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Income Tax Appellate Tribunal, “C”
Before: HON’BLE SH. SANDEEP GOSAIN, JM & HON’BLE SH. N. K. PRADHAN, AM
स्थायीलेखासं./जीआइआरसं./ PAN No. AADCP4964A (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : अपीलाथीकीओरसे/ Appellant : Shri Abi Rama Karthikeyan, DR by प्रत्यथीकीओरसे/Respondentby : Shri Mani Jain, AR सुनवाईकीतारीख/ : 19.02.2019 Date of Hearing घोषणाकीतारीख / : 02.04.2019 Date of Pronouncement आदेश / O R D E R
Per Sandeep Gosain, Judicial Member:
The present Appeal has been filed by the revenue against the order of Commissioner of Income Tax (Appeals)-9, Mumbai, dated 10.03.17 for AY 2011-12 on the grounds mentioned herein below:-
Phoneix Foils Pvt. Ltd. (1) On the facts and in the circumstances of the case and in law, the ld.CIT(4) erred in directing the AO to delete the addition of Rs. 61,94,812/- made on account of bogus purchases.
(2) On the facts and in the circumstances of the case and in law, the ld.CIT(4) erred in directing the AO to delete the addition of Rs. 4,95,584/-- made on account of commission charges computed @ 1% of bogus purchases.
(3) The Appellant craves leave to amend or alter any gourd or add new ground which may be necessary.
As per the facts of the present case, the assessee had filed his return of income for the year under consideration on 30.09.11 declaring total income at Rs. 96,23,616/-. On receiving information from Sales Tax Authorities through DDIT, Investigation, Mumbai the AO issued notice dated 04.03.15 u/s 148 of the Act regarding reopening of the assessment for the reason that from the information received from the Sales Tax authorities, the assessee was found to have made bogus purchases of Rs. 4,95,58,492/- from 4 hawala supplier.
Phoneix Foils Pvt. Ltd. Subsequently, assessment order u/s 143(3) r.w.s 147 of the Act was passed on 17.02.16 determining the total income of the assessee at Rs. 1,63,14,110/- by making additions of Rs. 66,90,396/-.
Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties partly allowed the appeal of the assessee.
Aggrieved by the order of Ld. CIT(A), revenue has filed the present appeal before us on the grounds mentioned herein above.
Ground No. 1 & 2 5. These grounds raised by the revenue are inter connected and inter related and relates to challenging the order of Ld. CIT(A) in directing the AO to delete the additions made on account of bogus purchases and on account of commission charges computed @ 1 % of such purchases, therefore we thought it fit to dispose of the same by this common order.
We have heard the counsels for both the parties at length and we have also perused the material placed on record, judgment cited by the parties as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in para no. 5.3.1 to 5.3.14 of its order. The operative portion of the order of Ld. CIT(A) is contained in para no. 5.3.1 to 5.3.6 & 5.3.14 of its order and the same is reproduced below:-
5.3.1. I have considered the stand of the AO in the assessment order as well as the submissions of the appellant. The appellant is engaged in the business of dealing in aluminium foil. The sales comprises of exports and domestic. The said sales are well supported. The said fact has been accepted by the AO and has raised no dispute as to sales. In respect of purchases of the goods is concerned the appellant has submitted various details. The details shows that the appellant has been maintaining stock records which shows the quantity of goods inward, outward and stock Phoneix Foils Pvt. Ltd. in hand and the valuation thereof. The Tax Audit Report confirms the same. The books of account have been audited and that there is no adverse finding in the assessment order to that effect.
5.3.2. In respect of purchases .from the bogus parties, the appellant has submitted details of purchases along with payment details. The goods purchased are reflected in the stock records. The payment made to the said 4 parties is reflected in the bank statements against their respective names. It shows that payments have been made in the regular course of business from available funds and that instances of cash deposited against payment made to the bogus parties is not noticed.
5.3.3. On the face of the records and details submitted there is nothing incriminating that can be drawn to infer that the said transactions is merely bogus purchases and not genuine. More importantly there no direct evidence which has been brought on record by the AO. No nexus has been established as to circulating of funds or that cash was paid to third parties for actual purchase and that cash has been received on issue of cheques.
5.3.4. The A.O. has based on the information received from the DDIT has formed opinion that the appellant is Phoneix Foils Pvt. Ltd. one of the beneficiaries who has made alleged bogus purchases.
5.3.5. The AO has stated that actual purchase has been made but from third party as against the paper purchases from the said 4 parties. The main contention of the AO is not the purchase of goods but the manner of purchase. Accordingly the AO presumed that the appellant would have inflated the expenses by way of accommodation of bills. However, any concreted enquiry in this regard has not been carried out. The AO has estimated 12.5% of the bogus purchases as cost that would have been inflated. The AO has further estimated 1% as commission incurred for availing the above paper bills. On going through the assessment order there is no incriminating evidence from which said presumption would have drawn. It is settled law that suspicion howsoever strong, cannot take the place of evidence and hence, the contention of the AO that the appellant has made bogus purchases and further the commission would have paid has to be rejected.
5.3.6. It is observed that the appellant has shown gross profit of 14.63% amounting to Rs. 6,92,36,123/- which for any manufacturing unit is fairly reasonable. Further, the appellant has disclosed net profit of 2.38% amounting to Rs. 1,12,71,229/-. Taking into Phoneix Foils Pvt. Ltd. consideration the facts of case and the details submitted there remainse no room for Estimating the income.
5.3.8. It is well settled that no disallowance can be made as a leap in the dark. The AO is not entitled to make a guess without evidence. The assessment of any particular year cannot be based on mere suspicion or bare guess, but on a legitimate material from which a reasonable inference of any expenditure being of the disallowable nature could be drawn and that the initial burden of finding such material is on the AO as held by Hon'ble High Court Orissa in the case of Bansidhar Onkarmall Vs. CIT (1953) 23 ITR 353(Orissa) where it observed as under :-
There was no doubt that the view taken by the income- tax authorities bases on the alleged presumption was erroneous in law. "Past history" may be legitimate material, but that is not sufficient by itself without more, to justify assessment in a particular year. There must be some material relatable to the accounting year which taken with the "past history" may reasonably entitle the income-tax authorities to hold that there must in fact have been some "concealed income during the accounting year and which is liable to assessment.
Phoneix Foils Pvt. Ltd. To base an assessment barely on a presumption relating to capital found to exist in some previous year appeared to be unwarranted. The income-tax authorities proceeded on the view that the burden of proof was on the assessee to show that the "past capital" has disappeared, for which there was no justification, and no authorities has been shown. It is well the assessment of any particular year must be based not on mere suspicion or bare guess, but on legitimate material from which a reasonable inference of income having been earned during the accounting year in question could be drawn, and that the initial burden of finding such material, however slight, was on the income-tax authorities and not on the assessee. The facts before the income-tax authorities were not sufficient to shift the burden of proof on to the assessee. There facts did not necessarily justify_anvprima facia inference that the past capital produced income during the accouting year. Before such an inference could be drawn, some foundation must be laid for the assessment that there was income from such capital during the accounting year. Therefore, on the facts and in the circumstances of the case, the Tribunal erred on confirming the additions of amounts in question.
