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TMI Blog2017 (9) TMI 375X X X X Extracts X X X X X X X X Extracts X X X X ..... s not an empty formality as it contemplate the learned CIT(A) to record reasons for admitting additional evidences filed by the assessee and then it also contemplate forwarding of these additional evidences by learned CIT(A) to the AO for his necessary verifications/examination. Thus, we are of the considered view that the appellate order of ld. CIT(A) cannot be sustained, hence, we set aside this matter back to the file of the A.O. for de-novo determination of the issue on merits in accordance with law - I.T.A. No. 973/Mum/2017 - - - Dated:- 1-9-2017 - SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Revenue : Shri V. Jenardhanan, D.R. For The Assessee : None ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by the Revenue, being ITA No. 973/Mum/2017, is directed against the appellate order dated 25.11.2016 passed by the learned Commissioner of Income Tax (Appeals)- 16, Mumbai (hereinafter called the CIT(A) ), for assessment year 2009-10, appellate proceedings before learned CIT(A) had arisen from the assessment order dated 19.03.2015 passed by learned Assessing Officer (hereinafter called the AO ) u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TAL 43704949 The assessee had procured material from the above parties to the tune of ₹ 4,37,04,949/- and these parties were listed to be suspicious dealers who are allegedly engaged in issuing bogus bills without supplying any material as per list prepared by Maharashtra VAT authorities. The case was reopened by the AO u/s 147 of the Act and notice dated 04-03-2014 u/s 148 of the Act was issued to the assessee requiring the assessee to furnish the return of income for the subject assessment year. In response to the notice u/s 148 of the Act, the assessee filed its return of income 0n 12th March, 2014. The A.O. made the addition to the tune of 100% of alleged bogus purchases based upon the information from Sales Tax Department of Government of Maharashtra that the parties from whom the material were purchased by the assessee were engaged in merely issuing bills/invoices to various parties without any actual supply of material . The assessee is one of the beneficiaries of such hawala transactions. The A.O. observed that The assessee failed to bring on record the documentary evidences in the form of purchase orders, lorry receipts and other t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal assessment was completed on 09/05/2011. (PB Page 47). b. On or about 07.03.2014 the appellant received notice dated 04.03.2014 u/s 148 (PB page 52) which was replied by it s AR by his letter dated 08.03.2014 and also calling for copy of the recorded reasons (PB page 53). The copy of reasons dated 04.03.2014 (PB page 54) was furnished to the appellant by the ld. DCIT along with his notice dated 07.08.2014 issued u/s 143 (2). c. The Id. DCIT has reopened the assessment for the following reasons: i. He noticed that the parties listed in para 2 of the said recorded reasons were declared as Soles Tax Hawala Party. ii. On verification from the website mahavat.gov.in, he noted that Maharashtra Sales Tax Dept had declared the said parties as Hawala dealers and had cancelled their TINs. iii. By letter dated 26/12/2013, DGIT (Inv.) communicated that the concerned persons of these parties have admitted during the course of search proceedings by DIT (Inv.) that they are involved in issuing hawala sales bills without supplying goods and that appellant is one of the beneficiaries of such hawala transaction. d. The appellant submits that reopening of its as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... }.Likewise it has also been so held in (2010) 329 ITR 110 {Del} - Sarthak Securities Co.9(P) Ltd v/s ITO. ITO vs. M.B. Jewellers P. Ltd. in ITA No. 2499/Del/2011 dt. 14.11.2014 where reopening on the basis of material received from another AO was held to be mechanical, without independent application of mind and hence bad. It further held that since material received was not part of the record, the reasons were vague and not based on any tangible material (PB pages 194 to 204). Likewise it has also been so held in (2011) 338 ITR 51 (Del) Signature Hotels (P) Ltd. v/s ITO. ( 2005) 92 ITD 85 (SB) (Asr )-Assam Tea Co. v/s ITO where it is held that where assessee's name is not included in the confession of the creditor then reassessment proceedings were invalid. In this case too except for a bald statement purported to be of the concerned persons of the said parties nothing is there on record to implicate the appellant. iv. S. 148 requires reasons to be recorded prior to the issue of notice there under. A perusal of the last para of the recorded reasons (PB Page 54) show that the notice was already issued before they were recorded. The reassessment procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37 21B/TNZ/-5/1337 (PB page 112) 4 Fair-Chem 2,46,33,981 Manufacture 20B/TNZ5/1320 21B/TNZ-5/1320 (PB page 110) 5 Jasmine Healthcare (Jasmine) 1,87,66,638 Trading Not available Total 4,37,04,949 Out of the above, purchases from parties 1 to 4 aggregating to ₹ 2,49,38,311 were used for manufacturing and hence were duly received in appellant's premises and are reflected in the relevant cardex. As purchases from Jasmine were not for manufacturing no cardex was made for these purchases. However the materials purchased from it were sold bill to bill to Secundarabad Healthcare Ltd (Secunderabad) Erica Pharmaceuticals Pvt Ltd (Erica) and hence quantity tally in respect of purchases from Jasmine is also verifiable. e. The Id ITO disallowed the above purchases of ₹ 4,37, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said parties, is therefore not only casual in nature but also contrary to the records of the Sales-tax Department, Income-tax Department, Registrar of Companies and FDA. ii. The ld. DCIT is not correct in saying that no contemporaneous records establishing receipt of goods are available for following:- 1. As stated hereinbefore, the appellant, being a pharmaceutical manufacturing company, is required to maintain elaborate records under the said D C Act Rules. Not only that but under the said D C Act Rules the appellant is required to test the materials before consumption also the final product after manufacture and before sale to make sure that they conform to relevant standards. Hence maintenance of quantitative records of purchases, consumption and closing stock of materials purchased for manufacture is not only absolutely necessary but is also maintained by the appellant which can be confirmed by ;- Para 2 of Annexure to Auditors Report and Annexure I to Tax Audit Report both of which state that the appellant has maintained proper records of inventories (PB Pages 13 39}. The quantitative details which are provided in Annexure VII to its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sales owns a delivery van as would be seen from its fixed assets Schedule (PB Page 162). This delivery van regularly plies throughout Mumbai Thane for the business of the said firm and hence, whenever required, the appellant can use it for lifting or making deliveries for which the said Ambika Pharma Sales too does not have to incur any additional costs. Further, many of the appellant's purchases from the impugned party at Sr No 4 did not require any transportation as the quantities purchased were small upto 5 kgs / 5 ltrs which were either manually transported or sent through courier. Therefore absence of transport documents simpliciter would not mean that purchases were not made, more particularly, when the materials so purchased are almost fully consumed for manufacturing as can be verified from the relevant cardex. 2. Though the transport document for purchase from Krishna Trading Co is not readily traceable, the purchase bill does mention the transport details namely L/R No. the name of transporter (PB page 104) showing that the transport of the material was arranged by the seller itself. The relevant cardex also shows that the material is almost fully consumed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the only purchase from Ritesh is also entered in cardex and therefore its non- receipt too. (PB Page 106). The relevant cordex also shows that the material is almost fully consumed by the appellant (PB Pages 105 106). 12. Accounts of Ritesh Krishna were squared up during the year itself whereas those of Applause Fair-Chem were squared off in subsequent years. (PB pages 67, 68, 69, 111 158 to 161).. ( iv) Re; Puchases from Jasmine;- 1. During the year under consideration the appellant exported goods to 35 parties spread over more than 20 countries. Besides, it also carried on negotiations with 15 parties located in various foreign countries (PB Page 163). The export customers, being buyers of health care products, would patronize only such suppliers who inter alia have a healthy level of sales. 2. In order to achieve a higher level of sales, the appellant entered in to an arrangement with Jasmine, Secundarabad Erica under which purchases from Jasmine were sold bill by bill to Secunderabad Erica. Likewise, purchases from Secunderabad Erica were also sold bill by bill by appellant to Jasmine. As such no monetary transactions took place with any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lers profile as tabulated hereunder :- Party Return filed up to FY PB pages Ritesh 2011-12 55 Krishana 2008-09 56 Applause 2012-13 57 Fair-chem 2010-11 58 Jasmine 2011-12 59 It would be seen that out of 5 dealers,4 of them have filed sales tax returns beyond the year under consideration and Ritesh has filed sales tax return upto the year under consideration. ( vi) Neither the so-called list nor any other material is brought on record to show that the impugned parties were treated as hawala dealers by the sales tax department or that they merely issued bills without delivery of goods. ( vii) As aforesaid, in case of Jasmine, sales made to it by the appellant has been accepted by the sales tax department and sales tax (VAT) paid thereon by appellant is also accepted by it which clearl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed bogus bills without supplying any material. The ld. CIT(A) observed that the assessee could not prove the genuineness of the purchases made from these parties and in-fact no purchases were made wherein these parties merely issued bills without supplying any material physically. The learned CIT(A) observed that the parties are non-existent and no purchases were made from these parties and merely bogus bills were obtained. The ld. CIT(A) observed that the motive behind obtaining bogus bills from these parties appears to be inflation of purchase price so as to suppress the true profits and accordingly the ld. CIT(A) estimated the suppressed profit to the extent of 12.5% of the purchases made by the assessee from the hawala dealers as the suppressed profit element embedded in the such purchases and accordingly additions were sustained by learned CIT(A) which were in addition to the GP already shown by the assessee, vide appellate order dated 25-11-2016 passed by learned CIT(A). The learned CIT(A) however did not call for any remand report from the AO with respect to additional evidences filed before learned CIT(A) during appellate proceedings nor these additional evidences were forw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TOTAL 43704949 It is observed that notices u/s 133(6) of the Act were issued by the AO to all these parties who were alleged hawala dealers which returned un-served. These parties have confessed before the Maharashtra Sales Authorities that they were engaged in issuing bogus accommodation bills to the entities without supplying any material. The assessee could not produce the parties before the A.O. . Before the A.O. the assessee could not produce the documentary proof with regard to the consumption / utilization of material for manufacturing of finished goods dealt within or having received the material in the premises of the assessee. The assessee did not produce the stock register before the AO. The assessee also could not prove the delivery of goods said to have been purchased from these parties as no details of lorry, lorry receipt number, transport details etc. Thus in nut-shell, the assessee could not prove the genuineness of these purchases which led to the additions to the tune of 100% of these purchases by the AO wherein entire purchases made from these parties stood disallowed by the AO and added to the income of the assessee. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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