DEEPAK ENGINEERS, MUMBAI V. ITO 31(1)(4), MUMBAI

ITA 636/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9117 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 27-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HEMALATHA
• Keywords: Bogus purchase; Accommodation entries

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI , BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ./ I.T.A. NO. 636/MUM/2017 ( / ASSESSMENT YEAR: 2009 - 10 ) DEEPAK ENGINEERS A/20, SARAF KASKAR INDL. ESTATE, OSHIWARA, JOGESHWARI (W), MUMBAI - 400 102 / VS. ITO - 31(1)(4), PRATYAKSHA KAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI - 400 051 ./ ./ PAN/GIR NO. AAAFD 2730 N ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : NONE / RESPONDENT BY : MS. HEMALATHA / DATE OF HEARING : 29.08.2017 / DATE OF PRONOUNCEMEN T : 12 .10.2017 / O R D E R PER SHAMIM YAHYA , A. M.: THIS IS AN A PPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 42 , MUMBAI (CIT(A) FOR SHORT) DATED 14.10.2016, PERTAINING TO ASSESSMENT YEAR (A. Y.) 2009 - 10. 2. THE GROUND OF APPEAL READ AS UNDER: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTAINING THE ADDITION OF 26% OF PURCHASES MADE FROM VARIOUS PARTIES AMOUNTING TO RS. 8,94,714/ - (I.E. 26% OF 2 ITA NO. 636/MUM/2017 (A.Y. 2009 - 10) DEEPAK ENGINEERS VS. ITO PURCHASES OF RS.34,41,208/ - ) WITHOUT APPRECIATING THE VARIOUS SUBMISSION GIVEN BY YOUR APPELLANT ON 14.10.2016. THE APPELLANT PRAYS THAT ADDITION OF RS.8,94,714/ - MAY PLEASE BE DELETED. 3. B RIEF FACTS OF THE CASE ARE AS UNDER: THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING OF SLOTTED ANGLES, BINGS, HEAVY DUTY PALLETS, RACKS, ETC. THE ASSESSEE HAD FILED ITS RETURN OF INCOME ON 11.08.2009 DECLARING A TOTAL INCOME OF RS.3,81,053/ - . THE RETURN OF INCOME WAS MERELY PROCESSED UNDER SECTION 143(1) OF THE ACT. SUBSEQUENTLY, THE ASSESSING OFFICER RECEIVED INFORMATION FROM THE SALES TAX DEPARTMENT AND ALSO FROM THE OFFICE OF THE DGIT(INV.), MUMBAI THAT THE ASSESSEE IS A BENEFICIARY OF ACCOMMODATION BILL OF PURC HASES FROM CERTAIN BOGUS HAWALA DEALERS. THE INFORMATION WAS THAT THE CONCERNED DEALERS HAD NOT SOLD ANY ACTUAL GOODS BUT HAD GIVEN ACCOMMODATION ENTRIES OF SALES TO THE ASSESSEE. AS PER THE A.O., THE DETAILS OF THE BOGUS PURCHASES FROM THE SUPPLIERS AS CLAIMED BY THE ASSESSEE ARE AS UNDER: SR. NO. NAME OF THE PARTY AMOUNT (RS.) 1 M/S. AIJIN ENTERPRISES 26,68,577 2 M/S. AMIZARA TRADING CORPORATION 6,13,857 3 M/S. SHANTINATH STEEL 1,58,774 TOTAL 34,41,208 4. UPON ASSESSEES APPEAL , THE LEARNED CI T - A CONFIRMED THE ADDITION. THE LEARNED CIT ( A ) HELD AS UNDER: THE NET CONCLUSION THAT CAN BE ARRIVED AT FROM THE ABOVE DISCUSSION IS THAT WHERE THE SALES AND PURCHASES ARE VERIFIABLE AND PROVEN E.G. TO OR FROM GOVERNMENT BODIES OR AGENCIES ETC NO ADDITION MAY BE MADE. IF HOWEVER, THE PURCHASES ARE BOGUS BUT THE DIRECT SALES ARE PROVED, THE AS SUMPTIONS ARE THAT THE PURCHASES WERE MADE FROM UNKNOWN PARTIES AND THE AO CAN APPLY A PROFIT RATE TO DETERMINE THE LIABILITY OF THE ASSESSEE. IT IS ALSO SEEN THAT PUTT ING AN ONUS ON THE AO T O TRACE THE MONEY TRAIL OR VERIFY THE WITHDRAWALS FROM THE BANKS ETC MAY GIVE MORE POINTERS BUT IT IS NOT SUFFICIENT BY ITSELF AND THE 1TAT HAS NOT ACCEPTED SUCH AN ARGUMENT IN THE CASE OF SHRI GANPATRAJ A SANGHAVI (SUPRA). IF THE BO GUS PURCHASES ARE UNPROVED AND ARE DECLARED CONSUMED BY ASSESSEE ITSELF 3 ITA NO. 636/MUM/2017 (A.Y. 2009 - 10) DEEPAK ENGINEERS VS. ITO IN ITS TRADING, MANUFACTURING OR NON - TRADING ACTIVITIES, THE ENTIRE ADDITION CAN BE MADE AS IT ONLY GOES TO INFLATE THE EXPENSES OF THE ASSESSEE . IN THE CASE OF THE ASSESSEE THE AO HAS ACCEPTED THE SALES OF THE ASSESSEE AND HAS ALSO ACCEPTED THAT THE ASSESSEE MUST HAVE SOURCED THE MATERIALS FROM SOME OTHER PARTY FROM THE GREY MARKET. THEREFORE THE AO ESTIMATED THE EMBEDDED GROSS PROFIT IN THE PURCHASES MADE FROM THE GREY MARKET FROM UNP ROVEN SOURCES. THE AO HAS TAKEN THE FIGURE OF 26% AS THE EMBEDDED GROSS PROFIT IN VIEW OF THE FACTS OF THE CASE. IT IS HELD THAT THE ADDITION OF 26 % OF THE BOGUS PURCHASES OF RS. 34,41,208/ - IS SUFFICIENT TO TAKE CARE OF THE EMBEDDED PROFIT EARNED BY MAKING THE ACTUAL PURCHASES FROM THE GREY MARKET WHERE THE DEALERS HAVE NO OVERHEAD COSTS AND THEY DON'T PAY ANY TAXES ALSO. AS A RESULT THE ADDITION OF RS. 8,94,714/ - IS CONFIRMED. 5. AGAINST THE ABOVE ORDER, THE ASSESSEE HAS FILLED APPEAL BEFORE THE ITAT. 6. I HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIVE AND PERUSED THE RECORD. NONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE SEVERAL NOTICES. UPON CAREFUL CONSIDERATION, I FIND THAT CREDIBLE AND COGENT INFORMATION WAS RECEIVED IN THIS CASE BY THE ASSESSING OFFI CER THAT CERTAIN ACCOMMODATION ENTRY PROVIDER/BOGUS SUPPLIERS WERE BEING USED BY CERTAIN PARTIES TO OBTAIN BOGUS BILLS . A SSESSEE WAS FOUND TO HAVE TAKEN ACCOMMODATION ENTRY/BOGUS PURCHASE BILLS DURING THE CONCERNED ASSESSMENT YEAR FROM DIFFERENT PARTIES. B ASED UPON THIS INFORMATION , THE ASSESSMENT WAS REOPENED. THE CREDIBILITY OF INFORMATION RELATING TO REOPENING REMAINS UN - ASSAILED. IN SUCH FACTUAL SCENARIO , THE ASSESSING OFFICER HAS MADE THE NECESSARY ENQUIRY. ASSESSEE HAS NOT BEEN ABLE TO PROVIDE ANY CON FIRMATION FROM ANY OF THE PARTY. ASSESSEE HAS ALSO NOT BEEN ABLE TO PRODUCE ANY OF THE PARTIES. NECESSARY EVIDENCE RELATING TO TRANSPORTATION OF THE GOODS WAS ALSO NOT ON RECORD. IN THIS FACTUAL SCENARIO , IT IS AMPLY CLEAR THAT ASSESSEE HAS OBTAINED BOGUS PURCHASE BILLS. MERE PREPARATION OF DOCUMENTS FOR PURCHASES CANNOT CONTROVERT OVERWHELMING EVIDENCE THAT THE PROVIDERS OF THESE BILLS ARE BOGUS AND NON - EXISTENT. 