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Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE – VIRTUAL COURT
Before: SHRI R.S. SYAL & SHRI S.S. VISWANETHRA RAVI
PER R.S.SYAL, VP : This 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 2009-10.
In addition to the grounds raised
in the Memorandum of Appeal, the assessee has also raised two additional grounds. Vide the additional ground number 4, the assessee has urged, without prejudice, that the disallowance of depreciation on the alleged hawala purchase of machines should be restricted to the proportionate depreciation by applying reasonable Gross Profit rate on such alleged hawala purchase transactions.
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 operators to the tune of Rs.59,38,955/-, 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 its 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 transactions were arranged for paltry commission. The assessee was called upon to furnish purchase bills, evidence of transportation, evidence of installation and putting the machines to use and other substantial evidence in the form of lorry receipts, delivery challans etc. The assessee furnished incomplete 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 and the banks in which they were maintaining accounts for such hawala racket. The enquiry transpired that there was no existence of genuine businesses 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entries in as much as the cheques accepted on account of fake sale bills were deposited and simultaneously cash was withdrawn for returning the money from whom these were taken, after deducting commission. The Asst. Commissioner of Sales-tax (Investigation), Mumbai also carried out investigation in the hawala matter and recorded statements, inter alia, of the persons representing the concerns from whom the assessee had shown to have made purchase of machines. Such persons, in their statements, specifically admitted on oath that they had not done any real business of sales and the bills were issued to the customers who required 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 genuineness of the transaction. The ld. CIT(A) sent 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 injection 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. The 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 purchased from open market and only the bills were taken 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.
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 been 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 recorded 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 substantiate the receipt of machines except for the bills. The AO in his remand report has observed in para iii) that : “As 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: “On inspection of three moulding machines, it was seen that there was no tag on any of these machines describing 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 impugned order has observed that: “Since 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: “It 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 assessee that the said machines were hypothecated with the Chikhali Urban Co-Op. Bank, Jalna Branch, ld. CIT(A) held that the: “same was also 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 the fact that the machines were actually installed at the factory premises of assessee, which fact has been admitted by the Revenue authorities, there can be no reason to repel the explanation of assessee made in the alternate and without prejudice that the same machines were actually purchased in the open market and installed at the factory premises, for which invoices with higher value were obtained. To put it simply, suppose the assessee obtained bills worth Rs.100/- for the purchase of these three machines 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 purchasing 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/- was 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 could not be treated as unexplained as to bring it within the purview of section 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 unexplained source. In the entire transactions of obtaining fake bills from the hawala operators and actually installing such machines by purchasing them from grey market, the only thing which can call for disallowance is depreciation claimed by the assessee on 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 case and peculiar facts and circumstances obtaining in the instant case, we hold that GP rate in the extant hawala transactions is 15% and the assessee actually purchased machinery at 85% of the declared value, for which the bills were obtained for 100%. In that view of the matter, 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 the 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 actual 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/-.
In the result, the appeal is partly allowed.
Order pronounced in the Open Court on 05th August, 2020.