ITO, Jaipur v. M/S HANU EXPORTS(INDIA), Jaipur

ITA 118/JPR/2010 | 2006-2007
Pronouncement Date: 23-09-2011 | Result: Dismissed

Appeal Details

RSA Number 11823114 RSA 2010
Assessee PAN AAAFH6418D
Bench Jaipur
Appeal Number ITA 118/JPR/2010
Duration Of Justice 1 year(s) 7 month(s) 19 day(s)
Appellant ITO, Jaipur
Respondent M/S HANU EXPORTS(INDIA), Jaipur
Appeal Type Income Tax Appeal
Pronouncement Date 23-09-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 23-09-2011
Date Of Final Hearing 23-11-2010
Next Hearing Date 23-11-2010
Assessment Year 2006-2007
Appeal Filed On 04-02-2010
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH A JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO. 118/ JP/2010 ASSESSMENT YEAR 2006-07 PAN: AAAFH 6418 D THE ITO VS. M/S. HANU EXPORTS (INDIA) WARD 3(2) 202 AMAR VIJAY TOWER JAIPUR SANSAR CHANDRA ROAD JAIPUR (APPELLANT ) (RESPONDENT) DEPARTMENT BY : SHRI SUNIL MATHUR ASSESSEE BY: SHRI P.C. PARWAL DATE OF HEARING: 14-07-2011 DATE OF PRONOUNCEMENT: 23-09-2011 ORDER PER N.L. KALRA AM:- THE REVENUE HAS FILED AN APPEAL AGAINST THE ORDER OF THE LD. CIT(A)- I JAIPUR DATED 11-11-2009 FOR THE ASSESSMENT YEAR 2006-07 WHEREIN THE REVENUE HAS RAISED THE FOLLOWING GROUND: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) I JAIPUR HAS ERRED IN:- (I) DELETING THE DISALLOWANCE OF RS.2 56 82 646/- BY CONSIDERING THE ALLEGED SALES A ND PURCHASES AS GENUINE. WHEREAS THE ASSESSEE NEITHER PROVED THE IDENTITY OF THE ALLEGED SUPPLIERS AND 2 PURCHASERS GENUINENESS OF THE TRANSACTION AND HOW THE PAYMENT WAS MADE AND RECEIVED ON THE ALLEGED PURCHA SES AND SALES. THE TRANSACTION BEING DUBIOUS OUGHT TO H AVE BEEN ENQUIRED INTO BY THE LD. CIT(A) BY RESORTING I NTO POWER GIVEN U/S 250(4). 2.1 THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF CUT AND POLISHED DIAMOND. THE MONTHWISE PURCHASES A ND SALES SHOWN ARE AS UNDER:- S.N. MONTH PURCHASES SALES 1. OCT.2005 4 94 26 035 47 33 972 2. NOV. 2005 0 3 85 51 594 3. DEC 2005 14 00 32 884 0 4. JAN. 2006 4 79 99 380 12 32 24 964 5. FEB. 2006 0 4 59 20 054 23 74 58 299 21 24 30 584 2.2 THE AO HAS ALSO PRODUCED THE COMPARATIVE CHART OF SALES GROSS PROFIT AND G.P.RATE FOR THE LAST TWO YEARS AS WELL AS OF T HE ASSESSMENT YEAR UNDER CONSIDERATION. S.N. A.Y. SALES (RS.) GROSS PROFIT G.P.RATE 1. 2004-05 75 54 16 439 (-)75 85 937 (-) 1% 2. 2005-06 1 55 61 42 723 1 11 79 949 0.72% 3. 2006-07 21 24 30 584 (-)2 56 82 646 (-)1209% 2.3 THE AO NOTICED THAT EXCEPT THE AMOUNT OF RS. 18 /- DEBITED IN THE PURCHASE ACCOUNT OTHER PURCHASES TO THE EXTENT OF AROUND RS. 2375 CRORES 3 HAVE BEEN PURCHASED FROM M/S. JALAK EXPORTS AND M/S . MAN MOHAN GEMS. SIMILARLY THE SALES EXCEPTING RS. 17/- HAD BEEN MA DE TO M/S. N.B. IMPEX AND M/S. AARTI GEMS TO THE EXTENT OF AROUND RS. 21. 24 CRORES. THE AO IN HIS ORDER HAS GIVEN THE ADDRESSES OF THE PARTIES FROM W HOM PURCHASE AND SALES HAVE BEEN MADE. SUCH DETAILS ARE AS UNDER:- ADDRESSES OF THE PARTIES FROM WHOM GOODS WERE PURCHASED BY THE ASSESSEE 1. M/S. JALAK EXPORTS 14 SHAKTI CHAMBER RAGHUNATHPURA MAIN ROAD SURAT 395 003 2. M/S. MAN MOHAN GEMS 4 SHAKTI CHAMBERS RAGHUNATHPURA MAIN ROAD SURAT 39 5 003 ADDRESSES OF THE PARTIES TO WHOM GOODS WERE SOLD BY THE ASSESSEE 1. M/S. N.B. IMPEX AND 2. M/S. AARTI GEMS 7A MAZERINE FLOOR 7/862 RAMPURA MAIN ROAD SURAT 395 003 2.4 FROM THE ADDRESSES THE AO NOTICED THAT THE PUR CHASES AND SALES ARE TO THE PARTIES WHICH ARE LOCATED ALMOST AT THE SAME PL ACES. THE TRANSACTIONS HAVE BEEN ROUTED THROUGH UTI BANK IN WHICH THE ASSE SSEE GAVE ITS ADDRESS AS M/S. HANU EXPORTS (INDIA) KRISHNA KUNJ FIRST F LOOR SAMUEL STREET MUMBAI 400 003. BEFORE THE AO THE ASSESSEE FILED THE COPIES OF INCOME TAX RETURNS OF THE PARTIES FROM WHOM ASSESSEE HAS EFFECTED PURCHASES AND 4 THE PARTIES TO WHOM SALES HAVE BEEN MADE. THE DETAI LS AS NOTICED FROM THE INCOME TAX RETURNS ARE AS UNDER:- 1. M/S. N.B. IMPEX PROP. SHRI NITESH KUMAR JAIN S/ O SHRI PARASMAL BALIA (DOB 17-04075) 1608-B PANCH RATNA 1 OPERA HOUSE M.P. MARG MUMBAI AS PER IT RETURN FOR THE ASSESSMENT YEAR 2005-06 2. M/S. AARTI GEMS PROP. JASHWANT K POKHARNA 7/86 2 7A MEZ FLOOR DIAMOND PARK APARTMENT RAMPURA MAIN ROA D SURAT (SIGNED AS J.K. JAIN) AS PER IT RETURN FOR TH E ASSESSMENT YEAR 2005-06 3. M/S. JALAK EXPORTS PARTNER SHRI PADAM CHAND 14 SHAKTI CHAMBERS RAGHUNATHPURA MAIN ROAD SURAT 3 9503 (ASTT. YEAR 2006-07) 4. M/S. MAN MOHAN GEMS PROP. POKHARANA PADAM CHAND 14 SHAKTI CHAMBERS RAGHUNATHPURA MAIN ROAD SURA T (SIGNED AS PADAM CHAND) AS PER IT RETURN FOR ASSESS MENT YEAR 2006-07 2.5 THE AO IN HIS ORDER HAS MENTIONED THAT THE ASSE SSEE HAS AVOIDED FILING OF THE ENCLOSURES OF THE RETURNS AND PERHAPS IT WAS TO AVOID THE INVESTIGATION OF THE TRANSACTION. SHRI PADAM CHAND POKHARNA IS CONTROLLING TWO CONCERNS NAMELY M/S. JALAK EXPORTS AND M/S. MAN MOHAN GEMS AS PARTNER OF THE FIRST CONCERN AND PROPRIETOR OF THE OTHER CONCERN. M/S. N.B. IMPEX IS MANAGED BY SHRI NITESH KUMAR JAIN WHOSE AD DRESS IS OF MUMBAI 5 AND M/S. AARTI GEMS IS MANAGED BY SHRI JASWANT K PO KHARANA AND HIS ADDRESS IS AT SURAT. THE AO NOTICED THAT THE PURCHA SE VOUCHERS OR SALES VOUCHERS HAVE BEEN SIGNED BY ONE SHRI PADAM CHAND. THE PURCHASES AND SALES HAVE BEEN MADE ONLY IN FIVE MONTHS OF THE YEA R. THE AO ON THE BASIS OF MATERIAL PRODUCED BEFORE HIM CAME TO CONCLUSION THAT THE PURCHASES AND SALES HAVE BEEN STAGE MANAGED THROUGH POKHARANA BAN DHUS SO AS TO OFFSET THE GAIN ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATI ON. SUCH PURCHASE AND SALES TRANSACTIONS MADE BY THE ASSESSEE ARE IN ORDE R TO OFFSET THE PROFIT CREDITED ON ACCOUNT OF FOREIGN EXCHANGE DIFFERENCE AND IS A DEVICE TO EVADE PAYMENT OF TAX AND THE AO RELIED UPON THE DECISION OF HON'BLE APEX COURT IN THE CASE OF MC DOWELL AND CO 154 ITR 148. THE ASSESSEE HAS SHOWN THE EXCHANGE RATE DIFFERENCE TO THE EXTENT OF RS. 2 79 42 282/-. THE LOSS IN THE TRADING ACCOUNT IS TO THE EXTENT OF RS. 2 56 82 646 /- HAS BEEN HELD BY THE AO AS A DEVICE TO EVADE THE TAX AND ACCORDINGLY THIS L OSS WAS DISALLOWED. 2.6 THE LD. CIT(A) HAS MENTIONED THAT A REPORT OF T HE AO WAS RECEIVED DURING COURSE OF APPELLATE PROCEEDINGS. THE AO MADE ON THE SPOT VERIFICATION IN RESPECT OF THE PREMISES OF THE BUY ERS AND SELLERS ON 13-04-09 AND SUBMITTED HIS REPORT TO THE LD. CIT(A). THE AO NOTICED THAT THE PREMISES WERE FOUND VACANT AND NO BUSINESS WAS CARRIED OUT F ROM SUCH PREMISES. THE BANK ACCOUNTS OF ALL THE FOUR CONCERNS WERE IN THE SAME BRANCH OF THE SAME 6 BANK. THESE PARTIES WERE HAVING NUMEROUS TRANSACTIO NS THROUGH BANK WITH EACH OTHER. IT IS THEREFORE STATED THAT TRANSACTIO NS OF THE ASSESSEE WITH ALL THESE FOUR CONCERNS ARE NOT NORMAL BECAUSE THESE PA RTIES COULD HAVE MADE TRANSACTION WITH EACH OTHER AS THEY WERE KNOWN TO E ACH OTHER AND WERE HAVING NUMEROUS TRANSACTIONS WITH EACH OTHER. THE A O RECORDED THE STATEMENT OF PROMINENT TWO PERSONS OF THE LOCALITY. THESE PERSONS STATED THAT THE SELLERS AND PURCHASERS HAVE NEVER OPERATED THE BUSINESS AT THE GIVEN ADDRESSES. THE COPIES OF STATEMENTS OF THESE PROMIN ENT PERSONS WERE FORWARDED TO THE ASSESSEE BUT NO REPLY WAS RECEIVED THE AO SENT FURTHER REPORT VIDE LETTER DATED 20 TH OCT 09 IN WHICH IT WAS MENTIONED THAT SHRI RAJEEV P KAMDAR PARTNER ATTENDED HIS OFFICE AND HI S STATEMENT WAS RECORDED. HE WAS CONFRONTED WITH THE STATEMENT OF S HRI VITHAL BHAI AND SHRI JANARDAN NAIK WHO DENIED THAT ANY BUSINESS WAS BEIN G RUN IN THE DECLARED PREMISES. SHRI KAMDAR WAS UNABLE TO GIVE ANY CONVIN CING ARGUMENT AS TO WHY THESE PERSONS WOULD DENY THE BUSINESS OF THE AL LEGED SELLERS AND BUYERS. THE ASSESSEE HAS FAILED TO PRODUCE THE ALLEGED SELL ERS AND BUYERS TO VERIFY THE VERACITY OF THE TRANSACTIONS. 2.7 BEFORE THE LD. CIT(A) THE ASSESSEE STATED THAT THE PURCHASES AND SALES ARE EVIDENCED THROUGH SALE BILLS AND PURCHASE VOUCH ERS AND PAYMENT HAS BEEN GIVEN THROUGH ACCOUNT PAYEE CHEQUES. THE CONFI RMATIONS AND COPIES OF 7 INCOME TAX RETURNS OF THE PARTIES HAVE BEEN FILED. THE ASSESSEE HAS DISCHARGED ITS BURDEN IN ESTABLISHING THE PURCHASES AND SALES. SHRI KAMDAR IN THE STATEMENT REPLIED THAT HE USED TO KEEP THE DIAM OND AT HIS RESIDENCE OR AT HIS MUMBAI OFFICE AND THESE WERE SHOWN TO THE CUSTO MERS AT EITHER OF THE PLACES. IN DIAMOND BUSINESS THE INSURANCE IS NOT B EING MADE IT WAS STATED THAT HE USED TO TAKE THE DELIVERY OF THE GOODS FROM THE OFFICE OF THE SELLER OF THE GOODS OR FROM THE OFFICE OF HIS CONCERN OR BROK ER. ALL THESE PARTIES ARE STILL IN EXISTENCE. SHRI KAMDAR GAVE MOBILE NOS OF THE PARTIES FROM WHOM PURCHASES AND SALES WERE TRANSACTED. ALL THE DIAMON D TRADERS IN SURAT ARE WORKING IN SMALL AREA AND HENCE THEY ARE LOCATED NE AR TO EACH OTHER AND IT IS NOT AN ABNORMAL FEATURE. BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT LETTER DATED 9-10-09 WAS ISSUED WITH REFERENCE TO ASSESSME NT PROCEEDINGS FOR ASSESSMENT YEAR 2007-08. THE ASSESSEE WAS NOT HAVIN G TRANSACTION WITH THESE PARTIES AND THEREFORE IT WAS DIFFICULT FOR H IM TO PRODUCE SUCH PARTIES. IT WAS ARGUED THAT ONUS TO PROVE THE TRANSACTION AS BO GUS IS HIGHLY ON THE DEPARTMENT IN CASE WHEN IT IS BEING ALLEGED THAT THE APPARENT IS NOT REAL THEN THE BURDEN IS ON THE PERSON WHO ALLEGES THAT A PPARENT IS NOT REAL. RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS. 1. CIT VS BEDI & CO. (P) LTD. 230 ITR 580 (SC) 2. KISHAN CHAND CHELARAM 125 ITR 713 (SC) 3. DAULATRAM RAWATMULL 87 ITR 349 (SC) 8 2.8 THE LD. CIT(A) NOTICED THAT THE AO HAS COLLECTE D THE EVIDENCE AFTER PASSING OF THE ASSESSMENT ORDER. AT THE TIME OF PAS SING OF THE ASSESSMENT ORDER THE AO WAS NOT HAVING ANY MATERIAL FOR MAKIN G DISALLOWANCE. IT IS NOT UNUSUAL THAT PURCHASERS AND SELLERS BELONG TO THE S AME CITY I.E. SURAT. THE TRANSACTIONS CARRIED OUT ONLY IN FIVE MONTHS AND NO T FOR THE WHOLE YEAR CANNOT BE A GROUND FOR HOLDING THAT THE TRANSACTION S WERE NON-GENUINE THE COPY OF THE INCOME TAX RETURNS OF PURCHASERS AND SE LLERS WERE MADE AVAILABLE TO THE AO BUT INSTEAD OF MAKING ANY ENQUI RY WITH THE RESPECTIVE AO THE CONFIRMATIONS WERE REJECTED ONLY ON THE GRO UND THAT CERTAIN ENCLOSURES WERE NOT FILED. ONE PERSON CAN HAVE MORE THAN ONE CONCERNS IN DIFFERENT CAPACITY AS PROPRIETOR OR/ AND AS A PARTN ER. THE LD. CIT(A) WAS OF THE OPINION THAT THE AO MADE THE DISALLOWANCE ON TH E BASIS OF SURMISES AND SUSPICION. THE AO HAS PLACED HEAVY RELIANCE ON THE STATEMENT OF TWO PERSONS STATED TO BELONGING TO THE SAME LOCALITY. T HE AO HAS IGNORED THE BANK TRANSACTIONS. THE LD. CIT(A) DELETED THE DISAL LOWANCE MADE BY THE AO AFTER OBSERVING AS UNDER:- IN THE SUBSEQUENT ENQUIRY AFTER THE ASSESSMENT WAS FINALIZED THE AO MADE SPOT ENQUIRY AND FOUND THE PREMISES OF SELLERS/ PURCHASERS LOCKED. THIS FACT C OUPLED WITH STATEMENTS OF TWO PERSONS STATED TO BE BELONGI NG TO THE SAME LOCALITY WAS GIVEN TOO MUCH WEIGHTED AT TH E 9 COST OF IGNORING THE BANK TRANSACTIONS. THE CIRCUMS TANTIAL EVIDENCE LIKE NOT GETTING GOODS INSURED AND NOT HAV ING SAFE DEPOSIT VAULT HIRE CANNOT NEGATE THE ACTUAL TRANSACTIONS MADE THROUGH BANKING CHANNEL. NEITHER GETTING THE GOODS INSURED NOR KEEPING THE GOODS IN SAFE DEPOSIT VAULT ARE NECESSARY. IT IS ALSO NOT A PRACT ICE IN THE TRADE. THE STATEMENT OF SHRI KAMDAR WAS RECORDED WHEREIN HE HAS STATED THAT GODS WERE NOT INSURED AN D HE NEVER FELT INSURING THE SAME. THAT HE USED TO KEEP DIAMOND AT HIS RESIDENCE OR AT HIS MUMBAI OFFICE. H E HAS PROVIDED MOBILE NUMBERS OF THE PROP./PARTNER OF THE SELLER AND PURCHASER CONCERNS. THE AO HAS NOT MADE FURTHER ENQUIRY FROM THOSE PERSONS EITHER DIRECTLY OR THROUGH THEIR AOS. THE AO HAS ALSO FAILED TO ESTABL ISH THAT THE PAYMENT RECEIVED AS SALE CONSIDERATION. WA S NOT DEPOSITED TO THE BANK. HE ALSO FAILED TO ESTABLISH THAT THE PAYMENT MADE AGAINST PURCHASES WAS NOT GENUINE. WHE N NEITHER THE PURCHASES NOR SALES WERE PROVED AS NON- GENUINE MERELY ON THE BASIS OF CONSUMPTION THE TRANSACTIONS WHICH OTHERWISE ARE SUPPORTED BY THE B ANK TRANSACTIONS THE AO HELD THAT THE TRANSACTIONS WER E STAGE MANAGED. IN THE TRANSACTION OF SALE AND PURCHASE TH E RESULTS DECLARED BY THE APPELLANT IS LOSS WHICH IS NOTHING BUT NEGATIVE INCOME. AS HELD IN THE CASE OF BEDI & CO. (P) LTD. VS. CIT 144 ITR 352 (KARNATAKA) WHICH IS AFFIRMED BY HON'BLE S.C.IN THE CASE OF CIT VS. BED I & CO; (P) LTD. 230 ITR 580 THE BURDEN OF SHOWING TH AT 10 THE APPARENT STATEMENT OF AFFAIRS WAS NOT REAL ONE WAS VERY HEAVY ON THE DEPARTMENT AND APART FROM THE CIRCUMSTANCES WHICH BY THEMSELVES CAN BE SAID TO BE NEUTRAL THERE WAS NO OTHER MATERIAL TO DOUBT THE NA TURE OF THE TRANSACTION AND TO HOLD THAT IT WAS INCOME. IT WAS ALSO HELD THAT THE CONCLUSION TO TREAT THE AMOUNT AS INC OME SHOULD BE REACHED WITH TANGIBLE MATERIAL ON RECORD. AS IT IS NOT A CASE OF CLAIMING DEDUCTION OR EXEMPTION T HE BURDEN IS ON THE AO TO PROVE THAT THE CLAIM OF INCOME/LOSS MADE BY THE AO IS NOT CORRECT AND FINDI NG OF AO SHOULD BE BASED ON SOME TANGIBLE MATERIAL. FURTH ER THE TRANSACTIONS MADE DURING THE YEAR ARE NOT MADE FIRST TIME BUT THE APPELLANT HAS BEEN DEALING IN SAME ITE MS I.E. DIAMOND FOR LAST COUPLE OF YEARS. THE SALES MADE IN ASSESSMENT YEAR 2004-05 AND 2005-06 ARE MENTIONED I N THE ASSESSMENT ORDERS AND SALES ARE SIZEABLE. IN ASSESSMENT YEAR 2004-05 ALSO THE APPELLANT HAD INCU RRED LOSS THOUGH IN THE IMMEDIATELY PRECEDING YEAR THER E WAS MARGIN PROFIT IN THE TRANSACTIONS AND GROSS PROFIT RATE OF 0.72% WAS DECLARED. THUS THE TRANSACTIONS MADE DURI NG THE YEAR CANNOT BE CONSIDERED AS SOME ISOLATED TRANSACTIONS. THE GROSS PROFIT DECLARED IN THE IMME DIATELY PRECEDING YEAR WAS ACCEPTED IN FIRST APPEAL. ENQUIR IES MADE BY THE AO DURING THE SUBSEQUENT ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2007-08 DO NOT CONCLUSIVELY PROVE THE PURCHASES AND SALES MADE DUR ING THE YEAR RELEVANT FOR ASSESSMENT YEAR 2006-07 AS NO N- 11 GENUINE. THE CLAIM OF THE APPELLANT WHICH IS SUPPOR TED BY BANK STATEMENTS CONFIRMATIONS FILED BY THE BUYE RS AND SUPPLIERS AND PAST HISTORY OF THE CASE CANNOT BE B RUSHED ASIDE. THE ACTION OF THE AO IS MORE BASED ON ASSUMP TION RATHER THAN ANY CONCRETE INVESTIGATION DONE AND THE REFORE CANNOT BE APPROVED. DISALLOWANCE OF LOSS MADE BY TH E AO IS DIRECTED TO BE DELETED. FIRST GROUND OF APPEA L IS DECIDED IN FAVOUR OF THE APPELLANT. 2.9 DURING THE COURSE OF PROCEEDINGS BEFORE US THE LD. DR HAS FILED TWO PAPER BOOKS CONTAINING 37 PAGES 43 PAGES. BOTH THES E PAPER BOOKS HAVE BEEN SIGNED BY THE ITO WARD 3 (2) JAIPUR.THE ASS ESSEES PAPER BOOK CONTAINING 175 WAS ALSO FILED ON 25-02-2011. PAGE NO 1 TO 4 OF THE PAPER BOOK CONTAINING 37 PAGES PERTAINS THE BRIEF FACTS O F THE CASE. IT IS MENTIONED THAT THE AO MADE FURTHER ENQUIRY IN RELATION TO THE ALLEGED SALES AND PURCHASES DURING THE COURSE OF ASSESSMENT PROCEEDIN GS FOR THE ASSESSMENT YEAR 2007-08. THE RESULT OF THE ENQUIRY MADE DURING THE COURSE OF ASSESSMENT PROCEEDINGS OF 2007-08 STRENGTHENED THE FINDING OF THE AO GIVEN IN THE ASSESSMENT ORDER UNDER APPEAL FOR FOL LOWING REASONS. 1. THE AO VISITED THE PLACE AT THE ADDRESS OF THE S ELLERS AND BUYERS AND FOUND THESE PREMISES CLOSED. 2. THE STATEMENT OF TWO PERSONS NAMELY SHRI JANDARD HAN NAIK AND SHRI VITHAL BAHI WERE RECORDED WHICH SHOW THAT NO BUSINESS WAS CARRIED OUT BY THE SELLERS AND PURCHAS ERS OF THE 12 ASSESSEE FROM THE PREMISES OF THE ADDRESSES GIVEN B Y THEM. THE COPIES OF SUCH STATEMENTS ARE AVAILABLE AT PAGES 5 TO 7 AND 8 TO 9 OF THE PAPER BOOK. 3. ALL THE FOUR CONCERNS ARE LOCATED IN TWO BUILDIN GS AND THE DISTANCE BETWEEN THESE TWO BUILDINGS ARE HARDLY 1 K M. 4. THE ASSESSEE WAS DEALING IN CUT AND POLISHED DIA MONDS WHICH ARE VERY EXPENSIVE YET THE ASSESSEE NEITHER G OT THEM INSURED NOR HE HAD ANY SAFE DEPOSIT VAULT HIRED FOR THEM THE RESULTS OF THE ENQUIRY WERE COMMUNICATED TO THE LD. CIT(A) VIDE LETTER NO. 144 DATED 11-11-09 AND THIS LETTER IS AVAILA BLE AT PAGE 18 OF THE PAPER BOOK. IT WAS REQUESTED BY THE AO AS PER LETTER THA T DURING THE COURSE OF APPELLATE PROCEEDINGS THE ASSESSEE BE ASKED TO PRO DUCE THE ALLEGED SELLERS AND PURCHASERS SO THAT GENUINENESS OF THE TRANSACTI ONS BE ESTABLISHED BEYOND DOUBT. THE STATEMENT OF SHRI RAJEEV P KAMDAR PARTN ER OF THE FIRM WAS RECORDED U/S 131 ON 12-09-09 AND HE WAS CONFRONTED WITH ALL THE ISSUES AS A RESULT OF THE ENQUIRY CONDUCTED BY THE AO. THE ASSE SSEE VIDE LETTER DATED 12-11-09 AGREED TO PRODUCE THE PARTIES AT ANY GIVEN DATE. HOWEVER THE LD. CIT(A) ALSO PASSED THE ORDER ON 11-11-09 AND THE AO WAS DENIED THE OPPORTUNITY OF COMPLETING THE ENQUIRY. IT HAS BEEN SUBMITTED THAT LD. CIT(A) SHOULD HAVE EXERCISED HIS POWER U/S 250(4) TO ASCER TAIN THE GENUINENESS OF THE TRANSACTIONS. RELIANCE WAS PLACED ON THE DECISI ON OF ITAT CUTTACK BENCH IN THE CASE OF ACIT VS. JYOTSNA ALANKAR BHAND AR 147 TAXMAN 45. 13 THE RELEVANT OBSERVATION FROM THE ORDER OF THE ITAT CUTTACK BENCH HAS BEEN REPRODUCED AT PAGE 4 OF THE PAPER BOOK AND THE SAME IS MENTIONED AT UNDER:- WHETHER SCOPE OF POWER OF COMMISSIONER (APPEALS) IS COTERMINOUS WITH THAT OF ASSESSING OFFICER AND SUCH COTERMINOUS POWER ARE ALSO HAVING EQUAL RESPONSIBIL ITY TO UNDERTAKE ENQUIRY WHERE ASSESSING OFFICER HAS FAILE D TO UNDERTAKE HELD YES WHETHER WHERE AAC/ COMMISSI ONER (APPEALS) FAILED TO EXERCISE HIS DISCRETION JUDICIO USLY AND ARBITRARILY REFUSED TO MAKE INQUIRY IN A CASE WHERE FACTS AND CIRCUMSTANCES SO DEMAND HIS ACTION WOULD BE OPEN F OR CORRECTION BY HIGHER AUTHORITIES / FORUM HELD YE S. 2.10 THE LD. DR THEREFORE DREW OUR ATTENTION TO TH E STATEMENT OF SHRI JANARDAN NAIK AND THAT OF SHRI VITHAL BHAI. SHRI JA NARDAN NAIK WAS CHAIRMAN OF THE SOCIETY WHO WAS RESPONSIBLE FOR MAI NTENANCE OF THE BUILDING. IT WAS STATED BY HIM THAT THE PREMISES RE MAINED CLOSES AND THE MAINTENANCE CHARGE IS ALSO NOT BEING PAID. SHRI JAN ARDAN NAIK ALSO STATED THAT HE IS NOT AWARE OF ANY PERSON KNOWN AS MUKESH KUMAR JAIN OR SHRI JASWANT KUMAR POKHARNA. OUR ATTENTION WAS DRAWN TOW ARDS THE STATEMENT OF SHRI VITHAL BHAI WHO WAS HAVING SHOP IN SHAKTI CHAM BERS RAGHUNATHURA. SHRI VITHAL BHAI STATED THAT OFFICE NO. 4 SHAKTI CH AMBER IS IN THE NAME OF PRATAP BHAI SONI AND THIS OFFICE REMAINS CLOSED. SI MILARLY OFFICE NO. 4 14 SHAKTI CHAMBERS IS IN THE NAME OF SHRI RAMESH VERMA BUT HE HAD NEVER SEEN SHRI RAMESH VERMA. SOME PERSON COME TO THE OFF ICE AND PAY THE MAINTENANCE CHARGES. HE STATED THAT HE IS NOT AWARE OF M/S. JHALAK EXPORTS AND M/S. MAN MOHAN GEMS. HE FURTHER STATED THAT HE IS NOT AWARE OF ANY PERSONS IN THE NAME OF SHRI PADAM CHAND JAIN OR PAD AM CHAND POKHARANA. THEREAFTER OUR ATTENTION WAS DRAWN TOWARDS THE STAT EMENT OF SHRI RAJEEV P KAMDAR. SHRI RAJEEV P KAMDAR WAS ASKED AS TO WHY HE WAS NOT GETTING THE DIAMOND INSURED THOUGH THE DIAMONDS ARE VERY COSTLY . SHRI RAJEEV P KAMDAR STATED THAT HE NEVER FELT ANY RISK AND HE NE VER THOUGHT OF GETTING THE DIAMOND INSURED. THEREAFTER THE LD. DR DREW OUR AT TENTION TO THE CORRESPONDENCE BETWEEN THE AO AND THE LD. CIT(A). O UR ATTENTION WAS DRAWN TOWARDS LETTER DATED 12 TH NOV. 09 ADDRESSED BY THE LD. AR OF THE ASSESSEE TO THE ITO WHICH IS AVAILABLE AT PAGES 22 AND 23 OF THE PAPER BOOK. IN THIS LETTER THE LD. AR STATED THAT THEY ARE WI LLING TO COOPERATE WITH THE DEPARTMENT FOR DISPOSAL OF THE CASE. THEY HAVE CONT ACTED THE PARTIES AND PRESSURIZE AND PURSUED THEM FOR THEIR PRESENCE. IT WAS THEREFORE REQUESTED THAT DATE MAY BE GIVEN DURING NEXT WEEK SO THAT THE PARTIES MAY BE PRODUCED. THE LD. DR THEREFORE SUBMITTED THAT THE LETTER WAS FILED ON BEHALF OF THE ASSESSEE ON 12-11-09 AND THE ASSESSEE AGRE ED TO PRODUCE THOSE PARTIES BUT THE LD. CIT(A) PASSED THE ORDER ON 11-1 1-09. 15 2.11 THE PAPER BOOK CONTAINING 175 PAGES CONTAINS T HE SAME DETAILS UPTO PAGES 38 WHICH HAVE BEEN GIVEN IN THE PAPER BOOK NO . 1. PAGES 39 TO 81 OF THE PAPER BOOK CONTAINS THE DETAILS IN RESPECT OF EXPORTS MADE IN EARLIER YEARS. THESE DETAILS ARE NOT OF MUCH RELEVANCE. PAG E NOS. 80 TO 175 CONTAINS THE AUDITED ACCOUNTS OF FOUR CONCERNS WITH WHOM THE ASSESSEE MADE TRANSACTIONS OF PURCHASE AND SALES. 2.12 BEFORE US THE LD. AR SUBMITTED THAT THE AO DO UBTED THE GENUINENESS OF THE TRANSACTIONS ON HIS OWN PRESUMED NOTIONS WIT HOUT ANY POSITIVE EVIDENCE. ALL THE ISSUES RAISED BY THE AO IN HIS SU BSEQUENT ENQUIRY WERE REPLIED BY THE PARTNER OF THE ASSESSEE FIRM SHRI RA JIV KAMDAR. SHRI RAJIV KAMDR IN HIS STATEMENT HAS STATED THE FOLLOWING REA SONS. (I) IN REPLY TO QUESTION NO. 5 HE STATED THAT HE USED T O PURCHASE DIAMOND AND GET IT CONFIRMED FROM THE BROKERS. HE USED TO KEEP THESE DIAMONDS AT HIS RESIDENCE OR AT HIS MUMBAI OFFICE WHERE THE SAME WE RE SHOWN TO THE CUSTOMERS. (II) IN REPLY TO QUESTION NO. 6 & 7 HE STATED THAT GOODS WERE NOT INSURED AS HE NEVER FELT INSURING THE SAME AND IN THIS BUSINESS G OODS ARE NORMALLY NOT INSURED. (III) IN REPLY TO QUESTION NO 10 & 11 HE STATED THAT HE U SED TO TAKE THE DELIVERY OF THE GOODS FROM THE OFFICE OF THE SELLERS OF THE GOODS OR FROM THE OFFICE OF HIS FRIENDS AND BROKER AND THESE PARTIES ARE ST ILL IN EXISTENCE HAVE TRANSACTION IN THEIR BANK ACCOUNT AND THEY CAN BE C OMMUNICATED THROUGH THE PHONE FOR WHICH MOBILE NO. WERE GIVEN. HE ALSO PROVIDED THE MOBILE NO. OF THE PROPRIETOR/ PARTNER OF THE PARTIES FROM WHOM THE GOODS WERE PURCHASED AND TO WHOM THE GOODS WERE SOLD AS UNDER: - 16 M/S JHALAK EXPORT -SHRI MANOJ JAI N M.NO. 98247- 64140 M/S MANMOHAN EXPORT -SHRI PADAM CHAND M.NO.99672- 95888 M/S ARTI GEMS -SHRI JASWANT POKHARANA M.NO.99679- 24447 M/S N B IMPEX -SHRI NITESH JA IN M.NO.98203- 39804 IT WAS STATED THAT THESE PARTIES ARE STILL IN EXIS TENCE ARE INCOME TAX ASSESSEE AND DOING THE BUSINESS. (IV) IN REPLY TO QUESTION NO 15 HE CLARIFIED THAT IN SUR AT ALL THE DIAMOND TRADERS ARE WORKING IN A SMALL AREA AND THEREFORE IF THEY ARE LOCATED NEAR TO EACH OTHER THERE IS NOTHING ABNORMAL IN IT. 2.13 EVEN AFTER PROVIDING MOBILE NOS. OF THE PERSON S WITH WHOM THE ASSESSEE HAS MADE TRANSACTIONS TO THE AO THE AO NE VER MADE ANY ATTEMPT TO CONTACT THESE PARTIES. THE ASSESSEE WAS HAVING NO D EALING WITH THESE PARTIES IN THE ASSESSMENT YEAR 2007-08. THEREFORE THE LETT ER ISSUED BY THE AO DURING THE COURSE OF PROCEEDINGS FOR THE ASSESSMENT YEAR 2007-08 WAS BAD IN LAW AS NO TRANSACTIONS WERE MADE WITH THE FOUR PART IES IN ASSESSMENT YEAR 2007-08. IT IS SETTLED LAW THAT TO PROVE THE TRANSA CTIONS AS BOGUS THE BURDEN IS ON THE PERSON WHO ALLEGES THE TRANSACTIONS AS BO GUS. MERELY ON THE BASIS OF SUSPICION SUCH TRANSACTIONS CANNOT BE TREATED B OGUS AND APPARENT HAS TO BE CONSIDERED AS REAL. 2.14 THE LD. AR RELIED ON THE DECISIONS WHICH WERE RELIED ON BEFORE THE LD. CIT(A). THE LD. AR STRONGLY OPPOSED THE CONTENTIONS OF THE REVENUE THAT 17 THE MATTER SHOULD BE SENT BACK TO THE LD. CIT(A). O N THIS ISSUE THE LD. AR MADE THE FOLLOWING SUBMISSIONS. 1. IN THE PAPER BOOK FILED BY THE DEPARTMENT THE THRUST IS THAT THE LD. CIT(A) PASSED THE ORDER PREMATURELY ON 11.11.2009 & THE AO WAS DENIED THE OPPORTUNITY OF COMPLETING THE ENQUIRIES & THEREFORE MATTER SHOULD GO BACK TO CIT(A) FOR RECONSIDERATION . THIS IS INCORRECT AS EVIDENT FROM FOLLOWING:- - AO VIDE LETTER DT. 11.5.2009 REQUESTED CIT(A) TO GRANT ONE MONTH ADJOURNMENT SO THAT FURTHER FINDING CAN BE BROUGHT ON RECORD (DPB 18/23) - AO VIDE LETTER DT. 2.06.2009/06.07.2009 AFTER VIS ITING THE PLACES OF PURCHASERS & SELLERS GAVE HIS REPORT (APB 16 & DPB 24) & ALSO ISSUED A SHOW CAUSE NOTICE DT. 12.06.2009 TO THE A SSESSEE (APB 14-15/DBB 24) - ASSESSEE REPLIED TO THE SHOW CAUSE NOTICE VIDE LE TTER DT. 07.07.2009/11.09.2009 (APB 17-20) - STATEMENT OF RAJIV KAMADAR PARTNER WAS RECORDED BY THE AO ON 12.09.2009 (APB 21-25 & DPB 17-21). THE AO VIDE LETTER DT. 26.10.2009 SENT FURTHER REPORT AFTER THE STATEMENT OF RAJIV KAMDAR. NO OPPORTUNITY WAS SOUGHT BY HIM FROM LD. CIT(A) [APB & DPB 27-28] - FROM THE ABOVE IT IS CLEAR THAT THE ORDER PASSED BY LD. CIT(A) ON 11.11.2009 IS AFTER CONSIDERING THE ENQUIRIES CONDU CTED BY THE AO FOR WHICH OPPORTUNITY AS REQUIRED BY HIM WAS GIVEN. THE CASE RELIED BY DEPARTMENT IS THUS NOT APPLICABLE. 2. THE DEPARTMENT HAS ALSO OBJECTED TO THE FINDINGS OF THE CIT(A) THAT IN A.Y. 2004-05 APPELLANT HAS INCURRED LOSS & IN IMMEDIATELY PRECEDING YEAR THERE WAS MARGINAL PROFIT & THEREFO RE TRANSACTION DURING THE YEAR CAN NOT BE CONSIDERED ISOLATED TRAN SACTION. IN SUPPORT OF IT THEY HAVE ENCLOSED CERTAIN DOCUMENTS PERTAINING TO A.Y. 04-05 TO SHOW THAT ACTIVITY IN THAT YEAR WAS D IFFERENT. IT MAY BE NOTED THAT IN A.Y. 04-05 THE TURNOVER WAS RS. 7 5 54 16 439/- & THE DOCUMENTS IN THE PAPER BOOK (DPB 39-81) SHOW THAT THERE IS SUBSTANTIAL EXPORT OF LOOSE & STUDDED DIAMOND ALSO. IN ANY CASE WHEN ASSESSEE DURING THE YEAR HAS MAINTAINED COMPLE TE RECORDS ANY COMPARISON WITH EARLIER YEAR LOOSES ITS SIGNIFI CANCE. 18 3. THE AUDITED ACCOUNTS OF THESE PARTIES PROVES THA T THEY HAVE PURCHASED/ SOLD GOODS FROM/TO THE ASSESSEE (DPB 82-175). 2.15 WE HAVE HEARD BOTH THE PARTIES. BEFORE US THE REVENUE HAS FILED THE AUDITED ACCOUNTS OF ALL THE FOUR CONCERNS. THE LD. AR HAS MADE PURCHASES FROM M/S. MAN MOHAN GEMS AND M/S. JAHALAK EXPORTS. M/S. MAN MOHAN GEMS 2.16 THE PURCHASES HAVE BEEN MADE BY THE ASSESSEE F ROM THIS PARTY FROM 12-10-05 TO 9-01-06. THERE IS NO CLOSING BALANCE IN THE NAME OF THE ASSESSEE IN THE ACCOUNTS OF M/S. MAN MOHAN GEMS. THE TURNOVE R OF M/S. MAN MOHAN GEMS FOR THE ASSESSMENT YEAR 2006-07 IS OF RS . 98 54 CRORES.. AS PER AUDIT REPORT THIS CONCERN IS HAVING HEAD OFFICE AT 14 SHAKTI CHAMBERS RAGHUNATHPURA MAIN ROAD SURAT. THE BRANCH OFFICE IS AT 519-B PANCH RATNA OPERA HOUSE MUMBAI. THE GROSS PROFIT FOR TH E ASSESSMENT YEAR 2006-07 IS TO THE EXTENT OF RS. 38 45 965/- AS AGAI NST RS. 16 82 190/- IN THE IMMEDIATELY PRECEDING YEAR. THE TURNOVER IN THE IMM EDIATELY PRECEDING YEAR WAS TO THE EXTENT OF AROUND RS. 111.00 CRORES. THE CLOSING STOCK HAS BEEN SHOWN TO BE AVAILABLE AT SURAT AS WELL AS IN MUMBAI . THE DETAILS OF PURCHASES AND SALES FROM SURAT OFFICE AND BRANCH OF FICE ARE AVAILABLE AT PAGES 122 OF THE PAPER BOOK FILED BY THE REVENUE. T HERE IS A DEBIT OF RS. 13 72 797/- FOR EXCHANGE DIFFERENCE. THE NET PROFIT IS SHOWN AT RS. 19 2 37 905/-. OTHER MAJOR EXPENSES IN THE P & L A/C A RE BROKERAGE & COMMISSION AND SALARY AMOUNTING TO RS. 13.00 LACS A ND RS. 6.00 LACS RESPECTIVELY. M/S. JALAK EXPORTS 2.17 THE AUDITED ACCOUNTS OF M/S. JALAK EXPORTS ARE AVAILABLE AT PAGES 82 TO 103 OF THE PAPER BOOK FILED BY THE REVENUE. PURC HASES FROM THESE PARTIES ARE FROM 3-10-05 TO 10-01-06. THE PAYMENTS HAVE BEE N MADE FROM 13-03-06 TO 24-03-06.THE TURNOVER DURING THE ASSESSMENT YEAR 2006-07 IS TO THE EXTENT OF RS. 114.50 CRORES AS AGAINST RS. 176.44 CRORES I N THE IMMEDIATELY PRECEDING YEAR. THE GROSS PROFIT IS RS. 75 47 211/- AS AGAINST RS. 1 59 99 181/-. THE NET PROFIT DISCLOSED IS RS. 1 07 357. THERE IS A DEBIT OF AROUND RS. 69 48 083/- ON ACCOUNT OF EXCHANGE DIFFE RENCE. OTHER MAJOR EXPENSES ARE OF BROKERAGE & COMMISSION AND SALARY AND THESE TO THE EXTENT OF AROUND RS. 16.04 LACS AND RS. 5.00 LACS RESPECTI VELY. THIS CONCERN IS ALSO HAVING HEAD OFFICE AT SURAT AND BRANCH OFFICE AT MU MBAI. THIS CONCERN IS HAVING A DEBIT BALANCE OF AROUND RS. 29 17 816/- IN THE NAME OF THE ASSESSEE. THE HEAD OFFICE IS AT 14 SHAKTI CHAMBERS RAGHUNAT HPURA MAIN ROAD MUMBAI WHILE BRANCH OFFICE IS AT 1608-B PANCH RATN A 1 OPERA HOUSE M.P. MARG MUMBAI. N.B. IMPEX 20 2.18 THE ASSESSEE HAS MADE SALES TO THIS PARTY FROM 30-10-05 TO 9-02-06. THE PAYMENTS HAVE BEEN RECEIVED FROM 13-03-06 TO 24 -03-06. THE AUDITED ACCOUNTS ARE AVAILABLE AT PAGES 150 TO 175 OF THE P APER BOOK FILED BY THE REVENUE. THE HEAD OFFICE OF THIS CONCERN IS AT 1608 -B PANCH RATNA 1 OPERA HOUSE M.P. MARG MUMBAI. THE BRANCH OFFICE IS AT DIAMOND PARK APARTMENT RAMPURA MAIN ROAD SURAT. THE TURNOVER OF THIS CONCERN DURING THE YEAR IS TO THE EXTENT OF RS. 85.24 CRORES AND G ROSS PROFIT IS TO THE EXTENT OF RS. 8 98 822/-. THE NET PROFIT RATE IS TO THE EXTEN T OF RS. 2 36 678/-. THE MAJOR EXPENSES DEBITED IN THE P & L A/C ARE ASSORTM ENT EXPENSES BROKERAGE/ COMMISSION AND SALARIES TO THE EXTENT OF RS. 3.80 LACS 4.04 LACS AND 4.08 LACS RESPECTIVELY. THERE IS NO ABNORMAL EX PENDITURE. THERE IS NO CLOSING BALANCE IN THE NAME OF THE ASSESSEE M/S. ARTI GEMS 2.19 SALES TO THIS PARTY ARE FROM 21-11-05 TO 10-02 -06. THE AMOUNTS HAVE BEEN RECEIVED THROUGH CHEQUES FROM 13-03-06 TO 16-0 3-06. THE AUDITED ACCOUNTS ARE AVAILABLE AT PAGES 125 TO 149 OF PAPER BOOK. THIS IS HAVING HEAD OFFICE AT SURAT AND BRANCH OFFICE AT NOVELTY C HAMBER GRANT ROAD MUMBAI. THE TURNOVER DURING THE ASSESSMENT YEAR IS AROUND RS. 90.00 LACS AGAINST RS. 252 LACS OF THE IMMEDIATELY PRECEDING YEAR. THE GROSS PROFIT IS AROUND RS. 10 07 186/- AS AGAINST RS. 31 45 838/- O F THE IMMEDIATELY 21 PRECEDING YEAR. THE NET PROFIT IS OF RS. 2 28 871/- . THE MAJOR EXPENSES ARE ASSORTMENT CHARGES BROKERAGE/COMMISSION AND SALAR Y TO THE EXTENT OF AROUND RS. 4.32 LACS 4.11 LACS AND 4.29 LACS RESPE CTIVELY. THERE ARE NO OTHER ABNORMAL EXPENSES. WE HAVE NOTICED THAT THERE IS DE BIT OF EXCHANGE DIFFERENCE IN THE CONCERNS FROM WHERE THE ASSESSEE HAS MADE PURCHASES. HOWEVER THE DEBIT OF EXCHANGE DIFFERENCE IN THESE TWO CONCERNS IS AROUND RS. 82.00 LACS. IF THE ASSESSEE WANTS TO EVADE TAX BY SHOWING LOSS THEN THE ASSESSEE HAS TO EITHER INFLATE PURCHASES OR TO DEFL ATE THE SALES. IN CASE THE PURCHASES ARE INFLATED THEN THE SALES OF THE PARTIE S FROM WHOM PURCHASES HAVE BEEN MADE WILL ALSO STAND INFLATED AND IT WILL AFFECT THE GROSS PROFIT OF THE PARTIES FROM WHOM THE ASSESSEE HAS MADE PURCHAS ES. IN THE CASE OF M/S. JHALAK EXPORTS THE GROSS PROFIT DURING THE YEAR IS LESS AS COMPARED TO THAT OF THE IMMEDIATELY PRECEDING YEAR. THOUGH IN THE CASE OF M/S. MAN MOHAN GEMS THE GROSS PROFIT HAS INCREASED BUT THE INCREA SE IS NOT TO THE EXTENT TO SHOW THAT IT WAS ABLE TO TRANSFER THE LOSS WHICH IS CONSIDERED AS NON-GENUINE BY THE REVENUE. THE HON'BLE APEX COURT IN THE CASE OF BEDI & CO. (P) LTD. (SUPRA) AFFIRMED THE FINDINGS OF THE HON'BLE HIGH C OURT THAT BURDEN OF SHOWING THAT THE APPARENT STATEMENT OF AFFAIRS WAS NOT REAL IS VERY HEAVY ON THE DEPARTMENT. IN THIS CASE THE REVENUE HAS RELIE D UPON CERTAIN STATEMENTS BUT NO MATERIAL WAS BROUGHT ON RECORD BY THE REVENU E TO HOLD THAT THE 22 AMOUNT WAS INCOME FROM BUSINESS. THE HON'BLE APEX C OURT IN THE CASE OF KISHAN CHAND CHELA RAM (SUPRA) HELD THAT THE DEPART MENT SHOULD HAVE CONFRONTED THE ASSESSEE TO CONTROVERT THE STATEMENT S BY CROSS EXAMINING THE PERSONS FROM WHOSE STATEMENT REVENUE WAS RELYING UP ON. THE BURDEN WAS ON THE DEPARTMENT TO SHOW THAT MONEY BELONGED TO THE A SSESSEE. THE HON'BLE APEX COURT IN THE CASE OF AZADI BACHAO ANDOLAN 263 ITR 706 APPROVED THE VIEW OF THE HON'BLE GUJARAT HIGH COURT IN THE C ASE OF BANYAN AND BERRY VS. CIT 222 ITR 831. THE HON'BLE GUJARAT HIGH COUR T HELD THAT THE PRINCIPLE ENUNCIATED IN THE ABOVE CASE HAS NOT AFFE CTED THE FREEDOM OF THE CITIZEN TO ACT IN A MANNER ACCORDING TO HIS REQUIRE MENT HIS WISHES IN THE MANNER OF DOING ANY TRADE ACTIVITY OR PLANNING HI S AFFAIRS WITH CIRCUMSPECTION WITHIN THE FRAMEWORK OF LAW UNLESS THE SAME FALL IN THE CATEGORY OF COLOUABLE DEVICE WHICH MAY PROBABLY BE CALLED A DEVICE OR A DUBIOUS METHOD OR A SUBTERFUGE CLOTHED WITH APPAREN T DIGNITY. 2.20 THE HON'BLE PUNJAB & HARYANA HIGH COURT IN TH E CASE OF CIT VS. ROCKMAN CYCLE INDUSTRIES (P) LTD. 238 CTR 363 (AT P AGE 273) (FULLBENCH) HAD OBSERVED AS UNDER:- ;;THE ISSUE REGARDING JURISDICTION OF THE TAXING AU THORITIES WAS CONSIDERED BY HON'BLE SUPREME COURT IN CIT VS. B.M. KHANWAR (1969) 72 ITR 603(SC) WHEREIN IT WAS OPINED THAT A TAXING AUTHORITY IS ENTITLED AND IS INDEED BOUND TO DETERMINE THE 23 TRUE LEGAL RELATION RESULTING FROM A TRANSACTION. T HE RELEVANT PARA IS EXTRACTED BELOW:- THE TAXING AUTHORITY IS ENTITLED AND IS INDEED BOUND TO DETERMINE THE TRUE LEGAL RELATION RESULTI NG FROM A TRANSACTION. IF THE PARTIES HAVE CHOSEN TO CONCE AL BY A DEVICE THE LEGAL RELATION IT IS OPEN TO THE TAXING AUTHORITIES TO UNRAVEL THE DEVICE AND TO DETERMINE THE TRUE CHARACTER OF THE RELATIONSHIP. BUT THE LEGAL EFFEC T OF A TRANSACTION CANNOT BE DISPLACED BY PROBING INTO TH E ' SUBSTANCE OF THE TRANSACTION '. THIS PRINCIPLE APPL IES ALIKE TO CASES IN WHICH THE LEGAL RELATION IS RECORDED IN A FORMAL DOCUMENT AND TO CASES WHERE IT HAS TO BE GATHERED FROM EVIDENCE-ORAL AND DOCUMENTARY-AND CONDUCT OF THE PARTIES TO THE TRANSACTION. THE OBSERVATION MADE B Y BOSE J. IN SIR KIKABHAI PREMCHAND V. COMMISSIONER OF INCOME-TAX (1853) 24 ITR 506 (SC) ' IT IS WELL RECOGNIZED THAT IN REVENUE CASES REGARD MUST BE HAD TO THE SUBSTANCE OF THE TRANSACTION RATHER THAN TO IT S MERE FORM. IN THE PRESENT CASE DISREGARDING TECHNICALIT IES IT IS IMPOSSIBLE TO GET AWAY FROM THE FACT THAT THE BUSI NESS IS OWNED AND RUN BY THE ASSESSEE HIMSELF. IN SUCH CIRCUMSTANCES WE ARE OF OPINION THAT IT IS WHOLLY U NREAL AND ARTIFICIAL TO SEPARATE THE BUSINESS FROM ITS O WNER AND TREAT THEM AS IF THEY WERE SEPARATE ENTITIES TRADIN G WITH EACH OTHER AND THEN BY MEANS OF A FICTIONAL SALE INTRODUCE A FICTIONAL PROFIT WHICH IN TRUTH AND IN FACT IS NON-EXISTENT ' CANNOT BE READ AS THROWING ANY DOUB T ON THE PRINCIPLE THAT THE TRUE LEGAL RELATION ARISING FROM A TRANSACTION ALONE DETERMINES THE TAXABILITY OF A R ECEIPT ARISING FROM A TRANSACTION. 2.21 THE HON'BLE MADRAS HIGH COURT IN THE CASE OF INDO TECH ELECTRIC C.O. VS. DCIT 237 CTR 227 HELD THAT IT IS PERMIS SIBLE TO AVOID TAX BUT NOT TO EVADE TAX. TO ASCERTAIN THE EVASION OF TAX REVENUE AUTHORITIES ARE 24 PERMITTED TO LIFT THE CORPORATE VEIL AND FIND AND F IND OUT THE REAL INTENTION BEHIND THE SAME. IT WILL BE USEFUL TO REPRODUCE THE HOLD PORTION AS UNDER:- THERE ARE ONLY TWO PARTNERS IN THE ASSESSEE FIRM WHICH CONSISTED OF FATHER AND SON. THE ASSESSEE HAS BEEN MAKING GOOD PROFIT OVER THE YEARS AS SEEN FROM THE ASSESSMENT MADE FOR THE ASSESSMENT YEAR 1993-94 ONWARDS. IT WA S A CONCERN RUNNING FOR THE PAST 25 YEARS PROFITABLY. I T WAS TAKEN OVER AS A GOING CONCERN BY THE LIMITED COMPANY. THE PARTNERS OF THE ASSESSEE FIRM ARE THE DIRECTORS OF THE LIMIT ED COMPANY. THE LIMITED COMPANY CONTINUES TO FUNCTION IN THE VE RY SAME OFFICE IN WHICH THE ASSESSEE FIRM WAS FUNCTIONING E ARLIER. THE ENTIRE ASSETS HAVE BEEN TAKEN OVER BY THE LIMITED C OMPANY. THE AGREEMENT BETWEEN THE ASSESSEE AND THE LIMITED COMP ANY DOES NOT MAKE ANY MENTION ABOUT THE PAYMENT RECEIVED FOR THE GOODWILL. THE ASSESSEE WAS NOT INVOLVED IN THE SALE OR TECHNICAL KNOW-HOW. THEREFORE IT IS CLEAR THAT IN AS MUCH S THE ASSESSEE FIRM HAS BEEN TAKEN OVER AS A GOING CONCERN IT COU LD NOT HAVE BEEN TAKEN OVER WITHOUT THE SO CALLED TECHNICAL KNO W HOW. THE ASSESSEE COULD NOT HAVE SOLD THE OTHER TANGIBLE REC EIPTS FOR TECHNICAL KNOW HOW AND THE COMPENSATION FOR NON-COM PETING FEES ASSOCIATE ENTERPRISE NOTHING BUT A PART OF COM POSITE RECEIPT TO DIMINISH THE ASSETS OF THE FIRM. THE ASSESSEE HA S TERMED THE SAID AMOUNT AS TECHNICAL KNOW-HOW IN ORDER TO ESCAP E FROM THE CLUTCHES OF THE PROVISIONS OF SECTION 55(2) UNDER W HICH A GOODWILL AMOUNT IS TAXABLE. THERE WAS NO MATERIAL O N RECORD TO ESTABLISH THE COST OF THE TECHNICAL KNOW-HOW AS OBS ERVED BY THE 25 TRIBUNAL . THERE WAS ALSO NO MATERIAL TO QUANTIFY T HE AMOUNT SHOWN AS PAID TO THE ASSESSEE FOR THE TRANSFER OF THE ALLEGED TECHNICAL KNOW-HOW. AS OBSERVED BY THE TRIBUNAL AND THE AO THERE IS NO EXPLANATION AS TO WHY NO AMOUNT HAS BEE N RECEIVED TOWARDS THE GOODWILL CONSIDERING THE UNDISPUTED FAC T OF THE GOOD PERFORMANCE OF THE ASSESSEE FIRM OVER THE YEAR S BEFORE THE TRANSFER. THE ASSESSEE HAS CLEARLY ATTEMPTED TO EVA DE TAX BY CLAIMING THE AMOUNT RECEIVED AS GOODWILL INTO ONE O F TECHNICAL KNOW-HOW IN ORDER TO EVADE TAX. THE ASSESSEE HAS TI ED TO SELL THE OLD WINE IN A NEW BOTTLE BY CHARACTERIZING THE RECEIPT AS TECHNICAL KNOW-HOW. IT IS NOT THE CASE OF THE ASSES SEE THAT IT HAS BEEN SELLING THE TECHNICAL KNOW-HOW TO ANY OTHER TH IRD PARTY. THE AGREEMENT ALSO DOES NOT PROVIDE A CLAUSE TO THE EFFECT THAT THE ASSESSEE SHALL NOT INCLUDE IN THE SAME BUSINES S. THIS IS FOR THE PRECISE REASON THAT THE ASSESSEE HAS MERELY CHA NGED FROM BEING A PARTNERSHIP FIRM INTO ONE OF A PRIVATE COMP ANY DUE TO BUSINESS AND COMMERCIAL EXPEDIENCY. 2.22 THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS SEKSARIA SONS (P) LTD. 138 ITR 419 HELD THAT TRANSACTION IS WHICH IS NOT BONAFIDE DOES NOT NECESSARILY BECOME SHAM TRANSACTION OR A T RANSACTION WITHOUT CONSIDERATION. IT IS NOT THE CASE OF THE REVENUE IN THE INSTANT CASE THAT THE ASSESSEE HAS RECEIVED BACK THE MONEY BY MAKING FALS E PURCHASES AND SALES. TRADING LOSS RECEIVED BACK FROM THE PARTIES IS NOT EVIDENCED BY ANY MATERIAL 26 EVIDENCE. THE STATEMENT OF SHRI RAJEEV KAMDAR WAS R ECORDED BY THE AO U/S 131 OF THE ACT ON 12-09-09. SHRI RAJEEV KAMDAR STAT ED THAT HE IS STILL IN TOUCH WITH THE PERSONS WHO WERE MANAGING FOUR CONCE RNS HE PROVIDED MOBILE NOS. OF FOUR PARTIES. SHRI RAJEEV KAMDAR STA TED THAT HE IS KNOWING THESE PARTIES FOR THE LAST 20 TO 25 YEARS . IT IS NOTICED THAT THE AO PASSED THE ASSESSMENT ORDER ON 31-12-2008 AFTER DISCUSSIONS WI TH THE ADDL. CIT RANGE-3 AND THE LD. CIT -1 JAIPUR. THE AO INITIATE D THE PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. THE PENALTY PROCEEDINGS A RE SEPARATE AND DISTINCT AND THE AO COULD HAVE COLLECTED THE MATERIAL EVIDEN CE TO SUPPORT HIS CASE THAT THE TRANSACTION WERE NOT GENUINE. SHRI RAJEEV KAMDAR IN HIS STATEMENT HAS STATED THAT HE WAS NOT HAVING THE TRANSACTION W ITH FOUR PARTIES BUT STILL HE CAN PRODUCE THOSE FOUR PARTIES. WE HAVE NOTICED THA T THESE FOUR PARTIES ARE HAVING BRANCH OFFICE OR HEAD OFFICE AT BOMBAY. THE AO COULD HAVE MADE ENQUIRIES BY ISSUING THE COMMISSION TO PROVE WHAT I S APPARENT IS NOT REAL. THE ONUS WAS ON THE REVENUE. 2.23 IN THE GROUNDS OF APPEAL BEFORE US IT IS NOTI CED THAT THE TRANSACTION SHOULD HAVE BEEN ENQUIRED INTO BY THE LD. CIT(A) BY RESORTING THE POWER U/S 250(4). IT WILL BE USEFUL TO REPRODUCE SECTION 250( 4) OF THE ACT (4) THE COMMISSIONER (APPEALS) MAY BEFORE DISPOS ING OF ANY APPEAL MAKE SUCH FURTHER ENQUIRY AS HE THINK S FIT OR MAY 27 DIRECT THE ASSESSING OFFICER TO MAKE FURTHER ENQUIR Y AND REPORT THE RESULT OF THE SAME TO THE COMMISSIONER (APPEALS ). 2.24 THERE IS NO SPECIFIC SUB-SECTION U/S 250 VIDE WHICH ADDITIONAL EVIDENCES CAN BE FILED. RULE 46A PROVIDES FILING OF ADDITIONAL EVIDENCES AND IN CASE THE ADDITIONAL EVIDENCES ARE FILED THEN THE LD. CIT(A) SHOULD HAVE EXERCISED HIS POWER U/S 250(4) OF THE ACT. SIMILARL Y THE ADDITIONAL EVIDENCES BEFORE THE TRIBUNAL ARE TO BE FILED ON TH E BASIS OF THE ITAT RULES IN CASE THE ADDITIONAL EVIDENCES ARE FILED THEN IT IS THE DUTY OF THE LD. CIT(A) TO EXERCISE POWERS U/S 250(4) OF THE ACT. THE HON'B LE JURISDICTIONAL HIGH COURT IN THE CASE OF SILVER ARTS PALACE VS CIT 20 6 ITR 501 HAD AN OCCASION TO CONSIDER AS TO WHETHER THE LD. CIT(A) WAS JUSTIF IED IN DIRECTING THE AO TO MAKE ENQUIRY WHEN THE APPELLANT RAISES AN ARGUMENT THAT HE WAS NOT PROVIDED AN OPPORTUNITY TO CROSS EXAMINE A WITNESS. WHILE DISPOSING OF APPEALS THE LD. CIT(A) HAS POWER TO MAKE SUCH FURT HER ENQUIRY AS HE MAY DEEM FIT. SUCH EXERCISE IS NEEDED IF ANY FRESH EVID ENCE IS PRODUCED. SUCH JURISDICTION IS DURING THE PENDENCY OF APPEAL AND N OT THEREAFTER. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF SMT. PRABHAVATI S SHAH VS CIT 231 ITR 1 HAD AN OCCASION TO CONSIDER THE POWER CONFERRED O N APPELLANT ASSISTANT COMMISSIONER UNDER SUB-SECTION 4 OF SECTION 250 AND THE HON'BLE HIGH COURT OBSERVED AS UNDER:- 28 ON A PLAIN READING OF RULE 46A IT IS CLEAR THAT THIS RULE IS INTENDED TO PUT FETTERS ON THE RIGHT OF THE APPE LLANT TO PRODUCE BEFORE THE APPELLATE ASSISTANT COMMISSIONER ANY EVI DENCE WHETHER ORAL OR DOCUMENTARY OTHER THAN THE EVIDENC E PRODUCED BY HIM DURING THE COURSE OF THE PROCEEDINGS BEFORE THE INCOME- TAX OFFICER EXCEPT IN THE CIRCUMSTANCES SET OUT TH EREIN. IT DOES NOT DEAL WITH THE POWERS OF THE APPELLATE ASSISTANT COMMISSIONER TO MAKE FURTHER ENQUIRY OR TO DIRECT T HE INCOME- TAX OFFICER TO MAKE FURTHER ENQUIRY AND TO REPORT T HE RESULT OF THE SAME TO HIM. THIS POSITION HAS BEEN MADE CLEAR BY S UB-RULE (4) WHICH SPECIFICALLY PROVIDES THAT THE RESTRICTIONS P LACED ON THE PRODUCTION OF ADDITIONAL EVIDENCE BY THE APPELLANT WOULD NOT AFFECT THE POWERS OF THE APPELLATE ASSISTANT COMMIS SIONER TO CALL FOR THE PRODUCTION OF ANY DOCUMENT OR THE EXAM INATION OF ANY WITNESS TO ENABLE HIM TO DISPOSE OF THE APPEAL. UNDER SUB- SECTION (4) OF SECTION 250 OF THE ACT THE APPELLAT E ASSISTANT COMMISSIONER IS EMPOWERED TO MAKE SUCH FURTHER INQU IRY AS HE THINKS FIT OR TO DIRECT THE INCOME-TAX OFFICER TO M AKE FURTHER INQUIRY AND TO REPORT THE RESULT OF THE SAME TO HIM . SUB-SECTION (5) OF SECTION 250 OF THE ACT EMPOWERS THE APPELLAT E ASSISTANT COMMISSIONER TO ALLOW THE APPELLANT AT THE HEARING OF THE APPEAL TO GO INTO ANY GROUND OF APPEAL NOT SPECIFI ED IN THE GROUNDS OF APPEAL ON HIS BEING SATISFIED THAT THE OMISSION OF THE GROUND FROM THE FORM OF APPEAL WAS NOT WILLFUL. IT IS CLEAR FROM THE ABOVE PROVISIONS THAT THE POWERS OF THE AP PELLATE ASSISTANT COMMISSIONER ARE MUCH WIDER THAN THE POWE RS OF AN ORDINARY COURT OF APPEAL. THE SCOPE OF HIS POWERS I S COTERMINOUS WITH THAT OF THE INCOME-TAX OFFICER. HE CAN DO WHAT THE INCOME-TAX OFFICER CAN DO. HE CAN ALSO DIR ECT THE INCOME-TAX OFFICER TO DO WHAT HE FAILED TO DO. THE POWER CONFERRED ON THE APPELLATE ASSISTANT COMMISSIONER U NDER SUB- SECTION (4) OF SECTION 250 BEING A QUASI-JUDICIAL P OWER IT IS INCUMBENT ON HIM TO EXERCISE THE SAME IF THE FACTS AND CIRCUMSTANCES JUSTIFY. IF THE APPELLATE ASSISTANT C OMMISSIONER FAILS TO EXERCISE HIS DISCRETION JUDICIALLY AND AR BITRARILY REFUSES TO MAKE ENQUIRY IN A CASE WHERE THE FACTS AND CIRCU MSTANCES SO DEMAND HIS ACTION WOULD BE OPEN FOR CORRECTION BY A HIGHER AUTHORITY. 29 ON A CONJOINT READING OF SECTION 250 OF THE ACT AND RULE 46A OF THE RULES IT IS CLEAR THAT THE RESTRICTIONS PLACED ON THE APPELLANT TO PRODUCE EVIDENCE DO NOT AFFECT THE POW ERS OF THE APPELLATE ASSISTANT COMMISSIONER UNDER SUB-SECTION (4) OF SECTION 250 OF THE ACT. THE PURPOSE OF RULE 46A APP EARS TO BE TO ENSURE THAT EVIDENCE IS PRIMARILY LED BEFORE THE INCOME-TAX OFFICER. WE ARE SUPPORTED IN OUR ABOVE CONCLUSION BY THE DECISION OF THE ORISSA HIGH COURT IN B. L. CHOUDHUR Y V. CIT [1976] 105 ITR 371 I N WHICH IT WAS HELD (PAGE 376) : WIDE PROVISION HAS THUS BEEN MADE CONFERRING JURISDICTION ON THE FIRST APPELLATE AUTHORITY TO MA KE SUCH INQUIRY AS HE DEEMS FIT. THE PROVISION SEEMS TO HAV E BEEN BASED ON THE FACT THAT BEFORE THE APPELLATE AS SISTANT COMMISSIONER THERE IS GENERALLY NO OPPOSITE PARTY. THE APPELLATE AUTHORITY HIMSELF IS THE DEPARTMENTAL AUT HORITY REPRESENTING THE REVENUE. THEREFORE HE HAS BEEN INVESTED WITH THE POWER OF MAKING FURTHER INQUIRY. HE DOES NOT EXCEED HIS JURISDICTION IF HE ASKS OR ALLO WS THE ASSESSEE TO PRODUCE OR FILE ADDITIONAL PAPERS OR AD DITIONAL EVIDENCE IN THE MANNER HE THINKS FIT. IT WAS FURTHER HELD THAT (PAGE 376) : IN FACT RECEIVING NEW MATERIAL BY THE APPELLATE ASSISTANT COMMISSIONER CANNOT BE EQUATED WITH RECEI PT OF ADDITIONAL EVIDENCE AS CONTEMPLATED IN ORDER 41 RULE 27 OF THE CODE OF CIVIL PROCEDURE OR EVEN AT THE ST AGE OF SECOND APPEAL BY THE TRIBUNAL. 2.25 THE REVENUE HAS NOT PLACED ANY MATERIAL BEFORE THE LD. CIT(A) TO SUGGEST THAT THE TRANSACTIONS WERE NOT GENUINE OR R EAL. AFTER PASSING OF THE ASSESSMENT ORDER AND TILL THE DECISION OF THE LD. C IT(A) THE REVENUE WAS NOT ABLE TO COLLECT ANY MATERIAL EVIDENCE EITHER IN THE FORM OF STATEMENTS FROM 30 THE PARTY AS TO PURCHASES AND SALE OF THE DIAMOND / GOODS OR COULD NOT MAKE ANY ENQUIRY FROM HEAD OFFICE OF THE CONCERNS. IN TH E DIAMOND TRADES THE DIAMONDS ARE KEPT IN PACKET IN HIDDEN PACKET AND AR E SHOWN TO THE CONSUMER. THIS WAS NOTICED THAT WHEN THERE WAS SOME BOMB BLAST IN THE AREA IN MUMBAI WHERE DIAMOND BUSINESS WAS BEING CONDUCTE D. 2.26 THE AO HAS NOT COME TO ANY LOGICAL CONCLUSION THAT THE PARTIES ARE BOGUS. PARTIES ARE HAVING THEIR PAN BANK ACCOUNTS AND SUBSTANTIAL TRANSACTIONS. SUCH PARTIES ARE INDULGING IN BOGUS T RANSACTIONS IS NOT ESTABLISHED. TWO OF THE PARTIES HAVING DEBITED THE AMOUNT ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION AND WHICH MEANS THAT S UCH PARTIES HAVE MADE IMPORT OR EXPORT. THE ONUS TO PROVE THE APPARENT IS NOT REAL IS ON THE PERSON WHO ALLEGES. THE CONCLUSION IF BASED ON SUSPICION C ANNOT TAKE THE PLACE OF PROOF. REFERENCE IS MADE TO UMACHARAN SHAW & BROS V S. CIT 37 ITR 571. THE MUMBAI BENCH IN THE CASE OF SHUKRA JEWELLERY LT D. VS. ACIT 127 TTJ (UO) 8 HAD AN OCCASION TO CONSIDER A CASE WHERE PRO FIT WAS ESTIMATED AFTER DISALLOWING LOSS. THE TRIBUNAL NOTICED THAT IT IS N OT THE CASE OF REVENUE THAT ASSESSEE HAS SHOWN PURCHASES ON HIGHER RATES AND SE LLING THE SAME ON LESSER RATE TO REDUCE THE PROFIT. IN THE INSTANT CASE THE ASSESSEE HAS SHOWN LOSS IN AN EARLIER YEAR ALSO. THE NATURE OF BUSINESS OF THE AS SESSEE IS THAT IT MAY EARN PROFIT OR SOMETIMES THERE IS LOSS ALSO. THE ASSESSE E HAS BEEN ABLE TO ADDUCE 31 THE MATERIAL AVAILABLE WITH IT AND HENCE THE LOSS I N TRADING WAS NOT REQUIRED TO BE DISALLOWED BY PRESUMING THAT IT WAS A MANAGED LOSS TO SET OFF PROFIT AGAINST EXCHANGE FLUCTUATION GAIN. WE THEREFORE FE EL THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE. 3. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. . THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 23-09 -2011 SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 23 /09/2011 *MISHRA COPY FORWARDED TO :- 1. THE ITO WARD 3(2) JAIPUR 2. M/S. HANU EXPORTS (INDIA) JAIPUR 3. THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.118/JP /10) A.R ITAT JAIPUR 32 33