ITO 12(3)(1), MUMBAI V. KRISH MICRO SYSTEM PVT. LTD., MUMBAI

ITA 6132/MUM/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4766 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 26-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMATHA MULLAMUDH
• Keywords: Bogus purchase; Transfer pricing; Accommodation entries
• Section: 143(3); 142(1); 133(6); 143(2); 147; 148

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC, MUMBAI BEFORE SHRI SHAMIM YAHYA (AM) & SHRI PAWAN SINGH (JM) ITA NO. 6132/MUM/2018(ASSESSMENT YEAR : 2010-11) INCOME-TAX OFFICER WARD 12(3)(1), MUMBAI VS M/S KRISH MICRO SYSTEM PVT LTD 204, SPRING LEAF CHSL, LOKHANDWALA, KANDIVALI (E) MUMBAI400 101 PAN : AACCK6090R APPELLANT RESPONDEDNT APPELLANT BY MS. SAMATHA MULLAMUDH (DR) RESPONDENT BY NONE DATE OF HEARING 15-10-2019 DATE OF PRONOUNCEMENT 23-10-2019 O R D E R PER PAWAN SINGH, JM : 1. THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDE R OF LD. CIT(A)-21, MUMBAI DATED31.07.2018 FOR ASSESSMENT YEAR 2010-11. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: '1 . WHETHER ON FACTS AND CIRCUMSTANCES OF THE CAS E, THE CIT(A) WAS JUSTIFIED IN RESTRICTING THE ADDITION ON ACCOUNT OF BOGUS PUR CHASES TO 12.5% OF SUCH BOGUS PURCHASES WITHOUT APPRECIATING THAT THE ONUS ON THE ASSESSEE TO ESTABLISH GENUINENESS OF SUCH PURCHASE ESPECIALLY WHEN THE SU PPLIERS WERE FOUND TO BE HAWALA PARTIES PROVIDING ACCOMMODATION ENTRIES? 2. WHETHER ON FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) WAS CORRECT IN RESTRICTING THE ADDITION ON ACCOUNT OF B OGUS PURCHASES TO 12.50% OF SUCH PURCHASES WITHOUT GIVING ANY REASONABLE JUSTIF ICATION FOR THE SAME, AND IGNORING THE JUSTIFICATION OF ADDING 100% OF BOGUS PURCHASES ON THE BASIS OF INFORMATION RECEIVED FROM DGIT(INV) MUMBAI? 3. 'WHETHER ON FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) WAS RIGHT IN RESTRICTING THE ADDITION TO 12.50% ON ACCO UNT OF BOGUS PURCHASES WITHOUT TAKING INTO CONSIDERATION THE DECISION OF THE HON'B LE SUPREME COURT IN THE CASE ITA 6132/MUM/2018 KRISH MICRO SYSTEM PVT LTD 2 OF M/S N.K. PROTEINS VS DY. CIT NO. 769 OF 2017 DAT ED 16.01.2017(SC) WHEREIN THE 100% DISALLOWANCE ON BOGUS PURCHASES WA S UPHELD?' 4. 'WHETHER ON FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN NOT RELYING ON JUDGMENT OF HON'BLE ALLAHAB AD HIGH COURT IN THE CASE OF CIT VS SHRI GANESH RICE MILLS(294 ITR 316) WITHOUT APPRECIATING THAT THE FACTS OF THE CASE ARE SIMILAR TO THOSE OF THE ASSESSEE?' 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CONTRACTOR OF ELECTRONIC DEVICE, FILED RETURN OF INCOME FOR AY 2010-11 ON 12 -10-2010 DECLARING TOTAL INCOME AT RS.1,39,820/-. THE RETURN OF INCOME WAS PROCESSED UNDER SECTION 143(1). THE ASSESSMENT WAS RE-OPENED UNDER SECTION 147 AND AFTER RECORDING REASONS FOR REOPENING IN RESPECT OF BOGUS PURCHASES OF RS.2,29,201/- AND RS.1,59,116 FROM HAWALA DEALERS M /S SHYAM CORPORATION AND M/S JAIN CORPORATION RESPECTIVELY. NOTICE U/S 148 DATED 31-03-2016 WAS ISSUED AND SERVED ON THE ASSESSEE. T HE REASONS FOR REOPENING OF THE ASSESSMENT WAS ALSO SUPPLIED TO TH E ASSESSEE. THE ASSESSING OFFICER AFTER SERVING NOTICES UNDER SECTI ON 143(2) & 142(1) PROCEEDED FOR RE-ASSESSMENT. THE ASSESSING OFFICER OBSERVED THAT INFORMATION WAS RECEIVED IN OFFICE OF DGIT(INV), MU MBAI AND SUBSEQUENTLY FROM THE SALES-TAX DEPARTMENT, MUMBAI REGARDING SUSPICIOUS PARTIES, WHO WERE ONLY PROVIDING ACCOMMO DATION ENTRIES WITHOUT DOING ANY ACTUAL BUSINESS. FROM THE LIST S UPPLIED BY THE SALES-TAX DEPARTMENT, THE FOLLOWING PARTIES WERE APPEARING IN THE LIST OF BOGUS PARTIES FROM WHOM THE ASSESSEE WAS SHOWN TO HAVE MA DE PURCHASES:- ITA 6132/MUM/2018 KRISH MICRO SYSTEM PVT LTD 3 NAME OF THE PARTIES BILL AMOUNT (RS.) 1 SHYAM CORPORATION 2,29,201 2 JAIN CORPORATION 1,59,116 TOTAL 3,88,317 3. THE ASSESSEE WAS ASKED TO SUBSTANTIATE THE PURCHASE S AND ISSUED SHOW- CAUSE NOTICE AS TO WHY THE AFORESAID TRANSACTION SH OULD NOT BE TREATED AS NON-GENUINE. THE ASSESSEE FILED ITS EXPLANATION AND FURNISHED THE COPY OF LEDGER ACCOUNT AND PROOF OF PAYMENT THROUGH CHEQUES . NOTICES U/S 133(6) WERE ALSO ISSUED TO THE ABOVE PARTIES, IN THE CASE OF SHYAM CORPORATION, THE NOTICE WAS RETURNED BY THE POSTAL AUTHORITIES W ITH THE REMARK, LEFT. IN CASE OF M/S JAIN CORPORATION, THE ASSESSEE STATE D THAT THE SAID PARTY WAS NOT AVAILABLE AT THE GIVEN ADDRESS AND NOT TRAC EABLE. 4. THE ASSESSEE WAS ALSO ASKED TO FURNISH ITS EXPLANAT ION ON THE PURCHASES PURPORTED TO HAVE BEEN MADE FROM THE AFORESAID PART IES AND ALSO THAT WHY THE EXPENDITURE CLAIMED IN RESPECT OF BOGUS PURCHAS ES SHOWN TO HAVE MADE FROM THE AFORESAID DEALER SHOULD NOT BE DISALL OWED AS THE NOTICE ISSUED TO M/S SHYAM CORPORATION RETURNED UNSERVED; AND THE ASSESSE STATED THAT M/S JAIN CORPORATION WAS NOT FOUND AT T HE GIVEN ADDRESS AND NOT TRACEABLE. THE ASSESSING OFFICER THEREFORE OBS ERVED THAT THE GENUINENESS OF THE TRANSACTIONS WERE REMAINED UNPRO VED. THE ASSESSEE, IN ITS REPLY FURNISHED COPIES OF LEDGER A/CS OF TH E PURCHASE PARTIES; PURCHASE