Pratibha Pipes & Structurals Ltd vs. DCIT (ITAT Mumbai)

IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH “C”, MUMBAI
Before Shri G Manjunatha (ACCOUNTANT MEMBER)
AND
Shri. Ravish Sood (JUDICIAL MEMBER)
ITA No.3874/Mum/2015 – AY 2007-08
ITA No.3875/Mum/2015 – AY 2008-09
ITA No.3876/Mum/2015 – AY 2009-10
ITA No.7120/Mum/2016 – AY 2011-12
Pratibha Pipes & Structurals
Ltd, C/o Jayesh Sanghrajla &
Co, Chartered Accountants,
Unit No.405, Hind Rajasthan
Centre, D.S. Phalke Road,
Dadar (E), Mumbai-400 014
PAN : AAACP4898A
vs DCIT, Cent.Cir. 17 & 28, Mumbai
APPELLANT RESPONDEDNT
C.O. No.100/Mum/2018
(Arising out of ITA No.3874/Mum/2015)
(Assessment Year 2007-08)
C.O. No.101/Mum/2018
(Arising out of ITA No.3875/Mum/2015)
(Assessment Year 2008-09)
C.O. No.102/Mum/2018
(Arising out of ITA No.3876/Mum/2015)
(Assessment Year 2009-10)
C.O. No.254/Mum/2018
(Arising out of ITA No.7120/Mum/2016)
(Assessment Year 2011-12)
DCIT, Cent.Cir. 17 & 28,
Mumbai.
vs Pratibha Pipes & Structurals Ltd, C/o
Jayesh Sanghrajla & Co, Chartered
Accountants, Unit No.405, Hind
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Pratibha Pipes & Structurals Ltd
Rajasthan Centre, D.S. Phalke Road,
Dadar (E), Mumbai-400 014
CROSS OBJECTOR RESPONDEDNT
Assessee by Shri Harshwardhabn Datar / Shri
Mangar Shukla
Respondent by Shri Awungshi Gimson
Date of hearing 28-02-2019
Date of pronouncement 10 -04-2019
O R D E R
Per G Manjunatha, AM:
This bunch of four appeals filed by the assessee and four cross
objections filed by the revenue are directed against separate, but identical
orders of CIT(A)-51, Mumbai dated 17-03-2016, 18-03-2016 and 12-08-2016
and they pertain to AYs 2007-08, 2008-09, 2009-10 and 2011-12. Since, facts
are identical and issues are common, for the sake of convenience, these
appeals were heard together and are disposed of by this consolidated order.
2. The assessee has, more or less raised common grounds of appeal in all
the appeals. For the sake of brevity, grounds of appeal raised for AY 2007-08
are extracted below:-
“1. On the given facts, circumstances and judicial pronouncements; Hon. CIT
(A) erred in confirming the action of the Ld. Assessing Officer on account of
bogus purchases of Rs. 43,14,0767- under the head business income; such
addition is bad in law and liable to be deleted.
2. Without prejudice to above; on the given facts, circumstances and judicial
pronouncements; Hon. CIT(A) erred in confirming the action of the Ld.
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Pratibha Pipes & Structurals Ltd
Assessing Officer on account of bogus purchases of Rs. 43»14>O76/- under
the head business income; such addition is excessive and liable to be reduced.
3. On the given facts, circumstances and legal propositions; Hon. CIT (A)
erred in passing the order in absence of reasonable opportunity of making the
submissions to the assessee in principles of natural justice and such order is in
violation of principles of natural justice and liable to be quashed.”
3. The assessee has also filed a petition for admission of additional ground,
vide its letter dated 27-03-2017 and taken a legal ground challenging validity of
assessment order passed by the AO u/a 143(3) r.w.s. 153A of Income-tax Act,
1961 in absence of proper approval u/s 153D of the Income-tax Act, 1961. The
additional ground sought to be raised by the assessee is as under:-
“Sub: Application for admission of additional ground, in case of M/s. Capacite
Structures Limited (PAN: AAACP4898A) for A.Y.2007-2008 (ITA No.
3874/MUM/2015) (‘C’ Bench).
Respected Sir,
1. The application is hereby made requesting for the admission of Additional
Ground which is as under:
“1. On the given facts, circumstances and legal pronouncements, Ld. Assessing
officer erred in framing the assessment order in the absence of valid approval under
the provisions of Section 153D of The Income Tax Act, 1961 and such order passed
in the absence of valid approval is bad in law and liable to be annulled.”
2. Hon. Bench is hereby requested to admit the additional Ground and kindly
adjudicate the same.
3. Reliance in this regard is placed on judgment in case of National Thermal Power
Corporation by Hon. Apex Court and Ahmedabad Electricity by the Hon.
Jurisdictional Bombay high Court.”
4. The Ld.AR for the assessee, at the time of hearing, submitted that
additional ground taken by the assessee challenging validity of assessment
order passed u/s 143(3) r.w.s. 153A, in absence of valid approval under the
provisions of section 153D of the Income-tax ACT, 1961 is a legal issue which
questions the jurisdiction of the AO, passing assessment order. Therefore, the
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Pratibha Pipes & Structurals Ltd
same may be admitted and decided the issue on merit. In this regard, the
assessee has relied upon the decision of Hon’ble Supreme Court in the case of
National Thermal Power Corporation Ltd vs CIT 229 ITR 383 (SC).
5. On the other hand, the Ld.DR strongly opposed additional ground filed
by the assessee and submitted that the assessee failed to make out a case by
placing necessary facts before the AO at the time of assessment in connection
with the additional ground taken challenging validity of assessment order.
Therefore, in absence of any facts as to availability of necessary material
before the AO in connection with additional ground, the same may not be
admitted at a later stage merely for the reason that it is a legal ground which
questions jurisdiction of the AO. In this regard, he relied upon the decision of
Hon’ble Bombay High Court in the case of Ultratech Cements Ltd vs CIT Income
Tax Appeal No. 1060 of 2014 dated 18-04-2017.
6. We have heard both the parties and perused material available on
record. Admittedly, the assessee has taken legal ground challenging validity of
assessment order passed by the AO in light of valid approval u/s 153D of the
Act, for the first time, before the Tribunal. We find that additional ground
taken by the assessee is purely a legal issue which questions the authority of
the AO passing assessment order in light of specific provisions provided u/s
153D of the Act. Therefore, we are of the considered view that there is a merit
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Pratibha Pipes & Structurals Ltd
in additional ground filed by the assessee and hence, the same is admitted for
adjudication.
7. The brief facts of the case extracted from ITA No.3874/Mum/2015 for
AY 2007-08 are that a search and seizure action u/s 132(1) of the Income-tax
Act, 1961 was carried out in the cases of Pratibha Industries group on 10-03-
2011 at the office premises as well as residential premises of the directors /
partners of the group. Consequent upon the search, notices u/s 153A of the
Income-tax Act, 1961 were issued requiring assessee to furnish return of
income within 30 days from the date of receipt of the notice. In response to
notice, assessee filed return of income on 22-03-2012 declaring total income of
Rs.5,42,22,858. Thereafter, the case has been selected for scrutiny and notices
u/s 143(2) and 142(1) of the Act along with questionnaire was served on the
assessee. In response to notice, the authorised representative of the assessee
appeared from time to time and filed various details, as called for. In the
meantime, on the basis of information received from sales-tax department, a
survey action u/s 133A of the I.T. Act, 1961 was conducted on 15-01-2013 in
connection with bogus purchase bills obtained by the assessee from hawala
dealers. During the course of survey operation, statement of Shri Ajit B
Kulkarni, Managing Director of the company, Shri Ashok Kumar Wadhera,
Executive director, Central Purchase department of the company and Shri
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Pratibha Pipes & Structurals Ltd
Vipul S Shah, Chief Accounts Officer of the company was recorded u/s 131 of
the Income-tax Act, 1961. During the course of survey, certain loose papers
were found including bills for purchases and other related documents, as per
which it was noticed that the assessee had not followed key and important
standard operating procedures (SOPs) in respect of certain purchases made
from certain parties / suppliers. It was further observed that the assessee had
taken accommodation bills / bogus purchases to the extent of Rs.12.86 crores
between financial years 2006-07 to 2010-11. In the statement recorded u/s
131, the assessee has admitted failure of following standard operating
procedure in respect of purchases, although it has followed SOPs in respect of
its purchase department. Further, Shri Ajit B Kulkarni, in his statement
recorded during the course of survey also confirmed that there is no proper
documentation like delivery challans, transporters slips, weighment slip,
stamping at site for receipt of material, truck No. in respect of bills, etc. in
respect of 22 vendors appearing in the list suspicious.
8. During the course of assessment proceedings, the AO, in order to verify
correctness of purchases claimed to have been made from certain parties,
issued a show cause notice and asked the assessee to file complete details
including necessary evidences of purchases from certain parties listed in list of
hawala dealers prepared by sales-tax department. In response, the assessee,
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Pratibha Pipes & Structurals Ltd
vide its letter dated 08-03-2013 filed a detailed submission which has been
reproduced at para 3 on pages 4 & 5 of AOs order. The main argument of the
assessee before the AO was that during the course of survey, no incriminating
document was found which suggested inflation of purchases by booking bogus
/ accommodation bills, therefore, merely on the basis of information received
from sales-tax department and also for failure to follow standard operating
procedures in respect of certain purchases, no adverse inference could be
drawn so as to treat purchases from 22 parties as bogus, when assessee has
filed complete details of purchases including purchase bills. Although there is
a lapse in SOP followed in respect of certain purchases, which is due to
inadvertent mistakes of the persons, who was maintaining records in respect
of central purchase department, but otherwise, in respect of all other
purchases, no discrepancy was noticed either during survey operations or
during assessment proceedings. Therefore, in absence of any finding as to
incorrectness in books of account and other details, no adverse inference could
be drawn in respect of purchases from above parties.
9. The AO, after considering relevant submissions of the assessee and also
taking note of information received from survey operations, held that it was
undisputed fact that in respect of certain parties, the assessee has not
followed standard operating procedures where as it was found that proper
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Pratibha Pipes & Structurals Ltd
SOPs were meticulously followed in case of transactions other than bogus bill
transactions. The AO further held that it further went on to strengthen the
case of the department that where SOPs are violated, the transactions must be
bogus. The AO further observed that when the assessee has meticulously
followed, SOPs in respect of its central purchase department, if the procedures
were bypassed in respect of few purchases, it must give rise to a surmise and
suspicion that there is a certain note for scrutiny which is why certain process
and certain persons were being bypassed. Therefore, he came to the
conclusion that in respect of purchases from 22 parties, certain very important
and key documentation which should also be there was found to be absent in
case of the transactions where the purchases were involved. Therefore, he
was of the opinion that in absence of any proper documentation and also
entries in the books of account in respect of purchases from those parties, it is
difficult to accept the argument of the assessee that purchases from those
parties were genuine in nature. The AO further observed that another very
crucial aspect also needed to be considered was that despite giving
opportunity to the assessee in this regard, the assessee failed to submit
confirmations from those 22 parties, although sufficient time was given. The
assessee neither furnished confirmation nor produced the parties. Therefore,
without furnishing basic documents required for the purpose of verification of
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Pratibha Pipes & Structurals Ltd
transactions, asking for a cross examination of the parties is an attempt made
to escape on technical grounds without substantiating the purchases from the
so-called parties. Accordingly, he made addition towards purchases from
those 22 parties u/s 69C of the Income-tax Act, 1961. The relevant
observations of the AO are as under:-
6.3. It may be pertinent to mention here that it can be seen from the above reply,
many issues were taken up by the assessee on merits, which in any ease would
certainly be countered. However, it was contended that certified copies of the
statements were not handed over by the survey officials to the assessee. In this
regardit is pertinent to note that subsequently thereafter as requested by the assessee
the copies of the Statements and all jrnpounded material was duly handed over to
assessee and so acknowledged by assessee. It was further prayed that assessee should
be given time to produce external confirmation of 22 parties regarding which adverse
finding were there. With respect, to the same assessee was informed that he was free
to submit the said confirmations. Further it was also told to the assessee that it is free
to produce these parties before the undersigned in support of its contention.
However, at the same time the assessee’s request to the undersigned in the reply to
issue summons to the 22 parties for cross examination was rejected, after recording a
finding that onus is on the assessee to prove the genuineness of these transactions
with the said parties.
6.4 On the appointed date assessee has filed another reply which has reiterated
majority of the contentions of the earlier reply. The so called external confirmations
have neither been submitted before me nor have the parties been produced so as to
undergo the evidentiary process of EXAMINATION, CROSS EXAMINATION
AND RE-EXAMINATION, despite opportunity given in this regard. Therefore, it
can be clearly said that further opportunities remain to be given now to hear the
assessee’s version and that the assessee’s contention in the earlier reply dated
8.03.2013 in which due opportunity was requested to be given has dulv been acceded
to despite which the necessary evidence could not be produced. However, in the
replv dated 18.3.2013 and as already referred to above almost entirely the reply was
repetitious in nature except to say as under:
“We had requested your honour vide our earlier submission dated 8.3.2013 to
issue summons to various parries as appearing in survey report so as to enable
the assesses for cross examination of the same.
Your honour has shifted the burden on assessee vide order sheet nioting
dated 12.3.2013 to prove the genuineness of transactions with the parties
covered under survey operations to produce parties before Your honour and
submit external confirmation on or before 18.3.2013.
After verification of the facts, it is submitted that during the relevant year
the transactions with the parties as appearing in the show cause notice dt.
8.3.2013 have been capitalized and have not been claimed as deduction from
taxable income and hence no addition can be made to returned income.
The rest of the submissions are on the same lines as before.”
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Pratibha Pipes & Structurals Ltd
10. Aggrieved by the assessment order, assessee preferred appeal before
the CIT(A). Before the CIT(A), the assessee has challenged addition made by
the AO towards bogus purchases in absence of incriminating material found as
a result of search in light of certain judicial precedents including the decision of
Hon’ble Bombay High Court in the case of CIT vs Murli Agro Products (2014) 49
taxmann.com 172, in the assessment made u/s 153A. On merits, the assessee
has reiterated its submissions made before the AO and argued that purchases
from those parties were supported by necessary evidences, therefore, merely
for the reason of not following standard operating procedures, no adverse
inference could be drawn to make addition u/s 69C of the Act.
11. The Ld.CIT(A), after considering relevant submissions of the assessee and
also by following certain judicial precedents, rejected legal ground taken by the
assessee challenging addition made towards bogus purchases in absence of
incriminating material in the assessments framed u/s 153A by holding that
during search and survey, certain incriminating materials were found and
seized as per which, the assessee is beneficiary of accommodation / bogus
purchase bills issued by hawala dealers and this fact was further supported by
the report of sales-tax department where the parties admitted in their
statements that they were involved in providing accommodation bills without
there being any actual business activity. Insofar as addition made towards
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Pratibha Pipes & Structurals Ltd
bogus purchases, the Ld. CIT(A) observed that although the AO has brought
out various facts in respect of bogus purchases including failure to follow
standard operating procedures in respect of alleged bogus purchases, the
assessee failed to counter the finding of facts recorded by the AO, except
stating that no addition could be made on third party statement, without
confronting those statements to the assessee. The Ld.CIT(A) further observed
that the question of cross examination and furnishing statement would arise
only in case, where the assesseee has filed necessary basic details. Since the
assessee has failed to file basic details including confirmation from the party,
there is no merit in seeking cross examination of the parties. Therefore, he
opined that there is no error in the reasons given by the AO to make addition
towards bogus purchases claimed to have made from certain parties
mentioned in the list of hawala dealers prepared by sales-tax department.
Accordingly, he confirmed addition made by the AO and dismissed appeal filed
by the assessee. Aggrieved by the order of CIT(A), assessee is in appeal before
us.
12. The first issue that came up for our consideration from assessee
additional ground is validity of assessment orders passed by the AO u/s 143(3)
r.w.s. 143(3) in absence of valid prior approval of the Addl. CIT(A) u/s 153D of
the Income-tax Act, 1961.
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13. The Ld.AR for the assessee submitted that the assessment order passed
by the AO u/s 143(3) r.w.s. 153A is invalid and void ab initio, because the AO
has passed assessment order without obtaining necessary prior approval from
the Addl.CIT of concerned range, which is a requirement of the statute, as per
the provisions of section 153D of the Act. The Ld.AR further submitted that
when there is no prior approval from the authority, who is superior to the AO,
who passed assessment order, as per the provisions of section 153D, then the
whole proceedings is invalid void ab initio and hence, the AO did not have any
jurisdiction to make assessment under the provisions of the Act. The Ld.AR
further submitted that although the AO stated to have taken approval from the
Addl.CIT, Central Range-4, Mumbai before completion of assessment, but,
there was no evidence available in the file for having taken approval u/s 153D
of the Act, which is evident from the fact that when the assessee has filed an
application under the provisions of RTI Act, 2005, the department has
furnished reply and categorically stated that neither the copy of a request
letter filed by the AO nor copy of approval granted u/s 153D of the I.T.ACT,
1961 was found in the folder. However, in the 153D approval maintained in
the office of Addl CIT, Central Range-4, the approval granted u/s 153D of the
Act, in other group caseas of M/s Capacite Structure Ltd (formerly known as
Pratibha Pipes & Structurals Ltd) were found, but the approval letter in the
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Pratibha Pipes & Structurals Ltd
case of M/s Capacite Structure Ltd could not be located. Since, the
department itself, has admitted the fact that there was no proof of taking
approval u/s 153D, even though the AO has mentioned in his assessment order
that prior approval from the competent authority has been taken before
passing the assessment order would not validate the assessment order passed
by the AO, unless the approval taken u/s 153D was indicated to the assessee.
The Ld.AR further submitted that it is an admitted fact that the department
has expressed its inability to furnish copy of approval letter issued by the
competent authority u/s 153D of the Act. Therefore, even though now they
stated that approval u/s 153D has been issued in all group cases cannot cure
non availability of approval letter in the case of the assessee. Therefore, in
absence of proper approval u/s 153D of the Act, the assessment order passed
by the AO u/s 143(3) r.w.s. 153A is void ab initio and liable to be quashed. In
this regard, he relied upon certain judicial precedents including the decision of
ITAT, Mumbai Bench “H” in the case of Hiklass Moving Picture Ltd vs ACIT in
ITA Nos. 936 to 931/Mum/2013 dated 30-09-2016. The assessee also relied
upon the decision of ITAT, Pune Bench in the case of Ali Ghulamali Somji vs ITO
in ITA No.453/PN/2010 dated 30-03-2012.
14. The Ld.DR, on the other hand, strongly supporting the order of Ld.CIT(A),
submitted that there is no merit in the arguments on the legal ground taken by
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the assessee challenging validity of assessment order passed u/s 153A r.w.s.
143(3), because the AO has taken necessary approval u/s 153D which is clearly
evident from the fact that the AO has categorically recorded facts regarding
approval taken u/s 153D on the last page of the assessment order, vide para 7,
as per which, the Addl.CIT, Central Range-4 has granted approval u/s 153D vide
his letter dated 25-03-2013. The Ld.DR further submitted that there is serious
doubt in the intend of the assessee in taking legal ground, for the first time
before the Tribunal, that too, after obtaining reply under the RTI Act. The
assessee has filed additional ground when the department expressed its
inability to furnish copy of approval letter to take advantage of non availability
of the letter in the folders. Otherwise, the assessee has not disputed the fact
of approval by the AO before passing the assessment order, either by filing
necessary petition before the AO or before the first appellate authority by
taking a specific ground challenging validity of assessment order. The Ld.DR
further submitted that although the Act, mandates obtaining prior approval
from the authority under the provisions of section 153D, but, such
requirement is only an administrative requirement which has to be complied
with by the AO before passing assessment order. In this case, the AO has
complied with the requirement of law which is evident from the fact that he
had obtained prior approval from the competent authority us 153D of the Act.
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15. The Ld.DR referring to affidavit filed by Shri Abhijit Pathankar (DR), ITAT,
G-Bench, Mumbai, who was the then Additional CIT, submitted that the officer,
who was holding the charge of Range Addl.CIT at the time of passing
assessment order, categorically stated in his affidavit that he had issued
necessary approval u/s 153D, vide letter No.Addl.CIT/CR-4/Approvl-
153D/2012-13 dated 25-03-2013. The Ld.DR further submitted that Shri Milind
Rajguru, Joint Commissioner of Income-tax, who was the then AO, who passed
the assessment order u/s 143(3) r.w.s. 153A has also filed an affidavit stating
that he had passed assessment order after obtaining necessary approval from
the Addl.CIT, Cent.Range-4, Mumbai vide letter dated 25-03-2013. If, we go
through the affidavits filed by two senior officers, who were part of
proceedings in the case of the assessee, have categorically stated that the
approval required to be obtained under the Act, has been obtained before
passing the assessment order. He, further submitted that mere absence of
document from case records cannot undo a statutory action which has been
completed after following due procedure of law. He, further stated that as
long as both officers, who were in charge of the assessment in assessee case,
found that the assessee was always avoiding taking proper statutory remedies.
The assessee had enough time to opt for option available to it, but when both
officers were not in charge, on account of transfers to other jurisdiction, the
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assessee has taken legal ground to derive undue benefit, therefore, the whole
issue needs to be appreciated in the perspective of issue before the lower
authorities. The Ld.DR further submitted that when the approval required to
be taken under the provisions of the Act, has been taken which is supported by
the secondary evidence in form of affidavit of concerned officers, there is no
reason for the assessee to argue that no approval has been taken. Therefore,
he submitted that the additional ground taken by the assessee does not have
any merit and needs to be dismissed.
16. We have heard both the parties, perused the materials available on
record and gone through the orders of authorities below. There is no doubt
with regard to the fact that as per provisions of section 153D, the AO needs to
take prior approval from the Addl.Commissioner of the range in charge before
passing any assessment order u/s 143(3) r.w.s. 153A of the Income-tax Act,
1961. It is also not in dispute that the AO, in his assessment order at para 7
had categorically stated that the mandatory requirement of approval u/s 153D
of the Income-tax Act, 1961 has been taken from the Addl.CIT, Central Range-
4, Mumbai vide letter No.Addl.CIT/CR-4/Approvl-153D/2012-13 dated 25-03-
2013. It is also not in dispute that the assessee has not raised any objection,
whatsoever, with regard to the issue of approval u/s 153D either before the
AO or before the first appellate authority. The assessee has taken the legal
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ground for the first time before the Tribunal by filing additional ground of
appeal. Therefore, the whole issue needs to be apprised in the light of above
facts and also the conduct of the assessee. Admittedly, the department, in
reply to RTI application clarified that neither copy of approval request letter
filed by the AO to the Addl. Commissioner, nor copy of approval granted u/s
153D of the Act, was found in the assessment order folder. However, it was
further stated that in the 153D approval folder maintained in the office of
Addl.CIT, Range-4, the approval granted in other group cases were traced. The
assessee claims that mere mentioning of having been taken approval u/s 153D
in the assessment order is not sufficient and what is required to be seen is
whether the department is able to provide copy of approval letter granted by
the Addl.CIT, or not. Since the department has categorically stated that
approval granted u/s 153D of the Act is not available in the assessment folder,
obviously, benefit of doubt goes in favour of the assessee that no such
approval has been taken by the AO u/s 153D before passing order u/s 143(3)
r.w.s. 153A of the I.T. Act, 1961.
17. In the above factual background, if we examine the claim of the assessee
by way of additional ground, we find that there is a serious suspicion raises
about the conduct of the assessee in taking additional ground challenging the
issue of approval u/s 153D of the I.T. Act, 1961, for the first time, before the
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Tribunal. The assessee never disputed this issue before the lower authorities.
The assessee has taken this issue for the first time before the Tribunal after
ascertaining the fact in connection with its RTI application that no such
approval was available in the assessment folder. When the assessee has not
raised the issue before the CIT(A), then there is a serious doubt arise in the
mind about the intend of the assessee to take a legal ground before the
Tribunal. In this factual background, if we examine the contents of the
approval mentioned by the AO in the assessment order coupled with affidavits
filed by two senior most officers, who were in charge of the assessment
proceedings, we find that both officers have stated in their affidavits about
requirement of law under the provisions of section 153D of the Income-tax
Act, 1961. The then AO, Shri Milind Rajguru, Joint Commissioner of Income-tax
(Retd) had filed an affidavit and stated that mandatory requirement of
approval u/s 153D had been obtained. Further, Shri Abhijit Pathankar, the
CIT(DR), has also filed an affidavit and stated that he had granted approval
required to be given u/s 153D vide his letter No.Addl.CIT/CR-4/Approvl-
153D/2012-13 dated 25-03-2013. Although, affidavit is not primary evidence
which cannot be accepted in absence of circumstantial evidences, but in this
case, the circumstantial evidence available in the assessment record supports
the contents of affidavits filed by both officers. Therefore, the affidavits filed
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by the officers cannot be ignored, as not having any evidentiary value. The
contents of affidavits filed by the officers coupled with circumstantial
evidences available in the assessment folders clearly establish the fact of
obtaining necessary approval u/s 153D of the I.T. Act. Though, copy of
approval letter is not available in the assessment record, but the contents of
approval letter issued by the competent authority has been reproduced in
verbatim in the assessment order at para 7. Further, the approval granted in
other group cases is very much available in the assessment folder. Therefore, it
cannot be said that no approval had been taken. Further, the approval u/s
153D is an administrative procedure which requires to be complied with by the
officers, who is discharging the assessment functions. The administration
action of the department is not very much relevant for the assessee to justify
its case, on merits. Therefore, when assessee goes to question the
administrative procedure, rather contending its case on merits, that too, after
a lapse of 4 to 5 years, then obviously, a doubt arises about intend of the
assessee in taking this ground and such an attempt is derail the issue on merits
and to escape on technical ground. Therefore, we are of the considered view
that there is no merit in the additional ground taken by the assessee
challenging validity of assessment order passed by the AO u/s 143(3) r.w.s.
153A of the Income-tax Act, 1961. Although, the assessee has relied upon
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certain judicial precedents, we find that those case laws were rendered under
different set of facts, where the assessee had taken the ground challenging
validity of the assessment before the CIT(A) and also fact that there was no
specific observation in the assessment order for taking approval required to be
taken u/s 153D of the Income-tax Act, 1961. In this case, the AO has
categorically recorded at para 7 of his assessment order in respect of approval
taken u/s 153D and such reference has been further strengthened by the
affidavits of two officer, who were part of assessment proceedings. Therefore,
the case laws relied upon by the assessee cannot be considered as applicable
to the facts of assessee case.
18. In this view of the matter and considering facts and circumstances of the
case, we are of the considered view that there is no merit in the additional
ground taken by the assessee challenging validity of assessment order passed
u/s 143(3) r.w.s. 153A of the I.T. Act, 1961 in light of provisions of section 153D
of the I.T.ACT, 1961. Hence, we reject additional ground taken by the
assessee.
19. The next issue that came up for our consideration is addition towards
bogus purchases from certain parties. The facts borne out from the records
are that when the assessment proceedings u/s 143(3) r.w.s. 153A was in
progress, there was a survey action u/s 133A of the Income-tax Act, 1961 at
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the office premises of the assessee by the DDIT(Inv), Unit I(2), Mumbai. The
said survey was conducted on the basis of reports that assessee was taking
accommodation entries from hawala dealers and consequently booking bogus
purchases to inflate its expenditure and suppress profits. During the course of
survey, certain loose papers, bills for purchases and other related documents
were found, as per which, it was found that the assessee had not followed key
and important standard operating procedures in respect of certain purchases
made from certain parties / suppliers. Otherwise, the assessee has followed
standard operating procedures, as set out, in respect of all other purchases.
When these discrepancies were confronted to Shri Ajit B Kulkarni, Managing
Director, Shri Ashok Kumar Wadhera, Executive Director and Shri Vipul S Shah,
Chief Accounts Officer, they have admitted in their statements u/s 131 that the
company has not followed standard operating procedures in respect of certain
purchases from certain parties. During the course of survey, it was further
noticed that where the assessee is not following standard operating
procedures in respect of purchases from certain parties, the same was
matching with the list of suspicious / hawala dealers prepared by the sales-tax
department. On the basis of information gathered during the course of survey,
coupled with report of sales-tax department, it was noticed that the assessee
had taken accommodation bills / bogus purchase to the extent of Rs.13.86
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crores in FYs 2006-07 to 2010-11. During the course of assessment
proceedings, when the AO called upon the assessee to file complete details of
purchases from the so-called hawala dealers, the assessee furnished certain
details including purchase bills, but could not file confirmations from the
parties. When the AO called upon the assessee to produce the parties in
person, the assessee could not do so. Further, on the basis of information filed
by the assessee, the AO observed that in respect of purchases from 22 parties,
certain very important and key documentation chart, always been there was
found to be missing in case of the transactions, where the bogus purchases
were involved. Therefore, he came to the conclusion that purchases from 22
parties were bogus in nature and hence, made addition u/s 69C of the Act,
towards total purchases from those parties.
20. The Ld.AR for the assessee submitted that the Ld.CIT(A) was erred in
confirming addition made by the AO towards bogus purchases without
appreciating the fact that mere deficiencies in SOPs followed by the assessee
in respect of certain parties, is not a ground to come to the conclusion that
purchases from the above parties are bogus, when assessee has furnished
details including purchase bills from the parties. The assessee, at the best,
could file whatever information available with it. But it could not be expected
from the assessee to produce parties in person when the parties were not
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immediately available at the time of proceedings. The Ld.AR further submitted
that except stating that SOP was not followed in respect of certain purchases,
no other adverse comments were made in respect of purchases from above
parties. No adverse comments were made in respect of sales declared by the
assessee. In absence of any finding as to incorrectness in books of account or
sales made outside the books, purchases from certain parties could not be
disallowed merely for the reason that the assessee could not file confirmations
from those parties. The Ld.AR further submitted that if at all the purchases are
considered to be bogus in nature, and then a reasonable percentage of profit
may be estimated like other cases, where the Tribunal is consistently
estimating profit on alleged bogus purchases.
21. The Ld.DR, on the other hand, strongly supporting the order of the
Ld.CIT(A) submitted that the lower authorities have brought out clear facts to
the effect that the assessee has failed to file confirmations from the parties
and produce the parties in person when the AO has asked the assessee to do
so. Further, in respect of evidences filed by the assessee, lot of discrepancies
were noticed including lack of identification marks on purchase bills, absence
of stamp, absence of proper entries by the store keeper of the goods receipt
note, absence of stamp and signature and date of delivery challan as
acknowledgement of receipt of material by the store keeper, absence of
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transportation receipts, vehicle No., etc. When all these evidences were
missing, the AO came to the conclusion that purchases from those parties
were bogus which is further supported by investigation carried out during the
course of survey, where they have admitted lapse in SOPs followed in respect
of certain purchases. Accordingly, there is no error in the findings recorded by
the lower authorities while making addition towards bogus purchases and,
therefore, their orders should be upheld.
22. We have heard both the parties, perused material available on record
and gone through the orders of authorities below. The addition made by the
AO is based on report of sales-tax department which is further supported by
the survey conducted at the business premises of the assessee, where it was
noticed that in respect of purchases from 22 parties, the assessee had not
followed SOPs, whereas in respect of general purchases, SOP has been
meticulously followed. The AO reached to the conclusion that purchases from
22 parties are bogus in nature when the assessee has failed to file
confirmations from those parties and also failed to produce the parties in
person, when specifically asked to do so. The AO has brought out number of
discrepancies in his assessment order in respect of purchases from the above
parties. Although the assessee has filed certain basic evidence including
purchase bills from those parties, as per the AO, in respect of purchases from
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those parties, there is lack of identification marks on purchase bills, absence of
stamp in respect of documents evidencing the receipt of material, absence of
proper entries by the store keeper of the goods receipt note in the SAP system
and absence of stamp and signature in delivery challan. The AO further
brought out more fact to the effect that the assessee is meticulously following
standard operating procedure in respect of general purchases except purchase
from 22 parties, where these lacunae were noticed. The assessee, except
stating that no cross examination was allowed to verify the statement of third
parties, but no other evidence has been filed to justify purchases from those
parties including confirmation from the parties. Therefore, the AO came to the
conclusion that purchases from 22 parties were bogus in nature which is not
supported by necessary evidences.
23. It is an admitted fact that during the course of survey u/s 133A, certain
loose papers, bills and other relevant documents were found, as per which, the
assessee has taken accommodation / bogus purchase bills to the extent of
13.86 crores for FYs 2006-07 to 2010-11. The said quantification has been
made on the basis of discrepancies noticed in respect of purchase bills from
those parties in comparison to the standard operating procedure followed by
the assessee in respect of central purchase department. When these
discrepancies were confronted to the managing director of the assessee, Shri
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Ajit B Kulkarni, in his statement recorded u/s 131 he had categorically admitted
that no standard operating procedure were followed in respect of purchases
from 22 parties. This fact has been confirmed by the Executive Director of the
company, Shri Ashok Kumar Wadhera and shri Vipin S Shah, Chief Accounts
Officer of the company. Further, during the course of assessment proceedings,
the AO has carried out enquiries to ascertain correctness of purchases from
the above parties in light of facts brought out by the survey party and also in
light of report of sales-tax department. Enquiries conducted by the AO prove
the fact that purchases from the above parties are bogus which are not
supported by necessary evidence. This is because when the AO has called
upon the assessee to file confirmation from the parties, the assessee could not
file confirmations. The assessee also could not produce the parties in person
for verification when the AO has specifically asked the assessee to do so.
Therefore, we are of the considered view that the AO has not only made
addition on the basis of third party information without confronting those
statements to the assessee, but carried out further verification which proved
fact that those purchases are bogus in nature. In fact, the facts brought out by
the AO during assessment Proceedings clearly establishes the fact of accepting
bogus purchase bills from hawala dealers. Accordingly, we reject the
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arguments of the assessee that purchases from above parties are genuine,
which are supported by necessary evidences.
24. Having said so, let us examine what is the amount of addition needs to
be made when the purchases are proved to be bogus which are not supported
by necessary evidence. The assessee claims that in case of bogus purchases,
only profit element embedded in such purchases needs to be taxed, but not
whole bogus purchases, because the AO has not categorically proved the fact
that purchases are in fact bogus. The assessee has relied upon various judicial
precedents including the decision of ITAT, Mumbai Benches in a number of
cases. We find that the ITAT, Mumbai Benches, in a number of cases have
taken a consistent view that where purchases are bogus, only profit element
embedded in those purchases needs to be taxed, but, not whole purchases
from so-called hawala dealers. The Tribunal further considering facts of each
case has directed the AO to estimate profit of 10 to 15% depending nature of
trade. The Tribunal, while arriving at a conclusion that only profit element in
bogus purchases needs to be taxed had recorded categorical finding that the
AO has done incomplete enquiries without reaching to a conclusion that
purchases from those parties were, in fact, bogus. In many of the cases, the
AO has issued notices u/s 133(6), but said notices were returned unanswered
by the postal authorities with the remark, ‘left’ or ‘unknown’. When the
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notices were returned unanswered, the AO ought to have carried out further
enquiries to ascertain the identity of the parties and genuineness of
transactions between them, but the AO did not do so. Under these facts, the
Tribunal reached to a conclusion that only profit element embedded in those
purchases needs to be taxed.
25. In this case, on perusal of facts available on record, we find that the AO
has not made addition only on the basis of report of sales-tax department. In
fact, the AO has conducted all possible enquiries during the course of
assessment proceedings, as per which, he had directed the assessee to file
confirmations from the parties and also to produce the parties for
examination. But, the assessee could neither file confirmations, nor produce
the parties in person. Further, the AO has brought out number of
discrepancies in books of account of the assessee including purchases from 22
parties, as per which, the assessee has followed SOPs in respect of all
purchases, where each identification has been made including entry of goods,
whereas in respect of purchases from 22 parties, no such identification has
been made. This fact has been admitted by the assessee and its directors.
Therefore, we are of the considered view that under these facts, the ratio laid
down by the Hon’ble Supreme Court in the case of NK Proteins Ltd vs DCIT
(2017) 292 CTR 354 (SC) is squarely applicable to the facts of assessee case,
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where the Hon’ble Supreme Court dismissed appeal filed by the assessee and
confirmed the findings of Hon’ble Gujarat High Court in respect of bogus
purchases, where the Hon’ble Gujarat High Court, after analysing necessary
facts at para 6 of the order, held that once the Tribunal having come to a
categorical finding that the purchases from certain parties are bogus, it was
not incumbent on it to restrict the disallowance to the extent of 25% of such
purchases. The relevant findings of the Court are as under:-
“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-.
6.1 In the case of NR Paper & Boards Ltd. (supra), this Court has discussed the
issue as to whether after making of block assessment, regular assessment is barred
or prohibited by law. This court has held that there would be no overlapping in the
nature of assessment made under this Chapter of undisclosed income and the
regular assessment made u/s 143(3). However, if the said decision is read in
context of questions raised in the present appeal, it cannot be read as having held
that even if the material found during the course of search expose the falsity of the
entries made in the regular books of accounts, the consequent concealed income
cannot be assessed as undisclosed income in the block assessment under Chapter
XIV-B. The said decision shall therefore not be applicable on the facts and
circumstances of the present case. The Tribunal is justified in holding the same
against the assessee and in favour of revenue.”
26. In this view of the matter and respectfully following the ratio laid down
by Hon’ble Supreme Court in the case of N K Proteins Ltd(Supra), we are of the
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considered view that the AO was right in making 100% addition towards bogus
purchases u/s 69C of the Income-tax Act, 1961. The Ld.CIT(A), after considering
relevant facts, has rightly confirmed the findings of Ld.AO. We do not find any
error in the order of the Ld.CIT(A) and hence, we are inclined to uphold the
order of the Ld.CIT(A) and dismiss the appeal filed by the assessee.
27. The assessee has taken a specific ground challenging the action of the
Ld.CIT(A) for not providing reasonable opportunity of hearing to the assessee
in violation of principles of natural justice. At the time of hearing, the Ld. AR
for the assessee submitted that he did not want to press ground 3 and hence,
the same has been dismissed, as not pressed.
28. In the result, appeal filed by the assessee is dismissed.
ITAs No.3875, 3876/Mum/2015 & 7120/Mum/2016
28. The facts and issues involved in these three appeals are identical to the
facts and issues which we have already considered in ITA No.3874/Mum/2015.
The reasons give by us in preceding paragraphs in ITA No.3874/Mum/2015
shall, mutatis mutandis apply to these appeals also. Therefore, for details
reasons given by us in preceding paragraphs, we dismiss these appeals filed by
the assessee.
29. In the result, all the appeals filed by the assessee are dismissed.
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COs No.100 to 102/Mum/2017 & CO No.254/Mum/2018
30. The revenue has filed these cross objections against additional ground
filed by the assessee challenging validity of assessment order passed by the AO
u/s 143(3) r.w.s. 153A, in absence of prior approval of competent authority
under the provisions of section 153D of the Income-tax Act, 1961. Since, we
have already decided additional ground taken by the assessee challenging
validity of assessment proceedings in absence of valid approval u/s 153D of the
Act, in favour of the revenue and against the assessee, cross objections filed by
the revenue become infructuous and not maintainable; hence, cross objections
filed by the revenue are dismissed, as infructuous.
31. As a result, all appeals filed by the assessee and cross objections filed by
the revenue are dismissed.
Order pronounced in the open court on 10-04-2019.
Sd/- sd/-
(Ravish Sood) (G Manjunatha)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dt : 10th April, 2019
Pk/-
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Copy to :
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR
/True copy/ By order
Asstt. Registrar, ITAT, Mumbai