ASSISTANT COMMISSIONER OF INCOME TAX 12(2)(2), MUMBAI V. HIGHLAND INDUSTRIES LTD., MUMBAI

ITA 5221/MUM/2016

• Counselvise Citation: [2018] 124 COUNSELVISE.COM (IT) 9841 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 19-08-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MILIND V PATIL
• Keywords: Bogus purchase; Accommodation entries
• Section: 131; 148

Judgement Text

IN THE IN COME TAX APPELLATE TRIBUNAL B , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI RAVISH SOOD , JM ITA NO. 5221/MUM/2016 ( ASSESSMENT YEAR : 2009 - 10 ) ACIT 12(2)(2), ROOM NO.145, 1 ST FLOOR AAYAKAR BHAVAN M.K.ROAD, MUMBAI 400020 VS. M/S. HI GHLAND INDUSTRIES LTD., J - 103, SUMERNAGAR BUILDING NO.2, S.V.ROAD, KORAKENDRA BORIVALI (W), MUMBAI 400 092 PAN/GIR NO. AABCH4352G ( APPELLANT ) .. ( RESPONDENT ) REVENUE BY SHRI MILIND V. PATIL ASSESSEE BY NONE DATE OF HEARING 07 / 09 /201 8 DATE OF PRONOUNCEMENT 25 / 09 /201 8 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) - 20, MUMBAI DATED 13/05/2016 FOR A.Y.2009 - 10 IN THE MATTER OF ORDER PASSED U/S.143(3) R.W.S. 147 OF THE IT ACT. 2. IN THIS APPEAL, REVENUE IS AGGRIEVED FOR DELETING DISALLOWANCE OF RS.4,19,03,940/ - . THE GROUNDS RAISED BY REVENUE READS AS UNDER: - 1. 'WHETHER ON THE FACTS OF THE CASE AND IN LAW, THE LD. CIT(A) IS CORRECT IN DELETING THE DISALLOWANCE OF ARTIFICIA L LOSS OF RS. 4,19,03,940/ - MADE ON ACCOUNT OF FICTITIOUS TRANSACTIONS WITH M/S . TEMPTATION FOOD LTD., IGNORING THE FACT THAT THE DIRECTOR OF ASSESSEE COMPANY HAD ADMITTED IN STATEMENT ON OATH THAT THIS WAS A FICTITIOUS LOSS. ITA NO. 5221/MUM/2016 M/S. HIGHLAND INDUSTRIES LTD., 2 2. 'WHETHER ON THE FACTS AND IN LAW, THE LD. CIT(A) IS CORRECT IN DELETING THE ADDITION OF RS. 69,285/ - MADE ON ACCOUNT OF COMMISSION EARNED FOR PROVIDING ACCOMMODATION ENTRIES OF SALE TO M/S SARAF CHEMICALS LTD.' 3. 'THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT(A) ON THE ABOV E GROUNDS BE SET ASIDE AND THAT OF THE A.O. BE RESTORES.' 4. 'THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ALL OR ANY OF THE GROUNDS OF APPEAL.' 3. IN THIS CASE, APPEAL WAS FIXED FOR HEARING ON 21/02/2018, BUT NOBODY APPEARED ON BEHALF OF THE ASSES SEE. THE CASE WAS ADJOURNED TO 24/04/2018. EVEN ON 24/04/2018, NOBODY APPEARED ON BEHALF OF THE ASSESSEE . THE CASE WAS HEARD AFTER HEARING THE ARGUMENT OF LEARNED DR. O N 26/05/2018, THE CASE WAS AGAIN PUT FOR CLARIFICATION, SO AS TO GIVE ONE MORE OPPORTUNI TY TO THE ASSESSEE AND NOTICE WAS SERVED BY RPAD FOR APPEARING ON 28/05/2018. ON 28/05/2018 NOBODY APPEARED FOR THE ASSESSEE. BENCH ALSO DIRECTED LEARNED DR TO SERVE THE NOTICE. THE DEPARTMENT ALSO SERVED NOTICE TO THE ASSESSEE AND A CKNOWLEDGMENT FOR SERVI CE OF NOTICE WAS ALSO PLACED BEFORE THE BENCH VIDE LETTER DATED 14/06/2018. ON 18 TH JUNE 2018 CASE WAS AGAIN POSTED FOR HEARING, HOWEVER, ASSESSEE ASKED FOR ADJOURNMENT AND SAME WAS GRANTED AND CASE WAS ADJOURNED TO 27/07/2018. 4. IT IS CLEAR FROM THE ABO VE THAT ASSESSEE DOES NOT WANT TO PLEAD ITS CASE, NOR ANY ADJOURNMENT PETITION WAS FILED. UNDER THESE FACTS AND CIRCUMSTANCES, BENCH DECIDED TO DISPOSE THE APPEAL AFTER HEARING LEARNED DR AND CONSIDERING THE MATERIAL PLACED ON RECORD. ACCORDINGLY IT WAS FI NALLY HEARD ON 07/09/2018. ITA NO. 5221/MUM/2016 M/S. HIGHLAND INDUSTRIES LTD., 3 5. FACTS IN BRIEF ARE THAT ASSESSEE FILED THE RETURN OF INCOME FOR A.Y. 2009 - 10 ON 30.09.2009, AT TOTAL INCOME AT RS. NIL/ - AND BOOK PROFIT OF RS. 36,83,989/ - FOR MAT PURPOSE. THEREAFTER, THE INCOME OF THE ASSESSEE WAS ASSESSED U /S. 143(1) OF THE INCOME TAX ACT, 1961. SUBSEQUENTLY, AFTER THE COMPLETION OF ASSESSMENT U/S 143(1), A SURVEY REPORT WAS RECEIVED FROM ADDL.DIT (INV.), UNIT - IX, MUMBAI IN THE CASE OF M/S HIGHLAND INDUSTRIES LTD WHEREIN A SURVEY WAS CONDUCTED ON 26.08.2013. DURING THE COURSE OF SURVEY, THE STATEMENT OF SHRI NIMESH THAKORE, DIRECTOR OF HIGHLAND INDUSTRIES WAS RECORDED ON 26.08.2013. IN THIS, HE ACCEPTED THAT HE HAS RECEIVED 0.05% AS COMMISSION OF THE SALES TURNOVER GIVEN TO ONE SARAF CHEMICALS LIMITED. 6. O N THE BASIS OF SUCH INFORMATION AND AFTER DUE APPLICATION OF MIND BY THE ASSESSING OFFICER, IT WAS FOUND THAT INCOME EARNED FORM COMMISSION HAD ESCAPED ASSESSMENT. HENCE, IT WAS REQUIRED TO REASSESS THE TOTAL INCOME OF THE ASSESSEE. AS SUCH, NOTICE U/S 148 OF THE ACT WAS ISSUED ON 30.03.2014 AND SERVED ON THE ASSESSEE. AFTER REOPENING THE ASSESSMENT, AO COMPUTED INCOME EARNED BY ASSESSEE BY OBSERVING THAT ASSESSEE - COMPANY HAS MADE PURCHASES OF RS.31.95 CRORES FROM TEMPTATION FOODS, THE GOODS PURCHASED FROM TEMPTATION FOODS WERE SOLD TO DABU BROTHERS , JAI MATA DI, KUNDAN FOODS AND TORAL FRUITS AMOUNTING TO RS.27.76 CRORES. AFTER SETTING OFF AGAINST FICTITIOUS LOSS CREATED OUT OF TRANSACTIONS BETWEEN THE ASSESSEE AND TEMPTATION FOODS ITA NO. 5221/MUM/2016 M/S. HIGHLAND INDUSTRIES LTD., 4 LTD., A CCORDINGLY, THE ADD ITION OF RS.4,19,73,225/ - WAS MADE BY AO BY DISALLOWING THE ARTIFICIAL LOSS. 7. BY THE IMPUGNED ORDER, CIT(A) DELETED THE ADDITION AFTER OBSERVING AS UNDER: - 7.5 I HAVE PERUSED THE ASSESSMENT ORDER AND SUBMISSIONS MADE IN THIS REGARD. IT IS NOTED THAT TH E A.O. HAD DISALLOWED THE LOSSES AMOUNTING TO RS. 4,19,03,940/ - AFTER IDENTIFYING THE LOSS MAKING TRANSACTIONS OF THE ASSESSEE WITH M/S. TEMPTATION FOODS. ON THE OTHER HAND THE TRANSACTIONS ON WHICH PROFIT IS EARNED AND SHOWN IN BOOKS HAVE BEEN ACCEPTED BY THE A.O. IT IS NOTED THAT BOOKS OF ACCOUNTS OF THE ASSESSEE WERE AUDITED AND HAVE NOT BEEN REJECTED FOR ANY FAULT BY THE A.O. DURING ASSESSMENT PROCEEDINGS. THERE IS NO INQUIRY DONE WHICH COULD ESTABLISH THAT THE ACTIVITY ON WHICH LOSSES WERE SHOWN BY ASS ESSEE WERE BOGUS. THERE IS MERIT IN THE SUBMISSION OF THE A/R THAT ONLY ONE PORTION OF TRADING RESULTS WHICH LED TO LOSS CANNOT BE REJECTED BY THE A.O. WHEREAS THE PROFIT OF ACCOUNTS OF THE ASSESSEE HAS BEEN ACCEPTED TO BE CORRECT. THE BOOKS OF ACCOUNTS WE RE REQUIRED TO BE SEEN IN TOTALITY AND NOT IN PIECEMEAL MANNER AS CONTEMPLATED BY THE A.O. IT IS ALSO NOTED THAT ON SIMILAR FACTS NO ADDITION HAS BEEN MADE IN THE ASSESSEE'S OWN CASE FOR PRECEDING A.Y.2008 - 09 AND SUCCEEDING A.Y. 2012 - 13. IN VIEW OF THIS DI SCUSSION THE ADDITION MADE BY THE A.O. OF RS. 4,19,73,225/ - IS FOUND TO BE WITHOUT MUCH BASIS WHICH CANNOT BE SUSTAINED IN APPEAL AND IS DIRECTED TO BE DELETED. FURTHER THE A.O. HAS MADE ADDITION OF RS.69,825/ - COMMISSION ON SALES TURNOVER WITH SARAF CHEMI CALS LTD. IN THIS REGARD THE AR HAS SUBMITTED THAT THIS PROFIT IS ALREADY DECLARED IN THE RETURN AND FORMS PART OF RS.36,83,989 / - INCOME DECLARED IN RETURN OF INCOME. IT IS SEEN THAT THERE IS MERIT IN THE SUBMISSION OF AR THAT ONCE THE INCOME IS ALREADY PA RT OF P & L ACCOUNT FURTHER ADDITION IS NOT CALLED FOR OF THE SAME AMOUNT. IN VIEW OF THIS DISCUSSION THE ADDITION OF RS. 69,825/ - MADE BY THE A.O. CANNOT BE SUSTAINED IN APPEAL AND IS DIRECTED TO BE DELETED. ACCORDINGLY THESE GROUNDS OF APPEAL ARE ALLOWED . 8. AGAINST THE ABOVE ORDER OF CIT(A), REVENUE IS IN FURTHER APPEAL BEFORE US. 9. WE HAVE HEARD THE LEARNED DR AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. FROM THE RECORD WE FOUND THAT THERE WAS A SURVEY AT THE ASSESSEES BUSINESS PREMISES ON 26/08/2013. DURING THE COURSE OF ITA NO. 5221/MUM/2016 M/S. HIGHLAND INDUSTRIES LTD., 5 SURVEY, THE STATEMENT OF SHRI NIMISH THAKORE, DIRECTOR OF ASSESSEE M/S. HIGHLAND INDUSTRIES LTD., WAS RECORDED , WHEREIN THE RELEVANT PART OF HIS STATEMENT IN CASE OF SARAF GROUP OF COMPANIES IS AS UNDER: - ' I ADMIT THAT I N TRANSACTION SHOWN WITH SARAF GROUP, HIGHLAND INDUSTRIES HAS BOOKED AVERAGE PROFIT OF 18% OVER THE YEARS WHEREAS THE OVERALL PROFIT OF THE COMPANY AS PER AUDITED ACCOUNTS IS NOMINAL. AS STATED ABOVE, THE PROFIT ON ACCOUNTS OF SALES TO SARAF CHEMICALS GROU P WAS REDUCED BY INDULGING IN PURCHASES AND SALES OF AGRI PRODUCTS OF M/S TEMPTATION FOODS LIMITED AND OTHER FICTITIOUS ENTITIES. HIGHLAND INDUSTRIES HAS BOOKED LOSSES IN ITS TRANSACTIOM WITH M/S TEMPTATION FOODS LIMITED AND OTHER ENTRIES TO SQUARE OFF THE PROFIT ARISING OUT OF FICTITIOUS ENTITIES. 1 AM FURNISHING HEREWITH THE LEDGER ACCOUNT OF TEMPTATION FOODS LIMITED AND OTHER AS ANNEXURE 2 OF THIS STATEMENT. THE DIFFERENCE IN PROFIT/LOSS WAS DIRECTLY PAID TO SARAF GROUP OF COMPANIES IN CASH THROUGH THEIR BROKER. ALTERNATIVLEY, SUCH DIFFERENCE IN PROFIT/LOSS WAS ROUTED BACK TO M/S SARAF GROUP OF COMPANIES IN CASH THROUGH THE GROUP CONCERNS OF HIGHLAND INDUSTRIES NAMELY NIMBUS INDUSTRIES LIMITED, SUPREME COMMUNICATIONS LIMITED, HETU INVESTMENTS AND TRADING ETC WHICH GAVE CHEQUE PAYMENT TO CERTAIN HAWALA ENTITIES LIKE NAMAN ENTERPRISES, BHAKTI TRADING CO., POOJA TRADING CO., DOSHI TRADING CO., S K I M PEX ETC WHICH SUBSQUENTLY WITHDREW EQUIVALENT CASH AMOUNT AND MADE PAYMENT TO SARAF GROUP COMPANIES. ' 10. THU S, IN HIS STATEMENT U/S 131 OF THE ACT, THE DIRECTOR OF THE ASSESSEE COMPANY HAS UNEQUIVOCALLY ADMITTED THAT HE HAS BEEN PROVIDING ACCOMMODATION ENTRIES TO SARAF CHEMICALS AND EARNING A COMMISSION ON THE SAME . FURTHER, D URING THE COURSE OF ASSESSMENT PROCE EDING IT IS SEEN FROM THE LEDGER ACCOUNT THAT THE ASSESSEE COMPANY HAD MADE PURCHASES OF RS.31,95,60,130 / - FROM TEMPTATION FOODS. THE GOODS PURCHASED FROM TEMPTATION FOODS WERE SOLD TO DABUR BROTHERS, JAI MATA DI, KUMDAN FOODS AND TORAL FRUITS AMOUNTING TO RS. 27,76,56,1907 - AND THE LOSS CLAIMED ON THESE TRANSACTIONS STANDS AT RS.4,19,03,940/ - (RS.31,95,60,130 - RS.27,76,56,190/ - ) . ITA NO. 5221/MUM/2016 M/S. HIGHLAND INDUSTRIES LTD., 6 11. IT IS CLEAR FROM THE ORDER OF THE AO THAT HIGHLAND INDUSTRIES LIMITED BOOK ED BOGUS SALES TO SARAF CHEMICALS LIMITED AND BOGUS PURCHASES FROM L.N CHEMICALS AND MODHERA CH EMICALS. THE PROFIT WA S GENERATED OUT OF THIS ARRANGED TRANSACTION OF SALE AND PURCHASE. THIS PROFIT WA S SET OFF FROM FICTITIOUS LOSS CREATED OUT OF TRANSACTIONS BETWEEN HIGHLAND INDUSTRIES LIMITED AND TEMPATATION FOODS LIMITED . THEREFORE AO HELD THAT THE LOSS OF RS.4,19,03,940/ - CLAIMED BY THE ASSESSEE COMPANY ON THE TRANSACTIONS MADE FROM TEMPTATION FOODS WA S FICTITIOUS AND OUGHT TO BE DISALLOWED. THIS FACTIOUS LOSS WA S CREATED ONLY TO SQUARE OFF THE PROFITS SHO WN FROM SHARAF CHEMICALS. HOWEVER, WITHOUT CONTROVERTING THE DETAILED FINDING SO RECORDED BY THE AO, THE CIT(A) HAS DELETED THE ADDITION MERELY BY OBSERVING THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE A UDITED AND HAVE NOT BEEN REJECTED BY THE AO. THE C IT(A) ALSO STATED THAT NO ENQUIRY WAS DONE BY THE AO TO ESTABLISH THAT THE ACTIVITY ON WHICH LOSSES WERE SHOWN BY THE ASSESSEE WERE BOGUS. IT IS PERTINENT TO MENTION HERE THAT POWERS OF CIT(A) ARE CO - TERMINUS WITH THAT OF AO, WHAT THE AO HAS FAILED TO DO T HE CIT(A) IS DUTY BOUND TO DO THE SAME. THUS, WITHOUT GIVING ANY POSITIVE FINDING ON THE ENQUIRY WHICH AO HAS FAILED TO DO, THE CIT(A) CANNOT DELETE THE ADDITION JUST BY STATING THAT AO HAS FAILED TO DO THE ENQUIRY. THERE SHOULD BE POSITIVE FINDING BY CIT( A) IN SUPPORT OF HIS ACTION OF DELETING THE ADDITION MADE BY AO. IN ALL FAIRNESS, WE SET ASIDE THE ORDER OF CIT(A) ON THIS ISSUE AND RESTORE THE MATTER BACK TO HIS FILE FOR MAKING DUE ENQUIRY TO FIND OUT THE NATURE OF LOSS HAVING ITA NO. 5221/MUM/2016 M/S. HIGHLAND INDUSTRIES LTD., 7 BEEN INCURRED BY THE ASSE SSEE WHICH WAS USED TO SET OFF THE INCOME FOUND TO BE EARNED DURING THE COURSE OF SURVEY. THE CIT(A) FURTHER DIRECTED TO CONTROVERT THE FINDINGS OF THE AO BEFORE DECIDING THE ISSUE. WE DIRECT ACCORDINGLY. 12. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 25 / 09 /201 8 SD/ - ( RAVISH SOOD ) SD/ - (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 25 / 09 /201 8 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//