INVOICE; AND PAYMENT DETAILS TO PURCHASE P ARTIES. HOWEVER, THE ITA 6132/MUM/2018 KRISH MICRO SYSTEM PVT LTD 4 ASSESSEE HAS NOT PRODUCED THE DETAILS OF THE DELIVE RY CHALLAN / TRANSPORT RECEIPT AND BANK STATEMENT OF THE SUPPLIERS BEFORE THE AO. THE ASSESSING OFFICER DID NOT ACCEPT THE EXPLANATION FURNISHED BY ASSESSEE AND NOTED THAT (I) THE ASSESSEE HAS NOT MADE AVAILABLE THE DETAILS OF TRANSPORTATION OF THE MATERIAL PURPORTED TO HAVE BEEN PURCHASED FROM THE AFORESAID HAWALA DEALER, SUCH AS TRANSPORTATION RECEIPTS; (II) THE ASSESSEE HAS NOT FURNISHED ANY LEDGER ACCO UNT CONFIRMATION FROM THE AFORESAID DEALER; (III) THE DEDUCTION OF VAT IN THE BILL ALSO DOES NO T BOLSTER THE CASE OF THE ASSESSEE. IT IS BECAUSE OF THE FACT THAT SUCH DEDUCTION DOES NOT PROVE GENUINENESS OF A PARTICULAR TRANSACTION IN TE RMS OF SUPPLY OF MATERIAL. SUCH DEDUCTION IS BASICALLY LINKED WITH THE PAYMENT ASPECT ONLY AND CANNOT ESTABLISH THE PURPOSE FOR WHICH PAY MENT IS MADE; (IV) THE PRODUCTION OF INVOICE IS OF NO HELP TO THE ASSESSEE, SINCE IN THE ACTIVITY OF ACCOMMODATION ENTRY, SUCH DOCUMENTS ARE METICULOUSLY MAINTAINED BOTH BY THE ENTRY PROVIDER AND ENTRY SEE KER. IT IS ALSO NOT IMPORTANT WHETHER THE AMOUNT IS SMALL OR BIG AND WH ETHER THE ASSESSEE IS HAVING LOSS OR PROFIT. THERE MAY BE A NUMBER OF REASONS FOR SEEKING THE ACCOMMODATION ENTRY AS IT LEADS TO GENERATION O F THE CASH IN THE HANDS OF ASSESSEE. ITA 6132/MUM/2018 KRISH MICRO SYSTEM PVT LTD 5 (V) THE ONUS WAS UPON THE ASSESSEE TO PROVE THE GENUINENESS OF THE EXPENDITURE CLAIMED AS IT WAS THE ASSESSEE, WHICH H AS MADE THE CLAIM. (VI) THE SALES TAX DEPARTMENT, BEING A STATUTORY AU THORITY, HAS CERTIFIED THAT THE AFORESAID PARTIES ARE HAWALA OPE RATORS AFTER CONDUCTING INDEPENDENT ENQUIRIES. (VII) THE CONTENTION THAT THE PAYMENTS ARE MADE BY ACCOUNT PAYEE CHEQUE IS NOT A FOOL PROOF METHOD OF SUBSTANTIATING THE ASSESSEE'S CLAIM AND IS NOT SUFFICIENT TO ESTABLISH THE GENUIN ENESS OF THE PURCHASES. RELIANCE IS PLACED ON KACHWAL GEMS VS. J T. CIT (2007) 288 ITR 10 (SC). (VIII) IT IS WELL-SETTLED LAW THAT STRICT RULES OF EVIDENCE DO NOT APPLY TO I.T ACT AND THE REAL TEST WITH REGARD TO GENUINE NESS OF THE TRANSACTION IS 'PREPONDERANCE OF PROBABILITIES' AND NOT 'BEYOND REASONABLE DOUBT'. RELIANCE IS PLACED ON C. VASANTL AL & CO. VS. CIT (1962) 45 ITR 206 (SC), CHATURBHUJ PANAUJ AIR 1969 (SC) AND SUMATI DAYAL VS. CIT (1995) 214 ITR 801 (SC). ONE H AS TO CONSIDER THE TOTALITY OF FACTS, SURROUNDING CIRCUMSTANCES AN D HUMAN PROBABILITY FOR ARRIVING AT A CONCLUSION AS HELD IN CIT VS. DUR GA PRASAD 82 ITR 540 (SC) AND SUMATI DAYAL VS. CIT (1995) 214 ITR 80 1 (SC). (IX) THE PURCHASES FROM HAWALA OPERATOR FALLS W ITHIN THE AMBIT OF THE TERM 'COLORABLE DEVICES' AND THE HON'BLE SUPREM E COURT OBSERVED ITA 6132/MUM/2018 KRISH MICRO SYSTEM PVT LTD 6 IN THE CASE OF MCDOWELL AND CO. LTD. VS. CTO 154 IT R 148 THAT 'TAX PLANNING MAY BE LEGITIMATE PROVIDED IT IS WITH IN THE FRAMEWORK OF LAW. COLOURABLE DEVICES CANNOT BE PART OF TAX PL ANNING AND IT IS WRONG TO ENCOURAGE OR ENTERTAIN THE BELIEF THAT IT IS HONOURABLE TO AVOID THE PAYMENT OF TAX BY RESORTING TO DUBIOUS ME THOD. IT IS OBLIGATION OF EVERY CITIZEN TO PAY THE TAXES HONEST LY WITHOUT RESORTING TO SUBTERFUGES. (X) THE SALES TAX DEPARTMENT MADE A FINDING AND UPLOADED ON ITS WEBSITE THE NAME OF ENTITIES WHICH ARE INVOLVED IN GIVING BOGUS BILLS ONLY AFTER CARRYING OUT A DETAILED ENQUIRY AND INVE STIGATION. 4. THE ASSESSING OFFICER AFTER CONSIDERING THE MATE RIAL AVAILABLE BEFORE HIM AND THE SUBMISSION MADE BY ASSESSEE CONCLUDED T HAT THE ASSESSEE HAS SHOWN GROSS PROFIT (GP) @ 58.07%. THEREFORE, TH E ASSESSING OFFICER MADE THE DISALLOWANCE OF THOSE PURCHASES SH OWN FROM THE SAID PARTIES @ 58.07% AND WORKED OUT THE DISALLOWANCES O F RS. 225,495/- OUT OF TOTAL ALLEGED BOGUS PURCHASES OF RS. 3,38,31 7/- IN ASSESSMENT ORDER DATED 21.12.2016 PASSED UNDER SECTION 143(3) R.W.S 147. 5. ON APPEAL, THE LD. CIT(A) REDUCED/ RESTRICTED THE ADDITION/ DISALLOWANCES TO THE EXTENT OF 12.5% OF THE ALLEGED BOGUS PURCHASES, BEING THE PROFIT ELEMENT EMBEDDED IN SUCH BOGUS PUR CHASES, BY RELYING UPON THE DECISIONS OF HONBLE GUJARAT HIGH COURT IN THE CASE ITA 6132/MUM/2018 KRISH MICRO SYSTEM PVT LTD 7 OF CIT VS SIMIT P SHETH (2013) 356 ITR 451 (GUJ) AN D IN THE CASE OF BHOLANATH POLY FAB PVT LTD (2013) 355 ITR 290 (GUJ) . AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL. 6. NONE APPEARED ON BEHALF OF THE ASSESSEE. HOWEVER, WE FIND FROM RECORD THAT AN ADJOURNMENT APPLICATION DATED 14-10- 2019 FROM ASSESSEES COUNSEL IS PLACED ON RECORD WHICH WAS RE JECTED AS NOBODY WAS PRESENT TO PRESS THE APPLICATION. WE FOUND THA T THE MATTER COULD BE DISPOSED OF ON THE BASIS OF MATERIAL AVAILABLE O N RECORD. THEREFORE, WE HEARD THE SUBMISSIONS OF THE LD. DEPARTMENTAL RE PRESENTATIVE (DR) FOR THE REVENUE. 7. THE LD. DR HEAVILY RELIED UPON THE ORDER OF THE ASS ESSING OFFICER. THE LD DR SUBMITS THAT THE INVESTIGATION WING OF THE SA LES TAX DEPARTMENT AS WELL AS INCOME TAX DEPARTMENT MADE DULL FLAGGED INQUIRY TO UNEARTHED THE MODUS OPERANDI ADOPTED BY THE HAWALA DEALERS. THE HAWALA DEALERS WERE ISSUING THE BOGUS BILLS WITHOUT DELIVERY OF ANY GOODS. THE ASSESSEE IS ONE OF THE BENEFICIARIES OF SUCH HAWALA TRADING ACTIVITIES. THE ASSESSEE OBTAINED BOGUS BILLS TO IN FLATE THE EXPENSES AND TO REDUCE THE PROFIT. THE LD. DR SUBMITS THAT E NTIRE ADDITION WAS LIABLE TO BE SUSTAINED BY LD CIT(A). THE LD. DR PRA YED FOR RESTORING THE ORDER OF THE ASSESSING OFFICER. ITA 6132/MUM/2018 KRISH MICRO SYSTEM PVT LTD 8 8. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. DR FO R THE REVENUE AND PERUSED THE RECORD. THE ASSESSING OFFICER MADE THE DISALLOWANCE OF THOSE PURCHASES SHOWN FROM THE SAID PARTIES @ 58.07 % ON THE BASIS OF GP DECLARED BY ASSESSEE AND WORKED OUT THE DISALLOW ANCES OF RS. 2,25,495/- OUT OF TOTAL ALLEGED BOGUS PURCHASES OF RS. 3,38,317/-, WHILE PASSING THE ASSESSMENT ORDER. THE LD. CIT (A) RESTRICTED THE ADDITIONS/ DISALLOWANCE TO THE EXTENT OF 12.5% BY H OLDING THAT THE ASSESSING OFFICER HAS NOT MADE ANY INDEPENDENT INQU IRIES. THE LD CIT(A) FURTHER CONCLUDED THAT IN CASE THE ASSESSEE FAILED TO PRODUCE THE EVIDENCES THAT THE GOODS WERE PURCHASED AT THE ARMS LENGTH PRICE, WHICH WOULD INDICATE THAT THE PURCHASES WERE MADE F ROM THE GRAY MARKET WITHOUT INSISTING OF THE GENUINE BILLS AND I N SUCH CASES SUPPLIERS WOULD BE WILLING TO SELL AT MUCH LESS RAT E AS THEY WOULD HAVE CHARGED OTHERWISE AND THAT THE GOODS HAVE BEEN PURC HASED FROM THE GREY MARKET. THEREFORE, THE PROFIT ELEMENT EMBEDDED ON SUCH PURCHASES WOULD BE EQUAL TO THE DIFFERENCE OF BOGUS PURCHASES AND THE GENUINE PRICE. ON THE BASIS THE LD CIT(A) RESTRICTE D THE DISALLOWANCE TO THE EXTENT OF 12.5%. WE FIND THAT THE DECISION A RRIVED AT BY THE LD.CIT(A) IN RESTRICTING THE ADDITION TO THE EXTENT OF PROFIT ELEMENT EMBEDDED IN SUCH BOGUS PURCHASES IS IN CONFORMITY W ITH THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN CIT VS SIMIT P SHETH (2013) 356 ITA 6132/MUM/2018 KRISH MICRO SYSTEM PVT LTD 9 ITR 451 (GUJ) AND. NO OTHER CONTRARY DECISION HAS BEEN BROUGHT TO OUR NOTICE BY THE LD. DR SO AS TO ENABLE US TO COME TO A DIFFERENT CONCLUSION THAN THE ONE ARRIVED AT BY THE LD. CIT(A ). THEREFORE, IN THIS VIEW OF THE MATTER, WE UPHOLD THE ORDER OF THE LD.CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23-10-2019. SD/- SD/- (SHAMIM YAHYA) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIALMEMBER MUMBAI, DT : 23 OCTOBER, 2019 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI