Income Tax Appellate Tribunal - Mumbai
Urvashi Industries, Mumbai vs Asst Cit Cir 4, Thane on 23 August, 2017
आयकर अपील
य अ धकरण "D" यायपीठ मब
ंु ई म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "D" BENCH, MUMBAI
BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER
AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A. No. 354 7/Mum/2016
( नधा रण वष / Assessment Year : 2009-10)
M/s Urvashi Indu stries, बनाम/ Assistant Commissioner of
3, Nityanand Consume r Income Tax - Circle 4,
v.
Society, Thane.
Nityanand Nagar No. 4 ,
Andheri (East),
Mumbai - 400 069.
थायी ले खा सं . /P AN : AAAFU7651H
(अपीलाथ /Appellant) .. ( यथ / Respondent)
आयकर अपील सं./I.T.A. No. 749/Mum/2016
( नधा रण वष / Assessment Year : 2009-10)
Dy. Commissioner of Income बनाम/ M/s Urvashi Indu stries,
Tax - Circle 4, Fafadia Ind ustrial Estate,
v.
6 t h floor, Village - Wal iv,
Ashar IT Park, Rd No. 16Z, Vasai (E),
Wagle Ind l Estate , Taluk a - Vasai (E),
Thane (W) - 400 602 . Thane.
थायी ले खा सं . /PAN : AAAFU7651H
(अपीलाथ /Appellant) .. ( यथ / Respondent)
Assessee by : Shri Devendra Jain
Revenue by : Shri Purushotham Kumar,
(DR)
2 ITA 3547/Mum/2016 &
ITA 749/Mum/2016
ु वाई क तार ख / Date of Hearing
सन : 04.07.2017
घोषणा क तार ख /Date of Pronouncement : 22-08-2017
आदे श / O R D E R
PER RAMIT KOCHAR, Accountant Member
These are cross appeals filed by the assessee and the Revenue before the Income-Tax Appellate Tribunal, Mumbai (Hereinafter called "the tribunal"). These cross appeals are heard together and are disposed of by this common order for the sake of convenience and brevity. These cross appeals are directed against the appellate order dated 26.11.2015 passed by learned Commissioner of Income Tax (Appeals)- 3, Thane (hereinafter called "the CIT(A)"), for the assessment year 2009-10, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 30.12.2014 passed by learned Assessing Officer (hereinafter called "the AO") u/s 143(3) r.w.s. 147 of the Income-tax Act,1961 (Hereinafter called "the Act").
2. The grounds of appeal raised by the assessee in the memo of appeal filed with the tribunal read as under:-
"1. The Ld. CIT (A) has completed the assessment without considering the facts & circumstances of the case, which is contrary to law and is against the principles of natural justice.
2. a. The Ld. CIT (A) has erred in facts and in law by disallowing a sum of Rs. 7,63,815/-, being 15% of the alleged bogus purchases (of Rs. 50,92,100/-), as inflated purchases made from unverifiable parties, which is without any basis as such.
b. The Ld. CIT (A) has erred in ignoring various documentary evidences submitted in support of the genuine purchases made by the appellant firm.
3 ITA 3547/Mum/2016 & ITA 749/Mum/2016 c. The Ld. CIT (A) ought to have considered that the Ld. AO has neither afforded any opportunity of cross examination nor has made any efforts to conduct independent enquiries."
3. The following grounds of appeal are raised by the Revenue in ITA No. 749/Mum/2016 for the assessment year 2009-10 in the memo of appeal filed with the tribunal which reads as under:-
"1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A)-3, Thane erred in deleting the addition of Rs. 43,28,285/- out of the total addition of Rs. 50,92,100/- made on account of bogus purchases, despite holding that the purchases were not genuine and the assessee failed to prove genuineness of the transactions.
2. On the facts and in the circumstances of the case and in law, Ld. CIT(A)-3, Thane erred in deleting the above addition despite the fact that the assessee failed to discharge his onus of proving the purchases.
3. The appellant prays that the order of the Ld. CIT(A)-3, Thane, may be set-aside and that of the Assessing Officer be restored."
2. At the outset, we have observed that the appeal filed by the assessee in ITA no. 3547/Mum/2016 is late by 76 days, beyond the time period stipulated for filing of appeal u/s 253(3) of the 1961 Act. The assessee has duly filed affidavit dated 18.5.2016 signed by Shri Jayesh Premji Dedhia, Partner of the assessee firm. It is averred in the afore-stated affidavit that the delay in filing appeal late by 76 days had mainly occurred as the partner of the assessee was travelling outside India in connection with his business on more than one occasion and also the said partner was suffering from illness which prevented him from attending to tax matter. Further it is averred in the said affidavit that CA of the assessee firm namely CA Satish V. Shanbhag was also travelling in the month of April, 2016 which resulted in further delay in filing of this appeal , hence, the assessee prayed for 4 ITA 3547/Mum/2016 & ITA 749/Mum/2016 condonation of aforesaid delay in filing of this appeal with the tribunal beyond time stipulated u/s 253(3) of 1961 Act. The said affidavit is placed on record in file. On the other hand, Ld DR opposed the prayer of condonation of delay by the assessee and submitted that this appeal is filed late by 76 days and the same may not be admitted in the interest of justice.
After hearing both the parties and considering material on record and by relying upon the decision of Hon'ble Supreme Court in the case of Collector Land Acquisition v. Mst Katiji & Ors. (1987) 167 ITR 471(SC) , in our considered view in the instant case based on factual matrix as is emerging from records , the assessee has demonstrated a sufficient cause which prevented the assessee from filing this appeal in time before the tribunal as stipulated and mandated u/s 253(3) of 1961 Act and under these circumstances keeping in view substantial interest of justice, we are inclined to condone delay of 76 days in filing this appeal by the assessee beyond the time stipulated u/s 253(3) of 1961 Act, more-so the Revenue has not brought any material on record to controvert stand and claims of the assessee as averred in the affidavit . Thus, we admit this appeal and proceed to decide this appeal on merits. We order accordingly.
3. The brief facts of the case are that the assessee firm is engaged in the business of manufacturing and exporting steel utensils. The assessee had shown gross receipt of Rs. 8.41 crores with a gross profit of Rs. 1,54,56,032, a net profit of Rs. 43,83,238/- , with GP ratio of 18.37% and NP ratio of 5.21%. The assessee had filed its return of income for A.Y. 2009-10 on 24th September, 2009 declaring total income of Rs. 44,08,529/- which was scrutinized u/s 143(3) of the Act , vide assessment orders dated 08-12-2011 wherein total income of the assessee was determined at Rs. 44,56,020/-. Thereafter, information was received by Revenue from Maharashtra Sales Tax Department giving details of certain persons who have provided 5 ITA 3547/Mum/2016 & ITA 749/Mum/2016 accommodation entries to a large number of beneficiaries for bogus purchase bills and the name of the assessee also appeared in the list of beneficiaries who had obtained bogus purchase bills from the entry providers without purchasing actual goods/material from them. Survey action u/s 133A of the Act was also carried out on the business premises of the assessee on 7th December, 2013 and during the course of the survey action u/s 133A , the assessee was able to produce only bills of Rs. 15,66,656/- as against total alleged bogus purchase of Rs. 50,92,100/-. The assessee was asked to produce delivery challans and transport bills pertaining to the earlier years and in response, the assessee stated as under:-
"The above raw materials are received at the factory premises - Fafdia Indl. Estate, Valiv, Vasai East, Thane by the office staff. For the current F. Y. 2012-13, the invoices, delivery challan and transport bills are available. The office staff receiving the raw materials acknowledges the same on Transport bills, Delivery challan. For earlier years, only invoices are maintained".
The case was re-opened by the AO u/s 147 of the 1961 Act, and notice u/s 148 of the Act was issued on 20th May, 2013 and served upon the assessee, after recording the reasons for the same. The reasons recorded are as under:
"..........Subsequently, information has been received from Sales Tax Department, Maharashtra giving names and addresses and other details of certain persons who have provided accommodation entries for bogus purchases to a large number of tax-payers who are the beneficiaries. The information received also contains the details of the beneficiaries of such bogus bills. The Sales Tax Authorities have also provided extracts of statements of the bill providers recorded by them and also extracts of affidavits filed by the bill providers during the course of their investigation of the 'hawala' business. As per these statements and/or affidavits, it is seen that the persons who have provided entries to various beneficiaries have stated therein that they have indulged in bogus billing under various names without supplying the actual goods/materials as mentioned in the bills.
6 ITA 3547/Mum/2016 & ITA 749/Mum/2016
3. The name of the above assessee also appears in the list of persons who has obtained bogus purchase bills from the accommodation entry providers. Details of bogus purchase bills taken by the assessee includes the following:
S.No. Name of the entry Maharashtra F.Y Amount in the provider VAT No. Bills taken by the assessee
1. 4 Dhanera Metal 27199257913V 2008- Rs.50,92,100/-. Corporation 09
Based on this information survey u/s 133A of the Act was carried out at the business premises of the assessee on 07/02/2013 and it is found that the assessee firm has indeed claimed to have purchased material from above named party as bills of the said party were found and impounded during the course of survey proceedings. During the course of survey proceedings, it is clear from the above that these purchases are bogus and bills for these have been obtained by the assessee from entry providers to inflate its purchases, as a result of which, the income of the assessee for A. Y. 2009-10 has been understated by the assessee. The assessee has failed to disclose fully and truly all material facts necessary for the assessment for A. Y. 2009-10.
5. In view of the above, I have reason to believe that income of the assessee for A.Y. 2009-10 to the tune of Rs. 50,92,100/- has escaped assessment within the meaning of provisions of section 147 of the I. T. Act.
6.Accordingly notice u/s 148 is issued."
Thus, it can be seen that the assessments have been reopened u/s 147 of the 1961 Act within a period of four years from the end of the assessment year. The return was originally processed u/s 143(1) and no scrutiny assessment was framed u/s 143(3) r.w.s. 143(2) of the 1961 Act. In reply to notice u/s 148, the assessee submitted that the return of income filed u/s 139 (1) on 24.09.2009 may be treated as return of income filed in response to 7 ITA 3547/Mum/2016 & ITA 749/Mum/2016 notice u/s 148 of the Act. Notice u/s 143(2) and 142(1) of the Act were issued . In response , the assessee submitted the details called for by the AO and also produced books of account, bill and vouchers and bank statements for verification, which were verified by the A.O. on test check basis. The assessee also filed copy of return of income along with computation of income and audit report in form no 3CB and 3CD.
During the course of assessment proceeding, the A.O. observed that the assessee had made purchases from M/s Dhanera Metal Corporation to the tune of Rs. 50,92,100/- whose name featured in the website of Sales Tax Department as bogus bills providers who are issuing bogus bills without supplying any material and these lists have been forwarded by Maharashtra Sales Tax Department to the Revenue.
Notice u/s 133(6) of the Act was issued by the AO to the said party Dhanera Metal Corporation to verify genuineness of the purchase transactions, which returned un-served. The assessee was asked to produce the party Shri Amrut Laxman Patel, Proprietor of M/s Dhanera Metal Corporation for verification but the assessee did not produce the said party before the A.O. The assessee submitted that the assessee had sent a copy of ledger account for confirmation to the said party by registered post AD but the same returned by postal authorities with the remark "left". The assessee submitted before the AO proof of the returned letter from postal authorities. It was submitted by the assessee that the personal visit to the place of said party Dhanera Metal Corporation were made , but the said party could not be traced as the said party no longer was operating from said premises. The assessee submitted that even third party enquiries from the business associates were made to trace the said party Dhanera Metal Corporation but the whereabouts of the said party could not be traced.
8 ITA 3547/Mum/2016 & ITA 749/Mum/2016 The assessee submitted following information in support of its transactions with Dhanera Metal Corporation:-
"1. Ledger account of M/s Dhanera Metal Corporation as appearing in assessee's book.
2. Copies of the Tax Invoices issued by said party which carry their valid Registration Nos. under MVAT Act having VAT TIN No. 27090546348V and CST TIN No. 27090546348C respectively.
3. Copies of Delivery challans mentioning the particulars of goods delivered and details of transportation;
4. Relevant Extracts of assessee firm's Current Account having No. 315501010031056 maintained with Union Bank of India; evidencing that all the payments pertaining to subject purchases were made by crossed account payee cheques drawn on regular bank account.
The AO observed that even notices u/s 133(6) has returned unserved as also said party was not produced by the assessee, the onus to prove genuineness and correctness of purchase transaction is on the assessee which did not stood discharged. The AO observed that except for filing the ledger of M/s Dhaners Metal Corporation and claiming that the payments were made through cheques and the said goods have been received and utilized for manufacture of finished goods sold to third parties , but neither confirmation of the said party i.e. M/s Dhanera Metal Corporation was filed nor was any delivery challans, or site gate pass/site , octroi receipt, stock register copies were filed showing the receipt of goods from the above parties to the assessee's factory. The A.O. observed that the Maharashtra Sales Tax Department had conducted investigations in the cases of several dealers and beneficiaries and such investigations had unearthed a fraudulent racket involving many hawala dealers who are issuing fake bills to the beneficiary concerns for availing input tax credit and get a commission in return. The
9 ITA 3547/Mum/2016 & ITA 749/Mum/2016 A.O. also observed that the parties did not have any infrastructure to supply the material. The AO observed that the said parties have submitted affidavits before Sales Tax Department stating that purchase transactions were not genuine. The Sales tax department has conducted details enquiries of these bogus operators and they have in their statement recorded before sales tax department admitted to have issued bogus bills. The AO observed that bogus purchases are booked to inflate expenditure and reduce income chargeable to tax. The AO observed that Sales tax department have cancelled the registration granted to these hawala dealers from the date of granting of the registration. The AO observed that the assessee is one of the beneficiary of the bogus bills. The A.O. observed that although the assessee has claimed that the said material was utilized for at its site, the fact is the goods claimed to have been utilized were purchased from some other party i.e. from the grey market for which payments have been made out of books in cash. Thus, the A.O. came to the conclusion that the assessee had made bogus purchases from the hawala parties in violation of Section 40A(3) of the 1961 Act and which also attract the provisions of Section 69C of the 1961 Act , and thus addition to the tune of Rs. 50,92,100/- was made by the AO within the meaning of Section 69C of the Act as unexplained expenditure .No separate additions was made by the AO u/s 40A(3) of the 1961 Act, vide assessment order dated 30-12-2014 passed by the AO u/s 143(3) r.w.s. 147 of the 1961 Act.
4. Aggrieved by the assessment order dated 30-12-2014 passed by the A.O. u/s 143(3) r.w.s. 147 of the 1961 Act , the assessee carried the matter in appeal before the ld. CIT(A) and made submissions before learned CIT(A). The assessee submitted before learned CIT(A) that copies of invoices to the tune of Rs. 50,92,000/- issued by Dhanera Metal Corporation along with delivery challans were submitted before the AO. It was submitted that ledger account of the said party was also submitted along with details of payments made by 10 ITA 3547/Mum/2016 & ITA 749/Mum/2016 crossed account payee cheque to the said party . The assessee submitted before learned CIT(A) that copy of bank statement evidencing payment for said purchases were also submitted before AO. It was submitted that purchase register, monthly stock statements containing exhaustive details of quantitative movement in raw materials , semi-finished goods and finished goods were also submitted before the AO . It was submitted that comparative details of NP ratio for AY under considerations along with earlier years were submitted. The assessee explained that merely because the name of supplier appears in the list of suspicious dealers does not mean that purchases are bogus. It only reflects that the dealer has not complied with the provisions of sales tax law and/or payment of sales tax has not been deposited with sales tax department by the said dealer, for which the assessee cannot be held liable. It was submitted that the assessee was not allowed to cross examine the said party Dhanera Metal Corporation. It was submitted that mere non production of the party before the AO is not sufficient to hold against the assessee as the assessee had only business relations with the said party and the assessee cannot compel the said party to appear before the AO.The assessee also submitted consumption ratio for the financial year 2006-07 to 2010-11 to contend that consumption has been in the range of 80.7-84.5% for all these years and GP ratio has been ranging from 15.34-17.47% all these years , while for the subject assessment year consumption is at 83.95%, GP ratio is at 17.47% and NP ratio is at 5.94%. Thus, in nut-shell the assessee made elaborate explanations before learned CIT(A) which are detailed in learned CIT(A) appellate order to justify that purchases were genuine and no disallowance is called for .
The ld. CIT(A) granted part relief to the assessee whereby disallowance @ 15% of Rs. 50,92,100/- which worked out to Rs. 7,63,815/- was sustained/upheld by learned CIT(A) and the same was added to the total income of the assessee.
11 ITA 3547/Mum/2016 & ITA 749/Mum/2016 The findings of the ld. CIT(A) , vide appellate orders dated 26-11-2015 are reproduced hereunder:-
"6.0 Ground Nos. 2a to 2d are directed against the addition of Rs.50,92,100/- as bogus purchases, therefore, these grounds are taken up together for the sake of convenience.
(i) I have carefully considered the submissions of the appellant in grounds and statement of facts, the observation of the AO in the assessment order, case laws relied upon by the appellant and the facts of the case, and I proceed to decide the appeal of the appellant.
(ii) The A.O has disallowed the purchases as bogus purchases on the following grounds (a) Survey u/s.133A of the Act was carried out and it was found that the appellant had made purchases from M/s. Dhanera Metal Corporation, a concern who provides accommodation bills without the movement of goods/materials. b) The Appellant failed to submit confirmation from the alleged supplier and by making the payment by account payee cheques does not justify that the purchases are genuine. c) No delivery challans, octroi bills or stock register was found during the course of survey conducted on 07.02.2013. d) The Ward Inspector has also reported that the alleged supplier is not operating at the given address e) In answer to Q.11 statement recorded by the Maharashtra Sales Tax Department, it was admitted by the owner of M/s. Dhanera Metal Corporation that the party has merely provided bills without any actual purchase of material.
(iii) The AR of the appellant on the other hand, justify that these purchases are genuine on the following grounds a) Before AO, the following relevant documents were furnished viz, all copies of invoices along with delivery challans, ledger accounts as appearing in the Books of accounts, copy of . purchase register, monthly stock statements containing exhaustive details of Quantitative movement in Raw Materials, Semi-finished Goods and Finished Goods, Statement containing Comparison of GP & NP ratios for the year under consideration and earlier assessment years, which showed no major changes, a detailed note containing various reasons justifying the causes for various in
12 ITA 3547/Mum/2016 & ITA 749/Mum/2016 monthly scrap generations. b) Details of payments by account payee cheques to the party evidenced by relevant extracts of the bank statement. c) A.O. has not given opportunity to cross examine the party etc d) Purchases are genuine except that the suppliers were not verifiable as they were absconding due to evasion of VAT.
(iv) From the above discussion, it is seen that the appellant did not produce the Hawala dealers before the Assessing Officer for cross verification. The appellant has booked the aforesaid purchases in his books of accounts as expenses, therefore, the onus to prove the genuineness and correctness of the purchase transactions lies with the assessee but the assessee failed to produce the party along with bank statement etc. The statement of affidavit filed by the Hawala dealers before the Sales Tax Department has evidentiary value, which cannot be ignored. If the purchases were genuine in toto, the appellant could have filed counter affidavit and should not have paid the VAT on behalf of the Hawala dealers/unverifiable dealers, but failed to do so. However, on the purchases there were corresponding sales and the payments were made by account payee cheques and stock statement containing quantitative details of raw material was produced, therefore, the disallowance of entire purchases made from Hawala dealer is not justified.
(v) There are various reasons as to why the Hawala dealers were absconding and also not appeared before the Assessing Officer for cross examination during assessment proceedings, whereas in other purchases no such anomaly have been found by the Assessing Officer. At least, the appellant could have produced copy of return filed along with P&L a/c and B/S of Hawala dealer before Assessing Officer but failed to do so.
(vi) From the above discussion, it can be concluded that, it is case where the goods were received from the parties other than the persons who had issued the bills of such goods. Though the purchases were shown to have been made by making payment to Hawala dealers but goods must have come from grey market, therefore, under such circumstances, the chances of purchase cost being inflated could not be ruled out.
13 ITA 3547/Mum/2016 & ITA 749/Mum/2016
(vii) Considering the totality of the facts of the case and also various courts have up held the disallowance on such purchases from 12.5 % to 25%, therefore, I am of the considered opinion to disallow 15% as inflated purchases of the total purchases made from unverifiable party.
In view of the above stated facts, the disallowance @ 15% of Rs. Rs.50,92,100/- works out to Rs.7,63,815/- and the same is added to the total income of the appellant. Therefore, the appellant get relief of Rs. (50,92,100-7,63,815) = 43,28,285/-.
With regards to violation of section 40A(3) of the Act, the ld. CIT(A) observed that since the assessee has produced the details of payment by account payee cheques and supported by relevant details, the ld. CIT(A) allowed this ground.
5. Aggrieved by the appellate order dated 26-11-2015 passed by the ld. CIT(A), both the assessee and the Revenue are in appeal before the tribunal.
6. The ld. counsel for the assessee submitted that the assesse is engaged in the business as manufacturer and exporter of utensil , whereby all steel utensils manufactured by the assessee are exported outside India. It is submitted that the A.O. has made disallowance of 100% of the purchases ie. Rs. 50,92,100/- made from Dhanera Metal Corporation , while the ld. CIT(A) has restricted disallowance to 15% of the alleged bogus purchases. It is submitted that information from Sales Tax authorities was received by the Revenue that the said party M/s Dhanera Metal Corporation is engaged in the activities of issuing bogus bills to various entities without supplying any material. The assesee is stated to be one of the beneficiaries of bogus bills issued by said Dhanera Metal Corporation . Survey action had been conducted by Revenue u/s 133A of the Act in the business premises of the assessee on 07-12-2013 and bills to the tune of Rs. 15,66,656 were available at the time of survey as against total purchases of Rs. 50,92,100/- from Dhanera Metal Corporation. The case was reopened by AO u/s 147 of the 14 ITA 3547/Mum/2016 & ITA 749/Mum/2016 1961 Act and notice u/s 148 of the Act was issued which was within four years from the end of assessment year. It is submitted that complete details were submitted with respect to the purchase of material including stock reconciliation showing utilization of material for manufacturing the finished goods before the authorities. It is submitted confirmation from the said party could not be produced. The AO issued notices u/s 133(6) to Dhanera Metal Corporation but the said notice returned unserved. The assessee had tried to locate the party but the said party could not be traced despite best efforts. It is submitted that no cross examination was provided to the assessee by the Revenue of the proprietor of Dhanera Metal Corporation.It was submitted that the statement of proprietor of Dhanera Metal Corporation which was recorded before the Sales Tax Department wherein he admitted to be engaged in issuing bogus bills has not been provided to the assessee. The ld. counsel relied upon the decision of Hon'ble Supreme Court in the case of M/s Andaman Timber Industries v. Commissioner of Central Excise, Civil Appeal No. 4228 of 2006 dated September, 02, 2015 and submitted that the addition need to be deleted. The learned counsel for the assessee also relied upon decision of the tribunal in the case of ACIT v. Mr Bharat Gajani in ITA no. 5171 to 5175 /Mum/2014 vide order dated 08-05-2017 and in the case of Imperial Imp. & Exp. V. ITO in ITA no. 5427/Mum/2015 vide orders dated 18-03-2016.
7. The ld. D.R. submitted that the A.O. has asked the assessee to produce the party M/s Dhanera Metal Corporation for verification but the assessee could not produce the party. The party Dhanera Metal Corporation from whom the purchases were made was stated to be engaged as hawala operator by issuing bills without supplying any material. Detail investigation has been carried out by the Sales Tax Authorities whereby it was admitted by Dhanera Metal Corporation that they are engaged in issuing bogus bills without supplying any material. A survey u/s 133A was conducted against assessee 15 ITA 3547/Mum/2016 & ITA 749/Mum/2016 and during the course of survey no documents were found relating to the stock and purchases . The ld. DR relied on the decision of Hon'ble Punjab and Haryana High Court in the case of CIT v. Narendra Kumar Gupta, [2015] 55 taxmann.com 371 (P&H) and also decision of Hon'ble Supreme Court in the case of N K Proteins Limited v. DCIT reported in 2017-TIOL-23-SC-IT and prayed that the order of the AO be upheld. The learned DR has filed written submissions which are taken on record.
8. In rejoinder, the ld. counsel for the assessee submitted that the said dealers of Sales Tax Department are registered by Sales Tax Department after due verification . It is submitted that payments were made through account payee cheque against these alleged bogus purchases. The ld. counsel distinguished the decision as cited by the ld. D.R.. It is also submitted that I T Department has not recorded any statement of Dhanera Metal Corporation. It is submitted that no cross examination was granted by the Revenue of Dhanera Metal Corporation and hence no addition is sustainable. The assessee submitted that the assessee's unit is registered under Central Excise Act since 21-12-2002. Copy of Registration certificate is placed on file. It is submitted that stainless steel utensil( code 7323) and stainless steel cutlery ( code 8215) dealt with by the assessee are exempted from paying Central Excise from 01-03-2006 via notification no 10/2006-CE dated 01-03-2006. It was submitted that since assessee is 100% export oriented units , all records for utilization of raw material , semi finished goods and finished goods are maintained, which were produced before the AO as well learned CIT(A) which also find mentioned in learned CIT(A) appellate order.
9. We have heard rival contentions and also perused the material available on record including case laws relied upon by both the parties. We have observed that the assessee is engaged in the business of manufacturing and exporting steel utensils. The assessee holds central excise registration and is 16 ITA 3547/Mum/2016 & ITA 749/Mum/2016 an 100% EOU. Information was received by Revenue from Maharashtra Sales Tax Department that the assessee has purchased material to the tune of Rs. 50,92,100/- from 'Dhanera Metal Corporation' who is allegedly engaged in issuing bogus bills where no material is physically supplied against those bills and the assessee is stated to be beneficiary of said bogus bills issued by Dhanera Metal Corporation. The Sales Tax Department had conducted intensive enquiry and the said party has in statement recorded before Sales Tax Department has admitted that it is engaged in providing accommodation entries by issuing bogus bills. The assessee is stated to be the beneficiary of bogus bills issued by said party Dhanera Metal Corporation to the tune of Rs. 50.92 lacs. The registration of Dhanera Metal Corporation has been cancelled by Sales Tax Authorities from the date of grant of registration. The Revenue also conducted survey u/s 133A at business premises of the assessee on 07- 12-2013 wherein bills of Rs. 15.66 lacs were found as against billing of Rs. 50.92 lacs done by said Dhanera Metal Corporation. The Revenue reopened the assessment u/s 147 of the Act by issuing notice u/s 148 of the Act dated 20.05.2013 , which was within four years from the end of the assessment year. The assessee did not challenge the reopening of the assessment u/s 147 of the Act . There was no scrutiny assessment framed originally u/s 143(3) r.w.s. 143(2) of the 1961 Act by Revenue and return of income was processed originally u/s 143(1) of the 1961 Act. The AO issued notices u/s 133(6) to M/s Dhanera Metal Corporation but the said notices returned un-served by the postal authorities with the remark "left". The assessee also tried to trace the said party but the said party could not be traced. The assessee despite being asked by the AO could not produce the said party before the AO. As is emerging from the assessment order , the assessee submitted details of utilization/consumption of material for manufacturing the finished goods. The assessee is registered under Central Excise Act . The assessee being 100% EOU has maintained details of utilization/consumption of material for production of finished goods. The AO has not doubted sales but it is held by 17 ITA 3547/Mum/2016 & ITA 749/Mum/2016 the AO that the assessee purchased the actual material from grey market in cash at lower price while invoices were obtained from M/s Dhanera Metal Corporation of higher value where no goods were supplied physically with the objective of reducing profits and consequently tax. The assessee has demonstrated that consumption ratio , GP ratio and NP ratio for years prior to and succeeding to the subject assessment year are in line and there is no marked variation. The assessee could not produce the party before the AO. The notices u/s 133(6) sent by the AO to the said party returned unserved..The assessee on its part also did not discharge onus cast on it as the purchases are credited in assessee's books of accounts. It was held by authorities below that since the assessee had made sales which were reconciled by the assessee with purchases and its consumption/utilisation, the purchases were made by the assessee but the same were made at low price from grey market and to cover deficiencies in documents, invoices of higher value were obtained to inflate expenses from the Dhanera Metal Corporation who issued bogus bills to the assessee without supplying any material. Thus, the AO held that the assessee failed to prove the onus cast upon it to prove that purchases to the tune of Rs. 50.92 lcs made by the assessee were genuine purchases, which were held by the authorities below to be bogus purchases as no material was supplied to the assessee by this supplier which material in-fact was purchased by the assessee from grey market at lower price which led to profits earned out of books which need to be estimated and added to the income of the assessee. These are information which are especially in the knowledge of the assessee and the onus is on the assessee to prove that purchases are genuine as these purchases are recorded in the books of accounts of the assessee. Section 106 of Indian Evidence Act, 1872 clearly stipulates as under:
18 ITA 3547/Mum/2016 & ITA 749/Mum/2016 "106. Burden of proving fact especially within knowledge When any fact is especially within the knowledge of any person, the burden of proving that fact is upon him.
Illustrations (a) ** **
(b) A is charged with traveling on a railway without a ticket. The burden of proving that he had a ticket is on him."
The assessee was not able to discharge burden cast u/s 106 of 1872 Act as the assessee did not produce the relevant documents for showing movement of goods from supplier to assessee. The assessee did not file confirmations from these parties. The parties were also not produced before the authorities below. The right of cross examination is not absolute. The assessee has to first discharge its primary onus cast under law and if the same stood duly discharged which is not rebutted by authorities, but despite that then also the authorities proceed to put assessee to prejudice solely relying on the basis of incriminating statement recorded of third party at the back of the assessee, then certainly the right to cross examination the said third party whose incriminating statement recorded at the back of the assessee is relied upon by authorities to prejudice the assessee will become absolute. But in the instant case, primary onus cast on the assessee itself did not stood discharged by the assessee as discussed above. The A.O. made additions @ 100% of the total bogus purchases of Rs. 50,92,100/- which were held to be non-genuine by the authorities below, which addition was confirmed by the learned CIT(A) to the extent of 15% of bogus purchases on the grounds that the assessee made purchases from grey market at lower price and chances of inflation of purchases cost cannot be ruled out. Both assessee and Revenue have filed cross appeals before the tribunal being aggrieved by the appellate order of learned CIT(A). In such circumstances revenue contentions has merits but GP ratio needs to be 19 ITA 3547/Mum/2016 & ITA 749/Mum/2016 estimated which definitely involved some estimation/guess work but the said estimation/guess work should be fair, honest and rational keeping in view factual matrix of the case . We have gone through the case laws relied upon by the assessee. Reference is drawn to decision of Hon'ble Supreme Court in the case of Kachwala Gems v. Jt. CIT [2007] 288 ITR 10/158 Taxman 71 (SC), wherein Hon'ble Lordships held as under :
"4. The facts of the case are in a short compass. The appellant-assessee deals in precious and semi-precious stones. In the course of assessment, the Assessing Officer noticed the following defects in the books of account of the assessee :
'1. The assessee has not maintained and kept any quantitative details/stock register for the goods traded in by the assessee.
2. There is no evidence on record or document to verify the basis of the valuation of the closing stock shown by the assessee. The assessee is not able to prepare such details even with the help of books of account maintained, purchase bills & Sale Invoices.
3. Provisions of section 145(3) are clearly attracted in this case.
4. The genuineness of purchases to the extent of Rs. 42 lakhs (approx.) is not proved without any doubt.
5. The GP rate declared by the assessee at 13.49 per cent during the assessment year is not a match to the result declared by the itself in the previous assessment years.
6. M/s. Gem Plaza, engaged in local sales of similar goods declared voluntarily rate of 35 per cent in its assessment for the assessment year 1997-98.
7. M/s. Dhadda Exports, another assessee dealing in same items, but doing export business declared GP rate of 43.8 per cent (even without considering the value of export incentives) in assessment year 1997-98.'
5. Thereafter, the books of account of the assessee were rejected by the Assessing Officer and he resorted to best judgment assessment under section 144 of the Income-tax Act. The Assessing Officer in the assessment order mentioned some comparable cases and was of the view that the case of the
20 ITA 3547/Mum/2016 & ITA 749/Mum/2016 assessee is more or less having similar facts as that of M/s. Gem Plaza where the Gross Profit has been taken as 35.48 per cent. The Assessing Officer estimated the Gross Profit of the assessee as 40 per cent.
6. The Assessing Officer further held that the assessee has shown bogus purchases in order to reduce the Gross Profits.
7. In appeal, the Commissioner of Income-tax (Appeals) upheld most of the findings of the Assessing Officer, but reduced the Gross Profit from 40 per cent to 35 per cent.
8. In further appeal, the Tribunal had given further relief to the assessee and reduced the Gross Profit rate to 30 per cent.
9. The counsel for the assessee has submitted before us that the income- tax authorities wrongly held that appellant has shown bogus purchases, and the books of account were wrongly rejected.
10. In our opinion, whether there were bogus purchases or not, is a finding of fact, and we cannot interfere with the same in this appeal. As regards the rejection of the books of account, cogent reasons have been given by the income-tax authorities for doing so, and we see no reason to take a different view.
11. It is well-settled that in a best judgment assessment, there is always a certain degree of guess work. No doubt the authorities concerned should try to make an honest and fair estimate of the income even in a best judgment assessment, and should not act totally arbitrarily, but there is necessarily some amount of guess work involved in a best judgment assessment, and it is the assessee himself who is to blame as he did not submit proper accounts. In our opinion, there was no arbitrariness in the present case on the part of the income-tax authorities. Thus, there is no force in this appeal, and it is dismissed accordingly. No costs."
The Revenue made aforesaid additions relying on the presumption that the material was in-fact purchased from grey market at a lower rate and to cover deficiencies in record, the invoices were procured from these entry operators at higher rates to reduce the profit. The learned CIT(A) has estimated disallowance to the tune of 15% of alleged bogus purchases, which in our opinion is a plausible view of estimation of profits by learned CIT(A). Under 21 ITA 3547/Mum/2016 & ITA 749/Mum/2016 these circumstances, we are not inclined to interfere with the appellate order of learned CIT(A) which we confirm/sustain. We order accordingly
10. In the result, appeal of the assessee in ITA No. 3547/Mum/2016 and appeal of the Revenue in ITA No. 749/Mum/2016 for assessment year 2009- 10 are dismissed. We order accordingly.
Order pronounced in the open court on 22nd August, 2017. आदे श क घोषणा खुले #यायालय म% &दनांकः 22-08-2017 को क गई ।
Sd/- sd/-
(D.T. GARASIA) (RAMIT KOCHAR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
मुंबई Mumbai; &दनांक Dated 22-08-2017
[
व.9न.स./ R.K., Ex. Sr. PS
आदे श क! " त$ल%प अ&े%षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आय:
ु त(अपील) / The CIT(A)- concerned, Mumbai
4. आयकर आयु:त / CIT- Concerned, Mumbai
5. =वभागीय 9त9न?ध, आयकर अपील य अ?धकरण, मुंबई / DR, ITAT, Mumbai "D" Bench
6. गाडC फाईल / Guard file.
आदे शानुसार/ BY ORDER, स या=पत 9त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai