DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-4(1), CENTRAL RANGE-4, PR.CIT (C)-2, MUMBAI V. MELSTAR INFORMATION TECHNOLOGIES LTD, MUMBAI

ITA 6385/MUM/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 8306 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 30-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D G PANSARI
• Keywords: Bogus purchase; Search and seizure; Accommodation entries
• Section: 143(3); 6; 132

Judgement Text

P A G E | 1 ITA NO. 6385/MUM/2017 A.Y. 2012 - 13 DEPUTY COMMISSIONER OF INCOME TAX,CC - 4(1) VS.M/S MELSTAR INFORMATION TECHNOLOGIES LTD. IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO. 6385/MUM/2017 (ASSESSMENT YEAR: 2012 - 13 ) DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 4(1), R. NO. 1916, 19 TH FLOOR, AIR INDIA BUILDING, NARIMAN POINT, MUMBAI 400 021 VS. M/S MELSTAR INFORMATION TECHNOLOGIES LTD, MESTAR HOUSE, G - 4, MIDC, CROSS ROAD, A ANDHERI (E), MUMBAI 400 093 PAN AABCM6270G (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI D.G. PANSARI, SR. D. R RESPONDENT BY: NONE DATE OF HEARING: 26 .06.2019 DATE OF PRONOUNCEMENT: 2 8 .06.2019 O R D E R PER RAVISH SOOD, JM THE PRESENT APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A ) - 52, MUMBAI, DATED 03.07.2017, WHICH IN TURN ARISES FROM THE ORDER PASSED BY THE A.O UNDER SEC. 153C R.W.S 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT ACT), DATED 28.03.2016. THE REVENUE HAS ASSAILED THE ORDER OF THE CIT( A) BY RAISING BEFORE US THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE ADDITION OF RS.26,66,42,549/ - ON ACCOUNT OF BOGUS PURCHASES TO RS.53,32,850/ - , BOOKED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION SPECIFICALLY WHEN THE ASSESSEE COULD NOT PROVE THE GENUINENESS OF PURCHASES MADE. P A G E | 2 ITA NO. 6385/MUM/2017 A.Y. 2012 - 13 DEPUTY COMMISSIONER OF INCOME TAX,CC - 4(1) VS.M/S MELSTAR INFORMATION TECHNOLOGIES LTD. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE LD. CIT(A) WAS JUSTIFIED IN RESTRICTIN G THE DISALLOWANCE OF BOGUS PURCHASES WITHOUT APPRECIATING / THAT THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF M/S N. K . PROTEINS LTD. VS. DCIT (2017 - TIOL - 23 SC - IT) IS SQ UARELY APPLICABLE IN THIS CASE. THE APPELLANT CRAVES TO LEAVE, TO ADD, TO AMEND AND/ OR TO ALTER ANY OF THE GROUND OF APPEAL, IF NEED BE. 2. BRIEFLY ST ATED, THE ASSESSEE COMPANY BELONGS TO YASHOVARDHAN BIRLA G ROUP AND IS ENGAGED IN THE BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT SERVICES . SEARCH AND SEIZURE PROCEEDINGS UNDER SEC. 132 OF THE ACT WERE CONDUCTED ON YASHOVARDHAN BIRLA G ROUP AND ITS ASSOCIATE ENTITIES ON 07.01.2014. AS CERTAIN INCRIMINATING MATERIAL IN THE NATURE OF BOGUS PURCHASE PERTAINING TO THE ASSESSEE WERE FOUND I N THE COU RSE OF THE SEARCH PROCEEDINGS , THEREFORE, A NOTICE UNDER SEC. 153C WAS ISSUED AND SERVED ON THE ASSESSEE. IN COMPLIANCE, THE ASSESSEE FILED ITS RETURN OF INCOME UNDER SEC 153C, DECLARING A LOSS OF RS.1,61,25,764/ - . 