KRISHMA CONCHEM PRODUCTS P.LTD, MUMBAI V. DCIT 6(2), MUMBAI

ITA 2742/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1131 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 08-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bogus purchase; Accommodation entries
• Section: 14A; 68

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL BENCH D MUMBAI BEFORE SHRI D.T.GARASIA , JM AND SHRI RAJESH KUMAR, AM I.T.A. NO. 2742 /MUM/20 1 5 ( / ASSESSMENT YEAR : 20 10 - 11 ) M/S KRISHNA CONCHEM PRODUCT S PRIVATE LIMITED, 5B, MOHSIN BUILDING, DADAR (W), R K VAIDYA MARG, MUMBAI - 400028 / VS. DY.COMMISSIONR OF INCOME TAX - CIRCLE - 6 2), AAYKAR BHAVAN, M K ROAD, MUMBAI - 400020 ./ PAN : AABCK1619F ( / APPELLANT) : ( / RESPONDENT ) / APPELLANT BY : SHRI DEVENDRA JAIN / ASSESSEE BY : SHRI PURUSHOTTAM KUMAR / DATE OF HEARING : 2 7 .2. 2017 / DATE OF PRONOUNCEMENT : 25. 4. 201 7 / O R D E R PER RAJE SH KUMAR, A. M: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 2.2.201 5 PASSED BY THE LD.CIT(A) - 12 , MUMBAI FOR THE ASSESSMENT YEAR 20 10 - 11 . 2. THE GROUNDS OF APPEAL NO.1(I) TO (I V ) ARE INTER - RELATED AND GROUNDS NO.1 IS AGAINST THE CONF IRMATION OF ADDITION OF RS.9,36,000/ - BY THE LD CIT(A) AS MADE BY THE AO ON ACCOUNT OF BOGUS PURCHASES FROM M/S SUMUKH CORPORATION. THE ISSUE RAISED IN GROUND NO.3 IS AGAINST THE CONFIRMATION OF APPLICATION OF GP RATE 2 ITA NO. 2742 /M/201 5 AT THE RATE OF 2% OF THE ALLEGED BOGUS PURCHASES WHICH WORKED OUT TO RS.18,720/ - . BOTH THESE GROUNDS ARE BEING ADJUDICATED TOGETHER. 3. FACTS OF THE CASE IN BRIEF ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON RANDOM CHECKING OF THE BOOKS OF ACCOUNTS, IT WAS OBSERVED THAT THE ASSESSEE HA D PURCHASED GOODS FROM M/S SUMUKH CORPORATION WHICH WERE NOT APPEARING IN THE DETAILS OF PARTIES/SUPPLIERS FROM WHOM THE PURCHASES WERE MADE BY THE ASSESSEE . ACCORDINGLY, THE AO CALLED UPON THE ASSESSEE TO PROVE THE GENUINENESS OF THE TRANSA CTIONS, PRODUCE BILLS /CHALLANS OF TRANSPORTER S , WHICH WERE NOT PRODUCE D . MOREOVER, THESE PURCHASES WERE MADE ON CREDIT BASIS . ACCORDINGLY , A SHOW CAUSE NOTICE WAS ISSUED AS TO WHY THESE PURCHASES SHOULD NOT BE TREATED AS ACCOMMODATION ENTRIES AND BROUGHT T O TAX U/S 68 OF THE ACT . THE AO REJECTED THE BOOKS OF ACCOUNT U/S 145(3) OF THE ACT AND ALSO APPLIED GP RATE AT THE RATE OF 2 % ON RS.9,36,000/ - AND WORKED OUT THE DISALLOWANCE TO RS.18,720/ - . AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE SUSTAINED BOTH THE ADDITIONS BY OBSERVING AND HOLDING AS UNDER : 3.2 FINDINGS AND DECISION ON CAREFUL CONSIDERATION OF FACTS STATED IN THE IMPUGNED ORDER VIS - A - VIS SUBMISSION OF THE LD. A.R., IT IMMENSELY TR ANSPIRES THAT THE GRIEVANCE OF TH E ASSESSEE LACKS MERITS: AS STATED BY THE A.O., THE ASSESSEE COULD NOT FURNIS H NECESSARY EVIDENCES IN SUPPORT OF CLAIM MADE BY IT. AS PER THE BILLS PRODUCED B Y THE ASSESSEE, PURCHASES WERE IN RELATION TO A CHEMICAL I.E. TO SAY 300 KG CHLORO - 4 NIRO BENZO PHENONE ON 3 DIFFERENT DATES OF FIRST WEEK OF MARCH 2010. N O THOROUGH EVIDENCE WERE FURNISHED DURING THE COURSE OF 3 ITA NO. 2742 /M/201 5 THE A SSESSME NT PROCEEDINGS. EVEN DURING THE COURSE OF APPE LL ATE PROCEEDINGS ALSO, THE ID. A.R WAS ASKED WHETHE R HE WOULD PROVIDE LATEST CONFIRMATION OF THE PARTY OR PRODUCE IT BEFORE THE A.O. THE LD. A.R. FAIRLY INFORMED THAT IT WAS RIOT POSSIBLE T O PRODUCE LATEST CONFIRMATION OR TO PRODUCE THE CONCERNED PARTY BEFORE THE A.O THE INDIFFERENCE OF NOT PRODUCING THE P ARTY WHICH ISSUED THE BILL IS INDICATIVE OF TRUTH. THE AO WAS NOT DOUBTING ALL THE PURCHASE BUT DOUBTING ONLY SELECTED PURCHASES FOR WHICH HE HAD DOUBT OR INFORMATION AS THE CASE MAY BE. THE EVIDENCE IN RESPECT OF IDENTITY OF PERSON RESPONSIBLE FOR ISSUI NG PURCHASE BILLS WAS WITHIN THE KNOWLEDGE OF THE ASSESSEE OR WITH ITS EMPLOYEES AS SUBSEQUENTLY THE PAYMENTS MUST HAVE BEEN MADE. THE A.G. HAD SPECIFICALLY MENTIONED THAT THE SAID PURCHASES WERE CREDIT PURCHASES. THE BILL INDICATE TERMS AND CONDITIONS AS 45 DAYS AND THE BILL ALSO STATES THAT INTEREST WILL BE CHARGED @ 24 % P.A., IF THE BILL IS NOT PAID ON PRESENTATION. THERE IS NO EVIDENCE THAT PAYMENT WAS MADE WITHIN 45 DAYS AND IF IT WAS MADE SUBSEQUENT THEREOF, ANY INTEREST WAS PAID AS P ER THIS STIPULAT ION LAID DOWN IN THE BILL. IF THE PAYMENT IS MADE SUBSEQUENTLY TO SAY AFTER A REASONABLE PERIOD, IT IMPLIES THAT ASSESSEE HAD FIDUCIARY RELATIONSHIP BECAUSE NO PRUDENT PERSON WOULD LIKE TO SELL TO AN UNKNOWN PERSON ON CREDIT FOR A LONG PERIOD. IN GIVEN CIR CUMSTANCES, THE ASSESSEE SHOULD PRODUCE SUCH PERSON OR PRODUCE LATEST CONFIRMATION FROM SUCH SELLER. THE ASSESSEE HAD FAILED ON ALL COUNTS. THE BILLS ITSELF REVEALS CERTAIN SUSPICIOUS FEATURES. AS PER TAX INVOICE ISSUED BY THE SELLER, COLUMN AS TO 'BUYER'S ORDER NO.' STATES 'ON TELE', WHEREAS ASSESSEE RELIES ON ITS PURCHASE ORDER WHICH STATES AS '256 - W' AND DATE AS 26.2.2010. THE SELLER'S INVOICE REVEALS NO DATE OF PURCHASE ORDER. THE SELLER'S ADDRESS IS OF BORIVALI WHEREAS ASSESSEE'S DESTINATION IS AT VI LLAGE NARE, TAL. WADA WHICH REQUIRES TRANSPORTATION AND THAT TOO FOR CHEMICAL. THERE ARE NO EVIDENCE OF TRANSPORTATION. IN GIVEN FACTS AND CIRCUMSTANCES, THE CLAIM FOR IMPUGNED PURCHASES DID NOT INSPIRE ANY CREDENCE AND I FIND NO REASON TO INTERFERE WITH T HE ORDER OF THE A.O. MAKING AN ADDITION OF RS. 9,36,0001 - AS BOGUS PURCHASES . ACCORDINGLY, IMPUGNED ADDITION OF RS.9,36,000/ - IS CONFIRMED . . 5.1 DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LD. A.R. HAD SUBMI TTED WRITTEN SUBMISSION WHICH CONTAI NED ARGUMENTS ON ABOVE MENTIONED TWO DISALLOWANCES ADJUDICATED HERE ABOVE. HOWEVER, THERE W1S NO EXPLANATION OBJECTION AGAINST THIS DISALLOWANCE EITHER IN WRITTEN SUBMISSION OR ORAL SUBMISSIONS. EVEN OTHERWISE HAVING REGARD TO THE OVERALL FACTS OF THE CAS E, I FIND NO REASON TO INTERFERE WITH THE ORDER OF THE AO OF THE ISSUE IN DISPU T E AND IN RESULT IMPUGNED ADDITION MADE BY THE AO STANDS CONFIRME D . 4 ITA NO. 2742 /M/201 5 4 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS, PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE ORDERS OF AUTHORITIES BELOW AND CASE LAW RELIED UPON BY THE PARTIES. WE FIND THAT THE FAA UPHELD THE ADDITION MADE BY THE AO ON ACCOUNT OF BOGUS PURCHASE S THAT THE ASSESSEE COULD NOT PRODUCE THE BILLS, TRANSPORT RECEIPTS, DETAILS OF THE SAID PURCHASE S , WHEREAS, ON T HE OTHER HAND THE LD.AR SUBMITTED THAT THE TOTAL PURCHASES OF THE ASSESSEE DURING THE YEAR WE RE RS.8,23,42,226/ - AND THE SALES WERE TO THE EXTENT OF RS.1,32,99,36,208/ - . THE LD. AR SUBMITTED THAT THE PAYMENTS WERE MADE THROUGH BANKING CHAN NELS AND BY ACCOUNT PAYEE CHEQUES, THE MATERIAL S WERE DULY RECEIVED AND ENTERED IN T HE BOOKS OF ACCOUNT INCLUDING THE STOCK REGISTER OF THE ASSESSEE. THE LD. AR ARGUED TH A T THE AO HAS NOT DOUBTED THE SALES OF T HE ASSESSEE AS THE MATERIAL S RECEIVED HAS BEE N DULY SOLD. WE FIND THAT WHEN THE AO NOT DOUBTING THE SALES CANNOT DISALLOW THE ENTIRE PURCHASES WITHOUT GIVING DETAILED FINDINGS. AT THE MOST GP ON THE SAID PURCHASES COULD BE BROUGHT TO TAX WHICH HAS ALREADY BEEN DONE BY APPLYING 2% OF THE AMOUNT OF TO T AL ALLEGED BOGUS PURCHASES. ACCORDINGLY, WE ARE OF THE CONSIDERED VIEW THAT THE ORDER OF THE LD.CIT(A) UPHOLDING THE ENTIRE PURCHASES WHICH ACCORDING TO THE FACTS ON RECORDS WERE DULY ENTERED IN THE STOCK REGISTER AND SUBSEQUENTLY SOLD CANNOT BE SUSTAINE D. WE, THEREFORE, INCLINED TO SET ASIDE THE ORDER OF LD.CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITION ON ACCOUNT OF BOGUS PURCHASES, WHEREAS TH E DISALLOWANCE MADE ON ACCOUNT OF GP IS SUSTAINED TO COVER POSSIBLE LEAKAGE OF REVENUE. 5 ITA NO. 2742 /M/201 5 5. T HE ISSUE IN GROUND NO.2 IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF RS.1,84,741/ - BY THE LD.CIT(A) AS MADE BY THE AO UNDER SECTION 14A OF THE ACT READ WITH RULE 8D(2) OF THE RULES COMPRISING OF RS.1,36,539/ - ON ACCOUNT OF DISALLOWANCE OF INTERE ST UNDER RULE 8D(2)(II) OF THE RULES AND RS.48,202/ - TOWARDS DISALLOWANCE OF EXPENDITURE AT THE RATE OF 0.5% OF THE AVERAGE INVESTMENT U/S 14A OF THE ACT READ WITH RULE 8D(2)(III) OF THE RULES . 6. THE LD. AR VEHEMENTLY SUBMITTED BEFORE US THAT THE FAA UPHOLD THE ORDER OF THE AO ON THIS ISSUE BY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. 328 ITR 81(BOM) AND OTHER DECISIONS THAT THE PROVISIONS OF SECTION 14A R.W.R.8D WAS CLEARLY AP PLICABLE TO THE CASE OF THE ASSESSEE AND THE DISALLOWANCE WAS RIGHTLY MADE AND ACCORDINGLY UPHELD . THE LD. AR VEHEMENTLY SUBMITTED BEFORE US THAT THE FAA HAS GROSSLY ERRED IN SUSTAINING THE ADDITION OF RS.1,84,741/ - WITHOUT GOING INTO THE FACTS ON RE CORDS. THE LD. AR ARGUED THAT THE ASSESSEE DEPLOYED ITS OWN FUNDS WHICH WERE FAR MORE THAN THE INVESTMENT S MADE IN SHARES AND SECURITIES ON WHICH THE ASSESSEE EARNED DIVIDEND DURING THE YEAR OF RS.3,87,611/ - . THE LD. AR FURTHER ARGUED THAT SINCE THE ASSESSEES OWN FUNDS WERE FAR MORE THAN THE INVESTMENT S MADE IN SHARES THEREFORE NO DISALLOWANCE OF RS.1,36,539/ - IS CALLED FOR U/S 14A OF THE ACT R.W.R 8D(2)(II) OF THE RULES AND SHOULD BE DELETED. IN SUPPORT OF THIS SUBMISSIONS THE LD.AR STRONGLY PL ACED RELIANCE ON THE 6 ITA NO. 2742 /M/201 5 DECISIONS OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V/S RELIANCE UTILITIES AND POWER LTD. [2009] 313 ITR 340 (BOM) AND CIT V/S HDFC BANK LTD. [2014] 366 ITR 505 (BOM). SO FAR AS THE DISALLOWANCE U /S 14A READ WITH RULE 8D(2)(III ) IS CONCERNED, THE LD.AR ADMITTED THAT THE SAME WAS REQUIRED TO BE SUSTAINED. 7 . THE LD. DR, ON THE OTHER HAND, STRONGLY OBJECTED TO THE PLEA PUT FORTH BY THE LD.AR AND SUBMI TT ED THAT THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE R ULES WERE CLEARLY APPLICABLE TO THE CA SE OF THE ASSESSEE AND HENCE RIGHTLY DISALLOWED BY THE AO AND CONFIRMED BY THE FAA. THE LD. DR PRAYED BEFORE THE BENCH THAT IN VIEW OF THE FACTS OF T HE ASSESSEES CASE THE PLEA OF THE ASSESSEE SHOULD BE DISMISSED. 8 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE ORDERS OF AUTHORITIES BELOW AND THE CASE LAW RELIED UPON BY THE ASSESSEE. WE FIND THAT THE ASSESSEES OWN FUNDS WERE RS.3,89,28,953/ - WHEREAS THE I NVESTMENT S MADE BY THE ASSESSEE IN SHARES AND SECURITIES WERE RS.1,25,15,918/ - AS PER THE BALANCE SHEET AS ON 31.3.2010 FILED AT PAGE 8 OF THE PAPER BOOK . WE, THEREFORE, ARE OF THE CONSIDERED VIEW THAT IN VIEW OF THE RATIO LAID DOWN IN THE CASE OF HDFC LTD (SUPRA) AND RELIANCE UTILITIES(SUPRA), WHEREIN THE HONBLE JURISDICTIONAL HIGH COURT HAS CLEARLY HELD THAT THE WHEN THE ASSESSEE OWN FUNDS ARE MORE THAN THE INVESTMENT S MADE IN THE SHARES AND SECURITIES MADE OUT OF OWN FUNDS , THERE IS NO NEED TO DISALLOW 7 ITA NO. 2742 /M/201 5 THE EXPENDITURE U/S 14A OF THE ACT R.W.R.8D OF THE RULES. W E THEREFORE, FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE ABOVE MENTIONED CASE S SET ASID E THE ORDE R OF LD.CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITIO NS OF RS.1,36,549/ - , WHEREAS THE DISALLOWANCE OF RS.48,202/ - MADE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D(2)(III) OF THE RULES , IS S USTAINED . GROUND RAISED BY T HE ASSESSEE IS PARTLY ALLOWED. 9 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY A LLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 25TH APRIL , 2017 . SD SD ( D.T.GARASIA ) ( RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 25. 4 .2017 SR.PS:SRL: / 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