ITO 8(1)(3), MUMBAI V. M/S.SAI SAMARTHA CASMETICS PRIVATE LIMITED, MUMBAI

ITA 6563/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1716 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 19-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R BHOOPATHI
• Assessee Lawyers: HIRAL SAMPAT
• Keywords: Bogus purchase; Rejection of books of accounts; Unexplained expenditure; Tangible material; Accommodation entries; Tax effect
• Section: 69C; 133(6); 143(1); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC , MUMBAI BEFORE SHRI C.N. PRAS AD, HON'BLE JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL , HON'BLE ACCOUNTANT MEMBER ITA NO. 6563 /MUM/201 8 ( A. Y : 2010 - 11) INCOME TAX OFFICER 8(1)(3) ROOM NO. 662 , 6 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400 020 V. M/S. SAI SAMARTHA COSMETICS PVT. LTD., FLAT NO. 402, HAPPY HOME PLOT NO . 551, TPS III, 8 TH ROAD KHAR (W), MUMBAI 400 052 PAN: AAHCS1446G ( A PPELLANT) (RESPONDENT) ASSESSEE BY : SHRI HIRAL SAMPAT DEPARTMENT BY : SHRI R. BHOOPATHI DATE OF HEARING : 05 .12.2019 DATE OF PRONOUNCEMENT : 05 .1 2 .2019 O R D E R PER C. N. PRASAD (JM) 1. THIS APPEAL IS FILED BY THE R EVENUE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 14 , MUMBAI [HEREINAFTER IN SHORT LD.CIT(A)] DATED 13.07.2018 FOR THE A.Y. 2010 - 11 IN RESTRICTING THE DISALLOWANCE TO 12.5 % OF PURCHASES OF .5,59,125 / - AS AGAINST THE ENTIRE P URCHASES DISALLOWED AS NON - GENUINE/BOGUS BY THE ASSESSING OFFICER. 2 ITA NO. 6563/MUM/2018 (A.Y: 2010 - 11) M/S. SAI SAMARTHA COSMETICS PVT. LTD., 2. BRIEFLY STATED THE FACTS ARE THAT, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE, DISTRIBUTORS, IMPORTERS & EXPORTER OF ALL KINDS OF COSMETIC PRODUCTS , FILED RETURN OF INCOME FOR T HE A.Y. 2010 - 11 ON 30.09.2010 DECLARING INCOME OF . 27,39,269 / - AND THE RETURN WAS PROCESSED U/S. 143(1) OF THE ACT. SUBSEQUENTLY, ASSESSING OFFICER RECEIVED INFORMATION FROM THE SALES TAX DEPARTMENT, MUMBAI ABOUT THE ACCOMMODATION ENTRIES PROVIDED BY VARIOUS DEALERS AND ASSESSEE WAS ALSO ONE OF THE BENEFICIARY FROM THOSE DEALERS. THE ASSESSMENT WAS REOPENED U/S. 147 OF THE ACT BASED ON THE INFORMATION RECEIVED FROM SALES TAX DEPARTMENT, MUMBAI, THAT THE ASSESSEE HAS AVAILED ACCOMMODATION ENTRIES FROM M/S. SHAPE CORPORATION WHO IS SAID TO BE PROVIDING ACCOMMODATION ENTRIES WITHOUT THERE BEING TRANSPORTATION OF ANY GOODS. IN THE RE - ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS REQUIRED TO PROVE THE GENUINENESS OF THE PURCHASES MADE FROM M/S. SHAPE CORPORATION WHICH IS REFERRED IN THE ASSESSMENT ORDER. THE ASSESSEE PRODUCED INVOICES , BANK STATEMENTS DELIVERY CHALLANS, STOCK RE GISTER ETC., AND SUBMITTED THAT T HE PURCHASES MADE ARE GENUINE. 3. NOT CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE THE ASSESSING OFFICER TREATED THE PURCHASES AS NON - GENUINE AND HE WAS OF THE OPINION THAT ASSESSEE HAD OBTAINED ONLY ACCOMMODATION ENTRIES WI THOUT THERE BEING ANY TRANSPORTATION OF MATERIALS AND THE ASSESSEE MIGHT HAVE MADE 3 ITA NO. 6563/MUM/2018 (A.Y: 2010 - 11) M/S. SAI SAMARTHA COSMETICS PVT. LTD., PURCHASES IN THE GRAY MARKET. IT IS THE FINDING OF THE ASSESSING OFFICER SINCE THE PURCHASES MADE BY THE ASSESSEE AND CLAIMED AS EXPENSES IN HIS PROFIT AND LOSS ACCOUNT ARE NOT GENUINE, THE PURCHASES TO THAT EXTENT REMAINED UNVERIFIABLE AND REJECTED THE BOOKS OF ACCOUNTS . ASSESSING O FFICER OBSERVED THAT THE NOTICE ISSUED U/S. 133(6) OF THE ACT TO THE PART Y IS RETURNED UNSERVED WITH A REMARK NOT KNOWN AND THE ASSESSEE HAS NOT PRODUCED THE PARTY BEFORE THE ASSESSING OFFICER . THEREFORE, ASSESSING OFFICER TREATED PURCHASES OF . 5,59,125 / - AS NON - GENUINE AND ADDED TO THE INCOME OF THE ASSESSEE. ON APPEAL THE LD.CIT(A) CONSIDERING THE EVIDENCES AND VARIOUS SUBMISSIONS OF THE ASSESSEE RESTRICTED THE DISALLOWANCE TO THE EXTENT 12.5% OF THE NON - GENUINE PURCHASES. 4. LD. DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND THE LD. COUNSEL FOR THE ASSESSEE STRONGLY PLACED RELIANCE ON THE ORDER OF THE LD.CIT(A). IT IS FURTHER SUBMITTED THAT THE TAX EFFECT IS ALSO LESS THAN .50 LACS. HOWEVER, THE LD. DR SUBMITTED THAT THE ASSESSMENT WAS REOPENED BASED ON THE INFORMATION FROM THE SALES TAX DEPARTMENT WHICH IS AN EXTERNAL AGENCY AND THEREFORE IT FALLS UNDER THE EXCEPTION IN THE CI RCULAR OF THE CBDT. 4 ITA NO. 6563/MUM/2018 (A.Y: 2010 - 11) M/S. SAI SAMARTHA COSMETICS PVT. LTD., 5. HEARD BOTH THE PARTIES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. ON A PERUSAL OF THE ORDER OF THE LD.CIT(A), WE FIND THAT THE LD.CIT(A) CONSIDERED THIS ASPECT OF THE MATTER ELABORATELY WITH REFERENCE TO THE SUBMISSIONS OF THE ASSES SEE AND THE AVERM ENTS IN THE ASSESSMENT ORDER, REFERRING TO VARIOUS DECISIONS OF THE COORDINATE BENCHES AND ALSO THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF THE CIT V. SIMIT P. SHETH [356 ITR 451] RESTRICTED THE DISALLOWANCE TO 12.5% OF T HE NON - GENUINE PURCHASES WHILE ESTIMATING THE PROFIT ELEMENT @12.5% , WHILE HOLDING SO, THE LD.CIT(A) OBSERVED AS UNDER: - RELIANCE IS ALSO PLACED ON THE DECISION OF ITAT, MUMBAI IN THE CASE OF RATNAGIRI STAINLESS (P.) LTD. VS. INCOME - TAX OFFICER, 5(3)( 1), MUMBAI [2017] 80 TAXMANN.COM 265 ( MUMBAI - TRIB.)/[2017] 164 ITD 136 (MUMBAI - TRIB.), HEAD NOTE OF WHICH READS AS UNDER : - SECTION 69C, READ WITH SECTION 147, OF THE INCOME - TAX ACT, 1961 - UNEXPLAINED EXPENDITURE (REASSESSMENT) - INFORMATION WAS RECEIVED BY ASSESSING OFFICER FROM DGIT (INV.), MUMBAI THAT THERE WERE SOME PARTIES WHO WERE ENGAGED IN HAWALA TRANSACTIONS AND WERE INVOLVED IN ISSUING BOGUS BILLS FOR SALE OF MATERIAL WITHOUT DELIVERY OF GOODS, AND THAT ASSESSEE WAS BENEFICIARY OF HAWALA/ACCOMMODATION ENTRIES FROM 28 ENTRY PROVIDERS - ASSESSING OFFICER REOPENED ASSESSMENT AND ASSESSEE WAS ASKED TO PRODUCE PARTIES AND ALSO FILE DOCUMENTS TO SUBSTANTIATE ITS CLAIM OF PURCHASE ETC. - ASSESSEE DID NOT SUBMIT DOCUMENTARY EVIDENCE TO SH OW THAT THERE WAS MOVEMENT OF GOODS AND NOTICES ISSUED TO 28 PARTIES WERE RETURNED UNSERVED THUS , HE CONCLUDED PURCHASES WERE NOT GENUINE PURCHASES AND FURTHER, ASSESSING OFF ICER 'MADE GROSS PROFIT ADDITIONS AT RATE OF 12.5 PER CENT OVER TOTAL PURCHASES - WHETHER, ON FACTS, THERE WAS TANGIBLE MATERIAL WHICH CLEARLY INDICATED ASSESSEE TO BE BENEFICIARY, OF BOGUS PURCHASE ENTRIES FROM 28 BOGUS ENTRY PROVIDERS AND, THUS, REOPENIN G WAS JUSTIFIED - HELD, YES - WHETHER FURTHER SINCE DIRECTORS OF 28 ENTITIES HAD ADMITTED OF 5 ITA NO. 6563/MUM/2018 (A.Y: 2010 - 11) M/S. SAI SAMARTHA COSMETICS PVT. LTD., ISSUING ONLY INVOICES FOR SAKE OF ENTRY WITHOUT DELIVERY OF GOODS ASSESSING OFFICER WAS JUSTIFIED IN TREATING IT AS BOGUS PURCHASES - HELD, YES WHETHER ENDS OF JUSTICE WILL BE MET IF GP RATIO OF 12.5 PER CENT ON ALLEGED BOGUS PURCHASES WAS ADDED TO INCOME OF ASSESSEE AGAINST WHICH CREDIT FOR DECLARED GP RATIO ON ALLEGED BOGUS PURCHASES BE GRANTED BY ASSESSING OFFICER AFTER VERIFICATION - HELD, YES [PARAS 10 AND 1 1] [PARTLY IN FAVOUR OF ASSESSEE] IN THE BODY OF THE ORDER, HONOURABLE T RIBUNAL HAS OBSERVED AS UNDER: IT WAS OBSERVED BY THE ASSESSING OFFICER THAT THESE PARTIES JUST I SSU E BOGUS BILLS IN LIEU FOR EARNING COMMISSION WITHOUT ACTUAL SUPPLY OF GOOD S. IN AN SWORN AFFIDAVIT CUM DECLARATION FILED BEFORE SALES TAX INVESTIGATION BRANCH, MUMBAI, AND IN DEPOSITION BEFORE THE ASSISTANT COMMISSIONER OF SALES TAX, INVESTIGATION BRANCH, MUMBAI ,THE DIRECTORS OF THE SAID 28 ENTITIES HAVE ADMITTED OF ISSUING ONLY IN VOICES FOR SAKE OF ENTRY WITHOUT DELIVERY OF GOODS. NOTICES UNDER SECTION 133(6) WERE ISSUED BY THE ASSESSING OFFICER TO ALL THE ABOVE 28 PARTIES. ALL THESE NOTICES EXCEPT ONE NOTICE WERE EITHER RETURNED UN - SERVED OR WERE NOT REPLIED TO. ONLY ONE PARTY, C ATEGORICALLY STATED THAT THEY HAVE NOT SUPPLIED ANY MATERIAL TO THE ASSESSEE CONCERN. THE ASSESSING OFFICER ASKED THE ASSESSEE TO PRODUCE THE PARTIES BUT THE ASSESSEE FAILED TO PRODUCE THE PARTIES. THE PARTIES WERE NOT PRODUCED EVEN BEFORE COMMISSIONER (AP PEALS). THE ASSESSEE ALSO FAILED TO PRODUCE SUPPLIERS, TRANSPORTERS OR BROKERS BEFORE THE ASSESSING OFFICER FOR VERIFICATION AND ENQUIRY. THE ASSESSEE WAS NOT ABLE TO DISCHARGE BURDEN CAST UNDER SECTION 106 OF 1872 ACT AS THE ASSESSEE DID NOT PRODUCE THE O RIGINAL DOCUMENTS BEFORE THE ASSESSING OFFICER AND FILE DOCUMENTS FOR SHOWING MOVEMENT OF GOODS FROM SUPPLIER TO ASSESSEE AND FROM ASSESSEE TO CUSTOMER AS EVIDENCE ALTHOUGH IT STATED IN ITS REPLY THAT SAID DOCUMENTS ARE. BEING FILED. THE ASSESSEE FILED DEL IVERY CHALLAN IN ONE CASE ONLY AND THAT TOO THERE WAS NO MENTION OF TRANSPORTATION DETAILS. THE ASSESSEE DID NOT FILE CONFIRMATIONS FROM THESE PARTIES NOR TRANSPORTATION DETAILS OF THE MATERIAL PURPORTED TO BE PURCHASED FROM THESE SUPPLIERS WERE FURNISHED. THE PARTIES WERE ALSO NOT PRODUCED BEFORE THE AUTHORITIES BELOW. THE ONLY 6 ITA NO. 6563/MUM/2018 (A.Y: 2010 - 11) M/S. SAI SAMARTHA COSMETICS PVT. LTD., PARTY WHO RESPONDED TO NOTICE UNDER SECTION 133(6) ISSUED BY THE ASSESSING OFFICER NAMELY RANAKPUR DEPOSED AGAINST THE ASSESSEE. THE ASSESSEE DID NOT ASK FOR CROSS EXAMINATION OF RA NAKPUR. THE ASSESSEE HAS TO FIRST DISCHARGE ITS PRIMARY ONUS CAST UNDER LAW AND IF THE SAME STOOD DULY DISCHARGED WHICH IS NOT REBUTTED BY AUTHORITIES , BUT DESPITE THAT THEN ALSO THE AUTHORITIES PROCEED TO PUT ASSESSEE TO PREJUDICE SOLELY RELYING ON THE B ASIS OF INCRIMINATING STATEMENT RECORDED OF THIRD PARTY AT THE BACK OF THE ASSESSEE, THEN CERTAINLY THE RIGHT TO CROSS EXAMINATION THE SAID THIRD PARTY WHOSE INCRIMINATING STATEMENT RECORDED AT THE BACK OF THE ASSESSEE IS RELIED UPON BY AUTHORITIES TO PREJ UDICE THE ASSESSEE WILL BECOME ABSOLUTE. BUT IN THE INSTANT CASE, PRIMARY ONUS CAST ON THE ASSESSEE ITSELF DID NOT STAND DISCHARGED BY THE ASSESSEE. THE ASSESSING OFFICER MADE GROSS PROFIT ADDITIONS AT THE RATE OF 12.5% OVER THE TOTAL BOGUS PURCHASES OF RS .2,39,83,261/ - WHICH WERE HELD TO BE NON - GENUINE BY THE AUTHORITIES BELOW, WHICH ADDITION CAME TO RS. 29,97 908/ - ADDITION WAS CONFIRMED BY THE LEARNED COMMISSIONER (APPEALS). IN SUCH CIRCUMSTANCES, GP RATIO NEEDS TO BE ESTIMATED WHICH DEFINITELY INVOLVED S OME ESTIMATION/GUESSWORK BUT THE SAID ESTIMATION/GUESSWORK SHOULD BE FAIR, HONEST AND RATIONAL KEEPING IN VIEW FACTUAL MATRIX OF THE CASE AND CANNOT BE ARBITRARILY APPLIED AT THE DISCRETION OF AUTHORITIES. THE AUTHORITIES BELOW IN THE INSTANT CASE DID NOT MAKE ANY INDUSTRY COMPARISONS TO ARRIVE AT FAIR, HONEST AND RATIONAL ESTIMATION OF GP RATIO, RATHER APPLIED GP RATIO OF 12.5 PER CENT ON ALLEGED BOGUS PURCHASES WHICH ESTIMATION WAS IN ADDITION TO THE NORMAL GP RATIO DECLARED BY THE ASSESSEE IN RETURN OF I NCOME FILED WITH REVENUE. THE REVENUE MADE AFORESAID ADDITIONS ON THE PRESUMPTION THAT THE MATERIAL WAS IN - FACT PURCHASED FROM GREY MARKET AT A LOWER RATE AND TO COVER DEFICIENCIES IN RECORD, THE INVOICES WERE PROCURED FROM THESE ENTRY OPERATORS TO REDUCE THE PROFIT. IT WAS ALSO CONSIDERED THAT THERE WILL BE SAVINGS ON ACCOUNT OF TAXES WHILE PROCURING MATERIAL FROM GREY MARKET. THE BOOKS OF ACCOUNT WERE NOT REJECTED UNDER SECTION 145(3) BY THE REVENUE. IN THE IMMEDIATELY PRECEDING YEAR I.E. ASSESSMENT YEAR 2008 - 09, THE ASSESSEE EARNED GP RATIO OF 4.3 PER CENT ON TOTAL TURNOVER, WHILE FOR THE YEAR UNDER CONSIDERATION GP RATIO EARNED WAS 5.45 PER CENT. BASED ON 7 ITA NO. 6563/MUM/2018 (A.Y: 2010 - 11) M/S. SAI SAMARTHA COSMETICS PVT. LTD., FACTS AND CIRCUMSTANCES OF THE CASE, END OF JUSTICE WILL BE MET IF GP RATIO OF 12.5 PER CENT ON ALLE GED BOGUS PURCHASES WAS ADDED TO INCOME OF THE ASSESSEE AGAINST WHICH CREDIT FOR THE DECLARED GP RATIO ON THE ALLEGED BOGUS PURCHASES WILL BE GRANTED BY THE ASSESSING OFFICER AFTER VERIFICATION BY THE ASSESSING OFFICER BECAUSE OF FAILURE OF THE ASSESSEE TO COME FORWARD TO DISCHARGE PRIMARY ONUS CAST UPON HIM FOR WHICH ASSESSEE IS TO BE BLAMED AND IN THE MIDST OF AFORE - STATED UN - REBUTTED ALLEGATION AGAINST THE ASSESSEE AND NON - DISCHARGE OF PRIMARY ONUS, THE DECLARED LOWER GP RATIO OF 5.45 PER CENT IN THE INS TANT PREVIOUS YEAR UNDER APPE AL CANNOT BE ACCEPTED. [PARA 11] SINCE THE FACTS OF THE ASSESSEE'S CASE ARE SIMILAR, RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, THE AO IS DIRECTED TO TAX 12.5% OF SUCH PURCHASES TOWARDS ELEMENT OF PROFIT EMBEDDED IN SUCH PURCH ASES FROM M/S SHAPE CORPORATION. I AM NOT IN AGREEMENT WITH THE ACTION OF THE AO IN TAXING ENTIRE AMOUNT 6 HAWALA PURCHASES U/S. 69C OF THE I.T. ACT BECAUSE*'THE AO HAS NOT BROUGHT ANYTHING ON RECORD TO SHOW THAT PURCHASES FROM GREY MARKET WERE MADE OUT OF UNDISCLOSED FUNDS AND PAYMENTS MADE BY THE APPELLANT TO M/S SHAPE CORPORATION WERE NOT AVAILABLE FOR MA KING PURCHASES FROM GREY MARKET . IN FACT, THE AO HIMSELF HAS ACCEPTED IN PARA 5.9 OF THE ASSESSMENT ORDER THAT PAYMENT MADE BY THE APPELLANT TO BOGUS P ARTY COMES BACK IN CASH AND IS AVAILABLE FOR MAKING PURCHASES FROM UNDISCLOSED PARTIES IN CASH. SECONDLY THERE IS NO EXACT QUANTIFICATION OF PURCHASES MADE FROM GREY MARKET WHICH HAS BEEN TAKEN BY THE AO EQUAL TO THE AMOUNT OF HAWALA BILLS IN VIEW OF THESE REASONS, I AM OF THE OPINION THAT/IN ABSENCE OF ANY EVIDENCE TO THE EFFECT THAT GREY MA RKET PURCHASES WERE MADE OUT OF UNDISCLOSED SOURCES, IT WILL BE JUSTIFIED TO PRESUME THAT PAYMENTS MADE FOR HAWALA PURCHASES WERE AVAILABLE FOR MAKING PURCHASES FROM GREY MARKET AND THE BEST COURSE OF ACTION WOULD BE ESTIMATION OF ADDITIONAL PROFIT FROM HAWALA PURCHASES, AS HAS BEEN HEL D IN THE DECISIONS QUOTED ABOVE. THUS ESTIMATION OF ELEMENT OF PROFIT EMBEDDED IN SUCH PURCHASES FROM THE HAWALA PARTIES WILL BE THE BE ST COURSE OF ACTION AND THE AO IS DIRECTED TO TAX 12.5% OF SUCH PURCHASES TOWARDS ELEMENT OF PROFIT EMBEDDED IN SUCH PURCHASES FROM M/S SHAPE CORPORATION 6. ON A CAREFUL PERUSAL OF THE ORDER OF THE LD.CIT(A) AND THE REASONS GIVEN THEREIN, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE 8 ITA NO. 6563/MUM/2018 (A.Y: 2010 - 11) M/S. SAI SAMARTHA COSMETICS PVT. LTD., LD.CIT(A). NONE OF THE FINDINGS AND OBSERVATIONS OF THE LD.CIT(A) HAVE BEEN REBUTTED WITH EVIDENCES BY THE REVENUE AND THUS WE DO NOT SEE ANY INFIRMITY IN THE ORDER PASSED BY THE LD.CIT(A) IN RESTRICTING THE ADDITION/D ISALLOWANCE TO THE EXTENT OF 12.5% OF THE PURCHASES. GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 05 TH DECEMBER, 2019 SD/ - SD/ - ( MANOJ KUMAR AGGARWAL ) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI / DATED 0 5 / 12 / 2019 GIRIDHAR , S R. PS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM