TaxTMI 
TaxTMI 
1977 (7) TMI 74
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....ation to the assessee in his letter No. 5984 dt. 7th Dec., 1974. In this notice, the AO pointed out that the appellant has claimed deduction in respect of purchases made buy the following 8 registered dealers during the year 1973-74. 1. 1. Trinath Bhandar Bhairpur, CU II.3472 (Prop. Laxmidhar Sahoo, son of Ramchandra Sahoo of vill : Bhairpur, P.S. Salepur) 2. 2. Shankar Store Maharapada, P.U. I.521 (Prop. Shri Maheswar Parida son of Late Mohan Parida of vill. Telgadapatna doing business at Naharpada, PS. Brahmagiri, dist. Puri) 3. 3. M.s Jharondar Das, Badasankha, PUI. 1727 (He is of village Remachandrapur P.O. Bhingarapur, P.S. Balianta of district Puri and was carrying his business at Badasankha but he shifted his place of business to Atharanalapatna, P.O. Govindpur, dist. Puri w.e.f. 27th Nov.,.1973 and got his registration certificate amended w.e.f. 27th Nov., 1973) 4. 4. Binapani Store, Mahidharpada, CU. II. 3514 (Prop: Harihar Mohanty, son of Krushna Chandra Mohanty of vill. Mahidharpada, Cuttack. 5. 5. Balajee Traders, Ranihat, CU. I.E. 1891 (Proper: Sudhir Chandra Parida son of Duryodhan Parida of vill. Biridi, district Cuttack c....
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....o produce the man and certainly not his books of accounts. "Regarding category no. (b), that is the persons who are carrying business and have denied to made purchase, it was urged that, unless a copy of the statement given by the dealer denying the purchase is given, the assessee is not in a position to furnish any reply on the point. He has to ascertain as to under what circumstances, such a statement has been given by the said dealer." With these assertions; he expressed his inability to produce the dealer who granted registration certificate. After this, the AO issued summons to those dealers by post and as service could not be effected through post, the AO in his letter No. 3722 dt. 5th Aug., 1975 sent 14 summons to be served on the persons those who granted declarations in pursuance of purchases made from the assessee. The 14 dealers for whom summons were issued are as follows: 1. Madhabananda Das, Mansinghpatna, 2. Kailash Chandra Patra, Malgodown, 3. Alok Pratishthan, Badambadi, 4. Kalpana Store, Brahmagiri 5. Khatrabasi Nayak, Puri 6. Nilakantha Store, Machagaon, 7. Balaji Trades, Ranihat 8. Jharendra Das, Badasankha, 9. Sankar Store, Nahar....
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....cate number CU. II. 3423. 3. Sri Banshidar Mohapatra, Prop. of Alok Pratishan, Badampadi having registration certificate number CU. I.W. 1386. 4. Sri Harihar Mohanty, Prop. of Binapani Store, Mahidharapada registration number CU. II. 3414. In consideration all these evidence placed by the assessee over and above the declaration forms granted by the purchasers, the learned AO, disallowed the following claim of the assessee in respect of the year 1971-72. Sl. No. Name of the dealer R.C. No. Amount disallowed . . . Rs. 1. Alok Pratishthan CU.I.W. 1386 5,72,920.59 2. Alaka Bhandar CU. II. 3423 6,55,613.78 3. Ganesh Store CU.II. 657 5,44,973.29 4. Bayalish Mouza Store CU.II(S) 201 15,987.82 5. Anam Charan Mohanty CU.II(J) 34 31,884.05 6. Madhabananda Das CU.I.W. 445 37,079.06 7. Nilamani Rout CU.I.W. 836 47,500.50 . . Total 19,05,959.03 It may be pointed out that the AO in respect of this year in the calculation sheet has shown that he has disallowed deduction to the tune of Rs. 19,15,959.21. Here, as it appears that he has estimated Rs. 10,000 more than the a....
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....lows: Year Tax Penalty Total 1971-72 Rs. 77,428.75 Rs. 5,000 Rs. 82,428.75 1972-73 Rs. 1,97,492.43 Rs. 5,000 Rs. 2,02,492.43 1973-74 Rs. 2,63,535.70 Rs. - Rs. 2,63,535.70 Total Rs. 5,38,456.88 Rs. 10,000 Rs. 5,48,456.88 4. Being aggrieved by these orders of assessment, the appellant filed three appeals before the first appellate Court. The learned appellant Court after referring to the case reported in 16 STC page 25 and 25 STC page 83, observed follows: "In the instant case, the appellant produced declaration from different registered dealers which in the opinion of the learned AO either did not exist or gave false declaration or did not purchase from the appellant. But the appellant produced declarations claiming exemption. Since the genuineness of the declarations were doubtful, the Department caused enquiry in different places and came to know that alleged sale did not take place. So, the production of the declaration though a strong presumptive evidence in support of claim of deduction, is not conclusive, for which it was opened to the AO to rebut the presumption. As per the decision of the Orissa High Court rep....
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....g dealer namely Jharendra Das who reported that such person did not exist all in the locality. Similarly there were other dealers who claimed not to have purchased goods from the appellant. The AO also asked the appellant to produce the purchasing dealer by causing service of summons on them. The said action is justified as it is the duty of the appellant to prove that the declarations on which he relied are genuine ones. Since the said direction has been given by the Hon'ble Court in another case, the direction to serve the summons on the purchasing dealers and cause their production before the AO was perfectly within the competency of the learned AO. Enquiry conducted shows that on 1971-72 Alok Pratishthan, Alaka Bhandar and Ganesh Stores, never existed at the address in such name. So also Madhbananda Das and Nilamani Rout who did not exist. Similarly in 1972-73 and 1973-74, Trinath Bhandar did not exist, under the proprietorship of Laxmidhar Sadhu. Alok Pratisthan is a bogus registered dealer having no business. Maheswar Parida, the properietor of Sankar Store denied his purchase, Biswanath Sen closed his business since 1966, Balaram Behera did not do any business in grocery art....
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....to the assessee for rebuttal. It is only thereafter, if the AO come to a finding that the registration of those dealers have not been made in accordance with law, it is then only the claims for deduction can be rejected. But that has not been done in the instant case. In that view, the conclusion drawn by the forums below is wrong. It was thirdly urged that the onus has been placed on the assessee wrongly and the forums below have insisted that as the appellant has effected sale, he must prove those sales. That approach is completely wrong in view of the provisions of the Orissa ST Act specially when the Department has not placed materials to show that registration certificate those were issued in favour of the purchasers were not in accordance with law. In that view the entire assessment is wrong and it must be annulled. He lastly urged that, as the assessee has proved his claim of deductions in respect of the all his cases, it must be accepted and the extra demand made and penalty imposed be annulled. 6. The learned State Representative who appeared for the Revenue, very strongly urged that, a look to the records will go to show that the appellant had very heavy dealings with ....
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....wise lot of public time would be wasted and even the assessee would be made to suffer great inconvenience. If at some subsequent stage it comes to the notice of the assessing authority that the 'C' forms had either not been furnished by a registered dealer or the same had been furnished by a dealer whose registration certificate stood cancelled in accordance with law at a time earlier than the one when he signed the declaration from it could not be said that the receipt of this information would not entitle the assessing authority to frame the reassessment in order to prevent loss of Revenue. The information entitling the assessing authority to frame reassessment include information on points of fact and on points of law. With these observations. I overrule the first contention advanced by the counsel." These observations will apply mutatis mutandis to the present case. In that view, the objection raised by the assessee that the assessments should not have been reopened under s. 12(8), must be rejected. 8. Thereafter, the law on the point of proving the deduction claimed on account of sales to registered dealers need be first formulated to appreciate the question raised in th....
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.... was entitled to the deduction and it was not his look out further to examine and find out if the purchasing dealer was really a genuine person or a bogus person or else whether he was a "dealer at all" and allowed the deductions. In the other 4 first appeals, the appellant officer Sri Sahu held that "certificate of registration obtained by the purchasing dealers were obtained fraudulently either in the names of fictitious persons or persons who had no business at all." This finding of Sri Sahu that certificates were obtained fraudulently and that they were obtained in the name of fictitious person, was not challenged before the Tribunal and on this disputed fact, the Tribunal held that declarations are not true declarations and disallowed the deduction. It is in this background, their Lordships proceeded and there was no reference to the High Court on the point whether the registration granted was fraudulent or not or it was issued to fictitious persons. The only point that was urged by both the parties that the appellant must produce declarations which must be true. But regarding that, the Hon'ble Court observed as follows: "Thus the "truth" of the declaration is limited stric....
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.... persons may technically be said to be holders of registration certificates, nevertheless, in the eye of law, they cannot be held to be registered dealers because they have no been "validly" registered under the provisions of the Act and any mistake committed by the subordinate officers of the ST Department, either due to negligence or due to collusion, cannot, on general principles, operate as estoppel against Government. XXX XXX XXX But Government cannot be estopped from rebutting that presumption and proving by other evidence that the registration was not effected in accordance with law." It has been further held in the said case that: "............initially the burden of proving the declaration is on the assessee and he may be said to have discharged that burden by saying that he sold the goods to a person holding a certificate of registration. It would then be for the Department to lead evidence to show that the holders of these certificates of registration were not registered dealers in the eye of law as defined in the Act." Therefore, in the Orissa decision also, the principles enunciated by the Supreme Court have been reiterated. From this it becomes clear th....
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....lly carried on business. The question has to be only decided if the registration was made in accordance with law or otherwise, If the answer is in the negative, that is, if the registration was visited by fraud and is not in accordance with law, then only the claim can only be disallowed. It is this which must be kept in view while deciding the claim of deduction claimed by the assessee in respect of sales to registered dealers. 10. The next cause so far as Orissa ST Act is concerned, is Ramprasad Tormal vs. State of Orissa (25 STC 38). The circumstances under which reference was made to the Hon'ble Court will be found from the following observations of their Lordships appearing at page 42 of the report. The relevant portion reads as follows: "If the purchasing dealers are fictitious persons in the sense that no such persons exist it follows that the declarations alleged to have been given by them can never be genuine. It is contended on behalf of the assessee that the finding of the Tribunal under point No. 1 that the purchasing dealers are fictitious persons is vitiated by reason of the fact that the burden to prove that they were genuine has been wrongly cast on the assess....
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....ce with law. 11. The another aspect of law convassed, need also be taken into consideration. The forums below remarked that all the deductions claimed by the appellant are paid in cash which raises sufficient amount of doubt. But this matter came up for discussion before the Hon'ble High Court in the case of Durga Sree Stores vs. Board of Revenue. West Bengal 15 STC 186 and it has been held in that case as follows: "A look to the report will go to show that the AO disallowed the deduction on account of the following reasons: (a) There is suspicion about the genuineness and integrity of the transactions which were comparatively heavy. (b) The purchasing dealers are said to have left business. (c) Registration certificate of purchasers have since been cancelled. The appellate officer did not accept this findings. According to him, the AO has disallowed the claim of presumption and suspicion. As in none of these cases, the registration certificate has been cancelled by notification, he reversed the finding regarding the genuineness and integrity of the transaction and purchases made by them. Against the said order, the Board of Revenue recorded otherwise as follows: ....
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....icion cannot be treated as evidence on which it can be concluded that the purchasing dealer was not in existence during the relevant time or that that no sales in fact were effected. XXX XXX XXX "It is, however, open to the taxing authorities on proper and cogent materials to hold that the transaction was a collusive one or that no sale in fact took place. In the present case, however no such attempt has been made by respondent No. 1 (CTC) to impeach the transaction as not genuine on any such legal evidence." The above will go to show that even if payments are made in cash, even if the assessee could not show the existence of the purchaser, even if he does not adduce any evidence how the goods moved, then his deduction cannot be refused, unless it is established that he colluded in the matter of getting the fictitious persons registered and the registration was not in accordance with law and that he has not effected any sale. 14. The law in the matter of allowing deductions to the selling dealers, has also been considered by the Punjab High Court in the case Chand & Sons vs. The State of Punjab 30 STC 211 (Punj). In that case, the material collected behind the back of t....
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....was referred to the Hon'ble High Court. "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in disallowing the deduction of Rs. 2,75,317.50 and Rs. 1,06,306.61 from the gross turnover of the dealer for the two years 1958-59 and 1959-60 respectively on account of sales to various registered dealers ?" Their Lordships accepted the claim on the following finding: "(i) The competent Departmental authorities had granted registration certificate under the Act 1947 and 1959. (ii) Suffice is to say that persons with signed applications have got to approach the authorities concerned granting them certificates. A duty is cast upon the authorities at that stage to find out whether the application for such certificate is a genuine dealer or bogus person. It is manifest from the facts of the case that the authorities failed in their duty and granted certificates to persons who were not genuine dealers resulting in the cancellation of such certificates later. When a person produces a certificate granted by the authorities concerned which is genuine, the selling dealer is entitled to presume that the person producing genuine certificate is a registe....
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.... hand in obtaining the registration certificate in the name of fictitious person, (iii) or had a hand in getting forged and fabricated certificate produced before it, then only his deduction can be disallowed. 17. This being the position of law, now I shall proceed to analyse the matters in respect of three years of assessment. I shall first take up the subject-matter of second appeal No. 186 of 1977-78 which relates to the asst. yr. 1971-72. I have already mentioned in detail the persons who are the purchasers from the appellant and they are as follows. 1. Alok Pratisthan, Badambadi, CU.I.W. 1386 2. Alaka Bhandar, Chhanchapada, Prop: S.N. Mohanty 3. Ganesh Store, CU. II(S) 657 4. Bayalish Mouza Store, CU. II(S) 201 5. Anam Charan Mohanty, CU. II (J) 34 6. Madhabananda Das, CU. I.W. 445, 7. Nilamani Rout, CU. I.W. 836. There are the 7 purchasing dealers who effected purchase during 1971-72. (i) As per the AO's finding, the registration number CU. I.W. 836 which according to the assessee was issued to Nilmani Rout, on verification it was found be not in existence in West Circle of Cuttack and the registration number 836 was not issued at all to Nilmani ....
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....of sales made to Anam Charan Mohanty, is not in accordance with law. Hence, this matter should go back to the AO and he should take steps to supply copy of the statement made by Anam Charan Mohanty on 7th Oct., 1972 before the AO and details of the enquires made by the Intelligence Wing. Further, in case the assessee demands for production of those persons connected with those enquiry, they should be summoned and be subjected to cross examination if demanded by the assessee. It is only thereafter, the claim of deduction be disposed of. (iii) I shall then take up the case of Alok Pratisthan. Here, the appellant has claimed deduction amounting to Rs. 5,72,920.53. The AO looked to these declarations with suspicion as they were of cash transactions. I have already said that simply because the transactions are in cash, they cannot be sufficient to reject them but other facts must be proved to reject the claim. In that view, that they were cash transactions is not of much consequence and at best they can only lead to suspicious background. But that alone is not sufficient to reject the claim. The assessee has not only produced declaration granted by Sri Bansidhar Mohapatra, but also p....
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....lok Pratisthan to the tune of Rs. 5,72,720.53 must be allowed. (iv) The fourth case is with reference to Alaka Bhahdar. This business Alaka Bhandar was being carried on by one Satyanarayana Mohanty, son of Ananda Chandra Mohanty of village Chanchapada, P.O. Damodarpur, P.S. Keshor Nagar, Dist. Cuttack. The assessee has not only filed the declarations granted by S.N. Mohanty, but he also filed an affidavit sworn by S.N. Mohanty on 28th Dec., 1974 wherein the aforesaid S.N. Mohanty has asserted that he has effected purchases from Bijaya & Co. From this it will be clear that the assessee has proved that his purchaser was validly registered dealer and his registration was effective on the date of the alleged purchase. Against that, the AO has recorded the following. "Enquiry conducted by the Intelligence Wing clearly indicated that Alaka Bhandar did not do any business at the given address." From this it becomes crystal clear that the claim has been disallowed as Alaka Bhandar was not doing any business at Chanchapada. This is all the evidence that the Revenue has collected to disallow the claim. But as I have stated, law has never cast any duty on the assessee to prove that h....
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....conducted at the given address lends to the conclusion that no business establishment ever existed in the name and style of Bayalish Mouza Store at Sankhataras. Whatever it is, as nothing has been established to show that the purchaser was not validly registered and that the assessee and the purchaser colluded, the deduction claimed by him on account of sales to this dealer amounting to Rs. 15,987.82 must be allowed. (vii) The last one is Madhabananda Das. The assessee except producing the declaration by Madhabananda Das, filed no other evidence. But it is a fact that this Madhabananda Das is a registered dealer and his registration number is CU.I.W. 445. As per the findings of the AO, "enquiries revealed that at the given address, it was found out that no business establishment in the name and style of Madhabananda Das ever existed at Mansinghpatna. "this finding itself is not sufficient to disallow the claim of the appellant when it has been found as a fact that Madhabananda Das was a registered dealer and he issued declarations in support of his purchases from the assessee. Hence this claim amounting to Rs. 37,070.06 must be allowed. To sum up the above discussion, I record t....
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....ollowing the same reasonings. I also the claim of deduction of the assessee in respect of sales to registered dealers in respect of these three dealers. (ii) The disputed claim is with respect of sales amounting to Rs. 7,29,417.63 to Trinath Bhandar, Bhairpur. The assessee in support of this claim not only filed declaration, but also filed an affidavit of Laxmidhar Sahoo, son of Ramachandra Sahoo of village Bhairpur, P.S. Salepur. That affidavit shows that said Laxmidhar Sahoo claimed to have effected purchases from the assessee's shop. As against this the AO observed as follows: "Enquiry has been throughtly conducted and it has been found, no man as Laxmidhar Sahoo even did any business at Bhairpur under the name any style of Trinath Bhandar." The learned Advocate very much emphasised that the Department has issued registration certificate and he has effected sale and his responsibility ends there. But the AO further remarked that "supposing the Department acted on some body's misrepresentation which went underground after the registration certificate was issued, but the dealer has sold him in two years goods worth Rs. 30 lakhs of rupees, can he not atleast point out who ....
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....ear that Mahewwara Parida is living. It further becomes clear that Maheswara Parida was issued a valid registration certificate and that he made purchases from the appellant. As against that the AO only making assertions that Maheswara Parida is a poor man and that his are children living in starvation and he denied to have made any purchase from the appellant, has placed no materials as to when and before whom Maheswara Parida expressed as such. This Sankar Store was very much mentioned in the notice issued by the AO on 7th Dec., 1974 vide serial No. 2 Regarding this, the assessee in his reply asserted as follows: "If you want to check the genuiness of the signature of the declaration which is the most important feature of the declaration, the same may kindly be compared with the signature of the dealer in the specimen signature given in the application for registration. As regards your observation that no such man or place exists, the same gets contradicted by the Registration certificate issued by your honour's Department and the name as well as address of the dealer published in the official gazette by the CST, Orissa will go to show that all acts were done in pursuance of l....
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....alarama Behera of Madhyasasana from one Dinabandhu Sahu & Bros. of Malgodown, Cuttack-3, figured for decision before this Tribunal in Second Appeal NO. 460 of 1976-77 disposed of on 31st March, 1977. The relevant portion with respect of the claim of that dealer Dinabanddu Sahu & Bros. in respect of sales to Balaram Behera of Madhayasasana, has been disposed of in the following manner:- "The second point in regarding disallowance of sales to registered dealer amounting to Rs. 57,339.73. Anmittedly Balaram Behera, is a registered dealer of Madhayasasana and his registration certificate has not been cancelled by the date when the appeal effected sales in his favour. But it is pointed out the AO that Balaram Behera has no business at Madhyasasana and he is a fictitious dealer. But the fact remains that he is living and that he is a registered dealer, is not disputed. In view of that and in view of the fact that the appellant produced declaration in support of his sales to Balaram Behera, his claim should not have been disallowed, simply because Balaram Behera had no business when found by the investigating officer of the Department. In that view his claim should be allowed." Repl....
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....dence on record I must say that the claim of the appellant of deduction on account of sale to Balaram Behera of Madhyasasana, must be allowed To sum up the aforesaid discussion, I hold that the appellant is entitled to deductions claimed during the year 1972-73 and they are as follows: 1. Trinath Bhandar Rs. 7,29,417.63 2. Alok Pratisthan Rs. 4,01,793.45 3. Shankar Store Rs. 13,19,987.50 4. Balaram Behera Rs. 11,95,193.43 5. Ganesh Store Rs. 6,81,625.95 6. Alaka Bhandar Rs. 5,88,303.30 . Total Rs. 49,16,321.26 (b) The claim of deduction in respect of sales made to Biswanath Sen to the tune of Rs. 32,318.75 as disallowed by the forums below is confirmed. 20. In the result, second appeal No. 187 of 1977-78 relating to the asst. yr. 1972-73 is allowed in part. The AO do recalculate the tax payable by the assessee in respect of the deductions claimed by effecting sales in favour of Biswanath Sen only and impose such tax as it payable under the law. The penalty imposed for this year be imposed proportionately with reference to the original assessment made. 21. Lastly, I shall take up the claim of deduction for....
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....ccording to law. (iv) The claims of Trinath Bhandar and Sankar Store have already been discussed in the previous years and those reasonings will apply to this year also. In view of that, the claims made by the appellant in respect of sales made to these two dealers, must be allowed. (v) I shall then take up the claim of Balajee Traders, Ranihat, CU.I.E. 1891. The appellant has produced declarations granted by this Balajee Traders and has also filed an affidavit of Sri Sudhir Chandra Parida, son of Duriyadhan Parida resident of village Biridi of district Cuttack residing at Ranihat, P.S. Mangalabag Cuttack-7. So the appellant has prima facie proved that this Sudhir Chandra Parida is a registered dealer and he has also further prima facie proved that Sudhir Chandra Parida has effected purchases from Bijay & Co. But while deciding the claim of deduction of this dealer, the AO referred to the notice issued by him on 7th Dec., 1974. In the notice, this Balajee Traders figures as dealer No. 5. Against this the AO in the notice has made it clear that Sudhir Chandra Parida, proprietor of Balajee Traders denied to have gone to your shop, made purchase from you and made payments to you....
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....imed deduction to the tune of Rs. 12,51,667.03. The appellant has not only filed the declarations issued by Sri Harihar Mohanty, proprietor of Binapani Stores having registration number CU. II. 3514 issued on 28th Sept., 1973 but also an affidavit. From this it becomes clear that the assessee has proved that this Binapani Store is a registered dealer and regarding this the AO stated as follows: "Enquiry by the STO, Intelligence indicates that there was no such dealer. The records in Cuttack II circle corroborates the position so clearly that those claims are bogus and collusive." Here again, the AO has not taken any pains to ascertain whether there is any such registration. It is a fact that there is such a dealer, but what is all disputed is that the dealer is not carrying on any business at the locality of Mahidharapada, P.S. Sadar. But that is none of the concern of the assessee. As he has proved that there is valid registration certificate in favour of Binapani Store, his deductions claimed must be allowed. As the Department has collected no information that the registration certificate issued is not in accordance with law, the claim must be allowed. (vii) I shall then....
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....produce his purchaser. Once, these materials were not supplied to the assessee, no adverse inference can be drawn against him. Furthermore, I may say that the AO has not utilised that which is in the order. In view of that I do not find any necessity to remand this aspect of the case, specially in the notice issued on 7th Dec., 1974 this Jharendra Das does appear under serial No. 3 and in the said notice the AO has informed as follows: "Sri Jharendra Das, Badasankha could not be made available. Enquiry revealed that such a person is not in existence. It is seen that declarations produced by you have been signed by some Jharendra Das. Since, I am not satisfied with the said man Jharendra Das is not available or declarations are not proved. Further it is seen that you have effected sales, delivered goods, received payments and you may please cause production of him." In reply to this, the appellant has against asserted that your allegation that they do not exist is false as they are registered dealers. Here from the affidavit also, it transpires that Jharendra Das transferred his business from Badasankha to Athernalaptna. Even he is posted with these informations, the AO did no....