BP Ferrium Industries Private Limited, Hyderabad V. Dy. Commissioner of Income Tax, Circle-2(3), Hyderabad

ITA 1741/Hyd/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 4709 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 22-04-2021
• Assessment Year: 2011-2012
• Appeal Filed On: 13-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P MURALI MOHANA RAO
• Keywords: Corroborative evidences; Accommodation entries

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD (THROUGH VIDEO CONFERENCE) BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER I.T.A. NO. 1741/HYD/2017 ASSESSMENT YEAR: 2011-12 BP FERRIUM INDUSTRIES PRIVATE LIMITED, (FORMERLY KNOWN AS GODAVARI EXPORTS AND IMPORTS PRIVATE LIMITED), HYDERABAD [PAN: AABCG3774H] VS DCIT, CIRCLE-2(3), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI P.MURALI MOHANA RAO, AR FOR REVENUE : SHRI SUNIL KUMAR PANDEY, DR DATE OF HEARING : 22-04-2021 DATE OF PRONOUNCEMENT : 20-05-2021 O R D E R PER S.S.GODARA, J.M. : THIS ASSESSEES APPEAL FOR AY.2011-12 ARISES FROM TH E CIT(A)-2, HYDERABADS ORDER DATED 28-03-2016 PASSED IN CASE NO.0066/2014-15, IN PROCEEDINGS U/S.143(3) OF THE IN COME TAX ACT, 1961 [IN SHORT, THE ACT]. HEARD BOTH THE PARTIES. CASE FILE PERUSED. ITA NO. 1741/HYD/2017 :- 2 -: 2. COMING TO ASSESSEES SOLE SUBSTANTIVE GRIEVANCE RAI SED IN THE INSTAL APPEAL SEEKING TO REVIVE BOTH THE LOWER AUTHOR ITIES ACTION DISALLOWING THE FINANCE CHARGES OF RS.1,81,07, 126/-. 3. MR.PANDEY TOOK US TO THE ASSESSING OFFICERS SOLE R EASON THAT THIS TAXPAYER AS WELL AS ITS GROUP COMPANIES HAD TAK EN RECOURSE TO ACCOMMODATION ENTRIES ONLY. HE NEXT INVITE D OUR ATTENTION TO THE CIT(A)S DETAILED DISCUSSION DELETING THE IMPUGNED ADDITION AS UNDER: 5.2. I HAVE CONSIDERED THE ASSESSMENT ORDER AND GR OUNDS OF APPEAL AND SUBMISSIONS MADE BY THE AR. IT CAN BE SEEN FROM THE ASSESSMENT ORDER THAT THE AO HAS MADE OUT THE CASE THAT THE ASSESSEE IS NOT CONDUCTING ANY TRADING ACTIVITY AND HENCE, THE FINANCIAL CHARGES OF RS.1,81,07,126/- DEBITED TO TH E PROFIT & LOSS ACCOUNT ARE DISALLOWED. HOWEVER, DURING THE COURSE OF APPEAL PROCEEDINGS. THE AR FAILED TO REBUT THE CONCLUSIONS OF THE AO WITH ANY COGENT EVIDENCE AND HENCE, I AM OF THE CONSIDERED V IEW THAT THE ACTION OF THE AO IS JUSTIFIED IN DISALLOWING THE SA ID AMOUNT OF RS.1,81,07,126/- 5.3 FURTHER, THE ASSESSEE'S CASE IS REQUIRED TO BE JUDGED ON THE BASIS OF CIRCUMSTANTIAL EVIDENCE AND HUMAN PROBABILITY. T HE PRINCIPLES GOVERNING THESE DOCTRINES ARE SUMMARIZED BELOW. A) ONE OF THE ESTABLISHED LAWS IS THAT THE DOCUMENT S MAY LIE BUT NOT THE CIRCUMSTANCES. THIS SHOWS THE IMPORTANCE ATTACH ED TO CIRCUMSTANCES IN THE MATTER OF EVALUATION OF EVIDEN CE. DIRECT EVIDENCE IS NOT ALWAYS NECESSARY TO REACH AN INFERENCE. IT I S DRAWN BY APPRECIATING A CHAIN OF EVIDENCE CUMULATIVELY. LAW DOES NOT REQUIRE THAT RELIANCE ON CIRCUMSTANTIAL EVIDENCE MUST ANSWE R TO ALL AND EVERY HYPOTHESIS ADVANCED BY THE ASSESSEE, HOWEVER EXTRAV AGANT AND FANCIFUL THE SAME MIGHT BE. B) DIRECT EVIDENCE PROVES OR DISPROVES A FACT DIREC TLY. CIRCUMSTANTIAL EVIDENCE ALLOWS A FACT TO BE INFERRED FROM COMMON C OURSE OF NATURAL EVENTS, HUMAN CONDUCT AND THEIR RELATION TO THE FAC TS OF THE PARTICULAR CASE. THIS CAN BE MADE USE OF IN ORDER TO PROVE OR DISPROVE A FACT IN ISSUE. THE WORD 'EVIDENCE' IS USED IN 5EC.143(3) OF THE INCOME TAX ACT. UNDER THE INCOME TAX ACT, THE CONNOTATION OF T HE TERM 'EVIDENCE' IS WIDER. ITA NO. 1741/HYD/2017 :- 3 -: C) A NUMBER OF DECISIONS HAVE BEEN RENDERED BY THE HON'BLE APEX COURT. THE SAME FIRMLY ESTABLISHES THE USE AND VALI DITY OF CIRCUMSTANTIAL EVIDENCE A PART OF WHICH IS HUMAN PR OBABILITY. THESE DECISIONS ARE I) CIT VS. DURGA PRASAD (1971) 82 ITR 540 (SC) II) SUMATI DAYAL (1995) 80 TAXMAN 89 (SC) III) CIT VS. P.MOHAN KALA (2007) 291 ITR 273 (SC) IN THE CASE OF DURGA PRASAD MORE, THE HON'BLE APEX COURT OBSERVED THAT IT IS TRUE THAT AN APPARENT MUST BE CONSIDERED REA L UNTIL IT IS SHOWN THAT THERE ARE REASONS TO BELIEVE THAT APPARENT IS NOT T HE REAL. PARTY WHO RELIES ON A RECITAL IN E DEED HAS TO ESTABLISH THE TRUTH O F THOSE RECITALS, OTHERWISE, IT WILL BE VERY EASY TO MAKE SELF- SERVI NG STATEMENTS IN DOCUMENTS EITHER EXECUTED OR TAKEN BY A PARTY AND R ELY ON THOSE RECITALS. IF ALL THAT AN ASSESSEE WHO WANTS TO EVADE TAX IS T O HAVE SOME RECITALS MADE IN A DOCUMENT EITHER EXECUTED BY HIM OR EXECUT ED IN HIS FAVOUR. THEN, THE DOOR WILL BE WIDE OPEN TO EVADE TAX. A L ITTLE PROBING WAS SUFFICIENT IN THE PRESENT CASE TO SHOW THAT THE APP ARENT WAS NOT THE REAL. THE TAXING AUTHORITIES WERE NOT REQUIRED TO PUT ON BLINKERS WHILE LOOKING AT THE DOCUMENTS PRODUCED BEFORE THEM. THEY WERE EN TITLED TO LOOK INTO SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALITY O F THE RECITALS MADE IN THOSE DOCUMENTS. THUS, THIS CASE OF THE HON'BLE APEX COURT PROVIDES THE FOUNDATION FOR APPLICATION OF THE THEORY OF USE OF CIRCUMSTANTIAL EVIDENCE AND HUMAN PROBABILITY. 5.4. THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE ASSESSEE IS REQUIRED TO BE JUDGED IN THE LIGHT OF PRINCIPLES EN UNCIATED IN THE ABOVE CASES BY THE HON'BLE APEX COURT. A PERUSAL OF THE A SSESSMENT ORDER SHOWS THAT THE PLEA ADVANCED BY THE ASSESSEE CANNOT BE TAKEN AS COGENT TO CLAIM HUGE EXPENDITURE ON ACCOUNT OF EXPE NDITURE CLAIMED OF FINANCIAL CHARGES OF RS.1,81,07,126/- IN VIEW OF TH E FOLLOWING. (I) THE ASSESSEE IS STATED TO HAVE BEEN ENGAGED IN BUSI NESS OF PURCHASE AND SALE OF STEEL AND IRON. (II) DURING THE PREVIOUS YEAR, THE, FINANCIALS DEPICT PURCHASES OF RS.348,72,51,636/- (III) DURING THE PREVIOUS YEAR/ IT RECORDED SA.ES OF RS.352,14,05,836/- (IV) THE ASSESSEE DEBITED SELLING AND ADMINISTRATIVE EXPENSES OF RS.2,25,92,885/- WHICH IS ABNORMALLY LO W COMPARED TO THE PURCHASES AND SALES TURNOVER DEPICT ED ITA NO. 1741/HYD/2017 :- 4 -: IN THE FINANCIALS AND THE ASSESSEE HAS NOT DEBITED ANY EXPENDITURE TOWARDS HANDLING CHARGES. (V) IT IS TO BE NOTICED THAT A LARGE NUMBER OF TRANSACT IONS WERE WITH GROUP COMPANIES/CONCERNS. (VI) AO, DURING SCRUTINY, ASKED THE ASSESSEE TO PRODUCE CORRESPONDENCE WITH SELLER / EVIDENCE REGARDING NEGOTIATION OF RATE AND EVIDENCES AS TO THE MANNER IN WHICH LOWEST PRICE WAS ACCEPTED AS IT CLAIMED THAT AFTER GETTING ORDERS FROM VARIOUS CUSTOMERS, IT PLACES OR DER WITH THE SUPPLIER. TAKING INTO ACCOUNT THE TURNOVER WHICH RAN INTO CRORES OF RUPEES / IT IS NOT BELIEVABLE TH AT THERE WAS NO CORRESPONDENCES AT ALL. (VII) IT FAILED TO FILE THE EVIDENCES REGARDING PROCUREME NT OF ORDERS FROM THE CUSTOMERS AND THE MANNER IN WHICH T HE SAME WAS DELIVERED. SIMILAR IS THE CASE WITH REGARD TO SALES. (VIII) MOVEMENT OF GOODS WHICH INCLUDES LRS, EVIDENCE REGARDING PASSING THROUGH CHECK GATE / HANDLING EXPENSES OF HUGE PURCHASES OF MATERIAL WERE NOT PRODUCED. (IX) THE ASSESSEE HAS NOT DEBITED ANY EXPENDITURE TOWARD S MATERIAL HANDLING CHARGES/TRANSPORT CHARGES/LABOUR CHARGES/ANY OTHER EXPENDITURE THAT WAS RELATED ACTU AL DELIVERY OF THE TRADED GOODS. (X) AS MENTIONED IN THE ASSESSMENT ORDER THE ASSESSEE PRODUCED SOME COPIES OF PURCHASES AND SALE BILLS ON LY. THE DESCRIPTIONS IN THE SAID BILLS WERE INSUFFICIEN T OR VAGUE. (XI) THE PLACE OF DELIVERY WAS NOT MENTIONED. IN SOME CA SES/ PLACE OF DELIVERY WAS MENTIONED AS 'HEAD OFFICE'. W HEN CONFRONTED, IT WAS CLAIMED THAT THE GOODS WERE DELI VERED TO THE BUYER. HOW THE GOODS MOVED AND WHO MET THE EXPENSES IS NOT FORTHCOMING. SIMILAR TRANSACTIONS W ERE FOUND IN RESPECT OF SOME OF GROUP CONCERNS AS MENTI ONED BY THE AO IN PERES 3 TO 5 OF THE ORDER. THE TRANSA CTION EFFECTED TO THE EXTENT OF RS.7,721 CR FOLLOWED THE SAME PATTERN. (XII) THE ASSESSEE FAILED TO REBUT THE FINDINGS OF THE AO DURING THE COURSE OF THE APPEAL PROCEEDINGS ALSO BY ITA NO. 1741/HYD/2017 :- 5 -: PRODUCING ANY SUPPORTIVE AND COGENT EVIDENCE. THEREFORE, THERE WAS NO CHANGE WITH REGARD TO PRODU CTION OF EVIDENCE. THE ASSESSEE HARPED ON THE ARGUMENTS T HAT THESE TRANSACTIONS WERE MADE THROUGH BANK FOR WHICH THE FINANCIAL CHARGES BY WAY OF DISCOUNTING EXPENSE S WERE INCURRED TO THE EXTENT OF RS.1,81,07,126/-. IN THIS REGARD, IT IS RELEVANT TO MENTION THAT THE TRANSACT ION THROUGH LETTER OF CREDIT (LC) CAN BE MANIPULATED, W HICH IS QUITE COMMON. WHEN THE PURCHASER AND SELLER JOIN HANDS, WITHOUT REAL PURCHASE, LCS CAN BE GENERATED AND THERE WILL BE MOVEMENT OF MONEY. IN CASE OF AVAILIN G LC FACILITY, THE SELLER SENDS HIS INTIMATION TO THE BU YER OF GOODS WHO MAINTAINS LC ACCOUNT IN BANK. THE SELLER IN TURN DISCOUNTS THE SAME FROM HIS BANKER AND GETS PAYMENT AFTER MEETING DISCOUNTING CHARGES. AFTER TH E LAPSE OF PERIOD OF LC, THE BANKER OF THE SELLER OF THE GOODS REALIZES THE AMOUNT FROM THE BANKER OF THE PURCHASER WHO OPENED THE LC FACILITY WITH HIS BANK. APPARENTLY, THIS LOOKS A PERFECT ARRANGEMENT. BUT A T THE SAME TIME THE ENTIRE DEVICE CAN BE SO ARRANGED THAT THERE WILL BE MOVEMENT OF MONEY WITHOUT REAL PURCHA SE OR SALE. THE CASE OF THE ASSESSEE IS THAT THERE ARE NUMEROUS GAPS IN THE TRANSACTIONS AS POINTED OUT BY THE AO IN THE ASSESSMENT ORDER. HOWEVER, THE AR HAS NOT MADE GOOD THE ABOVE OBSERVATIONS BY PRODUCING SUPPORTING EVIDENCES EVEN DURING THE APPEAL PROCEEDINGS ALSO. THEREFORE, THIS IS A CASE WHERE T HE APPARENT IS NOT REAL. IT IS FURTHER SETTLED THAT ME RE TRANSACTION THROUGH BANK WILL NOT TANTAMOUNT TO A P ROPER AND CORRECT TRANSACTION. THIS IS A CASE WHERE CIRCUMSTANTIAL EVIDENCE AND THEORY OF HUMAN PROBABI LITY AS EVOLVED BY THE HON'BLE APEX COURT WOULD COME INT O PLAY. IF THE ENTIRE FACTS AND CIRCUMSTANCES ARE CON SIDERED AS DISCUSSED ABOVE, PRUDENCE WILL GUIDE A PERSON TO ARRIVE AT A CONCLUSION THAT NO TRANSACTION IN PURCH ASE AND SALE HAS TAKEN PLACE DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. ASSES SEE RELIED ON THE DECISION RENDERED IN THE ASSESSEE'S O WN GROUP CASE OF M/S. GLOBAL FORGINGS LTD FOR A.Y.2010 -11 WHEREIN THE HON'BLE ITAT, HYDERABAD BENCH 'B', VIDE ITA NO.1269/2014 DT.26-11-2014 HAS DISMISSED THE APPEAL OF THE DEPARTMENT AND UPHELD THE ORDER OF THE CIT(A ) WHEREIN THE DISALLOWANCE OF FINANCIAL CHARGES WAS DELETED. THE RELEVANT EXTRACT IS AS UNDER. THE ONLY REASON FOR THE DISALLOWANCE MADE BY THE A SSESSING OFFICER WAS THAT THE ASSESSEE HAS INCURRED THE EXPE NDITURE, ITA NO. 1741/HYD/2017 :- 6 -: WHILE DISCOUNTING THE BILLS FROM OUTSIDE PARTIES AN D PROVIDING GOODS T ITS SISTER CONCERNS ON CREDIT BASIS. IN OUR VIEW, THE CONCLUSIONS DRAWN BY THE ASSESSING OFFICER IS BASED ON MERE PRESUMPTIONS AND SURMISE, RATHER THAN EVIDENCE. IT IS EVIDENT FROM THE DISCUSSION MADE BY THE LD. COMMISSIONER OF INCOME TAX(APPEALS) IN THE IMPUGNED ORDER, EXTRACTE D ABOVE, THE EXPENDITURE INCURRED BY THE ASSESSEE IS FULLY S UPPORTED BY EVIDENCE AND ALSO CERTIFIED BY BANKS AND FINANCI AL INSTITUTIONS. THAT BEING THE CASE, THERE CANNOT BE ANY REASON TO DOUBT THE GENUINENESS OF THE EXPENDITURE. IN THI S VIEW OF THE MATTER, THERE BEING NO INFIRMITY IN THE ORDER O F THE LEARNED CIT(A), WE DO NOT FIND ANY REASON TO INTERF ERE WITH THE SAME. WE ACCORDINGLY REJECT THE GROUNDS OF THE REVENUE IN THIS APPEAL. 5.5. I HAVE GONE THROUGH THE SAID DECISION. IT MAY BE PERTINENT TO MENTION THAT THE THEORY OF CIRCUMSTANTIAL EVIDENCE AND HUMAN PROBABILITY WAS NOT PLACED BEFORE THE HON'BLE JURIS DICTIONAL ITAT FOR CONSIDERATION. THEREFORE, WITH UTMOST OBEDIENCE TO THE HON'BLE ITAT, I HEREBY DIFFER WITH THE RATIO LAID DOWN IN THE CASE MENTIONED SUPRA. FURTHER, IT WOULD BE PROPER TO MENTION HERE THAT A LEGAL PROOF IS NOT ALWAYS A PERFECT PROOF. PROBABILITY SURROUNDING THE CASE IS REQUIRED TO BE JUDGED. HENCE, TAKING INTO ACCOUNT THE ENTIRE TR ANSACTIONS AS POINTED OUT BY THE AO, I AM OF THE CONSIDERED OPINI ON THAT NO TRANSACTION IN PURCHASE AND SALE HAS TAKEN PLACE. T HIS BEING THE POSITION, THE QUESTION OF PAYMENT OF FINANCIAL CHAR GES OF RS.1,81,07,126/- CANNOT BE TREATED AS INCIDENTAL TO THE BUSINESS OF THE ASSESSEE. THEREFORE, THE ACTION OF THE AO IS JU STIFIED IN DISALLOWING RS.1,81,07,126/- CLAIMED OUT OF BUSINES S EXPENDITURE. AS A RESULT, THE GROUNDS RAISED ARE DISMISSED. 4. WE FIND NO MERIT IN REVENUES FOREGOING ARGUMENTS CHALLENGING LACK OF BONAFIDES ON ASSESSEES PART IN RAISING THE IMPUGNED FINANCE CHARGES CLAIM. IT HAS ALREADY COME ON RECORD THAT THIS TRIBUNALS CO-ORDINATE BENCHS DECISION (S) IN ASSESSEES VERY GROUP CONCERNS APPEALS ITA NOS.406 , 543 AND 1269/HYD/2014 (M/S.GLOBAL FORGING LTD) HAS ALREADY D ECLINED REVENUES VERY ARGUMENT IN THE ORDER DT.26-11-2014. LEARNED CO-ORDINATE BENCH RATHER GAVE A CATEGORICAL FINDING TH AT THE SAID GROUP ENTITY HAD DULY SUPPORTED THE IMPUGNED FINA NCIAL CHARGES BY BANKS AND OTHER INSTITUTES CERTIFICATES. WE TH US ITA NO. 1741/HYD/2017 :- 7 -: FIND NO REASON TO ADOPT A DIFFERENT APPROACH IN INSTAN T LIS RAISING THE VERY ASPECT OF SUSPICIOUS CIRCUMSTANCES. T HE CIT(A)S ACTION AFFIRMING THE IMPUGNED FINANCE CHARGE S DISALLOWANCE STANDS REVERSED THEREFORE. 5. THIS ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH MAY, 2021 SD/- SD/- (LAXMI PRASAD SAHU) (S.S.G ODARA) ACCOUNTANT MEMBER JUDICIAL MEM BER HYDERABAD, DATED: 20-05-2021 TNMM ITA NO. 1741/HYD/2017 :- 8 -: COPY TO : 1.BP FERRIUM INDUSTRIES PRIVATE LIMITED (FORMERLY K NOWN AS GODAVARI EXPORTS AND IMPORTS PRIVATE LIMITED), C/O. P.MURALI & CO., CHARTERED ACCOUNTANTS, 6-3- 655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD. 2.THE DCIT, CIRCLE-2(3), HYDERABAD. 3.CIT(APPEALS)-2, HYDERABAD. 4.PR.CIT-2, HYDERABAD. 5.D.R. ITAT, HYDERABAD. 6.GUARD FILE.