Phoneix Foils Pvt. Ltd. 5.3.14. Thus, keeping in view the present facts of the case and applying the ratio of the decision of Hon'ble jurisdictional ITAT of Mumbai as well as jurisdictional High Court of Mumbai where various legal issues arising out of additions of similar nature have been thread-bare discussed and also other decision of Hon'ble ITAT/High Courts/Supreme Court, it will be difficult to sustain the additions made by the AO only on the ground that the suppliers of the materials/goods were defaulters in not paying VAT to the Sales-tax Department of Maharashtra or the suspicious dealers were not produced before the AO during the assessment proceedings. The claim of the appellant is that they have made the entire payment through banking channel. In fact, when the appellant was directed, they have produced chart of such payment through banking channel. Further, the AO has failed to substantiate that the assessee made payment through banking channel and received it back in cash. If the suppliers have not paid VAT charges to the Govt. of Maharashtra, but taken the same from the purchasers (here assessee), such differentiaLamount needs to be added in the hands of dealer and they are liable for any action by the Govt. of Maharashtra for their such defaults.
Phoneix Foils Pvt. Ltd. In the light of the above factual narration, various references and judicial propositions I reach to the conclusion that the AO has not been able to prove that the purchases made from the said 4 parties are bogus and that the same are paper transactions. Therefore, the disallowance made by the AO of Rs. 61,94,812/- and Rs. 4,95,584/- is deleted. In result, this ground of appeal is Allowed.
7. After having gone through the facts of the present case and hearing the parties at length, we find that as per Ld. DR, the assessee had actually purchases goods in cash from third parties and had booked purchases bills issued by the said four parties i.e. Rolex Trading Co., Steelco Steel Industries, Advance Steelage, Shri Sundha Steel Pvt. Ltd. It was submitted that the AO had disputed the manner of purchase and not the purchases of goods. It was also submitted by Ld. DR that in the process, the assessee had inflated the expenditure by showing higher amount of purchase price through fictitious invoices in the name of the said bogus parties and thus AO after rejecting the books of accounts, rightly disallowed a sum of Rs. 61,94,812/- computed @ 12.5% of the purchases and @ 1% commission from the said four Phoneix Foils Pvt. Ltd. parties. Ld. DR therefore on the above arguments requested for allowing the grounds raised by the revenue by relying upon the orders passed by AO.
8. On the other hand, Ld. AR reiterated the same arguments as were raised by him before Ld. CIT(A) and also relied upon the orders passed by the Ld. CIT(A). Ld. AR also relied upon the written submissions as are contained in para no. 5.2 of the order of Ld. CIT(A) and submitted that all the details of purchases were submitted before the AO in the shape of copy of ledger account, purchase invoices, copy of bank statement reflecting payment made to the parties, detailed submissions explaining that how the purchases should not be treated as bogus and also submitted stock records. It was submitted that the AO failed to find any discripency from the records submitted by the assessee, but had merely reiled upon the list submitted by the Sales Tax Department. It was also submitted that as far as the genuineness of the transactisons are concred, the suspicion of highest degree cannot take place of evidence and relied upon several judgments, which are quoted in the order of Ld. CIT(A).
Phoneix Foils Pvt. Ltd.
Aftere having heard the counsels at length, we found that the assessee is engaged in the business of dealing in aluminum foil. The sales of the assessee comprises of exports and domestic market. The said sales were well supported by the assessee by submitting various documents and the said fact had also been accepted by the AO and has thus not raised any dispute as to the sales. In respect of purchases, the assessee had maintained stock records, which specifically shows the quantity of goods inward, outward and stock-in-hand and valuation thereof. We also found that the assessee had filed tax audit report and the books of accounts have been duly audited and no adverse findings were recorded by the AO in the assessment order to that effect. The goods purchased were reflected in the stock records and the assessee had submitted the details of purchases alongwith payment details. The Ld. DR was not in a position to pin point anything incriminating from where any inference can be drawn that the transactions carried out by the assessee were bogus and were not genuine. The AO had not brought on record any direct evidence to prove that the transactions of purchases were bogus and no nexus was established regarding circulating of funds or 13 Phoneix Foils Pvt. Ltd. that cash was paid to third parties for actual purchases and that cash was received on issue of cheques. According to the records, the AO had found opinion on the basis of information received from DDIT that assessee was one of the beneficiary of the alleged bogus purchases and the AO presumed that the assessee had inflated the expenses by way of accommodation of bills, but no concrete inquiry in this regard was carried out by the AO. We have also gone through all the judgments cited by the respective parties and also the judgments cited in the order of Ld. CIT(A) dealing with the situation and the facts of the present case.
Even otherwise the assessee had shown gross profit of 14.63%, which for any manufacturing unit is fairly reasonable. It is a settled that no disallowance can be made as a leap in the dark. The AO is not entitled to make a guess without evidence. The assessment of any particular year cannot be based on mere suspicion or bare guess, but on a legitimate material from which a reasonable inference of any expenditure being of the disallowable nature could be drawn and that the initial burden of finding such material is on the AO as held by Hon'ble High Court Phoneix Foils Pvt. Ltd. Orissa in the case of Bansidhar Onkarmall Vs. CIT (1953) 23 ITR 353(Orissa) where it observed as under :-
There was no doubt that the view taken by the income- tax authorities bases on the alleged presumption was erroneous in law. "Past history" may be legitimate material, but that is not sufficient by itself without more, to justify assessment in a particular year. There must be some material relatable to the accounting year which taken with the "past history" may reasonably entitle the income-tax authorities to hold that there must in fact have been some "concealed income during the accounting year and which is liable to assessment.
To base an assessment barely on a presumption relating to capital found to exist in some previous year appeared to be unwarranted. The income-tax authorities proceeded on the view that the burden of proof was on the assessee to show that the "past capital" has disappeared, for which there was no justification, and no authorities has been shown. It is well the assessment of any particular year must be based not on mere suspicion or bare guess, but on legitimate material from which a reasonable inference of income having been earned during the accounting year in question could be drawn, and that the initial burden of finding such material, however slight, was Phoneix Foils Pvt. Ltd. on the income-tax authorities and not on the assessee. The facts before the income-tax authorities were not sufficient to shift the burden of proof on to the assessee. There facts did not necessarily justify_anvprima facia inference that the past capital produced income during the accouting year. Before such an inference could be drawn, some foundation must be laid for the assessment that there was income from such capital during the accounting year. Therefore, on the facts and in the circumstances of the case, the Tribunal erred on confirming the additions of amounts in question.
Under the similar circumstances, the Hon’ble Bombay High court in the case of CIT vrs. Nikunj Exim Enterprises Ltd
(2015) 372 ITR 619 (Bom) on the issue of bogus purchases had also deleted the additions made by the AO on account of so called bogus purchases by holding that merely because of supplier have not appeared before the AO, one cannot conclude that the purchases were not made by the assessee.
The Coordinate Bench of Jurisdictional ITAT Mumbai Bench in the case of DCIT vrs. Allied Blenders and Distillers Phoneix Foils Pvt. Ltd. Pvt. Ltd. (ITA No. 2447 & 2446/Mum/15) on identical facts had held that merely because purchases were made from parties listed in hawala list and that notices issued u/s 133(6) of the Act remained unserved would not determine the same as bogus purchases.
Keeping in view, the above facts and circumstances of the present case, Ld. CIT(A) has also correctly appreciated that it was difficult to sustain the addition made by AO only on the ground that the suppliers of the material were defaulters in not paying VAT to the Sales Tax Department or the suspicious dealers were not produced before the AO. In the present case, the assessee had proved on record that payments were made through banking channel and AO has failed to substantiate that assessee had received the payment back in cash. Therefore in such circumstances, AO has not been able to prove the purchases made by assessee from the four parties was bogus and the same was paper transaction. Thus in such circumstances, we are unable to agree with the contention of Ld. DR. Phoneix Foils Pvt. Ltd.
Moreover, no new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so s to interfere into or deviate from the findings recorded byrecorded by Ld CIT (A). Therefore, there are no reasons for u the Ld. CIT (A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, these ground raised by the revenue stands dismissed.
Ground No. 3 15. This ground raised by the revenue is general in nature, thus requires no specific adjudication.