TMI Blog2010 (9) TMI 1182X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment order stated that assessee has filed its return of income at Nil on 31-10-2005 which was processed u/s 143(1) of the IT Act. Thereafter, as information was received from DDIT (Inv.), Baroda/ADIT (Inv)-III, Surat that the assessee had purchased goods worth ₹ 56,22,347/- and ₹ 19,91,720/- from Bhagyodaya Enterprises, Baroda and Bhavna Trading Co., Baroda respectively. The report stated that both these firms were proprietary concerns of Shri Amratbhai Prajapati a resident of Baroda. The report stated that this person was examined u/s131 (1A) of the IT Act in connection with verification of BCTT, cash withdrawal from HDFC Bank. According to the report, it was found that Shri Prajapati had issued bogus sale bills to various concerns including the assessee company. It was stated in the report that two firms have simply issued sale bills to the assessee company and, therefore, the assessment for current year was opened u/s 147 of the IT Act by issuing a notice u/s 148 of the IT Act on 28.11.2006. The assessee company stated that the return filed u/s 139 of the IT Act may be considered as return filed in response to notice u/s 148 of the IT Act. 3.1 The A O has s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co., Baroda which contradicted the earlier statement, accordingly, produce the proprietor of both concerns personally to ascertain correct state of affairs vide order sheet entry dated 27-02-2007. However, no effort in this regard was made by the assessee company. The A O has further stated that the inquiries from the banks further revealed that the payment of ₹ 14,41,650/- made by the assessee company to Bhavna Trading Co. by way of cheque was deposited in the bank of Bhavna Trading Co. but cash was withdrawn through even bearer cheques issued by Bhavna Trading Co. The copies of all seven cheques were sent by ABN Amro Bank to the A O. In the same fashion, the sale bill amount was withdrawn in cash through various bearer cheques issued by Shri Prajapati being proprietor of Bhavna Trading Co. In view of this reason, the A O has stated in Para 9 of the assessment order that these facts established that the cheques issued against purchases were received back in cash within short time. This fact was also brought to the notice of the assessee company during the course of assessment proceedings. In view of this reason, the A O issued show cause letter on this issue vide letter date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he genuineness of transactions. iv) The A O has not supplied copy of the statement of Shri Prajapati sated to have been recorded on oath because of which the assessment has been reopened and, therefore, the context of the statement and the purpose of recording of the statement are not informed to the assessee. The assessee further stated before the A O that along with Shri Prajapati had denied the transaction of sale by his firms of the assessee company during the examination by DDIT (Inv), Baroda but later on he himself has admitted that transactions in response to notice u/s 133 (6) issued by A O and, therefore, the statement cannot be taken cognizance of. The assessee stated that on these facts, the statement recorded and not confronted cannot be relied upon. v) The assessee further stated before the A O that it is a undisputed and acknowledged fact, as mentioned in the show cause notice dated 21.11.2007, that the payments made for the purchase transactions have been credited in the regular bank accounts of these seller concerned unlike third unrelated bank accounts which would be the scenario in case of a suspicious purchase transactions. The fact that the payments have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record. In fact, the department itself has received the confirmation of the transactions and the relevant ledger account of the concerned party during verification U/s 133 (6a). In view of the quantitative tally no manipulation is possible as the assessee is engaged in trading activity only and the quantitative tally of the stock is fully verifiable from the books of accounts submitted before the A O and the ADIT (Inv) , Surat. 3.4 In view of the above, the assessee stated before the A O that the proposed addition of the genuine purchases from Bhagyodaya Enterprises and Bhavna Trading Co. treating them as bogus purchases is unjustified. This proposed addition is also against the rules of natural justice as the statement on the basis of which the addition is proposed has never been made available to the assessee so that he assessee should consider availing of opportunity to examine the person if needed and ascertain the basis of the addition. A statement of someone in respect of which cross examination opportunity is not given and without any corroborative evidence, when the department itself has received confirmation and contra account from the same party, can in no way be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue. The A. O. stated that a copy of the statement of Shri Prajapati was shown to Shri Atulbhai Mehta, one of the directors of the company, while asking the question no.6 of his statement recorded on 3-11-2006. According to the A. O. the ADIT Investigation of Surat asked how the assessee company had made the purchases from Bhagyodaya Enterprises and Bhavna Trading Company when the Proprietor of these firms has denied the said transaction and has clarified that he has not actually sold the goods but simply issued sales bills. At this time the statement of Shri Prajapati was shown to the director of the company and therefore at this stage the assessee can not argue that the statement of Shri Prajapati has not been provided. In view of this reason the A. O. rejected this argument also. iv) As regards the argument that the reply u/s 133 (6) has been received by the department, the A. O. stated that this shows that the assessee company is still in touch with Shri Prajapati. According to the A. O. when the assessee company is able to make effort to manage the reply of the Notice u/s 133 (6), the assessee should have been able to produce Shri Prajapati personally for further verifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff the non genuine purchase. The A. O. further stated that there is no possibility of rotation of unaccounted funds because the assessee company had claimed purchase from Bhagyodaya Enterprises from 10-06-2004 to 09-08-2004 aggregating to R.56,22,347/- and from Bhavna Trading from 02-06-2004 to 25-07-2004 of ₹ 19,91,720/- but the payments to Bhavna Trading started from 21-09-2004. According to the A. O. this means the possibility of rotation of unaccounted fund is not available to the assessee and hence there is no benefit on account of arriving at peak of unaccounted fund. In view of this the A. O. concluded that the entire purchased have been made from undisclosed source of income and therefore, according to him these expenses can be considered as unexplained expenses u/s 69C of the IT Act. The A. O., therefore, added the entire purchases of ₹ 76,14,067/- as unexplained purchased expenses u/s 69 C of the IT Act. 5. Before the learned CIT (A) the assessee reiterated the above submissions. The assessee however stated that the copy of the statement of Shri Prajapati was not provided and also cross examination opportunity was not provided. Therefore, the case was sent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in view of these reasons the addition u/s 69 C was made and it was held that the assessee company must have arranged goods out of its undisclosed source of income . 5.2 It was further submitted that copy of this report was given to the assessee for comments and the assessee has submitted its comments on 29-05-2008. Apart from these comments the assessee has given its submission on 17-03-2008 and 18-03-2008. The gist of the submissions made by the assessee is almost same as it was given to the A. O. and which have been discussed in Para 2.4.1. to 2.4.2 of the impugned order. The fresh arguments taken by the assessee before the learned CIT (A) during the appellate stage are that even after the remand report, the A. O. has failed to give to the assessee opportunity of cross examining Shri Prajapati and therefore, as per the settled position of law the statement given by Shri Prajapati cannot be considered as an evidence against the assessee. In support of the aforesaid contention, the assessee relied upon the following decisions: i) CIT Vs SMC Share Brokers Ltd. 288 ITR 345 ii) CIT Vs Arjundas Surinder Kumar Co. 239 ITR 859 iii) JVT (India) Exports 262 ITR 269 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own of the assessee had been properly recorded in the books of accounts which was clearly reflected in the day to day stock tally and that since the goods were not subject to excise duty and because the transportation between dealer to dealer, there was no incidence of sales tax and octroi duty, therefore there was no benefit to the assessee by taking bill from one party and goods from another party. The gross profit rate during the current year was also 2.05% on turnover of ₹ 23.16 cores showing a gross profit of R.47.49 lacs as compared to the gross profit rate of 2.54% on turnover of ₹ 15.69 cores showing gross profit of ₹ 39.88 lacs. This shows that in absolute terms the gross profit shown during the year was much higher. The marginal decrease in gross profit rate was due to increase in turnover by almost 50% over the last year. This shows that the books of accounts were correct and there was no reason for the assessee to take accommodation bills. The assessee has further stated that the A O has drawn a presumption that the amount has come back in the hands of the assessee without there being any evidence and merely on the basis of cash withdrawn y Shri Pra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be withdrawn from the bank accounts of the two firms. This was not merely a plain statement of Shri Prajapati but it was correct state of affairs because Shri Prajapati did not have adequate facility of godown and also did not have genuine purchases to support his sales. Under these circumstances the purchases shown by the assessee could not have been made from the two firms of Shri Prajapati even though the identity, PAN and confirmations are available on records because these facts do not prove the genuineness of transaction more so because the seller himself has clarified his stand. According to the A. O. when the assessee company is able to make effort to manage the reply of the notice u/s 133(6), the assessee should have been ale to produce Shri Prajapati for further verification and to find out the truth. The A. O. has stated that he had repeatedly requested the assessee to produce Shri Prajapati for verification specially because a confirmation/reply was received from the side of Shri Prajapati which goes against the statement given by him before the investigation wing, Baroda. According to the A. O. the notice u/s 133(6) was not initially complied by Shri Prajapati but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss-examination. In the absence of the statement being tested, it cannot be said that it should be believed completely to the prejudice of the assessee. b) CIT Vs Arjundas Surinder Kumar Co. (239 ITR 859) wherein the Punjab Haryana High Court has stated dismissing the application for reference, that the statements recorded in the summary proceedings during search could not be used without confronting the assessee-firm with those statements. The Tribunal was justified in setting aside the cancellation of registration of the firm based on such statements. No question of law arose from its order. c) J. T. (India) Exports (262 ITR 269) wherein the Hon'ble Delhi High Court stated that The principles of natural justice are not codified canons. But they are principles ingrained into the conscience of man. Natural justice is the administration of justice in a commonsense liberal way. Justice is based substantially on natural ideals and human values. The administration of justice is to be freed from the narrow and restricted consideration which are usually associated with a formulated law involving linguistic technicalities and grammatical nineties. It is the substance of just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this record and a complete tally of stock has been provided to the A.O. It is because of this reason that the A. O. has been forced to say that since sales have been made by the appellant, the corresponding purchases must have been made. The A. O. has brought no material on record to show that purchases were indeed made out of the books from some other party and that cash was indeed returned by the firms of Shri Prajapati. In view of these reasons, the A.O. has drawn a presumption that the amount has come back in the hands of the assessee without there being any evidence and merely on the basis of cash withdrawn by Shri Prajapati from the accounts of his firms. Further, the addition on mere presumption can not be sustained in view of the decision of Gujarat High Court in the case of Adinath Industries (supra). The facts of the appellant are exactly the same. The A. O. has obtained the copies of cheques from the banks as stated by him on page 6 7 in para 8 9 of the assessment order. In para 9 on page 7 the A. O. has stated The copy of all 7 cheques were sent by ABN Amro Bank vide its letter dated 11-9-2007 . The A. O. has stated that all these 7 cheques were bearer but stil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slips, octroi, delivery challans, gate passes, goods arrival and dispatch reports etc. The A. O. stated that in view of these reasons the addition u/s 69 C was made and it was held that the assessee company must have arranged goods out of its undisclosed source of income . 4.3.3 From the above it is clear that the A. O. has no material but he is making the statement without any basis. Neither during the stage of investigation, nor during the assessment proceedings and nor during the remand proceedings, the A O has been able to provide cross examination of the statement made by Shri Prajapati. In view of the above discussion and case laws, the statement made by Shri Prajapati has no evidentiary value. In fact, this statement stood negated when the A O who should have made further inquiries if any. Instead of making any inquiries, he was constantly asking the assessee to produce Shri Prajapati when he himself could not enforced statutory provisions of section 2131. Hence, the addition made on the basis of the statement cannot be sustained in the eyes of law. 4.4 It is further seen that in this case these goods are not chargeable to central Excise and hence there is no question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses made by the assessee from seven scrap dealers as bogus as the consumption stood fully proved and the existence of the said party could not be denied Tribunal has concurred with the conclusion of the CIT (A). In view of the facts that the trading results of the assessee have been accepted or alone. It has also accepted the contention of the assessee that if the A O s conclusion is accepted and purchases worth ₹ 1.49 crores are treated as bogus it would be impossible to manufacture the goods shown to have been manufactured by it . In the assessee s case also the quantitative tally submitted before the A O clearly shows that the sales have taken place. The sales have been fully proved by the supporting documents and evidences. The existence of the parties also cannot be denied in view of the evidences submitted on record. In fact, the Department itself has received the confirmation of the transactions and the relevant ledger account of the concerned party during the verification U/s 133 (6). In view of the quantitative tally no manipulation is possible as the assessee is engaged in trading activity only and the quantitative tally of the stock is fully verifiable from the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply in this case. He has referred to Para 7 to 9 of the assessment order where the A O recorded that all payments are made through cheques. He has submitted that assessee was not allowed cross examination to the statement of Shri Prajapati, therefore, such statement cannot be read in evidence against the assessee. He relied upon decision of Hon'ble Supreme Court in the case of Kishandchand Chellaram 125 ITR 713. Shri Prajapati filed confirmation before A O as well as confirmed the transactions in his reply before A O to the notice u/s 133 (6) of the IT Act. Learned Counsel for the assessee further submitted that there is no evidence on record that the assessee or any person connected with the assessee have encashed the bearer cheques issued by Shri Prajapati. He has relied upon decision of Gujarat High Court in the case of CIT Vs M. K. Brothers 163 ITR 249. He has referred to Para 17 of the assessment order where A O has accepted materials purchased by the assessee, other wise it would have become impossible for the assessee to make the sales. Learned Counsel for the assessee submitted that profit and turnover of the assessee are better as compared to earlier years. He has subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i, proprietor of both the concerns from whom assessee purchased the goods. The A O in his remand report admitted before learned CIT (A) that efforts have been made to provide cross examination of Shri Prajapati to the assessee, but Shri Prajapati did not attend the proceedings, therefore, cross examination could not be provided to the assessee. It would, therefore, prove that not only at the assessment stage but at the appellate stage also assessee was denied opportunity to cross examine Shri Prajapati by the A O. Shri Prajapati was examined by the ADIT and his statement was referred to the ADIT, Range- I, Surat and the Assessing Officer for taking action in the matter. The case of the assessee was also reopened u/s 147 of the IT Act due to the above reason. Shri Prajapati is, therefore, witness of the revenue department to depose against the assessee, but the A O did not afford any opportunity to the assessee to cross examine him in order to find out the truth in his statement. Since, no cross examination to the statement of Shri Prajapati is allowed to the assessee, therefore, his statement recorded at the back of the assessee cannot be read in evidence against the assessee. We r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal was justified in deleting the addition . The A O in Para 17 of the assessment order noted that assessee must have purchased materials so that corresponding sales could be materialized and held that assessee company purchased required materials out of its undisclosed source of income. It would, therefore, show that purchases consumed by the assessee have not been disputed. No manufacturing and further sales by the assessee have been disputed. Thus, the A O accepted quantitative tally of sales and purchases made by the assessee. The A O however, forgot to note that the assessee explained that purchases were made on payment through banking channel. Therefore, source of the purchases have been explained which have also not been disputed by the A O. According to section 69 C of the IT Act where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof or the explanation if any offered by him in the opinion of the A O, satisfactory, the amount covered by such expenditure or part thereof as the case may be deemed to be the income of the assessee for such financial year. In this case, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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