MERU IMPEX, MUMBAI V. ASST CIT CIR 17(2), MUMBAI

ITA 2660/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8777 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-11-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2007-2008
• Appeal Filed On: 12-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T A KHAN
• Keywords: Bogus purchase; Principle of natural justice; Accommodation entries
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI SANDEEP GOSAIN, JM ./ I.T.A. NO. 2660/MUM/2017 ( / ASSESSMENT YEAR: 2007 - 08 ) M/S. MERU IM PEX 15, 1 ST FLOOR, AGIARY LANE, OSMAN MANZIL, 2 ND FLOOR, MUMBAI - 400 003 / VS. ACIT - CIRCLE 17(2), AAYAKAR BHAVAN, M. K. ROAD, MUMBAI - 400 020 ./ ./ PAN/GIR NO. AAAFM 6289 K ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : NONE / RESPONDENT BY : SHRI T. A. KHAN / DATE OF HEARING : 17.10.2017 / DATE OF PRONOUNCEMENT : 01.11 .2017 / O R D E R PER SHAMIM YAHYA , A. M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 28 , MUMBAI (CIT(A) FOR SHORT) DATED 19.01.2017 AN D PERTAINS TO THE ASSESSMENT YEAR (A.Y.) 2007 - 08. 2. T HE ISSUE RAISED IS THAT THE LD. CIT(A) ERRED IN SUST AINING DISALLOWANCE OF 10% OF BOGUS PURCHASE AMOUNTING TO RS. 4,99,55,341/ - . 3. T HE GROUNDS OF APPEAL READ AS UNDER: 2 ITA NO. 2660/MUM/2017 (A.Y.2007 - 08) M/S. MERU IMPEX VS. ACIT 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO BY SUSTAINING THE ADDITION OF RS.4 , 99,5 5 ,341 / - . THE ORDER OF THE LD. CIT(A) IS BAD IN LAW, AGAINS T THE PRINCIPLE OF NATURAL JUSTICE, VOID AB INITIO AND THE SUSTAINING OF THE RE - OPENED ASSESSMENT IS ALSO LIABLE TO BE QUASHED. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED C IT(A) ERRED IN CONFIRMING THE ADDITION OF ALLEGED PURCHASES FROM BOGUS HAWALA PARTIES AMOUNTING TO RS.4,99,55,341. THE APPELLANT DID NOT ENTER INTO ANY TRANSACTION WITH THE BOGUS HAWALA PARTIES AT ALL AND THEREFORE THE SAID ADDITION OF RS.4,99,55,341 IS LI ABLE TO BE DELETED. 4. I N THIS CASE ADDITION WAS MADE BY THE ASSESSING OFFICER FOR BOGUS PURCHASES ON THE BASIS OF INFORMATION RECEIVED FROM SALES TAX DEPARTMENT AS WELL HIS OWN ENQUIRY AS UNDER: INFORMATION WAS RECEIVED IN OFFICE OF DGIT (INV.), MUMBAI A ND SUBSEQUENTLY, FROM THE SALES TAX DEPARTMENT, MUMBAI, REGARDING SUSPICIOUS PARTIES WHO ARE ONLY PROVIDING ACCOMMODATION ENTRIES WITHOUT DOING ANY ACTUAL BUSINESS. ON GOING THROUGH THE AFORESAID LIST, IT WAS FOUND THAT THE FOLLOWING PARTY/PARTIES ARE APP EARING IN THE LIST OF BOGUS PARTIES FROM WHOM THE ASSESSEE IS SHOWN TO HAVE MADE PURCHASES. S.NO. NAME AMOUNT (RS.) 1. M/S. MIHIR DIAMONDS (PROP. GAUTAM B JAIN) 2,34,44,142 2. M/S. KRISHNA DIAMONDS PVT. LTD. 2,65,11,199 4.2 IT IS SEEN THAT THE ASS ESSEE HAS CLAIMED TOTAL PURCHASES OF RS.4,99,55,341/ - FROM THE ABOVE - SAID PARTIES. IT IS PERTINENT TO MENTION HERE THAT THE SALES TAX DEPARTMENT HAS CONDUCTED INDEPENDENT ENQUIRIES IN EACH OF THE HAWALA PARTIES AND CONCLUSIVELY PROVED THAT THESE PARTIES AR E ENGAGED IN THE BUSINESS OF PROVIDING ACCOMMODATION ENTRIES ONLY. THESE ENQUIRIES ESTABLISH BEYOND DOUBT THAT THE AFORESAID PARTY DID NOT SUPPLY ANY GOODS TO THE ASSESSEE. ALL THESE HAWALA PARTIES ARE ISSUING BILLS WITHOUT DELIVERING ANY GOODS OR SERVICES . THE PAYMENTS RECEIVED BY THESE PARTIES ARE RETURNED TO THE ASSESSEE IN CASH AFTER DEDUCTING SMALL COMMISSION. 3 ITA NO. 2660/MUM/2017 (A.Y.2007 - 08) M/S. MERU IMPEX VS. ACIT 4.3 SUBSEQUENTLY, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ALSO ASKED TO FURNISH ALL RELEVANT EVIDENCE TO ESTABLISH THAT GOODS HAVE ACTUALLY BEEN DELIVERED/SUPPLIED. THE ASSESSEE WAS ALSO ASKED TO FURNISH ITS EXPLANATION ON THE PURCHASES PURPORTED TO HAVE MADE FROM THE AFORESAID PARTIES AND THE DETAILS OF BROKERS/AGENTS THROUGH WHOM PURCHASES WERE CLAIMED TO HAVE BEEN MADE BY THE ASSESSEE INCLUDING NAME, ADDRESS, CONTACT NUMBER ETC. TO PROVE THE GENUINENESS OF THE TRANSACTION. THE ASSESSEE WAS ALSO ASKED TO SHOW CAUSE AS TO WHY THE EXPENDITURE CLAIMED IN RESPECT OF PURCHASES SHOWN TO HAVE MADE FROM THE AFORESAID DEALERS SHOULD NOT BE DISALLOWED. 4.4 THE ASSESSEE IN HIS REPLY HAS FURNISHED COPIES OF (A) LEDGER A/C'S OF THE PURCHASE PARTY; (B) PURCHASE BILL; AND (C) PAYMENT DETAILS TO PURCHASE PARTIES. HOWEVER, TILL DATE, THE ASSESSEE HAS NOT PRODUCED THE DETAILS OF THE B ROKER/AGENTS OR THE SUPPLIERS BEFORE THE UNDERSIGNED AS STATED ABOVE, INCLUDING A MONTHLY CASH FLOW STATEMENT. 4.5 SUBSEQUENTLY, NOTICES U/S. 133(6) WERE ISSUED TO THE ABOVE - SAID PARTIES CALLING FOR ALL THE DETAILS OF ALL THE TRANSACTIONS THAT THESE PARTI ES HAD WITH THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR, A COPY OF THE LEDGER OF THE ACCOUNT OF THE ASSESSEE AS APPEARING IN PARTIES' BOOKS OF ACCOUNT, MODE OF RECEIPT OF PAYMENT, COPY OF BANK STATEMENT REFLECTING THE TRANSACTIONS MADE WITH THE ASSESSEE, HIGHLIGHTING THE SAME, INCOME TAX RETURN AND FULL SET OF FINANCIAL STATEMENTS OF PARTIES ETC. HOWEVER, THESE NOTICES RETURNED UNSERVED, THUS CONFIRMING THE FACT THAT THE AFORE - MENTIONED PARTIES ARE BOGUS. 4.6 THE SUBMISSIONS OF THE ASSESSEE AS ALSO THE DOCUMENTS FURNISHED HAVE BEEN CAREFULLY PERUSED. HOWEVER THE SAME ARE NOT FOUND TO BE ACCEPTABLE FOR THE FOLLOWING REASONS: (I) THE ONUS WAS UPON THE ASSESSEE TO PROVE THE GENUINENESS OF THE EXPENDITURE CLAIMED AS IT WAS THE ASSESSEE, WHICH HAS MADE TH E CLAIM, (II) IT IS WELL - SETTLED LAW THAT STRICT RULES OF EVIDENCE DO NOT APPLY TO I.T ACT AND THE REAL TEST WITH REGARD TO GENUINENESS OF THE TRANSACTION IS 'PREPONDERANCE OF PROBABILITIES' AND NOT 'BEYOND REASONABLE DOUBT'. RELIANCE IS PLACED ON C. VASAN TLAL & CO. VS. CIT (1962) 45 ITR 206 (SC), CHATURBHUJ PANAUJ AIR 1969 (SC) AND SUMATI DAYAL VS. CIT (1995) 214 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 PRASAD 82 ITR 540 (SC) AND SUMATI DAYAL VS. CIT (1995) 214 ITR 801 (SC). (III) THE PURCHASES FROM HAWALA OPERATORS FALLS WITHIN THE AMBIT OF THE TERM 'COLOURABLE DEVICES' AND THE HON'BLE 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 4 ITA NO. 2660/MUM/2017 (A.Y.2007 - 08) M/S. MERU IMPEX VS. ACIT PAYMENT OF TAX BY RESORTING TO DUBIOUS METHOD. IT IS OBLIGATION OF EVERY CITIZEN TO PAY THE TAXES HONESTLY WITHOUT RESORTING TO SUBTERFUGES.' (IV) THE DGIT (INV.), MUMBAI MADE A FINDING AND FORWARDED THE INFORMATION TO THIS OFFICE OF THE NAME OF ENTITIES WHICH AR E INVOLVED IN GIVING BOGUS BILLS ONLY AFTER CARRYING OUT A DETAILED ENQUIRY & INVESTIGATION. 5. ON THE ABOVE REASONING, THE ASSESSING OFFICER MADE 10% ADDITION FOR BOGUS PURCHASE AMOUNTING TO RS.4,99,55,341/ - . 6. A GAINST THE ABOVE ORDER , THE ASSESSEE AP PEALED BEFORE THE LD. CIT(A) CHALLENGING BOTH THE REOPENING AS WELL AS MERITS OF ADDITION. THE LD. CIT(A) DISMISSED BOT H THE ISSUE RAISED. 7 . WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT CREDIBLE AND COGENT INFORMATION WAS RECEIVE D IN THIS CASE BY THE ASSESSING OFFICER THAT CERTAIN ACCOMMODATION ENTRY PROVIDER/BOGUS SUPPLIERS WERE BEING USED BY CERTAIN PARTIES TO OBTAINED BOGUS BILLS. THE ASSESSEE WAS FOUND TO HAVE TAKEN ACCOMMODATION ENTRY/BOGUS PURCHASE BILLS DURING THE CONCERNED ASSESSMENT YEAR FROM DIFFERENT PARTIES. BASED UPON THIS INFORMATION , THE ASSESSMENT WAS REOPENED. THE LD. CIT(A) PLACED RELIANCE ON VARIOUS CASE LAWS INCLUDING THE HONBLE APEX COURT DECISION IN THE CASE OF CIT(A) VS. RAJESH JHAVERI STOCK BROKERS P. LTD , 291 ITR 500 , WHICH IS QUITE RELEVANT AND FULLY JUSTIFY THE REOPENING. T HE CREDIBILITY OF INFORMATION RELATING TO REOPENING REMAINS UN - ASSAILED. IN SUCH FACTUAL SCENARIO , THE ASSESSING OFFICER HAS MADE THE NECESSARY ENQUIRY. THE ISSUE OF NOTICE TO ALL THE P ARTIES HAVE RETURNED UNSERVED. ASSESSEE HAS NOT BEEN ABLE TO PROVIDE ANY CONFIRMATION FROM ANY OF THE 5 ITA NO. 2660/MUM/2017 (A.Y.2007 - 08) M/S. MERU IMPEX VS. ACIT PARTY. ASSESSEE HAS ALSO NOT BEEN ABLE TO PRODUCE ANY OF THE PARTIES. NECESSARY EVIDENCE RELATING TO TRANSPORTATION OF THE GOODS WAS ALSO NOT ON RECORD. I N THIS FACTUAL SCENARIO , IT IS AMPLY CLEAR THAT ASSESSEE HAS OBTAINED BOGUS PURCHASE BILLS. MERE PREPARATION OF DOCUMENTS FOR PURCHASES CANNOT CONTROVERT OVERWHELMING EVIDENCE THAT THE PROVIDERS OF THESE BILLS ARE BOGUS AND NON - EXISTENT. 8 . THE S ALES T AX DEPARTMENT IN ITS ENQUIRY HAVE FOUND THE PARTIES TO BE PROVIDING BOGUS ACCOMMODATION ENTRIES. THE ASSESSING OFFICER ALSO ISSUED NOTICES TO THESE PARTIES AT THE ADDRESSES PROVIDED BY THE ASSESSEE. ALL THESE NOTICES HAVE RETURNED UNSERVED. ASSESSEE HAS NOT BEEN ABLE TO PRODUCE ANY OF THE PARTIES. NEITHER THE ASSESSEE HAS BEEN ABLE TO PRODUCE ANY CONFIRMATION FROM THESE PARTIES. IN SUCH CIRCUMSTANCES . THERE ARE NO DOUBT THAT THESE PARTIES ARE NON - EXISTENT. WE FIND IT FURTHER STRANGE THAT ASSESSEE WANTS THE RE VENUE TO PRODUCE ASSESSEES OWN VENDORS, WHOM THE ASSESSEE COULD NOT PRODUCE. THE PURCHASE BILLS FROM THESE NON - EXISTENT THE/BOGUS PARTIES CANNOT BE TAKEN AS COGENT EVIDENCE OF PURCHASES. IN LIGHT OF THE OVERWHELMING EVIDENCE , THE REVENUE AUTHORITIES CAN NOT PUT UPON BLINKERS AND ACCEPT THESE PURCHASES AS GENUINE. THIS PROPOSITION IS DULY SUPPORTED BY HONBLE APEX COURT DECISION IN THE CASE OF SUMATI DAYAL 214 ITR 801 AND DURGA PRASAD M ORE 82 ITR 540. IN THE PRESENT CASE , THE ASSESSEE WANTS THAT THE UNASSA ILABLE FACT THAT THE SUPPLIERS ARE NONEXISTENT AND THUS BOGUS SHOULD BE IGNORED AND ONLY THE DOCUMENTS BEING PRODUCED SHOULD BE CONSIDERED. THIS PROPOSITION IS TOTALLY UNSUSTAINABLE IN LIGHT OF ABOVE APEX COURT DECISIONS. 6 ITA NO. 2660/MUM/2017 (A.Y.2007 - 08) M/S. MERU IMPEX VS. ACIT 9 . IN THESE CIRCUMSTANCES , THE LD . DEPARTMENTAL REPRESENTATIVE HAS REFERRED TO HONBLE GUJARAT HIGH COURT DECIS ION IN THE CASE OF T AX A PPEAL N O . 240 OF 2003 IN THE CASE OF N K INDUSTRIES VS . DY CIT , ORDER D ATED 20 . 06 . 2016, WHEREIN 100% OF THE BOGUS PURCHASES WAS HELD TO BE ADDED IN THE H ANDS OF THE ASSESSEE AND TRIBUNALS RESTRICTION OF THE ADDITION TO 25% OF THE BOGUS PURCHASES WAS SET ASIDE. IT WAS EXPOUNDED THAT WHEN PURCHASE BILLS HAVE BEEN FOUND TO BE BOGUS 100% DISALLOWANCE WAS REQUIRED. THE SPECIAL LEAVE PETITION AGAINST THIS ORDER ALONG WITH OTHERS HAS BEEN DISMISSED BY THE HONBLE APEX COURT VIDE ORDER D ATED 16 . 0 1 . 2017. 10 . WE FURTHER NOTE THAT HONBLE RAJASTHAN HIGH COURT HAS SIMILARLY TAKEN NOTE OF DECISIONS OF THE APEX COURT ON THE ISSUE OF BOGUS PURCHASES IN THE CASE OF CIT JA IPUR VS SHRUTI GEMS IN ITA NO. 658 OF 2009. THE HONBLE HIGH COURT HAS REFERRED TO THE DECISION OF CIT JAIPUR VS. ADITYA GEMS, D. B. IN ITA NO. 234 OF 2008 DATED 02.11.2016, WHEREIN THE HONBLE COURT HAD INTER ALIA HELD AS UNDER: 'CONSIDERING THE LAW DEC LARED BY THE SUPREME COURT IN THE CASE OF VIJAY PROTEINS LTD. VS. COMMISSIONER OF INCOME TAX, SPECIAL LEAVE TO APPEAL (C) NO.8956/2015 DECIDED ON 06.04.2015 WHEREBY THE SUPREME COURT HAS DISMISSED THE SLP CONFIRMED THE ORDER DATED 09.12.2014 PASSED BY THE GUJARAT HIGH COURT AND OTHER DECISIONS OF THE HIGH COURT OF GUJARAT IN THE CASE OF SANJAY OILCAKE INDUSTRIES VS. COMMISSIONER OF INCOME TAX (2009) 316 ITR 274 (GUJ) AND N.K. INDUSTRIES LTD. VS. DY. C.I.T., TAX APPEAL NO.240/2003 DECIDED ON 20.06.2016, THE PARTIES ARE BOUND BY THE PRINCIPLE OF LAW PRONOUNCED IN THE AFORESAID THREE JUDGMENTS. 1 1 . HOWEVER, W E FIND THAT IN THIS CASE THE SALES HAVE NOT BEEN DOUBTED. I T IS SETTLED LAW THAT WHEN SALES ARE NOT DOUBTED, 100% DISALLOWANCE FOR BOGUS PURCHASE CANNOT BE 7 ITA NO. 2660/MUM/2017 (A.Y.2007 - 08) M/S. MERU IMPEX VS. ACIT DONE. THE RATIONALE BEING NO SALES IS POSSIBLE WITHOUT ACTUAL PURCHASES. THIS PROPOSITION IS SUPPORTED FROM HON'BLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF NIKUNJ E XIMP E NTERPRISES ( SUPRA ). IN THIS CASE , THE HONBLE HIGH COURT H AS UPHELD 100% ALLOWANCE FOR THE PURCHASES SAID TO BE BOGUS WHEN SALES ARE NOT DOUBTED. HOWEVER THE FACTS OF THE PRESENT CASE INDICATE THAT ASSESSEE HAS MADE PURCHASE FROM THE GREY MARKET. MAKING PURCHASES THROUGH THE GREY MARKET GIVES THE ASSESSEE SAVINGS ON ACCOUNT OF NON - PAYMENT OF TAX AND OTHERS AT THE EXPENSE OF THE EXCHEQUER. IN SUCH SITUATION , IN OUR CONSIDERED OPINION , ON THE FACTS AND CIRCUMSTANCES OF THE CASE , 12.5% DISALLOWANCE OUT OF THE BOGUS PURCHASES MEETS THE END OF JUSTICE. ACCORDINGLY WE DIRECT DISALLOW ANCE OF 12.% OF THE BOGUS PURCHASES. 1 2 . IN THE RESULT , THIS APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 01.11.2017 SD/ - SD/ - ( SANDEEP GOSAIN ) (S HAMIM YAHYA ) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 01.11.2017 . . ./ ROSHANI , SR. PS 8 ITA NO. 2660/MUM/2017 (A.Y.2007 - 08) M/S. MERU IMPEX VS. ACIT / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI