CHETAS CONTROL SYSTEMS PVT. LTD.,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX,

आदेश / ORDER

PER BENCH :

These bunch of six appeals preferred by the assessee emanates from the order of Ld. CIT(Appeals)-1, Pune commonly dated 17.03.2016 for the assessment years 2009-10 to 2011-12 as per grounds of appeal on records.

All these appeals were heard together. Since the facts are common, issues are similar, these cases are being disposed of vide this consolidated order.

2 ITA Nos.1241 to 1246/PUN/2016 A.Ys.2009-10 to 2011-12

made 100% addition on such purchases and the Ld. CIT(A) has confirmed the

same. For sake of convenience, we would take facts as appearing in

assessment year 2009-10.

ITA No.1241/PUN/2016 A.Y.2009-10

business of manufacturing and installation engineering goods and filed its

return of income for A.Y. 2009-10 on 16/9/2009 declaring total income of

Rs.3,04,92,010/-. The return was assessed u/s 143(1) of Income Tax Act,

1961 (hereinafter referred to as ‘the Act’) accepting returned income.

Thereafter, information was received from the Maharashtra Sales Tax

Department which had conducted enquiries in the cases of several dealers

located all across Maharashtra resulting into unearthing of a racket involving

more than 1935 Hawala dealers and more than 33,700 beneficiaries. 'Hawala'

entails making bogus invoices to allow a trader to claim tax credits. In this

racket, the Hawala operator posing as the "seller" exists only on paper, issues

fake bills to the concern and gets commission in return. The beneficiary, in

turn, gets the input tax credit on the material he had never purchased in

reality. It has been identified by the Sales Tax Department that there are

more than 37,700 such beneficiaries who had used fake invoices to

fraudulently claim tax deduction on such purchases. The list of beneficiaries

contain the total amount of Hawala availed by the beneficiary for respective

Financial Years. The information received from Sales Tax Department was

duly examined and verified from record and detail of suppliers and their

statements were examined and it was revealed that the assessee had claimed

purchases of Rs.3,51,57,380/- excluding VAT for financial year 2008-09

relevant to A.Y.2009-10 in their books whereas no material as against these

3 ITA Nos.1241 to 1246/PUN/2016 A.Ys.2009-10 to 2011-12

purchases were received by it in actual. The verification revealed that the

assessee has inflated its expenses to the extent of the bills issued from

hawala dealers. Therefore, notice u/s 148 was issued to the assessee on

28/3/2013 and was served on it. The AO has recorded reasons to believe that

income has escaped assessment before issue of notice u/s.148 of the Act.

case, survey under section 133A of the Act was conducted in the business

premises of assessee on 13/08/2013 to 14/08/2013. During the course of

survey, statement on oath of Mr. Mahesh S. Deshmukh, Director of

assessee Company was recorded and during the course of statement, he

accepted following purchases as bogus purchases and offered the same

for taxation in respective assessment years as on record. The assessee,

accordingly, filed revised return of income in which additional income of

Rs.3,40,06,190/- accepted during the course of survey, was offered to tax.

The assessment was completed at total income of Rs.6,47,61,890/- and since

additional income representing bogus purchases amounting to

Rs.3,40,06,190/- was offered in the return of income filed in response to

notice u/s.148 of the Act after detection and survey action taken by the

Department and thereafter, penalty proceedings were initiated by the

Assessing Officer u/s.271(1)(c) of the Act as well.

