Income Tax Appellate Tribunal - Gauhati
Bmg Informatics Pvt. Ltd., Guwahati vs Deputy Commissioner Of Income Tax, ... on 7 August, 2023
IN THE INCOME TAX APPELLATE TRIBUNAL GAUHATI BENCH
VIRTUAL HEARING AT KOLKATA
BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER
AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER
ITA No.61/GTY/2022
Assessment Year: 2016-17
Deputy Commissioner of BMG Informatics Private
Income-tax, Central Circle-1, Limited,
Guwahati. Room No. 507, 5th Floor,
Vs.
Aayakar Bhawan, G. S. Road,
Christian Basti, Guwahati-
781005.
(PAN: AADCB 2203 Q)
(Appellant) (Respondent)
&
C.O. No. 03/Gau/2023
In ITA No.61/GTY/2022
Assessment Year: 2016-17
BMG Informatics Private Deputy Commissioner of
Vs.
Limited. Income-tax, Central Circle-1,
Guwahati.
(Cross Objector) (Respondent)
Present for:
Revenue by : Shri Amit Kumar Pandey, JCIT
Assessee/Cross Objector by : Shri P. C. Yadav, Advocate
Date of Hearing : 08.06.2023
Date of Pronouncement : 07.08.2023
ORDER
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
Appeal filed by the revenue and the Cross Objection filed by the assessee are against the order of Ld. CIT(A), Central, North-East Region, Guwahati dated 31.10.2022 against the assessment order of ACIT, 2 ITA No.61/GTY/2022 & CO No. 03/GTY/2023 BMG Informatics Pvt. Ltd., AY: 2016-17 Central Circle-1, Guwahati u/s. 143(3) r.w.s. 147 of the Income-tax Act, 1961 (hereinafter referred to as the "Act"), dated 16.03.2022 for AY 2016-
17.
2. Re venue has come up in appeal by taking the ground on deletion of addition of Rs.3,25,93,500/- made u/s. 69A of the Act by treating it as unaccounted receipts. Reve nue has also challenged the basis of giving relief by the Ld. CIT(A) by holding that asse ssee was not confronted with the impounded material relie d on by the Ld. AO and without giving opportunity to the assessee for cross examination. Against this appeal by the reve nue, assessee has challenged the reopening proce edings initiated u/s. 147 of the Act by contending that reasons recorded are based on borrowed satisfaction, in the cross objection filed by it.
2.1. Facts of the case as culled out from records are that assessee is engaged in the business of information technology, operating in entire North-East India, supplying/selling items like computers, laptops, UPS, batteries, power bank, laptop bags etc. Return of income was filed on 06.09.2016, reporting total income at Rs.3,32,23,900/-. A survey u/s. 133A of the Act was conducted in the case of D S System Pvt. Ltd. (DSSPL) on 02.11.2017. In this survey, a bunch of loose she ets were impounded inventorised as "DSS-05". Subsequent to this survey, another survey action was undertaken on the assessee on 28.11.2017. In the course of surve y at the premise of the assessee, no incriminating material was found.
2.2. From the pe rusal of survey report in the case of assessee, received from the office of ITO (Inv.) Unit-1, Gauhati and the 3 ITA No.61/GTY/2022 & CO No. 03/GTY/2023 BMG Informatics Pvt. Ltd., AY: 2016-17 impounded material marked as DSS-05 found in the case of DSSPL, it was noted by the Ld. AO that assessee had made payment of Rs.7,34,95,000/- through cheque to DSSPL against purchase of laptop bags and power banks. Against these payments, assessee has received back an amount of Rs.3,25,93,500/- in cash from DSSPL. In the post survey investigation, it was found that while cheque transactions between the assessee and DSSPL were recorded in the regular books of account of the assessee but the cash transactions were not recorded in the regular books of account of the assessee. Director of the assessee Shri Joydeep Gupta in his statement re corded u/s. 131 on 17.09.2019 had denied receipt of cash from DSSPL, as noted by the Ld. AO. Ld. AO applied his mind on this information and afte r verifying the records, forme d a belie f that assessee had inflated its purchase cost in its books of account against which it has received unaccounted cash of Rs.3,25,93,500/-. He thus, re corded the reasons to believe that income amounting to Rs.3,25,93,500/- has escaped assessment in the case of the assessee owing to failure on the part of the assessee to disclose true and comple te material facts necessary in the assessment and thus, issued a notice u/s. 148, thereby undertook the proceedings for reassessment u/s. 147 of the Act.
2.3. Ld. AO has implicated the assessee for unaccounted cash transactions with DSSPL and made the addition for the same in the hands of the assessee to complete the assessment u/s. 147 read with sec. 143(3) of the Act. In the course of assessment, assessee had provided sample purchase invoices, sample sales invoice s, confirmation of accounts of transactions with DSSPL, 4 ITA No.61/GTY/2022 & CO No. 03/GTY/2023 BMG Informatics Pvt. Ltd., AY: 2016-17 its own financial statement. In the impugned assessment order, ld AO has note d that assessee had recorded payments made to DSSPL through cheque s and the se cheques payments were found to be exactly matching with the entries of cheque payments recorded in pages 1 to 15 of the impugned impounded material marked as DSS-05. In order to prove the sanctity of the impounded material found at the premise of the DSSPL during its survey, Ld. AO observed that since the cheque transactions recorded in the impounded material are real, the conte nts of the same are proven to be inviolable and true. He thus, caste d the onus on the assessee to prove that no cash was received by the assessee which otherwise is recorde d in this impounded document. Assessee had strongly contended that documents/diaries etc. impounded through survey action on a third person cannot be taken as evidence without corroborative material in the case of the assessee. It also placed reliance on several judicial precedents to fortify its claim. Ld. AO did not find favour with the submissions furnished by the assessee and completed the assessme nt by making the addition. Aggrieve d, assessee went in appeal before the Ld. CIT(A).
3. The issues raise d before the Ld. CIT(A) were both in respect of the jurisdictional aspect of reopening u/s. 147 based on recording of reasons to believe by way of borrowed satisfaction and also on the merits of the case. Ld. CIT(A) has elaborately dealt with both the aspects and has dismissed the legal contention raised by the assessee. Against this, assessee is in cross objection before the Tribunal. Since this is a 5 ITA No.61/GTY/2022 & CO No. 03/GTY/2023 BMG Informatics Pvt. Ltd., AY: 2016-17 jurisdictional issue, we first take up the cross objection of the assessee for adjudication.
3.1. The principal contours of arguments raised by the Ld. Counsel on the legal issue are in respect of borrowed satisfaction for the purpose of reason to believe recorded by the ld. AO. Admittedly, it is a fact on record that the material impounded is during the course of survey of DSSPL which forms the basis for initiating proceedings u/s. 148 read with
147. In this impounded material, payments made by the assessee to DSSPL through the banking channel are recorded in the regular books of account of both the assessee and DSSPL. However, there are certain cash payments made by the DSSPL to the asse ssee, noted in the same impounded material which are neither recorded in the regular books of account of the assessee nor that of DSSPL. Ld. AO co-related the details of these payments made by the assessee to DSSPL. He thus, inferred that by receiving back cash from its supplier i.e. DSSPL, out of earlier payments made through the banking channel by the assessee , it has inflated the cost of purchase. Thus, at the time of recording the reasons to believe, Ld. AO had prima facie material available with him which was pointe d to the purposed e scapement of income from assessment. Since bank transactions appearing in the impounded material were found to be matching with the regular books of account of the assessee, formation of reason to believe that cash would have been received back by the assessee against the aforesaid bank payments made by the assessee to DSSPL, cannot be termed as reason to suspect.
6 ITA No.61/GTY/2022 & CO No. 03/GTY/2023BMG Informatics Pvt. Ltd., AY: 2016-17
4. It is well settled that at the initial stage, final ascertainment about the escapement of income is not necessary. What is required is the formation of opinion based on prima facie but precise facts. At the stage when the AO see ks to reope n the assessment, the final outcome of the proce eding is not relevant. Powers to reopen are liable to be exercised on the basis of cogent probable facts and not on the basis of established facts. At the stage of issuance of notice u/s. 148, the only question is to be addressed is whether relevant material is available with the AO on the basis of which reasonable like lihood would be gathe red that there was an escapement of income. Reason to believe is a cause which may be validly weighed when the AO prima facie noticed that the income had escaped assessment. The word "reasons" would imply justifying the facts available with the AO. Thus, if the facts so suggest, the AO would be entitled to form such belief to proceed further. Sufficiency of material could not be said to be ge rmane at this stage.
4.1. In order to appreciate the controversy in the light of above principles and facts, it is clearly noticed that at the time of recording the reasons to believe, Ld. AO had prima facie material available with him pointing out to the purported escapement of income from assessment, since the bank transactions appearing on the impounded material were found to be matching with the regular books of account of the assessee. Based on this, AO had reason to believe that the cash would have bee n received back by the assessee against the aforesaid bank payments made by it to DSSPL. Thus, we are in agreement with the finding arrived at by the Ld. CIT(A), 7 ITA No.61/GTY/2022 & CO No. 03/GTY/2023 BMG Informatics Pvt. Ltd., AY: 2016-17 dismissing the legal contention of the assessee. Accordingly, grounds of cross objection taken by the assessee are dismissed.
5. In the result, Cross Objection of the assessee is dismissed.
6. We now deal with the appeal of the reve nue. While adjudicating on the appeal of the revenue, the moot point before the Tribunal is in respect of whether the material/docume nts impounded during the course of survey in case of a third person can be relied upon for making additions in the hands of the assessee in absence of any corroborative material found in the hands of the assessee. The undisputed fact is that survey at the business pre mises of the assessee was conducted subsequent to the survey action unde rtaken at the premise of DSSPL. Even in the reasons to believe recorded by the ld. AO, reference and reliance is on the impounded material found during the course of survey of DSSPL and not the asse ssee. The said mate rial found and impounded in the survey of third party i.e. DSSPL were not corroborated from the outcome of the survey which was subsequently conducted in the case of the assessee which is imperative for deciding the matter before us.
6.1. The document on the basis of which the addition has been made are loose sheets. It is a settled law that loose papers and documents cannot possibly be considered as books of account regularly kept in the course of business. It is worth appre ciating the fact that no incriminating material was found during the survey in the case of assessee itself. The additions 8 ITA No.61/GTY/2022 & CO No. 03/GTY/2023 BMG Informatics Pvt. Ltd., AY: 2016-17 made on the basis of loose papers, diary and documents found from third party are not justified if such documents contain narration of transactions with the assessee as held by the Hon'ble Supreme Court in the case of Ce ntral Bureau of Investigation Vs. V. C. Shukla & Ors. [1998] 8 SSC 410. In this case , Hon'ble Court rejected the prose cution's claim, justifying counsel for the appellant's contention that the entries in the diary maintained by the Jain Brothers were admissible and bundle of sheets/papers which are detachable and re placeable at a moment, notice can hardly be characterized as ground of evidence of some books of account.
6.2. Coordinate Bench of ITAT, Ahmedabad had dealt with similar issue in the case of ACIT Vs. Prabhat Oil Mills [1995] 52 TTJ 553 (Ahd.) wherein a bunch of loose papers were seized from the premises of the third party which indicated the alleged unrecorded sales made to that party by the assessee. Variation in month-wise and other allied enterprises did not indicate that the assessee made any sales to 'H'. Average yield of the assessee was higher than that in comparable cases. The AO re lied only on the entries of the said diary and did not bring on record any corroborative material to prove that such sales were made outside the books. It was held that mere entries in the accounts of a third party were not sufficient to prove that the assessee indulged in such transactions.
7. Another important aspect to be dealt on the issue before us is in respect of Ld. AO requiring the assessee to establish a negative fact of not re ceiving back any cash for the addition made by the Ld. AO. In the assessment order itself, ld. AO has 9 ITA No.61/GTY/2022 & CO No. 03/GTY/2023 BMG Informatics Pvt. Ltd., AY: 2016-17 observed that if the assessee has a claim which says otherwise then, the onus lie s upon the assessee to prove that the claim of the assessee is true. He has further noted that "whereas in this c ase the assessee h as not provided any supporting documents in support of its claim that the assessee did not receive b ack any cash." On this aspect of assessee being required to e stablish a negative fact, Hon'ble Supreme Court in the case of K. P. Vergese Vs. ITO [1981] 131 ITR 597 (SC) held that difference between the market value and consideration declared is not sufficient. Assessee must be shown to have re ason more than what is declared which is disclosed by him as consideration. Only that income which is accrued or rece ived is to be considered in computation and the burden of proof lies on the Departme nt.
7.1. In the present case before us, there is no corroborative or direct evidence to presume that the noting/jotting had materialised into transaction giving rise to income not disclosed in the regular books of account. It is also noted that statement of Director of DSSPL Shri De bojyoti Nath was also recorde d u/s. 131 of the Act wherein he had not owned up the purported transaction, pertaining to alleged cash payments made by DSSPL to the assessee. The impugned assessment order is be re ft of any observation or any statement recorded of any Dire ctor or any other person in charge of the affairs of DSSPL which would even remotely suggest that there was some admission by the said Director or any other person in charge of the affairs of DSSPL that any cash as alleged was in fact paid to the assessee by DSSPL.
10 ITA No.61/GTY/2022 & CO No. 03/GTY/2023BMG Informatics Pvt. Ltd., AY: 2016-17 7.2. We also take note of the factual analysis done by the Ld. CIT(A) in re spect of noting found on the impounded material marked as DSS-05 which is reproduced as under:
"That, unlik e Page No. 02 of the impo unde d Annexure DSS-05, there is no column be ar ing the he ading "Cash ref unded to B MG" in the af oresaid Page.
That, on this Page, the aggregate a moun ts s tate d under the Co lumn be ar ing the heading "BMG" is Rs.2, 97,77,000/-. Ho we ver, in the absence of any expression "c ash", it wou ld be ne ither poss ib le nor justif iable to presume tha t these amo un ts were re turned back to th e Appe llan t by M /s. DS Sys tems P. Ltd.
That, even thoug h s ome inco mple te da tes appe ar agains t the amoun ts s ta ted un der the co lumn heading "BMG ". Ho wever, there is no spec if ic Year ag ains t the amounts stated in the af oresaid co lumn heading. Thus, in th e absence of any specif ic D ate(s), it is ne ither po ss ible nor jus tif iable to presume or assume any f act in f avour of or agains t the Ap pellan t. In the c ase o f M/s. DS Sys te ms P. L td., a Survey under Section 133A of the Act was conduc ted on 02/11/2017. T hus , in the absence of any spe c if ic year in the inco mple te da tes in the above ref erred colu mn be ar ing the he ad ing "BMG", the corresponding years cou ld be 2014, 2015, 2016 or even 2017 s ince the incomple te D ates agains t the n ame "B has kar D a"
star t f rom "28.02" and end on "23.07" .
That, apar t f rom the above two Pages, there is no o ther Page in the af oresaid impou nded Annexure DSS-05 f ro m which it cou ld be reasonably presumed that any purpor ted cash was rece ived by the Appe llan t f rom M/s. DS Systems P. Ltd. Ho wever, f or the sake of reco rd, the en tire Annexure DSS-05 ( Pages 01 to 15) s hall f orm a par t and parce l of the ins tan t appellate Order."
7.3. On the above analysis by the Ld. CIT(A) of the impounded material, the findings given by him are noted as under:
"In the ins tan t c ase on h and, it is evident tha t the impugned impou nded papers ( i.e. Pages 01 to 15 of Annexure DSS-05) are und ated, have no acceptable n arr ation and do no t be ar th e signature of the Ap pe llant or any other par ty, Fur ther, the af oresaid loose sheets of papers were re cov ered by the Survey Team f rom the pre mises of a third p ar ty, who h ad explained the contents of these Pages and the explanation adduce d by the s aid th ird p ar ty is a reasonable explan ation. In my opin ion, the 11 ITA No.61/GTY/2022 & CO No. 03/GTY/2023 BMG Informatics Pvt. Ltd., AY: 2016-17 Assess ing Off icer was wrong in acce pting the explan ation qua the tr ans ac tions coded as "Cash Receip ts" and "Cash Payme nts "
be twee n the s aid th ird par ty [ i.e. M/s D. S Sys te ms Pr iv a te L imited ) and its o ther par ties ( i. e. cus to mer s and su ppliers o f M/s D.S Sys te ms Pr iv a te Limited) on one hand AND in no t ac cepting the tr ans ac tions having only par tial usage of the expression "Cash Paid "
in the c ase of the Appellan t and the said th ird par ty ( i. e. M/s D.S Sys te ms Pr iv a te Limited). This is akin to blo wing ho t and cold toge ther.
Cle ar ly, in case th e Assessing Of f icer intended to re ly upon these loose shee ts, the onus lay on him to collec t co gent ev idence to corroborate the no tings therein. The Assessing Of f icer f ailed to corroborate the no ting s by br ing ing some coge nt mater ial on record to prove conc lusively tha t the notings in the se ized papers reveal unaccoun ted receipts of the Appellant. Fur ther, no cir cums tan tial evidence in the f orm of any unaccounted c ash, je we llery or inves tmen ts ou ts ide the Books of Account was f ound even dur ing the course of the cons equential Survey c onducted b y the Inves tigatio n Wing in the case of the Appe llan t. Thus, the impugned ad d ition was made by the Assess ing Of f icer on the af ore said in adequate mater ial or rather no ma ter ial a t all.
Cle ar y, in the ins tan t c ase, there is consp icuous abs ence of the f ollo wing re levant f ac ts:
Co mple te D ates on wh ich the purpor ted cash was rece ived by the Appe llan t.
The comple te breakup of the amoun ts allegedly rece iv ed by the Appe llan t in cash.
Any enq uiry qu a the ac tu al ra te /pr ic e of the goods supplied to the Appe llan t by the th ird par ty f rom whose premises the impounded mate r ial ( i.e. An nexure DSS-05) was re covered.
Any purpor ted loos e slip, paper, evidence e tc. dur ing the co urse of Survey conduc ted in the c ase of the Appe llan t wh ich wo uld even re mo te ly corro bor ate the impou nded Annexure DSS-05.
D is covery of any undisc losed investmen t, asse ts, money, bullions etc. dur ing the c ourse of Survey conducted in the c ase of the Appe llan t wh ich would re mo tely indic ate any inves tmen t out of the impugned secre t prof its ( i.e. on acco unt of alleged cas h rece ived back by the Appellan t).
Thus, in the absence of any spec if ic enquiry, absence of specif ic corroboration and cons ider ing the f ac ts of the c ase d iscussed ear lier as we ll as respectf ully relying upon the r ationes o f the above Judg ments, it is held that the loose slips ( i.e. impound ed Annexure 12 ITA No.61/GTY/2022 & CO No. 03/GTY/2023 BMG Informatics Pvt. Ltd., AY: 2016-17 DSS-05 - Pages 01 to 15), based on wh ic h the impugned sole add itio n has been made, are in the na ture of dumb docu ments hav ing no e v iden tiar y value and the se loos e slips, per se, on the ir own, c anno t be tak en as the sole basis f or f ois ting a tax liabil ity on the Appe llant. The La w is tr ite tha t no addition c an be made s imply on the bas is of uncorrobora ted notings in loose papers. Accord ingly, the impugned sole add ition of Rs. 3,25,93,500/- made by the Assess ing Of f icer is, hereby, deleted and the ins tan t Grounds of Appe al are, he reby, allo wed."
8. On the grounds taken by the Revenue in respect of relief granted by the Ld. CIT(A) for non-supply of impounded material to the assessee and giving opportunity to cross examine the same, it is noted that assessee had made request in the course of asse ssment procee dings for the supply of the material which is being relied upon by the Ld. AO. We refer to the provisions of se ction 142(3) which cast an onus on the AO to give an opportunity of being heard in respect of any mate rial gathered and proposed to be utilised for the purpose of the assessment. It is a statutorily mandatory procedural requirement for the conduct of assessment proceedings, failure of which vitiates the asse ssment itself. Thus, where copies of reports or documents or statement of third party are relied upon for making an addition, it is the duty of the revenue, not only to provide such reports or documents or statement but also allow the assessee to examine the same. In the present case, impounded document marked as DSS-05 were found in the possession of the third party i.e. DSSPL in the course of its survey. No such opportunity had been given to the assessee to cross examine the person who has written such documents and in whose possession the documents were found. Thus, there is a violation of principles of natural justice which is fatal to the impugned proceedings.
13 ITA No.61/GTY/2022 & CO No. 03/GTY/2023BMG Informatics Pvt. Ltd., AY: 2016-17 8.1. On this aspect, Hon'ble Supre me Court in the case of Andaman Timber Industries Vs. Commissioner of Central Excise [2015] 281 CTR 241 (SC) has held -
"5. According to us, no t allo wing the Assess ee to cross examine the witnesses by the Adjudic ating Au thor ity though the s ta te me n ts of those witnesses were made the basis of the imp ugned order is a ser ious f law wh ich makes the order nullity inas much as it amo un ted to v io lation of princip les of natur al justice bec ause of whic h the Assesse e was adversely af f ected. It is to be borne in mind th at the order of the Co mmissioner was based upon the s tate ments g iv en by the af o resaid two witnesses. E ven when the Assessee d ispu ted the correc tness of the s ta te ments and wan ted to cross examine, th e Adjud ic ating Au th or ity d id no t gr an t th is oppor tun ity to the Assesse e. It would be per tinen t to note th at in the impugned order passed by the Adjudic ating Author ity he has spec if ic ally men tioned that s uch an op por tu nity was sough t by th e Assessee. H o wever, no such oppor tun ity was gran ted and th e af oresaid ple a is no t even deal t with by the Adjudic ating Au thor ity. As f ar as the Tribunal is concerned, we f ind that rejec tion of th is ple a is to tally untenab le. The Tribunal h as s imply s ta ted that cross examinatio n of the s aid dealers could no t h ave bro ugh t ou t any ma ter ial which would no t be in possess ion of th e Appellan t the mse lves to exp lain as to wh y the ir ex-f actory pr ices remain s ta tic. It wa s not f or the T r ibu nal to have guess work as to f or what pur poses the Appe llan t wan ted to cross- examine those dealers and wha t extractio n the A ppe llan t wanted f rom the m. "
8.2. Also, Hon'ble Delhi High Court in the case of CIT Vs. Ashwini Gupta 322 ITR 396 (De l.) held that once the re is a violation of principles of natural justice inasmuch as seize d material is not provided to the asse ssee nor his cross examination of the person whose statement the AO relied on, granted, then, such deficiencies would amount to denial of opportunity and consequently would be fatal to the proce edings.
9. Thus, considering the facts on record, elaborate discussion and analysis made by the Ld. CIT(A) both on the legal and factual aspect of the case as narrated above , we do not find any reason to interfere with the well reasoned finding 14 ITA No.61/GTY/2022 & CO No. 03/GTY/2023 BMG Informatics Pvt. Ltd., AY: 2016-17 arrived at by the Ld. CIT(A). Accordingly, grounds taken by the revenue are dismissed.
10. In the result, both, the appeal of the revenue as well as cross objection of the assessee are dismissed.
Order pronounce d in the open Court on 07 t h August, 2023.
Sd/- Sd/-
(Sanjay Garg) (Girish Agrawal)
Judicial Member Accountant Member
Dated: 7 t h August, 2023
JD, Sr. P.S.
Copy to:
1. The Appellant:
2. The Respondent
3. CIT(A), Central, North-East Region, Guwahati
4. CIT
5. DR, ITAT, Guwahati Bench, Guwahati
6. Guard file //True Copy// By Order Assistant Registrar ITAT, Kolkata Benches, Kolkata