Income Tax Appellate Tribunal - Ahmedabad
Yunus Haji Ibrahim Fazalwala,, Surat vs Department Of Income Tax on 17 July, 2015
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ 'D' अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
"D" BENCH, AHMEDABAD
BEFORE SHRI G.D. AGRAWAL, VICE-PRESIDENT AND
SHRI RAJPAL YADAV, JUDICIAL MEMBER
आयकर अपील सं./ ITA No.782/Ahd/2011
नधा रण वष /Assessment Year: 2003-2004
ITO, Ward-9(4) Shri Yunus Haji Ibrahim Fazalwala
Surat. Vs Prop: M/s.Ladly Prints
11/318, Paikee Shop No.11
Noble Textile Market
Vada Chauta, Surat.
PAN : AABPF 0969 L
अपीलाथ!/ (Appellant) "#यथ!/ (Respondent)
Revenue by : Smt.Sonia Kumar, Sr.DR
Assessee by : Shri J.P. Shah
सन
ु वाई क तार ख/ Dateof Hearing : 24/06/2015
घोषणा क तार ख / Date of Pronouncement: 17/07/2015
आदे श/O R D E R
PER RAJPAL YADAV, JUDICIAL MEMBER:
The present appeal is directed at the instance of Revenue against the order of the CIT(A)-V, Surat dated 30.11.2010 passed for the Asstt.Year 2003-04.
2. Though the Revenue has taken four grounds of appeal, but its grievance revolves around single issue, whereby, it has challenged deletion of addition of Rs.18,32,319/-
3. Brief facts of the case are that the assessee is an individual engaged in trading of grey cloth. He has filed its return of income on 21.10.2003 declaring a total income at Rs.1,09,218/-. The case of the assessee was selected for scrutiny assessment, and an assessment ITA No.782/Ahd/2011 2 order under section 143(3) of the Act was passed on 10.3.2006. The learned AO has made addition of Rs.18,32,319/- on account of bogus purchases. In this way, the income of the assessee was determined at Rs.19,55,340/-.
4. The learned First Appellate Authority confirmed the addition. The assessee carried the matter in Tribunal vide ITA No.2170/Ahd/2006. The appeal of the assessee has been allowed for statistical purpose. The Tribunal found that similar issue arose in the Asstt.Year 2001-02, and ITAT vide order dated 9.9.2005 passed in ITA No.2767/Ahd/2004 has set aside the issue for re-adjudication at the level of AO. Following the order of the Tribunal in the asstt.Year 2001-02, the ITAT has set aside the issue in the present year to the file of the AO. The Tribunal has relied upon the observations of the ITAT made in the Asstt.Year 2001-02, and directed the AO to re-examine the issue in the light of the Tribunal's order passed in the Asstt.Year 2001-02. It is pertinent to mention here that we have to examine the facts and circumstances with an angle whether the AO has examined the facts as per the directions of the Tribunal order or not. Therefore, it is necessary to take note of the Tribunal's directions in the first round. It reads as under:
"4. We have heard the rival submissions and have also perused the materials available on record. We find that a similar issue came up for consideration before the ITAT, Ahmedabad Bench 'C' relating to assessment year 2001-02 and the Tribunal vide its order dated 9-9-2005 set aside the order of the CIT(Appeals) and restored the issue to the file of the AO with certain directions and guide lines. The relevant observations of the Tribunal are as under:
" We have carefully considered the arguments of both the sides and perused the material placed before us/We find that the assessee in his written submissions before the AO has mentioned that the assessee has maintained day to day quantitative register in which such purchases re recorded. He has also mentioned that same goods are sold by the assessee and therefore, if the purchases are held to be bogus, hew the goods be sold by the assessee. We find ITA No.782/Ahd/2011 3 that though the AO has reproduced the above submissions of the assessee in the assessment order, however, he has not given any comment whether the above submissions of the assessee were factually correct or not. He has made the addition on the ground that the assessee was unable to produce the seller and that the cheques were encashed by somebody else. In our opinion, the above two facts raise serious doubt about the genuineness of the purchases but the same cannot be said to be conclusive. If the seller has given cheque to somebody else for discharge of their liability and the other party has encashed the cheque, it cannot be said that the purchase by the assessee is bogus. Therefore, it is very relevant to ascertain who encashed the cheque. If the cheque is encashed by somebody else on behalf of the seller, then, the purchases would be genuine. But if the cheque is encashed by or on behalf of the assessee, then, obviously the purchases would be bogus. Similarly the actual receipt of goods is very important for determining the genuineness of the purchases. If he assessee has maintained day to day stock register of goods and the goods in such register are recorded and the correctness or genuineness of the stock register is not doubted, then, obviously it would be improper to doubt the genuineness of the purchases itself. If the goods are received and the seller is not found at the address given, then, at the most doubt can be raised about the rate at which goods were purchased. However, all these facts need verification at the end of the AO. W, therefore, set aside the orders of the authorities below and restore the matter back to the file of the AO. We direct him to re-examine the whole issue afresh as per our observations above and thereafter re-adjudicate the matter in accordance with law. Needless to mention that the AO will allow adequate opportunity of being heard to the assessee."
