M/s. Sun Polymers, Jalna V. Income-tax Officer, Jalna

ITA 956/PUN/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 9150 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 07-01-2020
• Assessment Year: 2009-2010
• Appeal Filed On: 17-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bogus purchase; Unexplained investment; Depreciation; Accommodation entries
• Section: 133(6); 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE VIRTUAL COURT BEFORE SH RI R.S. SYAL, VICE PRESIDENT AND SH RI S.S. VISWANETHRA RAVI , J UDICIAL MEMBER I TA NO. 956 /PUN/2017 / ASSESSMENT YEAR : 20 09 - 10 M/S. SUN POLYMERS D - 55/2, A DDITIONAL MIDC AREA, JALNA 431203 PAN: AAPFS4537H VS. ITO, WARD - 1, JALNA APPELLANT RESPONDENT / ORDER PER R.S.SYAL , VP : TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 09 - 02 - 2017 PASSED BY THE CIT (A) - 1 , AURANGABAD , IN RELATION TO THE ASSESSMENT YEAR 20 09 - 10 . 2. IN ADDITION TO THE GROUNDS RAISED IN THE MEMORANDUM OF APPEAL, THE ASSESSEE HAS ALSO RA ISED TWO ADDITIONAL GROUND S. VIDE THE ADDITIONAL GROUND N UMBER 4, THE ASSESSEE HAS URG ED , WITHOUT PREJUDICE , THAT THE DISALLOWANCE OF DEPRECIATION ON THE ALLEGED HAWALA PURCHASE OF MACHINE S SHOULD BE RESTRICTED TO THE A SSESSEE BY SHRI KISHOR PHADKE RE VENUE BY SHRI S.P. WALIMBE DATE OF HEARING 0 5 - 08 - 2020 DATE OF PRONOUNCEMENT 05 - 0 8 - 2020 ITA NO . 956 /PUN/ 2017 M/S. SUN POLYMERS 2 PROPORTIONATE DEPRECIATION BY APPLYIN G REASONABLE GROSS PROFIT RATE ON SUCH ALLEGED HAWALA PURCHASE TRANSACTION S . 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER (AO) GOT SOME INFORMATION ABOUT THE ASSESSEE FIRM HAVING OBTAINED ACCOMMODATION ENTRIES FROM HAWALA OPERATO RS TO THE TUNE OF RS.59,38,95 5 / - , CONSISTING OF RS.37,12,576 / - FROM M/S. PRATHAMESH IMPEX, MUMBAI AND RS.22,26,379/ - FROM M/S. MERIDIAN SALES PRIVATE LIMITED, MUMBAI. THESE PURCHASES RELATED TO CERTAIN MACHINES WHICH WERE CAPITALIZED BY THE ASSESSEE IN IT S BOOKS OF ACCOUNT. THE INFORMATION RECEIVED BY THE AO ALSO INCLUDED AFFIDAVITS MADE BY THE ALLEGED SELLERS BEFORE THE SALES AUTHORITIES TO THE EFFECT THAT THEY HAD NOT SOLD ANY GOODS TO THE ASSESSEE AND THE TRANSACTION S WERE ARRANGED FOR PALTRY COMMISSIO N. THE ASSESSEE WAS CALLED UPON TO FURNISH PURCHASE BILLS, EVIDENCE OF TRANSPORTATION, EVIDENCE OF INSTA LLATION AND PUTTING THE MACHINES TO USE AND OTHER SUBSTANTIAL EVIDENCE IN THE FORM OF LORRY RECEIPTS, DELIVERY CHALLANS ETC. THE ASSESSEE FURNISHED IN COMPLETE INFORMATION. THE AO GOT CONDUCTED AN INDEPENDENT ENQUIRY BY CALLING INFORMATION U/S 133(6) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER ALSO CALLED `THE ACT) FROM THE ABOVE HAWALA DEALERS ITA NO . 956 /PUN/ 2017 M/S. SUN POLYMERS 3 AND THE BANKS IN WHICH THEY WE RE MAINTAINING ACCOUNTS FOR SUC H HAWALA RACKET. THE ENQUIRY TRANSPIRED THAT THERE WAS NO EXISTENCE OF GENUINE BUSINESS ES AND FURTHER THE BANK ACCOUNTS INDICATED THAT THE SAME WERE USED FOR ONLY ACCOMMODATION ENTRIES IN AS MUCH AS THE CHEQUES ACCEPTED ON ACCOUNT OF FAKE SALE BILL S WERE DEPOSITED AND SIMULTANEOUSLY CASH WAS WITHDRAWN FOR RETURNING THE MONEY FROM WHOM THE SE WERE TAKEN , AFTER DEDUCTING COMMISSION. THE ASST. COMMISSIONER OF SALES - TAX (INVESTIGATION), MUMBAI ALSO CARRIED OUT INVESTIGATION IN THE HAWALA MATTER AND RECORDED ST ATEMENTS , INTER ALIA, OF THE PERSONS REPRESENTING THE CONCERNS FROM WHOM THE ASSESSEE HAD SHOWN TO HAVE MADE PURCHASE OF MACHINES. SUCH PERSONS , IN THE IR STATEMENTS , SPECIFICALLY ADMITTED ON OATH THAT THEY HAD NOT DONE ANY REAL BUSINESS OF SALES AND THE BILLS WERE ISSUED TO THE CUSTOMERS WHO REQUIRE D THE BILLS. IN THE ABOVE BACKDROP OF FACTS, THE AO TREATED THE AMOUNT OF TWO PURCHASE BILLS OF RS.59,38,955/ - AS BOGUS INVESTMENT AND MADE ADDITION FOR THAT. IN ADDITION, THE AO ALSO DISALLOWED DEPRECIATION ON SUCH FIXED ASSETS TO THE TUNE OF RS.4,45,420/ - , BEING 7.50 % OF RS.59,38,955/ - . DURING THE COURSE OF THE FIRST APPELLATE PROCEEDINGS, THE ASSESSEE TRIED TO FURNISH SOME EVIDENCE PROVING ITA NO . 956 /PUN/ 2017 M/S. SUN POLYMERS 4 GENUINENESS OF THE TRANSACTION. THE LD. CIT(A) S ENT SUCH EVIDENCE TO THE AO AND CALLED FOR A REMAND REPORT. IN THE REMAND REPORT, THE AO STATED THAT HE VISITED THE FACTORY PREMISES OF THE ASSESSEE AND WANTED TO EXAMINE DELIVERY CHALLANS, WEIGHMENT SLIPS, ETC. IN RESPECT OF THREE I NJECTION MOULDING MACHINES, THAT IS, SM 250, SM 180 AND SM 80 , WHICH WERE CLAIMED TO HAVE BEEN PURCHASED FROM M/S. PRATHAMESH IMPEX, MUMBAI AND M/S. MERIDIAN SALES PVT. LTD. , MUMBAI. T HE ASSESSEE COULD NOT PRODUCE OCTROI RECEIPTS, WEIGHMENT SLIPS, ETC. ANENT TO THE MACHINES ALLEGEDLY PURCHASED FROM THE ABOVE TWO PARTIES. THE AO HOWEVER, FOUND THAT THESE MOULDING MACHINES , NAMELY , SM 250, SM 180 AND SM 80 WERE ACTUALLY INSTALLED AT THE FACTORY PREMISES OF THE ASSESSEE, BUT THERE WAS NO TAG DESCRIBING THE MODEL NUMBER OF THE MACHINE ETC. A COPY OF THE REMAND REPORT WAS GIVEN TO THE ASSESSEE FOR COMMENTS, WHO JUSTIFIED ITS STAND . THE LD. CIT(A) AFTER CONSIDERING THE OBJECTIONS OF ASSESSEE, REMAND REPORT AND OTHER RELEVANT EVIDENCE, DID NOT ACCEPT THE GENUINENESS OF THE PURCHASE TRANSACTIONS AND FOUND THAT THE PARTIES ISSUED BILLS FOR PALTRY COMMISSION. HE FURTHER OBSERVED THAT SINCE THE MACHINES WERE NOT PURCHASED FROM THE SO - CALLED HAWALA OPERATORS, IT COULD BE SAFELY INFERRED THAT THESE WERE ITA NO . 956 /PUN/ 2017 M/S. SUN POLYMERS 5 PURCHASED FROM OPEN MARKET AND ONLY THE BILLS WERE TA KEN FROM M/S. PRATHAMESH IMPEX, MUMBAI AND M/S. MERIDIAN SALES PVT. LTD. , MUMBAI . STILL FURTHER , HE DID NOT FIND ANY FORCE IN THE CONTENTION OF THE ASSESSEE THAT THE SAID MACHINES WERE HYPOTHECATED WITH CHIKHALI URBAN CO - OP. BANK, JALNA BRANCH. SINCE THE MACHINES WERE ACTUALLY PURCHASED BY THE ASSESSEE IN CASH FROM OPEN MARKET WHICH WERE NOT FOUND RECORDED IN THE BOOKS OF ACCOUNT, LD. CIT(A) CONFIRMED THE ADDITION OF RS.59,38,955/ - MADE U/S 69 OF THE ACT. HE ALSO APPROVED THE ACTION OF AO IN DISALLOWING THE AMOUNT OF DEPRECIATION. THE ASSESSEE IS AGGRIEVED BY THE CONFIRMATION OF ABOVE ADDITIONS. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS THROUGH VIRTUAL COURT AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. IT IS EVIDENT FROM THE REMAND REPORT, WHICH HAS B EEN REPRODUCED IN PARA 5.1 OF THE IMPUGNED ORDER , THAT THE AO PERSONALLY VISITED THE FACTORY PREMISES OF THE ASSESSEE AND FOUND THREE INJECTION MOULDING MACHINES I.E. SM 250, SM 180 AND SM 80 ACTUALLY INSTALLED. IT IS FURTHER TRUE THAT THE ASSESSEE RECORD ED PURCHASE OF THESE MACHINES FROM M/S. PRATHAMESH IMPEX, MUMBAI AND M/S. MERIDIAN SALES PVT. LTD., MUMBAI, IN RESPECT OF WHICH THE ASSESSEE COULD NOT ITA NO . 956 /PUN/ 2017 M/S. SUN POLYMERS 6 SUBST ANTIATE THE RECEIPT OF MACHINES EXCEPT FOR THE BILLS. THE AO IN HIS REMAND REPORT HAS OBSERVED IN P ARA III) THAT : A S THERE WAS NO SPECIFICATION ON THE THREE INJECTION MOULDING MACHINES, IT WAS DIFFICULT TO CONCLUDE THAT THE MACHINES INSTALLED AT THE FACTORY PREMISES WERE THE SAME AS DESCRIBED IN THE BILLS . HE FURTHER OBSERVED IN PARA V) THAT : O N I NSPECTION OF THREE MOULDING MACHINES, IT WAS SEEN THAT THERE WAS NO TAG ON ANY OF THESE MACHINES DESCRIB ING MODEL NUMBER OF THE MACHINE , BRAND NAME OF THE COMPANY WHICH HAD MANUFACTURED THESE MACHINES. THE LD. CIT(A) IN PARA 5.2 OF THE I MPUGNED ORDER HAS OBSERVED THAT: S INCE THE ALLEGED MACHINES WERE NOT PURCHASED FROM THE SO - CALLED HAWALA OPERATORS, IT CAN BE SAFELY INFERRED THAT THESE WERE PURCHASED FROM THE OPEN MARKET AND ONLY THE BILLS WERE TAKEN FROM M/S. PRATHAMESH IMPEX, MUMBAI AND M/S. MERIDIAN SALES PVT. LTD., MUMBAI . IN THE LATER PART OF THE SAME PARA, HE FURTHER OBSERVED THAT : I T IS NOT IN DISPUTE THAT MACHINES PURCHASED FROM THE OPEN MARKET WERE FOUND INSTALLED AT THE FACTORY PREMISES OF THE APPELLANT FIRM . AS TO THE CONTENTION OF ASSESS EE THAT THE SAID MACHINES W ERE HYPOTHECATED WITH THE CHIKHALI URBAN CO - OP. BANK, JALNA BRANCH, LD. CIT(A) HELD THAT THE : SAME WAS ALSO ITA NO . 956 /PUN/ 2017 M/S. SUN POLYMERS 7 IMMATERIAL SINCE THE BANK OFFICIALS MUST HAVE INSPECTED THE MACHINERY PURCHASED FROM OPEN MARKET . IN VIEW OF THE ABOVE UNASSAILED FINDINGS RETURNED BY THE LD. CIT(A) AND ALSO THE AO IN THE REMAND REPORT, IT IS CLEARLY ESTABLISHED THAT THE ASSESSEE , IN FACT, PURCHASED INJECTION MOULDING MACHINES , NAMELY , SM 250, SM 180 AND SM 80 FROM THE OPEN MARKET BUT OBTAINED THE BILLS WITH HIGHER VALUE OF THE SAME MACHINES FROM M/S. PRATHAMESH IMPEX, MUMBAI AND M/S. MERIDIAN SALES PVT. LTD., MUMBAI , WHICH WERE RECORDED IN THE BOOKS OF ACCOUNT . IN VIEW OF T HE FACT THAT THE MACHINES WERE ACTUALLY INSTALLED AT THE FACTORY PREMISES OF ASSE SSEE, WHICH FACT HAS BEEN A DMITTED BY THE REVENUE AUTHORITIES , THERE CAN BE NO REASON TO REPEL THE EXPLANATION OF ASSESSEE MADE IN THE ALTERNATE AND WITHOUT P REJUDICE THAT THE SAME MACHINES W ERE ACTUALLY PURCHASED IN THE OPEN MARKET AND INSTALLED AT THE FA CTORY PREMISES, FOR WHICH INVOICES WITH HIGHER VALUE WERE OBTAINED. TO PUT IT SIMPLY, SUPPOSE THE ASSESSEE OBTAINED BILLS WORTH RS.100/ - FOR THE P URCHASE OF THESE THREE MACHINE S FROM M/S. PRATHAMESH IMPEX, MUMBAI AND M/S. MERIDIAN SALES PVT. LTD., MUMBAI AND GOT RS.99 BACK AFTER DEDUCTION OF THEIR COMMISSION , SAY , RE.1/ - . THEN, CASH OBTAINED FROM THE HAWALA OPERATORS, WAS UTILISED FOR PURCHAS ING ITA NO . 956 /PUN/ 2017 M/S. SUN POLYMERS 8 MACHINES FROM THE GREY MARKET AT RS.85/ - . UNDER SUCH CIRCUMSTANCES, IT COULD NOT BE SAID THAT EITHER THE AMOUNT OF RS.100/ - OR RS.85/ - WA S UNEXPLAINED INVESTMENT COVERED U/S 69 OF THE ACT. SINCE RS.100/ - INITIALLY WENT OUT FROM THE COFFERS OF THE ASSESSEE THROUGH BANKING CHANNEL, THE SAME C OULD NOT BE TREATED AS UNEXPLAINED AS TO BRING IT WITHIN THE PURVIEW OF SEC TION 69 OF THE ACT. IN THE LIKE MANNER, WHEN THE ASSESSEE PURCHASED MACHINES IN THE OPEN MARKET AT RS.85/ - , OUT OF RS.99/ - RECEIVED BACK FROM THE HAWALA OPERATORS , AGAIN , THE PURCHASES TO THE TUNE OF RS.85/ - ALSO CANNOT BE CONSIDERED AS MADE FROM ANY UNEXP LAINED SOURCE. IN THE ENTIRE TRANSACTIONS OF OBTAINING FAKE BILLS FROM THE HAWALA OPERATORS AND ACTUALLY INSTALLING S UCH MACHINES BY PURCHASING THEM FROM GREY MARKET, THE ONLY THING WHICH CAN CALL FOR DISALLOWANCE IS DEPRECIATION CLAIMED BY THE ASSESSEE O N EXCESS PURCHASE PRICE OF THE MACHINES. THE LD. AR HAS PLACED ON RECORD A CHART SHOWING COMPILATION OF ORDERS PASSED BY THE TRIBUNAL , IN WHICH GP RATE ON BOGUS PURCHASES HAS BEEN APPLIED VARYING BETWEEN 5% TO 25%. CONSIDERING THE ENTIRE GAMUT OF THE CAS E AND PECULIAR FACTS AND CIRCUMSTANCES OBTAINING IN THE INSTANT CASE, WE HOLD THAT GP RATE IN THE EXTANT HAWALA TRANSACTIONS IS 15% AND THE ITA NO . 956 /PUN/ 2017 M/S. SUN POLYMERS 9 ASSESSEE ACTUALLY PURCHASED MACHINERY AT 85 % OF THE DECLARED VALUE , FOR WHICH THE BILLS WERE OBTAINED FOR 100 % . IN THAT VIEW OF THE MAT TER, PURCHASE VALUE OF THE MACHINES WILL GET REDUCED TO 85 % INSTEAD OF 100 % AND THE CLAIM OF DEPRECIATION ON SUCH EXCESS OF 15 % WILL BE DISALLOWED IN THE YEAR UNDER CONSIDERATION AND ALL THE SUBSEQUENT YEARS. TO SUM UP, WE HOLD THAT TH E ADDITION OF RS.59,38,955/ - AS HAVING BEEN MADE AND CONFIRMED U/S 69 OF THE ACT , IS UNWARRANTED. THE SAME IS ACCORDINGLY DELETED. IN SO FAR AS THE DISALLOWANCE OF DEPRECIATION OF RS. 4,45,420/ - IS CONCERNED, WE DIRECT TO RESTRICT IT BY REDUCING THE ACTUA L COST OF SUCH MACHINES BY 15% FROM RS.59,38,955/ - TO RS.50,48,111/ - AND ACCORDINGLY DISALLOW THE DEPRECIATION ON THE EXCESS AMOUNT OF RS.8,90,844/ - . 5. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 05 TH AUGUST , 2020 . SD/ - SD/ - ( S.S. VISWANETHRA RAVI ) ( R.S.SYAL ) JUDICIAL MEMBER VICE PRESIDENT PUNE ; DATED : 05 TH AUGUST , 2020 GCVSR ITA NO . 956 /PUN/ 2017 M/S. SUN POLYMERS 10 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT - 3 , PUNE 4 . 5. THE PR.CIT - 2, PUNE , , / DR A , IT AT, PUNE 6 . / GUARD FILE / BY ORDER, / / TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE DATE 1. DRAFT DICTATED ON 0 5 - 08 - 2020 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 0 5 - 08 - 2020 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOAD ING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *