DCIT 11(2)(1), MUMBAI V. SHAAN LUBE EQUIPMENT P. LTD, THANE

ITA 625/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8362 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 29-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Unexplained expenditure; Additional evidence; Accommodation entries
• Section: 69C; 142(1); 133(6); 131; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH E , MUMBAI BEFORE SHRI B.R.BASKARAN, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.625/MUM/2015 FOR (ASSESSMENT YEAR : 2010-11) DCIT-11(2)(1 ), ROOM NO. 477A, AAYAKAR BHAVAN, M.K. MARG, MUMBAI-400020. VS. M/S SHAAN LUBE EQUIPMENT PVT. LTD. PLOT NO. 23, GOLANI INDUSTRIAL COMPLEX, OPP. AGARWAL HOSPITAL, VALIV ROAD, WASAI (E), DIST-THANE-401208. PAN: AAECS0121R (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SAMUEL DARSE (C IT-DR) ASSESSEE BY : SHRI ARUN SHAH (AR ) DATE OF H EARING : 09.02.2017 DATE OF PRONOUNCEMENT : 24.02.2017 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JM: 1. THIS APPEAL U/S 253 OF THE INCOME TAX ACT (THE ACT) IS DIRECTED BY REVENUE AGAINST THE ORDER OF LD. CIT(A)-18, MUMBAI DATED 21.11.2014 FOR ASSESSMENT YEAR (AY) 2010-11. THOUGH, THE REVENUE HAS RAISED AS MANY AS 8 GROUNDS OF APPEAL, BUT AS PER OUR CONSIDERED OPINION THE ONLY SUBSTANTIAL GRO UND OF APPEAL IS WHETHER THE LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCES O F ALLEGED BOGUS PURCHASES OF RS.59,36,543/- TO THE EXTENT OF 10%. RESTS OF THE GROUNDS OF APPEAL ARE ARGUMENTATIVE IN NATURE. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-COMPA NY IS ENGAGED IN THE BUSINESS OF DESIGNING, ENGINEERING AND MANUFACTURING LUBRICATIO N SYSTEM (OIL LUBRICATION SYSTEMS/COOLANT SYSTEMS), FILED ITS RETURN OF INCOM E FOR RELEVANT AY ON 15.10.2010 DECLARING TOTAL INCOME OF RS. 1,37,87,704/-. THE AS SESSMENT WAS COMPLETED U/S 144 OF THE ACT. THE ASSESSING OFFICER (AO) WHILE PASSIN G THE ASSESSMENT ORDER BESIDES THE OTHER ADDITIONS AND DISALLOWANCE DISALLOWED A S UM OF RS. 59,36,543/- U/S 69C ON ACCOUNT OF UNEXPLAINED EXPENDITURE. THE AO MADE THE DISALLOWANCE HOLDING 2 ITA NO. 625/M/2015 M/S SHAAN LUB E EQUIPMENT PVT. LTD. THAT ASSESSEE HAS SHOWN THE PURCHASES FROM HAWALA D EALERS. ON APPEAL BEFORE THE LD. CIT(A), DISALLOWANCE WAS RESTRICTED TO 10% OF T HE ALLEGED BOGUS PURCHASES. THUS, AGGRIEVED BY THE ORDER OF LD. CIT(A), THE REV ENUE HAS FILED THE PRESENT APPEAL BEFORE US. 3. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIVE ( DR) FOR THE REVENUE AND LD. AUTHORIZED REPRESENTATIVE (AR) OF ASSESSEE AND GONE THROUGH THE RECORD OF THE CASE. THE LD. DR FOR THE REVENUE ARGUED THAT DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSE E HAVE SHOWN THE PURCHASES FROM M/S SHIVRAJ TRADERS AND M/S OMKAR TRADING CO. WHO WERE PROVIDING ACCOMMODATION ENTRIES AS PER THE WEBSITE OF SALE-TA X DEPARTMENT, GOVERNMENT OF MAHARASHTRA. DURING THE ASSESSMENT THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF PURCHASES CONSISTING OF QUANTITY DETAILS, STOCK REC ONCILIATION, STOCK STATEMENT, STOCK REGISTER. THE ASSESSEE FAILED TO PROVIDE NECESSARY DETAILS AND INFORMATION DESPITE THE AFFORDING OPPORTUNITY. IT WAS FURTHER ARGUED TH AT THE LD. CIT(A) FAILED TO DISTINGUISH THE FACT OF ASSESSEES CASE WITH THE DE CISIONS OF M/S NIKUNJ EXIM ENTERPRISES PVT. LTD. (25 TAXMAN 384), CIT VS. BHOL ANATH POLY FAB (PVT) LTD. (355 ITR 290) AND THE DECISION OF MUMBAI TRIBUNAL IN DCI T VS. RAJEEV G. KALATHIL (ITA NO. 6727/MUM/2012). IN CASE OF M/S NIKUNJ EXIM ENTERPRISES PVT. LTD.(SUPRA) THE DETAILED INCLUDING QUANTITY DETAIL, STOCK RECONCILIATION WERE NEVER PRODUCED. IN CASE OF CIT VS. BHOLANATH POLY FAB (PV T) LTD. (SUPRA), THE QUANTITY DETAILS/STOCK DETAILS, OCTROI RECEIPT WERE SUBMITTE D AND THE HONBLE COURT CONCLUDED THAT THE ENTIRE RECEIPT WERE NOT UNACCOUN TED AND THE PROFIT ELEMENT EMBEDDED THEREIN CAN BE BROUGHT TO TAX. FURTHER IN CASE OF RAJEEV G. KALATHIL(SUPRA), THE TRIBUNAL TOOK A VIEW THAT AO C OULD CALL THE DETAILS OF BANK ACCOUNT OF THE SUPPLIER TO FIND OUT WHETHER THERE W AS MINIMUM CASH WITHDRAWAL FROM THE ACCOUNTS OF SUPPLIER. ON THE OTHER HAND, L D. AR OF THE ASSESSEE SUPPORTED THE ORDER OF LD. CIT(A). LD. AR OF THE ASSESSEE FUR THER ARGUED THAT THE ASSESSEE MADE THE GENUINE PURCHASES FROM THE PARTIES WHICH W AS TREATED AS A BOGUS/HAWALA TRANSACTION AND THE AGGREGATE AMOUNT OF THE PURCHAS E FROM THE TWO PARTIES WERE DISALLOWED. THE DISALLOWANCE WAS MADE ON THE BASIS OF REPORT OF SALE-TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA. THE AO HAS N OT MADE ANY INDEPENDENT ENQUIRY AND INVESTIGATION BEFORE MAKING ANY DISALLO WANCE. THE AO PASSED THE 3 ITA NO. 625/M/2015 M/S SHAAN LUB E EQUIPMENT PVT. LTD. ORDER U/S 144 WITHOUT GIVING ADEQUATE AND SUFFICIEN T OPPORTUNITY TO THE ASSESSEE. THE ASSESSEE BROUGHT THE FACTS BEFORE THE LD. CIT(A ). THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION AND THE EVIDENCE FURNISH ED BEFORE HIM RESTRICTED 10% OF THE PURCHASES. 4. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE AO WHILE FRAMING THE ASSE SSEE, NOTICED THAT ASSESSEE MADE THE PURCHASES FROM M/S SHIVRAJ TRADERS OF RS. 42,48,733/- AND M/S OMKAR TRADING CO. OF RS. 16,87,810/-. BOTH THE PARTIES WE RE SHOWN IN THE LIST OF PERSON, WHO WERE INDULGED IN PROVIDING BOGUS BILLS WITHOUT DELIVERY OF GOODS AS PER THE RECORDS OF SALES-TAX DEPARTMENT, GOVERNMENT OF MAHA RASHTRA. THE AO ISSUED A NOTICE U/S 142(1) DATED 21.01.2013 FOR EXPLAINING A ND PROVING THE GENUINITY OF THE PURCHASES. THE ASSESSEE FILED ITS REPLY. THE REPLY OF THE ASSESSEE WAS NOT ACCEPTED BY AO HOLDING THAT THE PERSON WHO WANTS TO