DCIT C.C. 22, MUMBAI V. PIONEER EMBROIDERIES LTD, MUMBAI

ITA 96/MUM/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 4365 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-10-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 05-10-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 06-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K SINHA
• Keywords: Bogus purchase; Loose papers; Opportunity of being heard; Accommodation entries; Tax effect

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C,MUMBAI BEFORE SHRI R.S. SYAL (AM) & SHRI V. DURGA RAO (JM) I.T.A.NOS.1891, 1823 & 1824/MUM/2009 (A.Y. 2001-02, 2003-04 & 2005-06) M/S.PIONEER EMBROIDERIES LTD., HAKOBA COMPOUND, WESTERN EXP.HIGHWAY, BORIVLI (E), MUMBAI-400 067. PAN: AAACP3869R VS. DY.COMMR. OF INCOME-TAX, CENT. CIR.22, MUMBAI. APPELLANT RESPONDENT I.T.A.NOS.3162, 3163 & 96/MUM/2009 (A.Y. 2001-02, 2002-03 & 2003-04) DY.COMMR. OF INCOME-TAX, CENT. CIR.22, MUMBAI. VS. M/S.PIONEER EMBROIDERIES LTD., HAKOBA COMPOUND, WESTERN EXP.HIGHWAY, BORIVLI (E), MUMBAI-400 067. PAN: AAACP3869R APPELLANT RESPONDENT ASSESSEE BY SHRI RA KESH JOSHI. DEPARTMENT BY SHRI A. K. SINHA O R D E R PER R.S. SYAL, AM : THIS BATCH OF SIX APPEALS THREE BY THE ASSESSEE AND EQUAL NUMBER BY THE REVENUE - RELATE TO THE ASSTT. YEARS 2001-02, 2002-03, 2003-04 & 2005-06. SINCE COMMON ISSUES ARE RAISED IN THESE APPEALS, WE ARE, THEREFORE, PROCEEDING TO DISPOSE THEM OF BY THIS CONSOLIDATED ORDER FOR T HE SAKE OF CONVENIENCE. ITA 1891/M/09 ETC. (6 APPEALS) PIONEER EMBROIDERIES LTD. 2 A.Y. 2003-04: 2. THE LD. A.R. DID NOT PRESS THE APPEAL FILED BY THE ASSESSEE FOR THE ASSTT. YEAR 2003-04. THE SAME IS HEREBY DISMISSED. 3. THE REVENUES APPEAL IS AGAINST THE ALLOWING OF RELIEF U/S.80-IA. ON BEING POINTED OUT BY THE LD. AR, IT WAS CANDIDLY CONCEDED BY THE LD. D.R. THAT THE TAX EFFECT INVOLVED IN THIS APPEAL IS LESS THAN RS.2 LA KHS. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. CAMCO COLOUR CO. (2002) 254 ITR 565 (BOM.) HAS HELD THAT THE APPEALS FILED BY THE REVENUE, WHE RE THE TAX EFFECT IS LESS THAN THE PRESCRIBED CEILING GIVEN IN THE RELEVANT INSTRU CTION, HAVE TO BE DISMISSED. SIMILAR VIEW HAS BEEN REITERATED IN SUBSEQUENT JUDG MENTS ALSO. IN VIEW OF THE FACT THAT THE TAX EFFECT IN THE PRESENT APPEAL IS L ESS THAN THE PRESCRIBED MINIMUM, WE ARE OF THE CONSIDERED OPINION THAT THIS APPEAL IS NOT MAINTAINABLE AND HENCE LIABLE TO BE DISMISSED. 4. IN THE RESULT, BOTH THE APPEALS FOR THE ASSTT. Y EAR 2003-04 ARE DISMISSED. A.Y. 2001-02: 5. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT A SEARCH ACTION WAS TAKEN UPON THE ASSESSEE ON 24-11-2004 AND 05-01-2005. DUR ING THE SEARCH PROCEEDINGS, CERTAIN INCRIMINATING DOCUMENTS WERE F OUND OUT. THESE DOCUMENTS WERE MARKED AS ANNEXURE A-7 TO A-10 AND A-1 TO A-3. THESE CONTAINED CERTAIN PURCHASE BILLS. DURING THE SEARCH ACTION, THE STATE MENT OF SHRI GAURISHANKAR J. GUPTA, THE ACCOUNTANT OF THE ASSESSEE COMPANY, WAS RECORDED, IN WHICH HE ADMITTED THAT THE TOTAL PURCHASE BILLS WERE PARTLY GENUINE AND PARTLY ITA 1891/M/09 ETC. (6 APPEALS) PIONEER EMBROIDERIES LTD. 3 ACCOMMODATION ENTRIES. IT WAS EXPLAINED THAT WHERE THERE WERE ONLY PURCHASE VOUCHERS AND PURCHASE BILLS ISSUED BY THE PARTIES, SUCH WERE ONLY ACCOMMODATION BILLS IN WHICH CASES PAYMENTS WERE MADE TO THE CONC ERNED PARTIES BY CHEQUE AND CASH WAS RECEIVED BACK. ABOUT THE OTHER PURCHASE BI LLS HAVING COMPLETE DETAILS SUCH AS EVIDENCE OF TRANSPORTATION ETC., THOSE WERE ADMITTED TO BE GENUINE. A TABLE INDICATING TOTAL BOGUS PURCHASES AND GENUINE PURCHASES WAS PREPARED AND GIVEN TO THE SEARCH PARTY WHICH INDICATED THE BOGUS PURCHASES TO THE TUNE OF RS.1,89,37,686/-. THEN THE STATEMENT OF SHRI PRADIP SINGH, PURCHASE EXECUTIVE, WAS ALSO RECORDED ON THE SAME DAY I.E. 25-11-2004 I N WHICH HE REITERATED THE CONTENTS OF THE STATEMENT OF SHRI GAURISHANKAR J. G UPTA. THE AUTHORITIES ALSO RECORDED THE STATEMENT OF SHRI AJAY AGARWAL, DIRECT OR, ON 25-11-2004, WHO REFUSED TO MAKE ANY COMMENT ON THE BILLS ON THE GRO UND THAT HE WAS NOT LOOKING AFTER PURCHASES IN THE RELEVANT PERIOD. LASTLY, THE STATEMENT OF SHRI RAJKUMAR SHEKHANI, CHAIRMAN OF THE COMPANY, WAS RECORDED ON 25-11-2004 ENQUIRING ABOUT THE LOOSE PAPERS INVENTORIZED AS ANNEXURE A-7 TO A-10. HE ALSO STATED THAT HE WAS NOT INVOLVED IN THE DAY TO DAY PURCHASE TRAN SACTIONS AND HENCE WAS UNAWARE OF THE GENUINE OR BOGUS PURCHASES. AGAIN, H IS STATEMENT WAS RECORDED ON 6-1-2005. IN ANSWER TO QUESTION NO. 2, HE REAFFI RMED THAT HE WAS NOT LOOKING AFTER THE DAY TO DAY PURCHASES OF THE COMPANY. PAGE NOS.21 TO 23 OF THE ASSESSMENT ORDER CONTAIN A TABLE DRAWN BY THE DDIT CONTAINING DETAILS OF NAME & ADDRESS OF PARTY, FINANCIAL YEAR, YEARWISE BIFURC ATION OF TOTAL PURCHASES INTO GENUINE AND BOGUS PURCHASES. THIS INDICATED THE FIG URE OF TOTAL BOGUS PURCHASE FOR FINANCIAL YEARS 2001-02 AND 2002-03 AT RS.1.89 CRORE. ITA 1891/M/09 ETC. (6 APPEALS) PIONEER EMBROIDERIES LTD. 4 6. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, THE ASSESSEE WAS AGAIN CALLED UPON TO EXPLAIN ABOUT THE BOGUS PURCHASES, T O WHICH IT WAS INITIALLY SUBMITTED THAT THERE WERE NO BOGUS PURCHASES AT AL L AND FURTHER IT WAS STATED THAT THE TOTAL AMOUNT OF BOGUS PURCHASES, AS GIVEN IN THE TABLE WAS AT RS.1.24 CRORE AS AGAINST THE AMOUNT OF RS.1.89 CRORE. THE A O VERIFIED THE ASSESSEES CONTENTION AND FOUND THAT THERE WAS AN ARITHMETICAL MISTAKE INASMUCH AS THE TOTAL OF COLUMN NO. 5, BEING BOGUS PURCHASES, COME S TO RS.1.24 CRORE. THEREAFTER, ANOTHER SHOW CAUSE NOTICE WAS ISSUED I NQUIRING AS TO WHY THE AMOUNT OF BOGUS PURCHASES WAS NOT OFFERED FOR TAX ATION AS UNDISCLOSED INCOME IN THE RETURNS FILED. THE ASSESSEE REPLIED THAT THE RE WERE NO BOGUS PURCHASES. THE ASSESSEE ALSO FURNISHED PROOF ON GENUINENESS OF PURCHASES MADE FROM TWO PARTIES, VIZ., M/S. MANISHA ENTERPRISES AND M/S. U. K. ENTERPRISES, WHICH WERE INCLUDED BY THE A.O. IN THE LIST OF BOGUS PURCHASES . THE AO VERIFIED THE DETAILS SUBMITTED BY THE ASSESSEE QUA THESE TWO PARTIES AND GOT SATISFIED WITH THE ASSESSEES CONTENTION ABOUT THE GENUINENESS OF THE SE PURCHASES. AFTER REDUCING THE AMOUNT OF PURCHASES MADE FROM THESE TWO PARTIES , THE TOTAL FIGURE OF BOGUS PURCHASES WAS FINALLY DETERMINED AT RS.83,12,043/- FOR THIS YEAR, FOR WHICH THE ADDITION WAS MADE. 7. THE ASSESSEE CHALLENGED THE ACTION OF THE AO IN MAKING THE ADDITION BEFORE THE LD. CIT(A) PUTTING FORTH CERTAIN ADDITIO NAL EVIDENCE IN THE SHAPE OF STATEMENT OF ACCOUNTS OF SOME OF THE PARTIES, THEIR INCOME-TAX PARTICULARS, ETC. THE LD. CIT(A) CALLED UPON FOR REMAND REPORT FROM T HE AO. AFTER CONSIDERING ALL THE RELEVANT FACTS AND REMAND REPORT, THE LD. CIT(A ) HELD THAT THE PURCHASES FROM M/S. CHHAJAR SYNTHETIC P.LTD., M/S. CHIRAG SILK MIL LS, M/S. BHARTI EMBROIDERY AND ITA 1891/M/09 ETC. (6 APPEALS) PIONEER EMBROIDERIES LTD. 5 M/S. JUST FABRICS WERE BOGUS AND THOSE MADE FROM O THER PARTIES LISTED IN THE TABLE WERE GENUINE. BOTH THE SIDES ARE IN APPEAL BE FORE US ON THEIR RESPECTIVE STANDS. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NOTED THAT THE ONLY BASIS FOR MAKING THE ADDITION IS THE STATEMENT OF THE ACCOUNTANT AND PURCHASE EXECUTIVE WHO ADMITTED THAT SOME OF THE PURCHASE AMOUNTS RECORDED IN THE BOOKS OF ACCOUNT WERE GENUI NE WHILE THE OTHERS WERE BOGUS. THE ACCOUNTANT GAVE THE TOTAL FIGURE OF SUCH BOGUS PURCHASES AT RS.1.89 CRORE. THE DIRECTOR OF THE COMPANY AS WELL AS ITS C HAIRMAN DID NOT ADMIT ANY OF SUCH PURCHASES TO BE BOGUS BY CONTENDING THAT THEY WERE NOT INVOLVED IN PURCHASE TRANSACTIONS AT THE MATERIAL TIME. THE AO STARTED WITH THE FIGURE OF BOGUS PURCHASES AS GIVEN BY THE ACCOUNTANT AT RS.1. 