The issue under consideration is whether the order passed by AO by denying the cross examination request of custom banker as well as bank officials is justified in law?
High Court states that, a perusal of the impugned orders indicates that the directions of this Court in the first round of litigation have not been taken into account in proper perspective in finalizing the assessments. This Court had specifically directed that a proper enquiry be made by the Assessing Officer, which would not only include examination of all materials procured from the Customs and the Income Tax Department, but also on an independent application of mind of those materials and a proper and effective opportunity being extended to the petitioner to substantiate his repeated contention that he is unconnected with the import transactions. However, the Assessing Officer has merely relied on the same materials which were already available on record, to pass the impugned order. The observations of the Assessing Officer indicate the cursory and arbitrary manner in which the assessments have been completed. Moreover, despite a request for cross- examination of the Customs Broker as well as bank officials by the assessee, the Assessing Officer does not even refer to the request, let alone consider the same. High Court thus of the view that the impugned assessments have not been framed in a proper manner. Though they inclined to quash the assessments in full, they have remit the same to the file of the officer to be re-done de novo solely.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
The petitioner is a proprietor of Tvl.S.R.S. Traders, a dealer in electronic goods and stationery. The background to this matter is as follows:
(i) The petitioner was assessed for the periods 2010-11 and 2011-12 in terms of the provisions of the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act) on 21.03.2013. The petitioner has filed applications seeking rectification of certain errors in the orders of assessments and these applications came to be rejected on 21.11.2016.
(ii) The orders of rejection came to be challenged before this Court in W.P.Nos.42574 and 42575 of 2017. Upon a detailed consideration of the facts involved, this Court was of the view that the case was a peculiar one in so far as the very basis of the assessment had been challenged by the petitioner.
2. The facts as recorded at the original instance are as follows:
(i) There was an audit inspection in the premises of the petitioner/dealer and two audit slips had been issued during the months of November 2012 and June 2013. The audit slips were to the effect that the petitioner had engaged in high value transactions related to imports of mobile phones, indicating the petitioners’ TIN and PAN numbers. The audit slips contained a direction to the Assessing Officer to take necessary action for finalization of assessment under
the provisions of the TNVAT Act.
(ii) Based on the direction contained in the audit slips, proceedings for assessment were commenced by the Assessing Officer alleging that no returns have been filed reporting turnover from the sale of the imports conducted.
(iii) Since there was no response by the petitioner, the assessments were completed ex-parte. Thereafter the petitioner, upon receipts of the orders of assessment, sought information under the Right to Information Act, obtained copies of the audit slips dated 26.11.2012 and 10.07.2013 and approached the Assessing Authority by way of an application under Section 84 of the TNVAT Act for rectification of the errors allegedly contained in the orders of assessment.
(iv) It also appears that proceedings had been initiated by the Income Tax Department on the basis of similar allegations regarding high value imports carried out by the petitioner.
(v) According to the petitioner, enquiries were conducted by the Income Tax Department with the Kotak Mahindra Bank, Mylapore, Standard Chartered Bank, Rajaji Salai and DCB Bank, Broadway, when it came to light that current accounts had been opened in the name of the petitioner utilising its TIN and PAN numbers and transactions were carried out through those accounts.
(vi) At para 6 of the affidavit filed in support of this writ petition, the petitioner states that the Income Tax Department has exonorated the petitioner in the light of the enquiry conducted by it and since, according to him, the bank accounts as aforesaid, did not relate to the petitioner at all.
(vii) The Petitioner thus filed application in terms of Section 84 before the VAT authorities contending that the name of the petitioners’ concern as well as its TIN and PAN numbers had been misused by a third party.
(viii) Despite the detailed submissions made in the Section 84 applications, the Assessing Officer came to reject the same on 21.11.2016 stating that the petitioner had neither bothered to file objections to the pre-assessment notices nor appeals challenging the assessment orders, no monthly returns had been filed and rejecting the request of the petitioner for the conduct of a detailed enquiry in regard to the transactions based on which the assessments have been framed. Challenging the aforesaid orders under Section 84, the petitioner initiated the first round of litigation in W.P.Nos.42574 and 42575 of 2017.
