IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH ‘C’ CHENNAI
ITA Nos.53, 54, 55, 56 &57/Chny/2019
Assessment Years: 2008-09, 2009-10, 2010-11, 2011-12 & 2012-2013
ASSISTANT COMMISSIONER OF INCOME TAX
CENTRAL CIRCLE 3(3), CHENNAI
M/s G R THANGAMALIGAI AND SONS
NO 138, USMAN ROAD
T NAGAR, CHENNAI-600017
PAN NO: AAGFG3557L
ITA Nos.58, 59, 60, 61, 62 & 63/Chny/2019
Assessment Years: 2007-08, 2008-09, 2009-10, 2010-11, 2011-12 & 2012-13
ASSISTANT COMMISSIONER OF INCOME TAX
CENTRAL CIRCLE 3(3), CHENNAI
M/s G R THANGAMALIGAI FIRM
NO 136, USMAN ROAD, T NAGAR
PAN NO: AADFG7966Q
ITA Nos.64, 65 & 66/Chny/2019
Assessment Years: 2010-11, 2011-12 & 2012-13
ASSISTANT COMMISSIONER OF INCOME TAX
CENTRAL CIRCLE 3(3), CHENNAI
M/s GRT JEWELLERS INDIA PVT LTD
NO 136, USMAN ROAD, T NAGAR
PAN NO: AAACR3582R
Inturi Rama Rao, AM & Duvvuru R L Reddy, JM
Date of Hearing: May 8, 2019
Date of Decision: June 28, 2019
Appellant Rep by: Shri Sailendra Mamidi, PCIT
Respondent Rep by: Shri B Ramakrishnan, CA
Income Tax – Section 69
Keywords – Accommodation entry – Bogus purchases – Quantitative details
THE assessee is engaged in the business of trading of gold and diamond jewellery. After filing of the return for the relevant AY and its assessment in 2009, a search operation was conducted on the assessee by the Revenue in 2013. It was found that the assessee had put some purchase order for diamonds from certain parties and was one of the beneficiaries of accommodation entries provided by one Bhanwarlal M Jain & Group. Based on the search report, the AO issued a notice u/s 153A. The AO then completed the assessment making certain addition on the basis of unproved (bogus) purchases of diamonds, disallowed the deduction claimed u/s.80-IA and disallowed certain expenses u/s.14A. The assessee, before the CIT(A) pressed the the point that no incriminating material was found to discredit the purchase bills to conclude that such purchases were non existential. The CIT(A) accepted the assessee’s contentions and set aside, the additions made on bogus purchases and refusal of claim u/s 80-IA.
On hearing the appeals, the Tribunal held that,
Whether acceptance of sale and purchase transaction by tallying the quantitative details by the first appellate authority makes the whole transaction genuine and no addition is then warranted in absence of incriminating material – YES: ITAT
++ the short issue involved revolves around the findings of the AO to held the purchases made by the assessee as bogus. The law is settled to the extent that in the absence of any incriminating materials found during the course of search and seizure operations, no addition can be made u/s.153A. Thus, the AO lack jurisdiction to make addition on account of alleged bogus purchases in the absence of any incriminating material found;
++ Even on merits, the assessee had discharged the onus of establishing the genuineness of transaction of purchases by filing names, addresses, PAN, invoice copies and details of payments of suppliers. The CIT(A) had examined the quantitative details of purchases, sales and closing stock and also recorded finding that the assessee had been maintaining stock register showing the purchases, sales and closing stock of diamonds and gave a findings that quantitative details were tallying. When the sales was accepted, there was no reason to doubt the purchases made or to doubt the genuineness of the purchases and make addition. Accordingly, the appeal filed by the Revenue is dismissed.
Revenue’s appeal dismissed
PCIT vs. Tejua Rohitkumar Kapadia – 2018-TIOL-228-SC-IT
PCIT vs. Tejua Rohitkumar Kapadia – 2017-TIOL-2822-HC-AHM-IT
CIT vs. Kabul Chawla – 2015-TIOL-2006-HC-DEL-IT
PCIT vs. Sunrise Finlease (P) Ltd – 2017-TIOL-2546-HC-AHM-IT
CIT vs. Continental Warehousing Corporation (Nhava Sheva) Ltd – 2015-TIOL-1294-HC-MUM-IT
PCIT vs. Chawla Interbild Construction Co. (P) Ltd – 2018-TIOL-409-HC-MUM-IT
PCIT vs. Meeta Gutgutia – (2017) 82 taxmann.com 287
PCIT vs. Meeta Gutputia – (2018) 96 taxmann.com 468
These are appeals filed by the Revenue directed against the different orders of the learned Commissioner of Income Tax (Appeals)-19, Chennai (hereinafter called as ‘CIT(A)’) dated 04.10.2018 in the cases of M/s. G R Thangamaligai & Sons for assessment years 2008-09, 2009-10, 2010-11, 2011-12 and 2012-13, M/s. G R Thangamaligai Firm, for assessment years 2007-08, 2008- 09, 2009-10, 2010-11, 2011-12 and 2012-13 and M/s. G R T Jewellers (India) Pvt Ltd for assessment years 2010-11, 2011-12 and 2012-13 respectively.
2. Since, the identical facts and issues are involved in these appeals, we proceed to dispose the same vide this common order.
3. For the sake of convenience and clarity the facts relevant to the appeal in ITA No.54/Chny/2019 in the case of M/s. G R Thangamaligai & Sons, for assessment year 2009-10 are stated herein.
4. The Revenue raised the following grounds of appeal:-
“1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law. 2.1. The Id. CIT(A) erred in directing the assessing officer to allow the assessee’s claim of purchases of diamonds of Rs. 9,04,15,440/-.
2.2. The Id. CIT(A) failed to appreciate that some of the concerns from whom the assessee claimed to have purchased the diamonds had been operated by Shri. Banwarilal and his sons, who were providing accommodation entries to various entities, by issuing invoices, through various benami concerns operated by them, without actually supplying the goods.
2.3. The Id. CIT(A) ought to have noted that, by his inference that the actual material (diamonds) were supplied by some other persons and to accommodate such supplies, Shri.Banwarilal Jam group issued the accommodation invoices, the Id. CIT(A) has endorsed the view that there is nothing erroneous in an assessee purchasing the goods from someone and getting the bills from another, which would defeat the intent and purpose of the Profit & Loss account to reflect the true state of affairs of a business entity.
2.4. The Id. CIT(A) failed to note that a person selling his goods is expected to issue the goods and the seller cannot be different from the person who issues the bills in favour of the assessee.
3. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored.
5. The brief facts of the case are as under:-
The respondent-assessee namely M/s. G R Thangamaligai & Sons, is a firm engaged in the business of trading of gold and diamond jewellery. The return of income for the AY 2009-10 was filed on 26.09.2009 disclosing total income of Rs.18,32,62,730/-. There was a search & seizure operations u/s.132 of the Act on the assessee on 16.05.2013. The Assessing Officer issued notice u/s.153A of the Act. In response to notice, the assessee filed its returns of income admitting Rs. 24,32,71,490/-. The Assessing Officer while completing the assessment u/s.143(3) r.w.s. 153A of the Act assessed total income of Rs. 28,39,43,517/- by making additions on account of (i) unproved (bogus) purchases of diamonds (ii) disallowance of deduction claimed u/s.80-IA of the Act and (iii) disallowance of expenses u/s.14A of the Act. During the search and seizure proceedings, it is found that Respondent- assessee had purchased diamonds from the following parties namely (a) Parvathi Exports (b) Meenakshi Exports and (c) Malhar Exports. Subsequently there was a search operation conducted in the cases of Shri. Bhanwarlal M Jain & Group, wherein it was found that the said group was engaged in providing accommodation entries by way of issuing purchase bills without actual physical sales of goods to various parties. It is also found that Respondent – assessee were one of the beneficiaries of such accommodation entries. The Assessing Officer noted that during the previous year relevant to assessment year 2009-10, sum of Rs. 4,01,93,808/- was shown as purchases made from Shri. Bhanwarlal M Jain & Group. Based on this information, the Assessing Officer during the course of assessment proceedings called upon the assessee vide letter dated 17.12.2015 to furnish details of diamonds purchased. In response to the letter dated 17.12.2015, the Respondent – assessee has submitted copies of invoices raised and accounts copy of the said parties in the books of the Respondent – assessee firm. However, the Assessing Officer inferred that purchases made from the said Shri. Bhanwarlal M Jain & Group for the assessment year 2009-2010 to the tune of Rs. 4,01,93,808/- are bogus the search and seizure operations carried out in the case of Shri. Bhanwarlal M Jain & Group showed that they are providing only accommodation entries. The Assessing Officer also discussed modus operandi adopted by the said group at para 6 of the assessment order. The Assessing Officer issued commission u/s.131(d) of the Act to the DDIT (Inv) Unit-II, Surat to examine the said parties, who in turn reported that summons could not be served on the given address. Based on this information, the Assessing Officer inferred that these entities are not operative in the given address and they are bogus firms. The Assessing Officer held that mere production of PA numbers, IT returns and bills does not establish the genuineness of the purchases in view of modus operandi adopted by the said group. The Assessing Officer therefore inferred that the purchases made from the above said parties are bogus and accordingly disallowed the purchases to the extent of Rs. 4,01,93,808/-. The Assessing Officer also made disallowances u/s.14A and 80IA of the Act.
6. Being aggrieved by the above additions, an appeal was preferred before the ld. CIT(A) challenging the very validity of jurisdiction u/s.153A of the Act in the absence of any incriminating materials on record and challenging the findings of the Assessing Officer that purchases made from the group companies namely (a) Parvathi Exports (b) Meenakshi Exports and (c) Malhar Exports are bogus on the ground that assessee had discharged his onus by filing evidence in the form of invoices, copies of the details of the payments made, PA number, name and address of the parities. The CIT(A) upon consideration details of purchases, sales and closing stock and the statements given by Shri. Bhanwarlal M Jain held that the purchases cannot to be held as bogus. The modus operandi operated by Shri. Bhanwarlal M Jain & Group , the ld. CIT(A) felt that there were actual supply of diamonds, invoices were raised and payments were also made and he also noted that Shri. Bhanwarlal M Jain never stated that the money received from the Respondent – assessee was returned to the assessee. Based on this information, coupled with the fact that the quantitative details of purchases, sales and stock of diamonds were maintained found to be tallying, he held that the purchases made by the assessee cannot be held to be bogus. Further the ld. CIT(A) placing reliance on the decisions of Hon’ble Bombay High Court in the case of Babulal C. Borana vs. ITO, 282 ITR 251 = 2005-TIOL-220-HC-MUM-IT, Hon’ble Gujarat High Courts in the case of CIT vs. Bholanath Ply Fab (P) Ltd 355 ITR 290 = 2012-TIOL-1220-HC-AHM-ITand CIT VS. M.K. Brothers, 163 ITR 249 = 2003-TIOL-441-HC-AHM-IT held that where the assessee proves the identity of the suppliers of material, furnishes the copies of the purchase invoices and the payments are made through banking channels, the purchase made by the assessee cannot be doubted and accordingly directed the Assessing Officer to delete the addition of Rs. 4,01,93,808/- made by the Assessing Officer. The ld. CIT(A) also directed the Assessing Officer to allow the deduction u/s.80IA(5) of the Act without setting off the losses the earlier years following the decision of Hon’ble Jurisdictional High Court in the cases of Velayudhaswamy Spinning Mills & Other vs. ACIT, 231 CTR 369 = 2011-TIOL-979-HC-MAD-IT and PCIT vs. GRT Hotels & Resorts P Ltd, 392 ITR 440 = 2016-TIOL-2475-HC-MAD-IT. Thus, the appeal filed by the assessee became partly allowed.
7. Being aggrieved by the above decision of the CIT(A), the Revenue is in appeal before us challenging the correctness of the order of the CIT(A) deleting the addition made on account of alleged bogus purchases. The ld. PCIT- Departmental Representative has submitted that the ld. CIT(A) ought not have granted relief. The Departmental Representative submitted that the invoice copies would not by itself establish the genuineness of the transaction of the purchases. The modus operandi adopted by Shri. Bhanwarlal M Jain & Group clearly shows that the purchases are bogus and the statements recorded u/s.132 (4) of the Act is valid evidence for the purpose of making addition. Therefore the ld. CIT(A) ought not have granted relief to the assessee firm.
8. On the other hand, ld. Counsel Shri. B. Ramakrishnan submitted that very assumption of jurisdiction u/s.153A of the Act is invalid in law, in as much as no discriminating materials were found during the course of search and seizure operations in Respondent – assessee firm. In this regard, he placed reliance on the decision of Hon’ble Delhi High Court in the case of PCIT vs. Meeta Gutgutia, 82 taxmann.com 287 Special Leave Petition against the said decision was dismissed by the Hon’ble Supreme Court in PCIT vs. Meeta Gutgutia, 96 taxmann.com 468. He submitted that the statements of the third party cannot constitute incriminating materials without prejudices to the above arguments. He further submitted that the assessee had discharged his onus by filing primary details of name, address, PA Number and particulars of details of payments of the parties who supplied the diamonds. It is further submitted that the Sales Tax authorities found no discrepancies in the sales/ purchases made by the assessee, which findings is relevant for Income Tax purpose and placing reliance on the decision of Jurisdictional High Court in the case of CIT vs. Smt. Sakuntala Devi Khetan (2013) 33 taxmann.com 98 = 2013-TIOL-226-HC-MAD-IT. In any event, it is submitted that the addition is made based on the statements recorded from third parties, such additions cannot be sustained in the eye of law as no opportunity to cross examine the third party was provided to the assessee and reliance in this regard is also placed by the decision of Hon’ble Supreme Court in the case of Andaman Timber Industries vs. CCE (Civil Appeal No.4228 of 2006) = 2015-TIOL-255-SC-CX.
9. On merits, ld. Counsel submitted that when the books of accounts are accepted by the Assessing Officer and the profits offered out of sales are also accepted, no addition can be made in respect of purchases. In support of this contention, he placed reliance on the following decisions.
(i) Babulal C. Borana v. ITO (2006) 282 ITR 251 (Bom)(HC) = 2005-TIOL-220-HC-MUM-IT
(ii) CIT v. M.K. Bros. (1987) 163 ITR 249 (Guj.)(HC) = 2003-TIOL-441-HC-AHM-IT
(iii) Nikunj Eximp Enterprises 372 ITR 619 (Bombay HC) = 2013-TIOL-04-HC-MUM-IT
(iv) Rajesh P Soni V. ACIT (2006)100 TTJ 464 (Ahd.) (Trib) = 2005-TIOL-285-ITAT-AHM
(v) Shri Madhukant B. Gandhi v. ITO (TA no 1950 /M/2009 Bench B” dt.231212010(AY. 2005-06) (Mum.(Trib.)
(vi) CIT .v. Bholanath Poly Fab (P.) Ltd. (2013)355 ITR 290/40 Taxmann.com 494 / (2014) 220 Taxman 82 (Mag.) (Guj.XHC) = 2012-TIOL-1220-HC-AHM-IT
(vii) CIT V. Kashiram Textile Mills (P) Ltd (2006) 284 ITR 61 (Guj.)(HC)
(viii) The PCIT vs. Mohammad Hai Adan & Co. (Bombay HC) dated 11.02.2019
and finally, he submitted that the findings of the ld. CIT(A) is based on proper appreciation of records and the order of the ld. CIT(A) does not require any interferences.
10. We heard the rival submissions and perused the material on record. The short issue involved in the present appeal revolves around the findings of the Assessing Officer that the purchases made by the Respondent – assessee from Shri. Bhanwarlal M Jain & Group are bogus. Admittedly, the Assessing Officer had come to a conclusion that the purchases made from Shri. Bhanwarlal M Jain & Group are bogus not based on the incriminating material found during the search and seizure operation conducted in Respondent – assessee but based on the statement recorded from Shri. Bhanwarlal M Jain during the course of search and seizure operation of that group and the statements recorded from the Director of said group. In the backdrop of these facts, the question that may arise is whether is Assessing Officer justified in making an addition on account of alleged bogus purchases in the assessment made pursuant to notice issue u/s.153A of the Act. It is settled preposition of law that third party statements recorded during the course of search action shall not constitute incriminating materials for the purpose of making addition in the hands of assessee other than the searched person that to without affording cross examination of the assessee. The Hon’ble Delhi High Court in the case of CIT vs.Raj Pal Bhatia, 333 ITR 315 = 2010-TIOL-785-HC-DEL-ITheld that statement was not the document which was found during search. In fact this was the document which came to the created during the search as the statement was recorded at the time of search. Therefore, it cannot be said that the statement was seized during the search and thus, would not qualify the expression “document” having been seized during the search. Even the statement recorded from the director of Pravin K. Jain Group and Shri. Bhanwarlal M. Jain & Group is not consequent upon any material found during the course of search of the Respondent- assessee.
11. Now the law is settled to the extent that in the absence of any incriminating materials found during the course of search and seizure operations, no addition can be made u/s.153A of the Act. Reliance can be placed on the decision of Hon’ble Delhi High Court in the case of PCIT vs. Meeta Gutgutia, (2017) 82 taxmann.com 287affirmed by the Hon’ble Supreme Court by dismissal of the Special Leave petition in the case of PCIT vs. Meeta Gutputia, (2018) 96 taxmann.com 468. There is a long line of authorities in support of the proposition of law that in the absence of incriminating material found as a result of search no addition can be made in the assessment made pursuant to notice u/s.153A of the Act. Please refer to the decision of Hon’ble Delhi High Court in the case of CIT vs. Kabul Chawla (2016) 380 ITR 573 = 2015-TIOL-2006-HC-DEL-IT and Hon’ble Gujarat High Court in the case of PCIT vs. Sunrise Finlease (P) Ltd, (2018) 89 taxmann.com 1 = 2017-TIOL-2546-HC-AHM-IT and Hon’ble Bombay High Court in the case of CIT vs. Continental Warehousing Corporation (Nhava Sheva) Ltd, (2015) 374 ITR 645 = 2015-TIOL-1294-HC-MUM-IT. Thus, we find that the Assessing Officer lack jurisdiction to make addition on account of alleged bogus purchases in the absence of any incriminating material found.
12. Even otherwise on the merits of addition, Respondent – assessee had discharged the onus of establishing the genuineness of transaction of purchases by filing names, addresses, PA Numbers, invoice copies and details of payments of suppliers. When it was reported by ADIT, of Surat that the suppliers were not found at given addresses, there is nothing on record to show that the respondentassessee was asked to produce the parties before Assessing Officer. In such cases, assessee cannot be held responsible for non appearance of parties in person before the Assessing Officer in response to the notices. The details filed by the Respondent – assessee is sufficient for the Assessing Officer to take further steps, if he still doubted the genuineness of the purchases, the Assessing Officer had chosen not to carry out necessary enquires. In the similar situation, the Hon’ble Bombay High Court in the case of PCIT vs. Chawla Interbild Construction Co. (P) Ltd, (2019) 104 taxmann.com 402 = 2018-TIOL-409-HC-MUM-IT without identical facts held that assessee could not be held responsible for suppliers not appearing in person and deleted the addition made. Para 7 of the judgment is extracted hereunder:-
“7. We find that the Assessing Officer while passing the assessment order has dis-allowed 40% of the total payments made on the basis of the payments made to 13 parties, who were not produced before him during the assessment proceedings. This on the ground that payments are not genuine. We are unable to understand on what basis the dis-allowance is made on the total payments, if at all it should have been restricted only to the amounts paid to the 13 persons who are not produced before the Assessing Officer. Be that as it may, we find that the respondent – assessee had done everything to produce necessary evidence, which would indicate that the payments have been made to the parties concerned. The details furnished by the respondent assessee were sufficient for the Assessing Officer to take further steps if he still doubted the genuineness of the payments to examine whether or not the payment was genuine. The Assessing Officer on receipt of further information did not carry out the necessary enquiries on the basis of the PAN numbers, which were available with him to find out the genuineness of the parties. The CIT(A) as well as the Tribunal have correctly held that it is not possible for the assessee to compel the appearance of the parties before the Assessing Officer”.
The other important aspect is to be considered is that the ld. CIT(A) had examined the quantitative details of purchases, sales and closing stock and also recorded finding that the assessee had been maintaining stock register showing the purchases, sales and closing stock of diamonds and gave a findings that quantitative details were tallying. When the sales was accepted, there was no reason to doubt the purchases made or to doubt the genuineness of the purchases and make addition in view of the settled legal position of law laid in the decisions relied upon by the assessee cited supra. Further, the findings of the ld. CIT(A) that there is no evidence on record that alleged sellers had returned the money to the assessee remains uncontroverted. The Hon’ble Gujarat High Court in the case of PCIT vs. Tejua Rohitkumar Kapadia, (2018) 94 taxmann.com 324 =2017-TIOL-2822-HC-AHM-IT held that when the purchases are made by the assessee was duly supported by bills and payments were made by account payee cheques and in the absence of evidence to show that the amount was recycled back to the assessee and the sales out of purchases made from the seller were also accepted by the Revenue, purchases cannot be treated as bogus. This decision of the Hon’ble Gujarat High Court was affirmed by Hon’ble Supreme Court by dismissal of SLP in PCIT vs. Tejua Rohitkumar Kapadia, (2018) 94 taxmann.com 325 = 2018-TIOL-228-SC-IT. In view of the above settled legal position, no purchases can be disallowed by alleging that purchases made are bogus. The ld. CIT(Appeals) also considered the statement given by the director of M/s. Bhanwarlal M.Jain Group and come to conclusion that the statement does not reveal that the purchases are bogus, it is only stated that the actual supplies are made by some other person on whose behalf the invoices are issued by this group. The statement only reinforces the contention of the respondent assessee that actual purchases are made. The ld. CIT(Appeals) also considered the prevailing business practices in the same line of business and come to conclusion that the actual suppliers are made by one party and the invoices are issued by another party, which does not mean the purchases are bogus. Thus, the order of the ld. CIT(A) is based on due appreciation of materials on record and the law governing the issue of the bogus purchases. Therefore we do not find any reason to interfere with the order of the ld. CIT(A) on the issue of bogus purchases. Thus, viewed from any angle the impugned assessment order cannot be sustained in the eyes of law. The order of the ld. CIT(Appeals) is based on the due appreciation of material on record and in consonance with the settled principle of law and therefore we do not find any reason to interfere with the order of the ld. CIT(A). Accordingly, the appeal filed by the Revenue is dismissed.
ITA Nos. 53, 55, 56,57, 58, 59, 60, 61, 62, 63, 64, 65 and 66/CHNY/2019,
Since, the facts in the present appeals are identical to the facts in ITA No.54/Chny/2019, for the reasons mentioned therein, we dismiss the appeals filed by the Revenue on the same lines indicated in appeal ITA No.54/Chny/2018 supra. Hence, the above captioned appeals filed by the Revenue are dismissed.
13. In the result, the appeals in ITA Nos.53 to 66/CHNY/2019 filed by the Revenue are dismissed.
(Order pronounced on 28.6.2019)