M/S KULDEEP GLASS AND ALUMINIUM,MUMBAI vs. ITO 29(2)(1), MUMBAI

Brief facts of the case are that the assessee is a partnership firm, filed its return of income on 08.09.2011 declaring total income of Rs. 41,109/-. Same was processed under section 143(1) of the Income Tax Act, 1961 (for short ‘the Act’).

Subsequently, case of the assessee was re-opened under section 147 of the Act and notice under section 148 of the Act was issued, pursuant to information received from the office of the DGIT (Inv.), Mumbai. Investigation Office conveyed the name of black listed (by Maharashtra Sales Tex Department) hawala dealers and it was alleged that assessee was also involved in taking accommodation entries from these hawala dealers.

Thereafter, again an information received of the same nature from the same channel as mentioned (supra) and the name of the parties involved second time were as under: Sr. PAN Name of Hawala Party Amount 1. AYLPK6417E Alfa Sales Corporation 48,92,178 2. AAGHM8217B Vasundhara Enterprises 51,05,619 Total 99,97,897

Based on this information again case was re-opened under section 148 of the Act and re-assessment was done under section 143(3) r.w.s. 147 of the Act 5 to 7141/Mum/2018, 2771 & 3335/Mum/2019 M/s Kuldeep Glass and Aluminium dated 02.03.2016. AO made 100% addition under section 69C of the Act amounting to Rs. 1, 98, 64,387/-.

Being aggrieved with the order of AO, assessee preferred an appeal before the Ld. CIT(A). We have gone through the order of AO and Ld. CIT(A), keeping in view the pronouncements of co-ordinated benches of the Tribunal and various Hon’ble High Court on this issue. 9. Sales Tax Department, Government of Maharashtra and the Investigation Wing of Income Tax Department that the investigations by Sales Tax Department revealed that certain dealers were involved in issuing bogus bills and providing accommodation entries without any actual delivery of the material and the appellant was one of the beneficiaries of such transactions. The appellant had made purchases from these hawala dealers amounting to Rs. 99, 97,897/- were actually involved in issuing bogus bills and accommodation entries without actual delivery of the material. In view of these facts the AO had reasons to believe that the income to the extent of Rs. 99, 97,897/- had escaped assessment in the hands of the assessee. 10. Relevant findings of the Ld. CIT(A) is reproduced here-in-below as are pertinent to decide the issue; “There is no doubt about the legal position that onus is on the assessee to prove the genuineness of the claim of any expenditure debited to the profit and loss account. In normal circumstances, this onus is discharged by producing the bill and the delivery Challan (if applicable) and the evidence of payment regarding the expenditure transaction. In case, the AO is not satisfied with the evidence filed by the assessee, he is required to bring on record some evidence to show that the apparent is not real and the onus then shifts on the assessee to produce further evidence in respect of the transaction. However, when the Department is already in possession of the information from a government department, on the 6 to 7141/Mum/2018, 2771 & 3335/Mum/2019 M/s Kuldeep Glass and Aluminium basis of material available with the said Department, that a party is a hawala party and it is engaged in issuing bills without actual delivery of goods, mere production of bill of expenditure transaction along with the delivery Challan and production of evidence regarding payment by cheque is not sufficient to discharge the onus on the assessee because in such a situation, bills, delivery challan and evidence of payment by AY 2011-12 cheque are at best neutral documents. This is so because the business of providing bogus entries for expenditure has become very sophisticated over the years. Even if the cash is withdrawn by the entry provider, it is not immediately withdrawn at the first step rather it is withdrawn after layering the transaction. In many cases, the cash is not withdrawn at all rather a bogus entry is provided to some party with whom cash is already available and which requires payment by cheque.” “Therefore, in such circumstances, something more in to be established by the assessee to prove the genuineness of the transaction. This can be done by furnishing evidence of delivery of goods by the seller, evidence of transportation of goods from the premises of the seller to the premises of the assessee etc. This can also be done by the assessee by producing the party for the examination by the AO, so that it can be examined by the AO as to whether the purchases made by the said party are genuine and whether the party has capacity to deliver the goods purchased by the assessee. In this case, M/s. Alfa Sales Corporation & Vasundhara Enterprises have been proclaimed as hawala dealer by the Sales Tax Department of the Government of Maharashtra because the parties had admitted before the Sales Tax department that they had issued the bills without actual delivery of goods. Notices u/s. 133(6) issued to these parties were either returned un-served or the parties concerned did not respond to the notices. In these circumstances, production of purchase bills, delivery Challans and the evidence of payment by cheque will not be sufficient to prove the genuineness of the transactions with the said parties. Therefore, during the course of assessment proceedings, the appellant was asked to produce the parties for examination and also produce evidence of delivery and sale of goods purchased from M/s. Alfa Sales Corporation & Vasundhara Enterprises. The appellant has failed to produce the parties for examination. However, it filed affidavits of 2 parties, admitting the transactions with the appellant, from whom purchases to the extent of Rs. 99, 97,897/- were made during the year. The appellant also stated that the goods were delivered by the parties to the appellant's shop free of cost. The appellant further stated that notices u/s. 133(6) could be issued again to seek the information from the parties. Since the appellant did not produce the parties for examination and it could not produce any evidence of transportation and delivery of goods by the said parties, in view of the information from the Sales Tax Department, the AO concluded that the above parties provided only the accommodation entry in form of bills whereas goods were actually purchased by the appellant from grey 7 to 7141/Mum/2018, 2771 & 3335/Mum/2019 M/s Kuldeep Glass and Aluminium market. Since source of payment for such purchases was not proved, the AO added entire amount of Rs. 99, 97,897/-u/s. 69C of the IT. Act. From the discussion above it is clear that the appellant has not been able to produce any evidence to support its claim that the purchases made from M/s. Alfa Sales Corporation & Vasundhara Enterprises were genuine and that the goods were actually delivered to it. Despite asking by the AO, the appellant has failed to produce the hawala dealers for examination. Self serving affidavits filed by them are of no evidential value because there is no evidence of delivery of goods by them. No other evidence has either been produced by the appellant to show that these parties were engaged in any genuine business. During the course of appellate proceedings, the appellant was asked to file quantitative details of purchases and sale made by it during the previous year. Though the quantitative details were filed by the appellant, it was seen that quantities do not exactly match, though, they are matching to a large extent. Some purchases were made in running feet also and they were not always sold as per the length of the items rather they were sold by the weight. Considering all these facts, I have no option but to hold that the purchases made from M/s. Alfa Sales Corporation & Vasundhara Enterprises are not genuine. Since, largely purchase and sale quantities are matching, there is no case for disallowance of 100% of bogus purchases. Rather, only logical conclusion would be that the goods were purchased by the appellant from grey market and bills were obtained from these parties. In this process the appellant would have derived certain benefits because no VAT was payable on these purchases and the seller would have also evaded excise duty etc, a part of which would have been passed on to the appellant. Accordingly, profit derived by the appellant from such grey market purchases is required to be estimated.”

It is an admitted fact that assessee/appellant was involved in bogus purchase transactions with the parties (names mentioned in assessment order). Their names were proclaimed as hawala dealer by the Sales Tax Department, Government of Maharashtra and notices under section 133(6) of the Act issued to those parties were either returned un-served or not responded. In these circumstances, simply by filing affidavits of those parties and requesting that notices under section 133(6) could be issued again to seek the information from the parties, will not serve any purpose.

In most of the cases, it has been found that parties involved in hawala dealings/bogus bills issuer has already been confessed before the Sales Tax Investigation Wing that the just issued the bogus bills in lieu of commission without actual supply of goods or doing any genuine trade.

In the instant case, it is established on record that the Department is not challenging any of the contents of the financials of the assessee except the issue of bogus purchase. Assessee’s books of accounts were also not rejected in section 145(3), rather specific addition has been made on account of bogus purchases under section 69C of the Act. As the other contents of books of accounts were not under challenge i.e. sales has been accepted by the Department, so it will be reasonable and fair to match assessee’s sales with corresponding purchase.

While deciding this issue, we have taken cognizance of following pronouncements of various High Courts/ITAT as under: i. CIT Vs. Nova Promoters and Finlease Pvt. Ltd. (2012) 342 ITR 0169 (Del.) ii. CIT Vs. N.R. Porfolio Pvt. Ltd. (2014) 42 Taxmann.com 339 (Del.) iii. Bholanath Polyfab Pvt. Ltd., 355 ITR 290 (Guj.)

Here it is pertinent to identify whether purchases themselves were bogus or whether the parties from whom such purchases were allegedly made were bogus is essentially a question of fact. As sales has been accepted by the Department, in that view of the matter, as natural corollary, purchases themselves are not bogus but the parties from whom such purchases were allegedly made were bogus.

In the result, in our considered opinion the order of the Ld. CIT (A) is not liable to be disturbed, hence, the same is sustainable with a minor change therein. Accepting the findings of the Ld. CIT(A), we further direct the AO for re- determination of percentage of profit applicable to the industry of assessee and keeping in view the specific results of his firm established by the assessee before (with evidence) the AO.

In the result, appeal filed by the assessee is partly allowed for statistical purposes.

Findings of A.Y. 2011-12 is mutatis mutandis applicable to ITA Nos. 7139/Mum/2018 (A.Y. 2009-10), ITA No. 7140/Mum/2018 (A.Y. 2010-11) & ITA No. 7141/Mum/2018 (A.Y. 2011-12).

In the result, appeal of the Revenue is rejected.