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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI AMARJIT SINGH, JM & SHRI N. K. PRADHAN, AM
O R D E R
PER AMARJIT SINGH, JM:
The revenue has filed the present appeal against the order dated 31.05.2018 passed by the Commissioner of Income Tax (Appeals) -36, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2011- 12.
The revenue has raised the following grounds: - "
I. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in restricting the addition to 12.5% as against 31.42% made by the AO, notwithstanding that the assessee’s name was listed by the Sales Tax Department as a ‘beneficiary’of accommodation entries provided by bogus dealers/sellers and that, during the course of assessment A.Y.2011-12 proceedings, the assessee was unable to discharge the initial burden of providing the genuineness of the purchases inasmuch as the suppliers could not be produced for verification, nor could the assessee produce either the stock register or the transportation detail or the weighing slip etc.
2. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the AO be restored.
3. The appellant craves leave to amend or alter any ground or to submit additional new ground which may be necessary."
3. The brief facts of the case are that the assessee filed its return of income on 26-09-2011 declaring a total income of Rs.75,63,840/-. The return was processed u/s 143(1) of the I.T Act. Thereafter the case of the assessee was reopened u/s 148 by issuance of notice dated 30-03-2016. The notice was served upon the assessee. The case of the assessee was reopened on the basis of the information received from the Office of Director General of Income Tax (Inv.), Mumbai wherein it was conveyed that the assessee has taken the bogus purchase entry of Rs.12,02,286/- from the following 23 parties: - S. No. Hawala Tin Hawala Name F.Y. Amounts 1 27280662401V Amit Traders 2010-11 30,450 2 27200685919V Prathamesh Impex P. Ltd. 2010-11 30,123 3 27980667157V R. K. Enterprises 2010-11 30,123 4 27870658730V Payal Enterprises 2010-11 30,503 5 27420745744V Vardhman Traders 2010-11 29,769 6 27960705192V Saj Enterprises 2010-11 30,319 7 27930665002V Microtek Multi Trade P. 2010-11 31,968 Ltd. 8 27350782206V Mahendra Brothers 2010-11 28,665 A.Y.2011-12 9 27630780500V Banjara Enterprises 2010-11 28,299 10 27280778510V Ashtavinayak Trading Co. 2010-11 28,392 11 27940782221V Sudha Corporation 2010-11 29,316 12 27080747677V Rushabh Sales Corporation 2010-11 29,400 13 27740712782V Trade Link 2010-11 29,484 14 27100795487V Pratik Enterprises 2010-11 29,820 15 27450597851V Vihol Enterprises 2010-11 30,147 16 27130638476V Meridian Sales Agency P. 2010-11 31,239 Ltd. 17 27580629741V Nidhi Corporation 2010-11 54,234 18 27200629853V Maruti Corporation 2010-11 86,426 19 27210731843V Aadeshwar Enterprises 2010-11 90,216 20 27230616596V Pooja Traders 2010-11 1,12,881 21 27460623114V Mayur Trading Co 2010-11 1,12,916 22 27910631063V Amit Trading Co. 2010-11 1,19,643 23 27820725639V Shree Ambika Trading Co. 2010-11 1,19,643 Total 12,02,286 After the reply of the assessee, 31.42% of the bogus purchase of Rs.12,02,286/- was added to the income of the assessee. The total income of the assessee was assessed in a sum of Rs.79,41,600/-. Feeling aggrieved, the assessee filed the present appeal before the CIT(Appeals) who restricted the addition to the extent of 12.5%. The Revenue was not satisfied and, therefore, filed the present appeal before us.
. A.Y.2011-12 4. We have heard the argument advanced by the Ld. Representative of the parties and perused the record. Before going further, we deemed it necessary to advert the finding of the CIT(A) on record: - “4.2 In Ground No. 3 & 4 the effective contention of the appellant is regarding the addition of Rs.16,69,914/- on account of unproved/non- genuine purchase. I have carefully gone through the impugned Assessment Order passed by the Assessing Officer and the written submissions of the appellant on this issue. The Assessee is engaged in the business of manufacturing and marketing of Hosiery items and fashion and sports Accessories, which includes T-Shirts, Track Pants, soaks Head and wrist Bands etc. Information was received by the AO from the Director General of Income Tax (Investigation) that the assessee was engaged in the practice of inflating the purchases by taking bogus bills from hawala parties without delivery of goods and the assessee had entered into Hawala Transactions for purchases amounting to Rs. 1,202,2867- from the abovementioned 23 parties at page 4 and 5 of this order. The appellant was unable to produce the Sellers before the AO for confirmation of the identity & genuineness of the transactions. The placed reliance on M/s Kanchwala Gems the AO rejected the books of account of the appellant and based on this line of reasoning, the AO concluded that there was escapement of income to the extent of purchases made from the aforementioned 23 sellers at page 4 & 5 of this order and he disallowed a certain portion of the purchases as bogus and added them back to the total income of the assessee. 4.2.1 During the course of assessment proceedings, the assessee furnished the copies of ledger bill, invoices and the bank accounts showing the payment made. However, the facts and circumstances discussed by the AO in his order clearly suggest that purchases declared by the appellant from the aforementioned 23 sellers are doubtful due to the unverifiable nature of such transactions with the 3 parties. The purchase prices shown on the invoices have not been subjected to verification and is therefore difficult to establish the correctness of the purchase price. Such verification was essential to establish the genuineness of the profits declared by the appellant and also to determine if the prices shown are as per the prevailing market prices of similar items and were not over invoiced. In the absence of such verification, the purchase price paid and declared as per the invoices cannot be held to be genuine and the probability of over invoicing cannot be ruled out. Therefore, the Gross profit rate declared by the appellant cannot be relied upon. In such circumstances, the rationally A.Y.2011-12 balanced approach, would be to estimate the additional benefit or profit earned on these purchases. I believe that the purchases from the abovementioned parties were over invoiced and there was no actual delivery of goods by the aforementioned 23 sellers. Purchases were actually made from parties other than those declared by the assessee, at a cheaper rate, without proper billing or documentation. 4.2.2 The issue of bogus purchases has gripped appellate authorities and courts for some time now. The consistent rationale arrived at by the Hon'ble Higher Appellate Authorities is that in cases where purchases have been shown to have been made from non-existent Sellers who could not be physically produced before the Income Tax Authorities, (whilst maintaining with evidence the complete trail of the transactions in their Book of Accounts/Bank entries/delivery receipts etc.), only a part of such purchases can be disallowed especially in cases where the corresponding sales have not been questioned or the Book of Accounts rejected. Alternatively, the profit embedded in such sales against the alleged bogus purchase can only be brought to tax. 4.2.3 In case of CIT v Simit P. Sheth{355ITR 290 (Guj)}, the Hon'ble Gujarat High Court [adjudicated upon a case of a steel trader wherein the AO had made additions on account of bogus purchases based oh statements recorded from some steel suppliers that they had only provided bills for a small amount of commission. The assessee challenged the matter inappeal wherein the CIT(A) held that while the assessee had not made purchases from the declared parties, the purchases had been made from other parties in the open market at lower rates and upheld addition to the extent of 30% of purchase cost as the probable profit of the assessee. On further appeal, the Tribunal held as under: " Having heard the submissions of both sides, we have been informed that the malpractice of bogus purchase is mainly to save 10% sales tax etc. It has also been informed that in this industry about 2.5% is the profit margin. Therefore, respectfully following the decisions of the co- ordinate bench pronounced on identical circumstances, we hereby direct that the disallowance is required to be sustained at 12.5% of the purchases from those parties. With these directions, we hereby decide. The grounds of the rival parties which are partly allowed". 4.2.4 The matter travelled further to the High Court where the Hon'ble Court, when considering the matter noted that the vital aspect for consideration was whether the entire amount of purchases was to be held as bogus or that the purchases were held to be made not from the parties A.Y.2011-12 from which they were claimed but from the grey market without proper billing and documentation. The Court further observed that when the sales in question were accepted by the AO, the purchases would have been made from some source and held that only the profit element was to be added to the income of the assessee. The relevant part of the order is as follows: "We are broadly in agreement with the reasoning adopted by the Commissioner (Appeals) with respect to the nature of disputed purchases of steel. It may be that the three suppliers from whom the assessee claimed to have purchased the steel did not own up to such sales. However, the vital question while considering whether the entire amount of purchases should be added back to the income of the assessee or only the profit element embedded therein was to ascertain whether the purchases themselves were completely bogus and nonexistent or that the purchases were actually made but not from the parties from whom it was claimed to have been made and instead may have been purchased from grey market without proper billing or documentation. In the present case, the Commissioner of Income tax(Appeals) believed that when as a trader in steel the assessee sold certain quantity of steel, he would have purchased the same quantity from some source. When the total sale is accepted by the Assessing Officer, he could have the very basis of the purchases. In essence, therefore, the Commissioner (Appeals) assessee's theory that the purchases were not bogus but were made from the those mentioned in the books of account. That being theposition, not the entire purchase price but only the profit element embedded in • can be added to the income of the assessee. So much is clear by the decision of 7In particular, the court has also taken a similar view in the case ofCIT v Vijay M Construction Ltd. Vide order dated January 10,2011 passed in Tax Appeal No. 1090 of 2009 - since reported in [2013] 355 ITR 498(Guj) and in the case ofCIT v Bholanath Poly Fab P Ltd, vide order dated October 23, 2012, passed in Tax Appeal No. 63 of 2012 - since reported in [2013] 355 ITR 290 (Guj). The view taken by the Tribunal in the case of Vijay Proteins Ltd v. Asstt. CIT[1996] 58 JTD 428 (Ahd) came to be approved. If the entire purchases were wholly bogus and there was a finding of fact on record that no purchases were made at all, counsel for the Revenue would be justified in arguing that the entire amount of such bogus purchases should be added back to the income of the assessee. Such were the facts in the case of Asstt. CIT (OSC) v Pawanraj B Bokadia(supra) "
4.2.5 In the decision rendered in the case of DCIT Vs. Rajeev G. Kalathil (Mum) 51 taxman.com 514), the Tribunal adjudicated upon a case of an assessee of an assessee in the business of executing civil contracts, where the AO made an addition of Rs. 13.69 lakhs as bogus purchases/expenses A.Y.2011-12 based on the fact that one of the involved parties was declared as a hawala' operator by the VAT authorities. The Tribunal deleted the addition holding that such addition cannot be sustained on mere suspicion as follows: We have heard the rival submissions and perused the material before us. We find that AO had male the addition as one of the supplier was by the VAT Department. We agree that it was a good starting point for making further investigation and take it to logical ad. But, he left the job at initial point itself. Suspicion of highest degree cannot take plate of evidence. Ile could have called for the details of the bank accounts of the suppliers to find our as whether there was any immediate cash withdrawal from their account. We find that no such exercise was done. Transportation of good to the site is one of the deciding factor to be considered for resolving the issue. The FAA has given a finding of fact that part of the goods received by the assessee was forming part of closing stock as far as the case of Western Extrusion Industries (supra) is concerned, we find that in as immediately withdrawn by the supplier and there was no evidence of mown= pant the case before us, there is nothing, in the order of the AO, about the cash was of movement of goods is not in doubt Therefore, considering the fact and circumstances of the case under appeal, we are of the opinion that the order of the FAA does not suffer from any legal infirmity and there are not sufficient evidence on file to endorse the view taken by the AO. So, confirming the order of the FAA. we decide ground no. 1 against the AO". 4.2.6 Thus, a study of different cases, wherein addition on account of bogus purchases has been dealt with by various Courts and Tribunals shows that such additions have been upheld in their entirety only in a few cases including decisions rendered in the cases of La Medica, Shri Ganesh Rice Mills. Vicky Foods (P.) Ltd. OZ. w4n apart from various other factors there was lack of reliable record with reference to quantitative details etc. and where evidence produced for payment was found lacking. In other cases, where the full quantitative details are not available or details produced were not fully reliable inasmuch as consumption of material as shown but yield was too low and payments were also doubtful (including the cases of Vijay Proteins Ltd, Bholanath Poly Fab Pvt. Ltd., Sin iii P. Sheth, Sanket Steel Traders, sathyanarayan P. Rathietc.) addition was upheld in the range of 25% (as in Vijay Proteins case) to 12.5 % to augment the possible suppression in GP applying real income theory depending on the facts of the case. However, perusal of decisions of Tribunals and High courts on this issue shows that all such cases are decided on the basis of facts and involve no uniform question of law. From ITA No. 5502/M/2018 A.Y.2011-12 the above decisions, the ground-rule that emerges is that where suppliers are not available, the presence of reasonable quantitative details and payments by account payee cheques are primary tests on when the genuineness of purchases is required to e tested. In addition, from cases like Nikunj Eximp Enterprises (P) Ltd (High court as well as ITAT), Al K. Brothers, Nangalia Fabrics Pvt. Ltd., Rajiv G. Kalathil, Permanand, Sagar Bose, Diagnostics etc., it emerges that other aspects such as statements of hawala providers before by Sales Tax Authorities; affidavits filed by such suppliers before Sales Tax authorities absence of evidence in support of transportation/delivery of material etc., have been held less relevant as mere indicators and not decisive factors, to draw a conclusion regarding genuineness of purchases. Thus, in essence, the benefit derived by the assessee by showing purchases from such bogus parties is the lowering of OP that would have been earned by the assessee had such purchases and corresponding sales been removed from the accounts. In other words, the effective lowering of the OP is the real additional income of the assessee by showing such purchases and only such component would therefore be taxable. 4.2.7. Keeping in mind the totality of the facts and circumstances and the guidelines laid down in judicial decisions discussed above, it would be adequate to meet the ends of justice, if the disallowance is to be restricted to 12.5 percent of the bogus purchases of Rs.12,02,286/- which amounts to Rs.1,50,285/- The AO is, therefore, directed to restrict the disallowance as above.”
On appraisal of the above mentioned finding, we find that the CIT(Appeals) has decided the matter of controversy on the basis of the decision of Gujarat High Court in the case of CIT vs. Simit P. Sheth 355 ITR 290 (Guj.) and in the case of DCIT vs. Rajeev G. Kalathil (Mum.)51 taxmann.com 514. The CIT(Appeals) has also gone through various Laws relating to the bogus purchases which has been discussed in the order which need not be required to be repeated Again. The CIT(Appeals) has restricted the addition to the extent of 12.5% of the bogus purchases of Rs.12,02,286/- i.e. to the tune of Rs.1,50,285/- The facts are A.Y.2011-12 not distinguishable at this stage. No law contrary to the law relied upon by the CIT(Appeals) has been produced before us. Taking into account all the facts and circumstances of the case, we are of the view that the CIT(Appeals) has decided the matter of controversy judiciously and correctly which is not liable to be interfered at this stage.
Reasons for delay in pronouncement of order 6.1 Before parting, we would like to enumerate the circumstances which have led to delay in pronouncement of this order. The hearing of the matter was concluded on 07/02/2020 and in terms of Rule 34(5) of Income Tax (Appellate Tribunal) Rules, 1963, the matter was required to be pronounced within a total period of 90 days. As per sub-clause (c) of Rule 34(5), every endeavor was to be made to pronounce the order within 60 days after conclusion of hearing. However, where it is not practicable to do so on the ground of exceptional and extraordinary circumstances, the bench could fix a future date of pronouncement of the order which shall not ordinarily be a day beyond a further period of 30 days. Thus, a period of 60 days has been provided under the extant rule for pronouncement of the order. This period could be extended by the bench on the ground of exceptional and extraordinary circumstances. However, the extended period shall not ordinarily exceed a period of 30 days. 6.2 Although the order was well drafted as well as approved before the expiry of 90 days, however, unfortunately, on 24/03/2020, a nationwide lockdown was imposed by the Government of India in view of adverse circumstances created by pandemic covid-19 in the country. The lockdown was extended from time to time which crippled the functioning of most of A.Y.2011-12 the government departments including Income Tax Appellate Tribunal (ITAT). The situation led to unprecedented disruption of judicial work all over the country and the order could not be pronounced despite lapse of considerable period of time. The situation created by pandemic covid-19 could be termed as unprecedented and beyond the control of any human being. The situation, thus created by this pandemic, could never be termed as ordinary circumstances and would warrant exclusion of lockdown period for the purpose of aforesaid rule governing the pronouncement of the order. Accordingly, the order is being pronounced now after the re-opening of the offices.
6.3 Faced with similar facts and circumstances, the co-ordinate bench of this Tribunal comprising-off of Hon’ble President and Hon’ble Vice President, in its recent decision titled as DCIT V/s JSW Limited (ITA Nos. 6264 & 6103/Mum/2018) order dated 14/05/2020 held as under: -
However, before we part with the matter, we must deal with one procedural issue as well. While hearing of these appeals was concluded on 7th January 2020, this order thereon is being pronounced today on 14th day of May, 2020, much after the expiry of 90 days from the date of conclusion of hearing. We are also alive to the fact that rule 34(5) of the Income Tax Appellate Tribunal Rules 1963, which deals with pronouncement of orders, provides as follows: (5)The pronouncement may be in any of the following manners: — (a) The Bench may pronounce the order immediately upon the conclusion of the hearing. (b) In case where the order is not pronounced immediately on the conclusion of the hearing, the Bench shall give a date for pronouncement. A.Y.2011-12 (c) In a case where no date of pronouncement is given by the Bench, every endeavour shall be made by the Bench to pronounce the order within 60 days from the date on which the hearing of the case was concluded but, where it is not practicable so to do on the ground of exceptional and extraordinary circumstances of the case, the Bench shall fix a future day for pronouncement of the order, and such date shall not ordinarily (emphasis supplied by us now) be a day beyond a further period of 30 days and due notice of the day so fixed shall be given on the notice board.
Quite clearly, “ordinarily” the order on an appeal should be pronounced by the bench within no more than 90 days from the date of concluding the hearing. It is, however, important to note that the expression “ordinarily” has been used in the said rule itself. This rule was inserted as a result of directions of Hon’ble jurisdictional High Court in the case of Shivsagar Veg Restaurant Vs ACIT [(2009) 317 ITR 433 (Bom)] wherein Their Lordships had, inter alia, directed that “We, therefore, direct the President of the Appellate Tribunal to frame and lay down the guidelines in the similar lines as are laid down by the Apex Court in the case of Anil Rai (supra) and to issue appropriate administrative directions to all the benches of the Tribunal in that behalf. We hope and trust that suitable guidelines shall be framed and issued by the President of the Appellate Tribunal within shortest reasonable time and followed strictly by all the Benches of the Tribunal. In the meanwhile(emphasis, by underlining, supplied by us now), all the revisional and appellate authorities under the Income-tax Act are directed to decide matters heard by them within a period of three months from the date case is closed for judgment”. In the ruled so framed, as a result of these directions, the expression “ordinarily” has been inserted in the requirement to pronounce the order within a period of 90 days. The question then arises whether the passing of this order, beyond ninety days, was necessitated by any “extraordinary” circumstances. 9. Let us in this light revert to the prevailing situation in the country. On 24th March, 2020, Hon’ble Prime Minister of India took the bold step of imposing a nationwide lockdown, for 21 days, to prevent the spread of Covid 19 epidemic, and this lockdown was extended from time to time. As a matter of fact, even before this formal nationwide lockdown, the functioning of the Income Tax Appellate Tribunal at Mumbai was severely A.Y.2011-12 restricted on account of lockdown by the Maharashtra Government, and on account of strict enforcement of health advisories with a view of checking spread of Covid 19. The epidemic situation in Mumbai being grave, there was not much of a relaxation in subsequent lockdowns also. In any case, there was unprecedented disruption of judicial wok all over the country. As a matter of fact, it has been such an unprecedented situation, causing disruption in the functioning of judicial machinery, that Hon’ble Supreme Court of India, in an unprecedented order in the history of India and vide order dated 6.5.2020 read with order dated 23.3.2020, extended the limitation to exclude not only this lockdown period but also a few more days prior to, and after, the lockdown by observing that “In case the limitation has expired after 15.03.2020 then the period from 15.03.2020 till the date on which the lockdown is lifted in the jurisdictional area where the dispute lies or where the cause of action arises shall be extended for a period of 15 days after the lifting of lockdown”. Hon’ble Bombay High Court, in an order dated 15th April 2020, has, besides extending the validity of all interim orders, has also observed that, “It is also clarified that while calculating time for disposal of matters made time-bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly”, and also observed that “arrangement continued by an order dated 26th March 2020 till 30th April 2020 shall continue further till 15th June 2020”. It has been an unprecedented situation not only in India but all over the world. Government of India has, vide notification dated 19th February 2020, taken the stand that, the coronavirus “should be considered a case of natural calamity and FMC (i.e. force majeure clause) maybe invoked, wherever considered appropriate, following the due procedure…”. The term „force majeure‟ has been defined in Black’s Law Dictionary, as „an event or effect that can be neither anticipated nor controlled‟ When such is the position, and it is officially so notified by the Government of India and the Covid-19 epidemic has been notified as a disaster under the National Disaster Management Act, 2005, and also in the light of the discussions above, the period during which lockdown was in force can be anything but an “ordinary” period. A.Y.2011-12 10. In the light of the above discussions, we are of the considered view that rather than taking a pedantic view of the rule requiring pronouncement of orders within 90 days, disregarding the important fact that the entire country was in lockdown, we should compute the period of 90 days by excludingat least the period during which the lockdown was in force. We must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. The interpretation so assigned by us is not only in consonance with the letter and spirit of rule 34(5) but is also a pragmatic approach at a time when a disaster, notified under the Disaster Management Act 2005, is causing unprecedented disruption in the functioning of our justice delivery system. Undoubtedly, in the case of Otters Club Vs DIT [(2017) 392 ITR 244 (Bom)], Hon’ble Bombay High Court did not approve an order being passed by the Tribunal beyond a period of 90 days, but then in the present situation Hon’ble Bombay High Court itself has, vide judgment dated 15th April 2020, held that directed “while calculating the time for disposal of matters made timebound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly”. The extraordinary steps taken suo motu by Hon’ble jurisdictional High Court and Hon’ble Supreme Court also indicate that this period of lockdown cannot be treated as an ordinary period during which the normal time limits are to remain in force. In our considered view, even without the words “ordinarily”, in the light of the above analysis of the legal position, the period during which lockout was in force is to excluded for the purpose of time limits set out in rule 34(5) of the Appellate Tribunal Rules, 1963. Viewed thus, the exception, to 90-day time-limit for pronouncement of orders, inherent in rule 34(5)(c), with respect to the pronouncement of orders within ninety days, clearly comes into play in the present case. Of course, there is no, and there cannot be any, bar on the discretion of the benches to refix the matters for clarifications because of considerable time lag between the point of time when the hearing is concluded and the point of time when the order thereon is being finalized, but then, in our considered view, no such exercise was required to be carried out on the facts of this case. A.Y.2011-12 Driving strength from the ratio of aforesaid decision, we exclude the period of lockdown while computing the limitation provided under Rule 34(5) and proceed with pronouncement of the order.