SHRI BALAJI SHIRTINGS (P) LTD, MUMBAI V. ACIT RG 4(3), MUMBAI

ITA 4077/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49179 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 11-05-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 02-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA GUPTA
• Assessee Lawyers: GAJENDRA JAIN
• Keywords: Bogus purchase; Opportunity of being heard; Permanent establishment
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI PRAMOD KUMAR, A.M. AND SHRI V. DURGA RA O, J.M. ITA NO. 4077/MUM/2009 ASSESSMENT YEAR: 2001-02 M/S SHRI BALAJI SHIRTINGS (P) LTD., APPELLANT MANHAR BLDG., 2 ND FLOOR, ROOM NO. 25, 66/72, DADISETH AGYARI LANE, KALBADEVI ROAD, MUMBAI 400 002. VS. ASSTT. COMMISSIONER OF INCOME-TAX, RESPONDENT RANGE 4(3), RS.NO. 629, 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI 400 020. APPELLANT BY : MR. GAJENDRA JAIN RESPONDENT BY : MS. ASHIMA GUPTA . ORDER PER V. DURGA RAO, J.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF CIT(A)- XV, MUMBAI, PASSED ON 29 TH APRIL, 2009 FOR THE ASSESSMENT YEAR 2001-02. 2. THE ASSESSEE HAS RAISED 10 GROUNDS OF APPEAL, TH E SUM AND SUBSTANCE OF WHICH IS AGAINST THE DISALLOWANCE OF P URCHASES WORTH RS. 1,49,43,393/- TREATING AS BOGUS PURCHASES. 3. BRIEFLY THE FACTS OF THE CASE ARE THAT DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAD N OTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURIN G OF CLOTH AND TEXTURISED YARN. THE ORIGINAL ASSESSMENT WAS COMPLE TED ON ITA NO. 4077/M/2009 M/S SHRI BALAJI SHIRTINGS (P) LTD.. 2 29/09/2003 U/S 14393) OF THE ACT DETERMINING THE LO SS OF RS. 1,20,77,238/-. WHILE GOING THROUGH THE ASSESSMENT R ECORDS, IT WAS NOTED BY THE CIT-4, MUMBAI THAT THE THEN ASSESSING OFFICER HAD ACCEPTED THE CLAIM OF HUGE LOSS WITHOUT PROPER APPL ICATION OF MIND AND SCRUTINIZING THE MATERIAL FACTS ON RECORD. IT W AS ALSO NOTED BY CIT-4 THAT HUGE PURCHASES OF RS. 1,49,43,393/- SHOW N IN THE NAME OF VARIOUS PARTIES OF BHIWANDI WAS ACCEPTED BY THE ASS ESSING OFFICER WITHOUT ANY ENQUIRIES OR VERIFICATION, HENCE FOR AL L THESE REASONS, THE ORIGINAL ASSESSMENT ORDER WAS CONSIDERED TO BE ERRO NEOUS AS WELL AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE BY THE CIT-4, MUMBAI, THEREFORE ASSESSMENT ORDER WAS SET ASIDE WITH A DIR ECTION TO CALL THE ASSESSMENT ORDER AFRESH AFTER DUE VERIFICATION OF C LAIM OF THE PURCHASES, CORRESPONDING SALES AND SCRUTINIZING THE REASON FOR HUGE AMOUNT OF LOSS SHOWN IN RETURN OF INCOME AFTER PROV IDING PROPER OPPORTUNITY TO THE ASSESSEE BEING HEARD. IN VIEW OF THE ABOVE, A FRESH ASSESSMENT ORDER WAS PASSED U/S 143(3) R.W.S. 263 O F THE ACT BY THE ASSESSING OFFICER ON 15/11/2006 TREATING THE SAID A MOUNT OF RS. 1,49,43,393/- AS BOGUS PURCHASE AND ALSO AN INFLATI ON OF EXPENDITURE OF THE TRADING ACCOUNT. WHILE MAKING ADDITION, THE ASSESSING OFFICER HAD UNEARTHED THAT ALL THESE 75 PARTIES, REFERRED T O IN THE ASSESSMENT ORDER WERE NOT IN EXISTENCE OR TRACEABLE OR PRODUCE D BY THE ASSESSEE BEFORE THE ASSESSING OFFICER AND THE SAID PAYMENT O F PURCHASE PRICE HAD GONE TO SOME OTHER PERSONS WHO WERE OTHER THAN PARTIES IN WHOSE NAMES PURCHASE BILLS HAD BEEN SHOWN BY THE ASSESSEE . HE FURTHER MENTIONED THAT SOME ENTRIES WERE FOUND IN THE LEDGE R BOOK AS INWARD TRANSACTIONS AND SOME ENTRIES WERE NOT AT ALL REFL ECTING IN LEDGER ACCOUNTS. IT WAS MENTIONED IN THE ORDER THAT ASSESS EE HAD NOT SUBMITTED SUPPORTING DOCUMENTS WHEREAS IN LETTER DT . 23/03/06, IT WAS MENTIONED THAT SUPPORTING DOCUMENTS MIGHT HAVE BEEN EXAMINED BY THE ASSESSING OFFICER. FINALLY, THE ASSESSING OF FICER CONCLUDED THAT THERE WAS INFLATION OF PURCHASES AS ALL THE PURCHAS ES UNDER REFERENCE WERE BOGUS ONE AND DUE TO THAT THERE WAS A LOSS IN TRADING ACCOUNT, ITA NO. 4077/M/2009 M/S SHRI BALAJI SHIRTINGS (P) LTD.. 3 HENCE HAD DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEA L BEFORE THE CIT(A). 4. BEFORE THE CIT(A), IT WAS CONTENDED THAT THE ASS ESSING OFFICER HAD NOT CONSIDERED THE EXPLANATION OF THE ASSESSEE PROPERLY AND HAD ACTED ONE SIDED WHICH INDICATED THE MALAFIDE INTENT ION AS ASSESSING OFFICER HAD NEVER THOUGH AS TO HOW A MATERIAL CAN B E SOLD WITHOUT ITS PHYSICAL EXISTENCE. ACCORDING TO ASSESSEE, WHEN THE MATERIAL WAS ACCEPTED TO BE SOLD OUT, WHERE IS THE POINT OF BOGU S TRANSACTION. IT WAS FURTHER ARGUED THAT THE ASSESSING OFFICER HAD N OT DISPUTED THE QUANTITATIVE DETAILS WHICH REFLECTS THE MOVEMENT OF GOODS. AS REGARDS REMARKS OF THE ASSESSING OFFICER FOR HUGE LOSS, IT WAS ARGUED THAT COMPANY HAD NOT GAINED ANY BENEFIT AND RETURN OF LO SS ITSELF DOES NOT MEAN THAT PURCHASES ARE BOGUS. THE LEARNED AR OF TH E ASSESSEE PLACED RELIANCE ON VARIOUS CASE LAWS. AFTER CONSIDE RING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) HELD THAT T HE ASSESSING OFFICER HAD RIGHTLY MENTIONED THAT THE ASSESSEE HAD FAILED TO PROVE BEYOND DOUBT THE GENUINENESS OF PURCHASES AS THERE ARE SUBSTANTIAL EVIDENCES WHICH REVEALS THE FACT OF INFLATION OF EX PENDITURE THROUGH THESE PURCHASES FROM THE 75 PARTIES MENTIONED AT PA GE NOS. 2,3, & 4 OF ASSESSMENT ORDER. IT WAS HELD THAT IT IS RELEVAN T TO MENTION THAT WHILE SCRUTINIZING THE DETAILS FILED BY THE ASSESSE E, THE ASSESSING OFFICER HAD OBSERVED THAT ADDRESSES OF THE PARTIES, CLAIMED TO BE SELLER OF GOODS, WERE NOT FOUND IN THEIR LEDGER ACCOUNTS M AINTAINED BY THE ASSESSEE. IT WAS FURTHER HELD THAT ALL THESE PURCHA SES BILLS AND OTHER BILLS ARE NOT HAVING PROPER OR CORRECT ADDRESSES OF THE SELLER WHICH PROVE THE FACT THAT SUCH BILLS HAVE NOT BEEN PRINTE D BY THE SAME