TMI Blog1999 (5) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... r assessing Shri Suresh Thakkar, one of the Directors of the V.A.P. Corporation (P.) Ltd. Shri Suresh Thakkar admitted before the Assessing Officer that the commission payment claimed by the assessee-firms to M/s. V.A.P. Corpn. (P.) Ltd. was not genuine. Shri Suresh Thakkar further stated that he was willing to face cross-examination and other attending circumstances. On the basis of this information the Assessing Officer in the present cases recorded the reasons for reopening and issued notices under section 148. In the reassessment proceedings the assessees filed returns of income showing the same income as originally returned. 3. In the reassessment proceedings the Assessing Officer communicated a copy of the reasons recorded for reopening of assessments and also copy of the statement of Shri Suresh Thakkar dated 17-3-1989 to the assessees for their perusal and for giving fair opportunities to the assessees. 4. During the reassessment proceedings, the Assessing Officer examined Shri Suresh Thakkar and also permitted cross-examination by the assessees' counsel. In the cross-examination Shri Suresh Thakkar confirmed that his company, M/s. V.A.P. Corporation (P.) Ltd. had only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to M/s. GTC Ltd. only in the light of letter dated 17-12-1984 written by M/s. VAP Corpn. in which they had expressed their readiness to ensure prompt payment of the goods. The Assessing Officer doubted the genuineness of these transactions because for dealing with a well-known company like GTC Ltd. the assessee need not have gone through unknown entities like M/s. V.A.P. Corpn. From the circumstances the assessing Officer concluded that Shri Suresh Thakkar was only a hawala giver arranged through the office of Shri Muchala. (v) The two contracts did not speak anywhere of M/s. V.A.P. Corpn. There was no provision for liquidated damages in case there was a breach of contract. M/s. VAP Corpn. was not privy to the contract between the assessees and the GTC Ltd. and, therefore, could never have stood surety for payment to the assessee. The whole commission agreement was a concocted story for the purpose of evading taxes. (vi) There was only a single transaction sought to have been done for the first and last time and the commission of Rs. 20 lacs was shown as paid by the assessees to M/s. VAP Corporation. (vii) The payer and the payee were not in direct contact with each other. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. V.A.P. Corpn. The details as mentioned above are seen included in the assessment order relating to M/s. Kashiram Atmaram, the appellant in ITA No. 3089/Ahd./92. The same details are relied upon by the Assessing Officer while passing the order in the case of M/s. Kashiram Atmaram Sons, the appellant in ITA No. 3165/Ahd./92. In both the cases, commission was claimed to have been paid to M/s. VAP Corpn. The only difference in two cases is that purchases were made from M/s. GTC Ltd. in the case of M/s. Kashiram Atmaram whereas in the case of the second firm, i.e., M/s. Kashiram Atmaram Sons, the purchases were made from one M/s. Praful Marketing Co. Ltd., a trading company floated by Reliance Group of Industries. In the first case, the commission paid was of Rs. 19,91,230 and in the second case it comes to Rs. 12,01,958. 5. The assessees challenged the said additions before the CIT(A) who confirmed the order of the Assessing Officer in its totality and dismissed the assessees' appeals. The assessees are in further appeals before us. 6. The Id. counsel for the assessee has objected to the reassessment proceedings as bad in law. It is pointed out that in the original assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paper book submitted by him containing details of the transactions between the assessees and M/s. VAP Corpn., correspondence between the assessees and M/s. GTC Ltd./M/s. PMC Ltd. copies of the statements for computation of income, copy of accounts of the various parties involved in the transactions including bank statement and copy of the correspondence during the course of the assessment proceedings. The Id. counsel pointed out that there is clear evidence to show the payment of commission to M/s. VAP Corpn. as it was paid by draft. On the other hand, the Assessing Officer has not proved that the money has come back to the assessee from the payees. Shri Muchala, the sub-agent of M/s. VAP Corporation, has not been examined at all by the assessing authority. The Id. counsel further relied on the decision of the Hon'ble Gujarat High Court in CIT v. M.K. Bros. [1987] 163 ITR 249/30 Taxman 547 in support of the contention that since the payment did not come back to the assessee in any form, the disallowance of commission in the present case was not justified. 9. On the other hand, the Id. D.R. Shri K.V. Dave, strongly supported the orders of the Assessing Officer, and the CIT (A). Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 754/1 Taxman 422 (Cal.), Madura Knitting Co. v. CIT[1956] 30 ITR 764 (Mad.), Chemaux (P.) Ltd v. CIT [1977] 109 ITR 705 (Bom.) and Anand Jyoti Printers (P.) Ltd v. CIT [1987] 165 ITR 771/32 Taxman 48 (MP). 11. We have considered the rival submissions and the evidence on record. As regards the validity of reopening of the assessment under section 147, we are not persuaded by the arguments of the ld. counsel that once the original assessment was completed, the commission allowed by the Assessing Officer in the original assessment could not have been made subject-matter for reopening. There is a catena of case laws where the Hon'ble High Courts and the Hon'ble Supreme Court have considered similar issues and decided the cases in favour of the Revenue by upholding the validity of the reopening even in the case of subsequent information coming to the Department against the assessee after original assessment was completed. In the case of Phool Chand Bajrang Lal, the Supreme Court held that the notice for reassessment was valid and the sufficiency of the reasons for forming the belief was not to be judged by the court. In that case the original assessment was completed after acceptin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the light of the ratio decidendi of the case laws cited above it is clear that the Assessing Officer is justified in issuing notices for reassessment in the present cases. Hence, we dismiss the assessee's ground challenging the validity of the reassessment proceedings. 12. Coming to the merits of the case, we shall first deal with case law relied on by the ld. counsel for the assessee namely - M.K. Bros.' case. This was a case where certain purchases made by the assessee were disallowed by the Assessing Officer on the ground that the transactions were bogus. There were some allegations that there was a sales-tax racket by certain parties issuing bogus vouchers. However, the Tribunal found that there was no evidence anywhere that these concerns gave bogus vouchers to the assessee. No doubt there were certain doubtful features but the evidence was not adequate to conclude that the purchases made by the assessee from the said parties were bogus. Therefore, the Tribunal did not sustain the addition made by the Assessing Officer and retained by the first appellate authority. The Hon'ble Gujarat High Court upheld the findings recorded by the Tribunal and observed that nothing was sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom Mr. Muchala. I do not know in which capacity he had handed over but I know my capacity I received on behalf of VAP Corpn. because I do not know what understanding Mr. Muchala is having with M/s. Kashiram Atmaram Sons. Q. 13 Then how is it that you return commission to Mr. Muchala ? A. 13 In hawala business we return the money to the person who is giving us the payment and not to anybody else because these are unaccounted transactions and for which we cannot rely upon third parties. Q.14 Have you ensured after making payment to Mr. Muchala that Mr. Muchala has retained the amount with him or he has passed it on to other parties ? A. 14 In hawala business when we give cash for unaccounted amounts to the parties who has handed over us the drafts we do not question him because we understood that he is in hand and gloves with the party who is giving drafts. Last question to Shri Suresh Thakkar from Dy. Commissioner of the Income-tax (Asst.), Spl. Range-1, Surat. Q.3 How did you enter into all the correspondence like bills, letters, receipts issued by you to M/s. Kashiram Atmaram Sons ? Kindly explain what was the medium of communications ? That is to say post office, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the rescue of the assessees as they were given sufficient opportunity to cross-examine Shri S. Thakkar. The Assessing Officer in the circumstances of the case, was not duty-bound to examine Shri Muchala because no claim of payment of commission to Shri Muchala was made by the assessees during the assessment proceedings. On the other hand, the entire commission is shown as having been paid to M/s. V.A.P. Corpn. Shri Suresh Thakkar, the only man managing the affairs of the V.A.P. Corpn. at the relevant time having denied the receipt of such commission and the assessees having been confronted with the deposition of Shri S. Thakkar, the onus was on the assessee to disprove the deposition. The probabilities of the case go heavily against the assessees and an adverse inference has been drawn by the Assessing Officer after painstaking enquiries giving adequate opportunity to the assessees for cross-examining Shri Suresh Thakkar. In the circumstances we have no hesitation in holding that the Assessing Officer was justified in disallowing the claim of commission payment which turns out to be bogus. The CIT(A) also is fully justified in dismissing the assessees' appeals in this connectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orpn. on the other because otherwise a third party by name Shri Muchala would not have emerged during the examination of Shri S. Thakkar. 19. In the case of Vishnu Agencies (P.) Ltd., the Hon'ble Calcutta High Court decided a similar issue holding that the claim of commission payment was not allowable as a business expenditure because there was no evidence in that case to show that a particular agent had not rendered any service to the assessee. The Court also held that it was the duty of the authorities to consider oral as well as documentary evidence to determine whether payment was for business purpose. The ratio of this decision squarely applies to the facts of the present case before us. It is clear that the Assessing Officer has done his duty of considering oral and documentary evidence to see whether payment was given. It is also proved by the statement of Shri S. Thakkar that he did not receive any commission payment and did not render any service for earning such huge commission except in aiding and abetting the assessees in a hawala transaction. 20. The Hon'ble Supreme Court in Sumati Dayal's case considered a case of cash credits added as income from undisclosed sour ..... X X X X Extracts X X X X X X X X Extracts X X X X
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