ASST CIT 8(3)(2), MUMBAI V. VHB LIFE SCIENCE LTD, MUMBAI

ITA 657/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8007 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 09-02-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: POOJA SWAROOP
• Assessee Lawyers: S SRIRAM
• Keywords: Bogus purchase; Opportunity of being heard; Accommodation entries; Onus to prove
• Section: 69C; 143(3); 133A; 131; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 657 /MUM/2016 ASSESSMENT YEAR: 2009 - 10 ACIT - 8(3)(2) ROOM NO. 615, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020. VS. M/S VHB LIFE SCIENCES LTD. , 50, AB, GOVERNMENT INDUSTRIAL ESTATE, CHARKOP NAKA, KANDIVALI (W), MUMBAI - 400067. PAN NO. AA CCV5103A APPELLANT RESPONDENT REVENUE BY : MS. POOJA SWAROOP, DR ASSESSEE BY : MR. S. SRIRAM , AR DATE OF HEARING : 28 /1 1 /2017 DATE OF PRONOUNCEMENT : 20/12/2017 ORDER PER N.K. PRADHAN, A.M. THIS IS AN APPEAL FILED BY THE REVENUE . THE RELEVANT ASSESSMENT YEAR IS 2009 - 10 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISS IONER OF INCOME TAX (APPEALS) - 14 , MUMBAI AND ARISES OUT OF THE ASSESSMENT ORDER U/S 143(3) R.WS. 147 OF THE INCOME TAX ACT 1961, (THE ACT). 2. THE GROUND S OF APPEAL FILED BY THE REVENUE READ AS UNDER : I. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN GIVING RELIEF IN RESPECT OF THE AMOUNT OF ADDITION ON ACCOUNT OF BOGUS PURCHASE AFTER NOTING THAT THE ASSESSEE FAILED TO NEGATE THE INFORMATION BASED ON ENQUIRY CONDUCTED BY DGIT (INV.), PUNE AS PER INFORM ATION RECEIVED FROM THE M/S VHB LIFE SCIENCES ITA NO. 657/MUM/2016 2 SALES TAX DEPARTMENT, WERE HAWALA DEALERS AND PROVIDING ACCOMMODATION BILLS. II. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING DEDUCTION IN RESPECT OF AMOUNT OF ADDITION ON ACCOUNT OF BOGUS PURCHASES AS THE PARTIES FROM WHOM PURCHASES WERE MADE, WERE HAWALA DEALERS AND ABSOLUTE BURDEN OF PROOF IS CAST ON THE ASSESSEE AND THIS BURDEN OF PROOF NEVER SHIFTS TO THE DEPARTMENT. III. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS WITHOUT APPRECIATING THAT THIS BEING A CASE OF UTTER DISRE GARD AND SUBVERSION OF LAW, THE BURDEN OF PROOF CAST ON THE ASSESSEE WAS OF A VERY HIGH DEGREE AND ASSESSEE FAILED TO DISCHARGE THIS BURDEN. IV. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS, IN NOT GIVING EFFECT TO SECTION 114(G) OF THE INDIA EVIDENCE ACT WHI CH CLEARLY LAYS DOWN THAT IF A FACT IN KNOWLEDGE OF A PARTY IS NOT EXPLAINED, ADVERSE INFERENCES CAN BE DRAWN AGAINST THE PARTY POSSESSING THE KNOWLEDGE OF FACTS/INFORMATION. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE AY 2009 - 10 ON 27.09 .2009 DECLARING INCOME OF RS.12, 26,26,035/ - . THE SAID RETURN WAS PROCESSED U/S 143(1). THEN THE AO ISSUED NOTICE U/S 148 DATED 18.03.2013 ON THE FOLLOWING REASONS: (I) IN THIS CASE FOR THE ASSESSMENT YEAR IN REFERENCE, DURING THE COURSE OF PROCEEDINGS UNDER SECTION 131 OF THE INCOME TAX ACT, 1961 BY THE THEN AO, IN DECEMBER 2012 IN THIS CASE, IT WAS FOUND THAT THE ASSESSEE HAD MADE BOGUS PURCHASES OF RS.8.80 CRORES FROM GARRISON PHARMA LTD. DURING THE COURSE OF PROCEEDI NGS U/S. 131 OF THE INCOME TAX ACT, STATEMENT WAS RECORDED OF SHRI MUKESH JAIN, ACCOUNTANTS IN CHARGE IN WHICH HE HAS BEEN ASKED TO PRODUCE DETAILS OF TOTAL PURCHASES FROM ABOVE MENTIONED PARTY AND TO SUBSTANTIATE THESE PURCHASES BY PRODUCING DELIVER, PROO F, CONSUMPTION PROOF AND BANK STATEMENT. HOWEVER, THE ASSESSEE PRODUCE ONLY INVOICE COPIES. LEDGER AND BANK STATEMENT WAS NOT PRODUCED. HENCE IS M/S VHB LIFE SCIENCES ITA NO. 657/MUM/2016 3 ESSENTIAL TO PROVE THAT COURTS PURCHASE FROM THIS PARTY WERE GENUINE. THEREFORE, THE ASSESSEE HAS FAILED TO DIS CLOSE FULLY AND TRULY ON MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THE ASSESSMENT YEAR AS PER PROVISIONS OF SECTION 147 OF THE INCOME TAX ACT. FURTHER THE ABOVE MENTIONED PARTY COMMITTED TO THE SALES TAX DEPARTMENT THAT THEY HAVE NOT SUPPLIED GOODS A ND ONLY PROVIDED BOGUS BILLS. (II) FURTHER SURVEY UNDER SECTION 133A OF INCOME TAX ACT WAS CARRIED OUT BY ADDITIONAL DIT (INVESTIGATION) UNIT V. MUMBAI AT THE PREMISES OF ASSESSEE ON 27.03.2012 WHEREIN IT WAS REVEALED THAT MR. VIPUL BHAGAT , DIRECTOR OF THE ASSESSEE COMPANY HAS ADMITTED THAT IT HAS PURCHASED WERE RS.1,15,34,39,659/ - IN AY 2008 - 09 - FROM TWILIGHT LITIKA PHARMA LTD(TLPL) WHICH WAS MERELY PAPER TRANSACTIONS. HENCE NO ACTUAL PURCHASES WERE MADE FROM TLPL AS ADMITTED BY THE DIRECT OR OF THE ASSESSEE. IT IS IMPORTANT TO NOTE THAT SHRI GHOPAL RAMOURI, DIRECTOR OF TLPL, IN A STATEMENT RECORDED U/S. 132(4) DEPOSED THAT SALES TRANSITION OF TLPL TO THE ASSESSEE WAS MERELY PAPER TRANSACTIONS WHICH WAS FURTHER CORROBORATED BY THE ADMISSION OF THE DIRECTOR OF THE ASSIST IN IMPUGNED SURVEY PROCEEDINGS. IT WAS ALSO REVEALED THAT THE ASSESSEE HAS DONE PAPER TRANSACTIONS BY WAY OF PURCHASE AND SALES FROM TLPL. TML AND PHL FROM FINANCIAL YEARS 2006 - 07 TILL 2009 - 2010. IT WAS ALSO FOUND THAT ASSESSE E HAS RECEIVED EXCESS AMOUNT OF RS.22.95 CRORES FROM TWILIGHT GROUP OF COMPANIES, BEING A CIRCULAR TRANSACTION, THEREFORE IT IS NOTICE THAT THE ASSESSEE HAS PAID IN CASH AMOUNTING TO RS.22.95 CRORES TO TLPL GROUP OF COMPANIES ON ACCOUNT OF EXTRA AMOUNT REC EIVED FROM TLPL GROUP FROM CIRCULAR TRANSACTIONS OF PURCHASE AND SALES. THE AMOUNT PAID IN CASH OF THESE 22.95 CRORE IN CASH NEEDS TO BE BROUGHT TO TAX IN RESPECTIVE ASSESSMENT YEARS WHEREIN THE TRANSITION TOOK PLACE. ACCORDINGLY, THE ASSESSEE HAS PAID EXT RA CASH OF RS.22.95 CRORES, WHICH REMAINED UNEXPLAINED. (III) BASED ON THE ABOVE DISCUSSION, THE AO FORMED REASONS TO BELIEVE THAT THE ASSESSEE HAS NOT DISCLOSED PROVEN TRUE & CORRECT INCOME FOR AY 2009 - 10. ACCORDINGLY NOTICE UNDER SECTION 148 WAS ISSUED T O BRING THE SAID ESCAPED INCOME TO TAXATION. M/S VHB LIFE SCIENCES ITA NO. 657/MUM/2016 4 3.1 IN RESPONSE A QUERY RAISED BY THE AO, TO EXPLAIN WHY THE AMOUNT OF BOGUS PURCHASES OF RS.8,80,00,000/ - SHOULD NOT BE ADDED TO THE INCOME, THE ASSESSEE FILED THE FOLLOWING REPLY BEFORE THE AO: ON PERUSAL O F STOCK DETAILS OF GOODS PURCHASED FROM M/S GARRISON PHARMA LTD. IT CAN BE SEEN THAT THE ASSESSEE HAS SOLD THESE GOODS. IT IS OBVIOUS THAT THESE SALES ARE GENUINE AND THERE CANNOT BE ANY SALE WITHOUT CORRESPONDING PURCHASE. THESE SALES ARE DULY REFLECTED I N THE BOOKS OF ACCOUNT OF THE ASSESSEE. AS SUCH, THE INCOME ARISING THEREFROM HAS ALREADY BEEN OFFERED TO TAX AND THERE IS NO ESCAPEMENT OF INCOME AS ALLEGED BY YOU. COPY OF STOCK DETAIL AND SALES BILL IS ENCLOSED. THE AO OBSERVED THAT THE ASSESSEE FAIL ED TO FILE COMPLETE CORROBORATIVE EVIDENCE TO PROVE THE GENUINENESS OF THESE PURCHASES. THEREFORE, HE MADE AN ADDITION OF RS.8,80,00,000/ - U/S 69C OF THE ACT. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HELD THAT (I) THE ASSESSEE HAS DULY SUBMITTED BEFORE THE AO THAT THE PURCHASES AND CORRESPONDING SALES ARE DULY ENTERED INTO THE BOOKS OF ACCOUNT AND PASS ED THROUGH THE STOCK REGISTER, (II) THE BOOKS OF ACCOUNT ARE NOT REJECTED BY THE AO REGARDING THESE TRANSACTIONS, (III) SAME GOODS HAVE BEEN RESOLD TO OTHER PARTIES, DETAILS OF WHICH HAVE BEEN PRODUCED BEFORE THE AO WHICH IS NEITHER DISPUTED BY THE AO NOR THE AO HAS BROUGHT ON RECORD ANY EVIDENCE T HAT THESE GOODS ARE NOT RESOLD, (IV) NO SALES CAN B E MADE WITHOUT ANY PURCHASE S , (V) IT IS NOT THE CASE OF THE AO THAT THE ASSESSEE HAS BOOKED ANY LOSS IN THE TRANSACTION, (VI) THERE CANNOT BE ANY CASE OF ADDITION AS TAXES WERE DULY PAID ON THE INCOME SHOWN. IN VIEW OF THE ABOVE, THE LD. CIT(A) DELETED T HE ADDITION OF RS.8,80,00,000/ - MADE BY THE AO U/S 69C. M/S VHB LIFE SCIENCES ITA NO. 657/MUM/2016 5 5. BEFORE US, THE LD. DR FILES A COPY OF THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. JANSAMPARK ADVERTISING & MARKETING (P.) LTD. ( 2015) 56 TAXMANN.COM 286 (DEL) STATING THAT I N CASE OF UNACCOUNTED ENTRIES FOUND IN BOOKS OF ACCOUNT OF ASSESSEE, THOUGH IT IS OBLIGATION OF ASSESSING OFFICER TO CONDUCT PROPER SCRUTINY OF MATERIAL, IN EVENT OF ASSESSING OFFICER FAILING TO DISCHARGE HIS FUNCTIONS PROPERLY, OBLIGATION TO CONDUCT PROPER INQUIRY SHIFTS TO COMMISSIONER (APPEALS) AND TRIBUNAL AND THEY CANNOT SIMPLY DELETE ADDITION MADE BY ASSESSING OFFICER ON GROUND OF LACK OF INQUIRY. 6. PER CONTRA , THE LD. COUNSEL OF THE ASSESSEE FILES A COPY OF THE ORDER OF THE ITAT SMC BENCH, MUMBAI IN THE CASE OF ITO VS. KARSAN NANDU (2017) 77 TAXMANN.COM 275 (MUMBAI TRIB) , WHEREIN IT IS HELD THAT WHERE AO HAS HELD THAT PURCHASES MADE B Y THE ASSESSEE FROM SEVEN PARTIES WERE MERE ACCOMMODATION ENTRIES AND NOT REAL PURCHASES, INVOKING SECTION 69C WAS ON A WRONG FOOTING. THE LD. COUNSEL ALSO FILES A PAPER BOOK CONTAINING (I) ACKNOWLEDGEMENT OF FILING THE RETURN OF INCOME FOR AY 2009 - 10, (I I) COMPUTATION OF TOTAL INCOME FOR AY 2009 - 10, (III) TAX AUDIT REPORT IS FORM NO. 3CD, (IV) BALANCE SHEET AS ON 31 ST MARCH, 2009 AND PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH, 2009, (V) COPIES OF PURCHASE INVOICES ISSUED BY M/S GARRISON PHARMA (I NDIA) LTD., (VI) COPIES OF INVOICES ISSUED BY THE ASSESSEE ON SALE OF MATERIAL, (VII) WRITTEN EXPLANATION BEFORE THE COMMISSIONER (APPEALS) DATED 26 TH OCTOBER, 2015, (VIII) ORDER OF THE COMMISSIO NER (APPEALS) FOR AY 2008 - 09 DATED 30 TH NOVEMBER, 2015 DELET ING THE ADDITION WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT AS NO SECOND APPEAL IS PREFERRED. M/S VHB LIFE SCIENCES ITA NO. 657/MUM/2016 6 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISIONS ARE GIVEN BELOW. THE HONBLE MADRAS HIGH COURT IN THE CASE OF GRAND BAZZAR VS. ACIT (2007) 292 ITR 269 (MAD) HAS HELD THAT A BARE READING OF SECTION 69C MAKES IT CLEAR THAT IF THE ASSESSEE INCURRED ANY EXPENDITURE, BUT OFFERED NO EXPLANATION ABOUT THE SOURCE OF SUCH EXPENDITURE OR PART THEREOF OR THE EXPLANATION SO OFFERED IS NOT SATISFACTORY, SUCH EXPENDITURE MAY BE DEEMED TO BE THE INCOME OF THE ASSESSEE. WE FOLLOW THE ABOVE POSITION OF LAW. WE ARE OF THE CONSIDERED VIEW THAT THE CONTENTIOUS ISSUES IN THE INSTANT CASE COULD BE RESOLVED BY EXAMINING M/S GARRISON PHARMA (INDIA) LTD. BY THE AO. THEN A FINDING CAN BE ARRIVED AT ONLY AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN THAT REGARD. THE HON'BLE SUPREME COURT IN STATE OF KERALA VS. K.T. SHADULI GROCERY DEALER AIR 1977 SC 1627, RECOGNISED THE IMPORTANCE OF ORAL EVIDENCE BY HOLDING THAT THE OPPORTUNITY TO PROVE THE CORRECTNESS OR COMPLETENESS OF THE RETURN NECESSARILY CARRY WITH IT THE RIGHT TO EXAMINE WITNESSES AND THAT INCLUDES EQUALLY THE RIGHT TO CROSS - EXAMI NE WITNESSES. IN ITO VS. M. PIRAI CHOODI (2012) 20 TAXMANN.COM 733 (SC), THE HON'BLE SUPREME COURT HAS HELD THAT ORDER OF ASSESSMENT PASSED WITHOUT GRANTING AN OPPORTUNITY TO ASSESSEE TO CROSS - EXAMINE, SHOULD NOT HAVE BEEN SET ASIDE BY HIGH COURT; AT MOST , HIGH COURT SHOULD HAVE DIRECTED ASSESSING OFFICER TO GRANT AN OPPORTUNITY TO ASSESSEE TO CROSS - EXAMINE CONCERNED WITNESS. M/S VHB LIFE SCIENCES ITA NO. 657/MUM/2016 7 IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE AO TO MAKE A DE NOVO ASSES SMENT AFTER EXAMINING THE ABOVE PARTY AND GIVING AN OPPORTUNITY TO THE ASSESSEE TO CROSS - EXAMINE THE SAID PARTY. IT IS OBLIGATORY ON THE PART OF THE ASSESSEE TO FURNISH TO THE AO THE CORRECT ADDRESS OF THE SAID PARTY TO WHOM SUCH SUMMON IS TO BE ISSUED. WE DIRECT THE ASSESSEE TO FILE THE RELEVANT DOCUMENTS/EVIDENCE BEFORE THE AO. NEEDLESS TO SAY, THE AO WOULD GIVE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE FINALIZING THE ASSESSMENT ORDER. 8. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 20/12/2017. SD/ - SD/ - (SAKTIJIT DEY) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 20/12/2017 RAHUL SHARMA, SR. P.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 . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI