ACIT CIR 28(3), NAVI MUMBAI V. SRIKANT RAGHAV RAJU, NAVI MUMBAI

ITA 85/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9134 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 05-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S M MAKHIJA
• Keywords: Bogus purchase; Question of law
• Section: 69C; 133(6); 147; 148

Judgement Text

, D , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM & SHRI SHAKTIJIT DEY, JM ITA NO.85/MUM/2017 : ASST.YEAR 2009-2010 ASST.COMMISSIONER OF INCOME - TAX CIRCLE 28(3) MUMBAI. / VS. SHRI SRIKANT RAGHAV RAJU E-201, 2 ND FLOOR, 7 TH TOWER, RAILWAY STATION COMPLEX SECTOR-11, CBD BELAPUR NAVI MUMBAI 400 614. PAN : AGGPR9144J. ( / APPELLANT) ( / RESPONDENT) APPELLANT BY : SHRI PURUSHOTTAM KUMAR RESPONDENT BY : SHRI S.M.MAKHIJA / DATE OF HEARING : 21.08.2017 / DATE OF PRONOUNCEMENT : 03.10.2017 / O R D E R PER SHAMIM YAHYA, AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST ORDER OF LEARNED CIT(A) DATED 31.10.2016 AND PERTAINS TO ASSESSMENT YEAR 2009-2010. 2. THE ISSUE RAISED IS THAT CIT(A) ERRED IN LIMITING THE DISALLOWANCE TO 15% OF BOGUS PURCHASE. 3. THE GROUNDS OF APPEAL READ AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT (A) HAS ERRED IN ALLOWING RELIEF TO THE ASSESSEE TO THE EXTENT IMPUGNED IN THE GROUNDS ENUMERATED BELOW: 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) ERRED IN RESTRICTING THE ADDITION OF RS.70,38,751/- MADE BY THE A.O. U/S 69C OF THE ACT TO ITA NO.85/MUM/2017. SHRI SRIKANT RAGHAV RAJU. 2 RS.10,53,813/- @ 15% OF TOTAL BOGUS PURCHASES OF RS.70,38,751/-, THEREBY ALLOWING RELIEF RS. 59,82,938/- TO THE ASSESSEE 2. 'THE APPELLANT PRAYS THAT THE ORDER OF CIT (A) ON THE ABOVE GROUNDS BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. 'THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUNDS OR ADD NEW GROUND WHICH MAY BE NECESSARY. 3. IN THIS CASE THE RETURN OF INCOME WAS FILED ON 29.09.2009 DECLARING TOTAL INCOME AT RS.62,46,552. THE ASSESSEE IS CARRYING ON BUSINESS AS A CIVIL CONTRACTOR AND HAD SHOWN PURCHASES TO THE TUNE OF RS.70,38,751 FROM THE FOUR PARTIES DETAILED BELOW: S.NO. NAME OF THE PARTY AMOUNT(IN RS.) 1 STHAPNA TRADE IMPEX P. LTD 41,56,955 2 RAMDEV TRADING 18,91,057 3 BHUMI ENTERPRISES 6,00,739 4 NEPTUNE CORPORATION 3,90,000 TOTAL 70,38,751 4. BASED ON THE INFORMATION RECEIVED FROM THE O/O THE DGIT (INV.), MUMBAI, IT WAS FOUND BY THE AO THAT THE ASSESSEE IS A BENEFICIARY OF BOGUS PURCHASE BILLS ISSUED BY FOUR SUSPICIOUS DEALERS- STHAPNATRADE IMPEX P. ITA NO.85/MUM/2017. SHRI SRIKANT RAGHAV RAJU. 3 LTD, RAMDEV TRADING, BHUMI ENTERPRISES AND NEPTUNE CORPORATION. CONSEQUENTLY, THE CASE WAS REOPENED U/S. 147 OF THE ACT. AO RECORDED THE REASONS AND ISSUED NOTICE U/S 148 OF THE ACT 27.03.2014. ASSESSEE RAISED OBJECTIONS ON REOPENING OF THE CASE VIDE LETTER DATED 04.06.2014, THE SAME WERE DISPOSED OF BY THE AO BY A SPEAKING ORDER VIDE LETTER DATED 03.09.2014 AND RELEVANT PORTION OF DISPOSAL OF OBJECTIONS ARE REPRODUCED AT PARA 2.1 OF THE ASSESSMENT ORDER. THE AO DISALLOWED THE PURCHASES FOR THE REASON THAT THE NOTICES ISSUED U/S. 133(6) OF THE ACT TO M/S.STHAPNA TRADE IMPEX P. LTD, RAMDEV TRADING, BHUMI ENTERPRISES AND NEPTUNE CORPORATION WERE RETURNED BACK UNSERVED; ASSESSEE FAILED TO PRODUCE THE PARTIES FOR EXAMINATION, THE REQUISITE DOCUMENTARY EVIDENCE WAS NOT FILED IN SUPPORT OF THE CLAIM; THAT PAYMENT THROUGH BANKING CHANNEL DOES NOT MAKE THE TRANSACTION SACROSANCT AND THAT THE PARTY HAD ADMITTED BEFORE THE SALES TAX AUTHORITIES THAT THEY WERE NOT DOING ANY ACTUAL BUSINESS. 5. AGAINST THE ABOVE ORDER, ASSESSEE APPEALED BEFORE THE LEARNED CIT(A) CHALLENGING BOTH THE VALIDITY OF REASSESSMENT AND MERITS OF THE ADDITION. 6. LEARNED CIT(A) AFFIRMED THE VALIDITY OF REOPENING. HOWEVER, ON MERITS HE LIMITED THE ADDITION TO 15% OF THE BOGUS PURCHASE. THE ORDER OF LEARNED CIT(A) IN THIS REGARD MAY BE GAINFULLY REFERRED AS UNDER:- 6.7. THUS, A STUDY OF DIFFERENT CASES, WHEREIN ADDITION ON ACCOUNT OF BOGUS PURCHASES HAS BEEN DEALT WITH BY VARIOUS COURTS AND TRIBUNALS SHOWS THAT SUCH ADDITIONS HAVE BEEN UPHELD IN THEIR ENTIRETY ONLY IN A FEW CASES INCLUDING DECISIONS RENDERED IN THE CASES OF LA MEDICA, SRI GANESH RICE WILLS, VICKY FOODS (P.) LTD. ETC. WHERE APART FROM VARIOUS OTHER FACTORS THERE WAS LACK OF RELIABLE RECORD WITH REFERENCE TO QUANTITATIVE ITA NO.85/MUM/2017. SHRI SRIKANT RAGHAV RAJU. 4 DETAILS ETC. AND WHERE EVIDENCE PRODUCED FOR PAYMENT WAS FOUND LACKING. IN OTHER CASES, WHERE THE FULL QUANTITATIVE DETAILS ARE NOT AVAILABLE OR DETAILS PRODUCED WERE NOT FULLY RELIABLE INASMUCH AS CONSUMPTION OF MATERIAL WAS SHOWN BUT YIELD WAS TOO LOW AND PAYMENTS WERE ALSO DOUBTFUL (INCLUDING THE CASES OF VIJAY PROTEINS LTD., BHOLANATH POLY FAB PVT. LTD., SIMIT P. SHETH, SANKET STEEL TRADERS, SATHYANARAYAN P. RATHI ETC.) ADDITION WAS UPHELD IN THE RANGE OF 25% (AS IN VIJAY PROTEINS CASE) TO 12.5 % TO AUGMENT THE POSSIBLE SUPPRESSION IN GP APPLYING REAL INCOME THEORY DEPENDING ON THE FACTS OF THE CASE. HOWEVER PERUSAL OF DECISIONS OF TRIBUNALS AND HIGH COURTS ON THIS ISSUE SHOWS THAT ALL SUCH CASES ARE DECIDED ON THE BASIS OF FACTS AND INVOLVE NO UNIFORM QUESTION OF LAW. FROM THE ABOVE DECISIONS, THE GROUND- RULE THAT EMERGES IS THAT WHERE SUPPLIERS ARE NOT AVAILABLE, THE PRESENCE OF REASONABLE QUANTITATIVE DETAILS AND PAYMENTS BY ACCOUNT PAYEECHEQUES ARE PRIMARY TESTS ON WHEN THE GENUINENESS OF PURCHASES IS REQUIRED TO BE TESTED. IN ADDITION, FROM CASES LIKE NIKUNJEXIMP ENTERPRISES (P.) LTD (HIGH COURT AS WELL AS ITAT), M. K. BROTHERS, NANGALIA FABRICS PVT. LTD., RAJIV G. KALATHIL, PERMANAND, SAGAR BOSE, DIAGNOSTICS ETC., IT EMERGES THAT OTHER ASPECTS SUCH AS STATEMENTS OF HAWALA PROVIDERS RECORDED BY SALES TAX AUTHORITIES; AFFIDAVITS FILED BY SUCH SUPPLIERS BEFORE SALES TAX AUTHORITIES; ABSENCE OF EVIDENCE IN SUPPORT OF TRANSPORTATION/DELIVERY OF MATERIAL ETC.. HAVE BEEN HELD LESS RELEVANT AS MERE INDICATORS AND NOT DECISIVE FACTORS, TO DRAW A CONCLUSION REGARDING GENUINENESS OF PURCHASES. THUS IN ESSENCE, THE BENEFIT DERIVED BY THE ASSESSEE BY SHOWING PURCHASES FROM SUCH BOGUS PARTIES IS THE LOWERING OF GP THAT WOULD HAVE BEEN EARNED BY THE ASSESSEE HAD SUCH PURCHASES AND CORRESPONDING SALES BEEN REMOVED FROM THE ACCOUNTS. IN OTHER WORDS, THE EFFECTIVE LOWERING OF THE GP IS THE REAL ADDITIONAL INCOME OF THE ASSESSEE BY SHOWING SUCH PURCHASES AND ONLY SUCH COMPONENT WOULD THEREFORE BE TAXABLE. 6.8. IN THE PRESENT APPEAL, THERE IS COMPELLING EVIDENCE TO SHOW THAT THIS WOULD BE A CASE OF PURCHASES MADE FROM BOGUS PARTIES RATHER THAN A CASE OF BOGUS PURCHASES. THERE IS NOTHING TO SHOW THAT WITHOUT MAKING THE PURCHASES IT WAS POSSIBLE FOR ITA NO.85/MUM/2017. SHRI SRIKANT RAGHAV RAJU. 5 THE APPELLANT TO COMPLETE THE SALES DECLARED IN THE RETURN OF INCOME WHICH HAVE NOT BEEN DISTURBED BY THE AO. ON THE OTHER HAND, THE APPELLANT HAS FAILED TO ESTABLISH THE GENUINENESS OF PURCHASES MADE FROM THE PARTIES CLAIMED. THIS WOULD INDICATE THAT THE PURCHASES WERE MADE FROM THE OPEN MARKET WITHOUT INSISTING FOR GENUINE BILLS AND IN SUCH CASES THE SUPPLIERS WOULD BE WILLING TO SELL AT A MUCH LESS RATE AS COMPARED TO THE RATE THAT THEY WOULD HAVE CHARGED OTHERWISE. 6.9. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE APPELLANT WAS ASKED TO FILE SEVERAL DETAILS RELATED TO PURCHASES, IN RESPONSE TO THAT, THE APPELLANT'S REPRESENTATIVES HAD MADE SEVERAL WRITTEN SUBMISSIONS AND PRODUCED LEDGER ACCOUNTS, BANK STATEMENT, BUT FAILED TO PRODUCE DETAILS OF VEHICLES, OCTROI AND DELIVERY CHALLAN IN ALL THE TRANSACTIONS ETC. EVEN DURING APPELLATE PROCEEDINGS THE APPELLANT HAD NOT PRODUCED WEIGHMENT SHIP FOR PURCHASES FROM THE SAID PARTIES IN ALL THE TRANSACTIONS, TRANSPORTATION DOCUMENTS/LORRY RECORD, SALE BILLS AND STOCK REGISTER. HE SUBMITTED THAT DELIVERY CHALLANS ARE NOT TRACEABLE. THE PAYMENT MADE TO THE PURCHASE PARTIES WAS WITHIN THE KNOWLEDGE OF THE APPELLANT. THEREFORE, THE BURDEN IS ON APPELLANT TO ESTABLISH THE SAID FACTS. HOWEVER, THE APPELLANT FAILED TO DISCHARGE THE BURDEN. AFTER MAKING INDEPENDENT ENQUIRIES, FINDING OF SALES TAX DEPARTMENT AND DETAILS SUBMITTED BY THE APPELLANT, THE AO HELD THAT THE APPELLANT HAD NOT PURCHASED GOODS FROM THE ABOVE SAID PARTY AND ONLY ACCOMMODATION BILL WAS TAKEN IN ORDER TO INFLATE THE EXPENSES AND BRING DOWN THE PROFITABILITY THEREBY AVOIDING THE PAYMENT OF TAXES. HENCE, PURCHASES AMOUNTING TO RS.70,38,751/- WAS DISALLOWED U/S 69C OF THE ACT 6.10. KEEPING IN MIND THE TOTALITY OF CIRCUMSTANCES AS DISCUSSED ABOVE AND THE FACT THAT AR OF APPELLANT HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO CORROBORATE HIS ARGUMENTS DURING APPELLATE PROCEEDINGS, IT IS ADEQUATE TO MEET THE ENDS OF JUSTICE, WHEN THE DISALLOWANCE HAS BEEN RESTRICTED TO 15 PERCENT OF THE BOGUS PURCHASES OF RS.70,38,751/-. THE AO IS THEREFORE DIRECTED TO RESTRICT THE DISALLOWANCE AS ABOVE. ITA NO.85/MUM/2017. SHRI SRIKANT RAGHAV RAJU. 6 7. AGAINST THE ABOVE ORDER OF LEARNED CIT(A), REVENUE IS IN APPEAL BEFORE THE ITAT. 8. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT CREDIBLE AND COGENT INFORMATION WAS RECEIVED IN THIS CASE BY THE ASSESSING OFFICER THAT CERTAIN ACCOMMODATION ENTRY PROVIDER/BOGUS SUPPLIERS WERE BEING USED BY CERTAIN PARTIES TO OBTAINED BOGUS BILLS, ASSESSEE WAS FOUND TO HAVE TAKEN ACCOMMODATION ENTRY/BOGUS PURCHASE BILLS DURING THE CONCERNED ASSESSMENT YEAR FROM DIFFERENT PARTIES. BASED UPON THIS INFORMATION ASSESSMENT WAS REOPENED. IN SUCH FACTUAL SCENARIO THE ASSESSING OFFICER HAS MADE THE NECESSARY ENQUIRY. THE ISSUE OF NOTICE TO ALL THE 11 PARTIES HAVE RETURNED UNSERVED. ASSESSEE HAS NOT BEEN ABLE TO PROVIDE ANY CONFIRMATION FROM ANY OF THE PARTIES. 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 PROVIDER OF THESE BILLS ARE BOGUS. 9. HOWEVER, WE NOTE THAT THE SALES IN THIS CASE HAVE NOT BEEN DOUBTED. IT IS SETTLED LAW THAT WHEN SALES ARE NOT DOUBTED ENTIRE PURCHASES CANNOT BE DISALLOWED. WE FURTHER FIND THAT HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF NIKUNJ EXIMP ENTERPRISES HAS UPHELD 100% ALLOWANCE FOR THE DISPUTED PURCHASES WHEN THE SALES HAVE NOT BEEN DOUBTED. HOWEVER, THE FACTS OF THAT CASE WERE DIFFERENT. FURTHERMORE, THE SALES IN THAT CASE WERE BASICALLY TO GOVERNMENT DEPARTMENTS. HENCE THE RATIO FROM THIS DECISION IS NOT FULLY APPLICABLE ON THE FACTS OF THE CASE. HOWEVER, IT IS EVIDENT THAT WHEN SALES ARE NOT DOUBTED THERE CANNOT BE ANY 100% DISALLOWANCE FOR BOGUS PURCHASES. FACTS OF THE CASE INDICATE THAT ASSESSEE HAD MADE PURCHASES FROM THE GREY ITA NO.85/MUM/2017. SHRI SRIKANT RAGHAV RAJU. 7 MARKET. MAKING PURCHASES THROUGH THE GREY MARKET GIVES THE ASSESSEE BENEFITS AND SAVINGS ON ACCOUNT OF NON-PAYMENT OF TAXES AND OTHERS AT THE EXPENSE OF THE EXCHEQUER. IN SUCH CIRCUMSTANCES, IN OUR CONSIDERED OPINION, DISALLOWANCE OF 15% OF THE BOGUS PURCHASE AS UPHELD BY THE LEARNED CIT(A) MEETS THE ENDS OF JUSTICE. ACCORDINGLY, WE CONFIRM THE ORDER OF THE LEARNED CIT(A). 10. IN THE RESULT, THIS APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED ON THIS 3 RD DAY OF OCTOBER, 2017. SD/- SD/- ( SHAKTIJIT DEY ) ( SHAMIM YAHYA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 03.10.2017. DEVDAS* / COPY OF THE ORDER FORWARDED TO : / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT, MUMBAI. 4. / CIT(A), MUMBAI 5. , , / DR, ITAT, MUMBAI 6. [ / GUARD FILE.