that these are not bogus purchases and in fact, purchases were made against

which payments have been made to the concerned parties. All the payments

have been made through banking channels and bank statements have been

filed before the Revenue Authorities. The Ld. AR further submitted that when

survey action took place, the documentary evidences such as stock register,

sales register were maintained and kept at the site since they are required for

4 ITA Nos.1241 to 1246/PUN/2016 A.Ys.2009-10 to 2011-12

audit. The survey team could have visited the site and could have examined

the genuineness of the purchases through scrutiny of these documents which

they have not done. The Ld. AR further demonstrated that there has been

movement of goods and invited our attention to paper book, ‘A-2’ at page 28

where bills of the transporter is attached. However, bills do not depict any

amount. Since that bill has to be raised at Pune during relevant period. The

Ld. AR also submitted that they have accepted bogus purchases made at the

time of survey and have offered additional income to tax in the revised return

filed, it is on account of stress and duress imposed upon them by the

Revenue Authorities. They have made reiteration before the Ld. CIT(A)

through an affidavit filed which is also placed before us in the paper book.

recorded u/s.133A of the Act, statement has been taken on oath from the

assessee and at the verification part; he has categorically stated that every

statement has been made in a sound state of mind and without undue

pressure, coercion or duress. That even the CA of the assessee has signed

verification along with the assessee and the statement was recorded only as

per procedure laid down in the Act. The Ld. AR has stated that undue

pressure or influence has been exercised for making such statements.

However, he is unable to demonstrate, as to how the statements were

recorded in a manner not prescribed within the ambit of the Act. That in

absence of such evidences, per contra, as shown in the records, statements

has been made u/s.133A of the Act by the assessee regarding bogus

purchases and revised return offering additional income for tax is also filed.

Therefore, the Ld. DR placed strong reliance on the orders of Sub-ordinate

Authorities.

5 ITA Nos.1241 to 1246/PUN/2016 A.Ys.2009-10 to 2011-12

evidences brought out on records clearly suggest that the Maharashtra Sales

Tax Department had provided information regarding bogus

transactions/purchases being conducted throughout the State of

Maharashtra and there are umpteen number of beneficiaries with regard to

these bogus purchases. In the case of the assessee, first a notice u/s.148 of

the Act was issued on 28.03.2013. Thereafter, survey took place on

14.08.2013. During survey, oath was administered to the assessee and

statement was recorded u/s.133A of the Act wherein the assessee has

accepted making various bogus purchases at the different assessment years

as on record and offered same for taxation. Accordingly, assessee filed revised

return of income on 27.09.2013 in which he has shown additional income of

Rs.3,40,06,190/- and offered the same for taxation. However, before us, the

Ld. AR showed the copy of affidavit and statement of facts before the Ld.

CIT(A) wherein they have reiterated the statement made during the course of

survey on the ground that those were not voluntarily made. Rather, they have

made those statements in compulsion and pressure from Department.

However, we do not find any evidence placed on record to suggest this fact.

That even, the movement of goods was not demonstrated by the assessee

conclusively. There are no evidences like Government records, payment of

octroi duty receipts, road challans or documents with stamp by govt.

authority. Nothing has been placed on record regarding movement of goods

purchased. Therefore, it is clear that bogus purchases were made. We find

that being similar situation in the case of M/s. Chhabi Electricals Pvt. Ltd.

Vs. DCIT in ITA No. 795/PUN/2014 for the assessment year 2010-11,

wherein on the same facts and circumstances, we have observed that :

“40. In view of the above said ratios, the present issue of bogus purchases is to be decided on the basis of facts of each case. The first aspect is the information received by the Assessing Officer from the Sales Tax Department in respect of alleged hawala dealers. In many cases, the

6 ITA Nos.1241 to 1246/PUN/2016 A.Ys.2009-10 to 2011-12

Assessing Officer has not even received the copy of statement recorded or any other evidence from the Sales Tax Department, except the list of hawala dealers and on the basis of the said list, the assessment proceedings have been completed in the hands of assessee, who had made the purchases from the said parties. In case, no such evidence has been received by the Assessing Officer before making addition, then there is no warrant in making aforesaid addition in the hands of assessee merely on the basis of so called list of hawala dealers. There are other cases, where the Assessing Officer had received the statement of the persons who were hawala dealers and who had admitted to have just issued bills of sale without delivery of goods. In such circumstances, there is evidence against the respective assessee that where the seller of the goods, has admitted not to have entered into real transaction of sale of goods. Against such non-transaction, there can be no delivery of goods, then it is case of passing of bills of sale and purchases, against which no VAT has been paid. Such bogus purchases are then to be added in the hands of assessee. Where the Assessing Officer had confronted the assessee with the information received, supplied copies of statements and where the persons have not been traced and no confirmation has been filed by the assessee in this regard, then the addition is to be made in the hands of assessee on account of such bogus purchases. In the facts and circumstances of some cases, the goods have been transferred by such hawala dealers to the respective purchasers, against which the assessee has to discharge onus of establishing the trail of goods which are transferred and further sold by them. Where the assessee is able to produce evidence of purchase of goods by way of weighment bridge receipts, transportation documents, payment of octroi and subsequent sale of goods to the respective parties and / or where the assessee has maintained complete quantitative details of purchase and sale of goods, then total bogus purchases cannot be added in the hands of assessee, but GP rate of 10% is to be applied on bogus purchases. Where the assessee does not establish its case, then the complete bogus purchases are to be added as hawala purchases. Further, in cases, where the statements are recorded and copies of which have been supplied to the assessee and assessee established the case of receipt of goods and its onward transmission by way of sale bills, then the factum of purchases by the assessee stands established in such circumstances. However, the benefit of purchases being made from grey market, needs estimation in the hands of assessee. The Tribunal has already held that the addition be made by estimating the same @ 10% of the alleged hawala purchases. Accordingly, it is so held. In view thereof, the issues which emerge are as under:-

I. In case no information is received by the Assessing Officer from the Sale Tax Department and no copy of statement recorded or any other evidence is received from the Sales Tax Department, then no addition is to be made on the basis of name of hawala dealer in the list prepared by the Sales Tax Department, where the assessee had asked for the said information during assessment proceedings.

II. Where the Assessing Officer had received the statements of persons who had admitted to have just issued bills of sale without any delivery of goods. In view of such evidence, where the assessee had not entered into real transaction of purchase of goods and in the absence of any delivery of goods, the sales are bogus and the entire sales are to be added in the hands of assessee. Admittedly, the dealer had not even paid VAT against such passing of goods.

III. The case where the Assessing Officer had confronted the information received from the Sales Tax Department and had supplied copies of statements recorded and had also issued notice under section 133(6) of

7 ITA Nos.1241 to 1246/PUN/2016 A.Ys.2009-10 to 2011-12

the Act, where hawala dealer was not traceable and in the absence of the assessee failing to file any documentary evidence of delivery of goods, addition is to be upheld in the hands of assessee on account of such bogus purchases. IV. The next instance is the case of goods which have been admittedly sold by the hawala dealer and has been received by the assessee, who in turn had maintained quantitative details and also evidence of its movement i.e. transportation details and quality control details of consumption of the said material or exact details of sale of the same consignment through same transporter directly to the party, then the total purchases cannot be added in the hands of assessee. However, since the purchases are made from the grey market, some estimation needs to be made in the hands of assessee. The Tribunal in M/s. Chetan Enterprises Vs. ACIT (supra) has already held that the addition be made by estimating the same @ 10% of the alleged hawala purchases, over and above the GP shown by the respective assessee.

V. Another set of cases where the statements recorded by the Sales Tax Department have been handed over to the assessee and the copies of same have been supplied to the assessee, then where the assessee established the case of receipt of goods and its onward transmission, then the factum of purchases by the assessee stands established in such circumstances. However, estimation is to be made in the hands of assessee because of purchases from the grey market and following the above said ratio, addition is to be made by estimating the same @ 10% of the alleged hawala purchases, over and above the net profit shown by the assessee.”

We, therefore, respectfully, following our above stated decision and

appreciating the similar set of facts and circumstances in the present case of

the assessee, we hold addition @10% of the alleged hawala purchases, over

and above the GP shown by the assessee for the year. We therefore, set aside

the order of Ld. CIT(A) and hold as aforesaid.

assessment year 2009-10 is partly allowed.

1243/PUN/2016, the facts and circumstances of the case are identical except

the amounts. Since all other facts, arguments of the parties are same and

similar, the same ruling as in ITA No.1241/PUN/2016 shall apply mutatis-

mutandis to other said appeals herein also. Therefore, for these cases also, we

8 ITA Nos.1241 to 1246/PUN/2016 A.Ys.2009-10 to 2011-12

set aside the order of the Ld. CIT(Appeals) and partly allow the appeals of the

assessee.

1243/PUN/2016 for the assessment years 2009-10 to 2011-12 are partly

allowed.

ITA No. 1244/PUN/2016 A.Y. 2009-10

levy of penalty u/s.271(1)(c) of the Act.

the ground of the Revenue that it is only after the detection of bogus

purchases and survey action, the assessee offered additional income to tax

which otherwise, he would have concealed.

reiterated the statement on the bogus purchases but immediately after

admission on oath and accepting additional income, they have filed revised

return of income offering for taxation. Therefore, they do not have ‘mens ria’

or ill motive to defraud revenue. Rather, the assessee always co-operated

with the Revenue and by filing revised return there is no concealment of

income neither furnishing of inaccurate particulars of income.

the issue. We have given considerable thought to the issue of penalty being

imposed u/s. 271(1)(c) of the Act and have taken guidance of the Hon'ble

Apex Court in the case of CIT Vs. Reliance Petroproducts Pvt. Ltd. reported at

322 ITR 158 (SC).

9 ITA Nos.1241 to 1246/PUN/2016 A.Ys.2009-10 to 2011-12

It is not that in all facts and circumstances, penalty can be levied. That

from the circumstances of the case there has to be derived elements of ‘mens

ria’ and ‘actus rius’ from the conduct of the assessee to ascertain whether he

wanted to conceal income or furnish inaccurate particulars of income so to

evade tax. In the instant case, Assessing Officer has not brought out any

cogent specific reason for imposing penalty. The reason of the Assessing

Officer is on assumption. Penalty u/s.271(1)(c) cannot be levied on

assumption. There has to be something more which can justify such levy of

penalty. Here, we have already decided that there were bogus purchases and

relying on our decision in the case of M/s. Chhabi Electricals Pvt. Ltd.

(supra), we have arrived at findings that addition @10% of the alleged hawala

purchases, over and above the GP shown by the assessee should be done by

the Assessing Officer. That further, any penal action is not warranted in the

case of assessee. The Hon'ble Apex Court in the case of CIT Vs. Reliance

Petroproducts Pvt. Ltd (supra.) has held that all omissions cannot warranty

the levy of penalty u/s.271(1)(c) of the Act. In the instant case, the assessee

field revised return offering the additional income to tax immediately after the

statement on oath and has not waited till the completion of proceedings or

otherwise.

levied u/s.271(1)(c) is not justified in the case of the assessee. Accordingly, we

direct the Assessing Officer to delete the penalty imposed on the assessee.

assessment year 2009-10 is allowed.

10 ITA Nos.1241 to 1246/PUN/2016 A.Ys.2009-10 to 2011-12

Order pronounced on 06th day of March, 2019. Sd/- Sd/- R.S.SYAL PARTHA SARATHI CHAUDHURY VICE PRESIDENT JUDICIAL MEMBER

पुणे / Pune; �दनांक / Dated : 06th March, 2019. SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to :

अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(Appeals)-1, Pune. 4. The CIT-1, Pune. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” ब�च, 5. पुणे / DR, ITAT, “B” Bench, Pune. गाड� फ़ाइल / Guard File. 6.

// True Copy // आदेशानुसार / BY ORDER,

�नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.

11 ITA Nos.1241 to 1246/PUN/2016 A.Ys.2009-10 to 2011-12

Date 1 Draft dictated on 05.03.2019 Sr.PS/PS 2 Draft placed before author 06.03.2019 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr.PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order