(ix) Noting the aforesaid facts this Court moulded the relief claimed by the petitioner in the first round, i.e., for a set aside of the orders of rectification under Section 84, proceeding to set aside the orders of assessment itself. At paragraph 6, this Court states as follows:
6. Thus, as already stated above, the case on hand is being a very peculiar case, this Court is inclined to mould the relief, sought for by the petitioner. Accordingly, both the Writ Petitions are allowed, and the impugned orders, dated 21.11.2016 are set aside. Consequently, the ex parte assessment orders, dated 21.03.2013 and 24.12.2013 are also set aside and the matters are remanded to the first respondent at the stage of the show cause notices. The first respondent is directed to ask necessary enquiries with the Customs Department, Income Tax Department and the Banks, viz., Kotak Mahindra Bank, Mylapore, Standard Chartered Bank, Rajaji Salai and DCB Bank, Broadway, where, transactions have been effected, and after receipt of the requisite information, the first respondent is directed to issue fresh show cause notice to the petitioner, and thereafter proceed with the matter in accordance with law. Considering the peculiar facts and circumstances, the second respondent is directed to disclose the information secured by them as and when a request is made by the first respondent. No costs. Consequently, connected Writ Miscellaneous Petitions are closed.
3. Pursuant to order dated 04.07.2017, the Assessing Authority issues notices dated 27.06.2019, the operative portion of which are as follows:
Thiru. M.P. Ganesan, Proprietor of Tvl.S.R.S. Traders, dealers in Electronic and Stationeries, doing business at No.41, Bharthipuram, Main Street, Shenoy Nagar, Chennai – 600 030 were assessed on a total and taxable turnover of Rs.11,73,55,009.00 for the year 2010-11 under TNVAT Act 2006 and orders passed in the reference cited.
As per the direction of the Hon’ble High Court Order/direction, enquiries made with the Branch Manager, Kotak Mahindra Bank, Mylapore Branch, DCB Bank, Parrys Corner Branch, Standard Chartered Bank, Rajaji Salai and the Principal Commissioner of Customs, New Customs House, Meenmbakkam. Chennai and obtained the detailed report of holding Current Account and Import, etc. as detailed below:
1.Kotak Mahindra, Mylapore Branch letter dated 16.03.2019.
(a) Application filed for opening of Platina Current Account on 20.11.2010.
(b) Current Account No.413011022599 was opened.
(c) The place of business has been verified by Mr.C.V.Raja, Sales Manager, ID. 12561.
(d) Photo identity has been verified.
(e) Pan car, Ration Card, Sales Tax (TNVAT Act) Registration Certificate and signature of the proprietor of the company has been verified with reference to originals.
2. Standard & Chartered Bank, Rajai Salai Branch
(a) Application filed for opening of Current Account on 11.04.2011.
(b) Current Account No.42705479702 was opened.
(c) Customer met in person at Office on 04.11.2011 at 11.00 AM.
(d) The place of business has been verified by Mr.Hemos, EMP. ID.1355207.
(e) Pan card, Ration Card, Sales Tax(TNVAT Act), Registration Certificate and signature of the proprietor of the company has been verified with reference to originals.
3. DCB Bank Limited, Parrys Corner Branch.
(a) Application filed for opening of Current Account on 29.06.2011.
(b) Nominated by the Proprietor is Tmt.G.Muthurani, Spouse.
(c) Current Account No.09721300000550 was opened.
(d) The place of business has been verified by S.Hemalathan, Manager Development, ID No.H.43.
(e) PAN Card and Ration Card and signature of the proprietor of the company has been verified with reference to originals by Thiru C.v.Raja.R.V.09586. The dealer has made Credit/Debit transactions with the above Banks using current accounts as detailed below.
1. Kotak Mahindra, Mylapore Branch.C.A/c.413011022599,
|Transaction Period||Transaction Details||Deposit (Credit)||Withdrawal (Debit)|
|24.11.2010 To 30.06.2011||By case Mobile Import Purchase and sales)||20,91,00,065.00||20,91,00,065.00|
3. DCB Bnak Limited, Parrys Corner Branch, C.A/c. 09721300000550
|Transaction Period||Transaction details||Deposit (Credit)||Withdrawal (Debit)|
|30.06.2011 to 08.08.2011||By case (Mobile Import Purchase and sales)||3,56,19,420.00||3,56,18,476.00|
3. Standard & Chartered Bank, Rajai Salai Branch, C.A/c. 42705479702
|Transaction Period||Transaction details||Deposit (Credit)||Withdrawal (Debit)|
|21.04.2011 to||By case (Mobile Import Purchase and sales)||5,60,51,796.00||5,29,39,850.00|
Total deposit in the Bankers : Rs.29,76,58,391.00
Total withdrawal from the Bankers : Rs.30,07,71,281.00
4. The Principal Commissioner of Customs (Air Cargo), New Custom House, Meenambakkam, Chennai – 600 027, Ref.F.No.S.Misc.13/2019-20-EDI-ACC dated 19.06.2019.
The dealer has made imports by IEC Code No.0405026307 through their Customs Broker M/s.Stream Line Forwarders, 255-III Floor, Linghi Chetty Street, Chennai – 600 001 during the period 2010-11 & 2011-12 (01.04.2010 to 18.11.2011) and paid Customs Duty for Rs.75,72,033.00 It is informed that all the above enquiry reports are clearly proved that:
1. Thiru.M.P.Ganesan, Proprietor of Tvl.S.R.S. Traders have done the Imports of Mobile Phones, Cameras and Car Stereos through Air Cargo,Custom House, Meenambakkam, Chennai.
2. Thiru.M.P.Ganesan, Proprietor of Tvl.S.R.S. Traders has filed application for opening of Current accounts to the above three Banks.
3. Thiru.M.P.Ganesan, Proprietor of Tv.S.R.S.Traders has made cheque payment to the Bankers for the purchases/Imports.
In view of the above and as per the direction of the Hon’ble High Court Order in W.P. No.42574 & 42575 of 2016 dated 04.07.2017, enquiries were made by addressing with the Customs Department, Income Tax Department, Kotak Mahindra Bank, Standard Chartered Bank and DCB Bank were clearly proves that Thiru. M.P.Ganesan Proprietor of Tvl.S.R.S, Traders has imported Mobil Phones, Cameras and Car Stereos through Customs Air Cargo, Chennai and all transactions were dealt through the current account at the above Banks. Hence, the dealers reply in his letters dated 26.05.2015 and 24.10.2016 are not correct and not accepted.
4. The pre-assessment proposal is as follows:
I therefore proposed to assess the dealer on a total and taxable turnover of Rs.10,66,86,372.00 and confirm the Assessment rder TIN 33721024549/2010-11 as detailed below:
1. Import of Mobile Phones, Cameras and Car Stereos : Rs.10,66,86,372.00
2. Add. Gross Profit at 10% : Rs. 1,06,68,637.00
Total Sale value estimated : Rs.11,73,55,009.00
Sales of Mobile Phones taxable at 4% : Rs.11,73,55,009.00
Total and taxable turnover proposed :Rs.11,73,55,009.00
Tax Due at 4% proposed : Rs.46,94,200.00
Tax paid : Rs. Nil
Balance to be paid : Rs.46,94,200.00
Penalty under Section 27(3) of the TNVAT Act. 2006.
Penalty due proposed : Rs,70,41,300.00
Penalty paid :Rs.. Nil..
Balanced to be paid : Rs.70,41,300.00
The dealers are required to furnish detailed reply of the above proposal and objections if any to the above proposals before the undersigned in writing within fifteen days from the date of receipt of the notice failing which the proposals will be confirmed and Revision order passed accordingly.
5. The petitioner on 12.07.2019 responded to the notices specifically requesting for the details referred to in the pre-assessment notices and also an opportunity to cross-examine the officials alleged to have visited the business premises for opening bank accounts in their banks. An opportunity to cross-examine the customs broker was also sought. Reference was also made to the enquiry conducted by the Deputy Director of Income Tax (Investigation) and to a statement recorded by the Officer from the petitioner on 26.05.2015, after a visit to the Standard Chartered Bank to the following effect:
6. According to the petitioner, the other banks were also visited by the Deputy Director, who had come to the same conclusion with respect to those banks as well and thereafter, the proceedings were dropped by the Income Tax Department. This assumption is drawn from the fact that nothing transpired after 2015 in this regard.
7. This assumption does not appear to be correct in the light of the report of the Assistant Director of Income Tax Department (Investigation) dated 16.08.2017 issued after the orders of this Court dated 04.07.2017 in W.P.No.43574 and 43575 of 2016 wherein the Department states as follows:
The Joint Director of Income Tax(Inv)
Sub: Writ Petition Number 42574 & 42575/2016 – filed by M/s.SRS Traders – Submission of report –reg.
Ref: (i) Letter in F.No.DIT(Inv)/Judl/2017-18 dated 04.08.2017.
(ii) Letter in F.No.112/Misc/U-1/2017-18 dated 07.08.2017 Received from the O/o.JDIT(Inv), Unit -1, Chennai.
Please refer to the above.
As per information received, Shri Ganesan Manikandan Poovalingam, sole proprietor of M/s.SRS Traders, 14/18, Bharathipuram Main Street, Shenoy Nagar, Chennai -30 has opened a current account with Standard Chartered Bank, Rajaji Salai, Chennai on 20.04.2011 and the same was closed on 14.07.2011. M/s.SRS Traders are wholesalers of electronic and telecommunication equipments. In the intervening period, totally Rs.10.07crores cash was deposited and subsequently around Rs.6 crores was transferred to M/S.CEE PEE Enterprises, 2/33 Krishnan Kovil Street, Mannady, Chennai 1. Since the turnover declared in account opening form is vastly different from the total cash transactions which have taken place in their bank account during the brief period, it was taken up for investigation.
A notice u/s.131 of the Income Tax Act 1961 were served on the bank calling for KYC form and bank statements for the relevant period in the case of M/s.SRS Traders, A/c.No.42705479702 and also to Shri MP Ganesan who is the proprietor of the concern. In response to this summons, bank has furnished from containing Know Your Customer (KYC) and bank statement for the period starting from 20.04.2011 to 04.07.2011. Shri.Ganesan, at the time of hearing on 26.05.2015, filed a letter stating that he has not opened the bank account in M/s.Standard Chartered Bank, Rajaji Salai in the name of the M/s.SRS Traders and the signature found therein was not his own and he claimed that somebody else has misused his name. He further added that he had nothing to do with M/s.Cee Pee Enterprises.
A notice u/s.131 was served on Standard Chartered Bank, Mylapore Branch, the bankers of M/s.CEE PEE Enterprises. In response to the summons, the bankers furnished copy of KYC and their bank statement from 28.02.2011 to 05.07.2011. On the basis of this information, the Inspector of this Unit has gone to the premises of Shri Abdul Rakheeb, the proprietor of M/s.Cee Pee Enterprises at No.2/39, Krishnan Kovil Street, Mannady, Chennai -1 but no such person was there and no such business concern found functioning. On perusal of KYC forms furnished by both the branches i.e. Standard Chartered Bank, Rajaji Salai branch & Standard Chartered Bank, Mylapore Branch. It is ascertained that same mobile No.9841110065 is mentioned in both KYC form i.e. M/s.SRS Traders and M/s CEE PEE Enterprises. A phone call was made on the above mentioned number but it was switched off. To enquire further, Department has searched the above mobile number in Departmental Database and it was found that same belongs to two different persons namely Shri Shakeel Ahmed M and Shri Ravichandran M in two different addresses. A notice u/s.131 was issued to Shri Shakeel Ahmed M and served on 29.12.2016 to his father, Shri K.Mastan Gani who was present at the residential address of his son. He has given written assurance that his son will appear before the Deputy Director of Income Tax (Investigation), Unit 1 (2) in the 1st week of January. A separate notice u/s.131, dated 29.12.2016 was also issued to Shri Ravichandran M which was returned unnerved. Further, summon dated 30.12.2016 was issued to the Branch Manager, Standard Chartered Bank, Mylapore, Chennai to prove the genuineness of the account holder a/c.No.42705479702.
In response to the summons, Shri Shakeel Ahmed appeared in this office on 17.02.2017. A statement u/s.131 had been recorded from him in which he stated that he neither know M/s.SRS Traders, Prop- Shri M.P.Ganeshan not M/s.CEE PEE Enterprises, Pro-Shri Abdul Rakheeb. He also stated that the never used mobile No.9841110065 that had been mentioned in the account opening forms of M/s.SRS Traders and M/s.CEE PEE Enterprises. Further the Income Tax Department has not exonerated Shri M.P. Ganesan.
STR was received in the above case pertaining to high value cash transactions in Standard Chartered Bank, Rajaji Salai Branch only and the enquiries were made with this bank only. Hence no verifications were carried out with M/s.Kotak Mahindara Bank, Mylapore Branch and M/s.DCB Bank, Broadway Branch, the other two Banks mentioned in the High Court order.
8. Clearly, the proceedings before the Income Tax Department are still at large. The result of the same or any progress in that regard is unknown as the Income tax Department is not a party to the writ petitions and neither has the petitioner placed on record any other document in this regard post August 2017.
9. No counters have been filed by the respondents, despite sufficient opportunities having been extended to them. Mr.Santhanaraman, who had entered appearance on behalf of the Customs Department, arrayed as R2, only states that no relief has been sought as against the Customs Department and there is hence no necessity to file counter. Mr.Jayaprathap, learned Government Advocate only seeks some more time, which is a repetition of the requests made ad infinitum earlier.
10. I am thus not inclined to adjourn this matter any further but proceed on the basis of the facts available on record. A perusal of the impugned orders indicates that the directions of this Court in the first round of litigation have not been taken into account in proper perspective in finalizing the assessments. This Court had specifically directed that a proper enquiry be made by the Assessing Officer, which would not only include examination of all materials procured from the Customs and the Income Tax Department, but also on an independent application of mind of those materials and a proper and effective opportunity being extended to the petitioner to substantiate his repeated contention that he is unconnected with the import transactions. However, the Assessing Officer has merely relied on the same materials which were already available on record, to pass the impugned order. The observations of the Assessing Officer indicate the cursory and arbitrary manner in which the assessments have been completed. Moreover, despite a request for cross- examination of the Customs Broker as well as bank officials by the assessee, the Assessing Officer does not even refer to the request, let alone consider the same.
11. I am thus of the view that the impugned assessments have not been framed in a proper manner. Though I am inclined to quash the assessments in full, I remit the same to the file of the officer to be re-done de novo solely for the reason that the report of the Income Tax Department also does not support the case of the petitioner in full and a full fledged and thorough exquiry is certainly called for in the matter.
12. For the aforesaid reasons, the impugned assessments are set aside and the Assessing Officer directed to redo the same denovo after hearing the petitioner, supplying the documents sought for by him and extending an opportunity of cross examination to him. This exercise shall be completed within a period of eight (8) weeks from date of uploading of this order.
13. These writ petition are allowed in the aforesaid terms. Consequently, connected miscellaneous petitions are closed. No costs.