M Dhara & Brothers, Howrah V. D.C.I.T.,Circle-48, Kolkata

ITA 2474/KOL/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 6978 (ITAT-KOLKATA)
• Duration Of Justice: 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 20-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Assessee Lawyers: K M ROY
• Keywords: Bogus purchase; Accommodation entries
• Section: 143(1); 48; 148

Judgement Text

1 ITA NO.2474/KOL/2019 M. DHARA & BROTHER, AY 2011-12 , C , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA ( )BEFORE . , /AND . # . $ , ) [BEFORE SHRI J. SUDHAKAR REDDY, AM & SHRI A. T. VAR KEY, JM] I.T.A. NO. 2474/KOL/2019 ASSESSMENT YEAR: 2011-12 M. DHARA & BROTHER (PAN: AAFFM3283Q) VS. DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-48, KOLKATA APPELLANT RESPONDENT DATE OF HEARING 15.01.2020 DATE OF PRONOUNCEMENT 05.02.2020 FOR THE APPELLANT SHRI K. M. ROY, FCA FOR THE RESPONDENT SHRI SUPRIYO PAL, JCIT, SR. DR ORDER PER SHRI A.T.VARKEY, JM THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-14, KOLKATA DATED 25.09.2019 FOR AY 2011-12. 2. THOUGH GROUND NO.1 OF APPEAL OF THE ASSESSEE IS A LEGAL ISSUE, IT HAS NOT BEEN ARGUED BEFORE US, SO WE DISMISS THIS GROUND OF APPE AL. COMING TO GROUND NO.2, WHICH IS AGAINST THE ACTION OF THE LD. CIT(A) CONFIRMING PARTLY THE ADDITION [BY RESTRICTING TO GP @ 26.88% AT RS.15,07,579/-] WHEN THE AO HAD ADD ED THE ENTIRE BOGUS PURCHASES TO THE TUNE OF RS.56,08,544/-. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A FIRM WHICH IS ENGAGED IN THE TRADING ACTIVITY AND HAD FILED THE RETURN OF INCOME DISCLOSING TOTAL INCOME OF RS.13,98,720/- WHICH WAS PROCESSED U/S. 143(1) OF T HE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) BY THE CPC B ANGALORE ON 16.02.2012. LATER THE AO RECEIVED INFORMATION THAT DURING SEARCH AND SEIZ URE OPERATION CONDUCTED BY THE DDIT(INV.), UNIT-4(2), KOLKATA ON 31.03.2016 IN THE CASE OF ONE SHRI SANJIW KUMAR 2 ITA NO.2474/KOL/2019 M. DHARA & BROTHER, AY 2011-12 SINGH IT REVEALED THAT SHRI SANJIW KUMAR SINGH IS M AINLY ENGAGED IN THE BUSINESS OF PROVIDING ACCOMMODATION ENTRIES THROUGH BOGUS BILL INGS, SHARE CAPITAL, SHARE PREMIUM AND UNSECURED LOANS. ACCORDING TO AO, IT WAS GATHE RED THAT SHRI SANJIW KUMAR SINGH & GROUP HAVING OFFICE ADDRESS AT 109, JAYNARAYAN BA BU ANAND DUTTA LANE, HOWRAH- 711101, HAD BEEN CARRYING ON THE BUSINESS OF BOGUS BILLING AND ACCOMMODATION ENTRY AGAINST CASH RECEIVED FROM VARIOUS CLIENTS. THE AO NOTICED THAT SHRI SANJIW KUMAR SINGH ADMITTED U/S. 132(4) OF THE ACT THAT BOGUS BI LLING AND ACCOMMODATION ENTRY WERE MADE THROUGH VARIOUS PAPER/SHAM COMPANIES/CONCERNS WHEREIN HE AND HIS FAMILY MEMBERS ARE DIRECTORS/PARTNERS/PROPRIETOR. ACCORDI NG TO THE AO, A VERIFICATION OF BENEFICIARIES LIST DISCLOSED THAT M/S. M. DHARA & B ROTHERS IS BENEFICIARY OF SHRI SANJIW KUMAR SINGH AND DURING THE ASSESSMENT YEAR 2011-12 THE ASSESSEE FIRM HAD MADE TRANSACTION TOTALING RS.58,42,234/- WITH THE SHAM CONCERNS OF SHRI SANJIW KUMAR SINGH. THEREAFTER, THE AO HAD REOPENED THE ASSESSM ENT AFTER ISSUING NOTICE U/S. 148 OF THE ACT. DURING THE REASSESSMENT PROCEEDING, THE A O NOTICED THAT ON 27.11.2018 THE LD. AR OF THE ASSESSEE FIRM FILED PETITION ENCLOSIN G COPY OF THE DECLARATION U/S. 183 OF THE FINANCE ACT, 2016 IN RESPECT OF IDS 2016 ON BEH ALF OF THE ASSESSEE BEFORE THE DCIT, CIRCLE-48 AND ACIT, CIRCLE-48, KOLKATA FOR SE EKING DIRECTION U/S. 144A OF THE ACT. ACCORDING TO THE ASSESSEE, AN AMOUNT OF RS 2, 33,690/- WAS OFFERED AS UNDISCLOSED INCOME AS PER REASONS THAT THE BILLS WERE ARRANGED TO SUBSTITUTE THE EVIDENCE OF BILLS FROM UNREGISTERED DEALERS FROM WHOM ACTUAL PURCHASE S WERE MADE. ACCORDING TO THE ASSESSEE, THE RATE OF PURCHASE WAS INFLATED TO CONV ERT THE COST OF ARRANGING THE BILLS FROM THOSE SUPPLIERS TO THE EXTENT OF 4%. SO, THE EXCESS COST CLAIMED AT 4% OF RS.58,42,234/- WHICH WORKS OUT TO RS.2,33,690/- WA S OFFERED AS UNDISCLOSED INCOME IN THE IDS. THE AO NOTICED THAT THE ADDL. CIT, RANGE- 48 ALSO HAS CORROBORATED THIS FACT THAT ASSESSEE HAD OFFERED RS.2,33,960/- IN THE IDS SCHEME AS UNDISCLOSED INCOME FOR ARRANGING THE BILLS TO THE TUNE OF RS.58,42,234/-. THEREAFTER, THE AO GAVE OPPORTUNITY TO THE ASSESSEE BY ISSUING SHOW CAUSE AS TO WHY THE ENTIRE AMOUNT DISCLOSED TO THE IDS SHOULD NOT BE TREATED AS BOGUS AND TAXED. THE AO I N THE ASSESSMENT ORDER THEREAFTER STATES ABOUT THE SAID SHRI SANJIW KUMAR SINGH WHOM HE DESCRIBED AS THE BILL MASTER AND WHO WAS INVOLVED IN PROVIDING ACCOMMODATION ENT RIES IN THE FORM OF BOGUS BILLS TO 3 ITA NO.2474/KOL/2019 M. DHARA & BROTHER, AY 2011-12 VARIOUS PARTIES IN LIEU OF COMMISSION. ACCORDING T O AO, THE DEPARTMENT CAME ACROSS 2500 BENEFICIARIES AND THAT THE SAID SHRI SANJIW KU MAR SINGH HAD 80 BANK ACCOUNTS AND HAS BEEN OPERATING VARIOUS CONCERNS/COMPANIES W ITH THE FAMILY MEMBERS OF SHRI SANJIW KUMAR SINGH SHOWN AS DUMMY DIRECTORS. ACCOR DING TO AO, DESPITE GIVING OPPORTUNITY TO THE ASSESSEE TO FURNISH DETAILS OF T HE PAYMENTS, ACTUAL DATE OF DELIVERY, MODE OF DELIVERY, INWARD TRANSPORTATION OF GOODS IN ITS GODOWN/SHOW ROOM ETC. THE ASSESSEE FAILED TO PRODUCE ANY DOCUMENTS AS CALLED FOR, HE ADDED THE ENTIRE PURCHASE AMOUNT (RS.58,42,234/-) MINUS RS.2,33,690/- (DECLAR ED BY ASSESSEE IDS AS UNDISCLOSED INCOME) I.E. RS.56,08,544/-. AGGRIEVED ASSESSEE PR EFERRED AN APPEAL BEFORE THE LD. CIT(A) WHO GAVE PARTIAL RELIEF TO THE ASSESSEE BY R ESTRICTING THE ADDITION TO GP OF 26.88% AT RS.15,07,579/- BY OBSERVING AS UNDER: THEREFORE, AFTER CONSIDERING THE FACTUAL MATRIX O F THE CASE, IT APPEARS THAT THE AO IN THE ASSESSMENT ORDER HAD TREATED THE ENTIRE ALLEGED PUR CHASE AS BOGUS BUT HAS NOT REJECTED THE BOOKS OF ACCOUNT WHICH IS ESSENTIALLY MEANS THA T HE HAS ACCEPTED THE SALES. UNDER SUCH CIRCUMSTANCES, THE HONBLE COURTS INCLUDING JU RISDICTIONAL HIGH COURT IN M/S. SUBARNA RICE MILLS (SUPRA) HAVE TAKEN A VIEW THAT T HE ENTIRE UNVERIFIED PURCHASE ARE NOT RENDERED VULNERABLE FOR ADDITION; ONLY THE ELEMENT OF PROFIT EMBEDDED FROM SUCH PURCHASE SHOULD BE CONSIDERED FOR ADDITION. THE AP PELLANT HAD DISCLOSED A GP OF 26.88% FOR THE AY 2011-12. THEREFORE, IT WOULD BE REASONABLE TO LIMIT UNDISCLOSED PROFIT EMBEDDED IN THE BOGUS PURCHASE TO 26.88% AT RS.15,0 7,579/-. THIS UNDISCLOSED INCOME EMBEDDED IN BOGUS PURCHASE AMOUNTING TO RS.56,08,55 4/- HAS NOT BEEN DECLARED IN IDS- 2016. THE DECLARATION UNDER IDS-2016 MADE BY THE A PPELLANT IS THEREFORE NOT COMPLETE. THE ADDITION OF RS.56,08,554/- IS RESTRICTED TO RS. 15,07,579/-. THIS GROUND OF APPEAL PARTLY SUCCEEDS AND IS, THEREFORE, PARTLY ALLOWED. 4. STILL NOT BEING SATISFIED BY THE PARTIAL RELIEF GRANTED BY LD. CIT(A) THE ASSESSEE IS BEFORE US. 5. ASSAILING THE DECISION OF THE LD. CIT(A), THE LD . AR SUBMITTED THAT SINCE THE AO HAS NOT DISTURBED THE SALES AS WELL AS THE PURCH ASES OF PIPES MADE BY THE ASSESSEE, ACCORDING TO HIM PURCHASES OF GOODS CANNOT BE REJEC TED WITHOUT DISTURBING THE SALES. FOR THIS PROPOSITION OF LAW HE RELIED ON THE ORDER OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PCIT VS. M/S. MOHAMMAD HAJI ADAM & CO. IN ITA NO. 1004/16. ACCORDING TO LD. AR, THE ACTION OF THE AO IS ERRONE OUS SINCE EVEN IF THE PURCHASES FROM WHOM ACCOMMODATION ENTRY OF BILLS WERE PROCURE D ARE TREATED AS BOGUS IT DOES 4 ITA NO.2474/KOL/2019 M. DHARA & BROTHER, AY 2011-12 NOT NECESSARILY MEAN THAT THE ENTIRE AMOUNT SHOULD BE DISALLOWED SINCE THE ASSESSEES EXPLANATION WAS THAT ASSESSEE A CONTRACTOR OF SUPPL Y OF PIPES AND LAYING/INSTALLATION OF PIPE LINE FOR THE GOVT. OF WEST BENGAL (PUBLIC HEAL TH ENGINEERING DEPTT.)(PHED) HAD PROCURED THE GOODS/PIPES FROM THE GREY MARKET AND H AD SUPPLIED IT TO THE GOVERNMENT WHICH GOES THROUGH THE WATCHFUL EYES OF ENGINEERS W HO HAS TO CERTIFY ABOUT THE QUANTITY AND QUALITY OF SUPPLIES, AND THEN ONLY THE ASSESSEE GETS THE PAYMENT AND MOREOVER ACCORDING TO HIM, IT IS COMMON KNOWLEDGE T HAT THE INSTALLATION/LAYING OF PIPE LINES CAN BE COMPLETED ONLY BY LAYING PIPES. SO, TH E QUESTION OF RAISING ONLY THE BOGUS BILLS WITHOUT SUPPLY OF PIPES IN SUCH A SCENARIO DO ES NOT ARISE AND SINCE THE BILLS WERE PROCURED TO COVER THE PURCHASES MADE FROM GREY MARK ET AND ASSESSEE HAD ALREADY DISCLOSED THE COST OF GETTING THE BILLS BY DISCLOSU RE IN THE IDS SCHEME OF 2016, NO ADDITION WAS WARRANTED. PER CONTRA, THE LD. DR SUP PORTED THE ORDER OF THE AO AS WELL AS LD. CIT(A) AND SUBMITTED THAT WHEN THE ASSESSEE WAS CONFRONTED WITH THE FACT THAT ASSESSEES PURCHASES TO THE TUNE OF RS. 58 LAKHS WA S BOGUS, IT HAS DULY ACCEPTED THE SAME AND, THEREFORE, THE AO HAS ADDED THE ENTIRE AM OUNT MINUS THE AMOUNT DECLARED IN THE IDS OF RS.2.33 LAKHS BECAUSE BOGUS ACCOMMODATIO N BEING BILLS GENERATED FOR COMMISSION AND NO GOODS WERE PASSED ON TO THE ASSES SEE AND, THEREFORE, HE DOES NOT WANT US TO INTERFERE WITH THE ORDER OF THE AUTHORIT IES BELOW. 6. WE HAVE HEARD RIVAL SUBMISSION AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT ASSESSEE IS A GOVERNMENT CONTRACTOR WHO SUPPLIES PIPES AS WELL AS LAYS/INSTALLS PIPE LINES. THE AO WAS IN RE CEIPT OF INFORMATION THAT ASSESSEE HAD PROCURED ACCOMMODATION BILLS APPROXIMATELY OF RS.56 LAKHS FROM CERTAIN ACCOMMODATION ENTRY PROVIDERS. WHEN CONFRONTED WIT H THIS FACT, THE ASSESSEE ACCEPTED THAT IT HAD INDULGED IN GETTING ACCOMMODATION ENTRY /BILLS TO THE TUNE OF RS.56 LAKHS IN ORDER TO COVER UP THE GOODS/PIPES PURCHASED FROM TH E GREY MARKET OF THE SAME VALUE AND IN THIS PROCESS THE ASSESSEE INCURRED COST TO T HE TUNE OF RS.2.33 LAKHS FOR GETTING THE ACCOMMODATION ENTRY, WHICH HE IN TURN DULY OFFERED FOR TRANSACTION IN THE IDS SCHEME OF 2016 WHICH HAS BEEN ACCEPTED BY THE LD. PR. CIT- 16. HOWEVER, THE AO BRUSHED ASIDE THE EXPLANATION OF THE ASSESSEE AND MADE ADDI TION OF THE ENTIRE AMOUNT [MINUS THE 5 ITA NO.2474/KOL/2019 M. DHARA & BROTHER, AY 2011-12 AMOUNT OF IDS] WHICH COMES TO [RS.58,48,234/- - RS. 2,33,690/-] = RS.56,08,544/-. ON APPEAL, THE LD. CIT(A) TAKING NOTE THAT ASSESSEE H AD DISCLOSED GP OF 26.86% FOR THE AY 2011-12, RESTRICTED THE ADDITION TO THE GP OF 26 .88% OF RS.56,08,544/- WHICH COMES TO RS.15,07,579/-. STILL NOT SATISFIED WITH THE ACTION OF THE LD. CIT(A), THE ASSESSEE IS BEFORE US CHALLENGING THE IMPUGNED ORDE R AND WE NOTE THAT THE ASSESSEE WAS SUPPLYING PIPES TO GOVT. OF WEST BENGAL [PUBLIC HEA LTH DEPARTMENT] AND WAS INSTALLING THE PIPELINE ON CONTRACT BASIS. IT HAS B EEN BROUGHT TO OUR NOTICE THAT THE PIPES/GOODS REQUIRED FOR INSTALLING THE PIPELINE HA S NOT BEEN REJECTED BY THE GOVT. DEPARTMENT AND THAT ONLY AFTER DETAILED VERIFICATIO N IN RESPECT OF THE QUALITY AND THE QUANTITY OF THE PIPES/GOODS, THE COMPETENT AUTHORIT Y/ENGINEER CERTIFIED IT FIT FOR PAYMENT AND THEN ONLY ASSESSEE RECEIVED THE INCOME FROM CONTRACT WORK WITH GOVT. WHICH ASSESSEE HAS OFFERED AS INCOME AND THE AO HAS ACCEPTED THE SALES FIGURE SHOWN BY THE ASSESSEE IN FULL. IT IS ALSO NOTED THAT AO DID NOT DOUBT ABOUT THE COMPLETION OF INSTALLATION OF PIPELINE/CONTRACT WORK. IN SUCH A B ACK-DROP, THE CONSUMPTION OF THE PIPES/GOODS REQUIRED FOR SUCCESSFULLY COMPLETING TH E LAYING/INSTALLATION OF PIPELINES CANNOT BE DOUBTED, BECAUSE WITHOUT PIPES BEING SUPP LIED BY ASSESSEE, THE QUESTION OF PROPER LAYING/INSTALLATION OF PIPELINE DOES NOT ARI SE. 7. SO IN THE LIGHT OF THE EXPLANATION GIVEN BY THE ASSESSEE THAT SINCE PIPES/GOODS WERE PROCURED FROM GREY MARKET WITHOUT BILLS AND TH E ASSESSEE HAD GOT THESE ACCOMMODATION BILLS ARRANGED TO COVER THE DOCUMENTA TION OF RECEIPT OF MATERIALS OUGHT TO HAVE BEEN ACCEPTED IN THE ABSENCE OF ANY OTHER M ATERIAL TO PROVE THE ASSESSEES EXPLANATION WRONG. WE NOTE THAT OUT OF THE TOTAL P URCHASES ASSESSEE MADE OF RS. 1.9 CRORE WHICH EVENTUALLY CULMINATED TO SALES OF RS.2. 52 CRORES AS REVEALED FROM THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE, WHICH FIGURES THE A O HAS NOT TINKERED WITH [ IE, THE SALES FIGURES OF RS. 2.52 CR. AND PURCHASES OF RS.1 .9 CR.] AND THAT THE PHYSICAL EXISTENCE OF CLOSING STOCK OF GOODS WORTH RS.25 LACS AS PER T HE BOOKS HAS ALSO BEEN ACCEPTED. THIS GOES ON TO SHOW THAT THE INFLOW AND OUTFLOW OF MATERIALS CRYSTALLIZING INTO THE INVENTORY AT YEAR END HAS NOT BEEN DOUBTED. AND WE NOTE THAT THE ASSESSEE HAS ALREADY DECLARED GP OF 26 % ON AUDITED ACCOUNTS WHICH HAVE BEEN ACCEPTED BY THE AO. 6 ITA NO.2474/KOL/2019 M. DHARA & BROTHER, AY 2011-12 FURTHER, IT IS NOTED THAT ASSESSEE HAD DECLARED UND ER INCOME DECLARATION SCHEME 2016 OFFERED @ 4% ON TOTAL ALLEGED BOGUS PURCHASE OF RS. 56.75 LAKHS (RS.2.33 LAKH) AS UNDISCLOSED INCOME TO COVER THE COST OF ARRANGING T HE BILLS ACCOMMODATION ENTRY. WE NOTE THAT THE PCIT-16 HAD ACCEPTED THE DECLARATION AND IT IS NOTED THAT THIS DECLARATION OF UNDISCLOSED AMOUNT HAS NOT YET BEEN REVOKED OR R EPUDIATED. ACCORDINGLY, THE ASSESSEE PRAYS FOR FULL RELIEF TAKING INTO CONSIDER ATION THE ASSESSEES IDS DECLARATION AND WE NOTE THAT SINCE ASSESSEE HAS ALREADY OFFERE D GP OF 26% ON THE PURCHASES AND SALES BOOKED AS PER THE P& ACCOUNT WHICH HAS NOT BE EN TINKERED WITH BY THE AO/LD. CIT(A) AND THAT AS THE ASSESSEE HAS ALSO OFFERED TH E COST OF PROCURING THE ACCOMMODATION BILLS AMOUNTING TO RS.56.75 LAKHS @ 4 % WHICH COMES TO RS.2.33 LAKHS IN THE IDS AND OFFERED TAX FOR THE UNDISCLOSED AMOU NT. SO ACCORDING TO US, NO MORE ADDITION IS WARRANTED BECAUSE WHEN THIS IDS TAX ALS O IS ADDED TO THE GP OF THE ASSESSEE, THEN IT WILL COME TO 30% GP. THEREFORE, NO SEPARATE ADDITION ON THE UNDISCLOSED AMOUNT OF PROFIT IS WARRANTED SINCE IT IS NOT THE CASE THAT AO/LD. CIT(A) COULD UNEARTH ANY HIDDEN PROFIT WHICH WAS DISCOVERE D AS INVESTMENTS/CASH/BULLION ETC. SO IN THE AFORESAID FACTS AND CIRCUMSTANCES, THE AD DITION MADE IS DELETED. 8. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED . ORDER IS PRONOUNCED IN THE OPEN COURT ON 5TH FEBRUA RY, 2020 SD/- SD/- (J. SUDHAKAR REDDY) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 5TH FEBRUARY, 2020 JD.(SR.P.S.) 7 ITA NO.2474/KOL/2019 M. DHARA & BROTHER, AY 2011-12 COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT M/S. M. DHARA & BROTHER, 8/2, I. R. BEL LIOUS LANE, HOWRAH SADAR, WEST BENGAL-711101 2 RESPONDENT DCIT , CIRCLE-48, KOLKATA. 3 . THE CIT(A)-14, KOLKATA (SENT THROUGH E-MAIL) 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA (SENT THROUGH E-MAIL) / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .