SPEED O CONTROLS PRIVATE LIMITED , MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX 11(2)(2), MUMBAI

ITA 5337/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7700 (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: 2010-2011
• 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); 6; 2; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI AMARJIT SINGH, JM ITA NO S . 5337 & 5338 /MUM/ 2017 (ASSESSMENT YEAR S : 2010 - 11 & 2011 - 12 ) SPEED O CONTROLS PVT. LTD. C - 16, NANDJYOT INDL. ESTATE, SAFED POOL ANDHERI KURLA ROAD, SAKINAKA, ANDHERI (E), MUMBAI - 400 072 VS. DY. CIT - 11(2)(2), AAYKAR BHAVAN, MAHARSHI KARVE ROAD, CHURCHGATE, MUMBAI PAN/GIR NO. AABCS 1430 L ( APPELLANT ) : ( RESPONDENT ) APPELLANT BY : MS. AAKRITI SETH & SHRI MUKESH B. TANDON RESPONDENT BY : SHRI CHAUDHARY ARUNKUMAR SINGH DATE OF HEARING : 08.01.2019 DATE OF PRONOUNCEMENT : 16.01 .2019 O R D E R PER SHAMIM YAHYA, A. M.: THE S E ARE APPEAL S BY THE ASSESSEE AGAINST THE RESPECTIVE 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.) 2010 - 11 & 2011 - 12 . 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN A.Y. 2010 - 11 READ AS UNDER: 1. THE FIRST APPELLATE AUTHORITY HAS ERR ONEOUSLY AND UNJUSTLY ADDED A SUM OF RS. 1,02,227 / - (RUPEES ONE LAKH TWO THOUSAND TWO HUNDRED AND TWENTY SEVEN ONLY) TO THE RETURNED INCOME OF RS. 2,81,67,872 / - (RUPEES TWO CRORES EIGHTY ONE LAKHS SIXTY SEVEN THOUSAND EIGHT HUNDRED AND SEVENTY TWO ONLY) OF THE ASSESSEE BY UNJUSTLY AND ERRONEOUSLY DEEMING RS. 1,02,227 / - (RUPEES ONE LAKHS TWO THOUSAND TWO HUNDRED AND TWENTY SEVEN ONLY) BEING 8% OF THE DEEMED UN - GENUINE PURCHASES OF RS. 12,77,836 / - (RUPEES TWELVE LAKHS SEVENTY SEVEN THOUSAND EIGHT HUNDRED AND THIRTY SIX ONLY) (NETT PURCHASE WITHOUT VAT) AFTER ALLOWING 4% VAT PAID FROM THE DEEMED UN - GENUINE PURCHASES AS PROFIT EARNED FROM SUCH PURCHASES. 3. THE GROUND OF APPEAL RAISED BY THE ASSESSEE IN A.Y. 2011 - 12 READ AS UNDER: 2 ITA NO S . 5337 & 5338/MUM/2017 1. THE FIRST APPELLATE AUTHO RITY HAS ERRONEOUSLY AND UNJUSTLY ADDED A SUM OF RS. 6,93,200 / - (RUPEES SIX LAKHS NINETY THREE THOUSAND AND TWO HUNDRED ONLY) TO THE RETURNED INCOME OF RS. 3,78,49,500 / - (RUPEES THREE CRORES SEVENTY EIGHT LAKHS FORTY NINE THOUSAND AND FIVE HUNDRED ONLY) OF T HE ASSESSEE BY UNJUSTLY AND ERRONEOUSLY DEEMING RS.6,93,200/ - (RUPEES SIX LAKHS NINETY THREE THOUSAND AND TWO HUNDRED ONLY) BEING 8% OF THE DEEMED UN - GENUINE PURCHASES OF RS. 86,65,008 / - (RUPEES EIGHTY SIX LAKHS SIXTY FIVE THOUSAND AND EIGHT ONLY) (NETT PUR CHASE WITHOUT VAT) AFTER ALLOWING 4% VAT PAID FROM THE SAID UN - GENUINE PURCHASES AS PR OFIT EARNED FROM SUCH PURCHASES. 4. SINCE THE FACTS ARE IDENTICAL, WE ARE REFERRING TO FACTS AND FIGURES FROM A.Y. 2010 - 11. 5. BRIEFLY STATED THE FACTS OF THE CASE AS MENTIONED IN THE ASSESSMENT ORDER DATED 23 - 03 - 2015 ARE THAT THE INFORMATION HAD BEEN RECEIVED TO THE EFFECT THAT DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE HAD INTER ALIA OBTAINED ACCOMMODATION ENTRIES AGGREGATI NG TO RS.90,11,62 8 / - FROM M/S. NISHA ENTERPRISES, M/S. ANAND IMPEX, M/S. EMKAY ENGINEERING, M/S. AVINASH ENTERPRISES, M/S. AMBE STEEL CENTRE AND M/S. JINDUTT CORPORATION WHO HAVE BEEN PROCLAIMED AS PROVIDER OF ACCOMMODATION BILLS. THE NAMES O F THESE PARTIES APPEAR IN THE LIST OF HAWALA DEALERS IDENTIFIED 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 SEVERAL 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. 6. 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 TH E GENUINENESS OF TRANSACTIONS. IN RESPONSE TO THE SAME, THE ASSESSEE FURNISHED COPIES OF 3 ITA NO S . 5337 & 5338/MUM/2017 INVOICES, DELIVERY CHALLANS, TRANSPORT RECEIPTS AND BANK STATEMENTS EFFECTING THE PAYMENTS AGAINST PURCHASES FROM THE SAID PARTIES. THE STATEMENT OF CONSUMPTION OF RAW MATERIAL PROCURED FROM THE SAID PARTIES WERE ALSO FURNISHED. IN ORDER TO VERIFY THE GENUINENESS OF THE IMPUGNED TRANSACTIONS, NOTICES U/S. 133(6) OF THE CASE WERE ISSUED TO THE ALLEGED PARTIES WHICH WERE RETURNED BANK BY THE POSTAL AUTHORITIES. 7. THE AS SESSING OFFICER (A.O. FOR SHORT) HELD THAT AS PER THE SETTLED PROVISIONS OF LAW, AS THE ONUS IS UPON THE ASSESSEE TO PROVE THE GENUINENESS OR THE PURCHASES, THE ASSESSEE WAS ASKED TO FILE REQUISITE SUPPORTING EVIDENCES, INCLUDING COPIES OF PURCHASE BILLS A ND LEDGER ACCOUNTS IN RESPECT OF THE ALLEGED PURCHASES OF THE ABOVE MENTIONED PARTIES. ALSO THE ASSESSEE WAS MADE AWARE OF THE FACT THAT NOTICES U/S. 133(6) OF THE ACT HAVE NOT BEEN COMPLIED WITH. THE ASSESSEE WAS FURTHER ASKED TO PRODUCE THE ALLEGED PARTI ES 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 PARTIES. ON PERUSA L OF THE BILLS, IT WAS NOTICED THAT THE VAT/TIN NO. OF THE PARTIES MATCHES WITH THE VAT/TIN NOS. APPEARING IN THE LIST OF HAWALA DEALERS IDENTIFIED BY THE SALES - TAX DEPARTMENT. 8. THE A.O. WAS OF THE OPINION THAT I N VIEW OF THE SPECIFIC INFORMATION RECEIVED FROM AN IMPECCABLE SOURCE (VIZ. THE S ALES - TAX DEPARTMENT) THAT THE ALLEGED PURCHASES/EXPENSES ARE NOT GENUINE AND THE FACT THAT THE NOTICES U/S. 133(6) HAD NOT BEEN COMPLIED, THE ONUS OF THE ASSESSEE TO PROVE THE GENUINENESS OF ALLEGED PURCHASES GETS IMMENSELY MAGNIFIED. THAT H OWEVER THIS ONUS HAD NOT BEEN DISCHARGED. THE ASSESSEE HAD NOT EVEN PRODUCED 4 ITA NO S . 5337 & 5338/MUM/2017 THESE PARTIES TO ESTABLISH THE GENUINENESS OF THESE ALLEGED PURCHASES/EXPENSES. THE A .O. FURTHER HELD AS UNDER: 'IT WOULD BE PERTINENT TO MENTION HERE THAT MERELY BECAUSE THE FUND S HAVE MOVED THOUGH BANKING CHANNEL AND THE ENTITIES CONCERNED THE PAPERWORK, THE TRANSACTION CANNOT BE HELD AS GENUINE. THE MATTER HAS TO BE VIEWED IN ITS ENTIRETY AND AFTER TAKING INTO ACCOUNT THE VARIOUS FACTS ENLISTED ABOVE. REFERENCE IN THIS REGARD IS INVITED TO THE DECISION OF THE HON'BLE ITAT DELHI BENCH IN THE CASE OF DCIT VS. SMT. PHOOLWATI DEVI (2009) 314 ITR ATI (DELHI), WHEREIN IT IS HELD AS UNDER: 'DESPITE THE DOCUMENTATION SUPPORTING THE CLAIM OF THE OF THE ASSESSES SUPERFICIALLY, THE EVIDENC E COULD NOT BE ACCEPTED IN VIEW OF THE SURROUNDING CIRCUMSTANCES AND HUMAN PROBABILITIES. THERE WERE CERTAIN FEATURES OF THE CASE WHICH BELIEVE THE DOCUMENTARY EVIDENCE.' FURTHER, IN THE CASE OF SUMATI DAYAL VS. CIT (1995) 214 ITR 801, THE SUPREME COURT IN TER ALIA HELD AS UNDER: 'IN SUCH CASES, A SUPERFICIAL APPROACH TO THE PROBLEM SHOULD BE ESCHEWED AND THE MATTER HAS TO BE CONSIDERED IN THE LIGHT OF HUMAN PROBABILITIES AND FURTHER THAT ANY TRANSACTION ABOUT WHICH DIRECT EVIDENCE IS RARELY AVAILABLE SHOUL D BE INFERRED ON THE BASIS OF CIRCUMSTANCES AVAILABLE ON THE RECORD. IN THAT CASE, THE MAJORITY OPINION THE SETTLEMENT COMMISSION WAS APPROVED AS IT WAS TAKEN AFTER CONSIDERING THE SURROUNDING CIRCUMSTANCES AND APPLYING THE TEST OF HUMAN PROBABILITIES.' I T WAS SETTLED IN THE CASE OF CIT VS. DURGA PRASAD MORE 82 ITR 540 (SC) THAT .WHERE A PARTY RELIES ON SELF SERVING RECITALS IN A DOCUMENT, IT IS FOR THAT PARTY TO ESTABLISH THE TRUTH OF THESE RECITALS. IT WAS FURTHER HELD BY THE APEX COURT IN THIS CASE THAT THE TAX AUTHORITIES ARE ENTITLED TO LOOK INTO THE SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALITY OF SUCH RECITALS. THE HON'BLE APEX COURT HAS SPECIFICALLY OBSERVED AS UNDER: 'SCIENCE HAS NOT YET INVENTED ANY INSTRUMENT TO TEST THE RELIABILITY OF THE EV IDENCE PLACED BEFORE A COURT OR TRIBUNAL. THEREFORE, THE COURTS AND TRIBUNALS ARE APPLYING THE TEST OF HUMAN PROBABILITIES. HUMAN MINDS MAY DIFFER AS TO THE RELIABILITY OF APIECE OF EVIDENCE.' IN THE CASE OF JUGGILAL KAMLAPAT VS. CJT 73 ITR 702 (SC), IT WAS HELD THAT THE ASSESSING OFFICER COULD GO BEHIND THE LEGAL FORM AND FIND OUT SUBSTANCE HAVING REGARD TO THE ECONOMIC REALITIES BEHIND THE LEGAL FACADE. THUS, IT IS CLEAR THAT THE SETTLED POSITION IS THAT THE ONUS LAY UPON THE ASSESSEE TO PROVE THE GENUINENESS OF THE PURCHASE TRANSACTION CLAIMED BY THE ASSESSEE AS GENUINE. HOWEVER, THIS ONUS HAS NOT BEEN DISCHARGED BY THE ASSESSEE. DESPITE REPEATED REQUEST S, THE ASSESSEE HAS NOT SUBMITTED COPIES OF BILLS ETC. TO NEGATE ITS CLAIM THAT THE ALLEGED PURCHASES ARE GENUINE. HERE IT IS PERTINENT TO NOTE THAT THE 5 ITA NO S . 5337 & 5338/MUM/2017 COURTS HAVE HELD THAT IF THE INVESTIGATION DONE BY THE DEPARTMENT LEADS TO DOUBT IN RESPECT OF THE GENU INENESS OF THE TRANSACTION/PURCHASES, IT IS INCUMBENT ON THE ASSESSEE TO PRODUCE THE PARTY ALONG WITH NECESSARY DOCUMENTS IN ORDER TO ESTABLISH THE GENUINENESS OF THE TRANSACTIONS. IN THE INSTANT CASE, THERE IS UNCONTROVERTED EVIDENCE REGARDING THE BOGUS N ATURE OF PURCHASES FROM AN IMPECCABLE SOURCE VIZ. THE SALES TAX DEPARTMENT (WHICH HAS THE PRIMARY DUTY OF TAXING A PURCHASE - SALE TRANSACTION) 9. IN VIEW OF THE AFOREMENTIONED FACTS, THE ALLEGED PURCHASE/EXPENSES MADE FROM THE AFORESAID MENTIONED PARTIES AGGREGATING TO RS.90,11,628/ - WERE DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 10. UPON THE ASSESSEES APPEAL THE LD. CIT(A) RE DUCED THE DISALLOWANCE TO 8% BY CONCLUDING AS UNDER: 2.37 AS NARRATED EARLIER, THE LD. A.O. IN THIS CASE HAS HELD THAT THE PARTIES FROM WHICH THE PURCHASES WERE MADE BY THE APPELLANT WERE FOUND TO BE BOGUS AND THAT IS THE REASON FOR WHICH IT WAS NOT PRODU CED 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 THIS 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 OF THE IMPUGNED PURCHASES OF RS . 13,28,949/ - , THE AMOUNT OF RS.51,113/ - 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 BILLS THUS, APPEARS TO BE INFLATION OF PURCHASE PRICE SO AS TO SUPPRESS TRUE PROFITS. CONSIDERING THE FACTS OF THE C ASE 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 GROUND OF APPEAL ARE PARTLY ALLOWED. 11. AGAINST THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 12. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED T HE RECORDS. WE NOTE THAT T HERE IS NO APPEAL BY THE REVENUE. 6 ITA NO S . 5337 & 5338/MUM/2017 13. UP ON CAREFUL CONSIDERATION WE FIND THAT ASSESSEE HAS PROVIDED THE DOCUMENTARY EVIDENCE FOR THE PURCHASE. A D VERSE INFERENCE HAVE 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, HUNDRED PERCENT DISALLOWANCE FOR BOGUS 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 EXIMP ENTERPRISES (IN WRIT PETITION NO 2860, ORDER DT. 18.6.2014) . IN THIS CASE , THE HONOURABLE 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 PRESENT CASE , THE FACTS OF THE CASE INDICATE THAT ASSESSEE HAS MADE PURCHASE FROM THE GREY MARKET. MAKING PURCHASES THROUGH THE GREY MARKET GIVE S 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 JU STICE. HOWEVER , IN THIS REGARD , THE 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 GROSS 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. 14. UPON CAREFUL CONSIDERATION , WE FIND CONSIDERABLE COGENCY IN THE SUBMISSION OF THE LEARNED COUNSEL OF THE ASSESSEE, AS OTHERWISE IT WILL BE DOUBLE JEOPARD Y T O THE ASSESSEE. ACCORDINGLY, WE MODIFY THE ORDER OF LEARNED CIT - A AND DIRECT THAT THE DISALLOWANCE IN THIS CASE BE RESTRICTED TO 12.5 % OF THE BOGUS PURCHASES AS REDUCED BY THE GROSS PROFIT RATE 7 ITA NO S . 5337 & 5338/MUM/2017 ALREADY DECLARED BY THE ASSESSEE ON THESE TRANSACTIONS. THE L D. COUNSEL OF THE ASSESSEE FAIRLY ACCEPTED THIS PROPOSITION. 15. IN THE RESULT , TH E S E APPEAL S FILED BY THE ASSESSEE STAND PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 6 . 0 1 . 2 0 1 9 S D / - SD / - ( AMARJIT SINGH ) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT 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