HANS CHEMICALS P.LTD, MUMBAI V. ITO 12(2)(3), MUMBAI

ITA 1193/MUM/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0185 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 20-02-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B SATYANARAYANA RAJU
• Assessee Lawyers: NATASHA LA NOT FILED
• Keywords: Bogus purchase; Opportunity of cross examination; Tangible material; Accommodation entries; Reason to believe
• Section: 147

Judgement Text

, SMC , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO.1193/MUM/2017 : ASST.YEAR 2009-2010 M/S. HANS CHEMICALS PRIVATE LIMITED 407, PANCHSHEEL 2A RAHEJA TOWERSHIP L.S.RAHEJA CROSS ROAD NO.3 MALAD (EAST), MUMBAI 400 097. PAN : AABCH5433N. / VS. THE INCOME TAX OFFICER WARD 12(2)(3) MUMBAI. ( / APPELLANT) ( / RESPONDENT) /APPELLANT BY : MS.NATASHA (LA NOT FILED) /RESPONDENT BY : SHRI B.SATYANARAYANA RAJU (SR.DR) / DATE OF HEARING : 16.05.2017 / DATE OF PRONOUNCEMENT : 03.07.2017 / O R D E R THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF CIT(A) DATED 31.10.2016 AND PERTAINS TO ASSESSMENT YEAR 2009-2010. 2. IN THIS APPEAL THE ASSESSEE HAS CHALLENGED THE REOPENING AS WELL AS CONFIRMATION OF ADDITION AT THE RATE OF 10% OF BOGUS PURCHASES, WHICH RESULTED IN ADDITION OF RS.8,92,595. AN ADJOURNMENT PETITION WAS MOVED BY THE ASSESSEE, BUT THE SAME HAS BEEN REJECTED AS SIMILAR ISSUE HAS BEEN DEALT WITH BY THE TRIBUNAL OF BOGUS PURCHASES IN A NUMBER OF CASES. 3. BRIEF FACTS OF THE CASE ARE AS UNDER: 3.1 THE FACTS OF THIS CASE ARE THAT THE ASSESSING OFFICER RECEIVED INFORMATION FROM THE SALES TAX DEPARTMENT THAT THE ASSESSEE HAS INDULGED ITA NO.1193/MUM/2017. M/S.HANS CHEMICALS PRIVATE LIMITED. 2 IN THE PRACTICE OF PROVIDING BOGUS PURCHASE BILLS AND ROUTING IT THROUGH THE BOOKS OF ACCOUNT. FROM THE DETAILS SO RECEIVED IT WAS PERUSED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD MADE BOGUS PURCHASE FROM NINE PARTIES NAMELY, M/S.NISHA ENTERPRISES RS.3,00,000, M/S.BHARAT INDUSTRIAL CORPORATION RS.1,67,958, M/S.CRYSTAL COMMERCIAL CO. RS.1,69,905, M/S.EYE WITNESS MARKETING PRIVATE LIMITED RS.3,40,860, M/S.PADMAVATI TRADING CO. RS.5,37,807, M/S.G.M.IMPEX RS.10,40,309, M/S.PRAJWAL SALES CORPORATION RS.23,48,037, M/S.PINAK SALES CORPORATION RS.38,18,709 AND M/S.CLASSIC ENTERPRISES RS.2,02,363. THE AMOUNT INVOLVED IN SUCH BOGUS PURCHASE WAS RS.89,25,949 WHICH WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. IN THE ASSESSMENT PROCEEDINGS THOUGH THE ASSESSEE HAS PRODUCED RELEVANT DOCUMENTS AND COPY OF LEDGER ACCOUNT CORRESPONDING TO SUCH PURCHASES BUT IT HAD FAILED TO PRODUCE THE PARTY FOR CONFRONTATION. AN INDEPENDENT ENQUIRY CONDUCTED AND EFFORTS MADE BY THE A.O. ALSO REVEALED THAT THE PARTY WAS NON-EXISTENT. THE ASSESSING OFFICER THUS MADE AN ADDITION OF RS.10,78,244 (12.5% OF RS.89,25,949) TREATING THE SAME AS BOGUS PURCHASES. 3.2 UPON ASSESSEES APPEAL, THE LEARNED CIT(A) REDUCED THE ADDITION TO 10% AS UNDER:- I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSIONS MADE IN THIS REGARD. IT IS NOTED THAT THE A.O. HAD MADE ADDITION OUT OF PURCHASE MADE BY THE ASSESSEE TO THE TUNE OF RS.89,25,949/- ON THE BASIS OF THE INFORMATION RECEIVED FROM THE VAT AUTHORITIES. THE A/R OF THE ASSESSEE HAS VEHEMENTLY OPPOSED THE ADDITIONS AND SUBMITTED THAT THE PURCHASES WERE GENUINE, IT WAS ALSO SUBMITTED THAT PAYMENT WAS ALSO MADE THROUGH BANKING CHANNEL AND THE DELIVERY OF MATERIALS WAS SUPPORTED BY DELIVERY CHALLANS. IT IS STATED THAT THE A.O. HAD MADE ADDITION ON THE BASIS OF INFORMATION RECEIVED FROM VAT AUTHORITIES WITHOUT AFFORDING OPPORTUNITY OF CROSS EXAMINATION TO THE ASSESSEE. IT IS ITA NO.1193/MUM/2017. M/S.HANS CHEMICALS PRIVATE LIMITED. 3 NOTED THAT THE ENTIRE MATTER PERTAINS TO HAWALA PURCHASES FROM SO CALLED SUSPICIOUS DEALERS AS PER THE INFORMATION OF VAT AUTHORITIES. THE A.O. HAS DISALLOWED THESE PURCHASES AS THE ASSESSEE COULD NOT PRODUCE THIS PARTY FOR VERIFICATION. IT IS NOTED THAT PRIMARY ONUS TO ESTABLISH THAT THE PURCHASES WERE GENUINE WAS ON THE ASSESSEE. THE ASSESSEE IS ONLY PARTLY ABLE TO DISCHARGE THE COMPLETE ONUS. IT IS ALSO NOTED THAT A.O. HAS SIMPLY MADE ADDITION ON THE BASIS OF STATEMENT WITHOUT MUCH ENQUIRY INTO THE FACTS OF THE CASE. ON THE OTHER HAND ASSESSEE HAS FILED COPIES OF BILLS, BANK STATEMENT ETC. TO ESTABLISH THAT PURCHASES WERE GENUINE. ON THE FACE OF THESE EVIDENCES THE ENTIRE PURCHASES CANNOT BE HELD TO BE BOGUS MERELY ON THE BASIS OF A STATEMENT OF SELLER WHO WAS NEVER CROSS EXAMINED BY THE ASSESSEE. IT IS ALSO NOTED THAT THE ITEMS PURCHASED WERE USED AS INPUT INTO ASSESSEE'S PRODUCT FOR SALES WHICH HAVE BEEN ACCEPTED BY THE DEPARTMENT. IT IS NOTED THAT ONLY PROFIT ELEMENT IS LIABLE TO TAX IN SUCH CASES AS WAS HELD IN THE CASE OF : 1. CIT VS. BHOLANATH POLY FAB LTD. (2013) 355 ITR 290 (GUJ). (HC) 2. CIT V SIMIT P. SHETH (2013) 356 ITR 451 (GUJ) (HC) 3. CIT VS. SANJAY OIL CAKE INDUSTRIES (2009) 316 ITR 274 (GUJ) 4. ITO VS. PERMANAND (2007) 107 TTJ 395 (JD)(TRIB.) 5. MADHUKANT B. GANDHI VS. ITO ITA NO. 1950/M/2009 BENCH 1B' DT. 23-02-2010 (AY 2005-06) (MUM.)(TRIB,) 6. SANJEEV WOOLEN MILLLS VS. CIT (2005) 279 ITR 434 (SC) 6. SANJEEV WOOLEN MILLS V. CIT (2005) 279 ITR 434 (SC) IN VIEW OF THE ABOVE DISCUSSION IT IS SEEN THAT THE ADDITION MADE BY THE A.O. ON ACCOUNT OF ALLEGED BOGUS PURCHASE CANNOT BE SUSTAINED FULLY IN APPEAL. HAVING REGARDS TO FACTS OF THE CASE IT WOULD BE FAIR AND REASONABLE IF THE ADDITION MADE IS RESTRICTED TO G.P. ADDITION OF 10% ON THE ALLEGED BOGUS PURCHASE OF RS.89,25,949/- WHICH COMES TO RS.8.92,595/-. ACCORDINGLY THESE GROUNDS OF APPEAL ARE PARTLY ALLOWED. 3.3 AGAINST THE ABOVE ORDER, ASSESSEE IS IN APPEAL BEFORE THE ITAT. ITA NO.1193/MUM/2017. M/S.HANS CHEMICALS PRIVATE LIMITED. 4 4. I HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIVE AND PERUSED THE RECORDS. 5. AS REGARDS THE REOPENING OF THE ASSESSEE, ON A CAREFUL CONSIDERATION, I NOTE THAT IN THIS CASE INFORMATION WAS RECEIVED BY THE ASSESSING OFFICER FROM DGIT INVESTIGATION (MUMBAI) THERE ARE SOME PARTIES WHO ARE ENGAGED IN THE HAWALA TRANSACTIONS AND ARE ALSO INVOLVED IN ISSUING BOGUS PURCHASE BILLS FOR SALE OF MATERIAL WITHOUT DELIVERY OF GOODS, WHICH INFORMATION WAS BASED ON INFORMATION RECEIVED BY REVENUE FROM MAHARASHTRA SALES TAX AUTHORITY. INFORMATION WAS RECEIVED THAT THE ASSESSEE WAS BENEFICIARY OF HAWALA ACCOMMODATION ENTRIES FROM ENTRY PROVIDERS BY WAY OF BOGUS PURCHASE. THE ACCOMMODATION ENTRY PROVIDER HAS DEPOSED AND ADMITTED BEFORE THE MAHARASHTRA SALES TAX AUTHORITY VIDE STATEMENT/ AFFIDAVIT THAT THEY WERE ENGAGED IN PROVIDING BOGUS ACCOMMODATION ENTRIES WHEREIN BOGUS SALE BILLS WERE ISSUED WITHOUT DELIVERY OF GOODS, IN CONSIDERATION FOR COMMISSION. THESE, ACCOMMODATION ENTRY PROVIDERS, ON RECEIPT OF CHEQUES FROM PARTIES AGAINST BOGUS BILLS FOR SALE OF MATERIAL, LATER ON WITHDREW CASH FROM THEIR BANK ACCOUNTS WHICH WAS RETURNED TO BENEFICIARIES OF BOGUS BILLS AFTER DEDUCTION OF THEIR AGREED COMMISSION. THE ASSESSEE WAS STATED TO BE ONE OF THE BENEFICIARIES OF THESE BOGUS ENTRIES OF SALE OF MATERIAL FROM HAWALA ENTRY OPERATORS IN FAVOUR OF THE ASSESSEE WHEREIN THE ASSESSEE MADE ALLEGED BOGUS PURCHASES THROUGH THESE BOGUS BILLS ISSUED BY HAWALA ENTRY PROVIDERS IN FAVOUR OF THE ASSESSEE. THESE DEALERS WERE SURVEYED BY THE SALES TAX INVESTIGATION DEPARTMENT WHEREBY THE DIRECTORS OF THESE DEALERS HAVE ADMITTED IN A DEPOSITION VIDE STATEMENTS/AFFIDAVIT MADE BEFORE THE SALES TAX DEPARTMENT THAT THEY WERE INVOLVED IN. ISSUING BOGUS PURCHASE BILLS WITHOUT ITA NO.1193/MUM/2017. M/S.HANS CHEMICALS PRIVATE LIMITED. 5 DELIVERY OF ANY MATERIAL. THERE IS A LIST OF SUCH PARTIES WHEREIN THE ASSESSEE IS STATED TO BE BENEFICIARY OF BOGUS PURCHASE BILLS. 8. FROM THE ABOVE, I FIND THAT TANGIBLE AND COGENT INCRIMINATING MATERIAL WERE RECEIVED BY THE AO WHICH CLEARLY SHOWED THAT THE ASSESSEE WAS BENEFICIARY OF BOGUS PURCHASE ENTRIES FROM BOGUS ENTRY PROVIDERS WHICH FORMED THE REASON TO BELIEVE BY THE AO THAT INCOME HAS ESCAPED ASSESSMENT. THE INFORMATION SO RECEIVED BY THE AO HAS LIVE LINK WITH REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. ON THESE INCRIMINATING TANGIBLE MATERIAL INFORMATION, ASSESSMENT WAS REOPENED. AT THIS STAGE THERE HAS TO BE PRIMA FACIE BELIEF BASED ON SOME TANGIBLE AND MATERIAL INFORMATION ABOUT ESCAPEMENT OF INCOME AND THE SAME IS NOT REQUIRED TO BE PROVED TO THE GUILT. IN THIS REGARD, I REFER TO THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF CIT(A) VS. RAJESH JHAVERI STOCK BROKERS P. LTD, 291 ITR 500:- 'SECTION 147 AUTHORISES AND PERMITS THE ASSESSING OFFICER TO ASSESS OR REASSESS INCOME CHARGEABLE TO LAX IF HE HAS REASON TO BELIEVE THAT INCOME FOR ANY ASSESSMENT YEAR HAS ESCAPED ASSESSMENT. THE WORD 'REASON' IN THE PHRASE 'REASON TO BELIEVE' WOULD MEAN CAUSE OR JUSTIFICATION. IF THE AO HAS CAUSE OR JUSTIFICATION TO KNOW OR SUPPOSE (HAT INCOME HAD ESCAPED ASSESSMENT, IT CAN BE SAID TO HAVE REASON TO BELIEVE THAT AN INCOME HAD ESCAPED ASSESSMENT. THE EXPRESSION CANNOT BE READ TO MEAN THAT THE AO SHOULD HAVE FINALLY ASCERTAINED THE FACT BY LEGAL STATUTE WITH SOLICITUDE FOR THE PUBLIC EXCHEQUER WITH AN INBUILT IDEA OF FAIRNESS TO TAXPAYERS. AS OBSERVED BY THE SUPREME COURT IN CENTRAL PROVINCES MANAGNESE ORE CO, LTD. V. ITO(1991) 191 ITR 662, FOR INITIATION OF ACTION UNDER SECTION 147(A) (AS THE PROVISION STOOD AT THE RELEVANT TIME) FULFILLMENT OF THE TWO REQUISITE CONDITIONS IN THAT REGARD IS ESSENTIAL. AT THAT STAGE, THE FINAL OUTCOME OF THE PROCEEDING IS NOT RELEVANT. IN OTHER WORDS, AT THE INITIATION STAGE, WHAT IS REQUIRED IS 'REASON TO ITA NO.1193/MUM/2017. M/S.HANS CHEMICALS PRIVATE LIMITED. 6 BELIEVE', BUT NOT THE ESTABLISHED FACT OF ESCAPEMENT OF INCOME. AT THE STAGE OF ISSUE OF NOTICE, THE ONLY QUESTION IS WHETHER THERE WAS RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COULD HAVE FORMED A REQUISITE BELIEF WHETHER THE MATERIALS WOULD CONCLUSIVELY PROVE THE ESCAPEMENT IS NOT THE CONCERN AT THAT STAGE. THIS IS SO BECAUSE THE FORMATION OF BELIEF BY THE AO IS WITHIN THE REALM OF SUBJECTIVE SATISFACTION ITO V. SELECTED DALURBAND COAL CO, (P.) LTD. (1996) 217 ITR 597 (SUPREME COURT): RAYMOND WOOLLEN MILLS LTD. V. ITO (1999) 236 ITR 34 (SUPREME COURT). 9. THE ABOVE DISCUSSION AND PRECEDENT FROM APEX COURT FULLY JUSTIFY THE VALIDITY OF REOPENING IN THIS CASE. SINCE, THE ISSUE HAS BEEN DECIDED ON THE BASIS OF THE HONBLE APEX COURT DECISION, THE OTHER CASE LAWS REFERRED BY ASSESSEE ARE NOT SUPPORTING THE ASSESSEES CASE. 10. AS REGARDS TO THE MERITS OF THE CASE, UPON CAREFUL CONSIDERATION OF THE FACTS OF THE CASE, I FIND THAT OVERWHELMING EVIDENCES HAVE BEEN REFERRED BY THE AUTHORITIES BELOW THAT THE IMPUGNED PURCHASES ARE BOGUS. THERE IS NO EVIDENCE OF THE ACTUAL MOVEMENT OF THE GOODS UNDER DISPUTE. IN THESE CIRCUMSTANCES LEARNED DEPARTMENTAL REPRESENTATIVE HAS REFERRED TO HONBLE GUJARAT HIGH COURT DECISION IN THE CASE OF TAX APPEAL NO 240 OF 2003 IN THE CASE OF N K INDUSTRIES VS DY CIT , ORDER DT 20/06.2016, WHEREIN 100% OF THE BOGUS PURCHASES WAS HELD TO BE ADDED IN THE HANDS OF THE ASSESSEE AND TRIBUNALS RESTRICTION OF THE ADDITION TO 25% OF THE BOGUS PURCHASES WAS SET ASIDE. THE SPECIAL LEAVE PETITION AGAINST THIS ORDER ALONG WITH OTHERS HAS BEEN DISMISSED BY THE HONBLE APEX COURT VIDE ORDER DATED 16.1. 2017 AS UNDER :- ITA NO.1193/MUM/2017. M/S.HANS CHEMICALS PRIVATE LIMITED. 7 ''DELAY CONDONED. THE SPECIAL LEAVE PETITIONS ARE DISMISSED. PENDING APPLICATION(S) IF ANY STANDS DISPOSED OF ACCORDINGLY''. 11. I FIND THAT DISMISSAL OF SPECIAL LEAVE PETITION BY THE HONBLE APEX COURT BY A SIMPLE NON-SPEAKING ORDER DOES NOT MERGE ORDER OF THE HONBLE HIGH COURT WITH THAT OF THE HONBLE SUPREME COURT. FURTHERMORE, THE ADDITION/DISALLOWANCE FOR BOGUS PURCHASES DEPENDS UPON THE FACTS OF EACH CASE. 12. I FIND THAT IN THIS CASE THE SALES HAVE NOT BEEN DOUBTED. IT IS SETTLED LAW THAT WHEN SALES ARE NOT DOUBTED HUNDRED PERCENT DISALLOWANCE FOR BOGUS PURCHASE CANNOT BE DONE. THIS PROPOSITION FINDS SUPPORT FROM THE HONBLE GUJARAT HIGH COURT IN THE SAME COMBINED ORDER AS MENTIONED ABOVE IN CASE OF ITA NO 241 THEREIN. THIS PROPOSITION IS FURTHER SUPPORTED FROM HONBLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF NIKUNJ EXIM ENTERPRISES. HOWEVER THE FACTS OF THE PRESENT CASE INDICATE THAT ASSESSEE HAS MADE PURCHASE FROM THE GREY MARKET. MAKING PURCHASE THROUGH THE GREY MARKET GIVES THE ASSESSEE SAVINGS ON ACCOUNT OF NON-PAYMENT OF TAX AND OTHERS AT THE EXPENSE OF THE EXCHEQUER. IN SIMILAR SITUATION ON THE FACTS AND CIRCUMSTANCES OF THE CASE A DISALLOWANCE OF 12. 5% OF THE BOGUS PURCHASE HAS BEEN CONSIDERED TO MEET THE END OF JUSTICE IN A NUMBER OF CASES AT THE MUMBAI TRIBUNAL FOLLOWING HONBLE GUJARAT HIGH COURT DECISION IN THE CASE OF SIMIT P.SETH. HOWEVER, IN THIS CASE THE LEARNED CIT(A) HAS RESTRICTED THE DISALLOWANCE TO 10% OF THE BOGUS PURCHASE. HENCE, I DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT(A). THE SAME IS UPHELD. ITA NO.1193/MUM/2017. M/S.HANS CHEMICALS PRIVATE LIMITED. 8 13. IN THE RESULT, THIS APPEAL BY THE ASSESSEE STANDS DISMISSED. ORDER PRONOUNCED ON THIS 3 RD DAY OF JULY, 2017. SD/- ( SHAMIM YAHYA ) ACCOUNTANT MEMBER MUMBAI; DATED : 03 RD JULY, 2017. DEVDAS* / COPY OF THE ORDER FORWARDED TO : / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT, MUMBAI. 4. / CIT(A), MUMBAI 5. , , / DR, ITAT, MUMBAI 6. [ / GUARD FILE.