SEA LINKERS P. LTD, MUMBAI V. ACIT 7(2), MUMBAI

ITA 4904/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8038 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 25-07-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Bogus purchase; Principle of natural justice; Tangible material; Wrong claim; Corroborative evidences; Accommodation entries; Assessment record; Onus to prove; Reason to believe; Reassessment proceedings
• Section: 143(3); 147; 12; 2; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI AMARJIT SINGH, JM ./ I.T.A. NO. 4904/MUM/2016 ( / ASSESSMENT YEAR: 2009 - 10 ) M/S. SEA LINKE RS PVT. LTD. BPT, PLOT NO. 107, QUAY STREET, DARUKHANA, MUMBAI - 400 010 / VS. ASST. CIT - 8(1)(2), AAYKAR BHAVAN, M. K. ROAD, MUMBAI - 400 020 ./ ./ PAN/GIR NO. AAHCS 5084 N ( ASSESSEE) : ( RE VENUE ) & ./ I.T.A. NO. 5395/MUM/2016 ( / ASSESSMENT YEAR: 2009 - 10) ASST. CIT - 8(1)(2), AAYKAR BHAVAN, M. K. ROAD, MUMBAI - 400 020 / VS. M/S. SEA LINKERS PVT. LTD. BPT, PLOT NO. 107, QUAY STREET, DARUKHANA, MUMBAI - 400 010 ( REVENUE ) : ( ASSESSEE) ASSESSEE BY : SH RI DEEPAK TRALSHAWALA RE VENUE BY : SHRI PURUSHOTTAM KUMAR / DATE OF HEARING : 27.09.2017 / DATE OF PRONOUNCEMENT : 11.12. 2017 / O R D E R PER SHAMIM YAHYA , A. M.: THESE ARE CROSS APPEALS BY THE ASSESSEE AND REVENUE ARISING OUT OF THE ORDERS OF LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 23.06.2016 AND PERTAIN TO ASSESSMENT YEAR 2009 - 10. 2 ITA NO S . 4904/M / 16 & 5395/M / 16 (A.Y. 2009 - 10) M/S. SEA LINKERS PVT. LTD. 2. THE GROUNDS OF APPEAL READ IN ASSESSEES READ AS UNDER: 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE REOPENING OF THE ASSESSMENT ON THE PREMISE THAT INFORMATION RECEIVED FROM THE SALES TAX DEPARTMENT THAT THE PURCHASES ARE BOGUS CONSTITUTES ENOUGH REASON TO BELIEVE FOR RE OPENING OF THE ASSESSMENT , AND A LSO HOLDING AT PARA 3.2 OF HIS ORDER THAT 'CONSIDERING THE FACT THA T T HE ASSESSEE IS NOT IN POSITION TO PRODUCE THE PARTIES FOR CROSS VERIFICATION OF FACTS AND THAT THE APPELLANT FAILED TO PRODUCED THE PARTIES BEFORE THE AC), THE QUESTION OF CROSS EXAMINAT ION DOES NOT ARISE, AND THE GROUND FOR RE OPENING. 2 ON THE FA CTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), ERRED INTER ALIA A) IN SUSTAINING THE ADDITION TO (HE EXTENT OF 12.5% OF THE ALLEGED BOGUS PURCHASES BY HOLDING IN PARA 3.5 OF HIS ORDER 'LOOKING INTO THE ENTIRETY OF THE FACTS, THEREFORE IN MY CONSIDERED OPINION ONLY THE PROFIT DERIVED OUT OF SUCH TRANSACTIONS SHOULD BE ASSESSED TO LAX AND RELYING ON THE DECISION IN THE CA SE OF BHOLENATH POLY FAB PVT. LTD , ADDITION TO THE EXTENT OF 12.5% OF SUCH TAINTED PURCHASES IS CONSIDERED REASONABLE AND SUSTAINED AS SUPPRESSED PROFIT ELEMENT EMBEDDED IN SUCH PURCHASE. THIS ESTIMATION IS IN ADDITION TO THE GROW PRO/IT SHOWN BY THE APPE LLANT ' B) BY CONSCIOUSLY OVERLOOKING THAT THE PURCHASES WERE MADE BY ACCOUNT PAYEE CHEQUES TO THESE SUPPLIERS WHOSE IDENTITY WAS ESTABLISHED BY THE FACT OF PAYMENT TO THEM BEING CONFIRMED BY BANKERS AND NO EVIDENCE HAS BEEN PRODUCED BY HIM FOR RECEIPT OF CASH BY THE ASSESSEE AS ALLEGED BY HIM . C) BY HOLDING IN HIS ORDER THAT THE PURCHASES MADE BY THE ASSESSEE WERE ''BOGUS PURCHASES' , WHILE NOT DISPUTING THE SALES MADE FROM THESE PURCHASES, WHICH ARE GENUINE AND WHICH WERE BOOKED IN THE REGULAR BOO KS OF ACCOUNTS AND WHICH WERE ALSO VERIFIED BY HIM FROM THE ASSESSMENT RECORDS IN PRESENCE OF THE LEARNED AO. D) IN NOT CONSIDERING THE QUANTITATIVE DISPOSAL STATEMENTS OF PURCHASE MADE FROM THESE ALLEGED BOGUS PARTIES AND SALES THERE FROM, WHICH WAS FILED BEFORE HIM. AS WELL AS THE LEARNED AO AND WHICH WAS ALSO VERIFIED BY HIM FROM THE ASSESSMENT RECORDS IN PRESENCE OF THE LEARNED AO. E) IN NOT CONSIDERING THE FACT THAT ON THE ALLEGED BOGUS PURCHASES , THE APPELLANT HAS DISCLOSED PROFITS; F) IN N OT CONSIDERING THE FACT THAT THE LEARNED ASSESSING OFFICER HAS NOT FOUND ANY INFIRMITIES IN THE SALES, BOOKS OF ACCOUNTS OR OTHER MATERIALS NOR HAS HE FOUND ANY EVIDENCE TO PROVE THAT PURCHASES FROM THESE PARTIES ARE BOGUS. 3 ITA NO S . 4904/M / 16 & 5395/M / 16 (A.Y. 2009 - 10) M/S. SEA LINKERS PVT. LTD. 3. HENCE, IT IS SUBMITT ED THAT THE RE OPENING OF THE ASSESSMENT BEING BAD IN LAW BE QUASHED OR IN THE ALTERNATIVE, THE ADDITION OF RS. 17,99,854 / - [@12.5% OF THE ALLEGED BOGUS PURCHASES OF RS.143,98,830/ - ] UPHELD BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) BEING ARBITRARY AND CONTRARY TO THE PRINCIPLES OF NATURAL JUSTICE AND EQUITY BE DELETED IN TOTO. 3. THE ISSUE RAISED IN REVENUES APPEAL IS THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN RESTRICTING THE ADDITION TO 12.5% ON ACCOUNT OF BOGUS PURCHASE. 4. BR IEF FACTS OF THE CASE ARE THAT THE I NFORMATION WAS RECEIVED FROM DGIT(INV.), MUMBAI THAT THE ASSESSEE HAS CLAIMED CERTAIN PURCHASES IN THE ACCOUNTS, WHICH AGGREGATE TO RS.1,43,98,830/ - IN FINANCIAL YEAR 2009 - 10 (ASSESSMENT YEAR 2010 - 11). IT WAS ALSO INFORM ED BY THE OFFICE OF DGIT(INV.), MUMBAI THAT THESE SELLERS WERE EXAMINED BY THE SALES TAX DEPARTMENT AND THAT THEY HAD ADMITTED THAT THEY DID NOT MAKE ANY SALE OR PURCHASE AND THAT THEY WERE ONLY ENGAGED IN RAISING FALSE BILLS TO BE UTILIZED BY VARIOUS BENE FICIARIES. THE ASSESSING OFFICER NOTED THAT THE C OPIES OF THEIR STATEMENTS TAKEN UNDER OATH BY SALES TAX DEPARTMENT WERE ALSO FORWARDED TO THIS OFFICE. TH AT TH ESE WERE SHOWN TO T HE ASSESSEE. TH AT TH E SUMMARY TO THE ABOVE BILLS FOUND TO BE BOGUS BY THE SALE S TAX DEPARTMENT IS AS UNDER: FOR F.Y. 2003 - 09 SR. NAME AMOUNT (RS) 1 SIDDHIVINAYAK STEEL 28,865 2 ASIAN STEEL 23,54,625 3 SARAILGI SYNDICATE 17,24,625 4 SUNRISE ENTERPRISES 19,55,344 5 AMAR ENTERPRISE 19,52,440 6 NAVKAR TRADERS 38,45,250 7 MAJWVIR TRADERS 9,99,900 4 ITA NO S . 4904/M / 16 & 5395/M / 16 (A.Y. 2009 - 10) M/S. SEA LINKERS PVT. LTD. 8 KKIDEE SALES 15,34,781 TOTAL 1,43,98,830/ - 4.1 THE ASSESSEE WAS ASKED TO EXPLAIN ITS CLAIM IN LIGHT OF THE INFORMATION RECEIVED FROM THE SALE S TAX DEPARTMENT, MAHARASHTRA. THAT D URING THE COURSE OF ASSESSMENT PROC EEDINGS, THE ASSES SEE WAS ALSO ASKED TO PRODUCE THE ABOVE PARTIES FOR VERIFICATION. HOWEVER, THE ASSESSEE HAS FAILED TO PRODUCE THEM. 4.2 THE ASSESSING OFFICER FURTHER NOTED THAT S ECTION 101 OF THE INDIAN EVIDENCE ACT'1872 STATES THAT WHOEVER DESIRES ANY COURT TO GIVE JUDG MENT AS TO ANY LEGAL RIGHT OR LIABILITY DEPENDENT ON THE EXISTENCE OF FACTS WHICH HE ASSERTS, MUST PROVE THAT THOSE FACTS EXITS. THAT W HEN A PERSON IS BOUND TO PROVE THE EXISTENCE OF ANY FACT, IT IS SAID THAT THE BURDEN OF PROOF LIES ON THAT PERSO N. ACCORD ING TO SECTION 103 OF THE INDIAN EVIDENCE ACT 1872, THE BURDEN OF PROOF AS TO ANY PARTICULAR FACT LIES ON THAT PERSON WHO WISHES THE COURT TO BELIEVE IN ITS EXISTENCE. SECTION 106 OF INDIAN EVIDENCE ACT , 1872 SAYS THAT WHEN ANY FACT IS ESPECIALLY WITHIN TH E KNOWLEDGE OF ANY PERSON, THEN BURDEN OF PROVING THAT FACT IS UPON HIM. 4.3 THAT A L L THE ABOVE PROVISIONS ARE APPLICABLE TO THE CASE OF OUR ASSESSEE. THAT I N THIS CASE, ASSESSEE CLAIMS CERTAIN EXPENDITURE ON ACCOUNT OF PURCHASES MADE. TH AT TH IS IS A FACT WHICH HE ASSERTS. THEREFORE, BURDEN LIES ON HIM TO PROVE THE SAID FACTS (SECTION 101 AND 103 OF INDIAN EVIDENCE ACT 1872) . THAT S ECONDLY, THE PAYMENT MADE TO THESE PARTIES IS WITHIN THE KNOWLEDGE OF THE ASSESSEE. TH AT TH EREFORE THE BURDEN IS 5 ITA NO S . 4904/M / 16 & 5395/M / 16 (A.Y. 2009 - 10) M/S. SEA LINKERS PVT. LTD. ON HIM TO EST ABLISH THAT FACT. THAT H OWEVER THE BURDEN OF PROOF HAS NOT BEEN DISCHARGED BY THE ASSESSEE. 4.4 THAT F URTHER SECTION 114 OF INDIAN EVIDENCE ACT CLEARLY LAYS DOWN THAT IF A FACT IN THE KNOWLEDGE OF THE PARTY IS NOT EXPLAINED, ADVERSE INFERENCE CAN BE DRAWN AGAINST THE PARTY POSSESSING THE KNOWLEDGE OF FACTS /INFORMATION . THAT IN THIS CASE, IT WAS FOR THE ASSESSEE TO EXPLAIN THE PURPOSE FOR WHICH CHEQUES WERE ISSUED TO THE O TH ER PARTY AND IT CANNOT BE PRESUMED THAT IT IS FOR PURCHASES WHICH ARE BOGUS. 4.5 T HE ASSESSING OFFICER FURTHER REFERRED TO CERTAIN CASE LAWS AND CONCLUDED AS UNDER: IN THE CASE OF NUND & SAMANT CO PVT LTD . VS CIT (1970) 78 ITR 268 (SC), THE HON'BLE SUPREME COURT HAS HELD THAT IT IS FOR THE TAX PAYER TO ESTABLISH BY EVIDENCE THAT THE PA RTICULARS EXPENDITURE I S JUSTIFIABLE. IN THIS REGARD RELIANCE IS ALSO PLACED ON THE FOLLOWING JUDICIAL DECISIONS: I) WALKINGS MAYER (AGRICO) PVT LTD VS CIT (1979) 117 ITR 202 (P & H), CIT II) CIT VS SHERVANI SUGAR SYNDICATE PVT LTD (1980) 125 ITR 158 (ALL) III) EASTERN SALES PVT LTD VS CIT (1979) 117 ITR 477 (CAL) IV) CIT VS WEST COAST SHIPPING AGENCIES PVT LTD (1981) 127 ITR 442 (KER). 4.6 IT IS CASE WHERE ENQUIRIES ORIGINATED FROM THE SALES TAX DEPARTMENT AND THE ASSESSEE HAS ACCEPTED THE WRONG CLAIM OF SET OFF OF VAT AND PAID THE RESULTANT TAX AND PENALTY. IT IS ALSO PERTINENT TO MENTION THAT IN THE CASE OF BOGUS PURCHASES ONLY BILLS ARE RECEIVED BUT NOT THE GOODS. THIS IS ONE KIND OF ACCOMMODATING OTHER PARTIES SO THAT UNACCOUNTED FUNDS ARE LEGALIZED AN D GIVEN THE COLOUR OF ACCOUNTED MONEY. THE ASSESSEE IS A PART OF LARGE NUMBER OF ENTITIES WHICH WERE ENGAGED IN SUBVERTING LAW AND IN ACTIVITIES AIMED AT FOSTERING AND ENHANCING TAX FRAUD. 4.7 THIS VIEW ALSO SUPPORTED BY THE FOLLOWING CASE LAWS : 6 ITA NO S . 4904/M / 16 & 5395/M / 16 (A.Y. 2009 - 10) M/S. SEA LINKERS PVT. LTD. - 'AD DITION MADE ON THE BASIS OF ADMISSION BY ASSESSEE IS JUSTIFIED.' (HIRA SINGH AND CO. * VS. CJT (HP) 230 ITR 791) - 'AN ADMISSION IS THE BEST EVIDENCE THAT AN OPPOSING PARTY CAN RELY UPON AND THOUGH NOT CONCLUSIVE, IS DECISIVE OF THE MATTER, UNLESS SUCCESS FULLY WITHDRAWN OR PROVED ERRONEOUS.' (NARAYAN BHAGWANTRAO GOSAVI BATAJIWALE VS. GOPAL AIR 1960 SC 100 AND PRANAV CONSTRUCTION CO. VS. ACIT (ITAT MUM) 61 TTJ145) - 'IN A CASE WHERE PARTY RELIED ON SELF SERVING RECITALS IN DOCUMENTS IT WAS FOR DIE PARTY TO ESTABLISH THE TRUTH OF THESE RECITALS. - THE TAXING AUTHORITIES WERE ENTITLED TO LOOK INTO THE SURROUNDING CIRCUMSTANCES AND FIND OUT THE REALITY OF S UCH RENTALS. (CIT VS. DURGA PRASAD MORE (SC) 82 ITR 540) 5. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS VIDE NOTING DATED 31.07,2014, THE ASSESSEE WAS ASKED TO PRODUCE ALL THE SUPPORTING DOCUMENTS TO ASCERTAIN THE GENUINENESS OF THE TRANSACTIONS ALONG WITH THEIR FILED ITRS AND COPY OF BANK ACCOUNT STATEMENT SHOWING THE TRA NSACTIONS. FURTHER, VIDE NOTING DATED 07.08.2014 THE ASSESSEE WAS SHOW CAUSED WHY THESE BOGUS PURCHASES SHOULD NOT BE ADDED TO YOUR TOTAL INCOME. IN RESPONSE TO THIS, DESPITE REPEATED OPPORTUNITIES, THE ASSESSEE HAS FAILED TO PRODUCE THOSE PARTIES ALONG WI TH RELEVANT EVIDENCES TO SUBSTANTIATE THE GENUINENESS OF THE TRANSACTIONS EVEN THOUGH THE BURDEN OF PROOF LIES ON HIM. HOWEVER ASSESSEE HAS NEITHER PRODUCED ANY PARTIES FOR VERIFICATION NOR PRODUCED ANY SUPPORTING EVIDENCES VERIFICATION DURING THE COURSE O F ASSESSMENT PROCEEDING FOR THE YEAR UNDER CONSIDERATION. THEREFORE, THE PURCHASES CLAIMED TO HAVE MADE AMOUNTING TO RS.L,43,98,83 0/ - ARE DISALLOWED AND ADDED TO THE TOTAL INCOME TREATING THE SAME AS BOGUS IN NATURE. 5 . AGAINST THE ABOVE ORDER, THE ASSESS EE APPEALED BEFORE TH E LD. COMMISSIONER OF INCOME TAX (APPEALS) CHALLENGING BOTH THE REOPENING AS WELL AS MERITS OF THE ADDITION. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE REOPENING AND DISMISSED THE ASSESSEES OBJECTION IN THIS REGARD. AS REGARDS THE MERITS OF THE CASE, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) RESTRICTED THE ADDITION TO 12.5% 7 ITA NO S . 4904/M / 16 & 5395/M / 16 (A.Y. 2009 - 10) M/S. SEA LINKERS PVT. LTD. OF THE BOGUS PURCHASE. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)S CONCLUSION READ AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS MADE. IN THE CA SE OF RAJESH JHAVERI STOCKBROKERS PVT L TD. VS ACIT 291 ITR 500 (SC) HB' APEX COURT HELD THAT ''AT THE INITIATION STAGE, WHAT IS REQUIRED IS REASON TO BELIEVE, BUT NOT THE ESTABLISHED FACT OF ESCAPEMENT OF INCOME. AT THE STAGE OF ISSUE OF NOTICE, THE ONLY Q UESTION IS WHETHER THERE WAS RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COULD HAVE FORMED A REQUISITE BELIEF. WHETHER THE MATERIALS WOULD CONCLUSIVELY PROVE THE ESCAPEMENT IS NOT THE CONCERN AT THAT STAGE. THIS IS BECAUSE THE FORMATION OF BELIEF BY THE A.O IS WITHIN THE REALM OF SUBJECTIVE SATISFACTION.' IN THIS CASE, THE AO HAS REOPENED THE ASSESSMENT ON THE BASIS OF INFORMATION OBTAINED FROM SALES TAX DEPARTMENT THAT THE PURCHASES MADE ARE BOGUS. THEREFORE, IN MY OPINION, THERE WAS REASON TO BELIEVE T HAT INCOME HAS ESCAPED ASSESSMENT AND THE AO HAS RIGHTLY INITIATED REASSESSMENT PROCEEDINGS. THE APPELLANT WAS DULY GIVEN OPPORTUNITY TO PRODUCE THE PARTIES FOR CROSS VERIFICATION OF THE FACTS. HOWEVER, THE APPELLANT FAILED TO PRODUCE THE PARTIES BEFORE TH E AO. SINCE DUE OPPORTUNITY WAS GIVEN TO THE APPELLANT TO PRODUCE THE PARTIES, THEREFORE IN MY CONSIDERED OPINION THE QUESTION OF CROSS EXAMINATION DOES NOT ARISE AND FURTHER THERE IS NO EVIDENCE ON RECORD THAT THE APPELLANT HAS ASKED FOR CROSS EXAMINATION OF THE PARTIES. LOOKING INTO THE ENTIRETY OF THE FACTS, THESE GROUNDS OF APPEAL ARE DISMISSED. 3.3 THE APPELLANT HAS IN GROUND NO. 4 CONTESTED THE ADDITIONS ON MERITS ALSO. THE DETAILED SUBMISSIONS OF THE APPELLANT ARE REPRODUCED ABOVE. THE APPELLANT HAS ALSO SUBMITTED COPIES OF CORRESPONDENCES MADE WITH THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. IT IS NOTED THEREFROM THAT VIDE LETTER DATED 18/8/2014, ADDRESSED TO THE AO, THE APPELLANT HAS ENCLOSED THE COPIES OF BILLS, LEDGER EXTRACTS, COPIES OF B ANK STATEMENTS ETC AND FURT HER VIDE LETTER DATED 18/8/2014 , THE APPELLANT CONTENDED THAT THE MATERIALS PURCHASED FROM THE ABOVE PARTIES HAS BEEN SOLD TO VARIOUS PARTIES AS PER DISPOSAL STATEMENTS IN RESPECT OF PURCHASES MADE FROM EACH OF THESE PARTIES AND ALSO ENCLOSED COPIES OF SALES BILLS IN RESPECT OF SUCH MATERIALS. THE SAME WAS DULY VERIFIED FROM THE ASSESSMENT RECORDS IN PRESENCE OF THE LD. A.O. THEREFORE LOOKING INTO THE ENTIRETY OF THE FACTS, IT IS NOTED THAT THE MATERIALS SHOWN TO HAVE BEEN PURCHAS ED AND CONSIDERED BOGUS BY THE A.O ARE ALSO SHOWN TO HAVE BEEN RESOLD TO OTHER PARTIES. THEREFORE, IN MY CONSIDERED OPINION, UNDER SUCH CIRCUMSTANCES, ONLY THE GROSS PROFIT ELEMENT EMBEDDED IN SUCH TRANSACTION CAN BE BROUGHT TO TAX. 3.4 IN THE CASE OF BHO LENATH POLY FAB PVT. LTD 355 ITR 290 (GUJ), THE HON'BLE TRIBUNAL HELD THAT PURCHASES WERE MADE FROM BOGUS PARTIES. HOWEVER, 8 ITA NO S . 4904/M / 16 & 5395/M / 16 (A.Y. 2009 - 10) M/S. SEA LINKERS PVT. LTD. IN THIS CASE, ENTIRE QUANTITY OF OPENING STOCK, PURCHASE AND QUANTITY MANUFACTURED DUR ING THE YEAR U NDER CONSIDERATION WERE SOLD BY THE ASS E SSEE. HON'BLE TRIBUNAL HELD THAT GOODS WERE PURCHASED FROM SOME OTHER PARTY AND PROFIT AMOUNT EMBEDDED IN SUCH AMOUNT WOULD BE SUBJECTED TO TAX. THE DECISION IN THE CASE OF SANKET STEEL TRADER VS. ITO AND VIJAY PROTEIN LTD VS ACIT 58 ITD 428(AH D) WERE RELIED UPON. HON'BLE GUJRAT HIGH COURT CONFIRMED THE DECISION. SIMILARLY IN THE CASE OF CIT VS. SIMIT SHETH 38 TAXRNAN.COM 385 (GUJ), UNDER SIMILAR CIRCUMSTANCES, THE ADDITION TO THE EXTENT OF 12.5% WAS SUSTAINED RELYING ON THE DECISION IN THE CASE OF VIJAY M MISTRY CONSTRUCTION LTD 355 ITR 498 (GUJ) AND VIJAY PROTEINS LTD 58 ITD 428 (AHD). IN THE CASE OF SANKET STEEL TRADERS ITA NO. 2801/AHD/2008 DATED 20/5/2011 ALSO PROFIT ELEMENT OF 12.5% WAS SUSTAINED. 3.5 LOOKING INTO ENTIRETY OF THE FACTS, THEREFORE IN MY CONSIDERED OPINION ONLY THE PROFIT DERIVED OUT OF SUCH TRANSACTIONS SHOULD BE ASSESSED TO TAX AND RELYING ON THE DECISION IN THE CASE OF BHOLENATH POLY FAB PVT. LTD (SUPRA), ADDITION TO THE EXTENT OF 12.5% OF SUCH TAINTED PURCHASES IS CONS IDERED REASONABLE AND SUSTAINED AS THE SUPPRESSED PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES. THIS ESTIMATION IS IN ADDITION TO THE GROSS PROFIT SHOWN BY THE APPELLANT. 6 . AGAINST THE ABOVE ORDER, THE ASSESSEE AND REVENUE ARE IN CROSS APPEAL BEFORE US. 7 . WE HAVE HEARD THE COUNSEL AND PERUSED THE RECORDS. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE REOPENING HAS BEEN BASED UPON THE INFORMATION RECEIVED FROM THE SALES TAX DEPARTMENT. THE SAME IS BASED UPON THE WEBSITE OF SALES TAX DEPARTMENT WHICH HE CLAIMED THAT WAS AKIN TO NEWSPAPER INFORMATION. HE FURTHER SUBMITTED THAT THE HAWALA DEALERS MUST HAVE GIVEN SOME STATEMENTS AND IF SO THE ASSESSEE WOULD LIKE TO KNOW HOW THE ASSESSEE HAS BEEN IMPLICATED. HE FURTHER SUBMITTED THAT DGIT INVESTIGATION REPOR T HAS BEEN SAID TO BE BASIS OF REOPENING. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT WHAT IS THE REPORT OF THE DGIT (INVTG.) IS 9 ITA NO S . 4904/M / 16 & 5395/M / 16 (A.Y. 2009 - 10) M/S. SEA LINKERS PVT. LTD. NOT KNOWN. THE LD. COUNSEL OF THE ASSESSEE FURTHER PLEADED THAT THE ORIGINAL ASSESSMENT WAS DONE U/S. 143(3) OF THE ACT. HEN CE, THE REOPENING IS NOT AT ALL JUSTIFIED. IN THIS REGARD, THE LD. COUNSEL OF THE ASSESSEE PLACED RELIANCE UPON HON'BLE DELHI HIGH COURT DECISION IN THE CASE OF PRINCIPAL C IT VS. MEENAKSHI OVERSEAS (P.) LTD. [2017] 395 ITR 677 (DELHI), CIT VS. JYOTI PRAKAS H DUTTA [2014] 367 ITR 568 (BOM) ; CIT VS. VARDHMAN INDUSTRIES [2014] 363 ITR 625 (RAJ); CIT VS. EASTERN COMMERCIAL ENTERPRISES [1994] 210 ITR 103 (CAL.) . THE LD. COUNSEL OF THE ASSESSEE FURTHER SUBMITTED THAT FINDINGS OF THE SALES TAX DEPARTMENT HAVE NOT B EEN GIVEN TO THE ASSESSEE AND THE ASSESSEE HAS NOT BEEN PROVIDED ANY OPPORTUNITY TO CROSS EXAMINE THE SAID HAWALA DEALERS. THE LD. COUNSEL OF THE ASSESSEE FURTHER SUBMITTED THAT THE BO OKS HAVE NOT BEEN REJECTED IN THIS CASE, SALES HAVE BEEN ACCEPTED, PROFI TS HAVE BEEN DECLARED HAVE NOT FOUND TO BE UNREASONABLE. HENCE, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT NO ADDITION IS LIABLE TO BE MADE IN THIS CASE. 8 . PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE REOPENING HAS BEEN MADE UPO N COGENT MATERIALS RECEIVED BY THE ASSESSING OFFICER. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE INFORMATION FROM THE SALES TAX DEPARTMENT IS NOT AKIN TO NEWSPAPER REPORT. FOR THE REOPENING, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE H ONBLE GUJARAT HIGH COURT DECISION IN 73 TAXMAN.COM 185 AND THE HONBLE SUPREME COURT DECISION IN THE CASE OF CIT(A) VS. RAJESH JHAVERI STOCK BROKERS P. LTD , 291 ITR 500 A ND THE ITAT DECISION IN THE CASE OF SUKH RAM VS. ASST. CIT [2006] 1 03 TTJ 914 ( ITAT - D EL) . THE LD. DEPARTMENTAL 10 ITA NO S . 4904/M / 16 & 5395/M / 16 (A.Y. 2009 - 10) M/S. SEA LINKERS PVT. LTD. REPRESENTATIVE FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT BEEN ABLE TO PRODUCE THE SA ID HAWALA DEALERS. THE SAID DEALERS HAVE BEEN FOUND TO BE NONEXISTENT . APART FROM ENQUIRY BY THE ASSESSING OFFICER, INSPECTOR REPORT TO THAT EXT ENT IS ALSO THERE. UNDER THESE CIRCUMSTANCES, THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT 100% ADDITION SHOULD BE MADE. FOR THIS PROPOSITION, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE HONBLE GUJARAT HIGH COURT DECISION IN THE CASE OF N K INDUSTRIES VS. DY CIT IN INCOME TAX APPEAL NO. 240 OF 2003, VIDE ORDER DATED 20.06.2016. HE SUBMITTED THAT THE SLP AGAINST THIS ORDER HAS BEEN DISMISSED BY THE HON'BLE APEX COURT. 9 . UPON CAREFUL CONSIDERATION, AS REGARDS THE REOPENING OF THE ASSESSEE, O N A CAREFUL CONSIDERATION, WE NOTE THAT IN THIS CASE INFORMATION WAS RECEIVED BY THE ASSESSING OFFICER FROM DGIT INVESTIGATION (MUMBAI) THERE ARE SOME PARTIES WHO ARE ENGAGED IN THE HAWALA TRANSACTIONS AND ARE ALSO INVOLVED IN ISSUING BOGUS PURCHASE BILLS FOR SALE OF MATERIAL WITHOUT DELIVERY OF GOODS, WHICH INFORMATION WAS BASED ON INFORMATION RECEIVED BY REVENUE FROM MAHARASHTRA SALES TAX AUTHORITY. INFORMATION WAS RECEIVED THAT THE ASSESSEE WAS BENEFICIARY OF HAWALA ACCOMMODATION ENTRIES FROM ENTRY PROVI DERS BY WAY OF BOGUS PURCHASE. THE ACCOMMODATION ENTRY PROVIDER HAS DEPOSED AND ADMITTED BEFORE THE MAHARASHTRA SALES TAX AUTHORITY VIDE STATEMENT/ AFFIDAVIT THAT THEY WERE ENGAGED IN PROVIDING BOGUS ACCOMMODATION ENTRIES WHEREIN BOGUS SALE BILLS WERE ISSU ED WITHOUT DELIVERY OF GOODS, IN CONSIDERATION FOR 11 ITA NO S . 4904/M / 16 & 5395/M / 16 (A.Y. 2009 - 10) M/S. SEA LINKERS PVT. LTD. COMMISSION. THESE, ACCOMMODATION ENTRY PROVIDERS, ON RECEIPT OF CHEQUES FROM PARTIES AGAINST BOGUS BILLS FOR SALE OF MATERIAL, LATER ON WITHDREW CASH FROM THEIR BANK ACCOUNTS, WHICH WAS RETURNED TO BENEFIC IARIES OF BOGUS BILLS AFTER DEDUCTION OF THEIR AGREED COMMISSION. THE ASSESSEE WAS STATED TO BE ONE OF THE BENEFICIARIES OF THESE BOGUS ENTRIES OF SALE OF MATERIAL FROM HAWALA ENTRY OPERATORS IN FAVOUR OF THE ASSESSEE WHEREIN THE ASSESSEE MADE ALLEGED BOGU S PURCHASES THROUGH THESE BOGUS BILLS ISSUED BY HAWALA ENTRY PROVIDERS IN FAVOUR OF THE ASSESSEE. THESE DEALERS WERE SURVEYED BY THE SALES TAX INVESTIGATION DEPARTMENT WHEREBY THE DIRECTORS OF THESE DEALERS HAVE ADMITTED IN A DEPOSITION VIDE STATEMENTS/AFF IDAVIT MADE BEFORE THE SALES TAX DEPARTMENT THAT THEY WERE INVOLVED IN. ISSUING BOGUS PURCHASE BILLS WITHOUT DELIVERY OF ANY MATERIAL. THERE IS A LIST OF SUCH PARTIES WHEREIN THE ASSESSEE IS STATED TO BE BENEFICIARY OF BOGUS PURCHASE BILLS. 10. FROM T HE ABOVE, WE FIND THAT TANGIBLE AND COGENT INCRIMINATING MATERIAL WERE RECEIVED BY THE AO WHICH CLEARLY SHOWED THAT THE ASSESSEE WAS BENEFICIARY OF BOGUS PURCHASE ENTRIES FROM BOGUS ENTRY PROVIDERS WHICH FORMED THE REASON TO BELIEVE BY THE AO THAT INCOME H AS ESCAPED ASSESSMENT. THE INFORMATION SO RECEIVED BY THE AO HAS LIVE LINK WITH REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. ON THESE INCRIMINATING TANGIBLE MATERIAL INFORMATION, ASSESSMENT WAS REOPENED. AT THIS STAGE THERE HAS TO BE PRIMA FACIE B ELIEF BASED ON SOME TANGIBLE AND MATERIAL INFORMATION ABOUT ESCAPEMENT OF INCOME AND THE SAME IS NOT REQUIRED TO BE PROVED TO THE GUILT. IN 12 ITA NO S . 4904/M / 16 & 5395/M / 16 (A.Y. 2009 - 10) M/S. SEA LINKERS PVT. LTD. THIS REGARD, I REFER TO THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF CIT(A) VS. RAJESH JHAVERI STOCK BROKER S P. LTD, 291 ITR 500: - 'SECTION 147 AUTHORISES AND PERMITS THE ASSESSING OFFICER TO ASSESS OR REASSESS INCOME CHARGEABLE TO LAX IF HE HAS REASON TO BELIEVE THAT INCOME FOR ANY ASSESSMENT YEAR HAS ESCAPED ASSESSMENT. THE WORD 'REASON' IN THE PHRASE 'REASON TO BELIEVE' WOULD MEAN CAUSE OR JUSTIFICATION. IF THE AO HAS CAUSE OR JUSTIFICATION TO KNOW OR SUPPOSE (HAT INCOME HAD ESCAPED ASSESSMENT, IT CAN BE SAID TO HAVE REASON TO BELIEVE THAT AN INCOME HAD ESCAPED ASSESSMENT. THE EXPRESSION CANNOT BE READ TO MEA N THAT THE AO SHOULD HAVE FINALLY ASCERTAINED THE FACT BY LEGAL STATUTE WITH SOLICITUDE FOR THE PUBLIC EXCHEQUER WITH AN INBUILT IDEA OF FAIRNESS TO TAXPAYERS. AS OBSERVED BY THE SUPREME COURT IN CENTRAL PROVINCES MANAGNESE ORE CO, LTD. V. ITO(1991) 191 IT R 662, FOR INITIATION OF ACTION UNDER SECTION 147(A) (AS THE PROVISION STOOD AT THE RELEVANT TIME) FULFILLMENT OF THE TWO REQUISITE CONDITIONS IN THAT REGARD IS ESSENTIAL. AT THAT STAGE, THE FINAL OUTCOME OF THE PROCEEDING IS NOT RELEVANT. IN OTHER WORDS, AT THE INITIATION STAGE, WHAT IS REQUIRED IS 'REASON TO BELIEVE', BUT NOT THE ESTABLISHED FACT OF ESCAPEMENT OF INCOME. AT THE STAGE OF ISSUE OF NOTICE, THE ONLY QUESTION IS WHETHER THERE WAS RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COULD HAVE FORMED A REQUISITE BELIEF WHETHER THE MATERIALS WOULD CONCLUSIVELY PROVE THE ESCAPEMENT IS NOT THE CONCERN AT THAT STAGE. THIS IS SO BECAUSE THE FORMATION OF BELIEF BY THE AO IS WITHIN THE REALM OF SUBJECTIVE SATISFACTION ITO V. SELECTED DALURBAND COAL CO, (P.) LTD. (1996) 217 ITR 597 (SUPREME COURT): RAYMOND WOOLLEN MILLS LTD. V. ITO (1999) 236 ITR 34 (SUPREME COURT). 1 1 . THE ABOVE DISCUSSION AND PRECEDENT FROM APEX COURT FULLY JUSTIFY THE VALIDITY OF REOPENING IN THIS CASE. FURTHER I FIND THAT THE LD. CIT(A) HAS CAREFULLY EXAMINED THE ISSUE AND HAS PROPERLY APPRECIATED THE ISSUE. HENCE, I DO NOT FIND ANY INFIRMITY IN THE SAME. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD. CIT(A) ON THE ISSUE OF REOPENING. SINCE, THE ISSUE HAS BEEN DECIDED ON THE BASIS OF THE HO NBLE APEX COURT DECISION, THE OTHER CASE LAWS REFERRED BY ASSESSEE ARE NOT SUPPORTING THE ASSESSEES CASE. 13 ITA NO S . 4904/M / 16 & 5395/M / 16 (A.Y. 2009 - 10) M/S. SEA LINKERS PVT. LTD. 1 2 . AS REGARDS THE MERITS OF THE CASE, WE FIND THAT CREDIBLE AND COGENT INFORMATION WAS RECEIVED IN THIS CASE BY THE ASSESSING OFFICER THAT CERTAI N ACCOMMODATION ENTRY PROVIDER/BOGUS SUPPLIERS WERE BEING USED BY CERTAIN PARTIES TO OBTAINED BOGUS BILLS. THE ASSESSEE WAS FOUND TO HAVE TAKEN ACCOMMODATION ENTRY/BOGUS PURCHASE BILLS DURING THE CONCERNED ASSESSMENT YEAR FROM DIFFERENT PARTIES. BASED UPON THIS INFORMATION ASSESSMENT WAS REOPENED. THE CREDIBILITY OF INFORMATION RELATING TO REOPENING REMAINS UN - ASSAILED. IN SUCH FACTUAL SCENARIO, THE ASSESSING OFFICER HAS MADE THE NECESSARY ENQUIRY. THE SO CALLED SUPPLIERS HAVE BEEN FOUND TO BE NON EXISTING. ASSESSEE HAS NOT BEEN ABLE TO PROVIDE ANY CONFIRMATION FROM ANY OF THE PARTY. ASSESSEE HAS ALSO NOT BEEN ABLE TO PRODUCE ANY OF THE PARTIES. NECESSARY EVIDENCE RELATING TO TRANSPORTATION OF THE GOODS WAS ALSO NOT ON RECORD. IN THIS FACTUAL SCENARIO, IT IS AMPLY CLEAR THAT THE ASSESSEE HAS OBTAINED BOGUS PURCHASE BILLS. MERE PREPARATION OF DOCUMENTS FOR PURCHASES CANNOT CONTROVERT OVERWHELMING EVIDENCE THAT THE PROVIDER OF THESE BILLS IS BOGUS AND NON - EXISTENT. 1 3 . THE SALES TAX DEPARTMENT IN ITS ENQUIRY HAS FOUND THE PARTIES TO BE PROVIDING BOGUS ACCOMMODATION ENTRIES. ASSESSEE HAS NOT BEEN ABLE TO PRODUCE ANY OF THE PARTIES. NEITHER THE ASSESSEE HAS BEEN ABLE TO PRODUCE ANY CONFIRMATION FROM THESE PARTIES. IN SUCH CIRCUMSTANCES, THERE IS NO DOUBT THAT TH ESE PARTIES ARE NON - EXISTENT. WE FIND IT FURTHER STRANGE THAT ASSESSEE WANTS THE REVENUE TO PRODUCE ASSESSEES OWN VENDORS, WHOM THE ASSESSEE COULD NOT PRODUCE. THE PURCHASE BILLS FROM THESE NON - EXISTENT/BOGUS PARTIES CANNOT BE TAKEN AS COGENT EVIDENCE OF PURCHASES. IN LIGHT OF THE 14 ITA NO S . 4904/M / 16 & 5395/M / 16 (A.Y. 2009 - 10) M/S. SEA LINKERS PVT. LTD. OVERWHELMING EVIDENCE, THE REVENUE AUTHORITIES CANNOT PUT UPON BLINKERS AND ACCEPT THESE PURCHASES AS GENUINE. THIS PROPOSITION IS DULY SUPPORTED BY HONBLE APEX COURT DECISION IN THE CASE OF SUMATI DAYAL VS. CIT [1995] 214 ITR 801 (SC) AND CIT VS. DURGA PRASAD MORE [1971] 82 ITR 540 (SC). IN THE PRESENT CASE, THE ASSESSEE WANTS THAT THE UNASSAILABLE FACT THAT THE SUPPLIERS ARE NON - EXISTENT AND, THUS, BOGUS SHOULD BE IGNORED AND ONLY THE DOCUMENTS BEING PRODUCED SHOULD BE CONSIDE RED. THIS PROPOSITION IS TOTALLY UNSUSTAINABLE IN LIGHT OF HONBLE APEX COURT DECISIONS. 1 4 . IN THESE CIRCUMSTANCES, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS REFERRED TO HONBLE GUJARAT HIGH COURT DECISION IN THE CASE OF TAX APPEAL NO. 240 OF 2003 IN T HE CASE OF N K INDUSTRIES VS. DY. CIT VIDE ORDER DATED 20.06.2016, WHEREIN 100% OF THE BOGUS PURCHASES WAS HELD TO BE ADDED IN THE HANDS OF THE ASSESSEE AND TRIBUNALS RESTRICTION OF THE ADDITION TO 25% OF THE BOGUS PURCHASES WAS SET ASIDE. IT WAS EXPOUNDED THAT WHEN PURCHASE BILLS HAVE BEEN FOUND TO BE BOGUS, 100% DISALLOWANCE WAS REQUIRED. THE SPECIAL LEAVE PETITION AGAINST THIS ORDER ALONG WITH OTHERS HAS BEEN DISMISSED BY THE HONBLE APEX COURT VIDE ORDER DATED 16.1.2017. 1 5 . WE FURTHER NOTE THAT HONB LE RAJASTHAN HIGH COURT HAS SIMILARLY TAKEN NOTE OF DECISIONS OF THE APEX COURT ON THE ISSUE OF BOGUS PURCHASES IN THE CASE OF CIT JAIPUR VS SHRUTI GEMS IN ITA NO. 658 OF 2009. THE HONBLE HIGH COURT HAS REFERRED TO THE DECISION OF CIT JAIPUR VS. ADITYA GE MS, D. B . IN ITA NO. 234 OF 2008 DATED 02.11.2016, WHEREIN THE HONBLE COURT HAD INTER ALIA HELD AS UNDER: 15 ITA NO S . 4904/M / 16 & 5395/M / 16 (A.Y. 2009 - 10) M/S. SEA LINKERS PVT. LTD. 'CONSIDERING THE LAW DECLARED BY THE SUPREME COURT IN THE CASE OF VIJAY PROTEINS LTD. VS. COMMISSIONER OF INCOME TAX, SPECIAL LEAVE TO APPEAL (C) NO .8956/2015 DECIDED ON 06.04.2015 WHEREBY THE SUPREME COURT HAS DISMISSED THE SLP CONFIRMED THE ORDER DATED 09.12.2014 PASSED BY THE GUJARAT HIGH COURT AND OTHER DECISIONS OF THE HIGH COURT OF GUJARAT IN THE CASE OF SANJAY OILCAKE INDUSTRIES VS. COMMISSIONE R OF INCOME TAX (2009) 316 ITR 274 (GUJ) AND N.K. INDUSTRIES LTD. VS. DY. C.I.T., TAX APPEAL NO.240/2003 DECIDED ON 20.06.2016, THE PARTIES ARE BOUND BY THE PRINCIPLE OF LAW PRONOUNCED IN THE AFORESAID THREE JUDGMENTS. 1 6 . HOWEVER , WE NOTE THAT THE HON' BLE JURISDICTIONAL HIGH COURT IN THE CASE OF NIKUNJ EXIMP ENTERPRISES (IN WRIT PETITION NO 2860, ORDER DT. 18.6.2014) HAS UPHELD 100 % ALLOWANCE FOR THE PURCHASES SAID TO BE BOGUS WHEN THE SALES HAVE NOT BEEN DOUBTED. HOWEVER, THE FACTS OF THAT CASE WERE DI FFERENT. FURTHERMORE, THE SALES IN THAT CASE WERE BASICALLY TO GOVERNMENT DEPARTMENTS. HENCE, THE RATIO FROM THIS DECISION IS NOT FULLY APPLICABLE ON THE FACTS OF THE CASE. BUT FACTS OF THE CASE INDICATE THAT THE ASSESSEE HAS ENGAGED INTO DEALING IN THE GR EY MARKET . D EALING S IN GREY MARKET GIVE CERTAIN BENEFIT TO THE ASSESSEE AT THE EXPENSE OF EXCHEQUER, IN THE S HAPE OF SAVINGS IN TAXES AND U S E OF UNDISCLOSED FUNDS. IN SUCH CIRCUMSTANCES, THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SIMITH P. SETH H AS UPH E LD 12.5% DISALLOWANCE. WE FIND FOLLOWING THE SAME IS JUST AND APPROPRIATE IN THIS CASE. 1 7 . UPON THE FACTS AND CIRCUMSTANCES, THE INTEREST OF THE JUSTICE WILL BE SERVED IF 12 .5 % DISALLOWANCE OF THE BOGUS PURCHASE IS SUSTAIN ED . ACCORDINGLY, WE CONFIRM THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 16 ITA NO S . 4904/M / 16 & 5395/M / 16 (A.Y. 2009 - 10) M/S. SEA LINKERS PVT. LTD. 18 . IN THE RESULT, THE APPEALS BY THE ASSESSEE AND THE REVENUE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11.12.2017 SD/ - SD/ - ( AMARJIT SINGH) (S HAMIM YAHYA ) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 11.12.2017 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI