MANGALMURTI REALTORS, MUMBAI V. ITO WD 2 PANVEL, MUMBAI

ITA 3786/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8301 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 24-05-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M V RAJGURU
• Keywords: Bogus purchase; Opportunity of cross examination; Third party statement; Accommodation entries
• Section: 143(3); 142(1); 68

Judgement Text

1 ITA NO.2786 & 4399/MUM/2017 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L, MUMBAI BEFORE SHRI MAHAVIR SINGH JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO. 3786/MUM/2017 (ASSESSMENT YEAR: 2011-12) M/S MANGALMURTI REALTORS 001, GROUND FLOOR, BALAJI BUSINESS PARK, PLOT NO.3&5, SURVEY NO.785, MAROL, ANDHERI (E), MUMBAI PAN : AAPFM3709F VS ITO, WD.2, PANVEL |(NOW LYING WITH ITO- 24(2(4), MUMBAI) APPELLANT RESPONDEDNT I.T.A NO. 4399/MUM/2017 (ASSESSMENT YEAR: 2011-12) ITO, WD.24(2(4), MUMBAI VS M/S MANGALMURTI REALTORS 001, GROUND FLOOR, BALAJI BUSINESS PARK, PLOT NO.3&5, SURVEY NO.785, MAROL, ANDHERI (E), MUMBAI APPELLANT RESPONDEDNT ASSESSEE BY SHRI RUSHABH MEHTA REVENUE BY SHRI M.V. RAJGURU DATE OF HEARING 15-11 -2017 DATE OF PRONOUNCEMENT 22-11-2017 O R D E R PER G MANJUNATHA, AM : THESE CROSS APPEALS FILED BY THE ASSESSEE AS WELL AS THE REVENUE ARE 2 ITA NO.2786 & 4399/MUM/2017 DIRECTED AGAINST THE ORDER OF CIT(A)-I, AURANGABAD DATED 20-03-2017 AND IT PERTAINS TO AY 2011-12. SINCE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF PROMOTERS AND BUILDERS, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2011-12 ON 13-9-2011 DECLAR ING TOTAL LOSS OF RSA.1,81,686. THE CASE WAS SELECTED FOR SCRUTINY A ND NOTICES U/S 143(2) AD 142(1) OF THE ACT ALONGWITH QUESTIONNAIRE WERE ISSU ED. IN RESPONSE TO THE NOTICES, AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ATTENDED FROM TIME TO TIME AND SUBMITTED THE DETAILS, AS CALLED FOR. THE ASSE SSMENT WAS COMPLETED U/S 143(3) ON 20 TH MARCH, 2014 DETERMINING THE TOTAL INCOME AT RS.1,9 5,04,320, INTERALIA MAKING ADDITIONS TOWARDS DISALLOWANCES OF PURCHASE FROM HAWALA DEALERS, ADDITION TOWARDS UNPROVED / BOGUS PURCHASE S, DISALLOWANCE OF INTEREST ON CAPITAL AND REMUNERATION TO PARTNERS. 3. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREFERR ED APPEAL BEFORE THE CIT(A). BEFORE CIT(A), THE ASSESSEE HAS FILED ELAB ORATE WRITTEN SUBMISSIONS. THE ASSESSEE FURTHER SUBMITTED THAT THE AO WAS ERRE D IN DISALLOWING PURCHASES FROM CERTAIN PARTIES AS BOGUS PURCHASES DESPITE FUR NISHING NECESSARY EVIDENCES MERELY ON THE BASIS OF INFORMATION RECEIVED FROM SA LES-TAX DEPARTMENT WHICH 3 ITA NO.2786 & 4399/MUM/2017 DECLARED THOSE PARTIES AS SUSPICIOUS DEALERS INDULG ING IN THE ACTIVITY OF PROVIDING ACCOMMODATION ENTRIES. INSOFAR AS ADDITI ON TOWARDS UNPROVED / BOGUS CREDITORS, THE AO WAS COMPLETELY MISCONSTRUED THE FACTS TO MAKE THE ADDITION TOWARDS CREDITORS, AS THOSE CREDITORS ARE BROUGHT FORWARD FROM PREVIOUS FINANCIAL YEARS, THEREFORE, NO ADDITION CO ULD BE MADE IN RESPECT OF