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Facts
The assessee, Medinnova Systems Pvt. Ltd., had an outstanding liability of Rs. 4,92,46,152/- with an overseas supplier, M/s Bristol Medical Wholesale. Investigations by US authorities and business directories indicated that this supplier did not exist. Consequently, the Assessing Officer (AO) added this amount to the assessee's income under section 68 of the Income-tax Act.
Held
The Tribunal held that the assessee failed to establish the identity and genuineness of the transaction with the purported overseas supplier. The additional evidence submitted was not sufficient to prove the existence of the creditor or the transactions. Banking transactions alone were not deemed sufficient without corroborative evidence of goods or services received.
Key Issues
Whether the addition made by the AO under section 68 for alleged bogus purchases treated as unexplained cash credit is justified, and whether the tribunal should admit additional evidence.
Sections Cited
143(3), 147, 148, 68
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Before: SHRI PAWAN SINGH & SHRI BIJAYANANDA PRUSETH
आदेश / O R D E R
PER BIJAYANANDA PRUSETH, AM:
This appeal by the assessee emanates from the order passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’) dated 05.11.2024 by the National Faceless Appeal Centre, Delhi /Commissioner of Income-tax (Appeals) [in short ‘Ld. CIT(A)’] for the Assessment Year (AY) 2012-13, which in turn arises out of assessment order passed by Assessing Officer u/s 143(3) r.w.s. 147 of the Act dated 13.11.2017. Grounds of appeal raised by the assessee are as under: “(1) On the facts and circumstances of the case as well as law on the subject, the re-opening of assessment u/s 147 is bad in law.
/AY.12-13 Medinnova Systems Pvt. Ltd. (2) On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) was not justified in confirming the addition for Rs.4,92,46,152/- on account of alleged bogus purchases by treating as unexplained cash credit u/s 68 of the Act. (3) The learned CIT(A) was not justified in summarily disregarding all the evidence tendered by the appellant while relying on the information that remains under the wraps. (4) All the above grounds are without prejudice to each other. (5) The appellant craves leave to add, alter or delete any of the grounds either before or in course of hearing of the appeal.”
At the outset, Ld. Counsel for the assessee informs the Bench that assessee does not wish to press Ground No.1; therefore, Ground No.1 is dismissed as “not pressed”.
The appellant has made an application for admission of additional evidence under Rule-29 of the ITAT Rules, 1963. It is submitted that the appeal relates to disallowance of import from an overseas supplier namely, M/s Bristal Medical Wholesale, which was held as non-existent and the closing balance of Rs.4,92,46,150/- was added to the income of appellant. The appellant believed that the information supplied to the CIT(A), NFAC, viz., import clearance of goods by way of bills of entry from customs, bank statement advices and link to official website of State of Connecticut, USA etc. were sufficient. However, CIT(A) did not comment on adequacy of these documents and dismissed the appeal on the ground that appellant could not supply many other evidences. This has deprived appellant from adducing further evidence. Hence, appellant was left with no choice but to file additional /AY.12-13 Medinnova Systems Pvt. Ltd. evidence under Rule-29 of the ITAT Rules, 1963 by retrieving many documents from the archive of internal import docket and submitted them as additional evidence. These are at pages 1 to 201 of the paper book. Ld. AR requested to admit the same in the interest of justice and decide the matter on merit.
3.1 On the other hand, Ld. CIT-DR for the Revenue submitted that the additional evidence should not be admitted. He submitted that the lower authorities have provided sufficient opportunities to the assessee to adduce evidence and there was no reason why assessee did not submit the additional evidence, which were in its own possessions during proceedings before the AO and CIT(A).
3.2 We have heard both parties and perused the orders of lower authorities and the material sought to be filed as additional evidence. Rule 29 of the ITAT Rules is negatively worded and states that the parties to the appeal shall not be entitled to produce additional evidence, either or oral or documentary, before the Tribunal. However, if the Tribunal requires any document to be produced or any affidavit to be filed to enable it to pass the order or for any other substantial cause or if the IT authorities have decided the case without giving sufficient opportunities to the assessee to adduce evidence, the Tribunal may allow such documents to be produced or affidavit to be filed. In the present case, the appellant was given sufficient opportunities by the lower authorities. The matter had reached the ITAT and it was set aside to the file of CIT(A) for fresh adjudication. Thus, the issue was considered by CIT(A) twice.
/AY.12-13 Medinnova Systems Pvt. Ltd. The appellant had enough time to produce all evidences on which it could rely to explain its case. Therefore, the appellant does not have a prima facie case for admission of any additional evidence. However, the matter is 12 years old and even in the second round before him, the CIT(A) dismissed the appeal without calling for further evidence and explanation. Rule 29 of ITAT Rules, 1963 permits to admit additional evidence for any substantial cause. The intention behind the Rule is that substantial justice should be done and the interest of justice should be the overriding consideration. After considering totality of the facts and circumstances of the case, we admit the additional evidence and same will be considered while deciding the appeal.
Facts of the case in brief are that assessee filed its return of income declaring total income of Rs.45,53,730/- for the year under consideration on 28.09.2012. The case of assessee was selected for scrutiny and the assessment was completed u/s 143(3) of the Act on 17.03.2016 determining total income at Rs.45,74,550/-. Later on, the case was re-opened on the basis of information received from USA Authority and notice u/s 148 was issued on 31.03.2017. In response thereto, assessee filed copy of return of income on 31.08.2017 and requested for reasons of re-opening which was supplied to the assessee. During the reassessment proceedings, it was observed that the appellant had shown M/S Bristol Medical Wholesale, USA as a creditor with an outstanding liability of Rs.4,92,46,152/-. However, information received from the US Department of Treasury mentioned that no such entity existed in their records.
Aggrieved by the addition made by AO, assessee preferred appeal before CIT(A). It submitted various documents such as ledger accounts, purchase invoices and proof of payment trough banking channels to establish the genuineness of transactions. However, the CIT(A) noted that no confirmation was provided from the aforesaid creditor and independent verification showed that Bristol Medical Wholesale was not listed in Connecticut Business Directory. The appellant also failed to furnish stock movement details, transportation records or confirmation of goods received. In view of these deficiencies, CIT(A) confirmed the addition of AO and dismissed the appeal.
Further aggrieved, the appellant filed appeal before the ITAT, which set aside order of CIT(A) and remanded the matter for fresh adjudication. During the second of appellate proceedings, the appellant reiterated its claim but failed to provide proper evidence to establish identity of the creditor and genuineness of transactions. The CIT(A) noted that the case was referred to FT and TR, Exchange of Information Cell, New Delhi, in response to which information was received from Department of Treasury, Internal Revenue Service, Washington DC that they did not find any evidence of Bristol Medical Wholesale at their data base. The CIT(A) checked the website given by the appellant and found that the site is not working. The CIT(A) also checked the /AY.12-13 Medinnova Systems Pvt. Ltd. Connecticut State Company Directory but no such company was found. Thus, identity of creditor and genuineness of transactions were not established. The CIT(A) also stated that transaction made through banking channel is not sufficient to discharge the burden. He also stated that assessee failed to furnish evidence of physical delivery of the goods by way of transportation from Mumbai airport to Vadodara. He also observed that no evidence regarding opening balance, stock register, ledger, information from the creditors, or purchases invoices made in earlier years and genuineness thereof were filed to substantiate claim of the assessee. He, therefore, observed that the appellant failed to discharge the onus of proof and confirmed the addition made by AO u/s 68 of the Act.
Further aggrieved by the order of CIT(A), the assessee has filed present appeal before the Tribunal. Before us, Ld.AR of the assessee filed paper book and submitted that the Department had added the impugned amount by holding that the overseas supplier M/s Bristol Medical Wholesale does not exist as per information received from the Competent Authority of USA. The entire closing balance of Rs.4,92,46,152/- has been added in absence of proof. However, the CIT(A) has not expressed dissatisfaction to any of the evidences submitted by the appellant. The Ld. AR submitted that the website link works even today when one puts search as Bristoal Med Wholesale with ctcompanydir. He also submitted that supplier invoice, bill of entry and bank advice for foreign remittance are sufficient to prove supplier’s existence. He /AY.12-13 Medinnova Systems Pvt. Ltd. requested the ITAT to accept the evidence as stated above in the interest of justice. He has filed separate paper book containing 201 pages and requested to admit them as additional evidence. It includes “(i) Apostille from the office of the secretary of the state of Connecticut, the USA of existence of Brisol Med Wholesale LLC being certificate of organization (ii) Apostille from the office of the secretary of the State of Connecticut, USA of existence of Bristol Med Wholesale LLC being certificate of Dissolution (iii) Payment receipt to the office of secretary of 180 for Apostille. (iv) e-mail from ct.gov (the US Govt. official portal ID) with following enclosures: request acceptance for certificate with fees and certified copy of certificate of organization of Bristol Med Wholesale LLC from Secretary of state (v) e-mail from Business Service Division, CT office of the Secretary of State, the USA (vi) Ledger account of Bristol Med Wholesale LLC in the books of the assessee for AY 2011-12 to prove bona fide and opening balance of Bristol Med Wholesale LLC (vii) bona fide of existence of Bristol Med Wholesale LLC import particulars to evidence purchases a chart with reference to import dockets of the assessee of various years and (viii) Bank payment advise to the supplier etc.” The Ld. AR submitted that these evidences prove identity of creditor and genuineness of transaction.
On the other hand, Ld.CIT-DR for the Revenue supported the order of lower authorities. The Ld.CIT-DR submitted that verification by the Department of Treasury and Connecticut Business Diary revealed that no company under the name Bristol Medical Wholesale was in existence anywhere in USA.
/AY.12-13 Medinnova Systems Pvt. Ltd. Assessee also failed to produce documentary evidence at different appellate stages. The appellant has submitted Certificate of incorporation and dissolution which indicated that the appellant was incorporated in 2005 and was dissolved on August, 1, 2011 for being an “IDLE” LLC. However, appellant claimed to have made purchase on 03.08.2011 and 12.08.2011 of Rs.1,29,29,023/- which is nearly 75% of total purchase during the year. The appellant has also claimed payment of Rs.1,62,54,011/- after two months from the date on which the entity was officially dissolved. No proof of stock movement or physical delivery of goods was submitted. Also, no corresponding sales or utilization of purchases were demonstrated. It is also clear that there was no personal website or public information about the creditor. It was emphasised that in the website given by the Ld. A, the reasons for dissolution was due to idleness of the creditor-company. No financial report or annual filings were available for the entire period of its existence. The CIT-DR also submitted that banking transactions alone do not establish genuineness of transaction unless supported by evidence of actual goods of services received. The assessee made payments to an entity which did not exists and at the same time it has received share capital from Soma Tech USA which suggests that funds have been routed and reintroduced in assessee’s book under the guise of share capital. He concluded that assessee failed to discharge the burden to escape mischief of the provisions u/s 68 of the Act.
/AY.12-13 Medinnova Systems Pvt. Ltd.
We have heard both the parties and perused the materials on record. We have also considered the additional evidences and discussed the same with the Ld. AR and Ld.CIT-DR. There is no dispute that there was closing credit balance of the overseas supplier, M/s Bristol Medical Wholesale of Rs.4,92,46,153/-. In order to examine identity of the above creditor and genuineness of transactions, AO had referred the matter to FT & TR, Exchange of Information Cell, New Delhi. Subsequently, information was received from the Department of Treasury, Internal Revenue Service, Washington DC that there was no evidence of the above creditor. The appellant produced ledger account, purchase invoice, bill of entry and payment through banking channel to establish identity of creditor and genuineness of transactions. The CIT(A) checked the website given by the appellant and found that it was not working. He also found that name of the creditor is not found in the Connecticut Business Directory. The US Department of Treasury, Internal Revenue Service also did not find any evidence of the entity. Hence, the CIT(A) observed that assessee failed to discharge the onus cast upon on it to prove the identity of the creditor and genuineness of transaction. The assessee also failed to furnish any confirmation from the creditor. It also failed to file evidence of sales as well as physical delivery of the goods purchased by it. In view of these facts, he confirmed the addition.
/AY.12-13 Medinnova Systems Pvt. Ltd. 9.1 Before us, Ld. AR of the appellant has filed various additional evidence which have been duly examined. The CIT-DR was also allowed to offer his comments on the additional evidence. The Ld. AR has filed the Apostile from Secretary of State of Connecticut regarding existence of the creditor which is at pages 1 to 6 of the additional evidence (paper book). He further submitted Certificates of Organization and Dissolution of M/s Bristol Medical Wholesale, which reveals that the entity was incorporated in 2005 and was dissolved on 01.08.2011. The reason for dissolution was that it is an “IDLE LLC” (page-6 of PB of additional evidence). However, appellant has claimed to have purchased from this dissolved and idle entity, which is not possible. The total purchase was Rs.1,29,29,023/-, which was about 3/4th of total purchases during the year. The appellant also made payment of Rs.1,62,54,011/- on 3rd October, 2011 after the dissolution of the creditor-company. The appellant also failed to provide evidence of physical delivery of the goods from Mumbai airport to Vadodara where the goods were allegedly received. No truck number, freight receipt delivery challans etc. were submitted. The appellant also did not furnish any evidence of corresponding sales related to the purchase from M/s Bristol Medical Wholesale. During the hearing before us, the Ld. AR attempted to validate existence of M/s Bristol Medical Wholesale through website which indicated that it was incorporated in 2005 and the dissolution was in 2011. The reasons for dissolution was mentioned as the company being “idle. No financial reports or annual filings were available for the period of its existence.
9.2 The appellant submitted that it has made payments through banking channel. However, it is well established that payment through banking channel alone do not establish genuineness of transaction unless it is supported by other corroborative evidences. In the present case, receipt of the actual goods or services is also not proved. Therefore, question of payment does not arise. It may be mentioned that the appellant had received share capital from one M/s Soma Tech USA at the same time which suggests that funds have been routed and reintroduced into the books of the appellant in the guise of share application money. It is, therefore, clear that the appellant failed to establish identity and creditworthiness of creditor and genuineness of transaction. Official records from the US Department of Treasury and Connecticut Business Directory confirmed that M/s Bristol Medical Wholesale did not exist. The absence of independent verification, inconsistency in business transaction, lack of stock movement register and payment of money and simultaneous receipt of the same as share capital also suggests that the transaction was not genuine. Hence, addition made by the AO and sustained by CIT(A) of Rs.4,92,46,152/- u/s 68 is upheld and the ground Nos. 2 and 3 are dismissed.