INCREASE HIS EXPENSES TO REDUCE HIS TOTAL INCOME AND APPROACHES THE HAWALA DEALER TO P ROVIDE PURCHASE INVOICES, ACCEPT THE CHEQUES FOR WHICH THE BILL IS PREPARED , THE CHEQUES ARE DEPOSITED BY HAWALA DEALER IN HIS ACCOUNT. THE AMOUNT IS WITHDRA WN IN CASH BY DEALER AND PASSED TO THE PURCHASES AFTER DEDUCTING THE CERTAIN COMMISSION. IN ANOTHER TRANSACTION, WHERE A PERSON POSSESS THE STOCK OR GO ODS WHICH IS NOT DISCLOSED IN INCOME-TAX OR SALE-TAX DUE TO INABILITY OF SALE. IN SUCH A SITUATION, THE PARTIES/HAWALA DEALER FOR PROVIDING ACCOMMODATION E NTRIES IN SIMILAR TYPE OF TRANSACTION AND IN THIRD TYPE OF CASES, THE PERSON PURCHASE GOOD FROM THE GRAY MARKET AT LOWER PRICE WITHOUT BILL, AS THE GOODS AV AILABLE IN GREY MARKET IN VERY CHEAP COMPARATIVE TO THE WHITE MARKET. THE CONSIDER ATION IS PAID IN CASH TO COVER THE TRANSACTION. THE PURCHASER APPROACHED THE HAWAL A DEALER FOR SEEKING THE BOGUS PURCHASE BILL, WHO ISSUES THE PURCHASE BILL AND THE AMOUNT PAID THROUGH CHEQUES IS IMMEDIATELY WITHDRAWN AND PAID AFTER DEDUCTING THE NECESSARY COMMISSION. ON THE BASIS OF THE ABOVE REASONING THE AO DISALLOWED TH E AGGREGATE AMOUNT OF PURCHASE. 5. WE HAVE SEEN THAT THE AO HAS NOT ISSUE ANY NOTICE U /S 133(6) OR U/S 131 OF THE ACT. THE AO HAS NOT COLLECTED ANY INDEPENDENT EVIDENCE A GAINST THE ASSESSEE EXCEPT RELYING UPON THE REPORT OF SALES-TAX DEPARTMENT, GO VERNMENT OF MAHARASHTRA. DURING THE FIRST APPELLATE PROCEEDING BEFORE THE LD . CIT(A), THE ASSESSEE URGED 4 ITA NO. 625/M/2015 M/S SHAAN LUB E EQUIPMENT PVT. LTD. THAT THE PURCHASE MADE FROM THE PARTIES WERE GENUIN E AND ALL DOCUMENT RELATING TO THE PURCHASE, TRANSPORTATION, OCTROI RECEIPT, STOCK ENTRY ALONG WITH THE PAYMENT MADE THROUGH CHEQUES WERE SUBMITTED BEFORE THE AO. THE DOCUMENTS FILED BY ASSESSEE WERE FORWARDED TO THE AO FOR HIS REPORT. T HE AO SUBMITTED HIS REMAND REPORT DATED 20.10.2014. IN THE REMAND REPORT, THE AO DISCLOSED THAT ASSESSEE FURNISHED COPY OF BILLS AND CLAIMED THAT PAYMENTS W ERE MADE THROUGH THE CHEQUES. THE NOTICE U/S 133(6) WAS ISSUED TO THE PARTIES. HO WEVER, THE NOTICE WAS RETURNED BACK BY THE POSTAL AUTHORITIES WITH THE REMARK LEF T. THE ASSESSEE WAS ASKED TO PRODUCE THE PARTIES. THE ASSESSEE FAILED TO FURNISH ADDITIONAL EVIDENCE OR PRODUCE THE PARTIES FOR EXAMINATION. THE OTHER EVIDENCE FUR NISHED BEFORE THE LD. CIT(A) IN THE FORM OF ADDITIONAL EVIDENCE WAS OPPOSED ON THE GROUND THAT THE ASSESSEE WAS GIVEN SUFFICIENT OPPORTUNITY DESPITE AVAILING OPPOR TUNITY, ASSESSEE HAS NOT FURNISHED SUCH DETAILS DURING THE ASSESSMENT PROCEE DING. ON THE BILLS AND CHALLANS SUBMITTED BY ASSESSEE IN SUPPORT OF DETAILS OF DELI VERY OF GOODS, TRANSPORT CHARGES, LOADING AND UNLOADING, THE AO MADE HIS OBJECTION T HAT PURCHASE ORDER ARE NOT FURNISHED FOR EXAMINATION AND THAT THE CHALLANS DO NOT CONTAIN THE DETAILS AND SPECIFICATION OF GOODS. THE PURCHASES CLAIMED ARE N OT INCLUDED ANYWHERE IN THE STOCK DETAILS. AFTER CONSIDERING THE SUBMISSION OF ASSESSEE AND THE REPORT OF AO. THE LD. CIT(A) MADE THE FOLLOWING CONCLUSION: THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. BHOLANATH POLY FAB (P). LTD 40 TAXMANN.COM 494 HAS HELD THAT WHERE THE ASSESSEE WHO PURCHASED CLOTH AND SELL GOODS BUT PURCHASER WAS NO T TRACEABLE. THE PROFIT ELEMENT EMBEDDED IN THE PURCHASES WOULD BE SUBJECT TO TAX AND NOT ENTIRE AMOUNT. KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE THAT THE FACTS ARE SQUARELY COVERED BY THE DECISION OF H ON'BLE BOMBAY HIGH COURT AND GUJARAT HIGH COURT THAT THE ASSESSEE HAS SUBMIT TED COMPLETE EVIDENCES AND MOREOVER THE SALES WERE NOT DOUBTED BY THE AO. SINCE' SALES ARE ACCEPTED, THEREFORE, PURCHASES CANNOT BE TREATED AS BOGUS. WITHOUT PURCHASES, THERE CANNOT BE ANY SALES. HOWEVER, IT I S A CASE WHERE PURCHASES INVOICES WERE RECEIVED FROM M/S. SHIVRAJ TRADERS AN D M/S. OMKAR TRADING CO. BUT ACTUALLY MATERIAL WAS RECEIVED FROM OTHER C OMPANY. THUS THE FACTS ARE SQUARELY COVERED BY THE DECISION OF HONORABLE G UJARAT HIGH COURT IN THE CASE OF CIT VS. BHOLANATH POLY FAB (P) LTD (SUPRA). THEREFORE, I AM OF THE VIEW THAT ONLY THE PROFIT ELEMENT EMBEDDED TO THESE PURCHASES OF RS.59,36,543/- @ 10% HAS TO BE CONFIRMED. THEREFORE , THE ADDITION MADE BY THE AO ON ACCOUNT OF BOGUS PURCHASES IS RESTRICTED TO RS.5,93,654/- AND BALANCE ADDITION IS DELETED. THE GROUND OF APPEAL I S PARTLY ALLOWED. 5 ITA NO. 625/M/2015 M/S SHAAN LUB E EQUIPMENT PVT. LTD. 6. WE HAVE SEEN THAT THE LD. CIT(A) AFTER CONSIDERING THE CONTENTION OF THE ASSESSEE, CONCLUDED THAT AO HAS NOT DOUBTED THE SAL E. THE SALES ARE ACCEPTED BY AO, THEREFORE, PURCHASES CANNOT BE TREATED AS BOGUS . WE ARE OF THE VIEW THAT UNDER INCOME TAX ACT ONLY REAL INCOME CAN BE TAXED BY THE REVENUE. WE MAY FURTHER CONCLUDE THAT EVEN IF THE TRANSACTION IS NO T VERIFIABLE, THE ONLY TAXABLE IS THE TAXABLE INCOME COMPONENT AND NOT THE ENTIRE TRA NSACTION. AFTER CONSIDERING THE FACTS OF THE CASE AND THE RIVAL CONTENTIONS OF THE PARTIES WE ARE OF THE OPINION THAT IN ORDER TO FULFILL THE GAP OF REVENUE LEAKAGE THE DISALLOWANCE OF REASONABLE PERCENTAGE OF SUCH PURCHASES WOULD MEET THE END OF JUSTICE. WE HAVE SEEN THAT LD. CIT (A) HAS PASSED THE REASONABL E ORDER RESTRICTING THE DISALLOWANCE @ 10% OF THE TOTAL AMOUNT PURCHASES. H ENCE, WE DO NOT FIND ANY REASON TO DEVIATE FROM THE FINDING OF LD. CIT (A). HENCE, THE APPEAL FILED BY REVENUE IS DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON THI S 24 TH DAY OF FEBRUARY, 2017. SD/- SD/- /- (B.R. BASKARAN) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 24/02/2017 S.K.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/