TV TELESHOP PRIVATE LIMITED, MUMBAI V. INCOME TAX OFFICER 10(1)(4), MUMBAI

ITA 992/MUM/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2957 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 21-02-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN KUMAR SINGH
• Keywords: Bogus purchase
• Section: 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI AMARJIT SINGH, JM ITA NO S . 992 & 991/MUM/2018 (ASSESSMENT YEAR S : 2009 - 10 & 2010 - 11 ) TV TELESHOP PRIVATE LIMITED SHOP NO.10, BHAVESHWAR PLAZA, L.B.S. MARG, GHATLOPAR (W), MUMBAI - 400 086 VS. ITO - 10(1)(4) ROOM NO. 457, 4 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI - 400 020 PAN/GIR NO. AAECM 1078 M ( APPELLANT ) : ( RESPONDENT ) APPELLANT BY : SHRI VIRAJ MEHTA RESPONDENT BY : SHRI CHAUDHARY ARUN KUMAR SINGH DATE OF HEARING : 18.02.2019 DATE OF PRONOUNCEMENT : 01.03 .2019 O R D E R PER BENCH : TH E ASSESSEE IN THESE APPEALS AGGRIEVED BY THE RESPECTIVE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 22, MUMBAI (LD.CIT(A) FOR SHORT) DATED 21.11.2017 AND PERTAINS TO THE ASSESSMENT YEAR S (A.Y.) 2009 - 10 AND 2010 - 11 SUSTAINING 15% DISALLOWANCE OUT OF BOGUS PURCHASE AS UNDER: A.Y. 2009 - 10 RS.62,72,932/ - A.Y. 2010 - 11 RS.45,45,002/ - 2. SINCE THE ISSUES ARE SAME, WE ARE REFERRING TO FACTS AND FIGURES FROM THE A.Y. 2009 - 10. 3. BRIEF FACTS OF THE CASE ARE THAT IT WAS OBSERVED BY THE A.O. THAT AS PER THE INFORMATION RECEIVED FROM THE INVESTIGATION WING OF THE INCOME TAX DEPARTMENT, MUMBAI, THE ASSESSEE COMPANY WAS ONE OF THE BENEFICIARIES OF HAWALA TRANSACTIONS ROUTED THROUGH THE HAWALA DEALERS AS INFORMED BY THE SALES TAX (VAT) DEPARTMENT, STATE 2 ITA NOS. 992 & 991/MUM/2018 OF MA HARASHTRA . DURING T HE YEAR THE ASSESSEE COMPANY HAD SHOWN PURCHASES FROM THE FOLLOWING ALLEGED HAWA L A PARTIES: SI. NO. NAME OF THE PARTY PURCHASE VALUE RS. 1 OMKAR TRADING 4250026 2 SOMNATH INTERNATIONAL 1078002 3 FORAM TRADERS/APPLE INDIA MARKETING LTD. 5450681 4 RUMEET ENTERPRISES 2,55,53,472 5 N.K. TRADING & CO. 2,20,850 6 NAGESHWAR MARKETING PVT. 10,99,912 7 KALPURNA TRADING PVT. LTD. 41,06,606 TOTAL 4,18,19,549 4. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE COMPANY WAS CONFRONTED WITH THE ABOVE INFORMATION RECEIVED FROM THE SALES TAX (VAT) DEPARTMENT, STATE OF MAHARASHTRA AND WAS ASKED TO FURNISH THE COPIES OF PURCHASE ORDERS, BILLS RAISED, NATURE OF EXPENDITURE, GOODS RECEIPT NOTE (GRN), GOODS /SURVEY INSPE CTION REPORT, DELIVERY CHALLAN (S) / LORRY RECEIPT(S), DETAILS OF PAYMENT(S) MADE, ALL OTHER RELEVANT DETAILS WITH SUPPORTING DOCUMENTARY EVIDENCE, DETAILS OF TRANSPORTATION OF GOODS AND DOCUMENTARY EVIDENCE REFLECTING THE RELEVANT ENTRIES OF HAVING RECEIV ED SUCH GOODS IN THE PREMISES OF THE ASSESSEE AND HAVING CONSUMED SUCH GOODS EITHER DURING THE YEAR OR IN SUBSEQUENT YEAR(S). IN RESPONSE, THE ASSESSEE COMPANY FURNISHED THE COPIES OF LEDGER A/C. OF THE PARTIES AND COPIES OF SALES INVOICES RAISED BY THE FE W PARTIES. ON THE BASIS OF ADDRESSES AVAILABLE IN THE COPIES OF LEDGER A/C. SALES INVOICES, TO VERIFY THE GENUINENESS OF THE AFORESAID TRANSACTIONS AS SHOWN BY THE ASSESSEE COMPANY, THE A.O. ISSUED NOTICES U/S.133(6) TO THE PARTIES, CALLING FOR INFORMATION . THE NOTICES WERE SENT THROUGH THE NOTICE SERVER AND INSPECTOR BUT COULD NOT BE SERVED DUE TO NON EXISTENCE OF THE PARTIES AT THE GIVEN ADDRESSES. THIS FACT WAS INFORMED TO THE AR OF THE ASSESSEE . FURTHER, TO OFFER AN 3 ITA NOS. 992 & 991/MUM/2018 OPPORTUNITY, VIDE NOTICE U/S.142(1) D ATED 11.03.2014 THE ASSESSEE COMPANY WAS ASKED TO FURNISH THE FRESH ADDRESSES IF ANY OF THE AFORESAID PARTIES AND ALSO PROVE THE GENUINENESS OF PURCHASES TRANSACTIONS ENTERED WITH THE AFORESAID PARTIES WITH ALL RELEVANT SUPPORTING DOCUMENTARY EVIDENCES I.E . COPIES OF PURCHASE ORDERS, COPIES OF BILLS RAISED/INVOICES RAISED, GOODS RECEIPT NOTE (GRN), GOODS/SURVEY INSPECTION REPORT, DELIVERY CHALLAN(S)/LORRY RECEIPT(S), DETAILS OF PAYMENT(S) MADE AND ALL OTHE RELEVANT DETAILS WITH SUPPORTING DOCUMENTARY EVIDEN CES, ETC. HOWEVER, THE ASSESSEE COMPANY DID NOT FURNISH ANY SUCH DETAILS OR PRODUCE THE PARTIES FOR VERIFICATION. THE ASSESSEE WAS, THUS, ASKED TO SHOW CAUSE AS TO WHY THESE PURCHASES SHOULD NOT BE CONSIDERED AS BOGUS AND THE SAME BE DISALLOWED ACCORDINGLY . 5. IN RESPONSE, THE DIRECTOR OF THE ASSESSEE COMPANY ATTENDED AND MADE SUBMISSIONS VIDE LETTER DATED 24.03.2014 WHEREIN IT WAS SUBMITTED THAT FROM THE PERUSAL OF THE STATEMENT SHOWING PURCHASES AND CORRESPONDING SALES IT COULD BE VERY CLEARLY SEEN THAT THERE WAS A CLEAR ONE - TO - ONE IDENTIFIABLE PURCHASES AND SALES. FURTHER, THE ASSESSEE CONTENDED WITHOUT PURCHASING AN ITEM IT WOULD NOT HAVE BEEN POSSIBLE FOR IT TO SELL THE SAME. THAT THE PURCHASES WERE IMPERATIVE FOR THE SALE SINCE THERE WAS AN ITEM TO ITEM CORRELATION AND TRACKING OF THE AFORE - STATED PURCHASE TO THE SALES RECORDED BY THE ASSESSEE . THE ASSESSEE FURTHER CONTENDED THAT MERELY BECAUSE THE AFORESAID VENDORS HAD DEFAULTED PAYMENT UNDER THE SALES TAX IT COULD NOT BE CONSIDERED THAT THE ASSESSEE 'S PURCHASES WERE NOT GENUINE ESPECIALLY SINCE THE ASSESSEE 'S QUANTITATIVE DETAILS WERE OF PURCHASES AND SALES WERE PERFECTLY TALLIED AND CORRELATED AND WITHOUT P URCHASES THE SALES COULD NOT HAVE BEEN MADE. SOME OF THE PAYMENTS TO THE PURCHASE PARTIES HAD BEEN PAID THROUGH LETTER OF CREDIT OPENED BY BANK IN THE NAME OF SAID PARTIES. 