THAT OVER THE YEARS BY A PROCESS OF JUDICIAL INTERPRETATION TWO RULES HAVE BEEN EVOLVED AS REPRESENTING THE PRINCIPLES OF NATURAL JUSTICE IN JUDICIAL PROCE SS, INCLUDING THEREIN QUASI JUDICIAL AND ADMINISTRATIVE PROCESS. THEY CONSTITUTE THE BAS IC ELEMENTS OF FAIR HEARING, HAVING THEIR ROOTS IN THE INNATE SENSE OF MAN FOR F AIRPLAY AND JUSTICE WHICH IS NOT THE PRESERVE OF ANY PARTICULAR RACE OR COUNTRY BUT IS SHARED IN COMMON BY ALL MEN. THE FIRST RULE IS NEMO JUDEX IN CAUSA SUA' OR NEMO DEBET ESSE JUDEX IN PROPRIA CAUSA SUA' AS STATED IN [1605] 12 CO. REP. 114, THAT IS, 'NO MAN SHALL BE A JUDGE IN HIS OWN CAUSE'. THE SECOND RULE AND THAT IS THE RULE WITH WHICH WE ARE CONCERNED IN THIS CASE IS 'AUDI ALTERAM PARTEM', TH AT IS, 'HEAR THE OTHER SIDE'. AT TIMES AND PARTICULARLY IN CONTINENTAL COUNTRIES, TH E FORM 'AUDIETUR AT ALTERA PARS' IS USED, MEANING VERY MUCH THE SAME THING. A COROLLARY HAS BEEN DEDUCED FROM THE ABOVE TWO RULES AND PARTICULARLY THE AUDI ALTER AM PARTEM RULE, NAMELY, 'QUI ALIQUID STATUERIT PARTE INAUDITA ALTERA, AEQUAM LIC ET, DEXERIT, HAUD AEQUUM FACERIT', THAT IS, 'HE WHO SHALL DECIDE ANYTHING WITHOUT THE OTHER SIDE HAVING BEEN HEARD, ALTHOUGH HE MAY HAVE SAID WHAT IS RIGHT, WILL NOT H AVE BEEN WHAT IS RIGHT' OR IN OTHER WORDS, AS IT IS NOW EXPRESSED, 'JUSTICE SHOUL D NOT ONLY BE DONE BUT SHOULD MANIFESTLY BE SEEN TO BE DONE'. 8. IN VIEW OF THE FOREGOING, ESPECIALLY W HEN SUFFICIENT OPPORTUNITY HAS NOT BEEN ALLOWED TO THE ASSESSEE BY THE AO AS CONTENDED BY THE LD. AR AND BOTH THE PARTIES HAVING AGREED, WE CONSIDER IT FAIR AND APPROPRIATE TO VACATE THE FINDINGS OF THE LD. CIT(A) AND RESTORE THE MATTER T O THE FILE OF THE AO WITH THE DIRECTIONS TO ALLOW SUFFICIENT OPPORTUNITY TO THE ASSESSEE FOR SUBMITTING NECESSARY EVIDENCE/REPLY TO THE SHOWCAUSE NOTICE IS SUED BY HIM AND THEREAFTER, THE ISSUES MAY BE ADJUDICATED IN ACCORDANCE WITH LA W . ITA NO.3713/AHD/2007 7 9. IN THE RESULT, APPEAL IS TREATED AS ALLOWED F OR STATISTICAL PURPOSES . ORDER PRONOUNCED ON THIS 12TH DAY OF MARCH, 2010. SD/- SD/- (BHAVNESH SAINI) (A.N. PAHUJA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, DATED : MARCH, 2010 PK/- COPY TO: 1. THE ASSESSEE 2. ADDL CIT, RANGE-7, SURAT 3. CIT(A)-IV, SURAT 4. CIT-CONCERNED 5. DR, A BENCH BY ORDER ASSISTANT REGISTRAR, ITAT, AHMEDABAD