4. DURING THE COURSE OF THE ASSESSMENT PR OCEEDINGS, IT WAS OBSERVED BY THE A.O THAT AS PER THE INFORMATION GATHERED IN THE COURSE OF THE SEARCH PROCEEDINGS, IT STOOD REVEALED , THAT THE ASSESSEE HAD CLAIMED TO HAVE MADE PURCHASES FROM TWO CONCERN S VIZ. (I) M/S AVANCE TECHNOLOGIES LIMITED ; AND (II) M/S TEJORA TECHNOLOGIES LIMITED ., BOTH OF WHICH CONCERN S WERE FLOATED BY ONE MR. DEVANG D. MASTER. IT WAS OBSERVED BY THE A.O THAT THE AFORESAID COMPANIES WERE INVOLVED IN PROVIDING MERELY ACCOMMODATION ENTRIES WITHOUT ANY SUPPLY OF ANY ACTUAL MATERIAL OR SERVICES , WHATSOEVER . THE A.O OBSERVED THAT THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD DEBITED AN AMOUNT OF RS.25,55,42, 549/ - TOWARDS PURCHASE OF STOCK IN TRADE IN ITS BOOKS OF ACCOUNTS. HOWEVER, AS A SIMILAR TYPE OF EXPENSE WAS NOT BOOKED BY THE ASSESSEE IN ANY OTHER ACCOUNTING YEAR, THEREFORE, THE AO IN ORDER TO VERIFY THE AUTHENTICITY OF THE SAID EXPENSE CALLED FOR AN EXPLANATION AS REGARDS THE SAME FROM MR. ANIL KORPE , HEAD F INANCE & A CCOUNTS OF P A G E | 3 ITA NO. 6385/MUM/2017 A.Y. 2012 - 13 DEPUTY COMMISSIONER OF INCOME TAX,CC - 4(1) VS.M/S MELSTAR INFORMATION TECHNOLOGIES LTD. THE ASSESSEE COMPANY , IN THE COURSE OF RECORD ING OF HIS STATEMENT UNDER SEC. 132(4) ON 08.01.2014. ON BEING QUERIED AS REGARDS THE NATURE OF THE AFORESAID EXPENSES INCURRED TOWARDS PURCHASE OF STOCK IN TRADE, IT WAS INITIALLY SUBMITTED BY MR. ANIL KORPE THAT THE SAME PERTAINED TO PURCHASE OF SOFTWARE LICENSE S FROM TWO CONCERN S VIZ. (I) M/S AVANCE TECHNOLOGIES LTD.; AND (II) M/S TEJORA TECHNOLOGIES LTD. AS PER THE INSTRUCTIONS OF THE MR. RICHARD JOSEPH D SOUZA, E X - MANAGING DIRECTOR OF THE ASSESSEE COMPANY. APART THERE FROM, IT WAS SUBMITTED BY HIM THA T THE SAID SOFTWARE LICENSE WAS SUBSEQUENTLY SOLD TO M/S EMPOWER INDIA LTD. HOWEVER, O N BEING APP RAISED WITH THE FACT THAT MR. DEVANG MASTER, THE OWNER OF THE AFORESAID THREE COMPANIES VIZ. (I). M/S AVANCE TECHNOLOGIES LTD.; (II) M/S TEJORA TECHNOLOGIES LT D; AND (III) M/S EMPOWER INDIA LTD. HAD ACCEPTED THE FACT THAT THE SAID COMPANIES WERE BOGUS AND HAD ONLY PROVIDED ACCOMMODATION ENTRIES, IT WAS ADMITTED BY MR ANIL KORPE THAT THE TRADING TRANSACTIONS OF THE ASSESSEE WITH THE SAID CONCERN S WERE BOGUS. IT W AS STATED BY MR. ANIL KORPE IN HIS STATEMENT RECORDED UNDER SEC.132(4), THAT THE AFOREMENTIONED CONCERN S WERE BOGUS ENTITIES AND NO SOFTWARE PRODUCT WAS DELIVERED TO OR BY THE ASSESSEE IN CASE OF THESE THREE COMPANIES. IN THE BACKDROP OF THE AFORESAID FACT S, THE A.O TAKING COGNIZANCE OF THE FACT THAT THE ENTIRE PURCHASE OF SOFTWARE OF RS.26,66,42,549/ - CLAIMED BY THE ASSESSEE TO HAVE BEEN MADE FROM AFOREMENTIONED PARTIES WAS FOUND TO BE BOGUS, THEREFORE, DISALLOWED THE ENTIRE AMOUNT OF THE SAID PURCHASES UNDER SEC.69C OF THE ACT. 5. AGGRIEVED, THE ASSESSEE CARRIED THE MATER IN APPEAL BEFORE THE CIT(A). IT WAS SUBMITTED BY THE ASSESSEE THAT THE A.O DESPITE ADMITTING THAT THE AFORESAID PURCHASE AND SALE TR ANSACTIONS WERE CIRCULAR IN NATURE , HAD HOWEVER , ERRED IN NOT RESTRICTING THE ADDITION ONLY TO THE EXTENT OF THE PROFIT ELEMENT INVOLVED IN SUCH TRANSACTIONS. THE CIT(A) AFTER DELIBERATING ON THE CONTENTIONS ADVANCED BY THE P A G E | 4 ITA NO. 6385/MUM/2017 A.Y. 2012 - 13 DEPUTY COMMISSIONER OF INCOME TAX,CC - 4(1) VS.M/S MELSTAR INFORMATION TECHNOLOGIES LTD. ASSESSEE WAS PERSUADED TO SUBS CRIBE TO THE SAME. IT WAS NOTICED BY HIM THAT THE A.O HIMSELF HAD ACCEPTED THAT THE PURCHASE OF SOFTWARE OF RS. 26.67 CRORES MADE BY THE ASSESSEE FROM M/S AVANCE TECHNOLOGIES LTD. & M/S TEJORA TECHNOLOGIES LTD. , AND THE SUBSEQUENT SALE OF THE SAME TO M/S E MPOWER INDIA LTD. FOR RS.27.21 CRORE , WAS A PART OF THE CIRCULAR TRANSACTION OF THE ASSESSEE. IT WAS OBSERVED BY THE CIT(A) THAT THE ASSESSEE HAD CLAIMED TO HAVE MADE A PROFIT OF RS.55,09,583/ - ON THE AFORESAID TRANSACTION OF PURCHASE/SALE OF SOFTWARE. APA RT THERE FROM, IT WAS NOTICED BY THE CIT(A) THAT THE COMPANIES FROM WHOM PURCHASE OF SOFTWARE WAS CLAIMED TO HAVE BEEN MADE BY THE ASSESSEE, AND ALSO THE COMPANY TO WHOM THE SALES WERE STATED TO HAVE BEEN MADE BELONG ED TO THE SAME GROUP AND WERE CONTROLLED BY THE SAME PERSON VIZ. SHRI DEVANG MASTER. IT WAS OBSERVED BY THE CIT(A) , THAT THE FACT THE SOFTWARE WAS NEVER PURCHASED OR DELIVER ED TO THE ASSESSEE WAS ACCEPTED BY BOTH THE PARTIES . FURTHER, IT WAS OBSERVED BY THE CIT(A) THAT THE FACT THAT THE AFORESAID PURCHASE TRANSACTION WAS A FICTITIOUS TRADING ACTIVITY OF THE ASSESSEE COMPANY WAS ACCEPTED BY THE AFOREMENTIONED PERSONS , AND ALSO BY THE DIRECTOR OF THE ASSESSEE COMPANY. ON THE BASIS OF THE AFORESAID FACTS, IT WAS OBSERVED BY THE CIT(A) THAT IT STOOD CONCLUDED BEYOND ANY DOUBT THAT BOTH THE PURCHASES AND SALE S OF SOFTWARE WERE FICTITIOUS. ACCORDINGLY, IT WAS OBSERVED BY THE CIT(A) THAT NOW WHEN THE PURCHASES AND SALES OF THE SOFTWARE WERE FICTITIOUS, THEREFORE, THE RE WAS NO JUSTIFICATION ON TH E PART OF THE A.O TO HAVE ADDED THE ENTIRE PURCHASE VALUE IN THE HANDS OF THE ASSESSEE. I N THE BACKDROP OF THE AFORESAID FACTS , THE CIT(A) WAS OF THE VIEW THAT THE ADDITION IN THE HANDS OF THE ASSESSEE WAS LIABLE TO BE RESTRICTED ONLY TO THE EXTENT OF THE PROFIT INVOLVED IN MAKING OF SUCH TRANSACTIONS OR THE BROKERAGE EXPENDITURE INCURRED FOR RECEIVING SUCH ENTRIES. AS THE ASSESSEE HAD ALREADY DISCLOSED A PROFIT OF RS.55,09,583/ - ON THE AFORESAID PURCHASE AND SALE TRANSACTION S, P A G E | 5 ITA NO. 6385/MUM/2017 A.Y. 2012 - 13 DEPUTY COMMISSIONER OF INCOME TAX,CC - 4(1) VS.M/S MELSTAR INFORMATION TECHNOLOGIES LTD. WHICH WORKED OUT TO 2.3% OF T HE TURNOVER, THEREFORE, THE CIT(A) WAS OF THE VIEW THAT THE SAME COULD NOT BE SAID TO BE ON THE LOWER SIDE. AT THE SAME TIME, THE CIT(A) WAS OF THE VIEW THAT THE ASSESSEE FOR FACILITATING THE AFORESAID TRANSACTIONS MIGHT HAVE INCURRED SOME EXPENSES IN OBTA INING THE AFORESAID FICTITIOUS ENTRIES. ACCORDINGLY, THE CIT(A) ADOPTING THE BROKERAGE RATE OF 0.2% TO THE VALUE OF THE ENTIRE PURCHASE TRANSACTION OF RS.26,66,42,549/ - , THEREIN WORKED OUT THE COMMISSION EXPENDITURE AT RS. 53,32,850/ - . OBSERVING, THAT THE A FORESAID COMMISSION EXPENDITURE WOULD HAVE BEEN INCURRED BY THE ASSESSEE OUTSIDE ITS BOOKS OF ACCOUNTS, THEREFORE, THE CIT(A) SUSTAINED THE ADDITION OF RS,53,32,850/ - AS AGAINST THE TOTAL ADDITION OF RS.26,66,42,549/ - MADE BY THE A.O. 6. THE REVENUE BEING AGGRIEVED WITH THE ORDER OF THE CIT(A) HAS CARRIED THE MATTER IN APPEAL BEFORE US. WE FIND THAT THE RESPONDENT ASSESSEE DESPITE HAVING BEEN PUT TO NOTICE AS REGARDS THE DATE OF HEARING OF THE APPEAL HAS HOWEVER FAILED TO PUT UP AN APPEARA NCE BEFORE US. ACCORDINGLY, BEING LEFT WITH NO OTHER ALTERNATIVE, WE PROCEED WITH AS PER RULE 25 OF THE APPELLATE TRIBUNAL RULES, 1963 AND DISPOSE OFF THE APPEAL AFTER HEARING THE APPELLANT REVENUE AND PERUSING THE ORDERS OF THE LOWER AUTHORITIES. THE LD. DEPARTMENTAL REPRESENTATIVE (FOR SHORT D.R) RELIED ON THE ASSESSMENT ORDER. IT WAS SUBMITTED BY THE LD. D.R THAT AS ADMITTEDLY THE ASSESSEE HAD NOT MADE ANY GENUINE PURCHASES AND SALE S OF SOFTWARE, THEREFORE, THE A . O HAD RIGHTLY DISALLOWED THE AGGREGATE VALUE OF PURCHASES OF RS. 26,66,42,549/ - . IT WAS SUBMITTED BY THE LD. D.R THAT THE CIT(A) WAS IN ERROR IN RESTRICTING THE ADDITION ONLY TO THE EXTENT OF RS.53,32,850/ - . 7. WE HAVE HEARD THE LD. D.R AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES BEFORE US . ADMITTEDLY, THE ASSESSEE HAD NOT MADE ANY GENUINE PURCHASE OF SOFTWARE FROM THE AFOREMENTIONED TWO CONCERN S , P A G E | 6 ITA NO. 6385/MUM/2017 A.Y. 2012 - 13 DEPUTY COMMISSIONER OF INCOME TAX,CC - 4(1) VS.M/S MELSTAR INFORMATION TECHNOLOGIES LTD. VIZ. (I) M/S AVANCE TECHNOLOGIES LTD.: AND (II) M/S TEJORA TECHNOLOGIES LTD. AT THE SAME TIME, THE SALE OF THE AFORESAID SOFTWARE BY THE ASSESSEE TO M/S EMPOWER INDIA LD. HAD ALSO BEEN FOUND TO BE BOGUS. AS IS DISCERNIBLE FROM THE ORDER OF THE A.O, THE ASSESSEE HAD INDULGED IN A CIRCULAR TRANSACTION OF PURCHASE AND SALE OF SOFTWARE LICENSE WITH THE AFOREMENTIONED CONCERN S WHICH WERE CONTROLLED BY S HRI DEVANG D. MASTER, AN ACCOMMODATION ENTRY PRO V ID ER, AS UNDER: DATE NAME OF THE PARTY PURCHASE SOFTWARE NAME OF THE PARTY SALES SOFTWARE TRADING JANUARY 12 AVANCE TECHNOLOGIES LIMITED 66,918,787 EMPOWER INDIA LIMITED 60819366 MARCH 12 AVANCE TECHNOLOGIES LIMITED 52,486,428 EMPOWER INDIA LIMITED 66473023 OCTOBER 11 TEJORA TECHNOLOGIES LIMITED 59,556,723 EMPOWER INDIA LIMITED 23066388 NOVEMBER 11 TEJORA TECHNOLOGIES LIMITED 65,093,077 EMPOWER INDIA LIMITED 68257184 DECEMBER 11 TEJORA TECHNOLOGIES 22,587,534 EMPOWER INDIA LIMITED 53536171 266,642,549 272152132 AS IS DISCERNIBLE FROM THE ORDER OF THE CIT(A), THE A.O HAD HIMSELF ADMITTED THAT THE ASSESSEE HAD INDULGED IN CIRCULAR TRANSACTIONS OF BOGUS PURCHASE AND SALE OF SOFTWARE LICENSE WITH THE AFOREMENTIONED THREE CONCERN S, WHICH WERE OWNED BY THE SAME PERSON VIZ. SHRI DEVANG D. MASTER . IN OUR CONSIDERED VIEW , NOW WHEN IT IS AN ADMITTED FACT THAT SOFTWARE WAS NEVER PURCHASED OR DELIVERED TO THE ASSESSEE, THEREFORE, WE ARE IN AGREEMENT WITH THE VIEW TAKEN BY THE CIT(A) THAT THE ADDITION OF THE ENTIRE PURCHASE VALUE OF RS.26,66,42,549/ - IN THE HANDS OF THE ASSESSEE WAS NOT JUSTIFIED. ACCORDINGLY, W E ARE PERSUADED TO SUBSCRIBE TO THE VIEW TAKEN BY THE CIT(A) , THAT ONLY TH E PROFIT ELEMENT INVOLVED IN TH E AFOREMENTIONED TRANSACTIONS OF PURCHASE/SALE OF SOFTWARE COULD HAVE BEEN BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE. HOWEVER, AS THE ASSESSEE HAD ALREADY DISCLOSED A PROFIT OF RS.55,09,583/ - WHICH WORKS OUT TO 2.3% OF THE TURNOVER, THEREFORE, IN OUR CONSIDERED VIEW THE CIT(A) HAD RIGHTLY CONCLUDED THAT NO FURTHER ADDITION ON THE SAID COUNT COULD HAVE BEEN MADE IN THE HANDS OF THE P A G E | 7 ITA NO. 6385/MUM/2017 A.Y. 2012 - 13 DEPUTY COMMISSIONER OF INCOME TAX,CC - 4(1) VS.M/S MELSTAR INFORMATION TECHNOLOGIES LTD. ASSESSEE. WE FIND THAT THE CIT(A) HAD IN ALL FAIRNESS OBSERVED , THAT THE ASSESSEE IN ORDER TO FACILITATE THE AFORESAID ACCOMMODATION TRANSACTIONS WOULD HAD INCURRED CERTAIN BROKERAGE EXPENSES OUTSIDE ITS BOOKS OF ACCOUNTS. AS OBSERVED BY US HEREINABOVE, THE CIT(A) TAKING COGNIZANCE OF RATE OF BROKERAGE APPLICABLE IN T HE MARKET DURING THE RELEVANT PERIOD I.E 0.2% TO 0.25%, HAD WORKED OUT THE SAID COMMISSION EXPENDITURE AT AN AMOUNT OF RS.53,32,850/ - . ACCORDINGLY, THE CIT(A) BEING OF THE VIEW THAT THE ASSESSEE WOULD HAVE INCURRED THE AFORE SAID COMMISSION EXPENDITURE FOR SECURING THE BOGUS PURCHASE BILLS , HAD THUS RESTRICTED THE ADDITION IN THE HANDS OF THE ASSESSEE TO THE EXTENT OF RS.53,32,850/ - . WE HAVE DELIBERATED AT LENGTH ON THE ISSUE UNDER CONSIDERATION , AND FINDING NO INFIRMITY IN THE VIEW TAKEN BY THE CIT(A), UPHO LD THE SAME. THE GROUND OF APPEAL NO. 1 AND 2 ARE DISMISSED IN TERMS OF OUR AFORESAID OBSERVATIONS. 8. THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER P RONOUNCED IN THE OPEN COURT ON 2 8 .06.2019 S D / - S D / - ( SHAMIM YAHYA) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; 2 8 .06.2019 PS. ROHIT P A G E | 8 ITA NO. 6385/MUM/2017 A.Y. 2012 - 13 DEPUTY COMMISSIONER OF INCOME TAX,CC - 4(1) VS.M/S MELSTAR INFORMATION TECHNOLOGIES LTD. S / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI