BHADRESH TRADING COMPANY, MUMBAI V. ITO 24(1)(3), MUMBAI

ITA 2083/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9310 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 02-08-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 24-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Keywords: Bogus purchase; Unexplained expenditure; Accommodation entries; Reassessment proceedings
• Section: 69C; 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM ITA NO. 2083 / MUM/20 17 ITA NO. 2084/ MUM/20 17 ITA NO. 2085/ MUM/20 17 ( ASSESSMENT YEAR : 2009 - 10,2010 - 11 & 2011 - 12 ) M/S.BHADRESH TRADING COMPANY A/102, AMARNATH APARTMENT, S IR MV ROAD ANDHERI (E) MUMBAI 400 089 VS. ITO 24 (1)(3), MUMBAI PAN/GIR NO. AAAFB0999D APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI BHUPENDRA SHAH REVENUE BY SHRI RAM TIWARI DATE OF HEARING 25 / 09 /201 7 DATE OF PRONOUNCEME N T 26 / 09 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 36, MUMBAI DATED 30/01/2017 FOR THE A.Y.2009 - 10, 2010 - 11 AND 2011 - 12 IN THE MATTER OF ORDER PASSED U/S. 143(3) R.W. S. 147 OF THE IT ACT. 2. COMMON GRIEVANCE OF ASSESSEE IN ALL THE YEARS PERTAINS TO UPHOLDING THE ADDITION BY CIT(A) APPLYING PROFIT RATE OF 12.5% ON THE BOGUS PURCHASES. 3. THE FACTS AND CIRCUMSTANCES IN ALL THE THREE YEARS UNDER CONSIDERATION ARE SAME, I THEREFORE HEARD ALL THE APPEALS TOGETHER AND NOW DECIDING THE SAME THROUGH THIS CONSOLIDATED ORDER. 4 . T HE FACTS OF THE CASE ARE THAT THE A SSESSEE FILED RETURN OF INCOME FOR A.Y.2009 - 10 , BY DECLARING TOTAL INCOME OF RS.2,10,862/ - ON 26.09.2009. ITA NO. 2083, 2084 & 2085/MUM/2017 M/S. BHADRESH TRADING COMPANY 2 THE SAME WA S PROCESSED U/S 143(1) OF THE ACT. THE CASE OF THE ASSESSEE WAS REOPENED FOR THE REASON THAT AN INTIMATION VIDE LETTER BEARING NO.DGIT (LNV.)/CORR.FIELD/2013 - 14 DATED 26/12/2013 HAS CIRCULATED A LIST OF BENEFICIARIES WHO HAVE OBTAINED ACCOMMODATION ENTRIES FOR CLAIMING BOGUS EXPENDITURE FROM PARTIES WHO HAVE ISSUED BOGUS BILLS WITHOUT DELIVERY OF GOODS AS PER INVESTIGATION CONDUCTED BY THE MAHARASHTRA SALES TAX AUTHORITIES. ON PERUSAL OF THE LIST, IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAS OBTAINED ACCO MMODATION ENTRIES FROM THE FOLLOWING PARTIES TO THE TUNE OF RS.37,58,941/ - DURING THE FINANCIAL YEAR 2008 - 09 TO A.Y. 2009 - 10: - S.NO NAME OF THE BILL PROVIDER TIN NO. AMOUNT IN RS. 1 MANAVIMPEX 27280504194V 81,153 2 MONISM ENTERPRISES 2736058931 6V 18,000 3 NEW STEEL (INDIA) 27030085243V 18,888 4 LIBERTY TRADING CORPORATION 27290663802V 43,024 5 NIRMA METAL INDUSTRIES 277320355445V 19,84,570 6 GLOBAL TRADE IMPEX 27400628967V 16,13,306 37,58,941 5. SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS REOPENED BY ISSUANCE OF NOTICE U/S 148 OF THE ACT ON 19.03.2015. IN RESPONSE, THE ASSESSEE ASKED AO TO CONSIDER RETURN ALREADY FILED ON 26.09.2009 IN RESPONSE TO ABOVE ITA NO. 2083, 2084 & 2085/MUM/2017 M/S. BHADRESH TRADING COMPANY 3 NOTICE. THE ASSESSMENT ORDER U/S 143(3) R.W.S. 147 OF THE ACT W AS PASSED ON 29.02.2016 BY ASSESSING TOTAL INCOME AT RS.6,80,730/ - . 6. DURING THE COURSE OF REASSESSMENT PROCEEDINGS, T HE ASSESSEE WAS ASKED BY THE AO TO SHOW CAUSE AS TO WHY THE AMOUNT OF RS.37,58,941/ - SHOULD NOT BE TREATED AS UNEXPLAINED EXPENDITURE U/S 69C OF THE ACT AND DEEMED TO BE THE INCOME OF THE ASSESSEE . IN RESPONSE, THE ASSESSEE 'S AR, SUBMITTED LETTER DATED 26.02.2016. THE SUBMISSION OF THE ASSESSEE 'S AR WAS CAREFULLY CONSIDERED BUT NOT FOUND ACCEPTABLE BY THE AO FOR THE FOLLOWING REASONS: - (I ) THAT THE PRIMARY ONUS WAS ON THE ASSESSEE TO ESTABLISH THE GENUINENESS OF THE PURCHASES CLAIMED BY IT. AS PER SECTION 101, 102 AND 106 OF THE INDIAN ACT, THE ONUS LIES UPON THE ASSESSEE TO PROVE ALL THE EXPENSES INCLUDING PURCHASES TO THE SATISFACTION OF THE AO, WHICH WAS NOT DISCHARGED BY THE ASSESSEE . (II) THAT MERE FILING OF BILLS IN SUPPORT OF PURCHASES AND PAYMENT THROUGH ACCOUNT PAYEE CHEQUE CANNOT BE CONCLUSIVE IN A CASE WHERE GENUINENESS OF TRANSACTION IS IN DOUBT . (III) THAT PAYMENT BY ACCOUNT PA YEE CHEQUE IS NOT SACROSANCT AND IS NOT SUFFICIENT TO ESTABLISH THE GENUINENESS OF THE PURCHASE. RELIANCE WAS PLACED ON KACHAWALA GEMS VS . JT.CIT (2007) 288 ITR 10 (SC). (IV) THAT THE UNDISPUTED FACT IS THAT THE PURCHASES CLAIMED TO HAVE BEEN MADE FROM TH E SE PARTIES REMAINED UNVERIFIED. ITA NO. 2083, 2084 & 2085/MUM/2017 M/S. BHADRESH TRADING COMPANY 4 (V) THAT THE GENUINENESS OF THE TRANSACTION COULD BE DECIDED ON THE BASIS OF PRIMARY FACTS ON RECORD AND THE REVENUE IS NOT REQUIRED TO LEAD A CLINCHING EVIDENCE TO PROVE THAT PURCHASES ARE BOGUS. (VI) THAT IT IS SETTLED LA W THAT STRICT RULES OF EVIDENCE DO NOT APPLY TO LNCO M E TAX PROCEEDINGS AND THE REAL TEST WITH REGARD TO GENUINENESS OF THE TRANSACTION IS 'PREPONDERANCE OF 'PROBABILITIES' AND NOT 'BEYOND REASONABLE DOUBT'. RELIANCE WAS PLACED ON C. VASANTLAL & CO. VS. CIT (1962) 45 ITR 206 (SC), CHATURBHUJ PANAUJ AIR 1969 (SC) AND SUMATIDAYAL VS. CIT (1905) 2014 ITR 801 (SC). ONE HAS TO CONSIDER THE TOTALITY OF FACTS, SURROUNDING CIRCUMSTANCES AND HUMAN PROBABILITY FOR ARRIVING AT A CONCLUSION AS HELD IN CIT VS. DURGA PRAS AD 82 ITR 540 (SC) AND SUMATIDAYAL VS. CIT 214 ITR 801 (SC) . (VII) THAT THE PURCHASE FROM HAWALA OPERATORS FALLS WITHIN THE AMBIT OF THE TERM 'COLOURABLE DEVICES' AND THE SUPREME COURT OBSERVED IN THE CASE OF MCDOWELL AND CO. LTD. VS. CTO 154 ITR 148 THAT 'TAX PLANNING MAY BE LEGITIMATE PROVIDED IT IS WITHIN THE FRAMEWORK OF LAW. COLOURABLE DEVICES CANNOT BE PART OF TAX PLANNING AND IT IS WRONG TO ENCOURAGE OR ENTERTAIN THE BELIEF THAT IT IS HONOURABLE TO AVOID THE PAYMENT OF TAX BY RESORTING TO DUBIOUS ME THODS. IT IS THE OBLIGATION OF EVERY CITIZEN TO PAY THE TAXES HONESTLY WITHOUT RESORTING TO SUBTERFUGES'. (VIII) THAT THERE IS A SPECIFIC FINDINGS OF MAHARASHTRA SALES TAX DEPARTMENT THAT THESE PARTIES HAD ISSUED FALSE BILLS WITHOUT DELIVERY OF GOODS AND N ONE OF THESE PARTIES WERE AVAILABLE AT THEIR ADDRESSES WHEN VERIFICATION LETTERS U/S133(6) OF THE ACT WERE ISSUED. ITA NO. 2083, 2084 & 2085/MUM/2017 M/S. BHADRESH TRADING COMPANY 5 7. IN VIEW OF THE ABOVE DISCUSSION , IT WAS HELD BY AO THAT THE ASSESSEE HAS FAILED TO PROVE THE GENUINENESS OF PURCHASES FROM THESE PARTIES AND PURCHASES FROM THESE PARTIES ARE BOGUS AND NON - GENUINE. HOWEVER, AS THE ASSESSEE HAS BEEN ABLE TO CORRELATE THE PURCHASES OF MATERIAL WITH THE ALLOCATION OF GOODS AND THE SALES THEREOF, IT WAS ASSUMED THAT THE ASSESSEE HAS PURCHASED THESE GOODS FROM TH E GREY MARKET AND HAS INTRODUCED THE SAME IN HIS REGULAR STOCK BY OBTAINING BOGUS BILLS / ACCOMMODATION BILLS FROM THESE PARTIES. ANY PERSON INDULGING IN THE PRACTICE OF PURCHASING GOODS FROM THE GREY MARKET AND OBTAINING BOGUS BILLS OF SOME OTHER PARTIES WOULD DO SO GETTING SOME BENEFIT. THEREFORE, THE PURCHASE RATE AS PER THE PURCHASE BILLS CANNOT BE ACCEPTED. THE RATE OF PURCHASE MADE FROM THE GREY MARKET IS MUCH LOWER THAN THE RATE OF PURCHASES FROM THE REGULAR MARKET DUE TO EVASION OF VAT, OTHER TAXES AND DISCOUNT. THUS, THERE IS INFLATION OF PURCHASES. THEREFORE, ON THE BASIS OF THESE FACTS AND CIRCUMSTANCES OF THE CASE, AO ESTIMATED THE PROFIT ELEMENT EMBEDDED IN THE BOGUS PURCHASE TRANSACTIONS @12.50% OF THE AMOUNT OF THE TOTAL BOGUS PURCHASE BILLS O F RS.37,58,941/ - AND ADDED IN ASSESSEES INCOME WAS DISALLOWED BY THE AO. ACCORDINGLY, AN AMOUNT OF RS.4,69,868/ - WAS TREATED AS UNEXPLAINED EXPENDITURE WITHIN THE MEANING OF SECTION 69C OF THE ACT AND DEEMED TO BE INCOME OF THE ASSESSEE. 8. BY THE IMPUGNE D ORDER, CIT(A) CONFIRMED THE ORDER OF THE AO AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. ITA NO. 2083, 2084 & 2085/MUM/2017 M/S. BHADRESH TRADING COMPANY 6 9. IT WAS ARGUED BY LEARNED AR THAT THE LD. ASSESSING OFFICER ERRED IN MAKING THE ADDITION OF RS.4,69,868/ - ON ACCOUNT PROFIT ELEMENT EMBEDDED IN THESE BO GUS PURCHASE TRANSACTIONS IS HELD TO BE 12.50% OF AMOUNT OF ALLEGED BOGUS PURCHASES OF RS.37,58,941/ - BASED ON THE INFORMATION RECEIVED FROM SALES TAX DEPARTMENT, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD SUBMITTED ALL THE DOCUMENTS TO PROVE THE PURCHASES BEYOND DOUBT, AND HENCE THE ADDITION MADE OF RS.4,69,868/ - MAY BE DELETED., THE A O HAD CARRIED OUT INDEPENDENT EXAMINATION/ VERIFICATION AS WHETHER THE GOODS PURCHASED FROM SO CALLED BOGUS BILLERS DO EXIST OR NO BUT DID NOT PROVIDE ANY INFORMATI ON REGARDING THE SAME TO THE ASSESSEE AND ALSO FAILED TO EXAMINE ASSESSEE IN THIS BEHALF AND ALLOW CROSS EXAMINATION OF THE INSPECTOR WHO WENT TO VERIFY THE DETAILS AND ALSO CROSS EXAMINATION OF THE SALES TAX AUTHORITIES ON WHOSE INFORMATION THE LEARNED AS SESSING OFFICER HAD RELIED IN REOPENING THE ASSESSMENT. THE AO FAILED TO APPRECIATE THE EVIDENCE PRODUCED BY THE ASSESSEE AS REGARDS THE RECEIPT OF GOODS, TRANSPORTATION RECEIPT ETC AND WAS NOT JUSTIFIED IN MERELY RELYING ON THE INFORMATION RECEIVED FROM T HE SALES TAX DEPARTMENT IN FRAMING THE IMPUGNED ASSESSMENT U/S 143(3) R.W.S 147 OF THE ACT. THEREFORE, THE ASSESSMENT ORDERS DT. 29/02/2016 IS BAD IN LAW AND MAY BE DELETED. LEARNED AR FURTHER SUBMITTED THAT SINCE THE LD. ASSESSING OFFICER HAS ACCEPTED THE SALES , THE CORRESPONDING PURCHASE OF RS.37,58,941 / - CANNOT BE TREATED AS BOGUS AND ONLY N.P. TO THE EXTENT OF ALLEGED BOGUS PURCHASES CAN BE ADDED AS INCOME OF THE ASSESSEE. ITA NO. 2083, 2084 & 2085/MUM/2017 M/S. BHADRESH TRADING COMPANY 7 10 . OUR ATTENTION WAS ALSO INVITED TO THE FOLLOWING DOCUMENTS FILED BEFORE THE LOWER AUTHORITIES. A. BALANCE SHEET & PROFIT & LOSS ACCOUNT, COPY OF VAT AUDIT REPORT. B. LIST OF DEBTORS, CREDITORS, PURCHASE PARTY AND SALES PARTY ALONG WITH TIN NUMBERS. C. COPY OF BANK STATEMENTS AND ADDRESS DETAILS OF PU RCHASE PARTIES TO WHOM DEPARTMENT CALLED AS NON - GENUINE DEALERS. D. IT WAS SUBMITTED - THAT INFORMATION FROM SALES TAX DEPARTMENT STATING THAT THESE PURCHASES ARE NOT GENUINE, IS CONTRARY TO THE FACTS OF THE PRESENT CASE. THE APPELLANT SPECIFICALLY REFUT ED THIS ALLEGATION, BY PRODUCING PURCHASE BILLS, DELIVERY CHALLANS, SUPPLIER'S LEDGER ACCOUNTS, TRANSPORTATION BILLS, ONE TO ONE CORRELATION OF PURCHASES MADE AND SALES THEREOF, AND INFORMATION REGARDING PURCHASE AND PAYMENT MADE. E. THE APPELLANT FILE D THE COPY OF BANK STATEMENT TO PROVE THAT THE PAYMENTS WERE SUBSEQUENTLY MADE TO ALL THE PARTIES AND THAT THROUGH ACCOUNT PAYEE CHEQUES. 11 . AS PER LEARNED AR T HE ASSESSEE HAD DISCHARGED THE BURDEN OF PROVE BY PRODUCING THE RELEVANT MATERIAL AND NO ADDITION WAS CALLED FOR ON PRESUMPTION. FURTHER PAYMENT WAS MADE BY A/C PAYEE CHEQUES THIS FACT WOULD OVER SHADOW ALL OTHER SHORT COMING. MATHER & PLATT INDIA LTD, (1987) 168 ITR 493 (CAL.) RAMANAND SAGAR VS. DCIT (2002) 256 ITR 134 (BOM) 12 . RELIANCE WA S PLACED ON THE DECISION OF CIT VS. NIKUNJ EXIMP ENTERPRISES PVT. LTD. ITA 'NO. 5604 OF 2010, BOMBAY HIGH COURT, ORDER DT. 17/12 - 2012, WHEREIN THE ENTIRE ADDITIONS ON ACCOUNT OF BOGUS PURCHASES WERE DELETED. FURTHER RELIANCE WAS PLACED ON THE DECISION OF BABULAL C. BORANA VS. ITO (2006) 282 ITR 25T (BOM.) (HC), WHEREIN THE ENTIRE ADDITIONS WERE DELETED ON THE GROUND THAT THE THIRD PARTIES TO WHOM SALES WERE MADE, WERE FOUND TO HAVE BEEN GENUINE AND IF SALES WERE GENUINE, ITA NO. 2083, 2084 & 2085/MUM/2017 M/S. BHADRESH TRADING COMPANY 8 THEN PURCHASE MUST BE GENUINE AND TRANSACTION COULD NOT BE SAID TO BE HAWALA TRANSACTIONS. 13 . AS PER LEARNED AR IN THE CASE OF RAMESH KUMAR & CO. VS ACIT (ITAT) IN 1TA NO.2959/MUM/2014 ( A.Y.2010 - 11) DATED 28.11.2014 MUMBAI, WHEREIN THE ENTIRE ADDITIONS WERE DELETED ON THE GROUND THAT THE PURCHASES WERE SUPPORTED BY PROPER INVOICES DULY REFLECTED IN THE BOOKS OF ACCOUNT. THE PAYMENTS HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUE WHICH IS DULY REFLECTED IN THE BANK STATEMENT OF THE ASSESS E E. THERE IS NO EVIDENCE TO SHOW THAT TH E ASSESS E E HAS RECEIVED CASH BACK FROM THE SUPPLIERS. THE ADDITIONS HAVE BEEN MADE MERELY ON THE REPORT OF THE SALES TAX DEPARTMENT BUT AT THE SAME TIME IT CANNOT BE SAID THAT PURCHASES ARE BOGUS. 14 . ON THE OTHER HAND IT WAS SUBMITTED BY LEARNED DR THAT BOGUS PURCHASE WAS INFORMED TO THE AO AND HE HAD MADE FULL INDEPENDENT ENQUIRY AND FOUND THAT SUPPLIERS WERE NOT EXISTING, THEREFORE, HE HAS VERY REASONABLY ESTIMATED PROFIT OF 12.5% ON SUCH BOGUS PURCHASES. 1 5 . I HAVE CONSIDERED RIVAL CONTENTIONS AND CARE FULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. FROM THE RECORD, I FOUND THAT THERE WAS INFORMATION TO THE AO WITH REGARD TO THE BOGUS PURCHASES HAVING BEEN MADE BY THE ASSESSEE. THE AO HAS ALSO MADE AN INDEPENDENT ENQUIRY TO FIND OUT THE GENUINENE SS OF THE PURCHASES BY ISSUE OF NOTICES U/S.133(6). WHEN THE SUPPLIERS WERE NOT FOUND GENUINE, AO MADE ADDITION ONLY BY ESTIMATING PROFIT AT 12.5% ON SUCH PURCHASES IN ALL THE YEARS UNDER CONSIDERATION. AS PER LEARNED AR THE ASSESSEE HAS FILED ALL THE DETA ILS OF ITA NO. 2083, 2084 & 2085/MUM/2017 M/S. BHADRESH TRADING COMPANY 9 PURCHASES WHICH HAVE BEEN SOLD BY THE ASSESSEE AND THE SAME WAS NOT DISPUTED BY THE AO. WITH REGARD TO ESTIMATION OF PROFIT AT 12.5%, IT WAS SUBMITTED THAT ASSESSEE HAS ALREADY SHOWN HIGH GP SO, SALE OF SUCH GOODS WHICH ARE AS UNDER: - ASSESSMENT YEA R GP RATE 2009 - 10 11.72% 2010 - 11 10.43% 2011 - 12 11.89% 15. I HAD ALSO DELIBERATED ON THE JUDICIAL PRONOUNCEMENTS REFERRED BY LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS AS WELL AS CITED BY LEARNED AR AND DR DURING THE COURSE OF HEARING BEFORE US IN TH E CONTEXT OF FACTUAL MATRIX OF THE CASE. FROM THE RECORD, I FOUND THAT ASSESSEE HAS SHOWN GOOD GP DURING THE YEAR S UNDER CONSIDERATION. K EEPING IN VIEW THE NORMAL GP BEING SHOWN BY THE ASSESSEE ENGAGED IN THE SIMILAR BUSINESS, I FOUND THAT ASSESSEE HAD SHO WN REASONABLE GOOD GP. THEREFORE, CONSIDERING THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, I DIRECT THE AO TO RESTRICT THE ADDITION TO THE EXTENT OF 10% IN THE A.Y.201 0 - 11 WHERE ASSESSEE HAD SHOWN GP OF 10.43%. AO IS DIRECTED TO RESTRICT THE ADDITI ON TO THE EXTENT OF 8% IN THE A.Y.2009 - 10 AND 2011 - 12 WHERE ASSESSEE HAD SHOWN GP OF 11.72% AND 11.89% RESPECTIVELY. I DIRECT ACCORDINGLY. 16. IN THE RESULT, APPEALS OF ASSESSEE ARE ALLOWED IN PART. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 26 / 09 /2017 S D/ - ( R.C.SHARMA ) ACCOUNTANT MEMBER MUMBAI ; DATED 26 / 09 /201 7 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : ITA NO. 2083, 2084 & 2085/MUM/2017 M/S. BHADRESH TRADING COMPANY 10 BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. D R, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//