89 CRORE AND THEREAFTER, WHEN ARITHMETICAL MISTAKES WERE POINTED OUT, ADMIT TED THAT THE CORRECT FIGURE AT RS.1.24 CRORE. DURING THE COURSE OF ASSESSMENT PROC EEDINGS, THE ASSESSEE LED EVIDENCE ABOUT THE GENUINENESS OF PURCHASE TRANSACT IONS WITH M/S. MANISHA ENTERPRISES AND M/S. U.K. ENTERPRISES WHICH THE AO ALSO ADMITTED AS GENUINE. THEREAFTER, DURING THE COURSE OF FIRST APPELLATE PR OCEEDINGS, REMAND REPORT WAS CALLED FOR FROM THE AO ON EVIDENCE FURNISHED BY TH E ASSESSEE FOR THE FIRST TIME IN APPEAL, IN SUPPORT OF THE GENUINENESS OF PURCHASES WHICH WERE TREATED BY THE AO AS BOGUS. THE AO ADMITTED IN THE REMAND PROCEEDINGS THAT CERTAIN TRANSACTIONS WERE GENUINE AND OTHERS NOT. FROM THE NARRATION OF ABOVE FACTS, IT IS NOTED THAT THE SOLE BASIS FOR THE ADDITION HAS BEEN THE STATEM ENT MADE BY THE ACCOUNTANT AND PURCHASE EXECUTIVE ABOUT THE BOGUS PURCHASES M ADE BY THE ASSESSEE WHICH WAS NOT FOUND TO BE COMPLETELY TRUE INASMUCH AS THE AMOUNT OF BOGUS PURCHASES ITA 1891/M/09 ETC. (6 APPEALS) PIONEER EMBROIDERIES LTD. 6 WAS SUBSTANTIALLY REDUCED BY THE A.O. FROM THAT STA TED BY THE ACCOUNTANT. THE LD. A.R. HAS VEHEMENTLY ARGUED THAT THERE WAS NO SINGLE BOGUS PURCHASE AS ALLEGED BY THE AUTHORITIES BELOW INASMUCH AS THE ASSESSEE H AD COMPLETE DETAILS OF THE TOTAL PURCHASES MADE BY IT INCLUDING THOSE HELD BY THE AUTHORITIES BELOW TO BE BOGUS. IT IS OBSERVED THAT THE SEARCH ACTION WAS T AKEN IN THE YEAR 2004/2005. THE A.Y. 2005-06 (INFRA) , IS THE YEAR OF SEARCH. FROM THE RECORD IT IS NOTED THAT THE DIFFERENCE IN THE STOCK AS PER BOOKS OF ACCOUNT AND PHYSICAL INVENTORY IS VERY NOMINAL, ON THE BASIS OF WHICH THE ADDITION HAS BEE N MADE IN THAT YEAR. IT IS BY COMING BACKWARDS THAT THE ADDITION HAS BEEN MADE IN THE INSTANT YEAR ON THE BASIS OF STATEMENT OF ACCOUNTANT AND PURCHASE EXECU TIVE. IN ORDER TO JUSTIFY ANY ADDITION IN SUCH CIRCUMSTANCES, IT IS IMPERATIVE TO HAVE SOME SORT OF SUBSTANTIATION OF SUCH STATEMENT. IT IS BUT NATURA L THAT IF SOME PURCHASES ARE MADE WHICH ARE RECORDED IN THE STOCK REGISTER AND T HEREAFTER ON THEIR CONSUMPTION OR DIRECT SALE, THERE IS REDUCTION IN THE STOCK QUANTITY AND THE FINAL CLOSING STOCK AT THE END OF THE YEAR AS PER THE ST OCK RECORD TALLIES WITH THE FIGURE GIVEN IN THE BALANCE-SHEET, THERE CANNOT BE ANY QUE STION OF RECORDING BOGUS OR INGENUINE PURCHASES. HERE IS A CASE IN WHICH THE AS SESSEE IS A LIMITED COMPANY WHICH HAD ADMITTEDLY MAINTAINED COMPLETE STOCK REGI STER. NO ATTEMPT HAS BEEN MADE BY THE AUTHORITIES TO CORRELATE THE TOTAL PURC HASES MADE BY THE ASSESSEE INCLUDING THE ALLEGED BOGUS PURCHASES WITH THE STOC K RECORDS. IN OUR CONSIDERED OPINION, THE CASE OF BOGUS PURCHASES HAS NOT BEEN C ONCLUSIVELY PROVED. WE ARE EQUALLY CONSCIOUS OF THE FACT THAT THE ASSESSEES O WN ACCOUNTANT HAS ADMITTED THE FACTUM OF BOGUS PURCHASES. UNDER THESE CIRCUMS TANCES WE ARE OF THE CONSIDERED OPINION THAT TO MAKE OUT A FOOLPROOF CAS E OF BOGUS OR GENUINE PURCHASES, SOME SORT OF FURTHER VERIFICATION IS REQ UIRED IN THE LIGHT OF OUR ABOVE ITA 1891/M/09 ETC. (6 APPEALS) PIONEER EMBROIDERIES LTD. 7 OBSERVATIONS, VIZ., COMPARISON OF SUCH PURCHASES WI TH THE STOCK RECORDS. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER AND REMIT T HE MATTER TO THE FILE OF THE AO FOR A PROPER VERIFICATION IN THE LIGHT OF OUR ABOVE OBSERVATIONS. IF THE ASSESSEES CONTENTION IS FOUND TO BE CORRECT, I.E. THE TOTAL Q UANTITY OF GOODS PURCHASED INCLUDING GENUINE AND ALLEGED BOGUS PURCHASES TALLI ES WITH THE QUANTITATIVE RECORDS, OBVIOUSLY, NO ADDITION CAN BE MADE. IN TH E OTHERWISE POSITION, THE AO IS FREE TO DECIDE AS PER LAW. NEEDLESS TO SAY, A REASO NABLE OPPORTUNITY OF BEING HEARD WILL BE PROVIDED TO THE ASSESSEE IN THE FRESH PROCEEDINGS. THIS IS THE ONLY ISSUE IN BOTH THE APPEALS OF THE ASSESSEE AS WELL A S THE REVENUE. 9. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES. A.Y. 2002-03: 10. THE ONLY ISSUE RAISED BY THE REVENUE IN ITS AP PEAL IS AGAINST THE DELETION OF ADDITION ON ACCOUNT OF BOGUS PURCHASES. BOTH THE SIDES ARE IN AGREEMENT THAT THE FACTS AND CIRCUMSTANCES OF THIS YEAR ARE MUTATIS MUTANDIS SIMILAR TO THOSE OF ASSESSMENT YEAR 2001-02. FOLLOWING THE VIEW TAKEN H EREINABOVE, WE SET ASIDE THE IMPUGNED ORDER AND RESTORE THE MATTER TO THE FI LE OF THE AO FOR A FRESH DECISION IN ACCORDANCE WITH OUR ABOVE FINDINGS. 11. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES. ITA 1891/M/09 ETC. (6 APPEALS) PIONEER EMBROIDERIES LTD. 8 A.Y. 2005-06: 12. THE ONLY GROUND RAISED BY THE ASSESSEE IN ITS A PPEAL IS AGAINST THE CONFIRMATION OF ADDITION OF RS.1,37,901/- ON ACCOUN T OF UNEXPLAINED STOCK AND RS.2,04,949/- ON ACCOUNT OF UNEXPLAINED SALES. IT I S THIS ADDITION WHICH WAS MADE BY THE AO ON MAKING A COMPARISON OF THE FIGURE S OF PHYSICAL INVENTORY WITH THAT AS PER THE BOOKS OF ACCOUNT ON THE DATE OF SEA RCH. THE LD. A.R. ACCEPTED THE GENUINENESS OF ADDITION AND DID NOT PRESS HIS APPEA L. 13. IN THE RESULT, THIS APPEAL IS DISMISSED AS NOT PRESSED. ORDER PRONOUNCED ON THE 08 DAY OF OCTOBER, 2 010. SD/- SD/- (V. DURGA RAO) (R.S. SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI:08TH OCTOBER , 2010. NG: COPY TO : 1. ASSESSEE. 2.DEPARTMENT. 3 CIT(A), CENTRAL-IV,MUMBAI. 4 CIT, CENTRAL-II,MUMBAI. 5.DR,C BENCH,MUMBAI. 6.MASTER FILE. (TRUE COPY) BY ORDER, ASST.REGISTRAR, ITAT, MUMBAI. ITA 1891/M/09 ETC. (6 APPEALS) PIONEER EMBROIDERIES LTD. 9 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 5-10-10 SR.PS/ 2 DRAFT PLACED BEFORE AUTHOR 5-10-10 SR.PS/ 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER *