INCOME TAX OFFICER, WARD 2(5), THANE V. OSTWAL DIAMOND PRIVATE LIMITED, MUMBAI

ITA 4397/MUM/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 0776 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 14-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Opportunity of cross examination; Third party statement; Retraction; Reason to believe; Documents seized
• Section: 143(3); 142(1); 251; 131; 68; 148

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL C BENCH MUMB AI BEFORE SHRI PAWAN SINGH JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO. 4397/MUM/2017 (ASSESSMENT YEAR 2007-08 ) ITO, WARD-2(5), ROOM NO. 16, 6 TH FLOOR, ASHAR IT PARK, WAGLE INDL. ESTATE, ROAD NO. 16Z, THANE (W), 400604. VS. M/S OSTWAL DIAMOND PVT. LTD., 201/1A, OSTWAL PARK, 2 ND FLOOR, JESAL PARK, BHAYANDER (W), 401105. PAN: AAACO4853A APPELLANT RESPONDE NT APPELLANT BY : SHRI ASHISH POPHARE (DR) RESPONDENT BY : SHRI RAJESH SHAH (AR) DATE OF HEARING : 22.08.2019 DATE OF PRONOUNCEMEN T : 22.08.2019 ORDERUNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDE R OF LD. COMMISSIONER (APPEALS)-1, THANE DATED 18.03.2017 FOR ASSESSMENT YEAR 2007-08. THE REVENUE HAS RAISED THE FOLLOWING GROUND OF APPEAL: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE OF UNPROVED PURCHASES FROM RS. 4,21,59,050/- TO RS. 2,84,96,601/- DESPITE THE FACT THAT THE ASSESSEE HAD FAILED TO ESTABLISH THE GENUINENESS OF PURCHASES CL AIMED TO BE MADE FROM VARIOUS PAPER CONCERNS OF SHRI GAUTAMCHAND JAIN & O THERS BOTH BEFORE THE A.O. & CIT(A). 1.1 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN GRANTING ABOVE RELIEF TO THE AS SESSEE BY RELYING UPON THE CBDT'S INSTRUCTIONS NO. 2/2008 DATED 22/02/2008 WHI CH IS NOT APPLICABLE IN THIS CASE. 1.2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN GRANTING ABOVE RELIEF TO THE AS SESSEE ESPECIALLY WHEN THE ITA NO. 4397 MUM 2017-M/S OSTWAL DIAMOND PVT. LTD. 2 CIT(A), IN PARA 21 OF THE ORDER DATED 08.03.2017, H AS HELD THAT THE ASSESSEE HAS FAILED TO FURNISH ANY DETAILS WITH REGARD TO ACTUAL MOVEMENT OF GOODS FROM HIS PREMISES FROM PREMISES OF ABOVE MENTIONED PARTIES A ND SHRI GAUTAM JAIN, DIRECTOR / PARTNER / PROPRIETOR OF THE SAID THREE P ARTIES, IN HIS STATEMENT RECORDED U/S 132(4), ACCEPTED THAT HE WAS PROVIDING ONLY ACC OMMODATION ENTRIES TO THE ASSESSEE WITHOUT BEING ANY ACTUAL PHYSICAL DELIVERY OF GOODS. 1.3 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN GRANTING THE ABOVE RELIEF TO TH E ASSESSEE WITHOUT APPRECIATING THE DECISION OF HON'BLE GUJARAT HIGH C OURT AND APPROVED BY HON'BLE SUPREME COURT IN THE CASE OF N. K. PROTEINS LTD VS DCIT, IN SPECIAL LEAVE APPEAL (CC NO. 769 OF 2017 ) WHEREIN IT WAS H ELD THAT WHEN THE ENTIRE PURCHASES HAVE BEEN FOUND TO BE BOGUS THEN CONFIRMI NG DISALLOWANCE ON PERCENTAGE BASIS GOES AGAINST THE PRINCIPLE OF SECT ION 68 & 69C. 2. THE ORDER OF THE CIT(A) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 2. AT THE OUTSET OF HEARING, THE LD. AUTHORIZED REPRES ENTATIVE (AR) OF THE ASSESSEE SUBMITS THAT THE GROUND OF APPEAL RAISED B Y REVENUE IS COVERED IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE IN ASSES SEES OWN CASE FOR ASSESSMENT YEAR 2007-08 IN ITA NO. 3653/MUM/2017 DA TED 01.03.2019. THE LD. AR OF THE ASSESSEE FURTHER SUBMITS THAT THE ASSESSING OFFICER PASSED THE ASSESSMENT ORDER UNDER SECTION 143(3) R. W.S. 147 OF THE I.T. ACT DATED 31.03.2015. THE ASSESSING OFFICER MADE TH E ADDITIONS ON ACCOUNT OF BOGUS PURCHASES. THE ASSESSEE FILED APPE AL BEFORE THE LD. CIT(A), WHEREIN THE RE-ASSESSMENT/RE-OPENING WAS SU STAINED AND THE ADDITIONS ON ACCOUNT OF BOGUS PURCHASE WAS RESTRICT ED TO 6% OF THE TURNOVER MINUS (-) DECLARED NET PROFIT. AGAINST THE ORDER OF LD. CIT(A), THE REVENUE AS WELL AS ASSESSEE BOTH CHALLENGED TH E ORDER BEFORE THE ITA NO. 4397 MUM 2017-M/S OSTWAL DIAMOND PVT. LTD. 3 TRIBUNAL. THE TRIBUNAL VIDE ORDER DATED 01.03.2019 IN ITA NO. 3653/MUM/2017 QUASHED THE ASSESSMENT ORDER, THEREFO RE, THE APPEAL FILED BY REVENUE HAS BECOME INFRUCTUOUS AND IS LIABLE TO BE DISMISSED. 3. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTAT IVE (DR) FOR THE REVENUE AFTER GOING THROUGH THE ORDER OF TRIBUNAL I N ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 IN ITA NO. 3653/MUM/201 7 RELIED UPON THE ORDER OF ASSESSING OFFICER. 4. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTI ES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE AL SO GONE THROUGH THE ORDERS OF CO-ORDINATE BENCH OF TRIBUNAL IN ITA NO. 3653/MUM/2017 DATED 01.03.2019 FOR ASSESSMENT YEAR 2007-08. THE C O-ORDINATE BENCH OF TRIBUNAL WHILE DECIDING THE GROUND OF APPEAL RAISED BY ASSESSEE AGAINST THE VALIDITY OF RE-ASSESSMENT ORDER PASSED THE FOLL OWING ORDER: 13. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREF ULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. UNDER THE PROVISIO NS OF SECTION 147, REOPENING SOLELY ON THE BASIS OF INFORMATION RECEIV ED FROM THE INVESTIGATION WING AND WITHOUT INDEPENDENT APPLICAT ION OF MIND IS VOID. T HE LAST FIVE LINE OF PARA 2 OF THE REASON RECORDED IN WRITING ARE AS UNDER: 'THUS, IT IS OBSERVED THAT THE ASSESSEE IS ALSO ONE OF THE BENEFICIARIES OF SHRI GAUTAM JAIN & OTHERS AND ACCEPTING THE ACCO MMODATION ENTRIES DURING THE FINANCIAL YEAR 2006-07 RELEVANT TO\ ASSESSMENT YEAR 2007-08. THEREFORE, THE SAME WILL NEEDS VERIFICATIO N AND SHOULD BE DISALLOWED & TAXED ACCORDINGLY. SINCE, THE INCOME ESCAPED ITA NO. 4397 MUM 2017-M/S OSTWAL DIAMOND PVT. LTD. 4 ASSESSMENT IS MUCH HIGHER THAN RSJ LACS, NOTICE U/S 148 OF THE I. J. ACT. 196 / SHOULD BE ISSUED.' 14. ON GOING THROUGH THE ABOVE OBSERVATION OF NON-J URISDICTIONAL OFFICER, WHO HAS CATEGORICALLY MENTIONED THE WORDS NEEDS VER IFICATION (OF INFORMATION). IT CLEARLY MEANS THAT AO IS NOT SATIS FIED WITH THE INFORMATION FOR THAT SHE NEEDS FURTHER VERIFICATION THEN HOW SHE CAN REACH TO THE CONCLUSION THAT INCOME IS UNDER ASSESSED, PA RTICULARLY, WHEN SHE HAS NOT VERIFIED ANYTHING BECAUSE NOTHING WAS AVAIL ABLE WITH HER AT THE TIME OF REOPENING OF THE CASE. 15. IT IS WELL SETTLED PRINCIPLE THAT THE ACT, DOES NOT PERMIT TO REOPEN THE CASE FOR REASSESSMENT FOR THE REASON OF VERIFIC ATION OF ANY REASON TO BELIEVE, WHICH IS MISSING IN THE REASON R ECORDED. 16. IN PARA 8.1 OF THE ASSESSMENT ORDER, THE LD. AO HAS CATEGORICALLY MENTIONED THAT FURTHER IN ORDER TO RECONFIRM THE FA CTS AS COMMUNICATED BY THE INVESTIGATION WING A LETTER DATED 18.02.2015 WAS ISSUED TO THE DDIT(LNV), UNIT -4(1), MUMBAI. HERE, IT IS WORTHWHI LE TO MENTION THAT EVEN AT THE STAGE OF ASSESSMENT PROCEEDINGS ON 18.0 2.2013 THE LD. AO WAS JUST DEALING WITH INFORMATION AND WAS NOT HAVIN G ANY MATERIAL EVIDENCE ON RECORD TO CONFRONT TH E ASSESSEE THEN HOW ON WHICH BASIS HE/SHE CAN FORM REASON TO BELIEVE FOR REOPENING OF THE CASE. IT IS AGAIN WORTHWHILE TO MENTION THAT IN THE SAME PARA THE LD. AO HAS REQUESTED TO PROVIDE THE RELEVANT COPIES OF STATEME NT RECORDED DURING AND POST SEARCH PROCEEDINGS. IT WAS FURTHER REQUESTED BY THE LD. AO TO THE DDIT (INV) TO PROVIDE COPIES OF I NCRIMINATING DOCUMENTS SEIZED DURING THE SEARCH PROCEEDINGS. 17. IT IS CLEAR FROM ABOVE THAT THE OFFICER WAS NEI THER HAVING STATEMENT RECORDED DURING SEARCH NOR HAVING ANY INC RIMINATING DOCUMENTS SEIZED DURING THE SEARCH AT ASSESSMENT ST AGE. IT MEANS THE NO INCRIMINATING DOCUMENTS OR STATEMENT RECORDE D WERE AVAILABLE AT THE TIME OF RECORDING OF REASON, THEN ON WHICH ITA NO. 4397 MUM 2017-M/S OSTWAL DIAMOND PVT. LTD. 5 MATERIAL OR DOCUMENTS, THE OFFICER REACHED TO BELIE VE THAT THE INCOME IS ESCAPED OR UNDER ASSESSED. 18. IN PARA 7 OF THE ASSESSMENT ORDER IN WHICH THE LD. AO ONCE AGAIN MENTIONED AS UNDER: DURING THE COURSE OF ASSESSMENT PROCEEDINGS, SHRI MANOJ JAIN DULY AUTHORISED BY THE ASSESSEE ATTENDED ALONG WITH THE TWO DIRECTORS NAMELY SHRI ASHOK JAIN AND UTTAMCHAND OSFWAI THEY W ERE CONFRONTED UPON THE INFORMATION RECEIVED FROM THE I NVESTIGATION WING.' 19. IT IS AGAIN ESTABLISHED THAT THE LD. AO WAS HAV ING JUST INFORMATION AND THE SAME IS PART OF ASSESSMENT ORDER. HENCE, IT IS ESTABLISHED THAT THE REASONS WERE RECORDED JUST ON THE BASIS OF INFORMAT ION WITHOUT ANY MATERIAL AND THE SAME IS NOT SUFFICIENT FOR REOPENI NG THE ASSESSMENT COMPLETED UNDER SCRUTINY PROCEEDINGS OF SEC.143(3) OF IT ACT. FURTHERMORE, THE RELEVANT ASSESSMENT YEAR UNDER CON SIDERATION IS 2007-08, WHEREAS REOPENING WAS ON 28/03/2014 BY ISS UE OF NOTICE U/S.148. SINCE THE ASSESSMENT WAS REOPENED AFTER EX PIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, THE D EPARTMENT HAS TO SHOW THAT THERE IS FAILURE ON THE PART OF THE ASSES SEE TO MAKE RETURN U/S.139 OR IN RESPONSE TO NOTICE ISSUED U/S. 142(1) OR SECTION 148 ARE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECE SSARY FOR HIS ASSESSMENT, FOR THAT ASSESSMENT YEAR. HOWEVER, NOWH ERE DEPARTMENT HAS SHOWN THAT THERE IS ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL THE MATERIAL FACTS IN THE RETURN OF INCOME SO FILED, ACCORDINGLY, IN TERMS OF THE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF 1. IPCA LABORATORIES LTD., VS. GAJANAND MEEN A, DCIT & OTHERS (NO.2) REPORTED IN 251 ITR 416. 2. ICICI BANK LTD., VS. K.J. RAO AND ANOTHER REPORTED IN 268 ITR 203, 3. HINDUSTAN LEVER LTD., VS. R.B.WADKAR, ACIT AND OTHERS (NO.1) REPO RTED IN 268 ITR 332 4. DEVIDAYAL ROLLING MILL AND ANOTHER VS. Y.R.SAINI, ACIT AND OTHERS REPORTED IN 285 ITR 514, NO REOPENING AFTER EXPIRY OF FOUR ITA NO. 4397 MUM 2017-M/S OSTWAL DIAMOND PVT. LTD. 6 YEARS IS VALID UNLESS DEPARTMENT SHOWS THAT THERE I S FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MAT ERIAL FACTS. ACCORDINGLY, WE DO NOT FIND ANY JUSTIFICATION IN TH E REOPENING SO MADE U/S.147. 20. NOW, COMING TO THE MERIT OF THE ADDITION, WE OB SERVE THAT ADDITION OF RS.4,21,59,050 WAS MADE ON ACCOUNT OF UNPROVED PURC HASES. FROM THE RECORD WE FOUND THAT THE ASSESSEE HAD SUBMITTED ALL THE DOCUMENTS DURING THE ASSESSEE PROCEEDINGS, SUCH AS PURCHASE B ILL, SALES AGAINST SAID ALLEGED PURCHASE, PAYMENT BY ACCOUNT PAYEE CHE QUE, CONFIRMATION OF ACCOUNTS OF ALLEGED PARTIES, STOCK REGISTER. THE ASSESSEE HAS ALSO PRODUCED THE COMPLETE BOOKS OF AC COUNTS, THE LD. AO HAS NOT POINTED OUT ANY MISTAKE IN SUCH RECORDS. THE ASSESSEE HAS ALSO PRODUCED THE RETRACTION STATEMENT OF ALLEGED PARTIES. THE LD. AO HAS NOT PROVIDED ANY COGENT MATERIAL IN SUPP ORT OF HIS CLAIM. THERE IS NO MATERIAL ON RECORD OTHER THAT THE THIRD PARTY STATEMENT, WHICH WERE ALSO RETRACTED. 21. FROM THE RECORD WE ALSO FOUND THAT THE AO ISSUE D SUMMONS U/S.131 TO SHRI GAUTAMCHAND JAIN SUPPLIER OF GOODS WHO SUBMITT ED BEFORE THE AO THAT HE HAD ACTUALLY SOLD DIAMONDS TO THE ASSESS EE DURING THE YEAR UNDER CONSIDERATION AND HAD FILED THE FOLLOWING DET AILS BEFORE THE AO, THE AO HAD SUMMARIZED THE SAME AS UNDER:- COPIES OF I.T. RETURNS ALONGWITH BALANCE-SHEET, PR OFIT & LOSS A/C OF ALL THE THREE CONCERNS FOR A.Y.2007-08, COPIES OF B ANK STATEMENT OF THESE CONCERNS FOR F.Y.2006-07, COPIES OF BILLS ISS UED TO THE ASSESSEE, COPIES OF LEDGER EXTRACT OF THE ASSESSEE AS APPEARI NG IN THEIR BOOKS OF ACCOUNTS FOR THE RELEVANT PERIOD. HOWEVER, SHRI GAU TAM JAIN FAILED TO ATTEND IN PERSON FOR VERIFICATION. 22. SHRI GAUTAMCHAND JAIN APPEARED BEFORE THE AO ON 25/03/2015 WHEN THE AO RECORDED HIS STATEMENT WHICH HAS BEEN REPROD UCED IN THE ASSESSMENT ORDER AT PAGE NO.14 TO 20. ITA NO. 4397 MUM 2017-M/S OSTWAL DIAMOND PVT. LTD. 7 23. FROM THE RECORD WE ALSO FOUND THAT THE ALLEGED PARTIES HAVE ALSO REPLIED TO SUMMONS ISSUED U/S 131 OF THE ACT AND PR OVIDED ALL THE REQUIRED DETAILS TO THE LD. AO. THE ASSESSEE HAS PR ODUCED THE DIRECTOR/PARTNER OF ALLEGED PARTIES AND THE LD. AO HAD RECORDED THE STATEMENT ON OATH. IN THE WHOLE STATEMENT THERE IS NO ADVERSE ANSWER BY THE SAID DIRECTOR/PARTNER OF ALLEGED PARTIES. 5. CONSIDERING THE DECISION OF TRIBUNAL, WHEREIN THE A SSESSMENT ORDER DATED 31.03.2015 PASSED UNDER SECTION 143(3) R.W.S. 147 H AS BEEN QUASHED. THEREFORE, THE ADDITION MADE IN THE ASSESSMENT ORDE R HAS NO LEG TO STAND. IN OUR VIEW, THE APPEAL FILED BY REVENUE HAS BECOME INFRUCTUOUS AND IS ACCORDINGLY DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COUR T ON 22 /08/2019 WHILE HEARING THE APPEAL. SD/- SD/- RAJESH KUMAR PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 22 .08.2019 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR C BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR TAT, MUMBAI