Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI ABY T. VARKEY, JM & SHRI AMARJIT SINGH, AM
O R D E R
PER ABY T. VARKEY, JM:
This is an appeal preferred by the revenue against the order of the Ld. CIT(A)/NFAC, Delhi dated 15.03.2023 for the AY. 2012-13.
The main grievance of the revenue is against the action of the Ld. CIT(A) deleting the addition of Rs.2,63,62,790/- which was added by the AO since the assessee failed to prove the purchases as genuine. And Ld CIT(A) allowed the appeal of the assessee by restricting the addition at Rs.4,99,264/- i.e. 0.31% gross profit (GP) of Rs.16,10,52,959/-.
Brief facts are that the assessee e-filed the return of income for AY. 2012-13 on 28.09.2012 declaring total income of Rs.3,70,590/-. The assessee is running a proprietary concern in the name and style A.Y. 2011-12 Sunil Govind Agre M/s. Infocom Technologies which is engaged in the wholesale trading of computer parts, peripherals and accessories. The AO based on information from ITO-8(3)(2), Mumbai dated 05.02.2019 that the assessee had transacted with M/s. Urvin General Trading Pvt. Ltd (hereinafter “M/s. Urvin”) to the tune of Rs.1,74,87,350/-; and that the director of M/s. Urvin, Shri Nitin S. Shetty admitted that he was not carrying any business activity but involved in issuing discounted bills, he reopened the assessment and asked the assessee to file relevant documents regarding the purchases & sale made during the relevant assessment year. Pursuant to the same, the assessee filed the computation of income, audit report, P & L account, capital account, balance-sheet, purchase and sale ledger, confirmation of sales and purchases etc. The AO acknowledges that he verified the same and placed it on record. According to the AO, he issued notice u/s 133(6) of the Income Tax Act, 1961 (hereinafter “the Act”) to various parties from whom all purchases and confirmation regarding the same were filed and in this regard, the AO acknowledges in the assessment order (in his own words) “in response of the notice u/s 133(6) of the Act, the other party (except M/s. Urvin General Trading Co. Pvt. Ltd.) has not provided the details called for”. And thereafter, the AO directed the assessee to produce the party (M/s Urvin) at the earliest. Pursuant to the direction given by the AO, the assessee filed letter wherein assessee asserted that he purchased goods from M/s. Urvin and to substantiate that he filed the purchase bills, ledger account and banks statement reflecting payment made to these supply as well as brought A.Y. 2011-12 Sunil Govind Agre to the notice of the AO that he has made purchases of Rs.2,63,62,790/- from M/s. Urvin. And that the assessee is a wholesale trader of computer parts, peripherals and accessories. The assessee also filed summary of stock register with full details of the purchase and sale of the respective stocks. The assessee brought to the notice of the AO that he had made genuine purchases from M/s. Urvin and has paid VAT and the payments were made through cheque as well as have effected corresponding sales of the ibid goods. And that the assessee since is a wholesale trader, the gross profit (GP) from this business is only @ 0.76% at an average and assessee has shown gross profit @ 0.45%. It was also brought to the notice of the AO that the average gross profit from the business of assessee is low. And also offered to pay the margin of 0.76% on the purchases as additional income. However, the AO did not accept the explanation of the assessee and since the assessee failed to produce the party (M/s. Urvin), he was pleased to add the entire purchases from M/s. Urvin at Rs.2,63,62,790/- u/s 69C of the Act. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to delete the addition of Rs.2,63,62,790/- and accepted the GP addition offered by the assessee. And thus, restricting the addition to Rs.4,99,264/- by holding as under:- “7.4 a) The undersigned has gone through the assessment order and written submissions filed by Appellant. These Grounds of Appeal
are discussed and decided in subsequent paras of this order. b) The gist of addition made by the AO of Rs.2,63,62,970/- u/s 69C of Act is outlined in paras 2a to 2d of this order. A.Y. 2011-12 Sunil Govind Agre C) AO received information that appellant had made purchases of Rs.2,63,62,970/from M/s. Urv. General Trading Pvt Ltd ( M/s. UGTL) who has been identified as a Hawala Trader / entry provider by the Sales Tax Deptt,. Govt. of Maharashtra. The name of M/s. UGTL appears in the list of non-genuine dealers on the website of Sales Tax Deptt., Govt. of Maharashtra. Mr. Nitin S Shetty, Director of M/s. UGTL admitted in his statement that the Company is not doing any business and is involved in business of issuing discounted bills. AO held that M/s. UGTL is accommodation entry provider and these purchases of Rs.2,63,62,970/- shown by appellant are bogus purchases and were added u/s.69C of Act. This information received from the Sales Tax Deptt. that names the bogus sales parties including M/s. UGTL is the main basis of making addition u/s.69C on account of bogus purchases. The ‘AO has relied on the information obtained from Sales Tax Deptt. and the statement recorded of Mr. Nitin S. Shetty, Director of M/s. UGTL before Sales Tax Deptt. and held that purchases to be bogus. d) Appellant filed computation, P & L account, Capital account, Balance Sheet, Purchase and Sale ledger, Confirmation of sales and purchases, Supplier and Customer wise details, List of debtors and Creditors, Stock Summary etc before the AO. AO issued notices u/s.133(6) to various purchase parties for confirmation of purchases including M/s. UGTL. Replies to the same were filed. AO noted that appellant produced invoices from the alleged bogus parties but failed to produce transport receipts and delivery challan” Chills to support the receipts and delivery from the alleged dealers. He held that in case of credit purchases (like this case) the acknowledgement of receipt of material is A.Y. 2011-12 Sunil Govind Agre must to settle the claim in future. AO held that in cases of accommodation entry provider such documents are meticulously maintained by entry provider and entry seeker. AO held that payments made by account payee cheque is not a fool proof method to substantiate the appellants claim as it has already been accepted by the said party before Sales Tax Deptt. that cash is given back after deducting commission once cheque is realized. AO relied on orders of Hon'ble ITAT Jaipur and Hon'ble Apex Court in the case of M/s. Kachwala Gems vs. JCIT (2006) 288 ITR
10. (SC) where it was held that even payment by account payee cheque is not sufficient to establish the genuineness of purchases. AO held that appellant did not produce the purchase parties for verification before him. AO held that appellant failed to discharge the onus to prove the genuineness of existence of party and transaction. Reliance was placed on the judgement of Hon'ble Calcutta High Court in CIT vs Korlay Trading Co. Ltd. in 232 ITR 820 where it was held that initial burden was upon the assessee to prove genuineness of purchases. AO held that appellant failed to establish the quantity of goods corresponding to bogus purchases was actually sold by him in trading activity. In view of the above the AO made addition u/s. 69C to the extent of 100% purchases made from M/s. UGTL. 7.5 Finding on GOA No. 2 to 8. This issue of making addition u/s.69C on account of Bogus purchases based on information received from Sales Tax Department, Government of Maharashtra and Statement recorded of the Director of the sale party on similar facts as that of appellant has been adjudicated upon by the Hon’ble Jurisdictional High Court and Hon'ble Jurisdictional ITAT in ITA No.1615/Mum/2023 A.Y. 2011-12 Sunil Govind Agre favour of appellant and some of these judgments are discussed as under: a) Hon’ble Bombay High Court in PCIT vs Dhahanjay Mishra in of 2017 dated 28.09.2021 for AY 2010-11. It was held as under: “2. The assessee was engaged in the business of marine contract and filed return of income for the relevant A.Y. 2010-2011 declaring the total income of Rs.57,11308/-. The Assessing Officer while assessing the return of income, observed that assessee has made certain purchases from persons who were identified as Hawala Traders by Sales Tax department, State of Maharashtra, who used to issue bogus bills without delivery of goods. The Assessing Officer, therefore, made addition of Rs.72,60,177/under Section 69C of the Income Tax Act 1961 (the said Act) on account of unexplained expenditure under Section 69C of the Act. The assessment was completed under Section 143(3) of the Act assessing a total income of Rs. 1,29, 71, 484/-.
3. Aggrieved by this assessment order, respondent filed an appeal before CIT (Appeals), who deleted the entire addition. The CIT (Appeals) concluded that the assessee had given valid explanation with substantiating evidence in respect of cost incurred towards purchases required in the course of his business and in support of his contention, has filed relevant bank statements, challan copies etc. In the assessment order, the primary reliance is on affidavits filed by one Vinit A Jamsandekar and Rasiklal B Shah when Sales Tax investigated the affairs of those persons who were proprietors/partners of three concerns which were allegedly doing business of issuing bogus bills. Copies of those affidavits, though it is stated in the order as annexed thereto, has not been annexed to the order or filed in this appeal and Mr. Mody for respondent states they ITA No.1615/Mum/2023 A.Y. 2011-12 Sunil Govind Agre were never provided with copies of those affidavits. In fact, the CIT (Appeals) in his order has even recorded respondent’s grievance that these affidavits were not provided to respondent nor any opportunity was given to defend his position or cross- examined those people.
The CIT (Appeals) has also recorded that even the fact that there were unused material included closing stock worth Rs.1,00,88,102/-, etc., was even considered in the assessment order. Even the fact that respondent had paid Rs.25,62,560/through the Bank L.C. to one of the parties allegedly doing business of issuing bogus bills, has also not been dealt with in the assessment order.
The department has impugned this order of CIT (Appeals) before ITAT, which also observed that Assessing Officer has relied upon third party statement without supplying it to the assessee or considered the closing stock or considered the fact that payments were made through banking channels including by way of letters of credit. Since none of those points were discussed in the assessment order, the ITAT concluded, that the Assessing Officer having not disputed the used material or disputed the stock of the assessee, it did not find any illegality or infirmity in the order of CIT (Appeals). In our view also the assessment order could not have been passed by the Assessing Officer without granting an opportunity to respondent to defend his position or cross-examine the two persons on whose affidavits, the Assessing Officer had relied upon to conclude that respondent had made certain purchases from those persons identified as Hawala Traders. The Assessing Officer also should have investigated further or should have dealt with in his assessment order as to why he was not accepting the explanation of respondent that he had paid in excess of A.Y. 2011-12 Sunil Govind Agre Rs.25,62,560/- through the Bank L.C. to one of the parties allegedly doing business of issuing bogus bills.
In our view, the Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analyzed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law.
The appeal is devoid of merits and it is dismissed with no order as to costs.”
4. The Ld. CIT(A) took note of the following case laws as under: - (i) DCIT, LTU-1, Mumbai Vs. M/s. CMI FPE Ltd in for AY. 2009-10 vide order dated 20.09.2022. (ii) CIT Vs. Nikunj Eximp Enterprises (P) Ltd. in 372 ITR 619 (Bom). (iii) PCIT-13, Mumbai Vs. Vaman International Pvt. Ltd. in ITA. No.1940 of 2017 for AY. 2010-11 vide order dated 29.01.2020. (iv) ACIT-25(5) Vs. Mahesh K. Shah ITAT, Mumbai. (v) ITO Vs. Deepak Popatlal Gala (ITAT Mumbai), ITA. No.5920/Mum/2013 dated 27.03.2015. (vi) DCIT Vs. Shri Rajeev G. Kalathil (ITA. No.6727/Mum/2012 dated 20.08.2014.
5. Ld CIT(A) took note of the judicial precedent, and noted the same and held as under: - “The Hon’ble Gujarat High Court in DCIT Vs. Adinath Industries in 252 ITR 476 (Guj) held that assessee cannot be penalized for the action of supplier and that the assessee cannot be expected to know the commercial rationals on how the suppliers operates its bank account. The Hon’ble Jurisdictional A.Y. 2011-12 Sunil Govind Agre High Court in CIT Vs. Nikunj Eximp Enterprises (P) Ltd. in 372 ITR 619 (Bom) held that assessee cannot be faulted if the seller is not traceable and also it is not the burden of the assessee to investigate the genuineness of seller or their business transaction. Respectfully following the judgements of Hon’ble Jurisdictional High Court and Hon’ble Jurisdictional ITAT’s as outlined in the paras 7.5 and 7.6 of this order on similar issue and the facts of the case as outlined above the addition made by AO of Rs.2,63,62,790/- us/ 69C is not sustainable and same is hereby deleted. Ground no. 2, 3 and 4 are allowed.”
6. Thereafter, the Ld. CIT(A) restricting the addition to Rs.4,99,264/- (0.31%) of Rs.16,10,52,959/- by holding as under: - “Before the AO the appellant contended that his average GP from AY. 2009-10 to AY. 2013-14 is 0.76%. In the present AY, the appellant has shown GP @ 0.45% and appellant was ready to offer GP margin @ 0.76%. Appellant contended that in AY. 2013-14 there was information from Sales Tax Department about bogus purchases of Rs.3,19,49,836/- from two parties. Total turnover shown in AY. 2013-14 was Rs.20,16,71,970/- on which the GP @ 0.48% was shown. The AO adopted GP @ 0.93% and made addition of Rs.9,68,025/- in case of appellant for AY. 2013-14. In view of the above facts, the above contention of appellant is accepted and an addition of Rs.4,99,264/- (0.31% - 045% of Rs.16,10,52,959/-) is made on adhoc GP basis as contended by appellant. Thus, GOA no. 5 is allowed.” A.Y. 2011-12 Sunil Govind Agre 7. Aggrieved by the aforesaid action of the Ld. CIT(A), the revenue is before us.
We have heard both the parties and perused the records. We note that the assessee runs a proprietary concern in the name and style M/s. Infocom Technologies which is engaged in the wholesale trade of computer parts, peripherals and accessories. The assessee had offered in his return of income an income of Rs.3,70,590/-. Later, the AO received an information from ITO, Ward-8(3)(2), Mumbai on 05.02.2019 that the assessee has transacted with M/s. Urvin to the tune of Rs.1,74,87,350/- and that the director of M/s. Urvin has admitted that he was not into genuine business activity but was only issuing accommodation bills in lieu of commission. Based on this information, the AO reopened the assessment of the assessee for AY. 2012-13 and asked the assessee to file all the relevant documents to substantiate the purchases and sales made in the year under consideration. Pursuant to that assessee filed the computation of income, audit report, P & L account, capital account, balance-sheet, purchase and sale ledger, confirmation of sales and purchases etc. and he assessee also brought to the notice of AO that he has made purchases of Rs.2,63,62,790/- from M/s. Urvin. The AO acknowledged that assessee had filed the aforesaid documents and that he has verified the same and placed it on record. The AO also issued notice u/s 133(6) of the Act to all the purchase parties. According to him, “in response of the notice u/s 133(6) of the Act, the other party (except M/s. Urvin General Trading A.Y. 2011-12 Sunil Govind Agre Co. Pvt. Ltd.) has not provided the details for”. [Meaning of his finding in this regard, is not understood] And thereafter, AO directed the assessee to produce M/s. Urvin and since assessee failed to produce M/s. Urvin, he added the entire purchase of Rs.2,63,62,790/- u/s 69C of the Act. On appeal, the Ld. CIT(A) has deleted the addition taking note of the contemporaneous/relevant documents filed by assessee to substantiate the purchases and sales of the goods from M/s. Urvin; and further, the Ld. CIT(A) noted that assessee has offered gross profit of 0.45% on sale of goods purchased from M/s. Urvin in the ROI and has additionally offered 0.31% gross profit on the sales [i.e. average GP of 0.76% on sale of computer parts in earlier years as noted by Ld CIT(A) and AO himself accepted 0.93% GP for AY 2013- 14 as noted by Ld CIT(A)]. Therefore, the Ld. CIT(A) restricted the addition to Rs.4,99,264/- @ 0.31% of Rs.16,10,52,959/- .
In this regard, it is noted that the assessee is a wholesale dealer of computer parts, peripherals and accessories. The assessee in order to prove the genuineness of the purchases had filed relevant documents, like invoices from the alleged party (M/s. Urvin) computation of income, audit report, P & L account, capital account, balance-sheet, purchase and sale ledger, confirmation of sales and purchases (supra) which AO acknowledges to have verified and did not find any fault with the said documents. Only because the assessee could not produce the party [M/s. Urvin] before him and failed to produce transportation receipt, the AO has added the entire purchases. The assessee has A.Y. 2011-12 Sunil Govind Agre asserted that purchases made from M/s. Urvin were real and that the payments were made through cheque and that the assessee had paid VAT on such purchases. The assessee also contended that he has purchased goods worth of Rs.2,63,62,790/- from M/s Urvin and also sold those goods and offered gross profit of 0.45% for taxation in his return of income. And the AO has not disturbed the factum of sale of the very same goods purchased from M/s. Urvin. In such a scenario, according to assessee, the AO could not have added the entire addition of purchases without disturbing the corresponding sales made by the assessee because it is common knowledge that there cannot be any sales without purchases. And the only presumption in such cases is that purchases has been effected from grey market for less price (and the bills have been obtained from the bill providers) and in such an event, the profit embedded in such sales only needs be brought to taxation. In this regard, it is also noted that the AO has not rejected the books of account of the assessee. Moreover, it is noted that AO has added the entire purchases from M/s. Urvin on the basis of the purported statement given by the supplier (M/s. Urvin) before the VAT Authorities. Such an action of AO is not legally sustainable unless maker of the statement (Nitin S. Shetty) of M/s. Urvin was allowed to be cross-examined by the assessee. In this context, it is gainful to refer to the decision of the Hon'ble Supreme Court in the case of Andaman Timber Industries Vs. CCE reported in (2015) 281 CTR 241 (SC) wherein it has been held that, “failure to give the assessee the opportunity to cross examine witness, whose statements are relied A.Y. 2011-12 Sunil Govind Agre upon, results in breach of principles of Natural Justice. It is a serious flaw which renders the order a nullity”. We also gainfully refer to the judgment of the Hon'ble Apex Court in similar case as that of the case in hand i.e. the case of CIT Vs. Odeon Builders Pvt. ltd. (418 ITR 315) wherein also it was held that, the addition/disallowance made solely on third party information without subjecting it to further scrutiny and denying the opportunity of cross-examination of the third party renders the addition/ disallowance bad in law. Therefore, in the light of the aforesaid discussion and judicial precedent cited by the Ld. CIT(A), we confirm the action of the Ld. CIT(A) deleting the entire purchase of Rs.2,63,62,790/- as well as taking note of the reasons given by the Ld. CIT(A) restricting the addition to Rs.4,99,264/- i.e. 0.31% (0.76% - 0.45%) of Rs.16,10,52,959/-, we uphold the impugned order Ld. CIT(A) and dismiss the appeal of the revenue.
In the light of the above discussion, the action of the Ld. CIT(A) is confirmed and the appeal of the revenue is dismissed.
In the result, the appeal of the revenue stands dismissed. Order pronounced in the open court on this 31/10/2023.