REALSTONE EXPORTS LTD,THANE vs. ITO 11(1)(2), MUMBAI

आदेश / O R D E R PER M. BALAGANESH (A.M): This appeal in A.Y.2009-10 preferred by the order against the revision order of the ld. Principal Commissioner of Income Tax-11, Mumbai u/s.263 of the Act dated 14/02/2019 for the A.Y.2009-10.

3.1. The ld. AO also observed that for the substantial volume of purchase and sales transactions to the tune of Rs.487.99 Crores, the essential and incidental business expenditure like ‘transportation and handling charges’ and ‘freight charges’ on sales were incurred only to the extent of Rs.30,027/- and nil respectively, which is very uncommon for M/s. Realstone Exports Ltd., the substantial volume of transactions carried out by the assessee. The ld. AO vehemently placed reliance on the statement of Director of the company Shri Abhishek Morarka wherein he had categorically stated that his concerns had only issued tax invoices without carrying actual purchase and sale of goods. The ld. AO also proceeded to seek information u/s.133(6) of the Act from various suppliers and customers as detailed by the assessee, which got returned unserved by the postal authorities. The ld. AO also observed that even in the case of certain documents filed by the assessee such as tax invoice cum delivery challan, the total quantity of fabrics purchased or sold and its value alone were mentioned and other information like description of goods traded, place of delivery and other requisite details were not provided therein. None of the parties had even filed copies of transport receipts, octroi receipts, warehousing receipts etc., In these peculiar facts and circumstances, the ld. AO had no other option but to reject the books of accounts of the assessee and the book results of the assessee company u/s.145(3) and also considering the behaviour of the assessee in the past as well as in subsequent years and also by giving due credence to the statement recorded by the Maharashtra Sales Tax Authorities wherein it had been categorically stated that the assessee company was only involved in providing accommodation entries in the form of receiving and supplying bogus bills for purchase and sales, proceeded to treat the assessee as an accommodation entry provider and taxed commission income at 1% of total value of purchase and sale transactions. We find that this assessment order was framed by the ld. AO after thorough examination of the transactions. Considering the circumstances in which such decision was taken by the ld. AO, the ld. CIT had sought to revise the said assessment order by treating the same as erroneous and prejudicial to the interest of the revenue by invoking his revisionary jurisdiction u/s.263

M/s. Realstone Exports Ltd., of the Act for the limited purpose of examination of bogus purchases alone by placing reliance on certain decisions as under:- a. Hon’ble Delhi High court in the case of CIT vs. D.K.Garg reported in 404 ITR 757 b. Hon’ble Gujarat High Court in the case of N.K. Industries Ltd., vs. DCIT reported in 292 CTR 354 c. Hon’ble Gujarat High Court in the case of CIT vs. Simit P Sheth reported in 356 ITR 451.

3.2. We also find the ld. CIT while setting aside the order passed by the ld. AO had observed that the ld. AO had failed to carry out proper investigation of the issue relating to bogus purchases, thereby causing revenue loss to the department.

3.3. We find that the ld. AO had made proper enquiry with regard to the status of the assessee to be an accommodation entry provider in the facts and circumstances of the instant case. For this purpose, the ld. AO had also placed reliance on the behavior of the assessee in the past as well as in the subsequent years as narrated hereinabove. We also find that the ld. CIT(A) for the A.Yrs 2006-07 and 2007-08 vide its order dated 25/01/2017 had recorded a categorical finding that assessee is indeed an accommodation entry provider and had processed to estimate net profit i.e. commission income at 0.15% of the total turnover as against 1% adopted by the ld. AO. Since a categorical finding is recorded by the ld. CIT(A) in assessee’s own case in earlier years that assessee is merely an accommodation entry provider and that situation had admittedly not been M/s. Realstone Exports Ltd., changed during the year under consideration before us, we hold that there is absolutely no need for the ld. CIT to take a divergent stand by directing the ld. AO to examine the veracity of bogus purchases alone. We also find that the case laws of Hon’ble Gujarat High Court relied upon by the ld. CIT supra were rendered in the case of beneficiaries of accommodation bills and hence the same are not applicable to the facts of the instant case. We hold that assessee herein is an accommodation entry provider. We find that the Hon’ble Delhi High Court decision relied upon by the ld. CIT in the case of CIT vs. D.K.Garg (supra) was in the case of an accommodation entry provider wherein the assessee therein had requested for adoption of peak credit theory in a situation where he could not explain the source of various deposits made in the bank account. In that context, the Hon’ble Delhi High Court rejected the peak credit theory and directed to tax the total deposits as unexplained cash credit u/s.68 of the Act. We hold that such decision is factually distinguishable with the instant case. It is not in dispute that in the instant case, the Director of the assessee company had indeed given statement before the Maharashtra Sales Tax authorities during the course of sales tax search and had also categorically stated that it is only engaged in providing accommodation entries and no actual purchase and sale activities were carried out by the assessee company. It is well settled that what is to be taxed ultimately is only the real income of the assessee company. Considering the totality of facts and circumstances of the M/s. Realstone Exports Ltd., instant case and considering the behavior of the assessee in earlier and subsequent years which had also been approved by the ld. CIT(A) in certain years, we hold that commission income alone could be assessed as the real income of the assessee and not the value of transactions. We also find that under exactly similar circumstances, this Tribunal in the case of City base Multitrade Pvt. Ltd., vs. ITO in and 4131/Mum/2016 dated 21/10/2016 had treated the assessee to be an accommodation entry provider and only 0.10% profit on the entire turnover was sought to be added as income of that assessee. Hence, we find that the version of the ld. AO had also been subsequently approved by this Tribunal in another case falling under exactly similar circumstances as stated supra. In these circumstances, it cannot be said that the order passed by the ld. AO is erroneous. Now, the law is well settled that the order of the ld. AO should be both erroneous and as well as prejudicial to the interest of the revenue in order to enable the ld. CIT to invoke his revisionary jurisdiction u/s.263 of the Act. In the instant case, certainly one of the conditions is conspicuously absent. Moreover, the conscious decision has been taken by the ld. AO by considering the past and future behavior of the assessee while framing the assessment. Hence, it could be safely concluded that the ld. AO had indeed taken a possible view in the matter. Hence, on this ground also, the ld. CIT could not invoke revisionary jurisdiction u/s.263 of the Act. We find that the ld. CIT while coming to the conclusion that the order of the ld. AO was erroneous had M/s. Realstone Exports Ltd., not even bothered to verify the past records of the assessee in order to understand the behavior of the assessee in toto before reaching to the conclusion.

3.4. In view of the aforesaid observations and respectfully following the judicial precedent relied upon hereinabove, we have no hesitation in quashing the revision order passed by the ld. CIT u/s.263 of the Act. Accordingly, the grounds raised by the assessee are allowed.

Order pronounced in the open court on this 04/10/2019