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Income Tax Appellate Tribunal, “H” Bench, Mumbai
Before: Shri Ravish Sood & Shri N.K. PradhanSmt.Kunjbala N.Parikh
O R D E R
PER RAVISH SOOD, JM
The present appeal filed by the assessee is directed against the order passed by the CIT(A)-26, Mumbai, dated 10.09.2018, which in turn arises from the order passed by the A.O under Sec.143(3) r.w.s 147 dated 20.11.2015. The assessee has assailed the impugned order on the following grounds of appeal before us: “1. Learned CIT (Appeal) erred in confirming the entire additions made by the AO for an amount of Rs. 512636/- (12.5% of Rs. 4101088/-), and erred in treating the same as bogus purchase.
2. Learned CIT (Appeal) erred in confirming profit @12.5% on the alleged purchases even though details of Sales reconciliation alongwith Lorry receipts details, VAT Returns & payments filed by MIs Shraddha Trading Co were brought on record.
P a g e | Smt. Kunjbala N. Parikh Vs. Income Tax Officer-(27)(2)(1) 3. Learned CIT (Appeal) erred in confirming @12.5% on the alleged purchases ignoring the judicial pronouncements brought at the time of appeal hearing. 4. Learned CIT (Appeal) erred in confirming @12.5% on the alleged purchases ignoring the fact that appellant has already deposited the VAT before the Sales Tax Authority. 5. The appellant craves to leave, to amend, alter, to vary or modify any of the above grounds of appeal
.”
2. Briefly stated, the assessee who is engaged in the business of trading in iron & steel goods had e-filed her return of income for A.Y. 2010-11 on 28.08.2010, declaring total income of Rs.2,58,682/-. On the basis of information shared by the DGIT(Investigation), Mumbai, that the assessee as a beneficiary had obtained bogus purchase bills of Rs.41,01,088/-, her case was reopened under Sec. 147 of the Act. In compliance to the noticed issued under Sec. 148, it was requested by the assessee that her „Original‟ return of income filed on 28.08.2010 may be treated as the return filed in response to the said notice.
3. During the course of the assessment proceedings the A.O called upon the assessee to substantiate the authenticity of the purchases aggregating to Rs.41,01,088/- which were claimed by her to have been made from M/s Shraddha Trading Company. In reply, the assessee in order to substantiate the genuineness of the purchases made from the aforementioned party, therein filed copies of the purchase bills alongwith the corresponding sale bills. In order to buttress her claim of having made genuine purchases from the aforementioned party, the assessee submitted certain supporting documents viz. stock register, purchase invoices, delivery challans and ledger account of the aforementioned party. Also, it was submitted by the assessee that the payment of the purchase consideration to the aforementioned party was made by account payee cheques. Interestingly, the assessee in order to dispel all doubts as regards the authenticity of the purchase transactions under consideration, also filed the copies of the “MVAT returns” and the “MVAT challans” of the aforesaid party i.e M/s Shraddha Trading Company. Also, documentary evidence substantiating the fact that the TIN of the said supplier party was active was filed with the A.O. In the backdrop of the aforesaid facts, it was the claim of the assessee that she had made genuine purchases from the aforementioned party. In the meantime, the A.O in order to verify the authenticity of the purchase transactions under consideration issued notice under Sec. 133(6) to the abovementioned supplier party i.e M/s Shraddha Trading Company, which is stated to have been returned unserved, for the reason, that the said party was not found to be existing at the P a g e | Smt. Kunjbala N. Parikh Vs. Income Tax Officer-(27)(2)(1) given address. In the backdrop of the aforesaid facts the A.O held a conviction that the assessee had not made any genuine purchases from the aforesaid party and had only obtained accommodation entries from it. Observing, that as the material/goods claimed by the assessee to have been purchased from the aforementioned party were duly accounted for in her sales, the A.O drawing support from the judgment of the Hon’ble High Court of Gujarat in the case of CIT Vs. Simit P. Sheth (2013) 356 ITR 451 (Guj) restricted the addition to 12.5% of the aggregate value of the impugned bogus purchases of Rs. 41,01,088/-. Resultantly, the A.O made an addition of Rs.5,12,636/- and assessed the income of the assessee at Rs.7,71,320/-.
4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). However, the CIT(A) not finding favour with the contentions advanced by the assessee, upheld the order of the A.O and dismissed the appeal.
5. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short „A.R‟) for the assessee at the very outset of the hearing of the appeal submitted that the assessee had made genuine purchases from the aforesaid supplier party i.e M/s Shraddha Trading Company. It was submitted by the ld. A.R, that the purchases aggregating to Rs. 41,01,471/- made by the assessee from the aforesaid party were sold to M/s IPHC Pvt. Ltd. during the year under consideration itself. In order to support her aforesaid contention the ld. A.R had drawn our attention to Page 8 of the assesse‟s „Paper book‟ (for short „APB‟), wherein the complete details of the purchases made by the assessee from the aforesaid supplier party and its correlating sales were found mentioned. It was submitted by the ld. A.R, that the assessee in the course of the assessment proceedings had duly substantiated the authenticity of the purchase transactions by placing on record sufficient supporting documentary evidence viz. purchase bills, corresponding sales bills, stock register, delivery challans, ledger account of the party, copies of MVAT returns of the supplier party, copies of MVAT challans evidencing payment of tax by the supplier party, TIN details of the supplier party, and also the downloaded extract from the website of the Sales tax department, Maharashtra, which revealed that the TIN of the supplier party i.e M/s Shraddha Trading Company was active. It was vehemently submitted by the ld. A.R that despite the fact that complete documentary evidence substantiating the genuineness of the purchase transactions were filed with the lower authorities, the latter had P a g e | Smt. Kunjbala N. Parikh Vs. Income Tax Officer-(27)(2)(1) however whimsically in a stereotype manner characterised the said purchase transactions as bogus transactions and disallowed 12.5% of the aggregate value of the purchases. It was further submitted by the ld. A.R, that the sole basis for drawing of adverse inferences as regards the genuineness of the purchases made by the assessee from the aforementioned party viz. M/s Shraddha Trading Company was the information that was received by the A.O from the Sales tax department, Maharashtra, wherein it was alleged that the aforesaid supplier party had only issued bogus purchase bills to various parties of Mumbai. It was submitted by the ld. A.R, that now when the purchases claimed by the assessee to have been made from the aforementioned party was duly backed and supported by documentary evidence, therefore, no part of such purchases could have been held to be bogus by the A.O. In support of her aforesaid contention the ld. A.R had relied on the judgment of the Hon’ble Supreme Court in the case of CIT-7, New Delhi Vs. Odeon Builders Pvt. Ltd. [Review petition (C) diary No. 22394 of 2019] in [Civil Appeal Nos. 9604-9605 of 2018], dated 21.08.2019. The ld. A.R taking us through the aforesaid judgment submitted, that the Hon‟ble Apex Court had approved the view taken by the lower authorities, and had therein concluded that where the assessee had prima facie discharged the initial burden of substantiating the genuineness of the purchases on the basis of documentary evidence, it would not be permissible for the revenue to disallow the purchases on the basis of a third party information gathered by the investigation wing of the department, specifically when the same was neither independently subjected to further verification by the A.O, nor the copy of the statement of such third party was made available or its cross-examination facilitated to the assessee. In the backdrop of her aforesaid contention, it was submitted by the ld. A.R, that in the absence of any „material‟ which would evidence that the assessee had not made any genuine purchases from the aforementioned supplier party, it was not permissible for the revenue to have drawn adverse inferences as regards the genuineness of the purchase transactions and characterise the same as bogus. As such, it was averred by the ld. A.R, that as the entire additions made by the A.O were backed by flimsy observations, therefore, the same could not be sustained and were liable to be vacated.
6. Per contra, the ld. Departmental Representative (for short „D.R‟) relied on the orders of the lower authorities. It was submitted by the ld. D.R, that as the assessee had failed to P a g e | Smt. Kunjbala N. Parikh Vs. Income Tax Officer-(27)(2)(1) substantiate the genuineness of the purchase transactions by placing on record any irrefutable document evidencing the authenticity of such purchases, therefore, the lower authorities had rightly concluded that no genuine purchases were made by the assessee from the aforementioned party. It was further submitted by the ld. D.R, that as the sales corresponding to the aforesaid purchases under consideration were accounted for by the assessee in her „books of accounts‟, therefore, the lower authorities had already adopted a liberal approach and in all fairness had restricted the addition only to the extent of the profit embedded in making of such purchases by the assessee from the unidentified parties operating in the open/grey market. It was thus averred by the ld. D.R, that as the appeal of the assessee was devoid and bereft of any merit, therefore, the same did not merit acceptance and was liable to be dismissed.
We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. Admittedly, the genesis of the controversy involved in the present case hinges around the information that was received by the DGIT(Inv.), Mumbai, from the Sales tax department, Maharashtra, as per which the A.O is stated to have been informed that the assessee had procured bogus purchase bills of Rs.41,01,088/- from M/s Shraddha Trading Company. In fact, the case of the assessee was reopened under Sec. 147 of the Act on the basis of the aforesaid information.
We have perused the orders of the lower authorities, and find, that the assessee in order to substantiate the genuineness of the purchases aggregating to Rs.41,01,088/- which were claimed to have been made from M/s Shraddha Trading Company, had placed on record of the A.O supporting documentary evidence viz. (i) copies of purchase bills; (ii) copies of the corresponding sales bills; (iii) stock register; (iv) delivery challans; and (v) copy of the ledger account of the supplier party. Apart therefrom, the assessee had also submitted before the A.O that the payments of the purchase consideration to the aforementioned party on all the occasions were made through account payee cheques. As observed by us hereinabove, the assessee had correlated the purchases which were made from the aforementioned party and were spread over the period 02.04.2009 to 26.02.2010 (21 purchase transactions), as against the corresponding sales made to M/s IPHC Pvt. Ltd. (21 sale transactions). As is discernible from the details furnished by the assessee in the „Chart‟ filed at Page No. 8 of her APB, on 10 P a g e | Smt. Kunjbala N. Parikh Vs. Income Tax Officer-(27)(2)(1) occasions the goods were collected by M/s IPHC Pvt. Ltd. from the assessee, while for on the remaining 11 occasions the goods were delivered by the assessee through “M/s Khan Iqbal Transport” and “M/s Marol Janta Transport”. Further, the fact that on 10 occasions the goods supplied by the assessee to M/s IPHC Pvt. ltd. were lifted by their transporter is also discernible from the confirmation of the aforesaid party at Page 10 of „APB‟. On all the occasions, the purchase consideration of the goods was received by the assessee by account payee cheques drawn on “Jankalyan Sahakari Bank Ltd., Ghatkopar (East)”. Accordingly, the fact that the goods purchased by the assessee from the aforementioned supplier party i.e M/s Shraddha Trading Company were thereafter sold to M/s IPHC Pvt. Ltd. can safely be gathered from a perusal of the aforesaid details and no doubts as regards the genuineness of the said transactions does emerge.
Now, we shall deliberate on the aspect as to whether the assessee was able to substantiate before the lower authorities the authenticity of the purchases which were claimed to have made from the aforementioned party i.e M/s Shraddha Trading Company. The complete details of the purchases made by the assessee from the aforementioned supplier party viz. M/s Shraddha Trading Company can be gathered from a perusal of Page 9 of the APB, wherein the complete quantitative details, bill numbers, mode of payment etc. are found mentioned. As observed by us hereinabove, the assessee in order to drive home her claim of having made genuine purchases from the aforementioned party had furnished/produced supporting documentary evidence before the lower authorities viz. (i) purchase bills; (ii) corresponding sale bills; (iii) stock register; (iv) delivery challans; and (v) copy of the ledger account of the supplier parties. Also, the fact that the payment of the purchase consideration to the aforementioned party was made by cheques was also brought to the notice of the A.O. In the case before us, we find, that though the A.O had observed that the aforementioned supplier party i.e M/s Shraddha Trading Company (PAN No. AOTPM8042B) was not existing at the address provided by the assessee, however, the said observation clearly militates as against the facts borne out from the records. As per the details downloaded by the assessee on 27.07.2011 from the website of the Sales tax department, Maharashtra i.e www.mahavat.gov.in, the aforesaid supplier party viz. M/s Shraddha Trading Company is shown to be active was and filing its sales tax returns during the year under consideration, as P a g e | Smt. Kunjbala N. Parikh Vs. Income Tax Officer-(27)(2)(1) well as in the immediately two succeeding years i.e Financial year 2010-11 and Financial year 2011-12. Also, we find that the aforesaid supplier party i.e M/s Shraddha Trading Company had filed its 6 monthly return with the department of Sales tax for the period 01.10.2009 to 31.03.2010. Further, the aforesaid supplier party had as on 20.04.2010 and 20.10.2010 deposited the MVAT with the government treasury. On the basis of the aforesaid facts, we are of a strong conviction that the assessee in order to substantiate the authenticity of the purchases which were claimed to have been made from the aforementioned supplier party i.e M/s Shraddha Trading Company had placed on record sufficient documentary evidence, the authenticity of which had at no stage been dislodged or disproved by the lower authorities. As observed by us hereinabove, the only issue which had weighed in the mind of the lower authorities while concluding that the assessee had not made any genuine purchases from the aforementioned supplier party, was the information that was received from the Sales tax department [through DGIT(Inv.),Mumbai]. As per the aforesaid information, it was conveyed to the A.O that the assessee had procured bogus purchase bills from the aforementioned party, and had not made any genuine purchases. As observed by the A.O, the aforementioned party is claimed to have stated before the sales tax authority in its „statement‟ recorded on „Oath‟ that it has not done any genuine business and had not made any supplies of goods to the purchaser parties. However, most surprisingly, we find that neither the copy of such „statement‟ of the aforementioned supplier party was made available to the assessee, nor any cross-examination of the said supplier party was facilitated to her. In the backdrop of the aforesaid facts, it can safely be concluded that adverse inferences on the basis of the so called „statement‟ of the supplier party had been drawn by the A.O, by neither confronting the same to the assessee nor affording any opportunity to her to disprove the allegations, if any, therein raised, by facilitating a cross-examination of the said party. In our considered view, in the totality of the facts as had been culled out by us hereinabove, it can safely be gathered that the assessee had placed on record sufficient documentary evidence to substantiate the genuineness and veracity of the purchases which were claimed to have been made from the aforementioned supplier party viz. M/s Shraddha Trading Company. At this stage, it would be relevant to point out that the observation of the A.O that the aforementioned supplier party was not existing at the given address clearly militates as against the facts as had been brought to our notice by the ld. A.R on the basis of supporting documentary evidence. As observed by us hereinabove, the P a g e | Smt. Kunjbala N. Parikh Vs. Income Tax Officer-(27)(2)(1) aforesaid supplier party i.e M/s Shraddha Trading Company has consistently been filing its VAT returns with the Sales tax department from F.Y. 2007-08 to 2011-12. Apart therefrom, as can safely be gathered from a perusal of the downloaded extract from the website of the Sales Tax Department, Government of Maharashtra i.e www.mahavat.gove.in, it stands revealed that the TIN No. 27460624763 V of the aforesaid supplier party i.e M/s Shraddha Trading Company was active even as on 27.09.2011. Further, the aforesaid supplier party had also filed its return with the department of sales tax for the period 01.10.2009 to 31.03.2010 i.e the period relevant to the year under consideration before us. Also, payment of MVAT on 20.04.2010 and 20.10.2010 by the aforementioned supplier party i.e M/s Shraddha Trading Company, in itself proves the existence of the said supplier party during the year under consideration. At this stage, we may herein observe, that all of the aforesaid documents were very much available before the lower authorities, who though had chosen not to take cognizance of the same. As observed by us hereinabove, though it is the case of the revenue that as per the information shared by the Sales Tax Department, Maharashtra, it was gathered that the aforementioned supplier party i.e M/s Shraddha Trading Company had provided bogus purchase bills of Rs.41,01,088/- to the assessee, however, the assessee in order to dislodge and in fact dispel all doubts as regards the authenticity of the purchases made by the assessee from the aforesaid party placed on record sufficient supporting documentary evidence, both in the course of the assessment proceedings as well as the appellate proceedings.
We find that though a very heavy reliance had been placed on the „statement‟ of the aforementioned party, i.e M/s Shraddha Trading Company that is stated to have been recorded by the Sales tax department, Maharashtra, where the said party in its statement recorded on „oath‟ is stated to have claimed that it had not done any genuine business and had not delivered any goods to the purchaser parties, however, we are unable to comprehend as to why the copy of the said „statement‟ which was used by the revenue for drawing of adverse inferences in the hands of the assessee was not made available to her. At this stage, we would not hesitate to observe, that the fact as to what was the allegation that was raised by the aforesaid supplier party viz. M/s Shraddha Trading Company in context of the assessee remains a mystery till date. Accordingly, we are of the considered view that the failure on the part of the A.O in neither making available a copy of the „statement‟ of the aforesaid supplier P a g e | Smt. Kunjbala N. Parikh Vs. Income Tax Officer-(27)(2)(1) party, nor facilitating its cross-examination to the assessee, had thus divested latter of an opportunity to disprove the specific allegations, if any, which were raised by the said supplier party against her. In our considered view, now when the assessee had satisfactorily substantiated the authenticity of the purchases made from the aforementioned supplier party on the basis of supporting documentary evidence, which as observed by us hereinabove had not been disproved or dislodged by the revenue till date, therefore, merely on the basis of an unsubstantiated third party information that was gathered by the Investigation Wing of the Department from the Sales tax authorities, which had not been independently subjected to any further verification by the A.O, no adverse inferences could have been validly drawn as regards the genuineness of the purchase transactions in the hands of the assessee. In sum and substance, we are of a strong conviction, that though the extraneous information received by the revenue could justify reopening of the case of the assesse, however, the same on a standalone basis could not have justified drawing of adverse inferences as regards the authenticity of the purchase transactions in the hands of the assessee. Our aforesaid view is fortified by the judgment of the Hon’ble Supreme Court in the case of CIT-7, New Delhi Vs. Odeon Builders Pvt. Ltd. [Review petition (C) diary No. 22394 of 2019] in [Civil Appeal Nos. 9604-9605 of 2018], dated 21.08.2019. In the aforesaid case, the Hon‟ble Supreme Court while disposing off the review application filed by the revenue, had observed, that as the disallowance of impugned „bogus purchases‟ was made by the A.O on the basis of a third party information without subjecting the same to any further scrutiny, therefore, no infirmity did emerge from the orders of the lower authorities which had vacated the addition/disallowance made by the A.O. The Hon‟ble Supreme Court while declining to recall the order, had impliedly concurred with the view taken by the lower authorities and had observed as under : “We have perused the review petition and find that the tax effect in this case is above Rs. 1 crore, that is, Rs. 6,59,27,298/-. Ordinarily, therefore, we would have recalled our order dated 17th September, 2018, since the order was passed only on the basis that the tax effect in this case is less than Rs. 1 crore. However, on going through the judgments of the CIT, ITAT and High Court, we find that on merits a disallowance of Rs. 19,39,60,866/- was based solely on third party information, which was not subjected to any further scrutiny. Thus, the CIT(Appeals) allowed the appeal of the assessee stating : “Thus, the entire disallowance in this case is based on third party information gathered by the Investigation wing of the Department, which have not been independently P a g e | Smt. Kunjbala N. Parikh Vs. Income Tax Officer-(27)(2)(1) subjected to further verification by the A.O who has not provided the copy of such statements to the appellant, thus denying opportunity of cross-examination to the appellant, who has prima facie discharged the initial burden of substantiating the purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and the fact of payment through cheques & VAT Registration of the sellers & their Income tax Return. In view of the above discussion in totality, the purchases made by the appellant from M/s Padmesh Realtors Pvt. Ltd. is found to be acceptable and the consequent disallowance resulting in addition to income made for Rs. 19,39,60,866/-, is directed to be deleted.” The ITAT by its judgment dated 16th May, 2014 relied on the self-same reasoning and dismissed the appeal of the revenue. Likewise, the High Court by the impugned judgment dated 5th July, 2017, affirmed the judgments of the CIT and ITAT as concurrent factual findings, which have not been shown to be perverse and, therefore, dismissed the appeal stating that no substantial question of law arises from the impugned order of the ITAT. In these circumstances, the Review Petitions are dismissed.” As such, the Hon‟ble Supreme Court had approved the view taken by the CIT(A), wherein he had observed, that where the assessee had prima facie discharged the initial burden and therein substantiated the authenticity of the purchase transactions on the basis of various supporting documents, the same thereafter could not be stamped as bogus purchases and disallowed by the A.O. In the case before us, we find, that the assessee had on the basis of sufficient documentary evidence substantiated not only the authenticity of the purchase transactions but also the fact that the supplier party viz. M/s Shraddha Trading Company was on date existing, operating and filing its VAT returns from the address provided by the assessee.
As regards the observation of the A.O, that the aforesaid supplier party i.e M/s Shraddha Trading Company had failed to comply with the notice issued under Sec.133(6) of the Act, we find, that a perusal of the records reveals that the A.O had carried out the aforesaid exercise by adopting a half-hearted approach. As observed by us hereinabove, the documentary evidence placed on record by the assessee before us viz. (i). that, the VAT returns were filed by the supplier party with the Sales tax department from F.Y. 2007-08 to 2011-12 mentioning the same address at which the notice u/s 133(6) was sent by the A.O; (ii). that, the downloaded extract from the website of the Sales Tax Department, Government of Maharashtra i.e www.mahavat.gove.in revealed that the TIN No. 27460624763 V of the aforesaid supplier party i.e M/s Shraddha Trading Company was active even as on 27.09.2011; P a g e | Smt. Kunjbala N. Parikh Vs. Income Tax Officer-(27)(2)(1) (iii). that, the aforesaid supplier party mentioning the same address had also filed its return with the department of sales tax for the period 01.10.2009 to 31.03.2010 i.e the period relevant to the year under consideration before us; and (iv). that, the payment of MVAT on 20.04.2010 and 20.10.2010 by the aforementioned supplier party i.e M/s Shraddha Trading Company, clearly dislodges the authenticity of the observation of the A.O that the notice u/s 133(6) that was issued to the aforesaid supplier party was returned unserved, for the reason, that the said party was not found to be existing at the given address. In our considered view, no serious efforts were made by the A.O to locate the aforesaid party, which as observed by us herein above was very much existing and operating from the aforesaid address. In fact, as is discernible from the assessment order, the assessee was never directed by the A.O to produce the aforesaid party for necessary examination before him. Be that as it may, we are of considered view, that solely on the basis that the notices issued u/s 133(6) could not be served upon the aforesaid supplier party, the genuineness of the purchase transactions in the backdrop of the voluminous documentary evidence furnished by the assessee could not be negated. Our aforesaid view is fortified by the judgment of the Hon’ble High Court of Bombay in the case of viz. CIT Vs. Orchid Industries Pvt. Ltd (2017) 397 ITR 136 (Bom). As such, we are of the considered view, that now when the assessee had been able to satisfactorily substantiate the authenticity of the purchases claimed to have been made from the aforementioned supplier party, therefore, there was no justification on the part of the revenue to have characterised the same as bogus on the basis of an unsubstantiated statement of the said supplier party which the A.O in all his wisdom had chosen to keep to himself and not shared with the assessee, therein divesting her of any opportunity of meeting out the allegations, if any, that were raised against her. We thus in the totality of the facts involved in the case before us are unable to persuade ourselves to subscribe to the view taken by the lower authorities that the assessee had made bogus purchases from the aforementioned supplier party. Accordingly, in the absence of any „material‟ on record ,which would suffice for drawing of adverse inferences as regards the genuineness of the purchase transaction under consideration, we set aside the order of the CIT(A) and vacate the addition of Rs.5,12,636/- sustained by him by giving the aforesaid purchase transactions the colour as that of bogus purchase transactions.