Case Law Details

Case Name : Asstt. Commissioner of Income Tax 25(2) Vs Tarla R Shah (ITAT Mumbai)
Appeal Number : I.T.A. No. 5295/Mum/2013
Date of Judgement/Order : 02/02/2016
Related Assessment Year : 2010-11
Courts : All ITAT (4266) ITAT Mumbai (1423)
It is been held that the addition made merely on the basis of observations by Sales Tax Department and without conducting any independent inquiry specially when the assessee has discharged his primary onus by showing the books of account and payment by way of account payee cheques and producing bills and vouchers for sales of goods, the addition could not be sustained. The assessee was also not given a copy of the statements recorded from the hawala operators and therefore no cross-examination could be asked by the assessee which is also against the equity and the principle of natural justice as has been held by the Hon’ble Apex Court in the case of M/s Andman Timber Industries (supra). Moreover, the assessee was not named principle beneficiary by any of the suppliers of goods to be purchased from hawala entries and therefore it would be unreasonable to infer that the assessee might have availed the benefit of hawala transactions.

Full Text of the ITAT Order is as follows:-

This appeal by the assessee is directed against the order dated 21.05.2013 of Commissioner of Income Tax (Appeals)-35, Mumbai (hereinafter called as the CIT(A) ) for assessment year 2010-11. The assessee has raised following grounds of appeal:

1. “On the facts and in the circumstances of the case and in law, the CIT(A)erred in deleting the addition of Rs 87,24,259 which was made by invoking the provisions section 69C of the I. T. Act by treating the purchase are genuine.”

2. “On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs 14,36,653 which was made by invoking the provisions of section 69C of the I. T. Act by treating the purchase are genuine without appreciating the fact that the notices u/s 133(6) issued to the parties were returned unnerved as addressee was not available at the given address.”

3. “On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in giving relief on Rs 74,08,737/- in case of voluntary disclosure by the assessee against notice u/ s 131 of IT Act by treating it as genuine claims.”

4. “On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs 20,00,000 which was made by invoking the provisions of section 69C of the I. T. Act by treating the subcontract charges as genuine.”

5. “On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in relying upon judgments of the CIT vs. Nikunj Eximp Enterprises Pvt. without appreciating that the facts involved in the of the appellant’s case are different from the facts of the above case laws”.

6. “On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has grossly erred in not appreciating the fact that the assessee failed to produce the parties from whom the alleged bill were received despite may opportunities accorded to him.”

7. “On the facts and in the circumstances of the case and in law, the Ld . CIT(A) failed to appreciate that the assessee failed to rebut the findings of Sales Tax Department vis-a- vis bogus purchases, despite reasonable opportunities accorded to him.”

8. “On the facts and in the circumstances of the case and in law, the Ld CIT (A) has grossly erred in accepting the misleading submissions made by the assessee that the department didn’t make available the information, provided by Sales Tax Department.”

9. “On the facts and in the circumstances of the case and in law, the Ld CIT (A) has grossly erred in accepting the assessee ‘s submission that opportunity of cross examination was not given to the assessee during the course of assessment proceedings.

10. “The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the A. O be restored.”

2. The brief facts of the case are that the assessee was in the business of Civil Contraction as proprietor under the name and style of of M/s. KR Construction Company which was engaged in the infrastructure development contracts with Mumbai Municipal Corporation. The assessee filed its return of income on 21.09.2010 declaring total income of Rs.5,5 1,44,870/-. The case of the assesse was selected for scrutiny and notice under section 143(2) & 142(1) of the Income Tax Act, were duly issued and served upon the assessee. Following a search action u/s 132 of the Act in the case of M/s. Neev Infrastructure (P) Ltd. on 22.09.2011, survey was conducted on Shri Mafatlal V. Shah wherein he stated that he was providing accommodation bills to various parties. During post search verification it was found that the assessee had also received accommodation entries from Shri Mafatlal V. Shah and consequently a statement on oath u/s 131 of the Act of the assessee, he offered additional income of Rs.1,93,71,170/- by furnishing the details of bogus bills followed by the revised return of income by the assessee at Rs.7,42,78,888/- on 29.02.2012 offering the amount surrendered above.

3. The first ground relates to deletion of addition of Rs.87,24,259/- made by the AO u/s 69 C on account of unexplained expenditure. The brief facts of the case are that the AO during the course of scrutiny proceeding noticed from the list of parties from whom the purchases were made by the assessee that there were some suspicious dealers who were indulging in issuing bogus bills without any delivery of the materials on a commission basis as per official website of the Sales Tax Department of Govt. of Maharashtra. The AO issued notices to all these 4 parties u/s 133(6) which were returned unserved with the remark ‘ left’ or ‘not known’. The AO added Rs.87,24,259/- as unexplained expenditure u/s 69 of the Act by rejecting the reply of the assessee as incorporated in para 5.4 of the assessment order by holding that the bills from these parties were fictitious which were procured without purchasing any materials. Similarly, notices u/s 133(6) of the Act were sent to all the parties from whom the purchases were made and which were appearing in the list of the parties as published by the Sales Tax Department and the said notices were also returned by the postal authorities with the remark ‘left’ or ‘not known’. The aggregate of the total transaction of these 3 parties were Rs. 14,36,653/- which was raised in the 2nd ground of appeal. The AO made the addition of the same u/s 69C of the Act as unexplained expenditure by holding that no materials were purchase and these were only fictitious bills, as incorporated in 6.1 of the assessment order. The AO further noted in para 6.2 that the assessee had shown sub-contract expenses and the payments were made to various parties having turnover of less than 40 lakhs mostly offering income as per section 44 AD of the Act. It was however, observed by the AO that number of parties belonging to different group of families was found to be the recipient of payment from the assessee as was clear from the surnames and addresses of the parties and thereby assessee had reduced overall tax liability as most of these persons were below taxable limit or were taxable at lower rate of tax vis a vis assessee. The assessee furnished the confirmations from all the sub-contractors to whom the notices u/s 133(6) of the Act were issued and the AO made the addition of Rs.20 lakhs on account of bogus ‘sub-contract’ expenses which was agitated in the 4th ground. The issue raised in 3rd ground is against not giving relief of Rs.74,08,737/- as disclosed voluntarily at the time of statement u/s 131 of the Act. The ld. CIT(A) deleted the additions on the various grounds as incorporated in para 5.3.10, 6.1.5, 7.3, 8.3 of the appeal order and the revenue being aggrieved by this order of the CIT(A) filed an appeal before us.

4. At the outset the ld. Counsel for the assesse Shri. Bhupendra Shah pointed out that the case of the assessee was covered in his favour by the following decisions of the Co-ordinate Benches in which identical issues were decided in favour of the assessee:-

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ITA No.6727/Mum/20 12 (AY-2009- 10) Dated 20.08.2014.

ITA No. 2826/Mum/2013 (AY-2009-10) Dated 05.11.2014.

ITA No. 2959/Mum/2014 (AY-2010-1 1) Dated 28.11.2014.

ITA No. 5920/Mum/2013 (AY: 2010-11) Dated 27.03.2015.

ITA No. 5246/Mum/2013 (AY: 2010-11) Dated 05.03.2015.

ITA No. 5706/Mum/2013 (AY: 2010-11)) Dated 13.05.2015.

Ultimately, the ld. Counsel submitted before us that since the issues involved in the appeal of the revenue were fully covered in favour of the assessee by the foregoing decisions of the Tribunal, Mumbai benches and therefore, the CIT(A) order did not require any interference and be confirmed. Per contra the ld. DR relied on the order of the AO and prayed for setting aside the order of the CIT(A) and restore that of the AO.

5. We have considered the rival submissions and perused the materials on record. We find from the records and orders of the authorities below that there three additions made by the AO of Rs.87,24,259/- , Rs.14,36,653/- and Rs.20 lakhs u/s 69 C of the IT Act and in respect of 4th ,the AO did not allow any relief in respect of Rs. 74,08,737/- which was offered at the time of statement of the assessee u/s 131 by rejecting the claim of the assessee to allow the relief in respect of the same. We find that there was a search action u/s 132 of the Act in the case of M/s. Neev Infrastructure (P) Ltd. on 22.09.2011 following which survey was conducted on Shri Mafatlal V. Shah wherein he stated that he was providing accommodation bills to various parties and during post search verification it was found that the assessee had also received accommodation entries from Shri Mafatlal V. Shah and various other suppliers who were declared a hawala dealer by sales tax department, Govt. of Maharashtra. The statement of hawala dealer that he provided accommodation entries to the assessee is a good material for conducting further investigation, verification and enquiries but AO instead making further investigation, the AO completed the assessment on suspicion. The assessee had submitted before the AO that payments were made by account payee cheques/ RTGS through banking channel and materials were received and property recorded in the books of accounts. The AO had not made any further enquiry/ investigation to verify the same and added the same to the income of the assessee on mere suspicion. The CIT(A) also confirmed the addition in the same fashion i.e. on suspicion basis that suppliers were engaged in supplying accommodation bills to the assessee.

5.1 Now the issue before us is whether the aforesaid case of the assesssee is covered in favour of the assessee by the various decisions cited by the ld. Counsel. In the case of ITA No.6727/Mum/2012 (AY-2009-10) dated 20.08.2014 we find that the similar addition was made on the basis of information available on website of Sales Tax Department, Government of Maharashtra, which was deleted by the Tribunal. The relevant para 2.4 is extracted as below.

2.4. “We have heard the rival submissions and perused the material before us. We find that AU had made the addition as one of the supplier was declared a hawala dealer by the VAT Department. We agree that it was a good starting point for making further investigation and take it to logical end. But, he left the job at initial point itself. Suspicion of highest degree cannot take place of evidence. He could have called for the details of the bank accounts of the suppliers to find out as whether there was any immediate cash withdrawal from their account. We find that no such exercise was done. Transportation of good to the site is one of the deciding factor to be considered for resolving the issue. The FAA has given a finding of fact that part of the goods received by the assessee was forming part of closing stock. As far as the case of Western Extrusion Industries. www.taxguru.in ITA/672 7/Mum/2012/RGK 4 (supra)is concerned, we find that in that matter cash was immediately withdrawn by the supplier and there was no evidence of movement of goods. But, in the case before us, there is nothing, in the order of the AU, about the cash traial. Secondly, proof of movement of goods is not in doubt. Thererfore, considering the peculiar facts and circumstances of the case under appeal, we are of the opinion that the order of the FAA does not suffer from any legal infirmity and there are not sufficient evidence on file to endorse the view taken by the AO. So, confirming the order of the FAA, we decide ground no.1 against the AO.”

In the case of ITA No. 2826/Mum/2013 (AY-2009-10) dated 05.11.2014, similar addition to the tune of Rs. 1,74,01,436/- was deleted by the Tribunal. The relevant para 8 is extracted below.

8. “Be that as it may, another important factor the bank account copies collected by the assessing officer shows that the assessee had made the a payments to the above said parties by way of account payee cheques. Thus, it is seen that the transactions have been routed through the bank accounts. Further, it is not the case of the assessing officer that the assessee has indulged in accounting of bogus purchases. When the assessee submitted that he could not have affected the sales without making corresponding purchases, the AO has taken the view that the assessee could have effected purchases in the grey market, which conclusion is, in fact, not supported by any material. Under this impression only, the AO has further expressed the view that the assesee would have purchased the materials by paying cash thus violating the provisions of sec40A(3) of the Act, which is again based on only surmises. In the absence of any material to support the said view, we are unable to agree with the view taken by the tax authorities that the purchases amount is liable to be disallowed u/s40A(3) of the Act on the same impression only, the AO has expressed the view in the remand report that the purchases amount is also liable to assessed u/s69C of the Act as the source of purchases were not proved. Again the said conclusion is based upon only surmises, which could not be sustained. Thus, it is seen that the assessing officer has accepted the fact that the quantity details of purchases and sales have been reconciled by the assesee. Further, various case law relied upon by the assessee also supports his case. Under these set of facts, we are of the view that the ld. CIT(A) was not justified in confirming the disallowance of purchases. Accordingly, we set aside the order of the ld. CIT(A) on this issue and direct the AO to delete the disallowance of purchases.”

In the case of ITA No. 2959/Mum/2014 (AY-2010-11) dated 28.11.2014, similar addition to the tune of Rs.4,98,80,892/- was deleted by the Tribunal. The relevant para 8 is extracted below.

8. “We have carefully perused the orders of the lower authorities and the relevant documentary evidences brought before us. We find that the AO has made the addition as some of the suppliers of the assessee were declared Hawala dealer by the Sales tax Department. This may be a good reason for making further investigation but the AO did not make any further investigation and merely completed the assessment on suspicion. Once the assessee has brought on record the details of payments by account payee cheque, it was incumbent on the AO to have verified the payment details from the bank of the assessee and also from the bank of the suppliers to verify whether there was any immediate cash withdrawal from their account. No such exercise has been done. The Ld. CIT(A) has also confirmed the addition made by the AO by going on the suspicion and the belief that the suppliers of the assessee are Hawala traders. We also find that no effort has been made to verify the work done by the assessee from the Municipal Corporation of Greater Mumbai. We agree with the submissions of the Ld. Counsel that if there were no purchases, the assessee would not have been in a position to complete the civil work. 8.1. On civil contract receipts of Rs. 32.05 crores, the assessee has shown gross profit at 14.2% and net profit at 9.72%. 8.2. Even if for the sake of argument, the books of accounts are rejected, the profit has to be computed on the sales made by the assessee www.taxguru.in6 ITA No. 2959/M/2014 U/s. 44AD of the Act, the presumptive profit in case of civil contractors is 8% and in case of a partnership firm, a further deduction is allowed in respect of salary and interest paid to the partners. The ratio analysis of the profitability is also in favour of the assessee. In our considered opinion, the purchases are supported by proper invoices duly reflected in the books of account. The payments have been made by account payee cheque which are duly reflected in the bank statement of the assessee. There is no evidence to show that the assessee has received cash book from the suppliers. The additions have been made merely on the report of the Sales tax Department but at the same time it cannot be said that purchases are bogus. We, therefore, set aside the findings of the Ld. CIT(A) and direct the AO to delete the addition of Rs. 4,98,80,892/-.

In the case of ITA No. 5920/Mum/2013 (AY: 2010-11) dated 27.03.2015, similar addition to the tune of Rs.7,36,27,555/- was confirmed by the Tribunal. The relevant para 13 is extracted below.

13. On the other hand, the ld. AR submitted that the additions made in the case of some other assesses on identical reasons have been deleted by the Co-ordinate Benches of the Tribunal in the following cases :

a) Ramesh Kumar and Co V/s ACIT in ITA No.2959/Mum/2014 (AY-2010-11) dated 28.11.2014;

b) DCIT V/s Shri Rajeev G Kalathil in ITA No.6727/Mum/2012 (AY-2009- 10) dated 20.8.2014; and

c) Shri Ganpatraj A Sanghavi V/s ACIT in ITA No. 2826/Mum/2013 (AY-2009-10) dated 5.11.2014

In all the above said cases, the Co-ordinate Benches of the Tribunal has held that the AO was not justified in making the addition on the basis of statements given by the third parties before the Sales Tax Department, without conducting any other investigation. In the instant case also, the assessing officer has made the impugned addition on the basis of statements given by the parties before the Sales tax department. We notice that the ld. CIT(A) has taken note of the fact that no sales could be effected without purchases. He has further placed reliance on the decision rendered by Hon ’ble Gujarat High Court in the case of CIT Vs. M.K. Brothers (163 ITR 249). He has further relied upon the decision rendered by the Tribunal in the cae of ITO Vs. Premanand (2008)(25 SOT 11)(Jodh), wherein it has been held that where the AO has made addition merely on the basis of observations made by the Sales tax dept and has not conducted any independent enquiries for making the addition especially in a case where the assessee has discharged its primary onus of ITA. No.5920/Mum/2013 and 6203/Mum/2013 7 showing books of account, payment by way of account payee cheque and producing vouchers for sale of goods, such an addition could not be sustained. The Ld CIT(A) has also appreciated the contentions of the assessee that he was not provided with an opportunity to cross examine the sellers, which is required to be given as per the decision of Hon ’ble Kerala High Court in the case of Ponkunnam Traders (83 ITR 508 & 102 ITR 366). Accordingly, the Ld CIT(A) has deleted the impugned addition. On a careful perusal of the decision rendered by Ld CIT(A) would show that the first appellate authority has analysed the issue in all angles and applied the ratio laid down by the High Courts and Tribunals in deciding this issue. Hence, we do not find any reason to interfere with his order on this issue.”

In the case of ITA No. 5246/Mum/2013 (AY: 2010-11) dated 05.03.2015, the Tribunal confirmed the order of the CIT(A) deleting the addition of Rs.28.08 lakhs. In the case of ITA No. 5706/Mum/2013 (AY: 2010-11) dated 13.05.2015, the order of the CIT(A) was confirmed by the Tribunal which deleted the addition of Rs. 1,37,65,667/-. The relevant para 5 is extracted below.

5. “We have heard the rival submissions and perused the material before us. We find that the AO had not doubted the genuineness of the purchase but had made the disallowance of Rs.1.37 crores invoking the provisions of 69C of the Act. We find that in similar circumstances the Tribunal had deleted the addition made by the AO in the cases relied upon by the AR of the assessee. In the case of Rajiv G Kalathil (supra), to which one of us was party identical issue has been decided as under :- 2.3.Before us, Departmental Representative argued that both the suppliers were not produced before the AO by the assessee, that one of them was declared hawala dealer by VAT department, that because of cheque payment made to the supplier transaction cannot be taken as genuine. He relied upon the order of the G Bench of Mumbai Tribunal delivered in the case of Western Extrusion Industries. (ITA/65 79/Mum/2010-dated 13.11. 2013).Authorized representative (AR) contended that payments made by the assessee were supported by the banker’s statement, that goods received by the assessee from the supplie was part of closing stock, that the transporter had ITA/5706/Mum/2013,AY-2010-11-PG 4 admitted the transportation of goods to the site. He relied upon the case of Babula Borana (282 ITR251),Nikunj Eximp Enterprises (P) Ltd. (216Taxman1 71)delivered by the Hon ’ble Bombay High Court. 2.4.We have heard the rival submissions and perused the material before us. We find that AU had made the addition as one of the supplier was declared a hawala dealer by the VAT Department. We agree that it was a good starting point for making further investigation and take it to logical end. But, he left the job at initial point itself. Suspicion of highest degree cannot take place of evidence. He could have called for the details of the bank accounts of the suppliers to find out as whether there was any immediate cash withdrawal from their account. We find that no such exercise was done. Transportation of good to the site is one of the deciding factor to be considered for resolving the issue. The FAA has given a finding of fact that part of the goods received by the assessee was forming part of closing stock. As far as the case of Western Extrusion Industries. (supra)is concerned, we find that in that matter cash was immediately withdrawn by the supplier and there was no evidence of movement of goods. But, in the case before us, there is nothing, in the order of the AU, about the cash traial. Secondly, proof of movement of goods is not in doubt. Therefore, considering the peculiar facts and circumstances of the case under appeal, we are of the opinion that the order of the FAA does not suffer from any legal infirmity and there are not sufficient evidence on file to endorse the view taken by the AU. So, confirming the order of the FAA, we decide ground no.1 against the AU.”

6. We are of the view that the facts of case of the assessee are same as in the foregoing decisions and thus the case of the assessee is squarely covered by these decisions of the tribunal. We, therefore, find no reason to interfere in the order of the CIT(A) and uphold the same by dismissing the appeal of the revenue. The AO is directed accordingly.

7. Order pronounced in the open court on 02nd February, 2016

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