7 . THE S ALES T AX DEPARTMENT IN ITS ENQUIRY HAS FOUND THE PARTIES TO BE PROVIDING BOGUS ACCOM MODATION ENTRIES. ASSESSEE HAS NOT BEEN ABLE TO PRODUCE ANY OF THE 4 ITA NO. 636/MUM/2017 (A.Y. 2009 - 10) DEEPAK ENGINEERS VS. ITO PARTIES. NEITHER THE ASSESSEE HAS BEEN ABLE TO PRODUCE ANY CONFIRMATION FROM THESE PARTIES. IN SUCH CIRCUMSTANCES , THERE IS NO DOUBT THAT THESE PARTIES ARE NON - EXISTENT. I FIND IT FURTHER S TRANGE THAT ASSESSEE WANTS THE R EVENUE TO PRODUCE ASSESSEE'S OWN VENDORS, WHOM THE ASSESSEE COULD NOT PRODUCE. THE P URCHASE BI LLS FROM THESE NON - EXISTENT / BOGUS PARTIES CANNOT BE TAKEN AS COGENT EVIDENCE OF PURCHASES. IN LIGHT OF THE OVERWHELMING EVIDENCE , THE R EVENUE AUTHORITIES CANNOT PUT UPON BLINKERS AND ACCEPT THESE PURCHASES AS GENUINE. THIS PROPOSITION IS DULY SUPPORTED BY HONBLE APEX COURT DECISION IN THE CASE OF SUMATI DAYAL 214 ITR 801 AND DURGA PRASAD M ORE 82 ITR 540. 8 . IN THE PRESENT CASE , T HE ASSESSEE WANTS THAT THE UNASSAILABLE FACT THAT THE SUPPLIERS ARE NON - EXISTENT AND THUS BOGUS SHOULD BE IGNORED AND ONLY THE DOCUMENTS BEING PRODUCED SHOULD BE CONSIDERED. THIS PROPOSITION IS TOTALLY UNSUSTAINABLE IN LIGHT OF ABOVE APEX COURT DECISIONS. 9 . I FIND THAT IN THIS CASE THE SALES HAVE NOT BEEN DOUBTED . I T IS SETTLED LAW THAT WHEN SALES ARE NOT DOUBTED, 100% DISALLOWANCE FOR BOGUS PURCHASE CANNOT BE DONE. THE RATIONALE BEING NO SALES IS POSSIBLE WITHOUT ACTUA L PURCHASES. THIS PROPOSITION IS SUP PORTED FROM HON'BLE 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 HONBLE HIGH COURT HAS UPHELD 100 % ALLOWANCE FOR THE PURCHASES SAID TO BE BOGUS WHEN SALES ARE NOT DOUBTED. HOWEVER , THE FACTS OF THE PRESENT 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 EXCHEQU ER. IN S U CH SITUATION , IN MY CONSIDERED OPINION , ON THE FACTS AND CIRCUMSTANCES OF THE CASE , 12.5 % DISALLOWANCE OUT OF THE BOGUS PURCHASES MEETS THE END OF JUSTICE. ACCORDINGLY, I DIRECT THAT ADDITION IN THIS CASE BE RESTRICTED TO 12.5% OF THE BOGUS PURCHA SES. 5 ITA NO. 636/MUM/2017 (A.Y. 2009 - 10) DEEPAK ENGINEERS VS. ITO 10. IN THE RESULT, THIS APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12.10.2017 SD/ - (S HAMIM YAHYA ) / A CCOUNTANT MEMBER MUMBAI ; DATED : 12.10.2017 . . ./ 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 F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI