TMI Blog2024 (2) TMI 983X X X X Extracts X X X X X X X X Extracts X X X X ..... rded in the stock register as purchased, in those cases , it could be presumed that an assessee might have purchased goods in cash from grey market, but in the case of the assessee in absence of stock register this could not be verified and therefore, we justify the action of the CIT(A) and uphold disallowance of the entire bogus purchases. Decided against assessee. - SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND MS. KAVITHA RAJAGOPAL (JUDICIAL MEMBER) For the Appellant : Mr. Kalpesh Khatri, CA For the Respondent : Mr. Surendra Kumar Meena, Sr. DR ORDER PER OM PRAKASH KANT, AM These appeals by the assessee are directed against a common order dated 19.05.2023 passed by the Ld. Commissioner of Income-tax (Appeals), Pune-11 [in short the Ld. CIT(A) ] for assessment years 2009-10 and 2010-11. As facts and circumstances and the issue involved in both these appeals being common, same were heard together and disposed off by way of this consolidated order for convenience. 2. The grounds raised in both the appeals being identical except difference of the amount involved, for sake of brevity, the ground raised in assessment year 2009-10 are only reproduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sons for which the action of the Assessing Officer of issuing notice u/s 148 of the Act is invalid. These facts suggests that the appellant is not pressing this ground of appeal. Even otherwise, it is seen from the assessment order that fresh information in the form of letter dated 06/02/2013 was received from the Investigation Wing informing that the assessee is a beneficiary of bogus purchase bills issued by various Hawala Dealers. It is a well settled legal position that the notice u/s 148 of the Act can be issued if the Assessing Officer receives fresh information indicating that the income of the assessee has escaped assessment. Some of the leading decisions on the issue of reopening of assessment are as under: 6.1 The, Hon'ble Supreme Court in the case of Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500 while examining the requirement of the issue of notice u/s 148 held that all that is required for issue of notice under section 147, is reason to believe that some income has escaped assessment in the following words:- The expression reason to believe in section 147 would mean cause or justification. If the Assessing Officer has cause o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd which induced assessing officer to act is not a justifiable issue as held by Hon'ble Supreme Court in case of S. Narayanappa vs. CIT (1967) 63 ITR 219 6.4 Examining a similar issue in the case of Phool Chand Bajrang Lal and another v. ITO (1993) 203 ITR 456 (SC) where Assessing Officer located at Ajamgarh in UP after receiving information of accommodation entry from the ITO Calcutta re-opened the case u/s 147 of the Act, Hon'ble Supreme Court approved the decision of the AO to issue notice u/s 148 of the Act and has held as under:- Since, the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief, is not for the Court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and nonspecific information. To that limited extent, the Court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income-tax Officer and further whether that material had any rational connection or a liv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment has been specified only in the amended provisions u/s 148A of the Act which are effective from 1/04/2021. During relevant period, the Assessing Officer was required to examine whether there was any relevant material on which a reasonable person could form the requisite belief that income escaped assessment as held by the Hon ble Supreme Court in the case of Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500. In the case, the information has been received from reliable authority of Income-tax Department and on the basis of the information of bogus purchase related to the assessee, the Assessing Officer has made the requisite belief, which in our opinion fulfils the requirement of the law, therefore we reject the contention of the Ld. Counsel of the assessee. 6.2 As far as grounds challenging the merit of the case is concerned, the brief facts qua the issue in dispute are that in assessment year 2009-10, the Assessing Officer received information that assessee received bogus purchases from following parties : Tin of Hawala Dealers Name of Hawala Dealer PAN of Hawala Dealer Assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... INATH CORPORATION ABFPW4096G 2010-11 47,918 27540616280V NAVDEEP TRADING CORPN. AAAPV4487A 2010-11 57,200 27940631968V VARAH LAXMI SALES AGENCY AEPPT8680N 2010-11 13,520 27630606579V PAWAN ENTERPRISES AEPPT8679H 2010-11 464,282 27470704928V BHUMI SALES CORPORATION AAEPD7085N 2010-11 75,043 27330629636V PADMAVATI TRADING CO. ATYPK4207E 2010-11 83,408 Total 9,87,466 6.4 The Assessing Officer in the assessment order(s) has duly mentioned the observation of Maharashtra VAT Authorities in respect of parties from whom the assessee had shown bogus purchases. During the course of the assessment proceedings, the Assessing Officer asked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, lorry receipts and stock register for these purchases, however, the assessee could produce only ledger extract for purchases and copies of purchase bills. Thereafter, the Assessing officer issued notice u/s 133(6) of the Act to these persons from whom the purchases were claimed to have been made. However, these notices remained unserved. Thereafter, the AR of the assessee vide order sheet dated 25/02/2015 was requested to produce these persons, however, the AR expressed inability to produce these vendors. The Assessing Officer further noticed that the Auditor in the audit report has specifically mentioned that the stock book was not produced. 11. The Assessing Officer then examined the confessions/affidavit and other related documents forwarded by the Sales Tax Department and he noticed that in many cases, bank statement of these Hawala Operators clearly indicate that cash was withdrawn immediately after cheques were deposited 12. The Assessing Officer accordingly held that it is a well settled legal position that onus to prove the genuineness of the purchases is on the assessee and unless the assessee furnishes proper material in support of his claim, it cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings, the Assessing Officer conducted independent investigation wherein these persons were found not traceable. Thereafter, the AR of the appellant was asked to produce these persons but the AR conveyed his inability to produce these vendors. In view of these facts, the argument of the appellant that the addition was made solely on the basis of information provided by the Sales Tax Department is factually incorrect. 15. One of the arguments taken by the appellant is that no opportunity to cross-examine the vendors has been provided to him. In this connection, it is important to consider the various judicial announcements on the issue of cross-examination which are summarized as under: 16.1 It is a well settled law that the strict provisions of the Indian Evidence Act do not apply to income-tax proceedings and the Income Tax authorities are not bound by the technical rules of evidence. It has been held at various judicial forums that what is important for income tax proceedings is observance of principle of natural justice and strict rules of evidence does not apply. In the case of CIT v Metal Products of India 150 ITR 714 Punjab Haryana High Court has held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not an invariable attribute of the requirement of the dictum, audi alteram partern. The principles of natural justice do not require formal cross-examination. Formal cross-examination is a part of procedural justice. It is governed by the rules of evidence and is the creation of Court. It is part of legal and statutory justice and not a part of natural justice, therefore, it cannot be laid down as a general proposition of law that the revenue cannot rely on any evidence which has not been subjected to cross-examination. However, if a witness has given directly incriminating statement and the addition in the assessment is based solely or mainly on the basis of such statement, in that eventuality it is incumbent on the Assessing Officer to allow cross examination. Adverse evidence and material, relied upon in the order, to reach the finality, should be disclosed to the assessee. But this rule is not applicable where the material or evidence used is of Collateral Nature. 16.3 In the case of Nokia India (P.) Ltd. v DDIT 59 taxmann.com 212 ITAT Delhi Bench has held that: 'Whether cross-examination is to be provided or not depends upon the facts of each case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the form of the statement recorded, the assessee has to discharge the onus cast upon him and in such condition he cannot take the plea of cross examination of his own witnesses unless he claims in the proceedings that the witnesses on which he relied upon turned hostile. 16.6 Where there are sufficient materials before the Assessing Officer/Appellate Authorities, the opportunity of cross-examination may not be given, being irrelevant. In the case of Smt. Kusum Lata Thakral v CIT 150 ITR 714, Punjab Haryana High Court has held that it was clear from the findings recorded by the Tribunal that there was no relationship between the donors and the assessee and there was no natural love and affection. The Tribunal had followed the judgment of the jurisdictional High Court in Shri Tirath Ram Gupta v CIT [2008] 304 ITR 145/[2009] 177 Taxman 294 (Punj. Har.), laying down that in the absence of natural love and affection, the gift could not be accepted as genuine. The question whether denial of opportunity of cross-examination results in violation of natural justice depends upon facts of each case. The object of cross-examination is to test the veracity of the version given in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stigation report in its entirety nor making the persons available for cross examination as admitted by the department in substantial number of cases the assessees have not been specifically indicted by those persons from whom statements have been recorded. 59. We are conscious of the fact that there may be exceptions however nothing has been brought before us to show that there was an exception in any of these appeals heard by us. In a few cases the assessee has been made known of the statement of the Director of the penny stock company or the stock broker, entry operator despite which those assessees could not make any headway. While on this issue, we need to consider as to whether and under what circumstances the right of cross examination can be demanded as a vested right. In Kishanlal Agarwalla, the Hon'ble Division Bench of this Court pointed out that no natural justice requires that there should be a kind of formal cross examination as it is a procedural justice, governed by the rules and regulations. Further it was held that so long as the party charged has a fair and reasonable opportunity would receive, comment and criticize the evidence, statements or records on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of confession of the Hawala Dealers. Considering the facts of the case and the case laws discussed above, it is held that cross-examination is not necessary in this case. 18. In view of the above discussion, it is held that the appellant has failed to substantiate the purchases amounting to Rs. 12,89,039/- claimed to have been made from 9 Hawala Dealers as tabulated earlier in this order. Accordingly, the action of the Assessing Officer in holding these purchases as non-genuine purchases is upheld. 6.6 Further, the Ld. CIT(A) has justified as why assessee is liable for disallowance of entire bogus purchases as against certain percentage of gross profit. The relevant finding of the Ld. CIT(A) is reproduced as under: 19. Finally, the appellant has relied on various case-laws wherein the addition on account of bogus purchases was restricted to certain percentage. The appellant has also argued that it is showing reasonable GP rates in his books (14.12% for AY 2009-10 and 15.64% for AY 2010-11). The appellant has also filed a copy of order of Ld. CIT(A)-3, Nashik in the case of Shri Rupesh Shah (AY 2009-10) dated 16/03/2019, wherein the disallowance was restricted to 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s regard, then the addition is to be made in the hands of assessee on account of such bogus purchases. In the facts and circumstances of some cases, the goods have been transferred by such hawala dealers to the respective purchasers, against which the assessee has to discharge onus of establishing the trail of goods which are transferred and further sold by them. Where the assessee is able to produce evidence of purchase of goods by way of weighment bridge receipts, transportation documents, payment of octroi and subsequent sale of goods to the respective parties and / or where the assessee has maintained complete quantitative details of purchase and sale of goods, then total bogus purchases cannot be added in the hands of assessee, but GP rate of 10% is to be applied on bogus purchases. Where the assessee does not establish its case, then the complete bogus purchases are to be added as hawala purchases.Further, in cases, where the statements are recorded and copies of which have been supplied to the assessee and assessee established the case of receipt of goods and its onward transmission by way of sale bills, then the factum of purchases by the assessee stands established in such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver and above the GP shown by the respective assessee. V. Another set of cases where the statements recorded by the Sales Tax Department have been handed over to the assessee and the copies of same have been supplied to the assessee, then where the assessee established the case of receipt of goods and its onward transmission, then the factum of purchases by the assessee stands established in such circumstances. However, estimation is to be made in the hands of assessee because of purchases from the grey market and following the above said ratio, addition is to be made by estimating the same @ 10% of the alleged hawala purchases, over and above the net profit shown by the assessee. (Emphasis supplied) 21. Same principle has been followed by Hon'ble ITAT Pune Bench in the case of ACIT vs Shri Pritam S Mahale ITA No. 183/PUN/2020 (Pune Tribunal) wherein the disallowance of whole of bogus purchase was confirmed in the case of a civil contractor by observing that the assessee failed to establish the consumption of such goods in the execution of civil contract by adducing stock movement records. The Hon'ble ITAT also observed that since it was not a case of trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the order have held that; 6. The Tribunal in the case of Vijay Proteins Ltd. (supra) has observed that it would be just and proper to direct the Assessing Officer to restrict the addition in respect of the undisclosed income relating to the purchases to 25% of the total purchases. The said decision was confirmed by this Court as well. On consideration of the matter, we find that the facts of the present case are identical to those of M/s. Indian Woollen Carpet Factory (supra) or Vijay Proteins Ltd. (supra) In the present case the Tribunal has categorically observed that the assessee had shown bogus purchases amounting to Rs. 2,92,93.2887- and taxing only 25% of these bogus claim goes against the principles of Sections 68 and 69C of the Income Tax Act. The entire purchases shown on the basis of fictitious invoices have been debited in the trading account since the transaction has been found to be bogus. The Tribunal having once come to a categorical finding that the amount of Rs. 2,92,93,2887- represented alleged purchases from bogus suppliers it was not incumbent on it to restrict the disallowance to only Rs. 73,23,3227. 9. In the present case too, when it has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corresponding to the bogus purchases is upheld. The addition of Rs. 12,89,039/- is accordingly confirmed. The grounds no. 2 and 3 filed by the appellant are DISMISSED. 6.7 We have heard rival submission of the parties and perused the relevant material on record. Before us, the Ld. Counsel for the assessee submitted that sales have not been doubted by the Ld. Assessing Officer and therefore, only a certain part of the gross profit could have been disallowed in the case of the assessee and not the entire bogus purchases. In our opinion, the assessee has to demonstrate that the alleged bogus purchases have been entered into the stock register and the corresponding sales bills through which those goods have been delivered to the subsequent buyers. In the case the Assessing Officer has not doubted the sales of the assessee but the assessee has failed to demonstrate whether the goods purchased through those bogus bills have been actually transmitted further to the subsequent buyers. Since, the assessee has not succeeded in either producing the stock register and or to link the quantity corresponding to the bogus purchases with the quantity sold in the sales bills. In such a situat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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