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Income Tax Appellate Tribunal, VIRTUAL COURT
Before: SHRI C.N. PRASAD, HONBLE & SHRI N.K. PRADHAN, HONBLE
O R D E R PER C.N. PRASAD (JM) 1. These appeals are filed by the revenue against common order of the Learned Commissioner of Income Tax (Appeals)–10, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 28.12.2018 for the A.Ys. 2009-10 & 2011-12 in restricting the disallowance to 12.5% of purchases as against the disallowance of 25% of purchases less the Gross Profit
Briefly stated the facts are that, assessee engaged in the business of “Reseller in all types of Ferrous and non-ferrous metals” filed return of income on 30.09.2009 and 30.09.2011 declaring income of ₹.1,37,330/- and ₹.3,12,570/- for the A.Ys: 2009-10 and A.Y. 2011-12 respectively, and the returns were processed u/s. 143(1) of the Act. Subsequently, Assessing Officer received information from the DGIT (Inv.,), Mumbai about the accommodation entries provided by various dealers and assessee was also one of the beneficiary from those dealers. The assessments were reopened U/s. 147 of the Act based on the information received from DGIT(Inv.), Mumbai, that the assessee has availed accommodation entries from various dealers who are said to be providing accommodation entries without there being transportation of any goods. In the reassessment proceedings, the assessee was required to prove the genuineness of the purchases made from various parties referred in Assessment Order. In response assessee submitted that the purchases made are genuine. Assessee further submitted that the payments are made through account payee cheques as such contended that all the 3 & 1461/MUM/2019 (A.Y. 2011-12 & A.Y. 2009-10) M/s. Karteek Ferromet Pvt. Ltd., purchases are genuine. However, parties were not produced before the Assessing Officer and no explanation was offered.
Not convinced with the submissions of the assessee the Assessing Officer treated the purchases as non-genuine and he was of the opinion that assessee had obtained only accommodation entries without there being any transportation of materials and the assessee might have made purchases in the gray market. It is the finding of the Assessing Officer that in the absence of confirmations from the parties, the genuineness of the purchases could not be verified. Assessing Officer observed that the notices issued u/s. 133(6) of the Act to the parties are returned unserved with a remark “unserved/unclaimed” and the assessee has not produced the parties before the Assessing Officer. Therefore, Assessing Officer treated 25% of the alleged bogus purchases of ₹.35,95,479/- and ₹.1,20,70,170/- for the A.Y. 2009-10 and A.Y. 2011-12 respectively as non-genuine. However, since the assessee has shown the Gross Profit @10.09% he worked out the disallowance at ₹.7,47,860/- and ₹.17,99,663/- for the A.Y. 2009-10 and A.Y. 2011-12 respectively and added to the income of the assessee. On appeal the Ld.CIT(A) considering the evidences and various submissions of the assessee
In spite of issue of notice none appeared on behalf of the assessee. The notice was sent through RPAD to the address given in Form No.36 by the assessee returned unserved with an endorsement “Not Known” by the postal authorities. Since the notice issued was returned unserved, we dispose off this appeal on merits on hearing the Ld.DR.
Ld. DR vehemently supported the orders of the Assessing Officer. On a perusal of the order of the Ld.CIT(A), we find that the Ld.CIT(A) considered this aspect of the matter elaborately with reference to the submissions of the assessee and the averments in the Assessment Order and following various judicial pronouncements including the decision of the Hon'ble Gujarat High Court in the case of Simit P. Sheth [356 ITR 461] restricted the disallowance to 12.5% of the non-genuine purchases. While holding so, the Ld.CIT(A) observed as under: - “8. Decision 8.1 I have considered the submission of the appellant, carefully gone through the order of the AO, perused the material placed on record, and referred to the case laws relied upon by the appellant and the AO. 8.2 The main thrust of the arguments of the AR is that it has produced all the details before the AO with regard to genuineness of the purchases, 5 & 1461/MUM/2019 (A.Y. 2011-12 & A.Y. 2009-10) M/s. Karteek Ferromet Pvt. Ltd., however, the AO has merely relied on the information received from the STA, and made the additions to the income of the appellant on account of bogus purchases, hence, the additions are unsustainable. 8.3 The various issues raised by the appellant under the above ground of appeal
are now discussed and decided as under: 8.4 Whether a transaction of purchase is genuine or not is always a question of fact and in making an assessment the ITO is not fettered by the technical rules of evidence, the ITO may act on material which may not, strictly speaking, be accepted as evidence in Indian Evidence Act in Court of Law as held in the case of Dhakeswari Cotton Mills Ltd. Vs. CIT (1954)
26. ITR 775 (SC) and it is open to him to collect materials to facilitate assessment even by private enquiry.[C. Vasantlal & Co. Vs. CIT (1962)
45. ITR 206 (SC) &Vimal Chandra Golecha vs. Income Tax Officer &Ors. (1982) 134 ITR 119 (Raj)]. 8.5 As discussed earlier, information was received from the Sales Tax Department in respect of the bogus purchases made by the appellant company. According to illustration (e) to Section 114 of the Indian Evidence Act, the court may presume that judicial and official acts have been regularly performed. It is apparent that the presumption of the above illustration applies to both judicial and official acts and the presumption attached to the correctness of official records cannot be taken away merely by assumptions or suggestions raising doubts [Capital Talkies v. CIT, (1981) Tax LR 1029, 103031 (Ori)]. Further, the records maintained by Central Excise Authorities! Various State Govt Authorities are important piece of evidence. [Motipur Sugar Factory (P) Ltd v. CIT (1974)
95. ITR 401 (Pat.)(HC)(409) &Shanker Rice Co. v. ITO (2000) 72 lTD 139 (Asr.)(SB)(Trib.)(158)]. Thus, applying the same principle, if Sales Tax Authorities have taken the view that the purchases are bogus and if appellant has accepted the same, the order of Sales Tax Authorities can be relied on by the AO to deny the genuineness of the purchase transactions, and the burden is on the appellant to prove that purchases are genuine. 8.6 It can be noticed from the decision of the Hon'ble jurisdictional High Court of Bombay in - the case of Mahalaxmi Cotton Ginning Pressing and Oil Industries v The State of Maharashtra & Others (Supra) that Sales Tax Authorities have conducted enquiry and investigation, which revealed existence of havala transactions where there was no sale of goods and the selling dealer had merely issued tax invoices to the purchasing dealer in order to defraud the Revenue and to allow the benefit of a set off, and a number of dealers from whom the Petitioner purchased goods are untraceable. It is also noticed that where the enquiry revealed that the supplier is a genuine dealer, but there has been a short filing of taxes or returns, recovery was initiated against the selling dealer and/or an assessment was made by the STA and where a default was made good by 6 & 1461/MUM/2019 (A.Y. 2011-12 & A.Y. 2009-10) M/s. Karteek Ferromet Pvt. Ltd., the supplying dealer (vendor), input tax credit to that extent of the default which has been made good, was allowed to the claimant dealer either in appeal or by way of assessment and/or review. Thus, the STA clearly differentiated the genuine dealers from the havala dealers. Therefore, when STA has taken the view that the purchases are bogus and if appellant has accepted the same, the burden is on the appellant to prove that purchases are genuine. The appellant has not placed any evidence on record viz, the assessment orders under State VAT laws — of self or the supplying dealer, to show that the assessment has been made in the case of the supplying dealer or default has been made good by the supplying dealer or the appellant has been given 'input tax credit' subsequently which can prove that the stated transactions were genuine. 8.7 It is trite that onus lies on the assessee to prove the genuineness of any expenditure which is claimed as deduction in computing its taxable income. "Prima facie onus to prove genuineness of purchases is on assessee." [CIT v. Korlay Trading Co Ltd (1998) 232 ITR 820(Cal.)(HC)]. Therefore, the onus in the present case squarely lies on the appellant to prove the genuineness of purchase. Further, when the facts lay within the special knowledge of the assessee which it failed to establish, a statutory presumption can be drawn against it in view of s. 105 of the Evidence Act. Hence considering that all the evidence and material relating to the purchase and sale of goods were within the special knowledge of the appellant, the onus to produce the same as per s. 106 the Evidence Act was upon the appellant. 8.8 On identical facts, rejecting the contention of the petitioner that if the details have been provided as sought by the Assessing Officer including the identification of the parties, the nature of the dealings and the transactions, monies paid, then, this is a case where the primary onus has been discharged and that unless and until the revenue is able to demonstrate and prove the negative by producing contrary material, the assessee must succeed, the Hon'ble jurisdictional High Court of Bombay in the case of Umakant B. Agrawal vs. Deputy CIT (2014) 369 ITR 0220 (Born) has held that "These are not matters which were to the knowledge of the Assessing Officer and the assessee was called upon to clarify them. It was a matter solely to the knowledge of the appellant. It was personal to him. It was the assertion of the appellant and which was being probed, however, in greater details. It was a clear case where the onus which was resting on the assessee in law, has not been discharged by producing the details with regard to the matters which are to the personal knowledge only of the assessee.”
7 & 1461/MUM/2019 (A.Y. 2011-12 & A.Y. 2009-10) M/s. Karteek Ferromet Pvt. Ltd., 8.9 In the present case the AO has conducted independent enquires and shown that the parties in question were not genuine dealers and the stated hawala dealers have admitted this fact before the Sales Tax Authorities. However, the appellant failed to produce the parties for verification and to rebut the charges. Further, during the appellate proceedings , when called upon to produce the evidence submitted before the AO in support of physical delivery of goods viz, delivery challan, transport bills or any other ancillary evidence, the appellant also failed to submit any such evidence to prove that the delivery of the goods has been actually received by it from the alleged suppliers. The tax invoices placed on record in support of purchase of goods do not provide the details of delivery or transport of goods. The Hon'ble Tribunal in the case of DCIT vs. Shri Rajeev G. Kalathil, (Mum) (Trib) (ITA No. 6727/M/2012 dt.20108/2014, Bench `D' AY 2009-10) (2015) 67 SOT 0052 (Mumbai) (URO) has held that transportation of good to the site is one of the deciding factor to be considered for resolving the issue. However, the appellant has not produced any supporting documents or any independent third-party evidence viz, delivery challan transport bills, octroi bills, which could prove the movement of the alleged material purchased. 8.10 Another argument of the appellant in support of the genuineness of the purchase transaction is that all the payments are made through account payee cheques and payment transactions can be verified from copy of bank statement as submitted before the AO. In my view such an argument is fallacious. There are judicial precedents on this issue wherein it is held that the transaction cannot be held to be genuine merely because the payment is made by cheques. The Hon'ble High Court of Karnataka in the case of CIT &Ors. vs. Saravana Constructions (P.) Ltd. (2012) 72 DTR 0258, has held that "there is no presumption that merely because the payment is made by cheque, it is a genuine transaction. First it has to be found out whether the transaction in question is genuine and only thereafter, the assessee would be entitled to the benefit of disallowance" . The Hon'ble jurisdictional High Court of Bombay in the case of Naresh K. Pahuja vs. Income Tax Appellate Tribunal: (2015) 375 ITR 0526 (Bom) has held that "mere routing of a gift through a banking channel would not by itself establish that the gift is genuine and the genuineness or non- genuineness of the gift would have to be established by other evidence." And the Hon'ble Supreme Court of India in the case of CIT vs. P. Mohanakala &O rs. (2007) 291 ITR 0278 has held that "The transactions though apparent were held to be not real one. May be the money came by way of bank cheques and paid through the process of banking transaction but that itself is of no consequence." 8.11 It emerges from the above decisions that it is mandatory for the appellant to establish the genuineness of transaction by independent supporting evidences and the payment by way of bank cheques or payment 8 & 1461/MUM/2019 (A.Y. 2011-12 & A.Y. 2009-10) M/s. Karteek Ferromet Pvt. Ltd., through the process of banking transaction in itself is of no consequence. Therefore, in my view, purchase transaction in the present case cannot be considered genuine merely because the payments were made through account payee cheques. 8.12 The Hon'ble Supreme Court of India in the case of Commissioner of Income Tax vs. Durga Prasad More (1971): 82 ITR 0540 (SC) has held that "It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, other- wise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents." 8.13 In the present case, the adverse evidence and material, relied upon in the order, to reach the finality, were disclosed to the assessee. However, the appellant could not establish the genuineness of the transaction either on the basis evidence in support of delivery of goods, or by producing the parties from whom the purchase were made. Hence the purchase transaction cannot be considered as genuine. 8.14 Nonetheless, from the facts recorded above in this case, it has emerged that the material in question was really received because without receiving such material the corresponding sales would not have been possible. However, the material was not received from the parties from whom it is shown to have been purchased as there is no independent third party evidence on record which can support the transaction. Thus, an inference can be drawn that such material were purchased from different sources which were exclusively within the knowledge of appellant and none else. It is well known that if purchases are made from open market without insisting from the genuine bills, the suppliers may be willing to sell those products at a much lower rate as compared to the rate at which they may charge in case the dealer has to give a genuine sale invoice in respect of that sale and supply the goods. There may be various factors due to which there is bound to be a substantial difference between the purchase price of unaccounted material and rate of purchase of accounted for goods. There 9 & 1461/MUM/2019 (A.Y. 2011-12 & A.Y. 2009-10) M/s. Karteek Ferromet Pvt. Ltd., may be a saving on account of sales-tax and other taxes and duties which may be leviable in respect of manufacture of sale of goods in question. The suppliers or the manufacturers make a substantial saving in the income-tax in respect of income from sale of unaccounted goods produced and sold by them. This may also be one of the factors due to which the seller may be willing to charge lower rates for unaccounted goods as compared to accounted for goods. 8.15 Apparently, the motive behind obtaining bogus bills is inflation of purchase price so as to suppress the profits and the profit from such transactions varies with nature of business and no uniform yardstick can be adopted for estimation of such profit. Therefore, in light of the above decisions, taking in to account the totality of the facts, it will be reasonable to estimate the profit embedded in the accommodation entries of bogus purchases as undisclosed profit of the appellant. 8.16 The estimations of profit embedded in accommodation entries of bogus purchases transactions @ 12.5% out of purchase price accounted through bogus invoices have been upheld as the fair profit rate out of the bogus purchases by the Hon'ble Courts and Tribunals. 8.17 In the case of CIT v. Simit P Sheth (2013) 356 ITR 451 (Guj)(HC), the Hon'ble High Court has upheld disallowance @12.5% of such purchases. 8.18 The appellant is a dealer and under identical facts, the Hon'ble ITAT, Bombay Tribunal (H) has upheld disallowance @12.5% of such purchases in the decision date 4th April, 2017 in the case of Ratnagiri Stainless Pvt. Ltd. vs. Income Tax Officer in ITA No. 4463/Mum/2016 as well as in Income Tax Officer 5 (3) (1) vs. M/s RBS Copper Products Pvt. Ltd. in ITA Nos. 1057 & 1058 dated 04/07/2017. Therefore, in light of the above decisions, taking in to account the totality of the facts, it will be reasonable to estimate the profit embedded in the accommodation entries of bogus purchases 12.5 % of the purchase amount. As it is an estimate of the profit embedded in purchase, it can not be subject to any adjustment on account of any subsequent profit arising from the sale of the materials as held by the Hon'ble ITAT, Mumbai Bench in the decision in ITA No. 6555/Mum/2017 for AY 2009-10 in the case of M/s Muhta Markfin (P) Limited Vs. ITO-5(2)(3), has held as under : “We are of the considered view that as the profit element accounted for by the assessee in its regular books of accounts pertains to the profit which it would have made from selling the goods under consideration, therefore, the same would have no bearing on the qualification of the monetary benefit involved in making of purchases by the assessee at a lower price from the open/grey market, as in comparison to purchases made from registered dealer".
10 & 1461/MUM/2019 (A.Y. 2011-12 & A.Y. 2009-10) M/s. Karteek Ferromet Pvt. Ltd., 8.19 In view of the above, the profit embedded in the accommodation entries of bogus purchases amounting to Rs. 35,95,479/-is estimated 12.5 % on such purchases and an addition of Rs. 4,49,435/- is sustained for AY 2010-11. The appellant gets relief of Rs. 2,98,425/- (Rs. 7,47,860/- minus 4,49,435/4 8.20 For AY 2011-12, the profit embedded in the accommodation entries of bogus purchases amounting to Rs. 1,20,70,170/-is estimated 12.5 % on such purchases and an addition of Rs. 15,08,771/- is sustained for AY 2011- 12. The appellant gets relief of Rs. 290,892/- (Rs. 17,99,663/- minus 15,08,771/-). 8.21 Accordingly, all the the above grounds of appeal are partly allowed.”
6. On a careful perusal of the order of the Ld.CIT(A) and the reasons given therein, we do not find any infirmity in the order passed by the Ld.CIT(A) in restricting the addition/disallowance to the extent of 12.5% of the purchases. Grounds raised by the revenue are dismissed.
In the result, appeals of the Revenue are dismissed.
Order pronounced on 12.01.2021 as per Rule 34(4) of ITAT Rules by placing the pronouncement list in the notice board.