ITO 25(2)(2), MUMBAI V. PANKAJ ENTERPRISES, MUMBAI

ITA 5238/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2586 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 09-09-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 26-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RADHA KATYAL NARANGDR
• Keywords: Bogus purchase; Unexplained expenditure; Deemed to accrue or arise in india
• Section: 69C; 69

Judgement Text

1 , , , , INCOME-TAX APPELLATE TRIBUNAL CBENCH M UMBAI , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & PAWAN SINGH, JUDICIAL MEMBER ./I.T.A./5238/MUM/2013 , /ASSESSMENT YEAR:2010-11 INCOME TAX OFFICER-25(2)(2) C-11 BLDG., ROOM NO.106, PRATYAKSHAKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E) MUMBAI-400 051. VS. M/S. PANKAJ ENTERPRISES 46-A, 2 ND FLOOR, GANJAWALA APT. NO.2 GANJAWALA LANE,BORIVALI(W),MUMBAI-92. PAN:AAAFP 2176 J ( /APPELLANT) ( / RESPONDENT) REVENUE BY: MS. RADHA KATYAL NARANG-DR ASSESSEE BY: NONE / DATE OF HEARING: 30.06.2016 / DATE OF PRONOUNCEMENT: 13.07.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER,DATED 10.05.2013,OF THE CIT ( A)-35, MUMBAI, THE ASSESSING OFFICER (A.O.) HAS FILED THE PRESENT APPEAL.NONE APPEARED O N BEHALF OF THE ASSESSEE .WE ARE DECIDING THE APPEAL ON MERITS AFTER HEARING THE DEPARTMENTAL REPRESENTATIVE (DR). 2. ASSESSEE-FIRM IS ENGAGED IN THE BUSINESS OF SUPPLY OF BUILDING MATERIAL.IT FILED HIS RETURN OF INCOME ON 30/09/2010,DECLARING TOTAL INCOME AT RS.3 .56 LAKHS. THE ASSESSING OFFICER (AO) COMPLETED THE ASSESSMENT,U/S.143(3)OF THE ACT,DETER MINING THE INCOME OF THE ASSESSEE AT RS.1.64 CRORES. EFFECTIVE GROUND OF APPEAL IS ABOUT DELETING THE AD DITION OF RS.1.58 CRORES ON ACCOUNT OF UNEXPLAINED EXPENDITURE UNDER SECTION 69C OF THE AC T.DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO FURNISH A LIST OF PERSONS FROM WHOM PURCHASES HAD BEEN MADE. OUT OF THE SELLERS LIST,FURNISHED BY THE ASSESSEE,THE AO FOUND THAT SEVEN PARTIES,FROM WHOM IT HAD ALLEGEDLY PURCHASED GOODS,WERE APPEARING IN THE LIST OF SUSPICIOUS DEALERS WHO WERE INDULGED IN ISSUING ONLY BILLS WITHOUT DELIVERY OF ANY GOODS/MATERIAL FOR COMMISSION, AS PER THE OFFICIAL WEBSITE OF THE SALES TAX DEPARTMENT GO VERNMENT OF MAHARASHTRA. HE DIRECTED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE ALLEGED PURCHA SES, AGGREGATING TO RS. 1.58 CRORES, SHOULD NOT BE TREATED AS UNEXPLAINED EXPENDITURE. H E ISSUED NOTICES UNDER SECTION 133 (6) OF THE ACT TO THOSE PARTIES TO VERIFY PURCHASES.HOWEVE R,THE NOTICES ISSUED CAME BACK UNSERVED/ RETURNED BACK BY THE POSTAL AUTHORITIES.VIDE ITS LE TTER,DATED 12/02/2013,THE ASSESSEE FILED EXPLANATION IN THAT REGARD ARGUING THAT IT WAS NOT THE CASE OF BOGUS PURCHASES.AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE,THE AO H ELD THAT THE ARGUMENTS ADVANCED BY THE 5238/M/13-PANKAJ 2 ASSESSEE WERE SUSPICIOUS AND NOT ACCEPTABLE, THAT T HE SALES TAX DEPARTMENT CARRIED OUT THE INVESTIGATION/ENQUIRIES AND HAD CONCLUDED THAT THE ABOVE SEVEN PARTIES WERE NOT INDULGED IN GENUINE SALES/PURCHASES OF GOODS AND THAT THEY WERE ENGAGED ONLY IN ISSUING BILLS, THAT THE ASSESSEE WAS ASKED TO PRODUCE THE PARTIES FROM WHOM ALLEGED PURCHASES WERE MADE, THAT IT SQUARELY FAILED TO DO SO,THAT IT WAS AWARE THAT IT WAS ENTERING INTO A COLOURABLE TRANSACTION,THAT THE ASSESSEE HAD NOT PURCHASED THE GOODS FROM THE A LLEGED SUPPLIERS,THAT THE GOODS HAD SOMEHOW ENTERED IN THE BUSINESS OF THE ASSESSEE,THA T IT WAS UNABLE TO GIVE ANY CONVINCING OR COGENT EXPLANATION AS TO HOW THE GOODS CAME TO ITS POSSESSION,THAT THE ASSESSEE HAD INCURRED EXPENDITURE ON SUCH PURCHASE WHICH IS NOT EXPLAINED ,THAT THE PURCHASES WERE NOT BEING TREATED AS BOGUS PORTION, THAT THE EXPENDITURE INCU RRED ON SUCH PURCHASES IS TREATED AS UNEXPLAINED, THAT IT COULD NOT PRODUCE ANY DELIVERY CHALLANS,LORRY RECEIPTS TO PROVE THAT THE GOODS HAD BEEN RECEIVED FROM THOSE ALLEGED SUPPLIER S.THE AO FURTHER OBSERVED THAT THE SALES TAX DEPARTMENT HAD RECORDED THE STATEMENTS OF SANJA Y MANHARLAL SOLANKI OF BHAVANI TRADE LINK(BTL),NILESH R GANDHI OF DARSHAN SALES CORPORAT ION (DCS),UTTAMCHAND SALECHA OF NAMAN ENTERPRISES(NE),AMRAJEE YADAV OF SIDDHIVINAYA K CORPORATION(SVC), DAKSHESH R PATEL OF NEELAM ENTERPRISES (NEELAM), THAT IT HAD C ARRIED OUT INVESTIGATION IN THE CASE OF NISHA ENTERPRISES(NISHA) AND DEEP ENTERPRISES(DE), THAT THE INVESTIGATION MADE BY THE SALES TAX DEPARTMENT PROVE THAT THE ABOVE MENTIONED PARTI ES WERE ENGAGED ONLY IN ISSUING BOGUS BILLS, THAT THESE PARTIES WERE RENDERING THEIR SERV ICES WITHOUT DELIVERY OF ANY GOODS OR MATERIALS, THAT THE ALLEGED SALE PROCEEDS HAD BEEN WITHDRAWN AND THE CASH HAD BEEN LIMITED TO THE ALLEGED PURCHASES, AFTER DIRECTING A NOMINAL CO MMISSION.FINALLY,HE HELD THAT THE AGGREGATE PURCHASES OF RS.1.58 CRORES WAS TO BE TREATED AS UN EXPLAINED EXPENDITURE UNDER SECTION 69C OF THE ACT. 3 .AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PRE FERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA). BEFORE HIM,THE ASSESSEE ARGUED THAT IT HAD FILED THE COPIES OF SALES MADE DURING THE YEAR, COPIES OF THE PARTY WIS E SALES ALONG WITH THE COPIES OF THE SAMPLE BILLS FOR PURCHASES, CONFIRMATION OF ACCOUNTS FOR P URCHASES AND THE LEDGER ACCOUNTS FOR PAYMENTS MADE IN RESPECT OF PURCHASES FROM BTL,NE, NEELAM,DSC,SVC, REFLECTING THE PAYMENT MADE TO VARIOUS VENDERS FOR THE PURCHASES A FFECTED FOR THE YEAR UNDER CONSIDERATION. THE ASSESSEE REFERRED TO THE CASES OF NIKUNJ EXIMPS ENTERPRISES PRIVATE LIMITED (ITA NO.5604 OF 2010),LEADERS VALVES (P)LIMITED (265 ITR 435), M.K.BROTHERS (163 ITR 249). IT WAS FURTHER ARGUED THAT THE FULL DETAILS OF PURCHAS ES WERE SUBMITED DURING THE COURSE OF ASSESSMENT, THAT THE PURCHASE INVOICES SHOWED ADDRE SSES OF THE SELLERS, DESCRIPTION OF THE GOODS,THAT THE PAYMENTS WERE MADE BY THE CHEQUES, T HAT THE AO HIMSELF HAD AGREED THAT 5238/M/13-PANKAJ 3 PURCHASES OF THE ASSESSEE, PER SE WERE NOT THE ISSU E, THAT ENTRIES WITH REGARD TO PURCHASES WERE APPEARING IN THE BANK STATEMENTS AND THE AO HAD NOT FOUND ANY DISCREPANCY THEREIN, THAT THE SUPPLIERS HAD NOT STATED THAT THEY HAD BOGUS TRANSA CTIONS WITH THE ASSESSEE,THAT THE GROSS PROFIT AND NET PROFIT DURING THE YEAR WAS COMPARABL E WITH THE PROFITS OF THE EARLIER TWO YEARS, THAT THE AO HAD MERELY RELIED UPON THE FINDINGS OF THE SALES TAX DEPARTMENT, THAT NO OPPORTUNITY WAS GIVEN TO THE ASSESSEE TO CROSS VERI FY THE ALLEGED SUSPICIOUS DEALERS, THAT ASSESSEE SHOULD NOT BE PENALISED FOR WRONGDOINGS OF THE SO-CALLED SUSPICIOUS DEALERS, THAT THE AO HAD ACCEPTED THE SALES BUT FAILED TO REALIZE THA T SALES COULD BE EFFECTED ONLY IF THERE WERE CORRESPONDING PURCHASES, THAT IF THE EDITIONS OF TH E AO WERE CONSIDERED IT WOULD RESULT IN GROSS PROFIT OF 74.66% FOR THE YEAR UNDER CONSIDERA TION, THAT SUCH GROSS PROFIT WOULD NOT ONLY BE ABNORMALLY HIGH BUT UNIMAGINABLE IN THE LINE OF TRADING ACTIVITY CARRIED OUT BY THE ASSESSEE, THAT THE ADDITION MADE UNDER SECTION 69C OF THE ACT SHOULD BE DELETED. THE DETAILS OF PAYMENT MADE BY THE ASSESSEE WERE SUBMITTED IN A TABULAR FORM BEFORE THE FAA ALONG WITH THE CHART OF GROSS PROFIT RATIO. 4. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE ASSESSMENT ORDER,THE FAA HELD THAT ALL THE PURCHASES MADE WERE GENUINE, THAT THE COPIES OF PURCHASE INVOICE, BANK STATEMENT AND THE LEDGER ACCOUNTS WERE SUBMITTED, THAT THE AO HAD NOT DISPUTED THAT ALL THE PAYMENTS THAT WERE MADE BY CROSSED CHEQUES WERE DULY REFLECT ED IN THE BANK STATEMENTS, THAT THE CORRESPONDING SALES WERE ALSO PRODUCED AND NO DISCR EPANCY WAS NOTICED BY THE AO, THAT NO PAUCITY WAS GRANTED TO THE ASSESSEE TO CROSS EXAMIN E THE SUPPLIERS, THAT THE FINDINGS OF THE SALES TAX DEPARTMENT WERE NOT CONCLUSIVE AND IN NO WAY ESTABLISH THAT THE PURCHASES WERE NOT GENUINE, THAT WHERE PAYMENTS WERE MADE BY ACCOU NT PAYEE CHEQUES NOBODY COULD DENY THE EXISTENCE OF THE PARTIES, THAT THE AO HAD NOT B ROUGHT ANY MATERIAL ON RECORD TO SUGGEST THAT THE PAYMENTS WERE MADE TO PURCHASE PARTIES WER E RECEIVED BACK IN CASH BY THE ASSESSEE.HE REFERRED TO THE CASES OF M.K. BROTHERS (SUPRA), PREMANAND (107 TTJ 395), SHANTI KUMAR CHORADIA(128 TTJ708),YFC PROJECT PRIVATE LTD. (46 DTR496) AND OTHER CASES DECIDED BY THE TRIBUNAL. HE FURTHER OBSERVED THAT M ERE APPEARANCE OF A PURCHASE PARTY ON THE WEBSITE OF STATE GOVERNMENT DID NOT TURN A GENUINE PURCHASE INTO NONGENUINE TRANSACTION, THAT ISSUE HAD TO BE DECIDED AFTER CONSIDERING THE OVERALL CIRCUMSTANCES OF THE CLAIM, THAT IN THE CASE OF THE ASSESSEE THE AO HAD NEITHER ESTABLI SHED THAT THE SELLERS WERE INCAPABLE OF MAKING THE SALES NOR THAT ANY OF THE SELLERS WERE E MPLOYEES OF THE ASSESSEE. HE FURTHER RELIED UPON THE CASE OF BABULAL C BORANA(282 ITR 251) AND ARORA ALLOYS LTD.(12 TRIB 263). 5238/M/13-PANKAJ 4 REFERRING TO THE PROVISIONS OF SECTION 69C OF THE A CT, THE FAA HELD THAT THE CONDITIONS MENTIONED IN THE SECTION WERE NOT APPLICABLE, THAT PAYMENT CLAIMED BY THE ASSESSEE HAD BEEN RECORDED IN THE REGULAR BOOKS OF ACCOUNTS OF THE AS SESSEE, THAT THE AO HAD NOT DISPUTED THE BASIC FACT, THAT THE AO HAD NOT DISPUTED THAT THE P AYMENT MADE BY THE ASSESSEE TO THE RESPECTIVE PARTIES WERE OUT OF ANY UNDISCLOSED BANK ACCOUNT, THAT HE HAD WRONGLY INVOKED THE PROVISIONS OF SECTION 69C, THAT HE HAD FAILED TO PR OVE THAT THE EXPENSES INCURRED BY THE ASSESSEE WERE NOT FOR THE BUSINESS CARRIED OUT BY I T, THAT HE HAD NOT DISCHARGED ONUS AS TO HOW THE EXPENSES COULD BE TERMED AS UNEXPLAINED EXPENSE S WITHOUT DISPUTING THE FACT THAT SAME WERE RECORDED IN THE REGULAR BOOKS OF ACCOUNTS. FIN ALLY, HE DELETED THE ADDITION MADE BY THE AO. 4. BEFORE US,THE DR,SUPPORTED THE ORDERS OF THE AO.AS STATED EARLIER,NO ONE WAS PRESENT ON BEHALF OF THE ASSESSEE. WE HAVE PERUSED THE MATERIAL BEFORE US. IT IS A FAC T THAT IN THE STATEMENTS THE SUPPLIERS OF THE GOODS HAD NOWHERE MENTIONED THAT THE TRANSACTIONS W ITH THE ASSESSEE WERE NOT GENUINE,THAT THE ASSESSEE WAS NOT GIVEN AN OPPORTUNITY TO CROSS- EXAMINE THE SUPPLIERS,THAT ALL THE PAYMENTS TOWARDS PURCHASES WERE MADE BY CROSSED CHE QUES DRAWN ON NATIONALISED BANKS AND DULY REFLECTED IN THE BANK STATEMENT. IT IS SAID THAT SECTION 69C OF THE ACT STIPULATES T HAT THE DEEMED INCOME(WHERE THE SOURCE OF THE EXPENDITURE IS NOT EXPLAINED)CANNOT BE ALLOWED AS A DEDUCTION UNDER ANY HEAD OF INCOME. IN OTHER WORDS,EVEN IF THE ASSESSEE CAN JUSTIFY THE EXPENDITURE,BUT CANNOT EXPLAIN ITS SOURCE, THE SECTION DISENTITLES HIM FROM CLAIMING A DEDUCTI ON ON THE DEEMED INCOME UNDER ANY HEAD OF INCOME.IN SHORT,WHAT IS POSTULATED IN SECTION 69 C OF THE ACT IS THAT FIRST OF ALL THE ASSESSEE MUST HAVE INCURRED THAT EXPENDITURE AND THEREAFTER, IF THE EXPLANATION OFFERED BY THE ASSESSEE ABOUT THE SOURCE OF SUCH EXPENDITURE IS NOT FOUND S ATISFACTORY BY THE AO,THE AMOUNT MAY BE ADDED TO HIS INCOME.IN THE CASE BEFORE US,EXPENDITU RE HAS BEEN INCURRED FOR PURCHASING GOODS AND THE ASSESSEE HAD EXPLAINED THE SOURCES.IT IS NO T THE CASE OF EXPENDITURE THAT WAS INCURRED BY THE IT WAS NOT ENTERED IN THE BOOKS OF ACCOUNTS. THE AO HAS NOWHERE HELD THAT AS TO HOW THE EXPLANATION OFFERED BY THE ASSESSEE ABOUT THE S OURCE OF THE EXPENDITURE WAS UNSATISFAC - TORY.THEREFORE,IN OUR OPINION,THE AO HAD WRONGLY IN VOKED THE PROVISIONS OF THE SECTION 69C OF THE ACT.DISMISSING THE APPEAL FILED BY THE AO,WE DECIDE EFFECTIVE GROUND OF APPEAL AGAINST HIM. 5238/M/13-PANKAJ 5 AS A RESULT, APPEAL FILED BY THE AO STA NDS DISMISSED. . ORDER PRONOUNCED I N THE OPEN COURT ON 13 TH JULY, 2016. 13 , 2016 SD/- SD/- ( ( ( ( /PAWAN SINGH) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 13.07.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR C BENCH, ITAT, MUMBAI / , , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.