INCOME TAX OFFICER-15(2)(4), MUMBAI V. M/S.PAWAN MACHINERIES PRIVATE LIMITED, MUMBAI

ITA 1173/MUM/2019

• Counselvise Citation: [2019] 111 COUNSELVISE.COM (IT) 1722 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 01-03-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATISH CHANDRA RAJORE
• Assessee Lawyers: NEELAM C JADHAV
• Keywords: Bogus purchase; Cost of acquisition; Accommodation entries
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC , MUMBAI BEFORE SHRI R. C. SHARMA, ACCOUNTANT MEMBER & SHRI C.N. PRASAD, JUDICIAL MEMBER ITA NO. 1173 /MUM/ 2019 : A.Y : 2010 - 11 INCOME TAX OFFICER - 15(2)(4) ROOM NO.360, AAYAKAR BHAVAN, M.K.ROAD MA RINE LINES, MUMBAI 400 020 VS. M/S. PAWAN MACHINERIES PVT. LTD., 203, BHARAT INDUSTRIAL ESTATE LBS MARG, BHANDUP (W) MUMBAI 400 075 PAN NO: AACCB3166F CO NO.269/MUM/2019 (ARISING OUT OF ITA NO. 1173 /MUM/ 2019 : A.Y : 2010 - 11 M/S. PAWAN MACHINERI ES PVT. LTD., 203, BHARAT INDUSTRIAL ESTATE LBS MARG, BHANDUP (W) MUMBAI 400 075 VS. INCOME TAX OFFICER - 15(2)(4) ROOM NO.360, AAYAKAR BHAVAN, M.K.ROAD MARINE LINES, MUMBAI 400 020 PAN NO: AACCB3166F REVENUE BY : SHRI SATISHCHANDRA RAJORE ASSESSEE BY : MS. NEELAM C JADHAV DATE OF HEARING : 27/02/2020 DATE OF PRONOUNCEMENT : 28 /02/2020 O R D E R PER R.C. SHARMA , ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 24, MUMBAI DATED 06/11/2018 FOR A.Y.2010 - 11 IN THE MATTER OF ORDER PASSED U/S.143(3) R.W.S. 147 OF THE INCOME TAX ACT. ITA NO. 1173/MUM/2019 M/S. PAWAN MACHINERIES P. LTD. 2 2. IN THIS APPEAL REVENUE IS AGGRIEVED BY THE ACTION OF CIT(A) FOR UPHOLDING ADDITION ON ACCOUNT OF BOGUS PURCHASES TO THE TUNE OF 16.19% IN PLAC E OF 100% MADE BY THE AO. 3. WE HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM RECORD THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF RAILWAY TRACK MATERIAL. ON GETTING INFORMATION REGARDING ASSESSEE INVOLVED IN BOGUS PURCHASES, AO REOPENED THE ASSESSMENT AND ADDED 100% OF SUCH PURCHASES IN ASSESSEES INCOME. 4. BY THE IMPUGNED ORDER, CIT(A) HAS RESTRICTED ADDITION TO THE EXTENT OF 16.19% AFTER HAVING FOLLOWING OBSERVATION: - 2.4. I HAVE GIVEN MY CAREFUL CON SIDERATION TO THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED THE FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. 2.4.1. THE ONLY EFFECTIVE GROUND IS IN RESPECT OF THE ACTION OF THE LD. AO IN NOT ACCEPTING THE P URCHASES OF RS.23,57,618/ - AS GENUINE PURCHASES BASED ON THE INFORMATION RECEIVED FROM INCOME TAX AUTHORITIES. BRIEFLY STATED, THE APPELLANT IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF RAILWAY TRACK MATERIAL. LD. AO MADE THE ADDITI ON ON THE BASIS OF INFORMATION RECEIVED FROM THE INVESTIGATION WING OF INCOME TAX DEPARTMENT, MUMBAI THAT THE SALES TAX DEPARTMENT HAD RECORDED THE STATEMENTS OF CERTAIN HAWALA OPERATORS WHO HAD CONFIRMED TO HAVE GIVEN BOGUS BILL TO CERTAIN ASSESSEE INCLUD ING THE APPELLANT COMPANY. THE BOGUS BILL WAS IN RESPECT OF 4 PARTIES. THE APPELLANT COMPANY WAS ASKED TO SUBMIT THE DETAILS OF PURPORTED PURCHASES MADE AND TO SHOW CAUSE WHY THE SAME SHOULD NOT BE DISALLOWED AS BOGUS PURCHASES. THE APPELLANT FILED THEI R REPLY STATING THAT PURCHASES WERE MADE FROM REGULAR PARTIES SUPPORTED BY PROPER BILLS AND THE ACCOUNTING ENTRIES AND THE PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUES. THE LD. AO WAS NOT IN AGREEMENT WITH THE SUBMISSIONS OF THE APPELLANT AND OBSERVED THAT THE APPELLANT FAILED TO FURNISH THE SUPPORTING DOCUMENTARY EVIDENCE TO ESTABLISH THAT THE PURCHASES WERE ACTUALLY MADE BY THEM FROM THESE PARTIES. ITA NO. 1173/MUM/2019 M/S. PAWAN MACHINERIES P. LTD. 3 THE INVESTIGATION WING OF MUMBAI HAD PROVIDED A LIST OF HAWALA BILL RACKETEERS WHO WERE INVOLVED IN ISSUING BILLS AND ALSO THE LIST OF BENEFICIARIES. THE SALES TAX DEPARTMENT OF MUMBAI HAD INVESTIGATED ALL THESE CASES THOROUGHLY AND PREPARED A LIST OF SUCH HAWALA OPERATORS AND THEIR BENEFICIARIES WHICH HAVE BEEN UPLOADED IN THEIR WEBSITE. THE LD.AO OBSERVED THAT THESE HAWALA OPERATORS WERE PROVIDING ONLY ACCOMMODATION ENTRIES AND THE APPELLANT WAS ALSO IN THE LIST BENEFICIARIES. ACCORDINGLY, THE LD. AO TREATED THE AMOUNT OF RS.23,57,618/ - AS BOGUS PURCHASE AND ADDED THE SAME TO THE TOTAL INCOME OF THE APPELLANT. UNDER SIMILAR CIRCUMSTANCES THE HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF SIMIT P SETH, 2013 (356 ITR 451) HAD ON OCCASION TO DELIVER ITS JUDGMENT BY CONFIRMING THE DECISION OF THE JTAT WHICH HAS ESTIMATED THE DISALLOWANCE AT 12.5% OF THE DISPUTED BOGU S PURCHASES TO MEET THE END OF JUSTICE. THE HEAD - NOTE OF THE DECISION IS REPRODUCED AS UNDER - 'SECTION 145 OF THE INCOME - TAX ACT, 1961 - METHOD OF ACCOUNTING - ESTIMATION OF PROFITS [ BOGUS PURCHASES] - ASSESSMENT YEAR 2006 - 17 - ASSESSEE WAS ENGAGED IN BUSINESS O F TRADING IN STEEL ON WHOLESALE BASIS - ASSESSING OFFICER HAVING FOUND THAT SOME ALLEGED SUPPLIERS OF STEEL TO ASSESSEE HAD NOT SUPPLIED STEEL TO ASSESSEE BUT HAD ONLY PROVIDED SALE BILLS, HELD THAT PURCHASES MADE FROM SAID PARTIES WERE BOGUS - HE ACCORDINGLY , ADDED ENTIRE AMOUNT PURCHASES TO GROSS PROFIT OF ASSESSEE - COMMISSIONER (APPEALS ) HAVING FOUND THAT ASSESSEE HAD INDEED MADE PURCHASES THOUGH NOT FROM NAMED PARTIES BUT OTHER PARTIES FROM GREY MARKET, SUSTAINED ADDITION TO EXTENT OF 30% OF PURCHASE COST AS PROBABLE PROFIT OF ASSESSEE - TRIBUNAL HOWEVER, SUSTAINED ADDITION TO EXTENT OF 12.5% - WHETHER SINCE PURCHASES WERE NOT BOGUS BUT WERE MADE FROM PARTIES OTHER THAN THOSE MENTIONED IN BOOKS OF ACCOUNT, ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES COULD B E ADDED TO ASSESSEE'S INCOME - HELD, YES WHETHER HENCE, ORDER OF TRIBUNAL NEEDED NO INTERFERENCE - HELD, YES [PARAS 6,7 &9 ] [ IN FAVOUR OF ASSESSEE]'. [EMPHASIS SUPPLIED] BASED ON THE EVIDENCE IN HAND IN THE FORM OF A REPORT FROM DIT (INV), MUMBAI, THE AO HAS ASKED THE ASSESSEE TO PRODUCE THE PARTIES ALONG WITH EVIDENCE IN ORDER TO VERIFY THE GENUINENESS OF THE PURCHASE TRANSACTIONS. THE ASSESSEE INSTEAD SUBMITTED THE LEDGER ACCOUNTS OF THE ABOVE PARTIES AND BANK STATEMENTS EXTRACTS EVIDENCING THE PAYMENTS THROUGH BANK CHEQUE. IN THIS CASE, THE ONUS LIES ON THE ASSESSEE TO PROVE THE GENUINENESS OF THE PURCHASES AND THE ASSESSEE HAD TO PROVE THAT THE SUPPLIERS WERE GENUINELY EXISTING. THE ASSESSEE HAS NOT MADE ANY EFFORTS TO DISCHARGE THE ONUS AND FAILED TO P RODUCE ANY OF THE PARTIES, IN SPITE OF THE OPPORTUNITIES GIVEN BY THE LD.AO. THE ASSESSEE COULD NOT SATISFACTORILY SUBSTANTIATE AND ESTABLISH THE FACT THAT THERE WERE GENUINE PURCHASES FROM THESE PARTIES. THERE WAS A REPORT FROM SIT(INV) STATING THAT ALL T HE SELLER PARTIES AS PER THE LIST SUPPLIED BY THEM ARE BOGUS INCLUDING THE PARTIES APPEARING IN THE BOOKS OF THE APPELLANT COMPANY AND AS STATED ABOVE, THE ASSESSEE HAS NOT ITA NO. 1173/MUM/2019 M/S. PAWAN MACHINERIES P. LTD. 4 MADE COUNTER SUBMISSION TO SHOW THAT THOSE PARTIES ARE REALLY EXISTING. THE AO HAS BROUGHT TO TAX THE BOGUS PURCHASES BY ADOPTING THE METHOD @ 100% OF SUCH PURCHASES KEEPING IN VIEW THE GAIN MADE BY THE APPELLANT DUE TO PURCHASES OF MATERIAL IN GREY MARKET WITHOUT BILLS AND ADJUSTING THE PURCHASES WITH THE INVOICES TAKEN FROM THE HAWALA TRADERS. UNDER THESE CIRCUMSTANCES THE AO CANNOT BE FOUND FAULT ON THIS COUNT. EVEN THOUGH THE AO COULD NOT PROVE SUBSTANTIVELY THAT THE AMOUNTS GIVEN TO THE SELLERS IN CHEQUE HAVE CAME BACK TO THE APPELLANT, THE ACTIVITIES OF ACCOMMODATION ENTRIES IN THE TRADING COMMUNITY IS NOT UNHEARED OF. FURTHER, THE INVESTIGATIONS CARRIED OUT BY THE SALES TAX DEPARTMENT, ANOTHER GOVERNMENT AGENCY, WITH REGARD TO VAT VIOLATION CANNOT BE LOST SIGHT OF. FURTHER, AS SOME OF THE NAMES OF THE SO - CALLED BOGUS SELLERS OUT OF THE LIST SUPPLIED BY THE SALES TAX DEPARTMENT ARE APPEARING IN THE BOOKS OF THE APPELLANT COMPANY, THE LINK OF INVOLVEMENT OF APPELLANT COMPANY GETTING BOGUS BILLS IS ESTABLISHED. EVEN THOUGH THERE ARE CATENA OF CASES DECIDED BY THE JURISDICTIONAL ITAT WHI CH HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, THEY ARE NOT UNIFORM IN ALL THE CASES AS THEY WERE DECIDED AS PER FACTS AND CIRCUMSTANCES OF THAT PARTICULAR CASE BEFORE THEM. I AM OF THE OPINION THAT THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AR E MORE AKIN TO THE CASE DECIDED BY THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF SIMIT P SETH (SUPRA). THEREFORE, I HEREBY CONFIRM THE DISALLOWANCE TO THE EXTENT 16.19% AMOUNTING TO RS.3,81,6987 - OF THE SO - CALLED BOGUS PURCHASES MADE BY THE LD AO. THIS GRO UND IS PARTLY ALLOWED. 2.5 IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. 5. AGAINST THE ABOVE ORDER, REVENUE IS IN FURTHER APPEAL BEFORE US. ASSESSEE HAS ALSO FILED CROSS OBJECTION FOR UPHOLDING ADDITION TO THE EXTENT OF 16.19%. 6. WE HAVE GONE THRO UGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND THAT THE CIT(A) HAS DEALT WITH THE ISSUE THREADBARE AND AFTER APPLYING VARIOUS JUDICIAL PRONOUNCEMENTS AND ALSO THE NATURE OF ASSESSEES BUSINESS H AS CONFIRMED ADDITION TO THE EXTENT OF 16.19% OF SUCH ALLEG ED BOGUS PURCHASES. THE DETAILED FINDING SO RECORDED BY CIT(A) AT PARA 2.4.1 HAS NOT BEEN CONTROVERTED BY LD. DR AND AR BY BRINGING ANY POSITIVE MATERIAL ON RECORD. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A). ITA NO. 1173/MUM/2019 M/S. PAWAN MACHINERIES P. LTD. 5 7. IN THE RESULT, APP EAL OF THE REVENUE AS WELL AS CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 / 02 /20 20 SD/ - ( C.N. PRASAD ) SD/ - (R.C.SHARMA) JUDICIAL MEMBER AC COUNTANT MEMBER MUMBAI; DATED 28 / 02 /20 20 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI DATE INITIAL 1. DRAFT DICTATED ON 27/0 2 /2020 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 27/02 /2020 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. AP PROVED DRAFT COMES TO THE SR.PS/PS SR.PS/ PS 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// ITA NO. 1173/MUM/2019 M/S. PAWAN MACHINERIES P. LTD. 6 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 11. DICTATION PAD IS ENCLOSED YES