It is claimed that the facts of the present year are similar to that of assessment year 2001-02. Respectfully following the order of the Tribunal (supra), we set aside the order of the CIT(Appeals)and restore the issue to the file of the AO with a direction to decide the issue afresh in the light of the decision of he Tribunal referred to above. The AO is also directed to give an opportunity of being heard to the assessee."
5. In pursuance of the Tribunal's order the learned AO had issued notice under section 142(1) of the Act, which was duly served upon the assessee on 10.7.2009. The learned AO called for the details from the ITA No.782/Ahd/2011 4 bank with regard to the cheques issued by the assessee for payment of purchases made by him. The learned AO has compiled all those details in tabular form and reproduced in para no.4 of the assessment order. According to the AO, the assessee has made purchases by cross/bearer cheque, and some of the cheques are endorsed to other parties. He harboured a plea that sellers have not encashed or deposited the aforesaid amounts in their accounts. Therefore, he directed the assessee to explain as to why 25% of the total expenses incurred by him for purchases should not be disallowed. In response to the show cause notice, the assessee has filed a reply which has been reproduced by the AO in para no.5. This reply reads as under:
"The serial no.42, 43, 52, 53, 54, 63, 64, 65, 72, 80, 81, 84, 86, 91, 95, 96, 100,102, 110, 112, 120, 125, 126, 127, 130, 132 and 138 are by mistake written twice which please note.
Now, for the serial no. 30, 31, 49, 50, 60, 61, 71, 75, 76, 78, 90, 93, 97, 113, 114, 121, 122 and 139, you have mentioned in column Endorsed to "cash" which is not correct. The correct fact mentioned in the bank statement is "ICLG" means "inward clearing". The Xerox copy of my bank statement mentioning "ICLG" enclose with highlighting the date, description. Ins. No. Debit Amount etc. My bank account is with Central Bank of India, Kanpith, M. G. Road, Surat. Current A/c. CAGEN 12281 enclosed for your verification. Your serial no. 146 and 147 show that I have withdrawn cash from the bank account for my business expenses. While sr. no. 5, Rs.50,140/- and no. 6, Rs.52,451/- cash payment made towards purchases totaling to Rs.1,02,591/-, out of which to the extent of 20% of such amount of Rs.20,518/- can be disallowed."
6. According to the learned AO, the assessee failed to establish co- relation between purchases made by him vis-à-vis the exact payment made to his seller. The learned AO did not dispute with regard to the sales made by the assessee. Also did not dispute with regard to the total stock available with him. The only dispute is the rate at which the assessee has purchased the raw-material. According to the AO, since the assessee failed to reconcile the exact purchase price vis-à-vis the ITA No.782/Ahd/2011 5 goods purchased by him from a particular vendor, therefore, he disallowed 25% of the total purchases and made an addition of Rs.18,32,319/-.
7. On appeal, the ld. First Appellate Authority has deleted the addition.
8. The finding recorded by the learned First Appellate Authority does not touch any of the reasoning given by the AO. The findings read as under:
"I have considered the assessment order and the submission of the appellant as enumerated above. I do not agree with the A.O.'s action as far as the above addition is concerned due to the following reasons:
i. The mandatory requirement for payment of expenditure by an account payee cheque drawn on a bank or account payee bank draft in Sec.40A(3) of the I.T.Act has come w.e.f 13.7.2006 whereas the appellant's case pertains to A.Y.2003-04.
ii. The A.O. has not found any defect in the books of account including the day to day stock register maintained by the appellant. It means purchases and sales are genuine.
iii. The A.O. had not found any instance where the cheques issued by the appellant has been encashed on behalf of the appellant, for coming to the conclusion that purchases are bogus ( as per observation of ITAT ).
iv. In the assessee's own case for A.Y.2001-2002 and other related case i.e. Smt. A. Haji Ibrahim Fazalwala for A.Y.2001-02 no addition was made on the same issue ( payment of expenditure by cheques) although similar facts & circumstances were there . This was done by the A.O. following similar directions given by Hon'ble ITAT, Ahmedabad."
9. The learned DR relied upon the order of the AO and submitted that the assessee failed to fulfill the directions given by the ITAT. Therefore, the AO has rightly made addition. On the other hand, the ld.counsel for the assessee has placed on record copy of the ITA No.782/Ahd/2011 6 assessment order passed in the Asstt.Year 2001-02. This order has been passed by the AO while giving effect to the Tribunal's order dated 9.9.2005. The AO has verified the purchases, and thereafter held that the assessee has established co-relation between the purchases made by him vis-à-vis the payments made to the vendors. The learned counsel for the assessee submitted that the accounts of the assessee are duly audited. The date-wise stock register was maintained, and report is available at page nos.19 to 36 of the paper book. He also contended that the AO did not dispute with regard to the quantitative details. He accepted the sales made by the assessee. If that be so, then, it would indicate that the assessee must have made purchases, otherwise, it will not be possible for the assessee to make sales. Therefore, the learned AO ought to have not made any addition.
10. We have duly considered rival contentions and gone through the records carefully. The facts are not as simple as propounded by the learned senior counsel. Had it been so, then, there would not have any dispute. The question is not of the quantitative details, because, the AO is also recognizing the purchases made by the assessee. That is the reason he has disallowed 25% of the purchase price. Otherwise, he would have disallowed 100% of the claim made by the assessee. The question is that the assessee has produced purchase bills from a concern, namely, 'A', but procured the goods from another concern, namely, 'B'. How to verify the genuineness of the payments and the goods procured by him ? The Tribunal while setting aside the issue to the file of the AO has categorically observed that the assessee was unable to produce the seller and cheques were encashed by somebody else. In the opinion of the Tribunal, this fact raises serious doubt about the genuineness of the purchases made by the assessee. The Tribunal observed that if the seller has given cheque to the somebody else for discharge of their liability and other party has encashed the cheque, then it cannot be said that the purchases by the assessee is bogus. But ITA No.782/Ahd/2011 7 if the cheque is encashed by or on behalf of the assessee, then, obviously, the purchases would be bogus. The Tribunal also observed that if the goods are received and the seller is not found at the address given, then, at the most a doubt would arise about the rate at which the goods were purchased. Now, it was for the assessee to compile the details in tabular form exhibiting the name of the parties from whom the purchases were made, the amount paid and the cheque number. How that amount ultimately credited to that party is to be established by the assessee. For example sake, the first narration made by the AO in para no.4 of his order is Anamika Fabrics. A payment of Rs.45,470/- vide cheque no.563305 dated 2.12.2002 was made. According to the AO, this cheque was endorsed to Faizan Texturising Unit. Now it is for the assessee to demonstrate that M/s.Anamika Fabrics has received the payment by crediting the account of Faizan Texturising Unit. The link between the Anamika Fabrics and Faizan Textuising Unit is missing as to whether Faizan Texturising Unit has supplied the goods to the assessee on behalf of the Anamika Fabrics or M/s.Anamika Fabrics directed the assessee to endorse the cheque to Faizan Texturiing Unit. It is also not ascertainable, whether the Faizan Texturing Unit is a representative of the assessee. The learned AO has made reference to this aspect also in para no.6 of the assessment order. His observations are worth to note, which reads as under:
"6. On going through the reply of the assessee, the modus operandi of the assessee is clear and is elaborated as follows:
The assessee has issued cross cheques instead of Account payee cheques. Some of the cheques are endorsed by seller to other parties. Some of the cheques appear to have been routed through other proprietary concern of the assessee; for instance, cheque issued in favour of M/s. A. K. Textile is withdrawn by the proprietor of A. K. Textile named "Aaisha", vide cheque number 446893 dated 03/06/2002, drawn on Central Bank of Surat. In the same pattern, other cheque, dated 04.06.2002, cheque no.446894, in the name of A. K. Textile in which proprietor's name is shown as Mr. Feroz. Here, it is disbelieved that proprietor ITA No.782/Ahd/2011 8 had utilised his account through A. K. Textile. The same pattern is repeated, the assessee had withdrawn an amount of Rs.50,027/-, vide cheque no. 446892 issued in favour of Anukul Textile and the same is withdrawn by him on the same dated, vide token no. 3549.
It is pertinent to mention that the above cheques are in serial numbers i.e. 446892, 446893, 446894. As habitual the same theory is repeated and the cheque no. 446895 issued in the name of Tex trade was withdrawn by the assessee, by token no. 3436, an amount of Rs.51,755/- and cheque no.446869 was issued in favour of self. However, on the deep scrutiny, it was found that the same amount of Rs.20,000/- was credited in the name of M/s. Palak Fashion in the books of the assessee.
To strengthen the above findings, letters were issued to various banks to produce the information regarding encashment/ deposits. Out of them, two banks named Bank of India and City Union Bank Ltd. have specifically informed that no such person is having an account in their bank. The majority of banks named are as follows.
The Royal co-op. Bank, The Vitrag Co-op. Bank, The Vikas Co-op. Bank and The Memon Co-op. Banks have suspended by Reserve Bank of India; therefore, the details of bank encashment/ deposits could not be obtained till date.
Further, it is noticed that the assessee has maintained quantity register; however, he could not produce the bills of purchases. Therefore, the quantity of purchase cannot be ascertained. Moreover, the assessee stated in his reply, vide letter dated 23/12/2009, that "I am not able to produce all the bills because heavy flood was at our shop and almost all the records were destroyed."
However, the assessee has neither produced any copy of insurance claim or FIR registered in respect of the destruction of goods nor provided copy of any claim made before the Local authority for loss of goods and books destroyed in flood."
11. Thus, the assessee miserably failed in this year to establish a reconciliation between the payments made by him towards purchases ITA No.782/Ahd/2011 9 vis-à-vis the ultimate recipient of the amounts being his vendor. As far as the Asstt.Year 2001-02 is concerned, we find that in that year purchases were made from four parties. The assessee has demonstrated that the payments have been received by two parties. The ld. AO has accepted it as a fact. Thus, the assessee has proved on record that who was the ultimate recipient of the money that entity was found to be vendor of the assessee. There could not be any doubt about the purchases. Due to these reasons, the AO did not make any addition. The learned First Appellate Authority has not examined the facts with this angle, no reasoning is discernible in the findings extracted supra. The CIT(A) has observed that the AO has not found any instance whether the cheque issued by the assessee has been encashed on behalf of the assessee. It was for the assessee to establish how the payment was made to the ultimate seller of the goods. The assessee failed to establish this fact. The learned AO has made reference to the case of M/s.A.K.Textile, where the payments were withdrawn by the proprietor named "Aaisha". These amounts have been doubted by the AO. It was for the assessee to explain as to how the payments are genuine and they were made to the supplier. No such assertions are discernible from the reply of the assessee extracted supra. Therefore, in our opinion, the learned CIT(A) has erred in deleting the addition. We set aside order of the learned CIT(A), and restore that of AO.
12. In the result, the appeal of the Revenue is allowed.
Order pronounced in the Court on 17th July, 2015 at Ahmedabad.
Sd/- Sd/- (G.D. AGRAWAL) (RAJPAL YADAV) VICE-PRESIDENT JUDICIAL MEMBER Ahmedabad; Dated 17/07/2015