AASTHA TELECOM, MUMBAI V. ITO WD 15(2)(3), MUMBAI

ITA 1912/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79410 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 01-05-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 08-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAVINDRA BAIROLIA
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUM BAI , BEFORE SHRI D. MANMOHAN, VP AND SHRI SANJAY ARORA, AM I.T.A. NO. 1912/MUM/2011 ( / ASSESSMENT YEAR: 2007-08) AASTHA TELECOM SHOP NO.11, RAJENDRA RATAN SOCIETY, MAHESH NAGAR, S. V. ROAD, GOREGAON (W), MUMBAI-400 062 VS. ITO-15(2)(3), MUMBAI ! ' ./PAN/GIR NO. AALFA 7380 G ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) !#&' / APPELLANT BY : SHRI RAVINDRA BAIROLIA $%!#&' / RESPONDENT BY : SHRI SANJEEV JAIN ( )*&+, / DATE OF HEARING : 01.05.2014 -./&+, / DATE OF PRONOUNCEMENT : 09.07.2014 0 O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-26, MUMBAI (CIT(A) FOR SH ORT) DATED 12.01.2011, DISMISSING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S .143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A. Y.) 2007-08 VIDE ORDER DATED 18.05.2009. 2 ITA NO. 1912/MUM/2011 (A.Y.2007-08) AASTHA TELECOM VS. ITO 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A FIRM TRADING IN TELECOM PRODUCTS, BEING AN AUTHORIZED DISTRIBUTOR OF MAHANA GAR TELEPHONE NIGAM LTD. (MTNL FOR SHORT) FOR SALE OF COUPONS/RECHARGE VOUCHERS OF MOBILE/CELL PHONES. IN VERIFICATION OF ITS PURCHASES, MADE AND CLAIMED AT RS.5692.81 LACS PER ITS ACCOUNTS, DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS FOR THE RELEVANT YEAR, I T SUBMITTED THE FOLLOWING DETAILS: I) MAHANAGAR TELEPHONE NIGAM LTD., CURREY ROAD, MUMBAI RS.56,89,70,187/- II) MANIAR ASSOCIATES, 44, NAGDEVI CROSS LANE, 3 RD FLOOR, MUMBAI-400 003 RS.2,76,812/- TOTAL RS.56,92,46,999/- NOTICE U/S. 133(6) WAS ISSUED TO M/S. MANIAR ASSOCI ATES, MUMBAI (MA FOR SHORT), THE ONLY OTHER SUPPLIER APART FROM MTNL, WHO DENIED HAV ING HAD ANY TRANSACTION WITH THE ASSESSEE DURING THE RELEVANT YEAR. THE ASSESSEE, ON BEING CONFRONTED WITH THE SAID INFORMATION, CLARIFIED THAT THE GOODS (RECHARGE VOU CHERS) ARE, IN CASE OF SHORTAGE, LOANED FROM OTHER DISTRIBUTORS, AND RETURNED BACK SUBSEQUE NTLY. THESE TRANSACTIONS, BEING IN THE NATURE OF ACCOMMODATION BY ONE DISTRIBUTOR TO ANOTH ER, WITH NO FINANCIAL IMPLICATION WHATSOEVER, ARE THEREFORE RECORDED ONLY IN THE STOCK REGISTER AND NOT IN THE FINANCIAL ACCOUNTS (OF THE CONCERNED PARTIES). IN THE PRESENT CASE, HOWEVER, THESE WERE ENTERED AS PURCHASES FROM AND SALES TO MA IN ITS ACCOUNTS, ONL Y TO ENABLE BEING ENTERED/RECORDED IN ITS STOCK RECORDS, I.E., IN TERMS OF ITS ACCOUNTIN G SOFTWARE. COPY OF THE LEDGER ACCOUNT OF MA FOR THE YEAR, AS APPEARING IN ITS BOOKS, CONTAIN ING BOTH THE PURCHASE AND SALE ENTRIES FOR THE SAME AMOUNT/S (AT A TOTAL OF RS.2,76,812 / PB PG. 8 ), WAS SUBMITTED IN SUPPORT. THE MAIN PERSON, SHRI PRAVINCHANDRA B. MANIAR, LOOK ING AFTER THE AFFAIRS OF MA, HAD SINCE EXPIRED (ON 16.09.2006), AND IT WAS THIS THAT WAS RESPONSIBLE FOR THE DISCLAIMER BY THE PERSON NOW IN-CHARGE OF THE SAID FIRM, HIS SON, BEING NOT AWARE OF THE TRANSACTION/S. COPY OF THE DEATH CERTIFICATE OF LATE SHRI P. B. MA NIAR WAS FURNISHED IN SUPPORT (PB PG.1) . THE SAME DID NOT, HOWEVER, FIND FAVOUR WITH THE A SSESSING OFFICER (A.O.), WHO, REJECTING THE ASSESSEES BOOKS OF ACCOUNT U/S.145(3 ) OF THE ACT, MADE DISALLOWANCE TO THE EXTENT OF THE SAID PURCHASES, INFERRING THEM AS BOG US. THE ASSESSEE REITERATED ITS CASE IN APPEAL, ALSO RELYING ON THE REPLY TO ITS LETTER DAT ED 21.09.2007 TO AGM (SALES), MTNL 3 ITA NO. 1912/MUM/2011 (A.Y.2007-08) AASTHA TELECOM VS. ITO WITH REGARD TO THE LOST TRUMP RECHARGE AND VCC COUP ONS. AS INFORMED BY MTNL, THE LOST CARDS HAD BEEN ISSUED TO ANOTHER DISTRIBUTOR, MA, AND WHICH WOULD THUS PROVE THE ASSESSEES CASE IN-AS-MUCH AS THE CARDS ISSUED TO M A COULD ONLY BE SOLD BY IT (ASSESSEE) IF ITS CLAIM OF LOAN OF GOODS THERE-FROM WAS TRUE. THE SAME, AS WELL AS THE LEDGER ACCOUNT OF MA AS APPEARING IN THE ASSESSEES BOOKS, WERE DI SMISSED AS ONLY SELF-SERVING, AND A RESULT OF AN AFTERTHOUGHT. THERE WAS NO CONTEMPORAR Y VOUCHER/MATERIAL TO EXHIBIT THE LOAN TRANSACTION/S, IN THE ABSENCE OF WHICH THE ASSESSEE S CLAIM IN ITS RESPECT COULD NOT BE ACCEPTED. THE DISALLOWANCE HAVING BEEN CONFIRMED, T HE ASSESSEE IS IN SECOND APPEAL. 3. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI AL ON RECORD, GIVING OUR CAREFUL CONSIDERATION TO THE MATTER. 3.1 WITHOUT DOUBT, BOOKS OF ACCOUNT, WHERE MAINTAIN ED IN THE REGULAR COURSE OF BUSINESS, HAVE EVIDENTIARY VALUE (REFER SEC. 34 OF THE INDIAN EVIDENCE ACT, 1872). THE PRESUMPTION IN LAW WOULD BE THAT THE SAME ARE TRUE, SO THAT THE ASSESSEE DID INDEED MAKE PURCHASES FROM AND SALES TO MA DURING THE RELEVANT YEAR. SO, HOWEVER, IT IS OPEN TO THE REVENUE (OR EVEN TO THE ASSESSEE) TO REBUT THOSE EN TRIES AS NOT REFLECTING THE TRUE STATE OF AFFAIRS [91 ITR 18 (SC)]. IN FACT, TO THE EXTENT TH E ASSESSEE ADMITS OF GOODS HAVING BEEN RECEIVED FROM AND DELIVERED TO MA ON THE RELEVANT D ATES, THE ACCOUNTING ENTRIES OF PURCHASE AND SALE ARE IN AGREEMENT WITH THEIR PURPO RT AND CONSISTENT WITH THE ASSESSEES EXPLANATION OF THOSE ENTRIES. FURTHER, TO THE EXTEN T THE ASSESSEE, AGAIN, ADMITS OF THE SAID TRANSACTIONS AS HAVING NO FINANCIAL IMPLICATION T HE GOODS RECEIVED CARRYING ONLY AN OBLIGATION TO RETURN BACK THE SAME IN KIND, ITS VER SION CORROBORATES THAT OF THE CORRESPONDING PARTY (MA), CLAIMING NO (FINANCIAL) T RANSACTIONS WITH THE ASSESSEE DURING THE RELEVANT YEAR. THE ONLY QUESTION, THEREFORE, IS WHETHER THE RELEVANT GOODS WERE INDEED RECEIVED FROM AND SUBSEQUENTLY DELIVERED BACK TO MA BY THE ASSESSEE DURING THE RELEVANT YEAR, I.E., PROVE THE TRUTH OF ITS STOCK RECORDS IN ASMUCH MA HAS DENIED THE SAME, CASTING A DOUBT ON THE ASSESSEES VERSION. 4 ITA NO. 1912/MUM/2011 (A.Y.2007-08) AASTHA TELECOM VS. ITO 3.2 THE FIRST THING THAT STRIKES US IS THAT THE ASS ESSEES EXPLANATION HAS TO BE TAKEN AND CONSIDERED AS A WHOLE. CONSIDERING THE PURCHASE P ART AS UNTRUE, WHILE ACCEPTING THE SALE PART, AS HAS BEEN DONE BY THE REVENUE, WOULD BE MYOPIC. THE REVENUE HAS, IN OUR VIEW, RATHER THAN SUBJECTING THE ASSESSEES EXPLANA TION TO APPROPRIATE VERIFICATION IN-AS- MUCH AS THE CORRESPONDING PARTY MA, HAD RESPONDED TO THE NOTICE U/S.133(6) DENYING THE TRANSACTIONS, PROCEEDED WITHOUT DUE DISCRIMINAT ION AND APPLICATION OF MIND. WAS THE STOCK OF THE RELEVANT GOODS (RECHARGE COUPONS) WITH THE ASSESSEE INDEED NIL OR LOW ON THE RELEVANT DATES, SO THAT IT COULD NOT HAVE MADE THE SALES OF THE SAID GOODS IN ITS ABSENCE? CORRESPONDINGLY, WAS THE LOANER, I.E., MA, SUFFIC IENTLY STOCKED QUA THE SAID GOODS ON THE RELEVANT DATES? THAT IS TO SAY, WOULD ITS STOCK (OF THE RELEVANT CARDS/COUPONS) FALL TO NIL OR EVEN NEGATIVE IF THE GOODS STATED TO BE LOAN ED TO THE ASSESSEE WERE INDEED RECORDED BY IT IN ITS STOCK RECORDS ON THOSE DATES. THIS IS AS, FIRSTLY, THE ASSESSEE COULD NOT POSSIBLY HAVE ACCESS TO THE LOANERS RECORDS AND, FURTHER, N OBODY WOULD POSSIBLY LOAN TO ANOTHER IF IT IS NOT ADEQUATELY STOCKED IN RESPECT OF THE SAID GOODS, OR EVEN AT THE RISK OF LOSS OF ITS OWN SALES, BY ALLOWING THE STOCK LEVEL TO FALL TO N IL OR TO PRECARIOUSLY LOW LEVELS. IN FACT, IT IS QUITE POSSIBLE THAT THE STOCK RECORDS OF MA REFL ECTED THE ENTRIES OF DELIVERY AND RECEIPT, YET DENIED THE TRANSACTIONS, BEING UNOFFICIAL. THEN , DID THE ASSESSEES PURCHASE AND SALE RETURNS FOR THE RELEVANT PERIOD (JULY TO SEPTEMBER, 2006), AS FURNISHED TO THE CONCERNED AUTHORITIES, WERE AT AN AMOUNT/S IN AGREEMENT WITH ITS BOOKS OF ACCOUNT AND, FURTHER, BORE THE NAME OF MA AS THE SUPPLIER OR BUYER, AS THE CAS E MAY BE, OF THE RELEVANT GOODS. ALL THESE FACTS, IT MAY BE APPRECIATED, WOULD BE BORNE OUT OF RECORDS OF THE CONCERNED PARTIES, WHICH STAND CRYSTALLIZED AT THE RELEVANT POINTS IN TIME, MUCH BEFORE THE ENQUIRY, SO THAT THE ASSESSEES EXPLANATION WOULD STAND TO BE VALIDA TED, OR NOT SO, WITH REFERENCE THERETO. FURTHER STILL, THE LOAN TRANSACTION BEING UNOFFICIA L, IN-AS-MUCH AS THE RELEVANT GOODS COULD BE VALIDLY SOURCED ONLY FROM MTNL, WHAT DOCUMENT/S WAS GENERATED BETWEEN THE PARTIES TO EVIDENCE THE SAME. THIS WOUL D BE NECESSARY TO SAFEGUARD ONE FROM A DENIAL OF THE TRANSACTION BY ANOTHER (DEBTOR), OR , AS INDEED AS HAPPED IN THE INSTANT CASE, DEMISE OR OTHERWISE ABSENTIA OF ONE OF THE PERSONS TO THE TRANSACTION. COULD, FOR EXAMPLE, THE SAID RECHARGE VOUCHERS, IF ONLY ON A TEST CHECK BASIS, BE GOT VERIFIED FROM MTNL AS TO 5 ITA NO. 1912/MUM/2011 (A.Y.2007-08) AASTHA TELECOM VS. ITO THEIR SUPPLY, I.E., ORIGINALLY. IF RATIFIED BY IT ( MTNL), AS INDEED THE ASSESSEES CLAIMS WITH REFERENCE TO THE REPLY TO ITS LETTER TO MTNL, WRITT EN TO REPORT LOST CARDS, THE ASSESSEES CLAIM WOULD STAND VALIDATED. HOWEVER, THE REVENUE, AS OBSERVED EARLIER, DOES NOTHING ON THE SORT, AND HAS MERELY DISMISSED THE ASSESSEES C ASE AS AN AFTERTHOUGHT. 3.3 CONSIDERING THE FACTS AS BORNE OUT OF THE RECOR D, WE FIRSTLY FIND NOTHING UNUSUAL ABOUT THE LOAN TRANSACTIONS; PARTIES IN THE SAME TR ADE - BOTH THE DISTRIBUTORS IN THE INSTANT CASE BEING LOCATED AT MUMBAI, MAY OCCASIONALLY ACCO MMODATE EACH OTHER TO FACILITATE EACH OTHERS BUSINESS. THE VOLUME OF SUCH TRANSACTI ONS, AT RS.2.77 LACS (I.E., AT LESS THAN 0.05% OF THE TOTAL PURCHASES), ITSELF REVEALS THE I NFREQUENCY OF SUCH TRANSACTIONS. FURTHER, THERE IS NOTHING TO SUGGEST OR INDICATE OF THE ASSESSEES CLAIM AS BEING AN AFTERTHOUGHT. HOW COULD, ONE MAY ASK, THE PURCHASE, BEING OF A LI CENSED PRODUCT, FROM OTHER THAN AN AUTHORIZED SOURCE, BE POSSIBLE ? THERE IS NO GREY MARKET, I.E., ON THE SUPPLY SIDE, WHILE, IN FACT, THE SALES ARE ALSO SUBJECT TO A VARIETY OF REGULATORY CONTROLS, AND CAN ONLY BE REGISTERED USERS. THIS ALSO EXPLAINS THE EN TIRE PURCHASES, OTHER THAN FOR WHICH IT CLAIMS LOAN OF GOODS (FROM ANOTHER AUTHORIZED DISTR IBUTOR), AS FROM MTNL. THEN, AGAIN, THERE IS SALE OF THE SAME QUANTITY (AT THE SAME RAT E) TO MA, WHICH ITSELF SHOWS THE PECULIAR NATURE OF THE TRANSACTION BETWEEN TWO DI STRIBUTORS, WHO WOULD THUS ORDINARILY HAVE NO OCCASION TO BE EACH OTHERS SUPPLIERS OR BU YERS. WHY WOULD A DISTRIBUTOR PURCHASE GOODS FROM ANOTHER ? THEN, AGAIN, WHY WOULD HE SELL IT WITHOUT NORMAL PR OFIT ? THE ASSESSEES ACCOUNT BOOKS ARE AS KEPT AND MAINTA INED IN THE REGULAR COURSE OF ITS BUSINESS, WHILE THE ENQUIRY BY THE REVENUE WAS ONLY MUCH LATER, IN, AS IT APPEARS, FEBRUARY, 2009, FOLLOWED BY NOTICE U/S.133(6) ON 05 .03.2009. THE TRANSACTION/S WITH MA, AS PER THE ASSESSEES BOOKS OF ACCOUNT, OCCURRED DU RING THE PERIOD 15.07.2006 TO 04.09.2006, PRIOR TO THE DEMISE OF ITS MAIN PERSON, I.E., SHRI P. B. MANIAR, ON 16.09.2006. THE PLEA OF THE SUCCESSOR BEING NOT, THEREFORE, AWA RE OF THE TRANSACTIONS, WHICH ARE GENERALLY NOT RECORDED IN ACCOUNTS IS NOT WITHOUT M ERIT. DID THE ASSESSEE DELIBERATELY RECORD THE PURCHASES AND SALES ON THOSE DATES , WHICH ARE OSTENSIBLY GUIDED BY ITS STOCK LEVELS ON THOSE DATES ? THEN, AGAIN, HOW COULD THE LETTER DATED 21.09.2007 TO MTNL, 6 ITA NO. 1912/MUM/2011 (A.Y.2007-08) AASTHA TELECOM VS. ITO RECEIPTED BY THE ADDRESSEE ON THE SAME DATE, BE AN AFTERTHOUGHT ? EVEN SO, WHAT PREVENTS THE REVENUE TO SEEK CONFIRMATION OF THE STATED REPL Y THERETO FROM MTNL ITSELF, I.E., AS CLAIMED BY THE ASSESSEE, AS BEING ACTUALLY SO AND, FURTHER, AS BEING IN CONFORMITY WITH THE MTNLS RECORDS. THIS WOULD PROVIDE A VALID BASIS TO ACCEPT OR REJECT THE ASSESSEES PLEA, WHILE AN ABSENCE OF ANY SUCH VERIFICATION WOULD ONL Y LEAD TO THE INFERENCE OF VALIDITY OF THE ASSEESSEES CLAIM IN ITS RESPECT. THE ASSESSEE, IN OUR VIEW, IN REPORTING ITS PURCHASES FROM MA, HAS ACTED IN GOOD FAITH, AND THE ENTRIES I N ACCOUNTS REFLECT ITS BONA FIDES . THE ASSESSEE MAY HAVE, AS STATED IN THE ASSESSMENT ORDER (PARA 4.1), NOT REFLECTED THE NAME OF MA IN THE DETAILS OF SALES MADE IN EXCE SS OF RS.1 LAC EACH DURING THE YEAR, AS FURNISHED IN THE ASSESSMENT PROCEEDINGS. HOWEVER, T HAT COULD NOT HOLD AGAINST THE ASSESSEE OR LEAD TO THE INFERENCE OF THE PURCHASES BEING BOGUS. IF SO, THE SALES THERETO, ALSO APPEARING IN THE SAME ACCOUNT (OF MA), MUST EQ UALLY BE REGARDED AS BOGUS. IN FACT, THE OBJECTION IS TO NO MOMENT, AS THE ASSESSEES BO OKS, INCLUDING STOCK RECORDS, ARE MATCHED, SHOWING THE PURCHASE FROM AND SALE OF GOOD S TO MA, SO THAT NOTWITHSTANDING THE SAID NON-REFLECTION, THE SAID TRANSACTIONS STOO D DULY RECORDED IN ITS ACCOUNTS. THE ASSESSEE DOES NOT GAIN IN ANY MANNER FROM THE SAID NON-REFLECTION; ITS ACCOUNTS CLEARLY SHOWING THE GOODS PURCHASED FROM AS HAVING BEEN S UBSEQUENTLY SOLD TO, MA, I.E., IN THE SAME QUANTITY AND AT THE SAME RATE. IN OTHER WO RDS, THE RECORDING OF THE SAID TRANSACTIONS EXHIBITS THE AUTHENTICITY OF THE SAID ACCOUNT, AS IT COULD HAVE OTHERWISE KEPT THE SAME OFF ITS BOOKS, AS DID MA. THE ASPECT OF S ALES TO MA, AN INTEGRAL PART OF THE ASSESSEES EXPLANATION IN SUPPORT OF ITS ACCOUNTS, HAS BEEN COMPLETELY IGNORED BY THE REVENUE. IT, IN OUR VIEW, IN ACTING IN THE MANNER I T HAS, ACTED PAROCHIALLY AND WITH A PREJUDICED STATE OF MIND. 4. CONSIDERING THE ENTIRETY OF THE FACTS AND CIRCUM STANCES OF THE CASE, IN OUR CLEAR VIEW THERE IS NOTHING TO DOUBT THE GENUINENESS OF T HE IMPUGNED ENTRIES OF PURCHASE. ACCORDINGLY, WE SET ASIDE THE INVOCATION OF S. 145( 3) QUA THE ASSESSEES ACCOUNTS AS ALSO DIRECT THE DELETION OF THE DISALLOWANCE EFFECTED. W E DECIDE ACCORDINGLY. 7 ITA NO. 1912/MUM/2011 (A.Y.2007-08) AASTHA TELECOM VS. ITO 5. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. 1/+23451+& ) 6 +&+7 ORDER PRONOUNCED IN THE OPEN COURT ON JULY 09, 2014 SD/- SD/- (D. MANMOHAN) (SANJAY ARORA) / VICE PRESIDENT / ACCOUNTANT MEMBER ( 8* MUMBAI; 9 DATED : 09.07.2014 )3 ROSHANI , SR. PS !' # $%&' ('% COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. ( :+ ; < / THE CIT(A) 4. ( :+ / CIT CONCERNED 5. =)>?$3+3@4 ,@4/ ( 8* / DR, ITAT, MUMBAI 6. ?5A* GUARD FILE !' ) / BY ORDER, */)+ (DY./ASSTT. REGISTRAR) , ( 8* / ITAT, MUMBAI