ITO 12(3)(1), MUMBAI vs. KRISH MICRO SYSTEM PVT. LTD., MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “SMC”, MUMBAI Before Shri Shamim Yahya (AM) & Shri Pawan Singh (JM) ITA No. 6132/Mum/2018(Assessment year : 2010-11)

Income-tax Officer vs M/s Krish Micro System Pvt Ltd Ward 12(3)(1), Mumbai 204, Spring Leaf CHSL, Lokhandwala, Kandivali (E) Mumbai400 101 PAN : AACCK6090R APPELLANT RESPONDEDNT

Appellant by Ms. Samatha Mullamudh (DR) Respondent by None Date of hearing 15-10-2019 Date of pronouncement 23-10-2019 O R D E R Per Pawan Singh, JM : 1. This appeal by revenue is directed against the order of ld. CIT(A)-21,

Mumbai dated31.07.2018 for Assessment Year 2010-11. The revenue has

raised the following grounds of appeal:

"1. Whether on facts and circumstances of the case, the CIT(A) was justified in restricting the addition on account of bogus purchases to 12.5% of such bogus purchases without appreciating that the onus on the assessee to establish genuineness of such purchase especially when the suppliers were found to be hawala parties providing accommodation entries? 2. Whether on facts and circumstances of the case and in law, the CIT(A) was correct in restricting the addition on account of bogus purchases to 12.50% of such purchases without giving any reasonable justification for the same, and ignoring the justification of adding 100% of Bogus purchases on the basis of information received from DGIT(Inv) Mumbai? 3. "Whether on facts and circumstances of the case and in law, the CIT(A) was right in restricting the addition to 12.50% on account of bogus purchases without taking into consideration the decision of the Hon'ble Supreme Court in the case

ITA 6132/Mum/2018 Krish Micro System Pvt Ltd of M/s N.K. Proteins Vs Dy. CIT No. 769 of 2017 dated 16.01.2017(SC) wherein the 100% disallowance on bogus purchases was upheld?" 4. "Whether on facts and circumstances of the case and in law, the CIT(A) erred in not relying on judgment of Hon'ble Allahabad High Court in the case of CIT Vs Shri Ganesh Rice Mills(294 ITR 316) without appreciating that the facts of the case are similar to those of the assessee?" 2. Brief facts of the case are that the assessee is a contractor of electronic

device, filed return of income for AY 2010-11 on 12-10-2010 declaring

total income at Rs.1,39,820/-. The return of income was processed under

section 143(1). The assessment was re-opened under section 147 and after

recording reasons for reopening in respect of bogus purchases of

Rs.2,29,201/- and Rs.1,59,116 from Hawala dealers M/s Shyam

Corporation and M/s Jain Corporation respectively. Notice u/s 148 dated

31-03-2016 was issued and served on the assessee. The reasons for

reopening of the assessment was also supplied to the assessee. The

Assessing Officer after serving notices under section 143(2) & 142(1)

proceeded for re-assessment. The assessing officer observed that

information was received in office of DGIT(Inv), Mumbai and

subsequently from the sales-tax department, Mumbai regarding

suspicious parties, who were only providing accommodation entries

without doing any actual business. From the list supplied by the sales-tax

department, the following parties were appearing in the list of bogus

parties from whom the assessee was shown to have made purchases:-

ITA 6132/Mum/2018 Krish Micro System Pvt Ltd Name of the parties Bill amount (Rs.) 1 Shyam Corporation 2,29,201 2 Jain Corporation 1,59,116 Total 3,88,317

cause notice as to why the aforesaid transaction should not be treated as

non-genuine. The assessee filed its explanation and furnished the copy of

ledger account and proof of payment through cheques. Notices u/s 133(6)

were also issued to the above parties, In the case of Shyam Corporation,

the notice was returned by the postal authorities with the remark, “left”.

In case of M/s Jain Corporation, the assessee stated that the said party

was not available at the given address and not traceable.

purported to have been made from the aforesaid parties and also that why

the expenditure claimed in respect of bogus purchases shown to have

made from the aforesaid dealer should not be disallowed as the notice

issued to M/s Shyam Corporation returned unserved; and the assesse

stated that M/s Jain Corporation was not found at the given address and

not traceable. The assessing officer therefore observed that the

genuineness of the transactions were remained unproved. The assessee,

in its reply furnished copies of ledger a/c’s of the purchase parties;

purchase invoice; and payment details to purchase parties. However, the

ITA 6132/Mum/2018 Krish Micro System Pvt Ltd assessee has not produced the details of the delivery challan / transport

receipt and bank statement of the suppliers before the AO. The Assessing

Officer did not accept the explanation furnished by assessee and noted

that –

(i) the assessee has not made available the details of transportation of

the material purported to have been purchased from the aforesaid

hawala dealer, such as transportation receipts;

(ii) the assessee has not furnished any ledger account confirmation

from the aforesaid dealer;

(iii) the deduction of VAT in the bill also does not bolster the case of

the assessee. It is because of the fact that such deduction does not

prove genuineness of a particular transaction in terms of supply of

material. Such deduction is basically linked with the payment aspect

only and cannot establish the purpose for which payment is made;

(iv) The production of invoice is of no help to the assessee, since in

the activity of accommodation entry, such documents are meticulously

maintained both by the entry provider and entry seeker. It is also not

important whether the amount is small or big and whether the assessee

is having loss or profit. There may be a number of reasons for seeking

the accommodation entry as it leads to generation of the cash in the

hands of assessee.

ITA 6132/Mum/2018 Krish Micro System Pvt Ltd (v) The onus was upon the assessee to prove the genuineness of the

expenditure claimed as it was the assessee, which has made the claim.

(vi) the Sales Tax Department, being a statutory authority, has

certified that the aforesaid parties are Hawala Operators after

conducting independent enquiries.

(vii) The contention that the payments are made by account payee

cheque is not a fool proof method of substantiating the assessee's

claim and is not sufficient to establish the genuineness of the

purchases. Reliance is placed on Kachwal Gems Vs. Jt. CIT (2007)

288 ITR 10 (SC).

(viii) It is well-settled law that strict rules of evidence do not apply

to I.T Act and the real test with regard to genuineness of the

transaction is "Preponderance of Probabilities" and not "Beyond

reasonable doubt". Reliance is placed on C. Vasantlal & Co. Vs. CIT

(1962) 45 ITR 206 (SC), Chaturbhuj Panauj AIR 1969 (SC) and

Sumati Dayal Vs. CIT (1995) 214 ITR 801 (SC). One has to consider

the totality of facts, surrounding circumstances and human probability

for arriving at a conclusion as held in CIT Vs. Durga Prasad 82 ITR

540 (SC) and Sumati Dayal Vs. CIT (1995) 214 ITR 801 (SC).

(ix) The purchases from hawala operator falls within the ambit of

the term 'colorable devices' and the Hon'ble Supreme Court observed

ITA 6132/Mum/2018 Krish Micro System Pvt Ltd in the case of McDowell and Co. Ltd. Vs. CTO 154 ITR 148 that

"Tax planning may be legitimate provided it is within the framework

of law. Colourable devices cannot be part of tax planning and it is

wrong to encourage or entertain the belief that it is honourable to

avoid the payment of tax by resorting to dubious method. It is

obligation of every citizen to pay the taxes honestly without resorting

to subterfuges.

(x) The Sales Tax Department made a finding and uploaded on its

website the name of entities which are involved in giving bogus bills

only after carrying out a detailed enquiry and investigation.

him and the submission made by assessee concluded that the assessee

has shown Gross Profit (GP) @ 58.07%. Therefore, the assessing

officer made the disallowance of those purchases shown from the said

parties @ 58.07% and worked out the disallowances of Rs. 225,495/-

out of total alleged bogus purchases of Rs. 3,38,317/- in assessment

order dated 21.12.2016 passed under section 143(3) r.w.s 147. 5. On appeal, the ld. CIT(A) reduced/ restricted the addition/

disallowances to the extent of 12.5% of the alleged bogus purchases,

being the profit element embedded in such bogus purchases, by

relying upon the decisions of Hon’ble Gujarat High Court in the case

ITA 6132/Mum/2018 Krish Micro System Pvt Ltd of CIT vs Simit P Sheth (2013) 356 ITR 451 (Guj) and in the case of

Bholanath Poly Fab Pvt Ltd (2013) 355 ITR 290 (Guj). Aggrieved,

the revenue has filed this appeal. 6. None appeared on behalf of the assessee. However, we find from

record that an adjournment application dated 14-10-2019 from

assessee’s counsel is placed on record which was rejected as nobody

was present to press the application. We found that the matter could

be disposed of on the basis of material available on record. Therefore,

we heard the submissions of the ld. departmental representative (DR)

for the revenue. 7. The Ld. DR heavily relied upon the order of the assessing officer. The

ld DR submits that the investigation wing of the sales tax department

as well as Income tax department made dull flagged inquiry to

unearthed the modus operandi adopted by the hawala dealers. The

hawala dealers were issuing the bogus bills without delivery of any

goods. The assessee is one of the beneficiaries of such hawala trading

activities. The assessee obtained bogus bills to inflate the expenses

and to reduce the profit. The ld. DR submits that entire addition was

liable to be sustained by ld CIT(A). The ld. DR prayed for restoring

the order of the assessing officer.

ITA 6132/Mum/2018 Krish Micro System Pvt Ltd 8. We have considered the submissions of the ld. DR for the revenue and

perused the record. The assessing officer made the disallowance of

those purchases shown from the said parties @ 58.07% on the basis of

GP declared by assessee and worked out the disallowances of Rs.

2,25,495/- out of total alleged bogus purchases of Rs. 3,38,317/-,

while passing the assessment order. The ld. CIT (A) restricted the

additions/ disallowance to the extent of 12.5% by holding that the

assessing officer has not made any independent inquiries. The ld

CIT(A) further concluded that in case the assessee failed to produce

the evidences that the goods were purchased at the arms length price,

which would indicate that the purchases were made from the gray

market without insisting of the genuine bills and in such cases

suppliers would be willing to sell at much less rate as they would have

charged otherwise and that the goods have been purchased from the

grey market. Therefore, the profit element embedded on such

purchases would be equal to the difference of bogus purchases and the

genuine price. On the basis the ld CIT(A) restricted the disallowance

to the extent of 12.5%. We find that the decision arrived at by the

Ld.CIT(A) in restricting the addition to the extent of profit element

embedded in such bogus purchases is in conformity with the decision

of the Hon’ble Gujarat High Court in CIT vs Simit P Sheth (2013) 356

ITA 6132/Mum/2018 Krish Micro System Pvt Ltd ITR 451 (Guj) and. No other contrary decision has been brought to

our notice by the Ld. DR so as to enable us to come to a different

conclusion than the one arrived at by the Ld. CIT(A). Therefore, in

this view of the matter, we uphold the order of the Ld.CIT(A) and

dismiss the appeal filed by the revenue.

Order pronounced in the open court on 23-10-2019.

Sd/- Sd/- (Shamim Yahya) (Pawan Singh) ACCOUNTANT MEMBER JUDICIALMEMBER

Mumbai, Dt : 23 October, 2019 Pk/- Copy to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR /True copy/ By order Asstt. Registrar, ITAT, Mumbai