9911796707
TMI Blog2024 (2) TMI 983X X X X Extracts X X X X X X X X Extracts X X X X ..... information provided by Sales Tax Department, Maharashtra which is bad in law. 2. On the facts and in law, the Hon. CIT (A) erred in confirming the judgements in favor of Appellant which is also against the law. 3. Briefly stated, facts of the case are that during the year under consideration, the assessee was carrying proprietary business under the name and style of M/s Robin International. The assessee filed return of income for assessment year 2009-10 on 27.09.2009 and for assessment year 2010-11 on 23.09.2010, declaring total income of Rs. 2,67,352/- and Rs. 3,10,624/- respectively. 3.1 Subsequently, the Assessing Officer received information from the Investigation Wing of the Income-tax Department that during assessment year 2009-10 and 2010-11, the assessee obtained bogus purchase bills from certain 'hawala' dealers and accordingly the Assessing Officer recorded reasons to believe that income escaped assessment, therefore, he reopened the assessment by way of issuing notice u/s 148 of the Income-tax Act, 1961 (in short the 'Act'). In the reassessment completed u/s 147 of the Act for assessment year 2009-10 on 04.03.2015, the Assessing Officer disallowed the entire bogus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer should have finally ascertained the fact by legal evidence or conclusion. 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 the requisite belief. Whether material would conclusively prove escapement of income is not the concern at that stage. This is so because the formation of the belief is within the realm of the subjective satisfaction of the Assessing Officer." 6.2 Further, the Hon'ble Supreme Court in Central Provinces Manganese Ore Co. Ltd vs ITO [1991] 191 ITR 662 has observed that at the stage of initiation of proceedings u/s 147 of the Act, what is relevant is the existence of reasons to make the Income-tax Officer believe that there has been under-assessment of the assessee's income for a particular year. The final outcome of proceedings is not relevant. Also, Hon'ble Supreme Court in the case of Raymond Woollen Mills Ltd Vs ITO [1999] 236 ITR 34 (SC) while examining the issue of validity of notice u/s 148 has held that at the stage of initiation of proceedings u/s 147 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f of the AO has held as under:- "All that is necessary to give special jurisdiction under section 147(a) is that the Assessing Officer had when he assumed jurisdiction some prima facie grounds for thinking that there has been some non-disclosure of material facts. Whether these grounds were adequate or not for arriving at such conclusion would not be open for the Courts' Investigation. Clearly it is the duty of the assessee who wants the court to hold that jurisdiction was lacking, to establish that Assessing Officer had no material at all before him for believing that there had been such non-disclosure." 7 In the present case, a perusal of the assessment order clearly suggests that information received by the Assessing Officer was specific, giving the details of Hawala Dealers and the amounts of bogus purchases made by the appellant during the year under consideration. The information received by the Assessing Officer also contained the affidavits/deposition of these Hawala Dealers wherein they had admitted of providing bogus purchase bills to various beneficiaries. The information also contained the details of enquiries made by the Sales Tax Department. Thus, the case w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SES .AMTP59884P 2009-10 91,702 27470616755V SOMNATH INTERNATIONAL AISPG1601K 2009-10 54,808 27660660931V SHREE SAI TRADING CO ATQPP8547E 2009-10 76,607 27630606579V PAWAN ENTERPRISES AEPPT8679H 2009-10 7,02,338 27960673085V K K TRADING COMPANY ARIPS0295C 2009-10 48,308 27650549144V MAHAVIR ENTERPRISES AACPT9032D 2009-10 51,480 Total 12,89,039 6.3 Regarding the assessment year 2010-11, the list of bogus parties is reproduced as under: Tin of Hawala Dealers Name of Hawala Dealer PAN of Hawala Dealer Assessment year Amount in Rupees 1 2 3 4 5 27760622173V DHRUV SALES CORPORATION AHYPD6115E 2010-11 109,221 27040651087V RIDDHI ENTERPRISES ACHPT0444J 2010-11 89,450 27820645517V V M UDYOG AGKPC6868L 2010-11 47,424 27520680408V SHANTINATH CORPORATION ABFPW4096G 2010-11 47,918 27540616280V NAVDEEP TRADING CORPN. AAAPV4487A 2010-11 57,200 27940631968V VARAH LAXMI SALES AGENCY AEPPT8680N 2010-11 13,520 27630606579V PAWAN ENTERPRISES AEPPT8679H 2010-11 464,282 27470704928V BHUMI SALES CORPORATION AAEPD7085N 2010-11 75,043 27330629636V PADMAVATI TRADING CO. ATYPK4207E 2010-11 83,408 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the appellant has claimed to have made purchases. The confessions made by these Hawala Dealers have been summarized by the Assessing officer in para 4.1 of the assessment order. Further, during the assessment proceedings, the assessee was asked to furnish confirmation, purchase bills, delivery challans, lorry receipts and stock register for these purchases, however, the assessee could produce only ledger extract for purchases and copies of purchase bills. Thereafter, the Assessing officer issued notice u/s 133(6) of the Act to these persons from whom the purchases were claimed to have been made. However, these notices remained unserved. Thereafter, the AR of the assessee vide order sheet dated 25/02/2015 was requested to produce these persons, however, the AR expressed inability to produce these vendors. The Assessing Officer further noticed that the Auditor in the audit report has specifically mentioned that the stock book was not produced. 11. The Assessing Officer then examined the confessions/affidavit and other related documents forwarded by the Sales Tax Department and he noticed that in many cases, bank statement of these Hawala Operators clearly indicate that cash was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant has taken an argument that the Assessing Officer made additions merely on the basis of information provided by the Sales Tax Department and without providing an opportunity of cross-examination. This argument of the appellant is factually incorrect because during the assessment proceedings, the Assessing Officer conducted independent investigation wherein these persons were found not traceable. Thereafter, the AR of the appellant was asked to produce these persons but the AR conveyed his inability to produce these vendors. In view of these facts, the argument of the appellant that the addition was made solely on the basis of information provided by the Sales Tax Department is factually incorrect. 15. One of the arguments taken by the appellant is that no opportunity to cross-examine the vendors has been provided to him. In this connection, it is important to consider the various judicial announcements on the issue of cross-examination which are summarized as under: 16.1 It is a well settled law that the strict provisions of the Indian Evidence Act do not apply to income-tax proceedings and the Income Tax authorities are not bound by the technical rules of evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examination in that sense is not the technical cross-examination in a Court of law in the witness-box." (emphasis supplied) Further, in para 105, following has been observed - 105. In our opinion right to cross-examine the witness who made adverse report, is not an invariable attribute of the requirement of the dictum, audi alteram partern. The principles of natural justice do not require formal cross-examination. Formal cross-examination is a part of procedural justice. It is governed by the rules of evidence and is the creation of Court. It is part of legal and statutory justice and not a part of natural justice, therefore, it cannot be laid down as a general proposition of law that the revenue cannot rely on any evidence which has not been subjected to cross-examination. However, if a witness has given directly incriminating statement and the addition in the assessment is based solely or mainly on the basis of such statement, in that eventuality it is incumbent on the Assessing Officer to allow cross examination. Adverse evidence and material, relied upon in the order, to reach the finality, should be disclosed to the assessee. But this rule is not applicable where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the assessee makes a claim of purchase/investment/transaction in the Return of income and files the necessary details of the parties in support of the claim as witness and if the Revenue has collected material to rebut such claim which may be in the form of the statement recorded, the assessee has to discharge the onus cast upon him and in such condition he cannot take the plea of cross examination of his own witnesses unless he claims in the proceedings that the witnesses on which he relied upon turned hostile. 16.6 Where there are sufficient materials before the Assessing Officer/Appellate Authorities, the opportunity of cross-examination may not be given, being irrelevant. In the case of Smt. Kusum Lata Thakral v CIT 150 ITR 714, Punjab & Haryana High Court has held that it was clear from the findings recorded by the Tribunal that there was no relationship between the donors and the assessee and there was no natural love and affection. The Tribunal had followed the judgment of the jurisdictional High Court in Shri Tirath Ram Gupta v CIT [2008] 304 ITR 145/[2009] 177 Taxman 294 (Punj. & Har.), laying down that in the absence of natural love and affection, the gift could no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and in that process now seek to identify the assessees who have benefited on account of such "modus operandi". Therefore, considering the factual scenario no prejudice has been established to the assessee by not furnishing the investigation report in its entirety nor making the persons available for cross examination as admitted by the department in substantial number of cases the assessees have not been specifically indicted by those persons from whom statements have been recorded. 59. We are conscious of the fact that there may be exceptions however nothing has been brought before us to show that there was an exception in any of these appeals heard by us. In a few cases the assessee has been made known of the statement of the Director of the penny stock company or the stock broker, entry operator despite which those assessees could not make any headway. While on this issue, we need to consider as to whether and under what circumstances the right of cross examination can be demanded as a vested right. In Kishanlal Agarwalla, the Hon'ble Division Bench of this Court pointed out that no natural justice requires that there should be a kind of formal cross examination as it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as held by Hon. ITAT, Delhi bench in the case of Meghna Towers (supra), cross examination is not necessary. Moreover, as discussed earlier in this order, the addition was not made solely on the basis of confession of the Hawala Dealers. Considering the facts of the case and the case laws discussed above, it is held that cross-examination is not necessary in this case. 18. In view of the above discussion, it is held that the appellant has failed to substantiate the purchases amounting to Rs. 12,89,039/- claimed to have been made from 9 Hawala Dealers as tabulated earlier in this order. Accordingly, the action of the Assessing Officer in holding these purchases as non-genuine purchases is upheld." 6.6 Further, the Ld. CIT(A) has justified as why assessee is liable for disallowance of entire bogus purchases as against certain percentage of gross profit. The relevant finding of the Ld. CIT(A) is reproduced as under: "19. Finally, the appellant has relied on various case-laws wherein the addition on account of bogus purchases was restricted to certain percentage. The appellant has also argued that it is showing reasonable GP rates in his books (14.12% for AY 2009-10 and 15.64% fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confronted the assessee with the information received, supplied copies of statements and where the persons have not been traced and no confirmation has been filed by the assessee in this regard, then the addition is to be made in the hands of assessee on account of such bogus purchases. In the facts and circumstances of some cases, the goods have been transferred by such hawala dealers to the respective purchasers, against which the assessee has to discharge onus of establishing the trail of goods which are transferred and further sold by them. Where the assessee is able to produce evidence of purchase of goods by way of weighment bridge receipts, transportation documents, payment of octroi and subsequent sale of goods to the respective parties and / or where the assessee has maintained complete quantitative details of purchase and sale of goods, then total bogus purchases cannot be added in the hands of assessee, but GP rate of 10% is to be applied on bogus purchases. Where the assessee does not establish its case, then the complete bogus purchases are to be added as hawala purchases.Further, in cases, where the statements are recorded and copies of which have been supplied to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. The Tribunal in M/s. Chetan Enterprises Vs. ACIT (supra) has already held that the addition be made by estimating the same @ 10% of the alleged hawala purchases, over and above the GP shown by the respective assessee. V. Another set of cases where the statements recorded by the Sales Tax Department have been handed over to the assessee and the copies of same have been supplied to the assessee, then where the assessee established the case of receipt of goods and its onward transmission, then the factum of purchases by the assessee stands established in such circumstances. However, estimation is to be made in the hands of assessee because of purchases from the grey market and following the above said ratio, addition is to be made by estimating the same @ 10% of the alleged hawala purchases, over and above the net profit shown by the assessee. (Emphasis supplied) 21. Same principle has been followed by Hon'ble ITAT Pune Bench in the case of ACIT vs Shri Pritam S Mahale ITA No. 183/PUN/2020 (Pune Tribunal) wherein the disallowance of whole of bogus purchase was confirmed in the case of a civil contractor by observing that the assessee failed to establish the consu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndings of Hon'ble Gujarat High Court in respect of bogus or sham purchases, wherein the Hon'ble Lordships, after analysing necessary facts, by para 6 of the order have held that; "6. The Tribunal in the case of Vijay Proteins Ltd. (supra) has observed that it would be just and proper to direct the Assessing Officer to restrict the addition in respect of the undisclosed income relating to the purchases to 25% of the total purchases. The said decision was confirmed by this Court as well. On consideration of the matter, we find that the facts of the present case are identical to those of M/s. Indian Woollen Carpet Factory (supra) or Vijay Proteins Ltd. (supra) In the present case the Tribunal has categorically observed that the assessee had shown bogus purchases amounting to Rs. 2,92,93.2887- and taxing only 25% of these bogus claim goes against the principles of Sections 68 and 69C of the Income Tax Act. The entire purchases shown on the basis of fictitious invoices have been debited in the trading account since the transaction has been found to be bogus. The Tribunal having once come to a categorical finding that the amount of Rs. 2,92,93,2887- represented alleged purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt corresponding to bogus purchases needs to be disallowed. Accordingly, the action of the Assessing Officer of disallowing whole of the amount corresponding to the bogus purchases is upheld. The addition of Rs. 12,89,039/- is accordingly confirmed. The grounds no. 2 and 3 filed by the appellant are DISMISSED." 6.7 We have heard rival submission of the parties and perused the relevant material on record. Before us, the Ld. Counsel for the assessee submitted that sales have not been doubted by the Ld. Assessing Officer and therefore, only a certain part of the gross profit could have been disallowed in the case of the assessee and not the entire bogus purchases. In our opinion, the assessee has to demonstrate that the alleged bogus purchases have been entered into the stock register and the corresponding sales bills through which those goods have been delivered to the subsequent buyers. In the case the Assessing Officer has not doubted the sales of the assessee but the assessee has failed to demonstrate whether the goods purchased through those bogus bills have been actually transmitted further to the subsequent buyers. Since, the assessee has not succeeded in either producing th ..... 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