Itxa/781/2018 Of Principal Commissioner Of Income Tax, 29, Mumbai v. Jagadish Thakkar

ITXA 781-2018.odt IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 781 OF 2018 Principal Commissioner of Income Tax, 29, Mumbai, Bandra Kurla Complex,Mumbai-400 051 V/s.Jagdish ThakkarVikas Paradise, 1002 B, LBS Road,Mulund West, Mumbai- 400 102 --------- ...Appellant ...Respondent Mr. Arvind Pinto, Advocate for Appellant.Mr. Mandar M. Vaidya, Advocate for Respondent. ------- CORAM :DHIRAJ SINGH THAKUR & ABHAY AHUJA, JJ. DATE :5[th] AUGUST, 2022. PER COURT: 1. This is an Appeal filed under Section 260A of the Income Tax Act,1961 (the “Act”), for the Assessment Year 2011-2012, whereby theAppellant-Revenue against order dated 6[th] January, 2017 of the IncomeTax Appellate Tribunal, Mumbai (“ITAT”). 2. The Respondent-Assessee is proprietor of M/s A. J. Traders and isengaged in the business of resale of industrial goods. During the previous year relevant to the assessment year under consideration, the Assesseeearned profits and gains from business or profession and income fromother sources. He filed his return of income on 26[th] September, 2011declaring a total income of Rs. 31,18,188/- after claiming deduction underchapter VI-A of Rs. 1,65,000/-. The said return was initially processedunder Section 143(1). Later on, being selected for scrutiny, the AssessingOfficer proceeded on the basis of information received from the DirectorGeneral of Income Tax, Investigation, Mumbai to the effect that thepurchases made by the Assessee were appearing in the list of hawaladealers of the Sales Tax Department and issued notices under Section133(6) of the Act in order to verify the purchases made from three partiesviz. (i) Harshil Ferromet : Rs. 1,22,40,800/- (ii) Hans Enterprises : Rs.1,08,18,184/- (iii) Khushal Mercantile Pvt. Ltd.: Rs. 85,13,856/-.According to the Assessing Officer none of the parties complied with thosenotices either on account of non availability at the given address or failureto attend before the Assessing Officer. The Assessing Officer vide orderdated 13[th] January, 2014 called for the production of parties and alsocopies of purchase bills, corresponding sales, etc. The Assessee submittedparties’ ledger accounts, bank statements, etc., but failed to produce theparties. It was submitted that since all the payments were made through the banking channel and details as required were produced the onus onthe Assessee was discharged. According to the Assessing Officer, mereproduction of purchase invoices and payments having been made throughbanking channels would not be sufficient to conclusively establish thegenuineness of purchases since the Assessee had not produced the parties.The explanation by the Assessee was that the entire purchases from thesaid parties were exported and that all the purchases made were settled bypayment through account payee cheques which were cleared by suchseller’s bank account. 3.The Assessing Officer after considering the submissions held thatthough there were sales against purchases and payments for purchaseswere made by account payee cheques, yet it does not make purchasesgenuine and held that the goods were certainly purchased but not fromthe persons who had supplied the bills. According to the Assessing Officer,the goods were purchased in cash from the market and sale bills wereobtained from hawala dealers for that purpose. The Assessing Officer hasrelied upon the Affidavits of such persons filed in the Sales TaxDepartment. He therefore added the sum of Rs. 3,15,72,840/- on theground that the Assessee has violated Section 69C of the Act. Alternatively, the Assessing Officer also presumed that the sales wereeffected from unaccounted stock and alternatively held that the saidamount was unexplained investment under Section 69 of the Act. Alternatively, the Assessing Officer also presumed that the sales wereeffected from unaccounted stock and alternatively held that the saidamount was unexplained investment under Section 69 of the Act. 4.Aggrieved by the same, the Assessee filed an Appeal before theCIT(A). The CIT(A) after considering the submissions made on behalf ofthe Assessee as well as the Revenue, observed that the issue that was to bedecided was whether the addition on account of the purchase of goodsmade at the relevant point of time can be held to be bogus, when theAssessing Officer himself admits that the purchases were in fact made.The CIT(A) observed that the Assessee has made payment by accountpayee cheques in favour of the parties from whom he has shown to havepurchased goods. He observed that the Assessee had discharged his onusby furnishing the bills, delivery challans relating to the said purchases,details and evidence to show that the payments of such purchases weremade by account payee cheques and the same were duly accounted in thebooks of the Assessee. The CIT(A) observed that so far as purchases areconcerned, the Assessing Officer has also not disputed the fact that theAssessee purchased goods at relevant points of time for which heproduced and accounted the bills of these parties. He also observed that all the purchases were reflected in the stock reconciliation furnished tohim in respect of the subject purchases made by the Assessee. According tothe CIT(A), the Assessee appeared to have discharged his onus in respectof the purchases in question. He further observed that the AssessingOfficer had not doubted the sales arising out of the said export activityand its gross profit ratio (“GPR”) and therefore all the purchases in thecase could not be treated as bogus. It is also recorded in the order of theCIT(A) that the Assessing Officer had not made available the copies of thedocuments relied upon by him for the purpose of making the additionwhich also proves that there was no evidence to show that the moneywhich was given by cheques to such persons has come back to theAssessee in the form of cash. 5. The CIT(A) has observed that it is not the case of the AssessingOfficer that the payments against these purchases were in cash as all thepayments had been made through account payee cheques/RTGS and hadbeen debited to the bank account of the Assessee in the names of theconcerned parties. It is also not the case of the Assessing Officer that hemade further investigation to prove that these payments made to theparties in question were withdrawn from that account in cash and flown ITXA 781-2018.odt back to the Assessee. It is also recorded in the order of the CIT(A) that theAssessing Officer had access to the bank account of the parties, that hecould not bring on record any evidence of the money flowing back to theAppellant. It was a mere assumption that the Assessee had received themoney back from the said parties. The CIT(A) accordingly held that in theabsence of any such evidence thereof, no the purchases made from thesaid parties cannot be treated as bogus in entirety. 6.According to the CIT(A), the Assessing Officer has made an additionon the basis of presumption of third party purchases and cash paymentthereof. He observed that no matter, howsoever, wild suspicion may be,that cannot partake the character of proof and observed that no additionor dis-allowance can be made on mere presumption, conjecture orsurmises. He further observed that the parties from whom purchases havebeen shown to be made were registered dealers under the MVAT Act. 7. According to the CIT(A), the crucial facts of corresponding sales ofgoods purchased from the said parties and payments to them by properbanking channels were ignored by the Assessing Officer. That theAssessing Officer could not have invoked the provisions under Section 69C 6.According to the CIT(A), the Assessing Officer has made an additionon the basis of presumption of third party purchases and cash paymentthereof. He observed that no matter, howsoever, wild suspicion may be,that cannot partake the character of proof and observed that no additionor dis-allowance can be made on mere presumption, conjecture orsurmises. He further observed that the parties from whom purchases havebeen shown to be made were registered dealers under the MVAT Act. 7. According to the CIT(A), the crucial facts of corresponding sales ofgoods purchased from the said parties and payments to them by properbanking channels were ignored by the Assessing Officer. That theAssessing Officer could not have invoked the provisions under Section 69C and added the said purchases as unexplained expenditure, as Section 69Capplies only in the case where the source of the expenditure is in doubtand not the expenditure itself. That in the case at hand, on one hand, theAssessing Officer has doubted the expenditure in the form of purchasefrom the said parties and on the other hand, he has added the income onthe ground that the source of the expenditure has remained unexplained;if the expenditure itself has been rejected as non-genuine, then there is noquestion of adding any income on the ground that the source of the saidexpenditure has remained unexplained, as both these are mutuallyexclusive. 8. The CIT(A) observing that the purchases effected by the Assesseenot being in dispute and that there being no material on record brought bythe Assessing Officer to show that the Assessee purchased material fromunexplained cash available with him, held that no addition could be madeunder Section 69C of the Act.It is also recorded in the said order that thepurchase parties have not responded to the notices under Section 133(6)which could not be ignored. ITXA 781-2018.odt 9. The CIT(A) relying upon the various decisions including thedecision in the case of CIT Vs. Bholenath Poly Fab (P) Ltd. in I.T.A. No. 63of 2012 dated 23[rd] October, 2012 observed that the conclusion drawn bythe Assessing Officer that simply because the parties are not available forconfirmation of sales made by them to the Assessee or because the partieswere declared as suspicious dealers by the Sales Tax Department, will notmake the same as bogus purchases, liable to be disallowed in theirentirety. The CIT(A) held that it would be fair and reasonable if the dis-allowance out of the bogus purchases in the case of the Assessee for theyear under consideration was restricted to 10% of such purchases anddirected the Assessing Officer to dis-allow 10% of the alleged boguspurchases viz. 3,15,72,840/- being the profit from the purchases madefrom the parties during the year under consideration, thereby confirmingthe addition of Rs. 31,57,284/- on account of bogus purchases anddeleting the balance. Aggrieved by the order of the CIT(A), Revenue filedan Appeal before the ITAT. 10. The ITAT after considering the submissions, found that theAssessing Officer had not doubted sales (exports) made by the Assessee;that he had accepted the book results shown by the Assessee; that the ITXA 781-2018.odt payments made by the Assessee through banking channels were not indoubt and that there was no evidence of making unexplainedinvestments. The Tribunal records that except issuing notice underSection 133(6) to the suppliers of the goods, the Assessing Officer has notmade any further investigation. It is also recorded by the Tribunal that theAssessee had produced before the Assessing Officer the delivery challans,purchase bills and evidence of payment made through banking channels.Holding thus, the Tribunal came to a conclusion that Assessee haddischarged the initial burden and it was the duty of Assessing Officer torebut the evidences produced by the Assessee, but he did not bringanything on record. The Tribunal confirmed the order of the CIT(A) andheld that the CIT(A) had rightly held that the provisions of Section 69Ccould not be invoked and dismissed the Appeal of the Revenue. 11. Being aggrieved by the aforesaid decision of the Tribunal, Revenuehas preferred this Appeal proposing the following questions as substantialquestions of law:- “ (1) Whether in law and on the facts of the instant case, wasthe Tribunal right upholding the orders of the CIT(A) restrictingthe addition u/s 69C to 10% of the accommodation entries?(2) Whether in law and on the facts of the instant case, was theTribunal justified in ignoring the fact that the Respondent Assessee had failed to provide evidence of having madepurchases against the bills that were accounted for; it beingincumbent on the Assessee to prove that these purchases aregenuine. (3) Alternatively, in law and on the facts of the instant case,does the AO in the absence of evidence regarding the genuinenature of the purchases, be compelled to accept the entries inthe books or bank entries. (4) Alternatively, in law and on the facts of the instant case, canthe fact of there being corresponding sales, indicate that theaccommodation bills for which there was evidence that thesewere not genuine, be allowed as deduction?” 12. Mr. Pinto, learned counsel for the Revenue relies upon the order of the Assessing Officer and submits that the Respondents are involved inproviding accommodation entries without doing any actual business ordelivery of the goods. He submits that this inference has been drawn by the Sales Tax Department after having done field work and independent inquiries with respect to each of the hawala parties. Learned Standing Counsel would submit that even the Director General of Income Tax, Investigation, Mumbai took up the task of going to the bottom of the truth and pursuant to the action by way of searches and surveys on the basis of such information conducted inquiries, which fortified the findings of the Sales Tax Department that these parties are :- (a) issuing only bills and doing non-genuine business (HawalaBusiness);Business); (b) not maintaining stock and not keeping Stock Register; ITXA 781-2018.odt (c) not effected any purchase; (d) there were no transaction of goods;(e) entries were being provided by the parties for commission. 13. He submits that the inquiries and investigation revealed that thehawala operators never sold any goods but only issued bogus bills to thebeneficiaries for a commission. He submits that the modusoperandi wasthat the hawala operators would raise bogus bills and upon receipt of thecheque for the bills, the amounts were withdrawn by the such operators incash and then returned to the beneficiaries in cash after deduction ofcommission. 14. Learned Standing Counsel further submits that in the facts of thepresent case also, the Assessee made purchase from the three parties inquestion and on collating the data provided by the Sales Tax Authorityand the Director General of Income Tax, Investigation, it was observedthat the three parties were hawala bill issuers. Therefore, notices wereissued under Section 133(6) to provide the details with respect to thepurchase transactions entered into with the Assessee; however, none ofthe parties have complied with the said notices, either on account of nonavailability at the given addresses or they simply chose to remain silent 14. Learned Standing Counsel further submits that in the facts of thepresent case also, the Assessee made purchase from the three parties inquestion and on collating the data provided by the Sales Tax Authorityand the Director General of Income Tax, Investigation, it was observedthat the three parties were hawala bill issuers. Therefore, notices wereissued under Section 133(6) to provide the details with respect to thepurchase transactions entered into with the Assessee; however, none ofthe parties have complied with the said notices, either on account of nonavailability at the given addresses or they simply chose to remain silent and therefore, the Assessee was requested to produce the parties for cross-verification. But instead of producing the parties, the Assessee has onlyproduced parties ledger and bank statements. Learned counsel submitsthat therefore though the Assessee has obtained purchase bills amountingto Rs. 3,15,72,840/- from the aforesaid three parties, however, he has notbeen able to furnish any concrete evidence to establish the delivery of socalled goods purchased from the parties and therefore the inference thatthe purchase amounting to Rs. 3,15,72,840/- claimed to have been madeby the Assessee from the said parties is bogus. He would submit thatwithout purchase of goods, sales cannot take place. Since the incomearising from said sales has been shown and offered by the Assessee in hisprofit and loss account, there must be purchases made in that regard,however, those purchases are bogus as no physical delivery of goods havetaken place. According to him, therefore, the expenditure claimed by theAssessee for which sources have not been satisfactorily explained, havebeen rightly treated as unexplained expenditure under Section 69C andaccordingly added back to the total income of the Assessee. 15. Learned Standing Counsel submits that without prejudice to theabove, Assessee might also be having an undisclosed stock of goods with ITXA 781-2018.odt him for which he has arranged bogus bills for selling the same andtherefore in such a situation, the undisclosed stock of goods has rightlyheld to be unexplained investment in the Assessee’s hand under Section69 of the Act, for which further addition of Rs. 3,15,72,840/- is called for. 16. He submits that neither the Appellate Authority nor the Tribunalhave appreciated that under Section 69C of the Act it is not just thatwhere the Assessee offers no explanation about the source of suchexpenditure that such expenditure may be deemed to be the income of theAssessee but the said section also refers to a situation where theexplanation offered by the Assessee is in the opinion of the AssessingOfficer not satisfactory that the said expenditure may be deemed to beunexplained expenditure and liable to be added to the income of theAssessee. 17. Mr. Pinto urges this Court to address this issue as according to himthis issue has not been hitherto addressed by any recent decision of thisCourt. ITXA 781-2018.odt 16. He submits that neither the Appellate Authority nor the Tribunalhave appreciated that under Section 69C of the Act it is not just thatwhere the Assessee offers no explanation about the source of suchexpenditure that such expenditure may be deemed to be the income of theAssessee but the said section also refers to a situation where theexplanation offered by the Assessee is in the opinion of the AssessingOfficer not satisfactory that the said expenditure may be deemed to beunexplained expenditure and liable to be added to the income of theAssessee. 17. Mr. Pinto urges this Court to address this issue as according to himthis issue has not been hitherto addressed by any recent decision of thisCourt. ITXA 781-2018.odt 18. On the other hand, Mr. Mandar Vaidya, learned counsel for theRespondent-Assessee relies upon the decision of the CIT(A) and theTribunal to submit that both the CIT(A) and the Tribunal have givenconcurrent findings of fact that the Assessing Officer had not doubted theexport sales made by the Assessee, that he had accepted the book resultsshown by the Assessee and that there was no doubt that the paymentswere made by the Assessee through banking channels. He submits that theAssessee had produced before the Assessing Officer the delivery challans,purchase bills as well as evidence that the payments were made throughbanking channels and as such the Assessee has discharged his initialburden. Mr. Vaidya would submit that it was the duty of the AssessingOfficer to rebut the evidences but no such rebuttal was brought on recordbefore the Tribunal. He submits that this is not the case of boguspurchases or accommodation entries and the CIT(A) and the Tribunalhave rightly deleted the addition except to the extent of 10% of thepurchases and against which the Assessee has no grievance. 19. We have heard Mr. Arvind Pinto, learned Counsel for the Appellant-Revenue and Mr. Mandar Vaidya, learned Counsel for the Respondent and with their able assistance, we have perused the papers and proceedings in the matter. 20. Before proceeding further, we deem it appropriate to reproduce the said Section 69C of the Income Tax Act as under: “Unexplained expenditure, etc. 69C.Where in any financial year an assessee has incurred anyexpenditure and he offers no explanation about the source ofsuch expenditure or part thereof, or the explanation, if any,offered by him is not, in the opinion of the Assessing Officer,satisfactory, the amount covered by such expenditure or partthereof, as the case may be, may be deemed to be the income ofthe assessee for such financial year : Provided that, notwithstanding anything contained in any otherprovision of this Act, such unexplained expenditure which isdeemed to be the income of the assessee shall not be allowed asa deduction under any head of income.” 21. The said provision provides that where in any financial year the Assessee has incurred any expenditure and offers no explanation about the source of such expenditure or part thereof or the explanation, if any, offered by him is not in the opinion of the Assessing Officer satisfactory, the amount of such expenditure is deemed to be the income of theAssessee for that financial year. ITXA 781-2018.odt 22. In nuce, the Section covers a situation where no explanation hasbeen offered about the source of the expenditure or the explanationoffered is not found to be satisfactory by the Assessing Officer. In such acase, the unexplained expenditure would be deemed to be the income ofthe Assessee. 23. The entire bedrock of the Assessing Officer’s case appears to be thatthe Assessee has not produced the parties from whom the Assessee hadmade the subject purchases although admittedly parties’ ledger accounts,bank statements were produced before him and even though there weresales against purchases and payments were made by account payeecheques through banking channels. The CIT(A) also records that all thepurchases were reflected in the stock reconciliation furnished before himand the Assessing Officer. 22. In nuce, the Section covers a situation where no explanation hasbeen offered about the source of the expenditure or the explanationoffered is not found to be satisfactory by the Assessing Officer. In such acase, the unexplained expenditure would be deemed to be the income ofthe Assessee. 23. The entire bedrock of the Assessing Officer’s case appears to be thatthe Assessee has not produced the parties from whom the Assessee hadmade the subject purchases although admittedly parties’ ledger accounts,bank statements were produced before him and even though there weresales against purchases and payments were made by account payeecheques through banking channels. The CIT(A) also records that all thepurchases were reflected in the stock reconciliation furnished before himand the Assessing Officer. 24. The Assessing Officer came to a conclusion that though the goodswere certainly purchased by Assessee but not from persons, who hadsupplied the bills. Statedly relying upon the purported affidavits filedbefore the Sales Tax Authorities, the Assessing Officer was of the view thatthe goods were purchased in cash from the market and sale bills were ITXA 781-2018.odt obtained from hawala dealers for that purpose. No material has beenbrought on record by the Assessing Officer to show that the Assesseepurchased material from the market or from unexplained cash. In thealternate, he presumed that the sales were effected from unaccountedstock and held the said amounts as unexplained investment under Section69 of the Act. No evidence or material appears to have been brought onrecord or finding given by the authorities to arrive at this presumption. 25. On the basis of the above, the Assessing Officer propounds ahypothesis that the money which was given by cheques to such personshas come back to the Assessee in the form of cash. The CIT(A) has foundthat neither the Assessing Officer has made available any documents nor isthere any evidence to demonstrate the same. 26. There is no dispute that the subject purchases were infact made,that the Assessee has made payments by account payee cheques whichhave been cleared through the normal banking channels, the Assessee hadfurnished the bills, delivery challans relating to the said purchases, thetransactions appear to have been duly accounted for in the books ofAssessee. The CIT(A) has observed that all the purchases were reflected in the stock reconciliation furnished before him in respect of the subjectpurchases made by the Assessee. There is no evidence or material broughton record by the Assessing Officer that the purchases made were for cashor that the purchasers had returned the cash corresponding to the chequepayments received from the Assessee. The CIT(A) has recorded that thereis no evidence of money flowing back to the Assessee and that theAssessing Officer had made the addition merely on the basis ofpresumption. The Assessing Officer had not made available copies of thedocuments relied upon by him for the purpose of making the addition.These are all findings of fact for which the Tribunal is the last fact findingauthority. 27. The Assessee in our view has discharged his onus in respect of thesubject purchases. The Assessing Officer has also not doubted the salesarising out of the said export activity and its GPR. This is not a case whichfalls within the ambit of Section 69C as held by the Assessing Officer. 28. In the case at hand, the Assessee statedly had made purchases fromthe three parties totalling to amount of Rs. 3,15,72,840/- in respect ofwhich it has been found by both the CIT(A) as well as the Tribunal thatthe sales in question have not been doubted, that the payments have been 27. The Assessee in our view has discharged his onus in respect of thesubject purchases. The Assessing Officer has also not doubted the salesarising out of the said export activity and its GPR. This is not a case whichfalls within the ambit of Section 69C as held by the Assessing Officer. 28. In the case at hand, the Assessee statedly had made purchases fromthe three parties totalling to amount of Rs. 3,15,72,840/- in respect ofwhich it has been found by both the CIT(A) as well as the Tribunal thatthe sales in question have not been doubted, that the payments have been made by the Assessee through banking channels and that the AssessingOfficer has also accepted the book results shown by the Assessee. It is alsofinding of fact that the Assessee has produced before the Assessing Officerdelivery challans, purchase bills as well as evidence of payments throughbanking channels. As such, the Assessee has discharged the initial burdenor onus of providing the details of the parties; and it was incumbent onthe Assesssing Officer to rebut the evidence produced by the Assessee. Wedo not find anything on record controverting the findings of fact of theCIT(A) as well as the Tribunal. Despite uncontroverted findings of fact andkeeping in mind that the Assessing Officer had issued 133(6) notices tothe three suppliers of goods and the parties had not attended and eventhough the Assessing Officer did not take any further steps forinvestigation, in all fairness, the CIT(A) as well as the Tribunal had upheldthe dis-allowance in respect of the purchases for the year underconsideration to the extent of 10% of such purchases against whichadmittedly no appeal has been filed by the Assessee. 29. If the CIT(A) relying upon the various decisions including thedecision in the case of CIT Vs. Bholenath Poly Fab (P) Ltd.(supra), hasrestricted the disallowance to 10% of the purchases, which decision has NIKITAYOGESHGADGILDigitallysigned byNIKITAYOGESHGADGILDate:2022.09.0514:56:38+0530 not been disturbed by the Tribunal, we find that The view taken by theTribunal is a possible view and cannot be faulted with. 30. The decision of this Court (Per Dhiraj Singh Thakur, J) dated 18[th] July, 2022 in ITXA No. 398 of 2018, where similar issue came to be decided is useful. Paragraph 12 of the said decision is pertinent and isquoted as under:- “We are of the opinion that the view expressed by the Tribunalin upholding the order passed by the learned CIT(A), cannot besaid to be in any manner perverse or legally untenable,inasmuch as, if the entire amount of Rs. 4,74,54,793/- were tobe held as non-genuine purchases, then it would not be possibleto justify as to how the works allotted to the assessee forexecution by the semi Government Agencies could becompleted. Therefore, the argument that the entire amount ofRs. 4,74,54,793/- ought to have been added to the income ofthe assessee is untenable, especially when the learned CIT(A) inits order as upheld by the Tribunal in the order impugned heldthat the purchases per se were not in dispute but the partiesfrom whom the purchases are shown to have been made aredisputed.” 31. In view of the above discussion, we do not find any error or perversity in the order of the Tribunal. The Appeal, therefore, does not raise any substantial question of law and is dismissed. No costs. (ABHAY AHUJA, J.) (DHIRAJ SINGH THAKUR J.)