PARTY AND BLANK BILL BOOK HAVE BEEN OBTAINED FROM THE OPE N/GREY MARKET BY THE APPELLANT AND SUCH PURCHASE BILLS HAVE BEEN PRE PARED ACCORDING TO THE SWEET WILL ONLY WITH A VIEW TO INFLATE THE E XPENDITURE OR WITH A VIEW TO JUSTIFY THE UNACCOUNTED STOCK LYING ACCUMU LATIVELY. IT WAS ALSO HELD THAT WHILE SCRUTINIZING THE FACTS THE ASS ESSING OFFICER HAS ALSO NOTICED THAT EXCEPT THE CASE OF GANESH FABRICS , IN RESPECT OF ITA NO. 4077/M/2009 M/S SHRI BALAJI SHIRTINGS (P) LTD.. 4 OTHER PURCHASE PARTIES NONE OF THE PAYMENTS HAS BEE N THERE IN THE ACCOUNTS OF THE SAME PARTIES IN WHOSE NAME PURCHASE BILLS WERE SHOWN. IT WAS HELD THAT THE ASSESSING OFFICER HAS B EEN BROUGHT ON RECORD VERY IMPORTANT POINT THAT THE DESTINATION OF MONEY IS NOT THE REAL SELLER OF THE GOODS BUT IT HAS BEEN ENCHASED B Y SOMEBODY ELSE OR BY THE ASSESSEE ITSELF BY GETTING OPENED BANK ACCOU NT IN THE NAME OF THE RELATED PERSON OR EMPLOYEES OF THE ASSESSEE, TH EREFORE, IN THIS SET OF FACTS ONE CAN REASONABLY PRESUME THAT DESTINATIO N OF SUCH MONEY, CLAIMED TO BE IN RESPECT OF PURCHASES, IS THE ASSES SEE ITSELF THROUGH VARIOUS ROTATION. IN VIEW OF THE ABOVE, FINALLY, TH E CIT(A) CONCLUDED THAT CONSIDERING THE FULL FACTS SPECIFICALLY THE FA LSITY OF BILLS, DESTINATION OF MONEY AND FAILURE ON THE PART OF THE ASSESSEE TO PROVE THE GENUINENESS OF THE CLAIM OF THE EVIDENCES UNDER REFERENCE, THE ADDITION OF RS. 1,49,43,393/- MADE BY THE ASSESSING OFFICER IS HEREBY CONFIRMED. AGGRIEVED, THE ASSESSEE IS IN APPEAL BE FORE US. 5. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS PURCHASED THE CLOTH/FABRIC FR OM SMALL SCALE WEAVERS BASED IN OR AROUND BHIWANDI FOR TRADING PUR POSES. IT IS SUBMITTED THAT THESE SMALL SCALE WEAVERS USED TO CO ME TO THEIR PREMISES WITH SAMPLES BASED ON WHICH THE ASSESSEE P LACED ORDERS ON THEM. SUBSEQUENTLY, THE ASSESSEE WAS SUPPLIED WITH THE CLOTH/FABRICS AS APPROVED AND THE ASSESSEE IN TURN ISSUES CROSS B EARER CHEQUES TO THEM WHICH IS WIDELY PREVAILING TRADE PRACTICE. IT IS SUBMITTED THAT THERE WAS NO DISPUTE THAT THE ASSESSEE HAD SOLD THE FABRIC/CLOTH PURCHASED FROM SUCH BHIWANDI WEAVERS. IN TRADING OP ERATIONS, ONCE THE SALE ASPECT REMAINS UNDISPUTED, THERE IS NO QUE STION OF DISALLOWING CORRESPONDING PURCHASES SINCE IT WOULD BE IMPOSSIBLE TO AFFECT SALE WITHOUT ANY PURCHASE. ALSO, THE QUANTIT ATIVE DETAILS WHICH REFLECT THE MOVEMENT OF GOODS IN THE TRADING OPERAT IONS WAS NOT FOUND TO BE ADVERSE BY THE ASSESSING OFFICER. IT IS SUBMI TTED THAT THE ASSESSEE WAS NOT IN A POSITION TO PHYSICALLY PRODUC E THE BHIWANDI SELLERS BEFORE THE DEPARTMENT FOR VERIFICATION, FOR WHICH THE INFERENCE ITA NO. 4077/M/2009 M/S SHRI BALAJI SHIRTINGS (P) LTD.. 5 DRAWN BY THE REVENUE THAT THE SELLERS WERE FICTITIO US IS NOT WARRANTED. IT IS SUBMITTED THAT THERE ARE NUMEROUS WEAVERS IN THE RURAL AREA OF BHIWANDI WHO HAVE VERY FEW WEAVING MACHINES AND THE E IS VERY LITTLE PROBABILITY THAT THEY WILL BE ASSESSED TO TAX AS TH ESE WEAVERS OPERATE IN UNORGANIZED SECTOR, DIRECTLY OR THROUGH INTERMED IATE BROKERS. MOREOVER, BEING ILLITERATE AND IN THE ABSENCE OF PE RMANENT PLACE OF BUSINESS OPERATION, THEY DO NOT HAVE A BANK ACCOUNT . UNDER THESE CIRCUMSTANCES, MERE UNAVAILABILITY OF THE SAID PART IES CANNOT MAKE A GENUINE TRANSACTION AS BOGUS. THE LEANED COUNSEL FO R THE ASSESSEE FURTHER SUBMITTED THAT THE AO HAS NOT DOUBTED THE S ALES MADE BY THE ASSESSEE. ONCE THE AO HAS NOT DOUBTED THE SALES WHI LE THE GENUINENESS OF THE PURCHASED CANNOT BE DOUBTED. FOR THIS CONTENTION, THE LEARNED COUNSEL RELIED UPON THE DECISION OF THE ITAT IN THE CASE OF BALAJI TEXTILES INDUSTRIES PVT. LTD. VS. ITO, [1994 ] 49 ITD (BOM.) 177. 6. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE HAS PLACED RELIANCE ON THE ORDERS OF THE REVENUE AU THORITIES. 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD. THE LEARNED COUNSEL FOR THE ASS ESSEE HAS SUBMITTED BEFORE US THAT THE ASSESSEE IS NOT IN A P OSITION TO PHYSICALLY PRODUCE THE BHIWANDI SELLERS AND, THEREF ORE, MERE UNAVAILABILITY OF SAID PARTIES CANNOT MAKE A GENUIN E TRANSACTION AS BOGUS. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS P URCHASED GOODS FROM SMALL WEAVERS WHO OPERATE IN UNORGANIZED SECTO R DIRECTLY OR THROUGH INTERMEDIATE BROKERS. MOREOVER, BEING ILLIT ERATE AND IN THE ABSENCE OF PERMANENT PLACE OF BUSINESS OPERATION, T HEY DO NOT HAVE A BANK ACCOUNT. AFTER CAREFUL CONSIDERATION OF MATER IAL FACTS, WE FIND THAT THE AO HAS, MAINLY, DISALLOWED THE CLAIM OF TH E ASSESSEE ON THE GROUND THAT THE PURCHASE BILLS ARE AVAILABLE AND TH E ADDRESSES OF THE PARTIES ARE ALSO AVAILABLE ON RECORD, BUT, THE ASSE SSEE HAS NOT BEEN ABLE TO PRODUCE THE PARTIES PHYSICALLY. THE ASSESSE E EXPLAINED THE REASONS BEFORE THE AO FOR NON-PRODUCTION OF PARTIES BEFORE HIM. WE ITA NO. 4077/M/2009 M/S SHRI BALAJI SHIRTINGS (P) LTD.. 6 FIND THAT THE AO HAS NOT DOUBTED THE SALES MADE BY THE AO. AFTER CONSIDERING THE FACTS OF THE CASE, IN THE INTEREST OF JUSTICE, WE REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECT ION TO EXAMINE THE ISSUE AFRESH AND DECIDE THE SAME IN LIGHT OF THE DE CISION RELIED UPON BY THE ASSESSEE IN THE CASE OF BALAJI TEXTILE INDUS TRIES PVT. LTD. (SUPRA), AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASESSSEE. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY OF JUNE, 2011. SD/- SD/- (PRAMOD KUMAR) (V. DURG A RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 22 ND JUNE, 2011 KV COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, E BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI.