SOLUTION INC, MUMBAI V. ITO - 25 (1)(2), MUMBAI

ITA 5458/MUM/2018

• Counselvise Citation: [2019] 114 COUNSELVISE.COM (IT) 6141 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 24-09-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AKHTAR HANSARI
• Keywords: Bogus purchase; Accommodation entries
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC, BENC H MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMB ER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBE R ITA NO.5458/MUM/2018 ( ASSESSMENT YEAR :2010-11 ) SOLUTION INC UNIT NO.4, MAPLLE-MORYA CLASSIC PLOT NO.B-18, OFF NEW LINK ROAD NEAR INFINITY MALL ANDHERI (WEST) MUMBAI-400 053 VS. ITO-25(1)(2) MUMBAI PAN/GIR NO. AAZFS6782Q APPELLANT ) .. RESPONDENT ) REVENUE BY AKHTAR H. ANSARI ASSESSEE BY NONE DATE OF HEARING 15/10 /2019 DATE OF PRONOUNCEME NT 15 /10 /201 9 / O R D E R PER BENCH : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST, THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)37, MUMBAI, DATED 15/05/2018 AND IT PERTAINS TO ASSESSMENT YEAR 2010-11. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1) THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN CON FIRMING THE ADDITION @12,5% OF TOTAL PURCHASE OF RS.10,L L,767/- FROM SO CALLED PURCHASES FROM HAWALA DEALERS. 2) THE LD. CIT(A) ERRED IN LAW AND ON FACT IN APPL YING THE RATION OF SUMIT P. SETH AND MAKING ADDITION @12.5% INSTEAD OF NIL A DDITION. ITA NO.5458/MUM/2018 SOLUTION INC 2 3) THE EVIDENCE USED AGAINST THE ASSESSE WAS NOT ALLOWED LO CROSS VERILY TO THE ASSESSE AND MERE ON THE BASIS OF INFO RMATION RECEIVED FROM VAT DEPARTMENT THE ADDITION MADE. IN SPITE OF ADMIS SION OF THE FACT THAT, THE LD, AO HAD NOT EXTENDED OPPORTUNITY OF CROSS VE RIFICATION OF THE EVIDENCE USED AGAINST THE ASSESSEE NEITHER AO HAD M ADE ANY EFFORTS TO SUBSTANTIATE THE ADDITIONS WITH ANY FURTHER EVIDENC E THE LD. CIT(A) HAS CONFIRM THE ADDITION @12,5% WHICH IS AGAINST THE TE NETS OF LAW, HENCE MAY BE DELETED. 4) THE LD. CIT(A) HAD NOT CONSIDERED THE GROUND O F ERRONEOUSLY REJECTING BOOKS OF ACCOUNTS BY THE LD. AO. 5) THE ASSESSEE CRAVES LEAVE TO ADD, AMEND, ALTER , AMEND OR DROP ANY OR ALL GROUNDS OF APPEAL AT THE TIME OF THE APPEAL PROCEEDINGS. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF MANUFACTURING/RESELLING OF VERTICA L/HORIZONTAL/ROLLER BLINDS & WALL PAPER, FILED ITS RETURN OF INCOME FOR AY 2010-11 ON 30/09/2010, DECLARING TOTAL INCOME OF RS. 12,61,245 /-. THEREAFTER, THE CASE HAS BEEN REOPENED U/S 147, ON THE BASIS OF INFORMATION RECEIVED FROM DGIT, INVESTIGATION, MUMBAI, AS PER W HICH, SALES TAX AUTHORITIES OF GOVERNMENT OF MAHARASHTRA HAD TAKEN ACTIONS AGAINST NUMBER OF HAWALA DEALERS, WHO HAD ISSUED BOGUS PURC HASE BILLS TO VARIOUS PARTIES IN MUMBAI TO REDUCE OR SUPPRES PROF ITS. AS PER LIST OF BENEFICIARIES, THE ASSESSEE IS ONE OF THE BENEFICIA RY, WHO HAD TAKEN ACCOMMODATION BILLS OF BOGUS PURCHASES FROM VARIOUS PARTIES AS LISTED BY THE AO IN HIS ASSESSMENT ORDER AMOUNTING TO RS. 10,11,767/-. THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT HAS BEEN COMPLETED U/S. 143(3).R.W.S. 147 OF THE I. T.ACT, 1961 ON 23/12/2015 AND DETERMINED TOTAL INCOME OF RS. 22,73 ,010/-, AFTER MAKING 100% ADDITIONS TOWARDS ALLEGED BOGUS PURCHAS E FROM THOSE PARTIES AND MADE ADDITIONS OF RS. 10,11,767/-. 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESEE P REFERRED AN APPEAL BEFORE THE LD.CIT(A). BEFORE THE LD.CIT(A), THE ASSESSE HAS ITA NO.5458/MUM/2018 SOLUTION INC 3 FILED ELABORATED WRITTEN SUBMISSIONS, ON THE ISSUE , WHICH HAS BEEN REPRODUCED AT PARA 4 ON PAGE 2. THE SUM AND SUBSTAN CE OF THE ARGUMENTS OF THE ASSESSEE BEFORE THE LD.CIT(A) ARE THAT PURCHASE FROM THE ABOVE PARTY IS GENUINE, WHICH IS SUPPORTED BY NECESSARY EVIDENCES. THEREFORE, NO ADDITIONS COULD BE MADE ON THE BASIS OF INFORMATION RECEIVED FROM THIRD PARTY. THE LD.CIT(A ), AFTER CONSIDERING RELEVANT SUBMISSION OF THE ASSESSEE AND ALSO, ON ANALYSIS OF INFORMATION COLLECTED DURING THE COURSE OF SEARCH AND ALSO BY FOLLOWING THE DECISION OF HONBLE GUJARAT H IGH COURT, IN THE CASE OF CIT VS. SIMITH P. SHETH (356 ITR 451) SCALE D DOWN ADDITION TO 12.50% ON ALLEGED BOGUS PURCHASES. THE RELEVANT FINDINGS OF THE LD.CIT(A) ARE AS UNDER:- 5.6 ON CONSIDERATION OF THE FACTS AVAILABLE AN RECO RD IT IS SEEN THAT INFORMATION UPLOADED BY THE STATE SATES TAX AUTHOR ITIES WHEREIN THE SAID DEPARTMENT PUT UP LISTS OF PARTIES FOUND TO BE ENGA GED IN ISSUING FALSE BILLS WITHOUT ACTUAL SALE OF GOODS, WAS THE POINT O F GENESIS FOR ENQUIRY RELATED TO POSSIBLE BOGUS PURCHASES IN A NUMBER OF CASES. IN CASE OF A MANUFACTURER, IF THE PURCHASES ARE BOGUS, IT MUST B E POSSIBLE TO PRODUCE THE GOODS AS SHOWN, EVEN WITHOUT USE OF MATERIALS, THE PURCHASE OF WHICH IS SUSPICIOUS. IF IT IS NOT POSSIBLE TO PROD UCE THE GOODS AS SHOWN WITHOUT CONSUMPTION OF THESE MATERIALS, THESE SUSPI CIOUS PURCHASES CANNOT BE HELD BOGUS UNLESS PRODUCTION IS ALSO HELD BOGUS. WHERE PURCHASE IS HELD AS BOGUS THEN THE CORRESPONDING SA LES MUST ALSO BE HELD BOGUS AS WITHOUT THE MATERIAL BEING PURCHASED, PRODUCTION/SALES IS NOT POSSIBLE. THEREFORE, WITHOUT THE CORRESPONDING PRODUCTION/SALES BEING HELD BOGUS, IT CANNOT BE A CASE OF BOGUS PURCHASES. IN. OTHER WORDS IN A CASE WHERE THE PURCHASE IS SHOWN BEING BOGUS AND IT IS NOT POSSIBLE TO OR THE PRODUCTION AS SHOWN EVEN WITHOUT THE MATERIA L, IT NEEDS TO BE SHOWN WHETHER THE SALE TRANSACTION WAS EFFECT AT PR ODUCTION WAS DONE EVEN WITHOUT USING SUCH MATERIAL WHETHER SUCH MATER IAL WERE ALSO USED UNLESS IT IS SHOWN THAT SUCH MATERIALS WERE NOT USE D IN CORRESPONDING SALES OR THE PRODUCTION AS SHOWN, PURCHASE CANNOT B E HELD IT WILL BE CASE OF PURCHASE FROM BOGUS PARTIES, HOWEVER IF THE MATERIAL HAS BEEN USED IN THE SALES R AS THE CASE MAY BE IN PRODUCTIO N, IT CANNOT BE A CASE OF BOGUS PURCHASE, RATHER IT WILL BE A CASE OF PURC HASE FROM BOGUS PARTIES, STATEMENTS OF HAWALA PROVIDERS RECORDED BY SALES TAX AUTHORITIES AFFIDAVIT FILED BY SUCH SUPPLIERS BEFORE SALES TAX AUTHORITY ABSENCE OF EVIDENCE IN SUPPORT OF TRANSPORTATION/DELIVERY OF M ATERIAL ETC., HAVE BEEN ITA NO.5458/MUM/2018 SOLUTION INC 4 HELD RELEVANT AS MERE INDICATORS AND NOT DECISIVE FACTORS, TO DRAW A CONCLUSION REGARDING GENUINENESS OF PURCHASES. 5.7 THE SUPPLIERS WERE FOUND TO BE ENGAGED IN PROVI DING BOGUS BILL WITHOUT ACTUAL DEALING OF GOODS. THE APPELLANT MADE PAYMENTS FOR THESE PURCHASE BY ACCOUNT PAYEE CHEQUES DULY CLEARED THRO UGH NORMAL BANKING CHANNEL AND ARE DULY REFLECTED IN THE APPEL LANTS BANK STATEMENTS. BEFORE THE AO, THE APPELLANT PRODUCED D OCUMENTARY EVIDENCE LIKE COPIES OF INVOICES AND LEDGER ACCOUNT S OF THE VENDORS IN THE APPELLANTS BOOKS OF ACCOUNT RECORDING THESE PURCHA SES TO SUBSTANTIATE THE GENUINENESS OF THESE PURCHASE. SINCE THE SALES RECEIPTS WAS NOT DOUBTED OR DISPUTED BY THE AO AND HE HAS ACCEPTED T HE SALES RECEIPTS OF THE APPELLANT AS IT IS, THEREFORE, THE AO CANNOT DE NY THAT PURCHASE WERE NOT MADE BY THE APPELLANT AS IT IS, THEREFORE, THE AO CANNOT DENY THAT PURCHASES WERE NOT MADE BY THE APPELLANT AND THE MA TERIAL WAS NOT USED FOR ITS CONTRACT WORK. WHAT IS UNDER DISPUTE IS THE PURCHASE FROM THE PARTIES FROM WHOM BILLS HAVE BEEN TAKEN AND CHEQUES HAVE BEEN ISSUED TO THEM. PURCHASES ARE NOT IN DISPUTE BUT THE PARTI ES FROM WHOM PURCHASE ARE SHOWN TO HAVE BEEN MADE ARE DISPUTED A ND SUSPICIOUS. 5.8 THE AO HAD MADE THE ADDITION AS SOME OF THE SUP PLIERS WERE DECLARED HAWALA DEALERS BY THE VAT DEPARTMENT. THIS MAY BE A GOOD REASON FOR MAKING FURTHER INVESTIGATION BUT THE AO DID NOT MAKE ANY FURTHER INVESTIGATION AND MERELY COMPLETED THE ASSE SSMENT ON SUSPICION . ONCE THE ASSESEE HAS BROUGHT ON RECORD THE DETAILS OF PAYMENTS BY ACCOUNT PAYEE CHEQUE, IT WAS INCUMBENT ON THE AO TO HAVE VERIFIED THE PAYMENT DETAILS FROM THE BANK OF THE ASSESSEE AND A LSO FROM THE BANK OF THE SUPPLIERS TO VERIFY WHETHER THERE WAS ANY IMMED IATE CASH WITHDRAWAL FROM THEIR ACCOUNT. NO SUCH EXERCISE HAS BEEN DONE OR FINDINGS RECORDED. THERE WAS NO DETAILED INVESTIGATION MADE BY THE AO HIMSELF. IT IS ALSO FOUND THAT THE PAYMENTS HAVE BEEN MADE BY ACCOUNT P AYEE CHEQUE WHICH ARE DULY REFLECTED IN THE BANK STATEMENT OF T HE ASSESSEE. THERE IS NO EVIDENCE TO SHOW THAT THE ASSESEE HAS RECEIVED C ASH BOOK FROM THE SUPPLIERS. MERELY BECAUSE THE SUPPLIERS DID NOT FIL E SOME CONFIRMATION AND DOCUMENTS, ONE CANNOT CONCLUDE THAT HE PURCHASE S WERE NOT MADE BY THE ASSESSEE. THIS VIEW IS SUPPORTED BY THE DECI SION OF NIKUNJEXIMP ENTERPRISES VS. CIT 216 TAXMAN 171 (BOM). TO THIS E XTENT I AM IN VIEW WITH THE APPELLANT, IF APPELLANT HAS FULFILLED ITS ONUS MAKING THE PAYMENT BY CHEQUE AND HAS SUPPLIED THE ADDRESS FO THE SELL ERS THEN IT CANNOT BE PRESUMED THAT SUPPLIER WERE BOGUS SIMPLY BECAUSE TH E SELLERS WERE NOT FOUND AT THE GIVEN ADDRESS. THERE IS A CONSIDERABLE TIME GAP BETWEEN THE PERIOD OF PURCHASE TRANSACTION PERIOD OF SCRUTINY P ROCEEDINGS. THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THERE IS SUPPRESSION OF SALES. IT IS BASIC RULE OF ACCOUNTANCY AS WELL A S OF TAXATION LAWS THAT PROFIT FROM BUSINESS CANNOT BE ASCERTAINED WITHOUT DEDUCTING COST OF PURCHASE FROM SALES. ESTIMATION OF PROFIT RANGING F ROM 12.5% TO 15% HAS BEEN UPHELD BY THE HONBLE GUJARAT HIGH COURT IN TH E CASE OF CIT VS SIMIT P. SHETH 356 ITR 451 (GUJ.) DEPENDING UPON THE NATU RE OF BUSINESS. 5.9 CONSIDERING THE TOTALITY OF THE FACTS BEFORE ME , AS WELL AS THE JUDICIAL OPINION AVAILABLE I AM INCLINE TO AGREE WITH THE A PPELLANTS STAND THAT THE ADDITION IS EXCESSIVE. THE AO HAS DISALLOWED THE AM OUNT OF RS. 10,11,767/- ON ACCOUNT OF BOGUS PURCHASE. THE TOTAL PURCHASE DEBITED TO ITA NO.5458/MUM/2018 SOLUTION INC 5 THE TRADING ACCOUNT FROM THESE PARTIES ARE RS. 10,1 1,767/-. I AM OF THE VIEW THAT ESTIMATION OF PROFIT AT 12.5% WOULD MEET THE ENDS OF JUSTICE. THEREFORE, I DIRECT THE AO TO ESTIMATE PROFIT OF 12 .5% ON THE TOTAL PURCHASE IN QUESTION WHICH WORKS OUT TO RS. 1,26,47 1/-(12.5% OF RS. 10,11,767/-). THE APPELLANT THEREFORE GETS RELIED O F RS. 8,85,2996/- (RS. 1011,767/- MINUS RS. 1,26,471/-). THE GROUNDS RAIS ED ARE PARTLY ALLOWED. 5. NONE APPEARED FOR THE ASSESSEE. WE HAVE HEARD TH E LD. DR, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE T HROUGH ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD. AO HAS MADE 100% ADDITIONS TOWARDS ALLEGED BOGUS PURCHASES, ON THE G ROUND THAT THE ASSESSEE ONE OF THE BENEFICIARY OF ACCOMMODATION EN TRIES OF BOGUS PURCHASE BILLS ISSUED BY HAWALA DEALERS. ACCORDING TO THE LD. AO, ALTHOUGH ASSESEE HAS FILED CERTAIN BASIC EVIDENCES, BUT FAILED TO FILE FURTHER EVIDENCE IN THE BACKDROP OF CLEAR FINDING B Y THE SALES TAX DEPARTMENT, MAHARASHTRA THAT THOSE PARTIES ARE INVO LVED IN PROVIDING ACCOMMODATION ENTRIES WITHOUT ACTUAL DELIVERY OF GO ODS. THE LD. AO HAD ALSO TAKEN SUPPORT FROM THE INVESTIGATION CONDU CTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AS PER WHICH NOTI CE ISSUED U/S 133(6) TO THE PARTY WERE RETURNED UN-SERVED BY THE POSTAL AUTHORITIES. THEREFORE, HE CAME TO THE CONCLUSION THAT PURCHASE FROM THE SAID PARTY IS BOGUS IN NATURE. IT IS THE CONTENTIONS OF THE ASSESSEE BEFORE THE LOWER AUTHORITIES THAT A PURCHASE FROM THE ABOV E PARTY IS SUPPORTED BY NECESSARY EVIDENCES. IT HAS FURNISHED ALL POSSIBLE EVIDENCES, INCLUDING BOOKS OF ACCOUNTS, STOCK DETAI LS AND BANK STATEMENT TO PROVE THAT PAYMENT AGAINST SAID PURCHA SES HAVE BEEN MADE THROUGH PROPER BANKING CHANNELS. 6 HAVING CONSIDERED ARGUMENTS OF THE LD. DR AND ALS O, MATERIAL AVAILABLE ON RECORD, WE FIND THAT BOTH THE SIDES FA ILED TO PROVE THE ITA NO.5458/MUM/2018 SOLUTION INC 6 CASE IN THEIR FAVOUR WITH NECESSARY EVIDENCES. ALTH OUGH, ASSESSEE HAS FILED CERTAIN BASIC EVIDENCES, BUT FAILED TO FI LE FURTHER EVIDENCES TO CONCLUSIVELY PROVE PURCHASES TO SATISFACTIONS OF THE LD.AO. AT THE SAME TIME, THE LD. AO HAD ALSO FAILED TO TAKE THE I NVESTIGATION TO A LOGICAL CONCLUSION BY CARRY OUT NECESSARY ENQUIRES, BUT HE SOLELY RELIED UPON INFORMATION RECEIVED FROM INVESTIGATIO N WING, WHICH WAS FURTHER SUPPORTED BY INFORMATION RECEIVED FROM MAHA RASHTRA SALES TAX DEPARTMENT. UNDER THESE CIRCUMSTANCES, IT IS D IFFICULT TO ACCEPT ARGUMENTS OF BOTH THE SIDES. FURTHER, VARIOUS HIGH COURTS AND TRIBUNALS HAD CONSIDERED AN IDENTICAL ISSUE IN LIGH T OF INVESTIGATION CARRIED OUT BY THE SALES TAX DEPARTMENT AND HELD TH AT IN CASE PURCHASES CLAIMS TO HAVE MADE FROM ALLEGED HAWALA D EALERS , ONLY PROFIT ELEMENT EMBEDDED IN THOSE PURCHASES NEEDS TO BE TAXED, BUT NOT TOTAL PURCHASE FROM THOSE PARTIES. THE HONBLE GUJARAT HIGH COURT, IN THE CASE OF CIT VS SIMITH P.SHETH 356 ITR 451 HAD CONSIDERED A SIMILAR ISSUE AND HELD THAT AT THE TIM E OF ESTIMATION OF PROFIT FROM ALLEGED BOGUS PURCHASES NO UNIFORM YARD STICKS COULD BE ADOPTED, BUT IT DEPENDS UPON FACTS OF EACH CASE. TH E ITAT, MUMBAI, IN NUMBER OF CASES HAD CONSIDERED AN IDENTICAL ISSU E AND DEPENDING UPON FACTS OF EACH CASE, DIRECTED THE LD.AO TO ESTI MATE PROFIT OF 10 TO 15% ON TOTAL ALLEGED BOGUS PURCHASES. IN THIS CA SE, CONSIDERING THE NATURE OF BUSINESS OF THE ASSESSEE THE LD. AO H AS ESTIMATED 100% PROFIT, WHEREAS THE LD.CIT(A) HAS SCALED DOWN ESTIMATION OF PROFIT TO 12.50% ON TOTAL ALLEGED BOGUS PURCHASE. A LTHOUGH, BOTH AUTHORITIES HAVE TAKEN DIFFERENT RATE OF PROFIT FOR ESTIMATION OF INCOME FROM ALLEGED BOGUS PURCHASE, BUT NO ONE COULD SUPPO RT SAID RATE OF GROSS PROFIT WITH NECESSARY EVIDENCES OR ANY COMPAR ABLE CASES. THEREFORE, CONSIDERING FACTS AND CIRCUMSTANCES OF T HIS CASE AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH IN NUMBER OF ITA NO.5458/MUM/2018 SOLUTION INC 7 CASES, WE ARE OF THE CONSIDERED OPINION THAT THE LD . CIT(A) HAS TAKEN ONE OF THE POSSIBLE METHOD FOR ESTIMATION OF PROFIT TO SETTLE DISPUTE BETWEEN THE PARTIES AND HENCE, WE ARE INCLINED TO U PHOLD ORDER OF THE LD. CIT(A) AND DISMISS APPEAL FILED BY THE ASSE SSEE. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 15 /10 /2019 SD/- (MAHAVIR SINGH) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 15/10/2019 THIRUMALESH 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//