ASST CIT 11(1)(1), MUMBAI V. RUSHABH CIVIL CONTRCTORS P. LTD, MUMBAI

ITA 4035/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4852 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 02-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAITANYA ANJARIA
• Assessee Lawyers: DEVANG DIVECHA
• Keywords: Bogus purchase
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI SANDEEP GOSAIN, JM ITA NO. 4035 /MUM/ 2017 (ASSESSMENT YEAR: 2010 - 11 ) ASST. CIT - 11(1)(1), ROOM NO. 204, AAYAKAR BHAVAN, M. K. MARG, MUMBAI - 400 020 VS. M/S. RUSHABH CIVIL CONTRACTORS PVT. LTD. 8 TH FLOOR, 804, DEV PLAZA, OPP. ANDHERI FIRE STATION, S. V. ROAD, ANDHERI (W), MUMBAI - 400 058 PAN/GIR NO. AAECR 0195 G ( APPELLANT ) : ( RESPONDENT ) APPELLANT BY : SHRI CHAITANYA ANJARIA RESPONDENT BY : SHRI DEVANG DIVECHA DATE OF HEARING : 11.12.2018 DATE OF PRONOUNCEMENT : 13.02 .2019 O R D E R PER SHAMIM YAHYA, A. M.: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 18, MUMBAI (LD.CIT(A) FOR SHORT) DATED 01.02.2017 AND PERTAINS TO THE ASSESSMENT YEAR (A.Y.) 2010 - 11. 2. THE GROUNDS OF APPEAL READ AS UNDER: (A) 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN RESTRICTING THE DISALLO WANCE TO 12.5% RS. 58,76,019/ - IN RESPECT OF BOGUS PURCHASES WITHOUT APPRECIATING THE FACT THAT NEITHER THE PARTIES NOR THE CONFORMATION LETTERS WERE PRODUCED DURING THE COURSE OF ASSESSMENT PROCEEDINGS OR DURING THE APPELLATE PROCEEDINGS WHICH WOULD PROVE THAT THE PURCHASES ALLEGED TO HAVE BEEN MADE WERE GENUINE.' (B) 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE OF THE BOGUS PURCHASES MADE FROM THE PARTIES WHO WERE PROVEN ACCOMM ODATION ENTRY PROVIDERS AS PER THE FINDINGS ARRIVED AT BY THE SALES TAX AUTHORITIES IN CONSEQUENT UPON INVESTIGATION CARRIED OUT'. ( C) 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN IGNORING THE DECISION BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF J. R. SOLVENT INDUSTRIES (PVT) LTD. (2012) (22 TAXMANN.COM 115) WHEREIN IT WAS HELD THAT WHERE PURCHASES WERE MADE FROM A NON - EXISTING SELLER, SAME WOULD BE HELD TO 2 ITA NO.4035/MUM/2017 BE BOGUS EVEN IF COMPLETE QUANTITAT IVE DETAILS OF PURCHASE WERE AVAILABLE IN THE ASSESSEE'S BOOKS OF ACCOUNT.' (D) 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN FOLLOWING THE JUDICIAL PRONOUNCEMENT OF M/S SIMIT P. SHETH(2013) 18 TAXMANN.COM 385 (GUJ.), M/S BHOLANATH POLYFAB PVT. LTD. 335 ITR 290 (GUJ) AND M/S SANKET STEEL TRADERS ITA NO. 2801/AHD/2008 DATED 20/05/2011 WHICH WERE RENDERED IN CASES WHERE THE ASSESSES WERE TRADERS WHEREAS IN THE INSTANT CASE THE ASSESSEE IS A CONSTRUCTION COMPAN Y AND AS SUCH THOSE DECISIONS WERE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE.' 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE ADDITION OF RS. 18,13,599/ - ON ACCOUNT OF CESSATION OF LIABILI TY U/S 41(1) OF THE INCOME TAX ACT, 1961 WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO SUBMIT THE DETAILS OF PAYMENTS MADE, IF ANY, SUBSEQUENTLY OR THE FACT THAT THE LIABILITIES AGAINST THE CREDITORS AS ON 31/03/2010 ARE SHOWN AS OUTSTANDING EV EN AT THE TIME OF COMPLETION OF THE ASSESSMENT.' 'THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE A.O. BE RESTORED.' APROPOS GROUND RELATING TO DISALLOWANCE OF PURCHASES: 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION CONTRACT AND WORK OF GLAZING AND CLADDING. I N THIS CASE, THE DGIT (INV.), MUMBAI HAD COMMUNICATED THAT IN THE ASSESSMENT YEAR UNDER CONSIDERATION, THE APPELLANT HAD SHOWN TO HAVE M ADE PURCHASE FROM THE FOLLOWING PARTIES: SR. NO. NAME OF THE PARTY PAN TIN AMOUNT (RS.) 1. DIAMOND TRADERS AJXPG2759F 27550698385V 688969 2. JINDAL STEEL CORPORATION ALEPB6133C 27650564276V 4673660 3. PADMALAXMI STEEL & ALLOYS PVT. LTD. AAECP4310M 27880639276V 513390 TOTAL 5876019 4. IT WAS ALSO COMMUNICATED THAT THE DIRECTORATE OF INCOME - TAX (INVESTIGATION), MUMBAI IN THEIR INQUIRIES HAVE FOUND THAT THE AFORESAID PARTIES WAS INVOLVED IN ISSUING HAWALA SALE BILLS WITHOUT SUPPLYING GOODS AND THAT THE APPELLANT WAS ONE OF THE BENEFICIARIES OF SUCH HA W ALA TRANSACTION. THE ASSESSING OFFICER (A.O. FOR SHORT) OBSERVED 3 ITA NO.4035/MUM/2017 THAT O N VERIFICATION FROM THE WEBSITE MAHAVAT.GOV.IN, IT WAS NOTICED THAT MAHARASHTRA SALES - TAX DEPARTMENT HAS DECLARED TH E AFORESAID PARTIES AS HAWALA DEALERS AND HAD CANCELLED ITS TIN. TH AT TH E NAMES OF THESE PARTIES APPEARED IN THE LIST OF HAWALA DEALERS IDENTIFIED BY THE SALES - TAX DEPARTMENT AND DISPLAYED ON ITS WEBSITE. TH AT TH IS LIST IS A RESULT OF THE EVIDENCES GATHERE D DURING THE COURSE OF INVESTIGATION, SEARCH AND SURVEYS BY THE SALES - TAX AUTHORITIES IN MAHARASHTRA REGARDING BOGUS PURCHASE BILLS BEING ISSUED BY SEVERAL PARTIES. TH AT TH E INFORMATION IN THIS REGARD IS ALSO AVAILABLE IN PUBLIC DOMAIN ON THE WEBSITE OF TH E SALES - TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA, WWW.MAHAVAT.GOV.IN . 5. HENCE, I N VIEW OF THE IN FORMATION AVAILABLE ON RECORD, THE A.O. ISSUED NOTICES U/S. 133(6) IS SUED ON 08 - 03 - 2016 TO THE ALLEGED PA R TIES BUT THE SAME WERE R ETURNED UNSERVED BY THE POSTAL A UTHORITIES. THE A.O. NOTED THAT THE ASSESSEE HAD FURNISHED ONLY INVOICES, LEDGER ACCOUNTS AND EXTRACT OF BANK STATEMENTS. 6. THE A.O. TOOK TH E ADVERSE INFERENCE ALSO F O R NON PRODUCTION OF STOCK REGISTER A ND STOCK MOVEMENT. HE MADE 100% ADDITION FOR BOGUS PURCHASES. 7. UPON THE ASSESSEES APPEAL, THE LD. CIT(A) HAS RESTRICTED THE DISALLOWANCE TO 12.5%. 8. AGAINST THE ABOVE ORDER, THE REVENUE IS IN APPEAL BEFORE US. 9. U PON CAREFUL CONSIDERATION , WE FI ND THAT ASSESSEE HAS PROVIDED THE DOCUME NTARY EVIDENCE FOR THE PURCHASE. ADVERSE INFERENCE HAS BEEN DRAWN DUE TO THE INABILITY OF THE ASSESSEE TO PRODUCE THE SUPPLIERS. WE F IND THAT IN THIS CASE THE SALES HAVE NOT BEEN DOUBTED. IT IS SETTLED LAW THAT WHEN SALES ARE NOT DOUBTED, 100% DISALLOWANCE FOR BOGUS 4 ITA NO.4035/MUM/2017 PURCHASE CANNOT BE DONE. THE RATIONALE BEING NO SALES IS POSSIBLE WITHOUT ACTUAL PURCHASES. THIS PROPOSITION IS SUPPORTED FROM THE HON'BLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF NIKUNJ E XIMP ENT ERPRISES (IN WRIT PETITION NO 2860 ,ORDER DT 18.6.2014). IN THIS CASE THE HON'BLE HIGH COURT HAS UPHELD 100% ALLOWANCE FOR THE PURCHASES SAID TO BE BOGUS WHEN SALES ARE NOT DOUBTED. HOWEVER , IN THAT CASE ALL THE SUPPLIES WERE TO GOVERNMENT AGENCY. IN THE P RESENT CASE , THE FACTS OF THE 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 SITUA TION , 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. HENCE, WE UPHOLD THE ORDER OF THE LD. CIT(A). APROPOS DISALLOWANCE U/S.41(1) OF THE ACT: 10. D URING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS TO SHOW CAUSE AS TO WHY SUNDRY CREDITORS FOR EXPENSES AND MATERIAL PURCHASED NOT PAID, SHOULD NOT BE DISALLOWED U/S. 41(1) OF THE ACT IN RESPECT OF THE FOLLOWING SUNDRY CREDITORS PAYABLE: SR.NO. PARTICULARS AMOUNT (RS.) 1. CHANDRIKA STEELS - VASHI 300659 2. DIPEN TRADING COMPANY - VASHI 483850 3. GAJANAN GRANITE STONE - VASHI 282987 4. H,M. DESIGNERS 86 CONSULTANT PVT. LTD. - VASHI 35269 5. JAY SHREE FABRICATORS - VASHI 71280 6. JAYANTILAL J. GANDHI CHEMICALS PVT. LTD. - VASHI 5451 7. NOBLE CORPORATION - VASHI 236200 8. PADMALAXMI STEEL & ALLYS PVT. LTD. - VASHI 313390 9. PARTH METAL INDIA - VASHI 6833 5 ITA NO.4035/MUM/2017 10. RAJDHANI STEEL ARTS - VASHI 18577 11. TRADE INDUSTRIAL SERVICES - VASHI 59103 TOTAL 1813599 11. IN RESPONSE TO THE SAME, THE APPELLANT SUBMITTED THAT IT HAD NOT REMITTED OR CEASED ANY LIABILITY APPEARING IN THE BOOKS OF ACCOUNTS DURING THE YEAR UNDER CONSIDERATION. FURTHER, THE APPELLANT STATED THAT NONE OF THE CONDITIONS MANDATORY IN ORDER TO APPLY SECTION 41(1) HAS BEEN SATISFIED BY IT AND LIABILITY RELATING TO CREDITORS WAS RECOGNIZED BY IT TILL DATE WHICH SIGNIFIED THAT IT WAS INTENDING TO HONOUR THE DEBT AND HENCE, PROVISIONS OF SECTION 41(1) RELATING TO CESSATION OR R EMISSION OF LIABILITY DOES NOT APPLY TO ITS CASE AND DISALLOWANCE SHOULD NOT BE MADE. 12. THE CONTENTION OF THE ASSESSEE WAS DULY CONSIDERED BY THE A.O. BUT SAME WERE NOT FOUND TO BE ACCEPTABLE. IT WAS SEEN THAT THE SAID SUM AMOUNTS TO INCOME OF THE ASSES SEE FOR THE YEAR UNDER CONSIDERATION WITHIN THE MEANING OF PROVISIONS OF SECTION 41(L)(A) OF THE ACT R.W. EXPLANATION 1 THERETO, WHEREIN GENUINENESS OF THE LIABILITY OR REDUCTION BY WAY OF REMISSION OR CESSATION THEREOF SHALL BE DEEMED TO BE PROFIT A ND GAI NS OF BUSINESS. IN THIS REGARD, THE ASSESSING OFFICER RELIED ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. T.V. SVINDARAM LYENGAR & SONS LTD. (222 ITR 344) AND STATE D THAT SINCE, THE AMOUNT OF RS. 18,13,599/ - HAS NOT BEEN PAID BY THE A PPELLANT NOR IT WAS BEING CLAIMED BY THE CREDITOR, THE SAME CANNOT BE CLAIMED AS LIABILITY' AND THE SAME AMOUNTS TO APPELLANT'S IN COME. THEREFORE, THE SUM OF RS. 18,13,599 / - WAS TREATED AS THE INCOME OF THE APPELLANT DURING THE YEAR AND THE SAME WAS ADDED B ACK TO THE TOTAL INCOME OF THE APPELLANT WITHIN THE MEANING OF PRO VISIONS OF SECTION 41(L)(A) OF THE ACT R.W. EXPLANATION - 1 THERETO. 6 ITA NO.4035/MUM/2017 13. UPON THE ASSESSEES APPEAL, THE LD. CIT(A) NOTED THAT CREDITORS ARE NOT M ORE THAN ONE YEAR OLD AND THAT THE A.O. HAS MADE NO VERIFICATION HIMSELF. HE DELETED THE ADDITION BY HOLDING AS UNDER: 4.5 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER, SUBMISSIONS MADE BY THE AR OF THE APPELLANT AND THE FACTS OF THE CASE. UNDER THIS GROUND OF APPEAL, T HE APPELLANT IS AGITATED ADDITION OF RS. 18,13,599/ - IN RESPECT OF CEASED LIABILITY OF CREDITORS. I FIND THAT THE APPELLANT DID NOT FILE ANY EXPLANATORY EVIDENCE BEFORE THE ASSESSING OFFICER TO PROVE THE LIABILITY STILL EXISTS. THE ASSESSING OFFICER, THERE FORE, HELD THAT THERE IS NO MOVEMENT IN THIS ACCOUNT AND THEREFORE, ADDED THE SAME AS CEASED LIABILITY. ON THE OTHER HAND, THE APPELLANT CONTENDED THAT THE COMPANY HAS COMMENCED BUSINESS ON 07 - 05 - 2008. IT HAS JUST COMPLETED ONE YEAR OF FUNCTIONING IN THE Y EAR UNDER CONSIDERATION. THUS, THE CREDITORS HAVE NOT BEEN OUTSTANDING BEYOND A PERIOD OF ONE YEAR. THE APPELLANT FURTHER CONTENDED THAT THE AGE - WISE ANALYSIS OF CREDITORS W HEREFROM IT CAN BE SEEN APPARENTLY THAT THERE IS MOVEMENT IN LEDGER ACCOUNTS OF MAJ ORITY OF CREDITOR'S L EDGER DURING THE YEA UNDER CON SIDERATION. THE ASSESSING OFFICER CONSIDERED THE BALANC E OUTSTANDING AS ON THE DATE OF ASSESSMENT AND MADE ADDITION BASED O THE SAME. 4.6 I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND FIND THAT THE ASSE SSING OFFICER HAS WRONGLY INVOKED THE PROVISIONS O F SECTION 41(1) JUST BECAUSE TH E LIABILITIES ARE OLD. ACTUALLY, THE CREDITORS HAVE NOT BEEN OUTSTANDING BEYOND A PERIOD OF ONE YEAR BECAUSE THE COMPANY HAS COMMENCED BUSINESS ON 07 - 05 - 2008. I FURTHER FIND T HAT THE ASSESSING OFFICER HAS NOT MADE ANY VERIFICATION TO DISPROVE THE GENUINENESS OF THE LIABILITY. I, THEREFORE, FIND THA T THE SAME AMOUNTS TO DOUBLE ADD ITION. I A M , THEREFORE, OF THE OPINION THAT THE FACTS OF THE CASE AND SEVERAL JUDGMENTS SUPPORT THE CASE OF THE APPELLANT. THEREFORE, I HEREBY DELETE THE ADDITION OF RS.18,13,599/ - WRONGLY MADE. 14 . WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT THE LD. CIT ( A ) HAS GIVEN A FINDING THAT THE ASSESSEE S BUSINESS HAS BEEN SET UP VERY REC ENTLY. ACTUALLY THE CREDITORS ARE NOT M ORE THAN ONE YEAR OLD. IN THESE CIRCUMSTANCES , THE VERY P REMISE OF THE A.O. THAT THESE OUTSTANDING ARE NOT PAYABLE IS NOT SUSTAINABLE. MOREOVER , THE A.O. HAS NOT MADE ANY ENQUIRY OF HIS OWN TO SH OW THAT THESE CREDITORS DO NOT HAVE ANY OUTSTA NDING BALANCE WITH THE ASSESSEE. I N THE CIRCUMSTANCES , THE CASE LAW REFERRED BY THE A.O. IS NOT AT ALL APPLICABLE ON THE FACTS OF THE CASE. IN OUR CONSIDERED OPINION , THE L D. CIT(A) HA S PASSED A REASONABLE AND CORRECT ORDER , WHICH DOESN'T NEED ANY INTERFERENCE ON OUR PART. ACCORDINGLY , WE UPHOLD THE ORDER OF L D. CIT(A). 7 ITA NO.4035/MUM/2017 1 5 . I N THE RESULT , THIS APPEAL BY THE R EVENUE STANDS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 1 3 . 0 2 . 2 0 1 9 S D / - S D / - ( SANDEEP GOSAIN ) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 1 3 . 0 2 . 2 0 1 9 ROSHANI , SR. PS 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 FILE BY ORDER, (DY./ASSTT. REGISTRAR) ITAT, MUMBAI