STROMAG ENGINEERS LIMITED , MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX 11(2)(2), MUMBAI

ITA 5333/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7691 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2011-2012
• Appeal Filed On: 14-08-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN KUMAR SINGH
• Assessee Lawyers: AAKRITI SETH; MUKESH B TANDON
• Keywords: Bogus purchase; Corroborative evidences; Accommodation entries
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI AMARJIT SINGH, JM ITA NO. 5333 /MUM/ 2017 (ASSESSMENT YEAR: 2011 - 12 ) M/S. STROMAG ENGINEERS LTD. B - 2, NANDJYOT INDL. ESTATE, SAFED POOL, ANDHERI KURLA ROAD, SAKINAKA, ANDHERI (E), MUMBAI 72 VS. DY. CIT - 11(2)(2) AAYKAR BHAVAN, MAHARSHI KARVE ROAD, CHURCHGATE, MUMBAI PAN/GIR NO. AABCS 3559 E ( APPELLANT ) : ( RESPONDENT ) APPELLANT BY : MS. AAKRITI SETH AND SHRI MUKESH B. TANDON RESPONDENT BY : SHRI CHAUDHARY ARUN KUMAR SINGH DATE OF HEARING : 08.01.2019 DATE OF PRONOUNCEMENT : 16.01 .2019 O R D E R PER SHAMIM YAHYA, A. M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 18, MUMBAI (LD.CIT(A) FOR SHORT) DATED 17.05.2017 AND PERTAINS TO THE ASSESSMENT YEAR (A.Y.) 2011 - 12. 2. THE GROUNDS OF APPEAL READ AS UNDER: 1. THE FIRST APPELLATE AUTHORITY HAS ERRONEOUSLY AND UNJUSTLY ADDED A SUM OF RS. 4,84,993 / - (RUPEES FOUR LAKHS EIGHTY FOUR THOUSAND NINE HUNDRED AND NINETY THREE ONLY) TO THE RETURNED INCOME OF RS. 4,08,34,809 / - (RUPEES FOUR CRORES EIGHT LAKHS THIRTY FOUR THOUSAND EIGHT HUNDRED AND NINE ONLY) OF THE ASSESSEE BY UNJUSTLY AND ERRONEOUSLY DEEMING RS. 4,84,993/ - (RUPEES FOUR LAKHS EIGHTY FOUR THOUSAND NINE HUNDRED AND NINETY THREE ONLY) BEING 8% OF THE DEEMED UN - GENUINE PURCHASES OF RS. 60,62,422 / - (RUPEES SIXTY LAKHS SIXTY TWO THOUSAND FOUR HUNDRED AND TWENTY TWO ONLY) (NET PURCHASE WITHOUT VAT) AFT ER ALLOWING 4% VAT FROM THE SAID DEEMED UN - GENUINE PURCHASE AS PROFIT EARNED FROM SUCH PURCHASES. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE INFORMATION HAD BEEN RECEIVED TO THE EFFECT THAT DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE HAD INT ER ALIA OBTAINED ACCOMMODATION ENTRIES AGGREGATING TO RS.63,04,916/ - M/S. JINDUTT CORPORATION AND M/S. 2 ITA NO. 5333/MUM/2017 M/S. STROMAG ENGINEERS LTD. AMBE STEEL CENTRE WHO HAVE BEEN PROCLAIMED AS PROVIDER OF ACCOMMODATION BILLS. THE NAMES OF THE SAID PARTY APPEAR IN THE LIST OF HAWALA DEALERS IDENTIFIE D BY THE SALES - TAX DEPARTMENT AND DISPLAYED ON ITS WEBSITE. THIS LIST IS A RESULT OF THE EVIDENCES GATHERED DURING THE COURSE OF INVESTIGATION, SEARCH AND SURVEYS BY THE SALES - TAX AUTHORITIES IN MAHARASHTRA REGARDING BOGUS PURCHASE BILLS BEING ISSUED TO SE VERAL PARTIES. THE INFORMATION IN THIS REGARD IS ALSO AVAILABLE IN PUBLIC DOMAIN ON THE WEBSITE OF THE SALES - TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA, WWW.MAHAVAT.GOV.IN . 4. DURING THE COURSE OF RE - ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO INTER ALIA, SUBMIT DETAILS OF LEDGER ACCOUNTS OF THE ABOVE MENTIONED PARTIES WITH COPIES OF BILLS/INVOICES, COMPLETE BANK STATEMENT AND OTHER DOCUMENTARY EVIDENCES TO SUBSTANTIATE THE GENUINENESS OF TRANSACTIONS. IN ORDER TO VERIFY THE GENUINENESS OF THE IMPUGN ED TRANSACTIONS, NOTICE U/S. 133(6) OF THE CASE WAS ISSUED TO THE ALLEGED PART WHICH WAS RETURNED BACK BY THE POSTAL AUTHORITIES. 5. THE ASSESSING OFFICER HELD THAT AS PER THE SETTLED PROVISIONS OF LAW, AS THE ONUS IS UPON THE ASSESSEE TO PROVE THE GENUIN ENESS OR THE PURCHASES, THE ASSESSEE WAS ASKED TO FILE REQUISITE SUPPORTING EVIDENCES, INCLUDING COPIES OF PURCHASE BILLS AND LEDGER ACCOUNTS IN RESPECT OF THE ALLEGED PURCHASES OF THE ABOVE MENTIONED PARTIES. ALSO THE ASSESSEE WAS MADE AWARE OF THE FACT T HAT NOTICE U/S. 133(6) OF THE ACT HAD NOT BEEN COMPLIED WITH. THE ASSESSEE WAS FURTHER ASKED TO PRODUCE THE ALLEGED PARTY FOR CROSS EXAMINATION. IN RESPONSE TO THE SAME, THE ASSESSEE HAD FURNISHED COPIES OF PURCHASE INVOICES, LEDGER ACCOUNTS AND BANK STATEMENTS EFFECTING THE PAYMENTS AGAINST PURCHASES FROM THE SAID PARTY. ON PERUSAL OF THE BILLS, IT WAS NOTICED THAT THE VAT/TIN NO. OF THE PARTIES MATCHES 3 ITA NO. 5333/MUM/2017 M/S. STROMAG ENGINEERS LTD. WITH THE VAT/TIN NO. APPEARING IN THE LIST OF HAWALA DEALER IDENTIFIED BY THE SALES - TAX DEPARTMENT. 6. IN VIEW OF THE SPECIFIC INFORMATION RECEIVED FROM THE SALES - TAX DEPARTMENT THAT THE ALLEGED PURCHASES/EXPENSES ARE NOT GENUINE AND THE FACT THAT THE NOTICE U/S. 133(6) HAD NOT BEEN COMPLIED, THE A.O. OPINED THAT THE ONUS OF THE ASSESSEE TO PROVE THE GENUINENESS OF ALLEGED PURCHASES GETS IMMENSELY MAGNIFIED. HOWEVER, THIS ONUS HAD NOT BEEN DISCHARGED. TH AT TH E ASSE SSEE HAD NOT EVEN PRODUCED THE PARTY TO ESTABLISH THE GENUINENESS OF THE ALLEGED PURCHASES/EXPENSES. IN VIEW OF THE AFOREMENTIONED FACTS, THE ALLEGED PURCHASE/EXPENSES MADE FROM THE AFORESAID MENT IONED PARTIES AGGREGATING TO RS. 63,04,916/ - WAS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE . 7 . UPON THE ASSESSEES APPEAL, THE LD. CIT(A) RESTRICTED THE DISALLOWANCE TO 8% AS UNDER BY CONCLUDING AS UNDER: 37 AS NARRATED EARLIER, THE LD. A.O. IN THIS CASE HAS HELD THAT THE PARTIES FROM WHICH T HE PURCHASES WERE MADE BY THE APPELLANT WERE FOUND TO BE BOGUS AND THAT IS THE REASON FOR WHICH IT WAS NOT PRODUCED DURING THE ASSESSMENT PROCEEDINGS. THE AR OF THE APPELLANT CONTENDED THAT IN THE INSTANT CASE, THE ISSUE IS NOT EVASION OF VAT. IN FACT IN T HIS CASE, THE VAT WAS PAID TWICE. TO SUBSTANTIATE THIS ARGUMENT, THE AR OF THE APPELLANT PRODUCED THE COPIES OF THE VAT PAID CHALLAN ALONG WITH INTEREST AND PENALTY. THE AR FURTHER SUBMITTED THAT OUT O F THE IMPUGNED PURCHASES OF RS.63, 04,916/ - , THE AMOUNT OF RS.2,42,494/ - REPRESENT THE AMOUNT OF VAT TAX. WHILE ACCOUNTING FOR THE SAID PURCHASES IN THE BOOKS OF ACCOUNTS, THE TAX AMOUNT WAS NOT PASSED TO THE PROFIT AND LOSS ACCOUNT. NOT HAVING DOUBTED THE CONSUMPTION/SALES, THE MOTIVE BEHIND OBTAINING BOGUS BI LLS THUS, APPEARS TO BE INFLATION OF PURCHASE PRICE SO AS TO SUPPRESS TRUE PROFITS. CONSIDERING THE FACTS OF THE CASE AS WELL AS THE VARIOUS CASE LAWS CITED (SUPRA), I ESTIMATE THE SUPPRESSED PROFIT TO THE EXTENT OF 12% OF THE PURCHASES MADE FROM THE BOGUS ENTITIES AS THE SUPPRESSED PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES AND ALLOW TO REDUCE THE 4% VAT PAID FROM THE ESTIMATION 12%. THIS ESTIMATION IS IN ADDITION TO THE GP SHOWN BY THE APPELLANT. ACCORDINGLY, THESE GROUN D OF APPEAL ARE PARTLY ALLOWED. 8. AGAINST THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 4 ITA NO. 5333/MUM/2017 M/S. STROMAG ENGINEERS LTD. 9. WE NOTE THAT THERE IS NO APPEAL BY THE REVENUE. 10. UP ON CAREFUL CONSIDERATION WE FIND THAT ASSESSEE HAS PROVIDED THE DOCUMENTARY EVIDENCE FOR THE PURCH ASE. ADVERSE INFERENCE HAS BEEN DRAWN DUE TO THE INABILITY OF THE ASSESSEE TO PRODUCE THE SUPPLIERS. WE FIND THAT IN THIS CASE THE SALES HAVE NOT BEEN DOUBTED. IT IS SETTLED LAW THAT WHEN SALES ARE NOT DOUBTED, 100% DISALLOWANCE FOR BOGUS PURCHASE CANNOT B E DONE. THE RATIONALE BEING NO SALES IS POSSIBLE WITHOUT ACTUAL PURCHASES. THIS PROPOSITION IS SUPPORTED FROM HONOURABLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF NIKUNJ E XIMP E NTERPRISES (IN WRIT PETITION NO 2860 ,ORDER DT 18.6.2014). IN THIS CASE THE HONOURABLE HIGH COURT HAS UPHELD 100% ALL OWANCE 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 PRESENT 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 SITUATION , 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. HOWEVER IN THIS REGARD , LEARNED COUNSEL OF THE ASSESSEE HAS PRAYED THAT WHEN ONLY THE PROFITS EARNED BY THE ASSESSEE ON THESE BOGUS PURCHASE TRANSACTION IS TO BE TAXED THE G ROSS PROFIT ALREADY SHOWN BY THE ASSESSEE AND OFFERED TO TAX SHOULD BE REDUCED FROM THE STANDARD 12.5% BEING DIRECTED TO BE DISALLOWED ON ACCOUNT OF BOGUS PURCHASE. 11. UP ON CAREFUL CONSIDERATION WE FIND CONSIDERABLE COGENCY IN THE SUBMISSION OF THE LEARNED COUNSEL OF THE ASSESSEE, AS OTHERWISE IT WILL BE DOUBLE JEOPARD Y TO THE ASSESSEE. ACCORDINGLY, WE MODIFY THE ORDER OF LEARNED CIT - A AND DIRECT THAT THE DISALLOWANCE IN 5 ITA NO. 5333/MUM/2017 M/S. STROMAG ENGINEERS LTD. THIS CASE BE RESTRICTED TO 1 2.5 % OF THE BOGUS PURCHASES AS REDUCED BY THE GROSS PROFIT RATE ALREADY DECLARED BY THE ASSESSEE ON THESE TRANSACTIONS. THE LD COUNSEL OF THE ASSESSEE FAIRLY ACCEPTED THIS PROPOSITION. 12. IN THE RESULT , THIS APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 6 . 0 1 . 2 0 1 9 S D / - S D / - ( AMARJIT SINGH ) (SHAMIM YAHYA) JUDICIAL MEMBER AC COUNTANT MEMBER MUMBAI ; DATED : 1 6 . 0 1 . 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