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Income Tax Appellate Tribunal, “G” Bench, Mumbai
Before: Shri B.R. Baskaran (AM) & Shri Ravish Sood(JM)
O R D E R Per Bench :-
These cross appeals are directed against the orders passed by the learned CIT(A)-18, Mumbai and they relate to A.Ys. 2009-10, 2010-11, 2012- 13 & 2013-14. Since issues urged in these appeals are identical in nature, they were heard together and are being disposed of this common order, for the sake of convenience.
2 M/s. Shantivijay Jewels Ltd.
Issue urged by both the parties relates to addition made by the Assessing Officer in respect of bogus purchases made by the assessee.
3. The Assessing Officer added 12.5% of the value of bogus purchases in all these four years and the learned CIT(A) reduced the same to 3% of the value of bogus purchases. The Revenue is contesting relief granted by the learned CIT(A) in all these years and the assessee is challenging the addition sustained by the learned CIT(A).
The assessee is engaged in the business of manufacture and export of gems and jewellery.
Learned AR submitted that the Assessing Officer, during the course of assessment proceedings relating to A.Y. 2011-12 called for the details/evidence of purchases made from three parties namely MN/s. Aadi Impek, M/s. Kalash Enterprises & M/s. Maniprabha Impex Pvt. Ltd., who were controlled and managed by Rajesh Jain Group (Rajendra Jain group). One of the persons related to the group had admitted during the course of search proceedings carried out u/s. 132 of the Act that the group was merely providing accommodation entries without actually supplying the material. Hence, the Assessing Officer disallowed the purchases made from the above said parties in A.Y. 2011-12. In the appellate proceedings, the learned CIT(A) had restricted the addition to 12.5% of the value of purchases.
6. Based on the assessment order passed for A.Y. 2011-12, the Assessing Officer reopened the assessments of A.Ys. 2009-10, 2010-11 & 2012-13. The regular assessment was pending for AY 2013-14. The Assessing Officer called out the details of purchases made from the companies controlled by Rajendra Jain Group. Details of purchases made from this group are given below :-
A.Y. 2009-10 - ` 12.23 crores A.Y. 2010-11 - ` 11.43 crores A.Y. 2012-13 - ` 15.20 crores A.Y. 2013-14 - ` 15.67 crores
3 M/s. Shantivijay Jewels Ltd.
The Assessing Officer considered the purchases made from the above said persons as bogus and accordingly added 12.5% of the value of purchases as income of the assessee in all these four years. The learned CIT(A) reduced it to 3% and hence both the parties have filed these appeals before us.
At the time of hearing, learned AR submitted that the Coordinate Bench of the ITAT has already passed the order for A.Y. 2011-12 in dated 13.4.2018. The Tribunal took note of the fact that suppliers had appeared before the Assessing Officer and admitted in the statement taken from them on oath that they had sold goods to the assessee. Further, they have also filed affidavits supporting their contentions. The Tribunal also took note of the fact that the assessee had exported entire goods and there was no local sale. Under these set of facts, the Tribunal following the decision of the Coordinate Bench in the case of M/s. Imperial Imp & Exp. (ITA No. 5427/Mum/2015 in A.Y. 2009-10) deleted the entire addition made by the Assessing Officer. Learned AR submitted that the facts are identical in the present case. Referring to the assessment order passed by the Assessing Officer for A.Y. 2009-10, more particularly paragraph 4.5 of the assessment order, learned AR submitted that the assessee has produced proprietors/directors of the companies namely Mr. Rajendra Jain, Mr. Dharmichand Jain and Mr. Anoop Jain before the Assessing Officer. The Assessing Officer has also recorded the statement on oath u/s. 131 of the Act, wherein they have confirmed the genuineness of the purchases. Accordingly, learned AR submitted that the facts of the present case are identical with the facts examined by the Tribunal in A.Y. 2011-12. Accordingly, he submitted that the order passed by the Tribunal for A.Y. 2011-12 may be followed in these years also.
On the contrary, learned DR submitted that the Assessing Officer has made the impugned addition on the basis of specific information received that the companies belonging to Rajendra Jain group are providing only
4 M/s. Shantivijay Jewels Ltd. accommodation entries and not actually supplying the goods. He further submitted that the Assessing Officer has followed the decision rendered by Hon'ble Gujarat High Court in the case of Simit P. Sheth (356 ITR 451) and also in the case of Bholenath Poly Fab P. Ltd. (355 ITR 290) and has came to the conclusion that profit element embedded in the bogus purchases should be assessed as income of the assessee. Accordingly, he submitted that the order passed by the Assessing Officer should be confirmed.
In the rejoinder, learned AR submitted that the facts available in the case of Simit P. Sheth (supra) are different. The assessee, in the case before Hon'ble Gujarat High Court, did not furnish any confirmation letter from the suppliers and also did not produce them before the Assessing Officer. On the contrary, in the instant case, the assessee has produced the suppliers before the Assessing Officer and they have been examined by the Assessing Officer u/s. 131 of the Act on oath. Suppliers have also confirmed the supplies made to the assessee. In addition to the above, the suppliers have also filed affidavits to support their contentions. Further all the purchases made by the assessee have been exported out of India through custom route. Accordingly, he submitted that there is no case for suspecting genuineness of purchases in all these years.
We have heard the rival contentions and perused the record. We noticed that an identical issue was considered by the Coordinate Bench of the Tribunal in A.Y. 2011-12, which year is the basis for reopening of the assessment years under consideration. We noticed that the Coordinate Bench has deleted the addition made by the Assessing Officer with following observations:-
6.We have heard the rival submissions and perused the material before us. We find that the assessee is engaged in the business of manufacturing of studded gold jewellery and plain gold jewellery, that during the year under consideration it had exported its manufactured goods, that it did not sell goods locally, that the AO had not doubted the sales, that the suppliers had appeared before the AO and admitted that they had sold the goods to the assessee, that they had filed affidavits in that regard. We find that DJ had admitted of issuing bogus bills. But,
5 M/s. Shantivijay Jewels Ltd. nowhere he had admitted that he had issued accommodation bills to the assessee. In our opinion, there is subtle but very important difference in issuing bogus bills and issuing accommodation bills to a particular party. The difference becomes very important when a supplier in his affidavit admits supply of goods. In this matter, the assessee had made no local sales and goods were exported, as stated earlier. So, as far as sales are concerned there is no doubt about the genuineness of such sales. It is also a fact that suppliers were paying VAT and were filing their returns of income. In response to the notices issued by the AO, under section 133(6) of the Act, the supplier had admitted the genuineness of the transaction. Here, we would like to refer to order of the Tribunal in the case of Romila M. Nagpal (supra),wherein in the similar circumstances, addition confirmed by the FAA were deleted. In that order, the tribunal had referred to the case of M/s. Imperial Imp & Exp.(ITA No.5427/Mum/2015 A.Y.2009-10). In Imperial Imp & Exp. matter, the assessee was exporting goods. The relevant portion of the order of reads as under:
"2.Effective Ground of appeal is about addition made to her income with regard to purchases. The AO received an information from the investigation wing that the sales tax department, Govt. of Maharashtra had made enquiries about bogus purchases/hawala transactions. The sales tax authorities had forwarded the list of beneficiaries who had taken bills from the hawala dealers. The AO observed that assessee had purchased goods worth Rs.1.35crores from three parties namely Shri Ganesh Trading (Rs.27.73 lakhs); Kishna Chemical Works (Rs.27.85 lakhs) and Shreyas Marketing Agency (Rs.80.40 lakhs). The AO issued a notice u/s.148 of the Act .In response to the notice the assessee stated that return filed on 24/9/2009 should be treated as return filed in response to re-assessment notice. After considering the submission of the assessee and the various details filed by her the AO issued notices u/s. 133 (6) of the Act to above mentioned three parties. As per the AO, notices were returned back by postal authorities as same could not be served. He held that in absence of authentic confirmation from the parties the genuineness of the transaction was not verifiable. He directed the assessee to produce the parties. The assessee, vide her letter dt.12.11.2014, stated that parties were not available as on date. The AO held that purchases made by her were not verifiable in absence of proper and legitimate confirmations, that the assessee had not produced the suppliers, that the onus was on the assessee to prove the genuineness of the purchases, that the profit element embedded in the purchases had to be brought to tax. Estimating the gross profit @ 12.5% of the unproved purchases of Rs.1.35crores, he made an addition of Rs.16.99 lakhs to the income of the assessee.
6 M/s. Shantivijay Jewels Ltd.
Aggrieved by the order of AO, the assessee preferred an appeal before the First Appellate Authority(FAA).Before him, the assessee made elaborate submissions and relied upon several case laws. Before him, it was argued that the assessee had filed ledger copies of the parties, sales details, that the purchases were fully backed by authenticated invoices, that she had made payment through banking channels, that the stock register and the consumption chart showed the nexus between the purchases and the sales made by the assessee, that details of closing stock were available on record, that there was no evidence to prove that assessee had received back the money in cash, that the AO had not rejected the books of account of the assessee, that the assessee was maintaining quantitative details of purchase and sales, that the AO had not pointed out any specific defects in the books maintained by her. After considering available material, the FAA held that the AO had made efforts beyond getting information from the investigation wing, that he had directed the AO to produce the parties, that the supplier were not found at the given addresses, that it was a case of purchases made form bogus parties rather than a case of bogus purchases, that without making purchases it was not possible for assessee to complete the sales, that the AO had rightly invoked the provisions of section 147, that he was justified in making the disallowance of Rs.16.99 lakhs. Finally, he dismissed the appeal filed by the assessee.
4.During the course of hearing before us the Authorised Representative (AR) submitted that the assessee had filed all necessary details before the AO, that stock register and quantitative details were made available to the AO, that payments were made through banking channels. He referred to the cases of Shri Mahesh Shah (ITA No.5194/Mum/2014 A.Y.2010-11); M/s. Imperial Imp & Exp. (ITA No.5427/Mum/2015 A.Y.2009-10); Shri Ramila Pravin Shah (ITA No.5246/M/2013 A.Y.10-11); Shri Deepak Popatlal Gala (ITA No.5920/Mum/2013 A.Y.2010-11,dated 27/3/2015); Ramesh Kumar and Co.(ITA No.2959/Mum/2014 A.Y.2010-11 dated 28/11/2014); Shri Rajeev G. Kalathil (ITA No. 6727/Mum/2012 A.Y.2009-10 dated 20/08/2014);Shri Ganpatraj A. Sanghavi (ITA No.2826/ Mum/ 2013 A.Y. 2009-10 dt.5/11/2 014 and Shri Hiralal Chunilal Jain (ITA No.4547/Mum/2014 dated 01/01/2016. The DR supported the order of the FAA.
5.We have heard the rival submissions and perused the material before us. We find that in the case of Imperial Imp.& Exp.(supra) identical issue has been deliberated upon and has been decided by the Tribunal .We are reproducing the relevant portion
7 M/s. Shantivijay Jewels Ltd. consisting the facts of the case, order of the FAA, arguments advanced by AR and DR before the Tribunal and the operative part of the order of the Tribunal which reads as under :-
2.In this appeal, although the assessee has raised multiple Grounds of appeal, but the substantive grievance is against the action of the CIT(Appeals) in confirming an addition of Rs.4,19,356/- being estimated profit on unexplained purchases.
3. In brief, the relevant facts are that the appellant is a partnership firm, which is engaged in the business of export of consumer clothing. The return of income for assessment year 2009-10 was filed by the assessee declaring a total income of Rs.3,49,320/-, which was subject to a scrutiny assessment under section 143(3) of the Act, whereby the total income was assessed at Rs.3,66,344/-. Subsequently, the Assessing Officer issued notice under section 148 of the Act on 06/03/2014 reopening the assessment on the ground that certain income chargeable to tax had escaped assessment, in as much as, assessee had taken accommodation purchase bills from four parties, totalling to Rs.77,51,496/-. In the ensuring assessment, the Assessing Officer has held that purchases declared by the assessee of Rs.77,51,496/- from four parties, detailed in para-1 of the assessment order are bogus purchases. According to the Assessing Officer, assessee did not make actual purchases from such four parties because as per the information received from the Investment Wing, the four parties in question were found to have been VAT dodgers by the Mahrashtra VAT Department. The Assessing Officer noted that since sales have been effected by the assessee, which showed that assessee was actually in possession of goods, the material would have been procured from grey market without bills in order to cover up the purchases, and thus assessee would have taken accommodation bills for purchases from the said four parties amounting to Rs.77,51,496/-. Accordingly, the Assessing Officer brought to tax the profit margin in relation to such non-genuine purchases, which he computed by applying the rate of 12.5% on the total amount of Rs.77,51,496/-, which came to Rs.9,68,937/-.
3.1 The plea of the assessee before the Assessing Officer as well as before the CIT(Appeals) was that the purchases in question were duly supported by the bills of purchase. Moreover, the assessee pointed out that all its sales were 8 M/s. Shantivijay Jewels Ltd. by way of exports and that there was no evidence to say that the purchases in question were bogus. The assessee also referred to his bank statement to prove payments to such parties. The details of goods sold by the assessee was also furnished, which corresponded to the purchases effected from such four parties. The CIT(Appeals) has primarily affirmed the stand of the Assessing Officer based on the information stated to have been received from the Investigation Wing of the Department relating to the finding of the Maharashtra VAT Department. Additionally, the CIT(Appeals) also noticed that assessee could not prove the existence of the suppliers and, therefore, the circumstantial evidence also suggested that the entire purchases from the four parties was unverifiable. However, he restricted the addition to 5.41% of the amount of such unexplained purchases, instead of 12.5% adopted by the Assessing Officer. The CIT(Appeals) has applied the rate of 5.41% being the gross profit rate of the assessee for the year under consideration. Accordingly, out of an addition of Rs.9,68,937/- made by the Assessing Officer, the CIT(Appeals) retained an addition of Rs.4,19,356/- and deleted the balance.
4.Before us, the Ld. Representative for the assessee has vehemently pointed out that the entire sales of the assessee are by way of exports and, therefore, there was no liability towards sales tax on the purchases effected by it. It was also contended that though the Assessing Officer has referred to the four parties having been listed as 'hawala operators' by the Sales Tax Department of the Government of Maharashtra, but there is no clear evidence to suggest that the transaction with the assessee were bogus. It is pointed out that in the cases of some other assessees, under identical circumstances, the Coordinate Benches of the Tribunal have deleted the additions. In this connection, reliances have been placed on the following decisions:-
(1) ITO vs. Shri Deepak Popatlal Gala in ITANo.5920/Mum/ 2013 (A.Y 2010-11) dated 27/03/2015;
2)Ramesh Kumar and Co. V/s. ACIT in 2014 (A.Y. 2010-11) dated 28/11/2014; (3)DCIT v/s. Shri Rajeev G. Kalathil in 2012 (A.Y.2009-10) dated 20/08/2014; 9 M/s. Shantivijay Jewels Ltd.
(4)Shri Ganpatraj A. Sanghavi v/s. ACIT in (A.Y.2009-10) dated 5/11/2014; and (5) Shri Hiralal chunilal Jain vs. Income Ta x Officer in No.4547/Mum/2014 dated 01/01/2016.
On this basis, the plea of the assessee is that the entire addition is liable to be deleted. 5. On the other hand, the Ld. Departmental Representative supported the orders of the authorities below by pointing out that the addition has been made on account of the enquiries conducted by the Sales Tax Department of the Government of Maharashtra and no effort has been made by the assessee to controvert such information.
We have carefully considered the rival submissions. The entire discussion in the assessment order reveals that purchases from four parties namely Dhruv sales Corporation - Rs.13,67,640/-; Subhlaxmi Sales Corp. - Rs.20,20,800/-; Dharshan Sales Corporation - Rs.9,64,656/-; and Paras (India)- Rs.33,98,400, totalling to Rs.77,51,496/- have been treated to be bogus based on the purported enquiries conducted by the Sales Tax Department of the Government of Maharashtra. Ostensibly, the Assessing Officer ought to have brought on record material which is relevant to the transactions of the assessee with the aforesaid four parties instead of making a general observation about the information received from the Sales Tax Department of the Government of Maharashtra. Quite clearly, the Assessing Officer as well as CIT(Appeals) have taken note of the fact that no sales could have been effected by the assessee without purchases. In the present case, assessee has explained that all its sales are by way of exports. The books of account maintained by the assessee show payment for effecting such purchases by account payee cheques and also the vouchers for sale and purchase of goods, etc. Notably, no independent enquiries have been conducted by the Assessing Officer. Under identical circumstances, our Co-ordinate Benches in the cases of Deepak Popatwala Gal (supra), Shri Rajeev G. Kalathil(supra)and Ramesh Kumar and Co.(supra) have held that the Assessing Officer was not justified in making additions merely on the basis of information obtained from the Sales Tax Department of the Government of Maharashtra without conducting any independent enquiries. Before the CIT(Appeals), one of the points raised by the assessee was with respect to an opportunity to cross
10 M/s. Shantivijay Jewels Ltd. examine the four (Assessment Year : 2009-10) parties, but we find that no such opportunity have been allowed. Considering the entirety of facts and circumstances of the case and the aforesaid precedents, which have been rendered under identical circumstances, in our view, the CIT(Appeals) erred in sustaining the addition to the extent of Rs.4,19,356/- instead of deleting the entire addition of Rs.9,68,937/- made by the Assessing Officer. We direct accordingly."
Respectfully, following the above order and the other orders relied upon by the AR during the course of hearing before us, we decide the effective Ground of appeal in favour of the assessee.
Considering the above, we are of the opinion that the FAA was not justified in partially confirming the addition. The assessee has proved the genuineness of the transactions and the parties suppliers had not only appeared before the AO but they had also filed affidavits confirming the sale of goods. Therefore, reversing his order, we decide first effective ground of appeal (GOA) in favour of the assessee.”
12. The Assessing Officer in the instant case has stated that Mr. Rajendra Jain, Mr. Dharmichand Jain and Mr. Anoop Jain have appeared before him. However, it is not made clear as to whether the above said three persons were partners/directors, all the suppliers belonging to Rajendra Jain. The purchases made from companies, where these three persons are either partner/director, shall be aware by the above said decision rendered by Coordinate Bench. The purchases made from other companies, however requires fresh examination. Accordingly, we restore the issue relating to addition on account of bogus purchases made in all the years under consideration to the file of the Assessing Officer with the direction to delete the addition relating to purchases made from companies, in which above said three persons are partner/director. In the respect of purchases made from other concerns belong to Mr. Rajendra Jain the Assessing Officer may examine it afresh.
13. In A.Y. 2013-14, the Revenue has raised one more ground relating to disallowance of interest.
11 M/s. Shantivijay Jewels Ltd.
Learned AR submitted that the assessee had advanced interest free amounts to some concerns and hence the AO disallowed interest expenditure. The contention of the assessee is that it is having sufficient interest free funds, which is more than the amount of interest free advances. Accordingly it was contended that there was not requirement for making any disallowance out of interest expenditure. The Ld A.R submitted that an identical issue was considered in assessee’s own case in A.Y. 2011-12 (ITA No. 1045/Mum/2016 dated 11.1.2017) and the matter was restored to the file of the Assessing Officer to examine the issue afresh by applying the ratio laid down by Hon'ble Hon'ble Jurisdictional High Court in the cases of CIT Vs. Reliance Utility and Power Ltd. (2009) 313 ITR 340 and CIT Vs. HDFC Bank Ltd. (2014) 366 ITR 505.
We heard Ld D.R on this issue. Since the co-ordinate bench has considered an identical issue in AY 2011-22 and restored the same to the file of the AO, following the said order of the Tribunal, we restore this issue to the file of the Assessing Officer with similar directions given by the Coordinate Bench of the Tribunal in A.Y. 2011-12.
In the result, appeal filed by the Revenue for A.Y. 2013-14 is treated as partly allowed and all other appeals of the Revenue are dismissed. All the appeals filed by the assessee are treated as allowed. Order has been pronounced in the Court on 24.9.2018.