MAX FLEX & IMAGING SYSTEMS LTD, MUMBAI V. DCIT 7(2), MUMBAI

ITA 3581/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0872 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2017
• Appeal Filed By: Assessee
• Bench Allotted: F
• Next Hearing Date: 10-04-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 24-05-2016
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Keywords: Bogus purchase; Business income; Principle of natural justice; Opportunity of cross examination; Accommodation entries; Onus to prove; Reassessment proceedings
• Section: 69C; 143(3); 133(6); 131; 148

Judgement Text

' IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F , MUMBAI BEFORE SHRI C.N.PRASAD, JUDICIAL MEMBER AND SHRI N.K.PRADHAN , ACCOUNTANT MEMBER ITA NO. 3 5 8 1 /MUM/201 6 : (A.Y : 200 6 - 07 ) ITA NO. 35 8 2 /MUM/201 6 : (A.Y : 200 7 - 0 8 ) ITA NO. 35 8 3 /MUM/201 6 : (A.Y : 20 08 - 09 ) I TA NO. 3584 /MUM/201 6 : (A.Y : 20 09 - 10 ) M/S MAX FLEX & IMAGING SYSTEMS LTD. 102, PRIME PLAZA, J.V. PATEL COMPOUND BALASAHEB MADHURKAR MARG ELPHINSTONE (W) MUMBAI 400 0 13 PAN : AAHCS5086Q VS. DCIT 7(2) AAYAKAR BHAVAN M.K.ROAD MUMBAI 400 020 ( / APPELLANT) ( / RESPONDENT) / APPELLANT BY : SHRI SATYA PRAKASH SINGH / RESPONDENT BY : SHRI BS BIST / DATE OF HEARING : 13 / 0 4 / 2017 / DATE OF PRONOUNCEMENT : 26/ 04 / 2017 / O R D E R P ER BENCH ALL T HESE APPEALS ARE FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT (APPEALS) - 1 3 , MUMBAI DATED 21 . 10 .201 4 FOR THE ASSESSMENT YEAR S 20 06 - 0 7 TO 2009 - 10 ARISING OUT OF THE ASSES SMENT ORDER S PASSED U/S 143(3) R.W.S 147 OF THE ACT. 2 ITA NOS . 358 1, 35 8 2, 35 8 3 & 3584 /MUM/2016 (A.YS 2006 - 07 TO 2009 - 10 ) M/S MAX FLEX & IMAGING SYSTEMS LTD . 2. THE ONLY ISSUE IN ALL THESE APPEALS OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT (APPEALS) IN CONFIRMING THE ADDITION MADE TOWARDS BOGUS PURCHASES. 3. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSING OFFICER REOPENED ALL THESE ASSESSMENTS FOR THE ASSESSMENT YEARS 2006 - 07 TO 2009 - 10 BY ISSUE OF NOTICE U/S 148 , O N THE BASIS OF INFORMATION RECEIVED FROM THE SALES TAX DEPARTMENT WHERE A SURVEY WAS CONDUCTED BY THE INVESTIGATION WING IN RESPECT OF CERTAIN DEALERS WHO SAID TO HAVE BEEN DEPOSED THAT THEY HAVE PROVIDED ONLY ACCOMMODATION ENTRIES. THE ASSESSING OFFICER REOPENED ASSESSMENTS OF THE ASSESSEE, BELIEVING THAT THE ASSESSEE WAS PROVIDED ONLY ACCOMMODAT ION ENTRIES FROM THOSE PARTIES WHERE INVESTIGATION WAS CONDUCTED BY S ALES T AX D EPARTMENT AND NO PURCHASES WERE EFFECTED . THE ASSESSING OFFICER IN THE COURSE OF REASSESSMENT PROCEEDINGS REQUIRED THE ASSESSEE TO JUSTIFY THE PURCHASES MADE BY THE ASSESSEE FR OM M/S MANAV IMPEX AS GENUINE . THE ASSESSEE SUBMITTED A DETAILED REPLY IN THE COURSE OF REASSESSMENT PROCEEDINGS STATING THAT THE PURCHASES MADE BY THE ASSESSEE FROM M/S MANAV IMPEX ARE GENUINE. THE ASSESSEE PRODUCED LIST OF STOCK TRADED BY THE ASSESSEE, MOVEMENT OF STOCK PURCHASED BY M/S MANAV IMPEX WITH DETAILS OF EACH STOCK, STOCK SUMMARY, RECONCILIATION OF PURCHASES AND SALES WITH ANNUAL REPORT, CONFIRMATION FROM SALES PARTIES, INVOICES OF M/S MANAV IMPEX TOWARDS PURCHASE OF GOODS. ALL THESE DETAILS WERE PRODUCED BEFORE THE ASSESSING OFFICER CONTENDING THAT THE PURCHASES MADE BY THE ASSSESSEE ARE GENUINE. HOWEVER, THE ASSESSING OFFICER REJECTED THE EXPLANATION OF THE ASSESSEE BY OB SERVING THAT 3 ITA NOS . 358 1, 35 8 2, 35 8 3 & 3584 /MUM/2016 (A.YS 2006 - 07 TO 2009 - 10 ) M/S MAX FLEX & IMAGING SYSTEMS LTD . INFORMATION HAS BEEN RECEIVED FROM THE INVESTIGATION WI NG RELATING TO ASSESSEE WHO HAVE INDULGED IN THE PRACTICE OF TAKING BOGUS PURCHASE BILLS AND ROUTING IT TO THE BOOKS OF ACCOUNT AND THIS INFORMATION HAS BEEN RECEIVED FROM THE SALES TAX DEPARTMENT. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE IS ONE O F THE PARTIES INDULGED IN ACTIVITIES OF BOGUS PURCHASES. HE OBSERVED THAT M/S MANAV IMPEX ADMITTED BEFORE THE SALES TAX AUTHORITIES THAT IT HAS INDULGED INTO THE PRACTICE OF BOGUS SALES/PURCHASES AND THAT THE ASSESSEE HAS MADE BOGUS PURCHASES FROM IT. TH EREFORE, HE CONCLUDED THAT THE PARTIES HAVE ADMITTED BEFORE THE SALES TAX AUTHORITIES IN INDULGING BOGUS SALES/PURCHASES AND T HE ASSESSEE FAILED TO DISCHARGE ITS ONUS BY SUBSTANTIATING THE GENUINENESS OF THE TRANSACTION. ON APPEAL BY THE ASSESSEE, THE LD. CIT (APPEALS) SUSTAINED THE ADDITION OBSERVING THAT THE ASSESSEE HAS NOT PRODUCED ANY INFORMATION REGARDING THE PURCHASES AND THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS NOT PRODUCED THE CONFIRMATIONS, BILLS, INVOICES ETC. 4. THE LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY SUBMITS THAT THE BASIC INFORMATION AS SET OUT IN THE ASSESSMENT ORDER ITSELF HAS BEEN PRODUCED BEFO RE THE ASSESSING OFFICER TO PROVE THAT THE PURCHASES MADE BY THE ASSESSEE ARE GENUINE. THE LD. COUNSEL SUBMITS THAT THE ASSESSING OFFICER HAD IN FACT REPRODUCED THE SUBMISSIONS MADE BY THE ASSESSEE ALONG WITH THE INFORMATION SUBMITTED THEREIN AND THEREFO RE THERE IS NO JUSTIFICATION IN HOLDING THAT THE ASSESSEE HAS NOT PRODUCED THE INFORMATION RELATING TO THE PURCHASES, THEREFORE NOT GENUINE. HE SUBMITS THAT THE FINDINGS OF THE LD. CIT (APPEALS) THAT THE 4 ITA NOS . 358 1, 35 8 2, 35 8 3 & 3584 /MUM/2016 (A.YS 2006 - 07 TO 2009 - 10 ) M/S MAX FLEX & IMAGING SYSTEMS LTD . ASSESSEE NOT PRODUCED ANY INFORMATION RELATING TO P URCHASES BEFORE THE ASSESSING OFFICER IS CONTRADICTORY WHEN THE ASSESSING OFFICER HIMSELF REPRODUCED WHAT HAS BEEN SUBMITTED BY THE ASSESSEE IN THE COURSE OF ASSESSMENT PROCEEDINGS. 5 . THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITS THAT THE ADDITIONS/ DISALLOWANCES WERE MADE BAS ED SOLELY ON THE INFORMATION RECEIVED FROM THE SALES TAX DEPARTMENT THAT CERTAIN SUPPLIERS PROVIDED ONLY ACCOMMODATION ENTRIES AND NOT SUPPLIED ANY GOODS. THE LD. COUNSEL SUBMITS THAT THE ASSESS EE WAS NOT CONFRONTED WITH THE INF ORMATION SAID TO HAVE BEEN RECEIVED BY THE ASSESSING OFFICER FROM S ALES T AX A UTHORITIES REGARDING M /S MANAV IMPEX AND THE STATEMENT SAID TO HAVE BEEN RECORDED FROM THEM. NO OPPORTUNITY FOR CROSS EXAMINATION WAS GIVEN TO THE ASSESSEE . ADDITIONS WERE MADE BASED ONLY ON THE INFORMATION RECEIVED FROM SALES TAX DEPARTMENT WITHOUT CONFRONTING SUCH INFORMATION RECEIVED BY THE ASSESSING OFFICER FROM THE SALES TAX DEPARTMENT NOR PROVIDING ANY OPPORTUNITY FOR CROSS EXAMINATION OF THE PARTY. THE LD. COUNSEL SUBMITS THAT THE ASSESSEE HAS PRODUCED LEDGER COPIES OF THE CONCERNED PARTIES, OTHER NECESSARY EVIDENCES LIKE PURCHASE BILLS, BANK STATEMENTS, PROVING PAYMENTS MADE THROUGH CHEQUES ETC. TO PROVE THE GENUINENESS OF THE TRANSACTIONS AND WHERE AS THE ASSESSING OFFICER HAS NOT BROUGHT ANY EVIDENCE AGAINST THE ASSESSEE EXCEPT THE INFORMATION OBTAINED FROM THE SALES TAX DEPARTMENT TO PROVE THAT THE PURCHASES ARE NOT GENUINE. THE LD. COUNSEL SUBMITS THAT SINCE THE DEPARTMENT HAS MADE ALLEGATION THA T THE 5 ITA NOS . 358 1, 35 8 2, 35 8 3 & 3584 /MUM/2016 (A.YS 2006 - 07 TO 2009 - 10 ) M/S MAX FLEX & IMAGING SYSTEMS LTD . PURCHASES ARE BOGUS, THE ONUS IS ON THE DEPARTMENT TO PROVE SUCH FACT THROUGH COGENT EVIDENCES. THE LD. COUNSEL FURTHER SUBMITS THAT ON IDENTICAL FACTS AND CIRCUMSTANCES, THE HONBLE JURISDICTIONAL HIGH COURT AS WELL AS THE TRIBUNAL OF MUMBAI BENCHES DELETED THE ADDITION MADE UNDER SECTION 69C IN THE FOLLOWING CASES: SL. DECISION CITATION / ITA NOS. 1. CIT VS. NIKUNJ EXIMP ENTERPRISES (P) LTD 372 ITR 619 (BOM) 2. ITO VS. TAKHTMAL BHURALAL PICHHOLIYA 4526 TO 4528/M/2014 3. ITV VS. HIREN SHANTILAL DOSHI 715/M/2015 4. ACIT VS VISHAL P MEHTA 5313/M/2013 5. ITO VS. ASHOK TALREJA (HUF) 4629/M/2014 AND OTHERS 6. TALCO MARKETING VS. ITO 3394 AND 3395/M/2014 7. DCIT VS.RAJEEV G KALATHIL 6727/M/2012 8. ITO VS PARESH ARVIND GANDHI 5706/M/2013 9. ITO VS. SANJAY V DHRUV 5089/M/2014 6 . THE LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. THE LD. DR SUBMITS THAT INSPITE OF THE SPECIFIC REQUEST MADE BY THE ASSESSING OFFICER TO PROVE THE GENUINENESS OF THE TRANSACTIONS BY PRODUCING TH E PARTIES, THE ASSESSEE FAILED TO PRODUCE THE PARTIES AND NOT SUBMIT TED PROPER EVIDENCES TO PROVE/ ESTABLISH THE TRANSACTIONS OF PURCHASES A RE GENUINE. THEREFORE, THE ASSESSING OFFICER WAS JUSTIFIED IN TREATING THE PURCHASES MADE FROM THE CONCERNED PARTIES AS BOGUS PURCHASES. 6 ITA NOS . 358 1, 35 8 2, 35 8 3 & 3584 /MUM/2016 (A.YS 2006 - 07 TO 2009 - 10 ) M/S MAX FLEX & IMAGING SYSTEMS LTD . 7 . WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE MATERIAL AVAILABLE ON RECORD. IT IS VERY MUCH APPARENT FROM THE ASSESSMENT ORDER THAT THE BASIS FOR TREATING THE PURCHASES MADE BY THE ASSES SEE FROM M/S MANAV IMPEX AS MENTIONED IN THE ASSESSMENT ORDERS IS ONLY THE INFORMATION OBTAINED BY THE ASSESSING OFFICER FROM SALES TAX DEPARTMENT. WE FIND THAT THIS INFORMATION WAS NOT PARTED TO THE ASSESSEE BY THE ASSESSING OFFICER. IT IS ALSO NOT KNOW N AS TO WHAT KIND OF INFORMATION THE ASSESSING OFFICER HAS GOT FROM THE SALES TAX DEPARTMENT RELATING TO THE PRESENT ASSESSEE BEFORE US. SOLELY BASED ON CERTAIN INFORMATION SAID TO HAVE BEEN OBTAINED FROM SALES TAX DEPARTMENT, ASSESSING OFFICER MADE ADDIT ION. THE ASSESSING OFFICER HAD MADE NO EFFORTS TO ISSUE EVEN NOTICES UNDER S ECTION 133(6) OF THE ACT TO THE SUPPLIER TO MAKE ANY FURTHER ENQUIRIES ABOUT SUPPLIES MADE BY IT TO THE ASSESSEE . THUS, IT IS APPARENT THAT SOLE BASIS OF ADDITION IS ONLY THE INFO RMATION OBTAINED FROM THE SALES TAX DEPARTMENT BY THE ASSESSING OFFICER. 8. THE ASSESSEE FOR WHATEVER REASON MIGHT NOT HAVE PRODUCED THE PARTIES FOR VERIFICATION MAY BE DUE TO LAPSE OF TIME OR MAY BE DUE TO THE DEALERS SHIFTING FROM THEIR BUSINESS PREMISE S ETC., BUT HE HAS PRODUCED THE COPIES OF BANK STATEMENTS, WHERE THE PAYMENTS WERE MADE THROUGH CHEQUES AND THE LEDGER COPIES OF THE BOOKS OF THE ASSESSEE OF THE PARTIES ETC. TO PROVE THE GENUINENESS OF THE PURCHASES. THE ASSESSING OFFICER NEVER DOUBTED T HE SALES MADE BY THE ASSESSEE FOR SUCH PURCHASES, IN FACT, HE HAS ACCEPTED THE SALES. WITHOUT THERE BEING ANY PURCHASES, THERE COULD NOT BE ANY SALES. IT IS ALSO NOT PROVED BY THE 7 ITA NOS . 358 1, 35 8 2, 35 8 3 & 3584 /MUM/2016 (A.YS 2006 - 07 TO 2009 - 10 ) M/S MAX FLEX & IMAGING SYSTEMS LTD . ASSESSING OFFICER THAT THE AMOUNTS PAID BY THE ASSESSEE TO THE DEALERS WER E RETURNED BACK TO THE ASSESSEE AND THE PURCHASE BILLS ISSUED ARE ONLY ACCOMMODATION ENTRIES. SIMPLY BECAUSE THE ASSESSEE COULD NOT PRODUCE THE DEALERS, THE ENTIRE PURCHASES CANNOT BE TREATED AS BOGUS PURCHASES. THE ASSESSING OFFICER COULD HAVE MADE FURT HER INVESTIGATIONS TO ASCERTAIN THE GENUINENESS OF THE TRANSACTIONS WHICH HE FAILED TO DO. THE ASSESSEE HAS DISCHARGED ITS INITIAL ONUS OF PROVIDING NECESSARY INFORMATION ABOUT THE PURCHASES. 9 . WE FIND THAT ON IDENTICAL SITUATION AND FACTS, THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. SANJAY V DHRUV IN ITA NO.5089/2014, DATED 29.02.2016 HELD THAT THE PURCHASES CANNOT BE TREATED AS BOGUS PURCHASES AND ADDITION CANNOT BE SUSTAINED UN DER SECTION 69C OBSERVING AS UNDER : WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS EVIDENT FROM THE ASSESSMENT ORDER THAT ON THE BASIS OF INFORMATION OBTAINED FROM THE SALES TAX DEPARTMENT, ASSESSIN G OFFICER ISSUED NOTICES UNDER SECTION 133(6) TO THREE PARTIES OUT OF WHICH TWO NOTICES WERE RETURNED UNSERVED BY THE POSTAL AUTHORITIES AND IN CASE OF ONE OF THE PARTIES THROUGH NOTICE WAS SERVED, THERE WAS NO RESPONSE . THEREFORE, HE CALLED UPON THE ASSE SSEE TO PRODUCE THE CONCERNED PARTIES. AS THE ASSESSEE FAILED TO PRODUCE THE CONCERNED PARTIES, THE ASSESSING OFFICER, THEREFORE, PRIMARILY RELYING UPON THE INFORMATION OBTAINED FROM THE SALES TAX DEPARTMENT, HELD THE PURCHASES TO BE BOGUS AND MADE ADDITIO N UNDER SECTION 69C OF THE ACT. THOUGH, IT MAY BE A FACT THAT ASSESSEE WAS NOT ABLE TO PRODUCE THE CONCERNED PARTIES BEFORE THE ASSESSING OFFICER, FOR WHATEVER MAY BE THE REASON, FACT REMAINS DURING ASSESSMENT PROCEEDINGS ITSELF THE ASSESSEE HAD PRODUCED C ONFIRMED LEDGER COPIES OF CONCERNED PARTIES, BANK ACCOUNT STATEMENT, PURCHASE BILLS, DELIVERY CHALLANS, ETC., TO PROVE THE GENUINENESS OF THE PURCHASES. IT IS ALSO A FACT ON RECORD THAT THE ASSESSING OFFICER HAS NOT DOUBTED THE SALES EFFECTED BY THE ASSESS EE. THUS, IT IS LOGICAL TO CONCLUDE THAT WITHOUT CORRESPONDING PURCHASES BEING EFFECTED THE ASSESSEE COULD NOT HAVE MADE THE SALES. MOREOVER, THE ASSESSING OFFICER HAS 8 ITA NOS . 358 1, 35 8 2, 35 8 3 & 3584 /MUM/2016 (A.YS 2006 - 07 TO 2009 - 10 ) M/S MAX FLEX & IMAGING SYSTEMS LTD . NOT BROUGHT ANY MATERIAL ON RECORD TO CONCLUSIVELY ESTABLISH THE FACT THAT PURCHASES ARE BOGUS. MERELY RELYING UPON THE INFORMATION FROM THE SALES TAX DEPARTMENT OR THE FACT THAT PARTIES WERE NOT PRODUCED THE ASSESSING OFFICER COULD NOT HAVE TREATED THE PURCHASES AS BOGUS AND MADE ADDITION. IF THE ASSESSING OFFICER HAD ANY DOUBT WITH REGARD T O PURCHASES MADE, IT WAS INCUMBENT UPON HIM TO MAKE FURTHER INVESTIGATION TO ASCERTAIN THE GENUINENESS OF THE TRANSACTIONS. WITHOUT MAKING ANY ENQUIRY OR INVESTIGATION THE ASSESSING OFFICER CANNOT SIT BACK AND MAKE THE ADDITION BY SIMPLY RELYING UPON THE I NFORMATION OBTAINED FROM THE SALES TAX DEPARTMENT AND ISSUING NOTICES UNDER SECTION 133(6) OF THE ACT. AS THE ASSESSING OFFICER HAS FAILED TO MAKE ANY ENQUIRY OR INVESTIGATION TO PROVE THE FACT THAT THE PURCHASE TRANSACTIONS ARE NOT GENUINE WHEREAS THE ASS ESSEE HAS BROUGHT DOCUMENTARY EVIDENCES ON RECORD TO PROVE GENUINENESS OF SUCH TRANSACTIONS WHICH ARE NOT FOUND TO BE FABRICATED OR NON GENUINE, THE ACTION OF THE ASSESSING OFFICER IN IGNORING THEM CANNOT BE ACCEPTED. MOREOVER, AS RIGHTLY OBSERVED BY THE L EARNED COMMISSIONER (APPEALS), WHEN THE PAYMENT TO THE CONCERNED PARTIES ARE THROUGH PROPER BANKING CHANNEL AND THERE IS NO EVIDENCE BEFORE THE ASSESSING OFFICER THAT THE PAYMENTS MADE WERE AGAIN ROUTED BACK TO THE ASSESSEE, THE ADDITION MADE UNDER SECTION 69C CANNOT BE SUSTAINED. MOREOVER, THE DECISIONS RELIED UPON BY THE LEARNED A.R. ON CAREFUL ANALYSIS WERE FOUND TO BE SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT APPEAL. THEREFORE, FINDING NO INFIRMITY IN THE ORDER OF THE FIRST APPELLATE AUTHORITY, WE UPHOLD THE SAME BY DISMISSING THE GROUNDS RAISED BY THE DEPARTMENT. 10 . SIMILARLY IN THE CASE OF SHARAD CONSTRUCTION PVT. LTD., VS. ACIT, ITA NOS.2812 - 14/2015 DATED 30.09.2016, THE COORDINATE BENCH HELD AS UNDER : 2. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD IN THE LIGHT OF THE DECISIONS RELIED UPON. AT THE OUTSET, WE MUST OBSERVE, THE ASSESSING OFFICER HAS NOT REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE. THIS FACT IS NOT DISPUTED BY THE LEARNED DEP ARTMENTAL REPRESENTATIVE. IT IS FURTHER EVIDENT, THE ALLEGATION OF BOGUS PURCHASES WAS CONTAINED IN A REPORT RECEIVED FROM THE DGIT (INV.). IT IS A FACT ON RECORD TO ASCERTAIN THE GENUINENESS OF PURCHASES, THE ASSESSING OFFICER SUMMONED ONE OF THE DIRECTOR S OF THE ASSESSEE COMPANY AND RECORDED A STATEMENT UNDER SECTION 131 OF THE ACT ON 28 TH JANUARY 2013. ON A PERUSAL OF THE SAID STATEMENT REPRODUCED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER REVEALS THAT IN QUESTION NO.21, THE ASSESSING OFFICER SPECI FICALLY ASKED THE ASSESSEE TO EXPLAIN THE ALLEGATION OF BOGUS PURCHASES. IN REPLY, IT WAS SUBMITTED BY THE ASSESSEE AS UNDER: 9 ITA NOS . 358 1, 35 8 2, 35 8 3 & 3584 /MUM/2016 (A.YS 2006 - 07 TO 2009 - 10 ) M/S MAX FLEX & IMAGING SYSTEMS LTD . Q.21: AS PER THE INFORMATION RECEIVED, IT SEEMS THAT THE ASSESSEE COMPANY M/S. SHARAD CONSTRUCTIONS P. LTD. HAS BOOKED BOGUS P URCHASES DURING THE FINANCIAL YEAR 2009 2010 (I.E., A.Y. 210 11), PLEASE CONFIRM WHETHER IT IS TRUE? ANS: REGARDING ALLEGED BOGUS BILL IN YEAR 2009 10 (A.Y. 2010 11) IN PARTICULAR, LAST YEAR WE RECEIVED NOTICE & SHOW CASE NOTICE FROM SALES TAX DEPTT. IN FORMING US THAT 4 5 SUPPLIERS HAD NOT PAID VAT COLLECTED FROM US AND NOT KNOWING ABOUT THIS AS SUPPLIERS ALREADY COLLECTED VAT FROM US, AS A ROUTINE, WE HAD TAKEN SET OFF OF VAT WHERE VAT WAS PAID MORE THAN 4% I.E., 12.5%. WE WONDER, HOW THESE BILLS BECOM ES BOGUS WHERE NO SET OFF WAS TAKEN AND SUFFICIENT PROOF HAS BEEN GIVEN TO THEIR DEPT. EVEN FOR MATERIALS PURCHASED UNDER 12.5% VAT. WE HAVE GIVEN ENOUGH EVIDENCE THAT IN MATTER OF PURCHASE OF MARBLE (NAVODAYA TRADE) & STAINLESS STEEL PIPE (NUTAN METALS) WHEREIN IT WAS EXPLAINED THAT THE MATERIAL WAS ACTUALLY RECEIVED AT VARIOUS SITES, THE MATERIAL WAS CONSUMED AND THE SAME WAS ALSO CERTIFIED BY THE ARCHITECT APPOINTED BY THE CUSTOMERS. WE HAVE ALSO SHOWN PAYMENT RECEIVED FROM CLIENTS AFTER CERTIFIED BY AR CHITECT AS USED IN THE RESPECTIVE WORK AND TALLIES WITH THE RECORD. REGARDING BRICK SUPPLIERS REGAL BRICKS & SAND SUPPLIERS, WE HAVE NOT PURCHASED ANY MATERIAL FROM THIS PARTY DURING THE PERIOD. THUS, WE PRESUME THAT, PERHAPS SALES TAX DEPT. FORWARDED SU CH UNSCRUTINIZED MATTERS TO I.T. DEPT. WHICH AGAIN SAYS THE BILLS AS BOGUS. I AM SUBMITTING FOLLOWING DOCUMENTS IN SUPPORT OF OUR CLAIM. (I) OUR STATEMENT OF FACTS; (II) OUR DIFFERENT CORRESPONDENCE WITH SALES TAX DEPT. (A) LETTER DATED 10.09.2012, 22.09.2012, 05.10.2012, 17.10.2012, 21.12.2012. 10 ITA NOS . 358 1, 35 8 2, 35 8 3 & 3584 /MUM/2016 (A.YS 2006 - 07 TO 2009 - 10 ) M/S MAX FLEX & IMAGING SYSTEMS LTD . (B) OUR ADVOCATE LETTER DATED 10.09.2012 & 17.09.2012. 9 . FURTHER, IN REPLY TO QUESTION NO.22, ASSESSEE REPLIED AS UNDER: Q.22: DO YOU WANT TO SAY ANYTHING ELSE? ANS: WE ASSURE THE DEPARTMENT THAT AS AND WHEN WE ARE CALLED TO SUBSTANTIATE / CLARIFY OUR SUBMISSION, WE SHALL BE GLAD TO HELP AND CO OPERATE WITH THE DEPARTMENT. WE ARE SURE THAT BEFORE FINALIZING YOUR OPINION, WE SHALL BE GIVEN ENOUGH CHANCE TO VERIFY A) SAID AFFIDAVIT OF ALLEGED SUPPLIERS CONFIRMING HAVALA BILLS; B) OPPORTUNITY TO CROSS EXAMINE SUCH DEALERS IN PERSON; C) ANY OTHER REMEDY ALLOWED TO US LEGALLY. WE ARE SURE, DEPARTMENT WILL CLEAR THE MATTER IN VIEW OF OUR REQUIREMENT AS ASSESSEE, AND WE HOPE OUR NAME WILL BE CLEARED FROM ABOVE ALLEGATIONS. 11. THUS, AS COULD BE SEEN FROM THE AFORESAID FACT, THE ASSESSEE NOT ONLY DENIED THE ALLEGATION OF BOGUS PURCHASES BUT ALSO SPECIFICALLY REQUESTED THE ASSESSING OFFICER TO ALLOW HIM AN OPPORTUNITY TO VERIFY THE ADVERSE MATERIAL AND ALSO REQUESTED FOR CROSS EXAMINATION OF THE DEALERS WHO ALLEGEDLY STATED OF HAVING PROVIDED ACCOMMODATION BILLS. AS AGAINST THE AFORESAID FACTS, THE ASSESSING OFFICER HAS SIMPLY RELIED UPON THE INFORMATION RECEIVED FROM DGIT (INV.), T O INFER THAT PURCHASES MADE FROM CERTAIN PARTIES AS REFERRED TO IN THE ASSESSMENT ORDER AND REPRODUCED IN EARLIER PART OF OUR ORDER ARE BOGUS. IN FACT, IN THE ASSESSMENT ORDER, NOWHERE THE ASSESSING OFFICER HAS DISCUSSED IN DETAIL THE NATURE OF INFORMATION OBTAINED FROM DGIT (INV.) NOR THE SPECIFIC ADVERSE MATERIAL ON THE BASIS OF WHICH THE ALLEGATION OF BOGUS PURCHASES WERE MADE. UNDISPUTEDLY, BEFORE THE ASSESSING OFFICER, THE ASSESSEE HAD PRODUCED ITS BOOKS OF ACCOUNT, PURCHASE BILLS, BANK STATEMENTS, ETC . IT IS ALSO NOT DISPUTED THAT THE PAYMENT MADE TOWARDS PURCHASES ARE THROUGH ACCOUNT PAYEE CHEQUES AND REFLECTED NOT ONLY IN THE BOOKS OF ACCOUNT BUT IN THE BANK ACCOUNT COPIES. IT IS SETTLED POSITION OF LAW, ENTRIES MADE IN THE BOOKS OF ACCOUNT IN REGULA R COURSE ORDINARILY, SHALL BE PRESUMED TO BE CORRECT UNLESS THERE IS STRONG EVIDENCE TO PROVE THE CONTRARY. IT IS AN ADMITTED POSITION THAT THE ASSESSING OFFICER HAS NOT REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE. THIS PRE SUPPOSES THAT THERE IS NO DISC REPANCY IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THAT BEING THE CASE, THE PURCHASES HAVING BEEN REFLECTED IN THE BOOKS OF ACCOUNT CANNOT BE TREATED AS 11 ITA NOS . 358 1, 35 8 2, 35 8 3 & 3584 /MUM/2016 (A.YS 2006 - 07 TO 2009 - 10 ) M/S MAX FLEX & IMAGING SYSTEMS LTD . BOGUS WITHOUT ANY CORROBORATIVE EVIDENCE TO ESTABLISH SUCH FACT. MOREOVER, THE ALLEGATION OF THE ASSESSEE THAT THE ASSESSING OFFICER HAD NOT CONFRONTED HIM THE ADVERSE MATERIALS NOR PROVIDED AN OPPORTUNITY TO CROSS EXAMINE THE DEALERS, WHO ADMITTED OF HAVING PROVIDED ACCOMMODATION BILLS IS WELL FOUNDED. AS WE HAVE NOTED EARLIER, IN THE COURSE OF ASSESSMENT PR OCEEDINGS, THE ASSESSEE HAD NOT ONLY REQUESTED THE ASSESSING OFFICER TO ALLOW HIM TO VERIFY THE ADVERSE MATERIAL IN HIS POSSESSION BUT HAS ALSO REQUESTED FOR CROSS EXAMINATION OF THE DEALERS WHOSE AFFIDAVIT / STATEMENTS WERE RELIED UPON TO INFER BOGUS PURC HASE. HOWEVER, IT IS APPARENT ON RECORD, THE ASSESSING OFFICER HAS NOT CONFRONTED THE ADVERSE MATERIALS, IF ANY, IN HIS POSSESSION TO THE ASSESSEE NOR HAS ALLOWED HIM TO CROSS EXAMINE THE DEALERS WHO ALLEGEDLY ADMITTED OF HAVING PROVIDED ACCOMMODATION BILL S WITHOUT ACTUAL DELIVERY OF GOODS. THAT BEING THE CASE, THE INFERENCE DRAWN ON THE BASIS OF ADVERSE MATERIALS WITHOUT CONFRONTING THEM TO THE ASSESSEE IS IN GROSS VIOLATION OF RULES OF NATURAL JUSTICE. FURTHERMORE, NOT GRANTING OPPORTUNITY TO THE ASSESSEE TO CROSS EXAMINE THE DEALERS WHO ALLEGEDLY ADMITTED OF HAVING PROVIDED ACCOMMODATION BILLS ALSO VITIATES THE PROCEEDINGS, THEREFORE, THE ADDITION MADE ON ACCOUNT OF BOGUS PURCHASES IS LEGALLY UNSUSTAINABLE. IN THIS CONTEXT, WE MAY REFER TO THE DECISION OF THE HON'BLE SUPREME COURT IN ANDAMAN TIMBER (SUPRA). THE OBSERVATION OF THE LEARNED COMMISSIONER (APPEALS) IN THIS CONTEXT, IN OUR VIEW, IS TOTALLY IRRELEVANT. ONLY BECAUSE THE ASSESSEE OFFERED TO PAY THE SALES TAX / VAT, IT WILL NOT TAKE AWAY HIS RIGHT T O BE CONFRONTED WITH ADVERSE MATERIALS OR OPPORTUNITY OF CROSS EXAMINATION. IF THE ASSESSING OFFICER INTENDS TO UTILISE ANY ADVERSE MATERIAL IN DETRIMENT TO THE INTEREST OF THE ASSESSEE, HE IS BOUND TO CONFRONT THEM TO ASSESSEE WITH OPPORTUNITY TO REBUT TH EM. FURTHER, THE ALLEGATION OF THE LEARNED COMMISSIONER (APPEALS) THAT THE ASSESSEE HAD NEVER ASKED FOR CROSS EXAMINATION OF THE SELLERS / SUPPLIERS BEFORE THE SALES TAX AUTHORITIES IS FACTUALLY INCORRECT AS PERUSAL OF THE LETTERS FILED BY THE ASSESSEE BEF ORE THE SALES TAX AUTHORITIES ON DIFFERENT DATES CLEARLY REVEALS THAT THE ASSESSEE HAD REPEATEDLY REQUESTED THE SALES TAX OFFICER NOT ONLY TO PROVIDE HIM WITH THE ADVERSE MATERIAL BUT ALSO ALLOW HIM OPPORTUNITY TO CROSS EXAMINE THE SO CALLED BOGUS DEALERS. AS NOTED BY US AND IT IS ALSO A FACT ON RECORD, BEFORE THE ASSESSING OFFICER ASSESSEE HAD SUBMITTED PURCHASE INVOICES, BOOKS OF ACCOUNT, ETC., TO PROVE THE GENUINENESS OF PURCHASES. IN ADDITION, IT IS NOT DISPUTED THAT THE ENTIRE PAYMENTS TOWARDS PURCHASE S HAVE BEEN MADE THROUGH ACCOUNT PAYEE CHEQUE. BEFORE THE FIRST APPELLATE AUTHORITY, THE ASSESSEE HAD PRODUCED COPIES OF DELIVERY CHALLANS AND ALSO CONFIRMATIONS FROM THE CONCERNED DEALERS TO PROVE THE PURCHASES. THUS, THESE DOCUMENTARY EVIDENCES PRODUCED BY THE ASSESSEE DEMONSTRATE THAT TO SOME EXTENT THE ASSESSEE DID DISCHARGE ITS ONUS TO PROVE THE GENUINENESS OF THE PURCHASES. AS OPPOSED TO THIS, THE ASSESSING OFFICER EXCEPT THE REPORT OF THE DGIT (INV.) HAD NOT BROUGHT ON RECORD ANY OTHER COGENT / CORRO BORATING EVIDENCE TO PROVE THE PURCHASES AS BOGUS. ADMITTEDLY, THE ASSESSING OFFICER HAS 12 ITA NOS . 358 1, 35 8 2, 35 8 3 & 3584 /MUM/2016 (A.YS 2006 - 07 TO 2009 - 10 ) M/S MAX FLEX & IMAGING SYSTEMS LTD . NOT MADE ANY INDEPENDENT ENQUIRY BY EVEN ISSUING NOTICES UNDER SECTION 133(6) TO THE SO CALLED BOGUS SUPPLIERS. THAT BEING THE CASE, IF THE A.O. OR THE LEARNED CIT(A) WERE NOT SATISFIED WITH THE EVIDENCES PRODUCED BY THE ASSESSEE AND STILL HAD DOUBT WITH REGARD TO THE GENUINENESS OF PURCHASES IT SHOULD HAVE TRIGGERED A PROPER ENQUIRY / INVESTIGATION AT THEIR END TO ASCERTAIN THE GENUINENESS OF ASSESSEES CLAIM. WITHOUT MAKING ANY ENQUIRY / INVESTIGATION AND BY MERELY RELYING UPON THE INFORMATION SUPPLIED BY THE DGIT (INV.), WHO IN TURN HAD OBTAINED SUCH INFORMATION FROM SALES TAX AUTHORITIES, IN OUR VIEW, IS NOT ENOUGH TO PROVE THE PURCHASES AS BOGUS. WITHOUT BRINGING SU FFICIENT EVIDENCE ON RECORD TO FALSIFY ASSESSEES CLAIM OF PURCHASES FROM THE CONCERNED DEALERS, THE CONCLUSION DRAWN ON THE ISSUE OF BOGUS PURCHASES, IN OUR VIEW, IS MORE ON CONJECTURE AND SUSPICION RATHER THAN ON STRONG EVIDENCE. IN THE COURSE OF HEARING , THE LEARNED AUTHORISED REPRESENTATIVE HAS PRODUCED A COMPARATIVE CHART SHOWING THE GROSS PROFIT RATE SHOWN BY THE ASSESSEE IN THE ASSESSMENT YEARS UNDER APPEAL AND THE PERCENTAGE OF DISALLOWANCE. IT IS RELEVANT TO REPRODUCE THE SAID CHART HEREUNDER: DE TAILS OF PURCHASE AND SALES A.Y. TOTAL SALES TOTAL EXP. GROSS PROFIT GROSS PROFIT RATE TOTAL PURCHASE ADDITION BY A.O. % OF DIS - ALLOWANCE 2009 10 269,069,179 219,395,082 49,674,098 18.46 90,568,548 352,583 0.39% 2010 11 350,977,344 261,177,515 89,799,829 25.59 83,012,809 2,634,662 3.17% 2011 12 369,103,176 282,931,389 79,780,057 23.35 138,158,440 1,048,372 0.76% 12. THE WORKING SHOWN IN THE AFORESAID CHART INDICATES THAT THE ASSESSEE IS CONSISTENTLY SHOWING A HEALTHY GROSS PROFIT RATE OVER THE YEARS. MOREOVER, WHEN THE PAYMENTS TOWARDS PURCHASES WERE MADE THROUGH ACCOUNT PAYEE CHEQUES, TO CERTAIN EXTENT, IT ESTABLISH ES THE GENUINENESS OF PURCHASES UNLESS ADVERSE MATERIAL IS BROUGHT ON RECORD TO PROVE THE CONTRARY. THIS VIEW OF OURS IS SUPPORTED BY THE DECISION OF THE TRIBUNAL, MUMBAI BENCH, IN RAMESH & CO. V/S ACIT, ITA NO.2959/MUM./2014, DATED 28 TH NOVEMBER 2014. MOR EOVER, THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S NIKUNJ EXIM ENTERPRISE PVT. LTD. (SUPRA) ALSO SUPPORT ASSESSEES CASE THAT WHEN PAYMENTS ARE MADE THROUGH ACCOUNT PAYEE CHEQUE TO SUPPLIERS AND SALES EFFECTED ARE NOT DOUBTED, FURTHER, WHEN BOOKS OF ACCOUNT ARE NOT REJECTED PURCHASES CANNOT BE TREATED AS BOGUS. THE OTHER DECISIONS OF THE TRIBUNAL RELIED UPON BY THE LEARNED AUTHORISED REPRESENTATIVE ALSO EXPRESS THE VIEW THAT MERELY ON THE BASIS OF INFORMATION OBTAINED FROM THE SALES TAX DEPARTMENT, NO ADDITION CAN BE MADE ON ACCOUNT OF 13 ITA NOS . 358 1, 35 8 2, 35 8 3 & 3584 /MUM/2016 (A.YS 2006 - 07 TO 2009 - 10 ) M/S MAX FLEX & IMAGING SYSTEMS LTD . BOGUS PURCHASES. THEREFORE, ON OVER ALL CONSIDERATION OF FACTS AND MATERIAL ON RECORD, WE ARE OF THE OPINION THAT THE ADDITION MADE ON ACCOUNT OF BOGUS PURCHASES IS LEGALLY UNSUSTAINABLE, HENCE, WE DELETE THE SAME. 1 1 . IN VIEW OF THE ABOVE DISCUSSION, WE HOLD THAT THERE IS NO MATERIAL ON RECORD TO CONCLUSIVELY PROVE THAT THE PURCHASES MADE BY THE ASSESSEE ARE BOGUS PURCHASES AND NOTHING IS BROUGHT ON RECORD TO SUGGEST THAT THE INFORMATION GATHERED BY THE SALES TAX DEPARTMENT CONCLUSIVELY PROVES THAT THE DEALER IS PROVIDING ONLY THE ACCOMMODATION EN TRIES TO THE ASSESSEE BEFORE US. T HUS WE HOLD THAT ADDITION MADE TOWARDS BOGUS PURCHASES CANNOT BE SUSTAINED. 1 2 . HOWEVER, AT THE SAME TIME, KEEPING IN VIEW THE NATURE OF BUSINESS OF THE ASSESSEE AND POSSIBILITY OF THE A SSESSEE MAKING LOCAL PURCHASES WITHOUT ANY TRANSPORTATION BILLS, DELIVERY CHALLANS ETC., AND THE POSSIBILITY OF THE ASSESSEE MAKING PURCHASES IN GREY MARKET ON CASH CANNOT BE RULED OUT. THEREFORE, KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DIRECT THE ASSESSING OFFICER TO DISALLOW 12.5 % OF THE ABOVE PURCHASES TO MEET THE ANOMALIE S AND TO COVER UP THE LEAKAGE OF REVENUE AND NOT THE ENTIRE PURCHASES . 1 3 . IN THE RESULT ALL THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. 14 ITA NOS . 358 1, 35 8 2, 35 8 3 & 3584 /MUM/2016 (A.YS 2006 - 07 TO 2009 - 10 ) M/S MAX FLEX & IMAGING SYSTEMS LTD . ORDER PRONOUNCED IN THE OPEN COURT ON THE 26 TH DAY OF APRIL 2017. SD/ - SD/ - ( N. K.PRADHAN ) ( C.N.PRASAD ) / / ACCOUNTANT MEMBER JUDICIAL MEMBER / MUMBAI; / DATED 26 .04. 2017 LR, SPS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, (ASSTT. REGISTRAR) , / ITAT, MUM 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. // TRUE COPY / /