BROUGHT FORWARD CREDITORS DURING THE CURRENT FINANC IAL YEAR MERELY BECAUSE CONFIRMATION HAS NOT BEEN FILED. AS REGARDS DISALL OWANCE OF INTEREST ON CAPITAL AND REMUNERATION TO PARTNERS, IT WAS SUBMITTED THAT INTEREST ON CAPITAL AND REMUNERATION TO PARTNERS WAS AUTHORIZED BY THE PART NERSHIP DEED AS PER WHICH THE ASSESSEE HAS PAID INTEREST ON CAPITAL TO PARTNE RS AND ALSO REMUNERATION, THEREFORE, THE QUESTION OF DISALLOWANCE DOES NOT AR ISE MERELY BECAUSE CERTIFIED COPY OF PARTNERSHIP DEED HAS NOT BEEN FILED. THE C IT(A) DELETED ADDITION MADE BY THE AO TOWARDS UNPROVED / BOGUS CREDITORS BY HOL DING THAT THE AO HAS MADE IMPUGNED ADDITION OF RS.1,71,55,317 UNDER WRON G PERCEPTION OF LAW AS WELL AS FACTS. THESE CREDITORS HAVE BROUGHT FORWAR D FROM EARLIER YEARS AND PURCHASES FROM THOSE PARTIES HAVE BEEN MADE DURING THE FINANCIAL YEAR RELEVANT TO AY 2010-11. THEREFORE, NO ADDITION CAN BE MADE TOWARDS CREDITORS, WHO ARE BROUGHT FORWARD FROM EARLIER YEA RS. INSOFAR AS ADDITION TOWARDS BOGUS PURCHASES, THE CIT(A) UPHELD THE FIND INGS OF THE AO WITH REGARD TO THE BOGUS PURCHASES ON THE GROUND THAT THE PURCH ASES ARE MADE FROM 4 ITA NO.2786 & 4399/MUM/2017 PARTIES, WHO ARE LISTED IN THE SALES-TAX RECORDS AS SUSPICIOUS / HAWALA DEALERS. THE CIT(A) FURTHER OBSERVED THAT SINCE THE ASSESSEE HAS NOT DEBITED THESE PURCHASES IN THE P&L ACCOUNT, REDUCED THE PURCHASES FROM WORK-IN-PROGRESS TO BE CARRIED FORWARD TO SUBSEQUENT FINANCIAL YEAR. I NSOFAR AS ADDITION TOWARDS INTEREST ON CAPITAL AND REMUNERATION TO PARTNERS, T HE CIT(A) OBSERVED THAT INTEREST ON CAPITAL AND REMUNERATION TO PARTNERS WA S IN ACCORDANCE WITH PARTNERSHIP DEED, THEREFORE, THERE IS NO REASON FOR THE AO TO DISALLOW INTEREST ON CAPITAL AND REMUNERATION TO PARTNERS. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE AS WELL AS THE ASSESSEE ARE IN APPEAL BEFOR E US. 4. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATION FROM ASSESSEES APPEAL IS ADDITION TOWARDS DISALLOWANCE OF BOGUS PURCHASES OF RS.5,54,863. THE AO DISALLOWED PURCHASES OF RS.5,54,863 FROM M/S MAHAVI R STEEL CORPORATION, M/S KAMESHWAR TRADING PVT LTD, M/S SHREEJI ENTERPRISES & M/S PARAS ENTERPRISES ON THE GROUND THAT THE SAID DEALERS HAVE BEEN DECLA RED AS HAWALA DEALERS ON THE WEBSITE OF SALES-TAX DEPARTMENT. THE AO FURTHE R OBSERVED THAT THE SAID SUPPLIERS HAD ALSO FILED AFFIDAVITS BEFORE THE SALES-TAX DEPARTMENT WHEREIN THEY ADMITTED THAT NO REAL BUSINESS WAS CONDUCTED B Y THEM AND NO PHYSICAL DELIVERY OF GOODS WAS GIVEN. IT WAS ALLEGED THAT A FTER RECEIPT OF CHEQUE EQUIVALENT CASH WAS GIVEN BACK AFTER DEDUCTING COMM ISSION. THE AO FURTHER OBSERVED THAT THE ASSESSEE COULD NOT SUBSTANTIATE P URCHASES WITH NECESSARY 5 ITA NO.2786 & 4399/MUM/2017 EVIDENCE EXCEPT FILING PURCHASE BILL. THEREFORE, H E OPINED THAT PURCHASES FROM ABOVE PARTIES ARE BOGUS IN NATURE. IT IS THE CONTE NTION OF THE ASSESSEE THAT THE AO WAS ERRED IN DISALLOWING PURCHASES FROM THE ABOV E PARTIES IGNORING THE MATERIAL PLACED ON RECORD INCLUDING PURCHASE BILLS, MERELY ON THE BASIS OF THIRD PARTY STATEMENT WITHOUT ALLOWING THE ASSESSEE TO CR OSS EXAMINE THE STATEMENT OF THIRD PARTY. THE ASSESSEE FURTHER SUBMITTED THA T PURCHASES FROM ABOVE PARTIES ARE GENUINE IN NATURE, WHICH ARE SUPPORTED BY VALID DOCUMENTS AND ALSO THESE PURCHASES HAVE BEEN USED IN THE EXECUTIO N OF THE PROJECT. IN THIS REGARD RELIED UPON CERTAIN JUDICIAL PRECEDENTS. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIALS AVAILABLE ON RECORD. THE AO MADE ADDITION TOWARDS BOGUS PURCHAS ES FROM 4 PARTIES ON THE GROUND THAT SUCH PARTIES WERE LISTED BY THE SALES-T AX DEPARTMENT AS HAWALA DEALERS INDULGING IN PROVIDING BOGUS PURCHASE BILLS WITHOUT ACTUAL DELIVERY OF GOODS. ACCORDING TO THE AO, THE ASSESSEE HAS FAILE D TO SUBSTANTIATE PURCHASES WITH NECESSARY EVIDENCES EXCEPT FURNISHING PURCHASE BILLS. THE AO FURTHER OBSERVED THAT ON RECEIPT OF CHEQUES CASH HAS BEEN W ITHDRAWN AND RETURNED TO THE PURCHASERS, AFTER RETAINING COMMISSION. IT WAS FURTHER OBSERVED THAT THE SAID SUPPLIERS HAD ALSO FILED AFFIDAVITS WHEREIN TH Y ADMITTED THAT NO REAL BUSINESS WAS CONDUCTED BY THEM AND NO PHYSICAL DELI VERY OF GOODS WAS EVER GIVEN. 6 ITA NO.2786 & 4399/MUM/2017 6. HAVING HEARD BOTH THE SIDES, WE FIND THAT THOUGH TH E ASSESSEE HAS FURNISHED PURCHASE BILLS, FAILED TO FILE EVIDENCES TO JUSTIFY PURCHASES FROM ABOVE PARTIES IN THE BACKDROP OF CLEAR FINDINGS OF SALES-TAX DEPARTMENT THAT THE PARTIES ARE SUSPICIOUS DEALERS INVOLVING IN PRO VIDING ACCOMMODATION ENTRIES. THOUGH THE ASSESSEE CLAIMS TO HAVE JUSTIF IED THE PURCHASES, FAILED TO SUBSTANTIATE THE ALLEGATIONS MADE BY THE AO THAT TH E SAID PARTIES HAVE FILED AFFIDAVIT BEFORE THE SALES-TAX DEPARTMENT THAT THEY WERE ENGAGING IN THE BUSINESS OF PROVIDING ACCOMMODATION ENTRIES AND NO REAL BUSINESS HAS EVER BEEN CARRIED OUT. THE CIT(A), AFTER CONSIDERING TH E RELEVANT FACTS AND ALSO BY RELYING UPON PLETHORA OF JUDICIAL PRECEDENTS INCLUD ING THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF GANESH RICE MIL LS VS CIT 294 ITR 316(ALL) HELD THAT PURCHASES FROM SUCH PARTIES ARE NON GENUI NE AND, THEREFORE, THE WORK-IN-PROGRESS SHOWN IN THE CURRENT YEAR IS REDUC ED BY AN AMOUNT OF RS.5,54,863 ON ACCOUNT OF INFLATION OF PURCHASES. FACTS REMAIN UNCHANGED. THE ASSESSEE FAILED TO BRING ON RECORD ANY EVIDENCE TO PROVE THE FINDINGS OF FACT RECORDED BY THE CIT(A). HENCE, WE ARE INCLINE D TO UPHOLD THE FINDINGS OF CIT(A) AND REJECT THE GROUND RAISED BY THE ASSESSEE . 7. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATION I S ADDITION TOWARDS UNPROVED / BOGUS CREDITORS OF RS.1,71,55,317. THE AO MADE ADDITION OF RS.35,98,603 ON ACCOUNT OF ALLEGED BOGUS CREDITORS, VIZ. M/S GR TRADELINK, M/S 7 ITA NO.2786 & 4399/MUM/2017 JAY INDUSTRIES, M/S SAJ ENTERPRISES AND M/S V.M. UD YOG ON THE GROUND THAT THE MATERIAL PURCHASED FROM THESE PARTIES WERE RETURNED IN THE SUBSEQUENT YEAR. THE AO, FURTHER MADE ADDITION OF RS.1,35,56,714 TOW ARDS BOGUS / UNPROVED CREDITORS ON ACCOUNT OF PURCHASES MADE FROM M/S ARC O ENTERPRISES RS.16,64,619/-; M/S ATLAS INTERNATIONAL RS.11,81, 854/-; M/S KEYSTONE TUBE PVT LTD RS. 20,14,949/-; M/S LIBERTY TRADING CORPOR ATION RS.9,32,888/-; M/S REALTY SALES (INDIA) PVT LTD - RS.20,40,766/-; M/S REMA TRADING CO RS.5,50,029/-; M/S SATYANARAYANAN STEEL & ENGG CO P VT LTD RS.15,31,359/-; M/S SEEMANT TRADING CO RS.5,98,928/-; M/S STAINLE SS IMPEX PVT LTD - RS.13,63,160/-; AND M/S SUN ENTERPRISES RS.16,78, 162/- AS THEY WERE LISTED IN THE THE WEBSITE OF SALES-TAX DEPARTMENT AS SUSPICIO US DEALERS. THE ENTIRE ADDITION WAS MADE ON THE GROUND THAT PAYMENT HAS BE EN MADE IN THE SUBSEQUENT YEAR AND NO CONFIRMATION HAD BEEN FURNIS HED BY THE ASSESSEE FIRM. IT IS THE CONTENTION OF THE ASSESSEE THAT NO PURCHA SES HAVE BEEN MADE DURING THE YEAR UNDER CONSIDERATION FROM THOSE PARTIES AND HENCE, NO ADDITION COULD BE MADE. THE ASSESSEE FURTHER CONTENDED THAT THE A O HAD NEVER ASKED TO SUBMIT CONFIRMATION FROM THE CREDITORS. THE AO HAD ISSUED A GENERAL QUESTIONNAIRE; HOWEVER, NO SPECIFIC DETAILS SUCH AS THE ACCOUNT CONFIRMATIONS FROM THE PARTIES WERE CALLED FOR. FURTHER, NO CROS S EXAMINATION OF THE ALLEGED PARTIES WAS PROVIDED TO THE ASSESSEE FIRM. ALL THE SE CREDITORS WERE BROUGHT 8 ITA NO.2786 & 4399/MUM/2017 FORWARD FROM EARLIER FINANCIAL YEAR FROM PURCHASES MADE FROM THOSE PARTIES, THEREFORE, NO ADDITION CAN BE MADE TOWARDS CREDITOR S, WHO ARE BROUGHT FORWARD FROM PREVIOUS FINANCIAL YEAR MERELY BECAUSE NO CONFIRMATION HAS BEEN FURNISHED. 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIA L AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. THE AO MADE ADDITION TOWARDS UNPROVED / BOGUS CREDITORS ON THE GROUND THAT PURCHASES FROM CERTAIN PARTIES WERE RETURNED IN THE SUBSEQUENT YEAR AND PURCHASES FROM CERTAIN PARTIES ARE BOGUS IN NATURE AS THEY WERE LISTED BY THE SALES-TAX DEPARTMENT IN THE LIST PREPARED BY THEM A S HAWALA DEALERS. THE AO NEVER DISPUTED THE FACT THAT THESE PURCHASES WER E MADE DURING THE PREVIOUS FINANCIAL YEAR. THE AO MADE ADDITION ONLY ON THE GROUND THAT NO CONFIRMATION HAS BEEN FURNISHED FROM THOSE PARTIES. WE DO NOT FIND ANY MERIT IN THE FINDINGS OF THE AO FOR THE REASON THAT MEREL Y BECAUSE CONFIRMATION HAS NOT BEEN FURNISHED FROM THE PARTIES, ADDITION CANNO T BE MADE TOWARDS SUNDRY CREDITORS BROUGHT FORWARD FROM EARLIER FINANCIAL YE AR. WE FURTHER OBSERVE THAT ALL THESE CREDITORS ARE ARISING OUT OF PURCHASES MA DE DURING THE PREVIOUS FINANCIAL YEAR. WE FURTHER NOTICE THAT THE PURCHAS ES FROM 4 PARTIES WERE RETURNED IN THE SUBSEQUENT YEAR. WHEN THE PURCHASE S ARE RETURNED, OBVIOUSLY, THE ASSESSEE WILL REDUCE THE PURCHASE IN THE SUBSEQ UENT FINANCIAL YEAR AND REVERSE THE CREDITORS. THEREFORE, THERE IS NO REAS ON FOR THE AO TO MAKE 9 ITA NO.2786 & 4399/MUM/2017 ADDITION OF SUCH CREDITORS BY HOLDING THAT THESE CR EDITORS ARE UNPROVED / BOGUS CREDITORS. INSOFAR AS PURCHASES FROM OTHER PARTIES , THE AO HAS MADE ADDITIONS ONLY ON THE BASIS OF LIST OF SALES-TAX DEPARTMENT W HICH CLASSIFIES THESE PARTIES AS SUSPICIOUS DEALERS INVOLVING IN PROVIDING ACCOMM ODATION ENTRIES. EXCEPT THIS, THE AO DOES NOT HAVE ANY OTHER EVIDENCE TO PR OVE THAT PURCHASES FROM THESE PARTIES ARE BOGUS IN NATURE. WE FURTHER NOTI CE THAT THE AO HAS MADE ADDITION TOWARDS CREDITORS, WHO ARE BROUGHT FORWARD FROM EARLIER FINANCIAL YEAR IN THE IMPUGNED ASSESSMENT YEAR. THE QUESTION THAT NEEDS TO BE ANSWERED HERE IS WHETHER ADDITION CAN BE MADE TOWAR DS CREDITORS AND IN WHICH YEAR SUCH CREDITORS ARE TAXABLE AND ALSO WHET HER IT IS TAXABLE U/S 41(1) OR 68 OF THE ACT. IT WAS REQUIRED TO EXAMINE WHETHER THIS AMOUNT SHOULD BE BROUGHT TO TAX IN THE YEAR IN WHICH CREDIT WAS SO M ADE FOR THE FIRST TIME IN THE BOOKS OF ACCOUNT OR IN THE YEAR IN WHICH THESE ARE FOUND NOT PAYABLE. IF ONE ANALYSE THE PROVISIONS OF SECTIONS 41(1) AND 68, TH E PROVISIONS OF SECTION 41(1) IS APPLICABLE, WHERE REMISSION OR CESSATION OF LIAB ILITY IS TAKEN PLACE DURING THE PREVIOUS YEAR. THE PROVISIONS OF SECTION 68 IS APP LICABLE WHERE ANY SUM FOUND CREDITED IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE FOR A PREVIOUS YEAR MAY BE CHARGED TO INCOME-TAX AS INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR, IF THE ASSESSEE OFFERS NO EXPLANATION ABOUT T HE NATURE OF THE SOURCE OF SUCH SUM OR THE EXPLANATION OFFERED BY HIM IS, IN T HE OPINION OF THE AO, NOT 10 ITA NO.2786 & 4399/MUM/2017 SATISFACTORY. THIS QUESTION HAS BEEN ANSWERED BY T HE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS BHOGILAL RAMJIBHA ATTAR A IN INCOME-TAX APPEAL NO.588/2013 DATED 04-02-2013 IN WHICH IT WAS HELD T HAT SECTION 41(1) OF THE ACT WOULD APPLY IN A CASE WHERE THERE HAD BEEN REMI SSION OR CESSATION OF LIABILITY DURING THE YEAR UNDER CONSIDERATION SUBJE CT TO THE CONDITIONS CONTAINED IN THE STATUTE BEING FULFILLED. SUCH CES SATION OR REMISSION HAD TO BE DURING THE YEAR UNDER CONSIDERATION. THE HONBLE C OURT FURTHER OBSERVED THAT IT COULD NOT ALSO BE ADDED U/S 68 OF THE ACT. IN T HIS CASE, BOTH THE ELEMENTS WERE FOUND TO BE MISSING. THERE WAS NOTHING ON REC ORD TO SUGGEST THAT THERE WAS REMISSION OR CESSATION OF LIABILITY, THAT TOO, DURING THE PREVIOUS YEAR RELEVANT TO AY 2011-12 AND THESE CREDITORS ARE BROU GHT FORWARD FROM PREVIOUS FINANCIAL YEARS. THEREFORE, WE ARE OF THE VIEW THA T THE AO WAS ERRED IN MAKING ADDITION TOWARDS UNPROVED / BOGUS CREDITORS DURING THE YEAR UNDER CONSIDERATION. THE CIT(A), AFTER CONSIDERING RELEV ANT FACTS HAS RIGHTLY DELETED ADDITION MADE BY THE AO. WE DO NOT FIND ANY ERROR IN THE ORDER OF CIT(A). HENCE, WE ARE INCLINED TO UPHOLD THE ORDER OF THE C IT(A) AND DISMISS GROUND RAISED BY THE REVENUE. 9. IN THE RESULT, APPEAL FILED BY THE ASESSEE AS WELL AS THE REVENUE ARE DISMSSED. 11 ITA NO.2786 & 4399/MUM/2017 ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND NOVEMBER, 2017. SD/- SD/- (MAHAVIR SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 22 ND NOVEMBER, 2017 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI