ITO 32(1)(2), MUMBAI V. ASHOK V VIRADIA, MUMBAI

ITA 646/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9277 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2007-2008
• Appeal Filed On: 09-02-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR
• Keywords: Bogus purchase; Unexplained expenditure; Search and seizure; Principle of natural justice; Accommodation entries
• Section: 69C; 133(6); 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO.646/MUM/2016 ASSESSMENT YEAR: 2007 - 08 ITO - 32(1)(2), ROOM NO. - 204, C - 11, 2 ND FLOOR, PRATYAKSHAKAR BHAVAN, BKC, BANDRA (E), MUMBAI - 400051 (APPELLANT) VS. ASHOK V. VIRADIA B - 202, BUILDING NO.7, PREM NAGAR, MANDPESHWAR ROAD, BORIVELI (W), MUMBAI - 400092 (RESPONDENT) PAN NO. AAIPV3260B REVENUE BY : SHRI SUMAN KUMAR, D R ASSESSEE BY: NONE DATE OF HEARING : 04/07 /2017 DATE OF PRONOUNCEMENT: 25/09/2017 ORDER PER N.K. PRADHAN, A.M . THIS IS AN APPEAL FILED BY THE REVENUE . THE REL EVANT ASSESSMENT YEAR IS 2007 - 08 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 44, MUMBAI AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3 ) R.W.S 147 OF THE INCOME TAX ACT 1961, (T HE ACT). 2. THE GROUND RAISED BY THE REVENUE IN TH IS APPEAL IS AGAINST THE ESTIMATION MADE BY THE LD. CIT(A) @ 7.86% OF THE UNEXPLAINED ITA NO. 646/MUM/2016 2 EXPENDITURE OF RS.61,36,358/ - . THE AO HAS MADE THE ADDITION OF RS.61,36,358/ - U/S 69C ON ACCOUNT OF BOGUS PURCHASES. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE DEPARTMENT CONDUCTED A SEARCH AND SEIZURE ACTION U/S 132 ON 03.10.2013 IN SHRI RAJENDRA JAIN GROUP. AS A RESULT OF SEARCH, IT WAS KNOWN THAT THE SAID GROUP WAS PROVIDING ACCOMMODATION ENTRIES LIKE BOGUS PURCHASE, SALE, UNSECURED LOAN, SHARE CAPITAL ETC. THE ASSESSING OFFICER (AO) RECEIVED INFORMATION FROM THE DIRECTOR GENERAL OF INCOME TAX ( INV.), MUMBAI THAT THE PRESENT ASSESSEE WAS ALSO ONE OF THE BENEFICIARIES WHO OBTAINED ACCOMMODATION ENTRIES OF RS.61,36,358 / - THROUGH VITRAG, ONE THE GROU P CONCERNS OF SHRI RAJENDRA JAIN GROUP DURING TH E FY 2006 - 07 RELEVANT T O THE IMPUGNED ASSESSMENT YEAR. AFTER RECORDING THE REASONS, THE AO REOPENED THE ASSESSMENT BY ISSUING NOTICE U/S 148. THEN THE AO ISSUED NOTICE U/S 133(6) TO M/S VITRAG JEWELS, 803 SHRINATHJI APARTMENT, HATFALIYA, HARIPURA, SURAT - 395003. IN TURN, M/S VITRAG JEWELS , VIDE LETTER DATED 21.01.2015 SUBMITTED COPY OF LEDGER ACCOUNT OF M/S VIR SONGS IN M/S VITRAG JEWELS BOOKS OF ACCOUNT FOR THE PERIOD 2006 - 07 ALONG WITH CONFIRMATION AND BANK STATEMENT AS EVIDENCE TO CONFIRM THE TRANSACT ION OF SALE OF ROUGH DIAMONDS TO THE ASSESSEE. IN THE LEDGER ACCOUNT IT HAD DISCLOSED SALE OF ROUGH DIAMOND VALUED AT RS.61,36,358/ - ALONGWITH VAT OF RS.61,364/ - TOTALLING TO RS.61,97,722/ - TO M/S VIR SONS. THEN, THE AO TOOK INTO ACCOUNT THE STATEMENT GIVE N BY SHRI REJENDRA JAIN DURING THE COURSE OF SEARCH AND SEIZURE ACTION U/S 132 ON 03.10.2013 AND ARRIVED AT A FINDING THAT SHRI JAIN DIRECTLY OR INDIRECTLY CONTROLLED VARIOUS BUSINESS CONCERNS SUCH AS M/S VITRAG JEWELS , PROP. ITA NO. 646/MUM/2016 3 SHRI MUDIT P. KARNAWAT ( EX - EMPL O YEE ) . TAKING INTO ACCOUNT THE ABOVE FACTS, THE AO ASKED THE ASSESSEE TO PRODUCE SHRI KARNAWAT FOR EXAMINATION TO PROVE THE GENUINENESS OF TRANSACTION. THE ASSESSEE FAILED TO PRODUCE SHRI KARNAWAT. THE AO CAME TO A FINDING THAT SINCE THE PARTY IS NO W ASSESSEES WITNESS, HE OUGHT TO HAVE PRODUCE D SHRI KARNAWAT. BUT HE FAILED TO DO SO. AS THE GENUINENESS OF TRANSACTION WAS NOT PROVED, THE AO MADE AN ADDITION OF RS.61,36,358/ - U/S 69C AS UNEXPLAINED EXPENDITURE. 4. AGGRIEVED BY THE ORDER OF THE AO, ASS ESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT THE LD. CIT(A) CAME TO A CONCLUSION THAT THE PROFIT ELEMENT ON THE TOTAL COMPONENT IN DISPUTE NEEDS TO BE ADDED TO THE INCOME OF THE ASSESSEE. THE LD. CIT(A) ESTIMATED THE GROSS PROFIT SHOWN BY THE ASSESSEE I.E. @ 7.86% ON RS.61,36,358/ - WHICH COMES TO RS.4,82,318/ - . THUS HE RESTRICTED THE DISALLOWANCE TO RS.4,82,318/ - IN PLACE OF RS.61,36,358/ - MADE BY THE AO. 5. BEFORE US, THE LD. DR SUBMITS THAT THE LD. CIT(A) HAS FORGOTTEN TO TAKE INTO ACCOUNT T HE STATEMENT GIVEN BY SHRI RAJENDRA JAIN DURING THE COURSE OF SEARCH AND SEIZURE ACTION U/S 132 ON 03.10.2013. HE ALSO SUBMITS THAT IT WAS THE DUTY OF THE ASSESSEE TO PRODUCE SHRI KARNAWAT . AS THE ASSESSEE FAILED TO PRODUCE SHRI KARNAWAT BEFORE THE AO FOR EXAMINATION, THE LD. DR SUBMITS THAT THE ONUS CAST ON HIM WAS NOT DISCHARGED. THUS HE SUBMITS THAT THE ADDITION MADE BY THE AO BE CONFIRMED. NONE APPEARED ON BEHALF OF THE ASSESSEE. ITA NO. 646/MUM/2016 4 6 . WE HAVE HEARD THE LD. DR AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISION ARE GIVEN BELOW. WE MAY REFER TO THE FOLLOWING RELEVANT PARAGRAPHS OF THE STATEMENT RECORDED BY THE DDIT (INV.), UNIT - II (4), MUMBAI OF SHRI RAJENDRA KUMAR JAIN : Q.13 PLEASE FURNISH DETAILS OF ALL THE BUSINESS CONCERNS WHICH ARE DIRECTLY OR INDIRECTLY CONTROLLED BY YOU ALONGWITH SHRI SURENDRA JAIN. ANS. SIR, WE ARE OPERATING THROUGH A NO. OF BUSINESS CONCERNS OF ALL THE THREE NATURE I.E. PROPRIETORSHIP FIRM, PARTNERSHIP FIRM A S WELL AS COMPANIES IN THE NAME OF VARIOUS PERSONS INCLUDING OUR EMPLOYEES. BUT FOR ALL PRACTICAL PURPOSES, MYSELF AND SHRI SURENDRA JAIN ARE HANDLING THE ENTIRE BUSINESS NETWORK ON PROFIT SHARING BASIS. THE NAME WISE DETAIL OF ALL BUSINESS CONCERN OF OURS IS AS FOLLOWS: - PROPRIETORSHIP FIRM NAME OF PROPRIETOR A. AVI EXPORTS RAJENDRA S JAIN (MYSELF) B. KALASH ENTERPRISES MANISH JAIN C. AADIIMPEX ANOOP JAIN D. ARIHANT EXPORTS SACHIN P AREEK E. VITRAG JEWELS MUDIT KARNAWAT (EX - EMPLOYEE) F. SUPER JEWELS ASHOK JAIN (EX - EMPLOYEE) PARTNERSHIP FIRM NAME OF PARTNERS A. SUN DIAM RAJENDRA S JAIN (MYSELF)&MANISH JAIN COMPANIES NAME OF DIRECTORS A. KRIYAIMPEX PVT. LTD RAJENDRA S JAIN (MYSELF) & MANISH JAIN B. SPARSH EXPORTS PVT. LTD RAJENDRA S JAIN (MYSELF) &SURENDRA JAIN C. KARNAVATIMPEXPVT. LTD SACHIN P AREEK AND MANISH JAIN D. MOULIMANI PVT. LTD RAJENDRA S JAIN ITA NO. 646/MUM/2016 5 (MYSELF) & SACHINPAREEK Q.14 DURING THE SURVEY ACTION UNDERTAKEN AT VARIOUS OFFICE PREMISES OF YOURS; NOT A SINGLE PIECE OF DIAMOND HAS BEEN FOUND BY RESPECTIVE SURVEY TEAMS THOUGH THERE IS SUBSTANTIAL TURNOVER SHOWN BY VARIOUS CONCERNS CONTROLLED BY YOU . PLEASE STATE AS TO WHERE DO YOU KEEP YOUR STOCK IN TRADE. ANS. SIR, IN THIS REGARD, I WANT TO ADMIT THAT WE ARE ENGAGED IN BUSINESS OF BILLS SHOPPING THROUGH ALL THE C ONCERNS AS NAMED BY ME IN RESPONSE TO YOUR QUESTION NO. 13 DUE TO W HICH WE DON'T HAVE ANY PHYSICAL STOCK OF DIAMOND WITH US AT ANY OF OUR PLACE AT ANY POINT OF TIME. I WOULD LIKE TO FURTHER ADD THAT WE ARE MERELY LENDING NAMES OF OUR VARIOUS CONCERNS TO TH E REAL IMPORTERS OF DIAMONDS WHO TAKES THE ACTUAL DELIVERY OF DIAMONDS. A READING OF THE ABOVE STATEMENT SHOWS SHRI JAIN HA S ADMITTED THAT THEY ARE ENGAGED IN THE BUSINESS OF BILLS SHOPPING THROUGH THE ABOVE CONCERN S . IT IS THE DUTY OF THE AO TO ENFORCE ATTENDANCE OF A WITNESS IF HIS EVIDENCE IS MATERIAL. AT THE SAME TIME THE ASSESSEE MUST FURNISH THE COMPLETE ADDRESS OF SUCH PERSON. A PROPER HEARING MUST ALWAYS INCLUDE A FAIR OPPORTUNITY TO THOSE WHO ARE PARTIES IN T HE CONTROVERSY FOR CORRECTING OR CONTRADICTING ANYTHING PREJUDICIAL TO THEIR VIEW. CROSS - EXAMINATION IS ALLOWED BY PROCEDURAL RULES AND EVIDENTLY ALSO BY THE RULES OF NATURAL JUSTICE. ANY WITNESS WHO HAS BEEN SWORN ON BEHALF OF ANY PARTY IS LIABLE TO BE CR OSS - EXAMINED ON BEHALF OF THE OTHER PARTY TO THE PROCEEDINGS. ITA NO. 646/MUM/2016 6 THE HON'BLE SUPREME COURT IN STATE OF KERALA VS. K.T. SHADULI GROCERY DEALER AIR 1977 SC 1627, RECOGNISED THE IMPORTANCE OF ORAL EVIDENCE BY HOLDING THAT THE OPPORTUNITY TO PROVE THE CORRECTNESS OR COMPLETENESS OF THE RETURN NECESSARILY CARRY WITH IT THE RIGHT TO EXAMINE WITNESSES AND THAT INCLUDES EQUALLY THE RIGHT TO CROSS - EXAMINE WITNESSES. IN ITO VS. M. PIRAI CHOODI (2012) 20 TAXMANN.COM 733 (SC), THE HON'BLE SUPREME COURT HAS HELD THAT ORDE R OF ASSESSMENT PASSED WITHOUT GRANTING AN OPPORTUNITY TO ASSESSEE TO CROSS - EXAMINE, SHOULD NOT HAVE BEEN SET ASIDE BY HIGH COURT; AT MOST, HIGH COURT SHOULD HAVE DIRECTED ASSESSING OFFICER TO GRANT AN OPPORTUNITY TO ASSESSEE TO CROSS - EXAMINE CONCERNED WIT NESS. THE IMPORTANCE OF CROSS - EXAMINATION HAS BEEN EMPHASIZED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF OM VINYLS P. LTD. VS. ITO [WP(L) NO. 3114 OF 2014]. THERE IS NO BASIS ON THE PART OF THE LD. CIT(A) OF ESTIMATING THE PROFIT RATE BY ADOPTING T HE GROSS PROFIT RATE @ 7.86% IN THE CASE OF A TRANSACTION IN WHICH THE GENUINENESS IS NOT PROVED BY THE ASSESSEE. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE AO TO MAKE A FRESH ASSESSMENT IN TH E LIGHT OF OUR OBSERVATION HEREINBEFORE AFTER GIVING OPPORTUNITY TO THE ASSESSEE TO CROSS - EXAMINE THE CONCERNED PARTIES . WE ALSO DIRECT THE ASSESSEE TO FILE THE RELEVANT DOCUMENTS/EVIDENCE BEFORE THE AO. ITA NO. 646/MUM/2016 7 NEEDLESS TO SAY THE AO WOULD GIVE REASONABLE OPPORTU NITY OF BEING HEARD TO THE ASSESSEE BEFORE FINALIZING THE ASSESSMENT ORDER. 7 . IN THE RESULT THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN C OURT ON 25/09/2017. SD/ - SD/ - ( MAHAVIR S INGH ) (N.K. PRADHAN) JUD ICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 25/09/2017 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI