M/S HBD MACHINES MANUFACTURING CORPN., MUMBAI V. ITO WARD 18(1)(5), MUMBAI

ITA 1809/MUM/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8377 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2009-2010
• Appeal Filed On: 28-03-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R BHOOPATHI
• Keywords: Bogus purchase; Unexplained expenditure; Question of law; Accommodation entries
• Section: 133(6); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H, BENCH MUM BAI BEFORE SHRI G. MANJUNATHA, ACCOUNTANT MEMBER & SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO.1809/MUM/2019 ( ASSESSMENT YEAR: 2009-10 ) HBD MACHINES MANFACTURING CORPN. G2/G3, FORT CHAMBER, AMBALAL DOSHI MARG HOMI MODY CROSS LANE NO.2 FORT, MUMBAI-400 001 VS. ITO,WARD-18(1)(5) ROOM NO.619 & 634 AAYKAR BHAWAN M.K.ROAD MUMBAI-400 020 PAN/GIR NO. AACFH0879A APPELLANT ) .. RESPONDENT ) ASSESSEE BY MS. ARTI SATHE, AR REVENUE BY SHRI R.BHOOPATHI, DR DATE OF HEARING 05/03/2020 DATE OF PRONOUNCEME NT 20/05 /2020 / O R D E R PER G.MANJUNATHA (A.M) : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)53, MU MBAI, DATED 20/12/2018 AND IT PERTAINS TO ASSESSMENT YEAR 2009- 10. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED COMMISSIONER OF INCOME TAX (A)-53 HA S CONFIRMED THE INCOME TAX OFFICER ADDITION OF BOGUS PURCHASES FROM ALLEGED BOGUS PARTIES AND UNEXPLAINED EXPENDITURE AND ADDING BACK TO THE TOTAL INCOME RS.3,80,736/- 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF CENTRIFUGAL, SEWA GE AND TURBINE PUMPS, FILED ITS RETURN OF INCOME FOR ASST.YEAR 200 9-10 ON 25/09/2019, DECLARING LOSS OF RS.8,83,827/-. THE CASE HAS BEEN, ITA NO.1809/MUM/2019 HBD MACHINES MANUFACTURING CORPON. 2 SUBSEQUENTLY REOPENED U/S 147 OF THE ACT, ON THE BA SIS OF INFORMATION RECEIVED FROM DGIT, INVESTIGATION, MUMB AI, AS PER WHICH, SALES TAX AUTHORITIES OF GOVERNMENT OF MAHAR ASHTRA HAD TAKEN ACTIONS AGAINST NUMBER OF HAWALA DEALERS, WH O HAD ISSUED BOGUS PURCHASE BILLS TO VARIOUS PARTIES IN MUMBAI A ND OTHER PLACES. AS PER LIST OF BENEFICIARIES, THE ASSESSEE IS ONE O F THE BENEFICIARY, WHO HAD TAKEN ACCOMMODATION BILLS OF BOGUS PURCHASE S FROM VARIOUS PARTIES AS LISTED BY THE LD. AO IN ASSESSME NT ORDER AT PARA 2, AMOUNTING TO RS. 9,40,088/-. THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT HAS BEEN COMPLETED U/S. 143(3).R.W.S . 147 OF THE I.T.ACT, 1961 ON 26/03/2015 AND DETERMINED TOTAL IN COME OF RS. (5,03,091/-)-, AFTER MAKING ADDITIONS OF 40.50% GRO SS PROFIT ON ALLEGED BOGUS PURCHASE FROM THOSE PARTIES AND MADE ADDITIONS OF RS. 3,80,736/-. 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESEE H AS PREFERRED AN APPEAL BEFORE THE LD.CIT(A). BEFORE THE LD.CIT(A ), THE ASSESSE HAS REITRATED ITS SUBMISSIONS MADE BEFORE THE AO. T HE SUM AND SUBSTANCE OF ARGUMENTS OF THE ASSESSEE BEFORE THE L D.CIT(A) ARE THAT PURCHASE FROM THE ABOVE PARTY IS GENUINE, WHIC H IS SUPPORTED BY NECESSARY EVIDENCES. THEREFORE, NO ADDITIONS COU LD BE MADE ON THE BASIS OF INFORMATION RECEIVED FROM THIRD PARTY. THE LD.CIT(A), AFTER CONSIDERING RELEVANT SUBMISSION OF THE ASSESS EE AND ALSO, BY FOLLOWING THE DECISION OF HONBLE GUJARAT HIGH COUR T, IN THE CASE OF CIT VS. SIMITH P. SHETH (356 ITR 451), HAS UPHELD A DDITION MADE BY THE AO TOWARDS ALLEGED BOGUS PURCHASES TO 40.50% GR OSS PROFIT ON TOTAL PURCHASES FROM THOSE PARTIES. THE RELEVANT FI NDINGS OF THE LD.CIT(A) ARE AS UNDER:- ITA NO.1809/MUM/2019 HBD MACHINES MANUFACTURING CORPON. 3 4.5. IT IS AN UNDISPUTED FACT THAT THE ASSESSING OF FICER IDENTIFIED PARTIES BASED ON INFORMATION RECEIVED FROM INVESTIGATION WI NG. HOWEVER, AS FAR AS THE EVIDENCE SUBMITTED BY THE APPELLANT IS ALSO CONCERNED, THE APPELLANT HAS FILED HIS OWN BOOKS, PURCHASE BILLS/C HALLANS, LEDGER ACCOUNTS AND HAS ITS OWN BANK STATEMENT TO FURTHER HIS ARGUMENT. THE FACT THAT THE PAYMENTS ARE BEING MADE THROUGH CHEQU ES IS NOT SOMETHING THAT IS BEING DOUBTED. IN FACT, THE CONTENTIOUS ISS UE IS THAT THESE PARTIES WHICH ARE INDICATED BY THE SALES TAX DEPARTMENT THR OUGH A PROCEDURE WHICH APPEARS TO BE TECHNICALLY CORRECT ON PAPER, A RE IN FACT ENGAGED IN FALSE BILLING FOR A FEE/COMMISSION. THE ONUS OF PRO VING THE ENTIRE TRANSACTIONS TO BE GENUINE IS DEFINITELY ON THE TAX PAYER, WHEN IT IS MAKING THE CLAIM OF PURCHASE AND ESPECIALLY IN LIGH T OF THE DOUBT THAT HAS BEEN RAISED BY THE ENQUIRIES CONDUCTED BY THE SALES TAX DEPARTMENT, THE ONUS IS EVEN MORE ON THE TAX PAYER TO SHOW THAT AS FAR AS HE IS CONCERNED, HE HAS DISCHARGED HIS TAX RELATED LIABIL ITIES IN AN ACCURATE MANNER. SO THEREFORE, WHILE ON ONE HAND THE AO MAY NOT HAVE A CLINCHING PROOF BUT THE PRIMARY RESPONSIBILITY WHIC H IS ENSUED ON THE TAX PAYER HAS ALSO NOT BEEN DISCHARGED IN TERMS OF ESTA BLISHING THE GENUINENESS OF THE TRANSACTION. MERELY FILING COPIE S OF HIS OWN LEDGER ACCOUNTS AND BANK ACCOUNTS DOES IN NO WAY ESTABLISH THAT THE PARTIES ACTUALLY EXISTED AND GENUINELY SUPPLIED MATERIAL, B UT THEN CONSIDERING THAT THE BOOKS OF ACCOUNTS HAVE NOT BEEN DISPUTED, PURCHASES HAVE NOT BEEN PROVED AS BOGUS AND NEITHER CHEQUES HAVE BEEN SHOWN TO BE RECEIVED BACK AS CASH BY THE APPELLANT, I AM OF THE CONSIDERED VIEW THAT IN THE CONTEXT OF THE SITUATION, THE CAUSE OF JUSTI CE WOULD BE SERVED BY LOOKING AT THE GROSS PROFIT MARGINS BEING DECLARED BY THE APPELLANT. THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. B HOLANATH POLYFAB PVT. LTD. (2013) 355 ITR 290 AND THEREAFTER IN THE CASE OF CIT VS. SIMIT P. SHETH ( 2013) 219 TAXMAN 85 (GUJ) HAS HELD THAT IN SUCH FACTS AND CIRCUMSTANCES, NOT ENTIRE PURCHASE PRICE BUT ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES CAN BE ADDED. THE FINDING OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT P. SETH IS AS UNDER :- 'WE ARE BROADLY IN AGREEMENT WITH THE REASONING ADO PTED BY THE COMMISSIONER (APPEALS) WITH RESPECT TO THE NATURE O F DISPUTED PURCHASES OF STEEL. IT MAY BE THAT THE THREE SUPPLI ERS FROM WHOM THE ASSESSEE CLAIMED TO HAVE PURCHASED THE STEEL DI D NOT OWN UP TO SUCH SALES. HOWEVER, THE VITAL QUESTION WHILE CO NSIDERING WHETHER THE ENTIRE AMOUNT OF PURCHASES SHOULD BE AD DED BACK TO THE INCOME OF THE ASSESSEE OR ONLY THE PROFIT ELEME NT EMBEDDED THEREIN WAS TO ASCERTAIN WHETHER THE PURCHASES THEM SELVES WERE COMPLETELY BOGUS AND NONEXISTENT OR THAT THE PURCHA SES WERE ACTUALLY MADE BUT NOT FROM THE PARTIES FROM WHOM IT WAS CLAIMED TO HAVE BEEN MADE AND INSTEAD MAY HAVE BEEN PURCHAS ED FROM GREY MARKET WITHOUT PROPER BILLING OR DOCUMENTATION . IN THE PRESENT CASE, THE COMMISSIONER OF INCOME-TAX (APPEALS) BELIEVED THAT WHEN AS A TRADER IN STEEL THE ASSESSE E SOLD CERTAIN QUANTITY OF STEEL, HE WOULD HAVE PURCHASED THE SAME QUANTITY FROM SOME SOURCE. WHEN THE TOTAL SALE IS ACCEPTED BY THE ASSESSING OFFICER, HE COULD NOT HAVE QUESTIONED THE VERY BASI S OF THE ITA NO.1809/MUM/2019 HBD MACHINES MANUFACTURING CORPON. 4 PURCHASES. IN ESSENCE, THEREFORE, THE COMMISSIONER (APPEALS) BELIEVED THE ASSESSEE'S THEORY THAT THE PURCHASES W ERE NOT BOGUS BUT WERE MADE FROM THE PARTIES OTHER THAN THOSE MEN TIONED IN THE BOOKS OF ACCOUNT. THAT BEING THE POSITION, NOT THE ENTIRE PURCHASE PR ICE BUT ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES CAN BE AD DED TO THE INCOME OF THE ASSESSEE. SO MUCH IS CLEAR BY THE DEC ISION OF THIS COURT. IN PARTICULAR, THE COURT HAS ALSO TAKEN A SI MILAR VIEW IN THE CASE OF CIT V. VIJAY M. MISTRY CONSTRUCTION LTD. [2 013] 355 ITR 498 (GUJ) AND IN THE CASE OF CIT V. BHOLANATH POLY FAB (P.) LTD. [2013] 355 ITR 290 (GUJ). THE VIEW TAKEN BY THE TRI BUNAL IN THE CASE OF VIJAY PROTEINS LTD. V. ASSTT. CIT [1996] 58 JTD 428 (AHD.)CAME TO BE APPROVED. IF THE ENTIRE PURCHASES WERE WHOLLY BOGUS AND THERE WAS A FINDING OF FACT ON RECORD THAT NO PURCHASES WERE MADE AT AL L, COUNSEL FOR THE REVENUE WOULD BE JUSTIFIED IN ARGUING THAT THE ENTIRE AMOUNT OF SUCH BOGUS PURCHASES SHOULD BE ADDED BACK TO THE IN COME OF THE ASSESSEE. SUCH WERE THE FACTS IN THE CASE OF PAWAN RAJ B.BOKADIA(SUPRA) THIS BEING THE POSITION, THE ONLY QUESTION THAT SUR VIVES IS WHAT SHOULD BE THE FAIR PROFIT RATE OUT OF THE BOGUS PUR CHASES WHICH SHOULD BE ADDED BACK TO THE INCOME OF THE ASSESSEE. THE COMMISSIONER ADOPTED THE RATIO OF 30 PER CENT OF SU CH TOTAL SALES. THE TRIBUNAL, HOWEVER, SCALED DOWN TO 12.5 PER CENT . WE MAY NOTICE THAT IN THE IMMEDIATELY PRECEDING YEAR TO TH E ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE HAD DECLARED THE GROSS PROFIT AT 3.56 PER CENT OF THE TOTAL TURNOVER. IF T HE YARDSTICK OF 30 PER CENT, AS ADOPTED BY THE COMMISSIONER (APPEALS), IS ACCEPTED THE GROSS PROFIT RATE WILL BE MUCH HIGHER. IN ESSENCE, THE TRIBUNAL ONLY ESTIMATED THE POSSIBLE PROFIT OUT OF PURCHASES MADE THROUGH NON- GENUINE PARTIES. NO QUESTION OF LAW IN SUCH ESTIMAT ION WOULD ARISE. THE ESTIMATION OF RATE OF PROFIT RETURN MUST NECESS ARILY VARY WITH THE NATURE OF BUSINESS AND NO UNIFORM YARDSTICK CAN BE ADOPTED. 4.6. I AM GUIDED BY THE RATIO OF DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS SIMIT P. SHETH PRONOUNC ED ON 16. 1.2013 IN TAX APPEAL NO.5531 OF 2012 WHEREIN THE HONBLE COUR T HAVE HELD THAT WHEN THE TOTAL SALE IS ACCEPTED BY THE AO, THEN THE ENTIRE PURCHASES CANNOT BE ADDED TO THE INCOME OF THE APPELLANT. THE HONBLE COURT HAVE, THEREFORE, HELD THAT FAIR PROFIT RATIO WOULD BE NEE DED TO BE ADDED BACK TO THE INCOME OF THE ASSESSEE. 4.7. EVEN IF MATERIALS HAVE BEEN PURCHASED, THEY AR E NOT PURCHASED FROM THESE PARTIES AND MAY BE IN CASH FROM UN-DISCLOSED PARTIES. BY PURCHASING FROM THE GREY MARKET, THE APPELLANT WOUL D HAVE BENEFITTED BY THE SAVINGS OF TAXES. THIS IS A CASE OF MANUFACTURI NG AND NOT TRADING AND ONE TO ONE IDENTIFICATION OF PURCHASES WITH SALES I S NEITHER SHOWN NOR IS ITA NO.1809/MUM/2019 HBD MACHINES MANUFACTURING CORPON. 5 POSSIBLE. THE APPELLANT HAS SHOWN GROSS LOSS THIS Y EAR. THE ASSESSING OFFICER HAS MADE DISALLOWANCE @ 40.50 % AND HAS GIV EN HIS REASONS FOR THE SAME. THE SAME IS REASONABLE AND IS SUSTAINED. THUS THE GROUND OF APPEAL IS DISMISSED. 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT THE LD. AO HAS MADE ADDITION OF 40.50% GROSS P ROFIT ON ALLEGED BOGUS PURCHASES ON THE GROUND THAT THE ASSESSEE IS ONE OF THE BENEFICIARY OF ACCOMMODATION ENTRIES OF BOGUS PURCH ASE BILLS ISSUED BY HAWALA DEALERS. ACCORDING TO THE LD. AO, ALTHOUG H ASSESEE HAS FILED CERTAIN BASIC EVIDENCES, BUT FAILED TO FILE F URTHER EVIDENCE IN THE BACKDROP OF CLEAR FINDING BY THE SALES TAX DEPARTME NT, MAHARASHTRA THAT THOSE PARTIES ARE INVOLVED IN PROVIDING ACCOMM ODATION ENTRIES WITHOUT ACTUAL DELIVERY OF GOODS. THE LD. AO HAD AL SO TAKEN SUPPORT FROM THE INVESTIGATION CONDUCTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AS PER WHICH NOTICE ISSUED U/S 133(6) TO THE PARTIES WERE RETURNED UN-SERVED BY THE POSTAL AUTHORITIES. THEREFORE, HE CAME TO THE CONCLUSION THAT PURCHASES FROM THE SAID PARTIES ARE BOGUS IN NATURE. IT IS THE CONTENTIONS OF THE ASSES SEE BEFORE THE LOWER AUTHORITIES THAT PURCHASES FROM THE ABOVE PAR TY ARE SUPPORTED BY NECESSARY EVIDENCES. IT HAS FURNISHED ALL POSSIB LE EVIDENCES, INCLUDING BOOKS OF ACCOUNTS; STOCK DETAILS AND BANK STATEMENT TO PROVE THAT PAYMENT AGAINST SAID PURCHASES HAVE BEEN MADE THROUGH PROPER BANKING CHANNELS. 6 HAVING CONSIDERED ARGUMENTS OF BOTH THE PARTIES A ND ALSO, MATERIAL AVAILABLE ON RECORD, WE FIND THAT BOTH THE SIDES HAVE FAILED TO PROVE THE CASE IN THEIR FAVOUR WITH NECESSARY EV IDENCES. ALTHOUGH, ASSESSEE HAS FILED CERTAIN BASIC EVIDENCES, BUT FAI LED TO FILE FURTHER EVIDENCES TO CONCLUSIVELY PROVE PURCHASES TO THE SA TISFACTIONS OF THE ITA NO.1809/MUM/2019 HBD MACHINES MANUFACTURING CORPON. 6 LD.AO. FURTHER, MERE PAYMENT BY CHEQUE DOES NOT PRO VE THE GENUINENESS OF PURCHASE, MORE PARTICULARLY WHEN OTH ER CIRCUMSTANTIAL EVIDENCE SAYS OTHERWISE. AT THE SAME TIME, THE LD. AO HAD ALSO FAILED TO TAKE THE INVESTIGATION TO A L OGICAL CONCLUSION BY CARRYING OUT NECESSARY ENQUIRES, BUT HE SOLELY RELI ED UPON INFORMATION RECEIVED FROM INVESTIGATION WING, WHICH WAS FURTHER SUPPORTED BY INFORMATION RECEIVED FROM MAHARASHTRA SALES TAX DEPARTMENT. THE AO NEITHER POINTED OUT ANY DESCREPA NICES IN BOOKS OF ACCOUNTS NOR MADE OUT A CASE OF SALES OUTSIDE BO OKS OF ACCOUNTS. IN FACT, THE AO DID NOT DISPUTED SALES DECLARED FOR THE YEAR. UNDER THESE CIRCUMSTANCES, IT IS DIFFICULT TO ACCEPT ARGU MENTS OF BOTH THE SIDES. FURTHER, IN A CASE WHERE PURCHASES ARE CONSI DERED TO BE PURCHASED FROM SUSPICIOUS/HAWALA DEALERS, VARIOUS H IGH COURTS AND TRIBUNALS HAD CONSIDERED AN IDENTICAL ISSUE IN LIGH T OF INVESTIGATION CARRIED OUT BY THE SALES TAX DEPARTMENT AND HELD TH AT IN CASE OF PURCHASES CLAIMS TO HAVE MADE FROM ALLEGED HAWALA D EALERS, ONLY PROFIT ELEMENT EMBEDDED IN THOSE PURCHASES NEEDS TO BE TAXED, BUT NOT TOTAL PURCHASE FROM THOSE PARTIES. THE HONBLE GUJARAT HIGH COURT, IN THE CASE OF CIT VS SIMITH P.SHETH 356 ITR 451 HAD CONSIDERED A SIMILAR ISSUE AND HELD THAT AT THE TIM E OF ESTIMATION OF PROFIT FROM ALLEGED BOGUS PURCHASES NO UNIFORM YARD STICKS COULD BE ADOPTED, BUT IT DEPENDS UPON FACTS OF EACH CASE. TH E ITAT, MUMBAI, IN NUMBER OF CASES HAD CONSIDERED AN IDENTICAL ISSU E AND DEPENDING UPON FACTS OF EACH CASE, DIRECTED THE LD.AO TO ESTI MATE GROSS PROFIT OF 10% TO 15% ON TOTAL ALLEGED BOGUS PURCHASES. IN THIS CASE, CONSIDERING THE NATURE OF BUSINESS OF THE ASSESSEE THE LD. AO HAS ESTIMATED 40.50% GROSS PROFIT, WHICH HAS BEEN UPHEL D BY THE LD. LD.CIT(A). ALTHOUGH, BOTH AUTHORITIES HAVE TAKEN UN IFORM RATE OF PROFIT FOR ESTIMATION OF INCOME FROM ALLEGED BOGUS PURCHASE, BUT NO ITA NO.1809/MUM/2019 HBD MACHINES MANUFACTURING CORPON. 7 ONE COULD SUPPORT SAID RATE OF GROSS PROFIT WITH NE CESSARY EVIDENCES OR ANY COMPARABLE CASES. THEREFORE, CONSIDERING FAC TS AND CIRCUMSTANCES OF THIS CASE AND CONSISTENT WITH VIEW TAKEN BY THE CO- ORDINATE BENCH IN NUMBER OF CASES, WE ARE OF THE CO NSIDERED VIEW THAT RATE OF PROFIT ADOPTED BY THE LD. AO AS WELL A S THE LD. CIT(A) SEEMS TO BE ON HIGHER SIDE WHEN COMPARED TO NATURE OF BUSINESS OF THE ASSESSEE AND HENCE, TO SETTLE DISPUTE BETWEEN T HE PARTIES, WE DIRECT THE LD. AO TO ESTIMATE 12.50% GROSS PROFIT ON ALLEGED BOGUS PURCHASES. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 20/05/2 020 SD/- ( RAVISH SOOD ) SD/- ( G. MANJUNATHA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 20/05/2020 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//