4 ITA NOS. 992 & 991/MUM/2018 6. THE SUBMISSIONS OF THE ASSESSEE COMPANY VIS - A - VIS THE OTHER DETAILS ON RECORD WE RE CONSIDERED BY THE A.O. HOWEVER, THE SUBMISSIONS OF THE ASSESSEE WERE NOT FOUND ACCEPTABLE BY THE AO. IT WAS A MATTER OF RECORD THAT THE SALES TAX(VAT) DEPARTMENT HAD LISTED THE ABOVE MENTIONED PARTIES AS BEING HAWALA DEALERS WHO HAVE NOT SUPPLIED THE GO ODS BUT MERELY ISSUED ACCOMMODATION BILLS. THE ASSESSEE COULD NOT PROVE THE DELIVERY OF GOODS ALLEGED TO HAVE BEEN PURCHASED FROM THESE PARTIES. THE PARTIES WERE ALSO NON - EXISTENT AT THE GIVEN ADDRESSES. THE ASSESSEE ALSO COULD NOT PRODUCE THESE PARTIES. T HE FACT OF PAYMENT BY CHEQUE WAS NOT SACROSANCT AND DID NOT NECESSARILY MEAN THAT THE PURCHASES MADE FROM THESE PARTIES WERE GENUINE. IN VIEW OF ALL THESE, THE A.O. WAS OF THE CONSIDERED OPINION THAT THE TRANSACTIONS IN RESPECT OF THE MATERIAL SHOWN AS PUR CHASES BY THE ASSESSEE FROM THE ABOVE MENTIONED PARTIES WERE NOT GENUINE TRANSACTIONS. THE A.O. OBSERVED THAT IT WAS REASONABLY CLEAR AND GLARINGLY OBVIOUS THAT THE SALES INVOICES CLAIMED TO HAVE BEEN ISSUED BY THEM WERE FICTITIOUS ONES. THEREFORE, APPLYIN G THE RATIO OF THE DECISION IN THE CASE OF M/S. VIJAY PROTEINS LTD. (1996) (25 ITD 428 AHD), 25% OF SUCH PURCHASES SHOWN FROM THESE PARTIES WAS DISALLOWED BY THE A.O. AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE U/S.69C OF THE IT. ACT, 1961. THE DISA LLOWANCE ON THIS ACCOUNT WAS WORKED OUT TO RS.1,04,54,887/ - (I.E. 25% OF RS.4, 18,19,549/ - ). 7. UPON THE ASSESSEES APPEAL, THE LD. CIT(A) RESTRICTED THE DISALLOWANCE OF 25% MADE BY THE A.O. TO 15%. HE HELD AS UNDER: 5.5 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE APPELLANTS SUBMISSIONS. THE APPELLANT HAS REITERATED ITS SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER AND CONTENDED THAT THE PURCHASES MADE FROM THE IMPUGNED PARTIES WERE GENUINE. THAT IT HAS DISCHARGED ITS ONUS OF PROVING THE GENUINENESS O F THE PURCHASES BY SUBMITTING COPIES OF PURCHASE BILLS, PROOF OF BANK PAYMENT THROUGH ACCOUNT PAYEE CHEQUE, SALES BILLS, PROOF OF SALES RECEIPTS AND ONE TO ONE QUANTITATIVE CORRELATION OF PURCHASES AND SALES SO AS TO SUBSTANTIATE THE FACT THAT GOODS SO PUR CHASED WERE SOLD BY THE APPELLANT. THAT THE AO HAS 5 ITA NOS. 992 & 991/MUM/2018 NOT DOUBTED THE SALES EFFECTED BY THE APPELLANT AND THUS IT IS LOGICAL TO CONCLUDE THAT WITHOUT CORRESPONDING PURCHASES BEING EFFECTED THE APPELLANT COULD NOT HAVE MADE THE SALES. AS AGAINST THIS THERE IS THE INFORMATION FROM THE SALES TAX(VA) DEPARTMENT THAT THESE PARTIES WERE HAWALA DEALERS WHO HAVE NOT SUPPLIED THE GOODS BUT MERELY ISSUED ACCOMODATION BILLS. THE PARTIES WERE NON EXISTENT AT THE GIVEN ADDRESSES AND THE APPELLANT ALSO COULD NOT PRODUCE TH ESE PARTIES. THE FACT OF PAYMENT BY CHEQUE IS NOT SACROSANCT AND DOES NOT NECESSARILY MEAN THAT THE PURCHASES MADE FROM THESE PARTIES ARE GENUINE GIVEN THE MODUS OPERAND! FOLLOWED IN SUCH HAWALA TRANSACTIONS. THERE IS NO EVIDENCE THAT THE GOODS PURPORTEDLY PURCHASED FROM THESE PARTIES WERE ACTUALLY SUPPLIED BY THEM. THE DOCUMENTARY EVIDENCES SUCH AS PURCHASE BILLS , PAYMENTS BY CHEQUES, ETC. ARE ALL ORCHESTRATED TO PRESENT A FACADE OF GENUINENESS AND DOES NOT NECESSARILY MEAN THAT THE PURCHASES FROM THESE P ARTIES ARE GENUINE. THE COURTS HAVE HELD THAT PAYMENT BY CHEQUE BY ITSELF IS NOT SACROSANCT SO AS TO PROVE GENUINENESS OF PURCHASES. HOWEVER, THE APPELLANT HAS SHOWN ONWARD SALES WHICH HAS NOT BEEN DOUBTED BY THE ASSESSING OFFICER. SINCE THERE CAN BE NO SA LES WITHOUT CORRESPONDING PURCHASES, THE ONLY LOGICAL EXPLANATION IS THAT THE APPELLANT WOULD HAVE MADE PURCHASES FROM UNDISCLOSED PARTIES IN THE GREY MARKET AT LOWER RATES AND PURCHASES WERE SHOWN AS BEING MADE FROM THE IMPUGNED PARTIES TO SUPPRESS ITS PR OFITS. IN SUCH A SITUATION, THE VARIOUS COURTS INCLUDING THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF C1T VS SIMIT P. SHETH, 356 1TR 451 IAVE HELD THAT NOT THE ENTIRE PURCHASES BUT ONLY THE PROFIT ELEMENT EMBEDDED IN THESE PURCHASES WAS TO BE DISALLOWED. THE ESTIMATION WOULD VARY WITH THE NATURE OF BUSINESS AND NO UNIFOIM YARDSTICK COULD BE ADOPTED. THE ASSESSING OFFICER HAD ESTIMATED THE PROFIT @ 25% O F THE BOGUS PURCHASES WHICH APPEARS TO BE ON THE HIGHER SIDE. THE APPELLANT'S GP RATIO FOR A.Y.S 2008 - 09 TO 2010 - 11 RANGED FROM 7.13% TO 12.88%. CONSIDERING THIS FACT, THE DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASES @ 25% IS , THEREFORE, SCALED DOWN TO 15% WHICH WILL SUFFICIENTLY COVER THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES. 8. AGAINST THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 9. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE HAVE CAREFULLY GONE THROUGH THE PRECEDENTS RELIED UPON. UP ON CAREFUL CONSIDERATION WE FIND THAT ASSESSEE HAS PROVIDED THE DOCUMENTARY EVIDENCE FOR THE PURCHASE. ADVERSE INFERENCE HAS BEEN DRAWN DUE TO THE INABILITY OF THE ASSESSEE TO PRODUCE THE SUPPLIERS. WE FIND THAT IN THIS CASE THE SALES HAVE NOT BEEN DOUBTED. IT IS SETTLED LAW THAT WH EN SALES ARE NOT DOUBTED, HUNDRED PERCENT DISALLOWANCE FOR BOGUS PURCHASE CANNOT BE DONE. THE RATIONALE BEING NO SALES IS POSSIBLE WITHOUT ACTUAL PURCHASES. THIS PROPOSITION IS SUPPORTED FROM HONOURABLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF NIK UNJ EXIMP EN TERPRISES (IN WRIT PETITION NO 2860 ORDER DT 6 ITA NOS. 992 & 991/MUM/2018 18.6.2014). IN THIS CASE , THE HONOURABLE HIGH COURT HAS UPHELD HUNDRED PERCENT ALLOWANCE FOR THE PURCHASES SAID TO BE BOGUS WHEN SALES ARE NOT DOUBTED. HOWEVER IN THAT CASE ALL THE SUPPLIES WERE TO T HE GOVERNMENT AGENCY. IN THE PRESENT CASE , THE FACTS OF THE CASE INDICATE THAT ASSESSEE HAS MADE PURCHASE FROM THE GREY MARKET. MAKING PURCHASES THROUGH THE GREY MARKET GIVES THE ASSESSEE SAVINGS ON ACCOUNT OF NON - PAYMENT OF TAX AND OTHERS AT THE EXPENSE O F THE EXCHEQUER. IN SUCH SITUATION , IN O U R CONSIDERED OPINION , ON THE FACTS AND CIRCUMSTANCES OF THE CASE , 12.5 % DISALLOWANCE OUT OF THE BOGUS PURCHASES MEETS THE END OF JUSTICE. HOWEVER , IN THIS REGARD THE LEARNED COUNSEL OF THE ASSESSEE HAS PRAYED THAT W HEN ONLY THE PROFITS EARNED BY THE ASSESSEE ON THESE BOGUS PURCHASE TRANSACTION IS TO BE TAXED THE GROSS PROFIT ALREADY SHOWN BY THE ASSESSEE AND OFFERED TO TAX SHOULD BE REDUCED FROM THE STANDARD 12.5% BEING DIRECTED TO BE DISALLOWED ON ACCOUNT OF BOGUS P URCHASE. 10. UPON CAREFUL CONSIDERATION WE FIND CONSIDERABLE COGENCY IN THE SUBMISSION OF THE LEARNED COUNSEL OF THE ASSESSEE, AS OTHERWISE IT WILL BE DOUBLE JEOPARDY TO THE ASSESSEE. ACCORDINGLY , WE MODIFY THE ORDER OF LEARNED CIT - A AND DIRECT THAT THE D ISALLOWANCE IN THIS CASE BE RESTRICTED TO 12.5 % OF THE BOGUS PURCHASES AS REDUCED BY THE GROSS PROFIT RATE ALREADY DECLARED BY THE ASSESSEE ON THESE TRANSACTIONS. 11. IN THE RESULT THIS APP EAL FILED BY THE ASSESSEE STAND PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 0 1 . 0 3 . 2 0 1 9 S D / - S D / - ( AMARJIT SINGH ) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 0 1 . 0 3 . 2 0 1 9 ROSHANI , SR. PS 7 ITA NOS. 992 & 991/MUM/2018 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT - CONCERNED 5. DR, ITAT, MUMBAI 6. GUARD FILE BY ORDER, (DY./ASSTT. REGISTRAR) ITAT, MUMBAI