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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI G.S.PANNU & SHRI RAVISH SOOD
ORDER PER G.S.PANNU,A.M:
The captioned appeals are filed by the assessees pertaining to assessment years 2006-07 and 2007-08. Since common issues are involved, they have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity.
2. Since the issues raised in these appeals are identical, 2066-07 is taken as the lead case, which is directed against an order passed by the CIT(A)-38, Mumbai dated
(A.Y. 2006-07) (A.Y. 2007-08)
19/12/2011, which in turn, arises out of order passed by the Assessing Officer under section 143(3) r.w.s. 153A of the Income Tax Act, 1961 (in short ‘the Act’) dated 30/12/2009. The Grounds of appeal raised by the assessee in this appeal read as under:-
Ground I Addition on account of Unproved purchases of paintings: Rs. 1,74,37,500/-
On the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) - 38, Mumbai ("CIT(A") erred in upholding the order of the Deputy Commissioner of Income Tax, Central Circle 42, Mumbai ("AO") in making an addition to total income on account of purchases of paintings from different parties on the alleged ground that the same were bogus in nature.
In doing so, he erred in relying upon the statements of the parties from whom paintings were purchased which supports only one part of the transaction.
He failed to appreciate and ought to have held that: i. The purchases were genuine and department did not have any material on record to prove that purchases were bogus. ii. The paintings which were purchased during the year were either sold during the year or are lying in the closing stock of the Appellant and would therefore not affect the profits of the year. iii. The Appellant had produced Ledger, purchase Bill, payment proof & bank confirmation, and sales tax registration in support that the aforesaid purchases were genuine.
3. A perusal of the Grounds of appeal reveals that the solitary dispute arises with respect to an addition of Rs.1,74,37,500/- made by the Assessing Officer on account of unproved purchases. The facts relevant in order to appreciate the controversy can be summarized as follows. The appellant is a company incorporated under the provisions of the Companies Act, 1956 and is a part of a group of concerns, where a search action under section 132(1) of the Act was carried out on 17/04/2007. The search and the related investigations carried out, inter-alia, revealed that the assessee company and M/s. Reflections(Prop.Smt. Kavita Singh)one of the entities of the group, were (A.Y. 2006-07) (A.Y. 2007-08)
indulging in accepting bogus purchase bills in respect of Paintings and Sculptures possessed by them and that such bills were obtained from persons who were otherwise engaged in providing accommodation entries. The discussion in the assessment order also brings out that in the course of search at the various premises of the group, certain documents/bills showing purchase of paintings, sculptures and art works were found. The discussion also reveals that in the course of search, inventory of the paintings/art works was done, which numbered 288 No. of paintings, whose valuation was made at Rs.9,99,20,000/- and some were also put under constructive seizure as per section 132(1)(iii) of the Act . Be that as it may, so far as we are concerned, the dispute relates to a total of five paintings, which has been detailed in page- 1 of the Paper Book. On this summary page, the assessee has brought out, in a tabulated manner, the dispute involving the five paintings and the detail of the addition of Rs.1,74,37,500/- made to the returned income. We deem it fit and proper to reproduce the relevant portion of this tabulation, which is as under:-
Sr.No. Name of the Description Purchase Whether Sold to Sale Price Profit Addition in of seller of the price sold or in assessment Assessing painting stock order. Officer’s order 1 Gallery 7 Chitabanu 1,125,000 Sold M/s. 1,687,500 562,500 1,687,500 Mazumdar Oswal Traders 2 Royal Trust Ganesh 1,462,500 Stock - - - 1,462,500 Corporation Haloi ** 3 Rashesh Shah M.F.Hussain 1,237,500 Stock - - - 1,237,500 ** 4 Oswal Traders M.F.Hussain 6,187,500 Stock - - - 6,187,500 5 Mukta Sales Ram Kumar 6,862,500 Stock - - - 6,862,500 Corp. Total 16,875,000 1,687,500 562,500 17,437,500
(A.Y. 2006-07) (A.Y. 2007-08)
3.1 The Assessing Officer noted that the aspect of effecting bogus purchase of paintings came to light in the course of search and the subsequent investigation carried out by the Investigation Wing. In particular, the Assessing Officer has referred to the statements recorded of the stated suppliers of the paintings by the Investigation Wing as referred in para-8 of the assessment order. In the course of hearing also, the Ld. Representative for the assessee as well as the Ld. Departmental Representative have taken us through a portion of such statements, copies of which have been placed in the Paper Book. The gist of the statements noted by the Assessing Officer in para-8, and which is in consonance with the reading of the statements made at the time of hearing, is that the said persons denied having supplied any paintings to the assessee company. However, the persons admitted having received payments through account payee cheques drawn by the assessee and deposited in their bank account. The persons uniformly deposed that money was withdrawn after clearing of cheques and after retaining their commission, the balance of the cash was given back to the person, who give them the cheque. At this stage, we may reproduce hereinafter, the answer given by one of such person i.e. Shri Ashok Palan, whose statement was recorded under section 131(1) of the Act on 22/01/2007. The said person was having, inter-alia, a proprietary concern M/s. Mukta Sales Corporation and qua the instant assessment year, the assessee stated to have purchased a painting for Rs.68,62,500/- from the said concern, i.e. item-5 of the tabulation above. The relevant portion of the statement is reproduced as under:-
“Q11.Have you made any business transactions with(1) M/s.Osian’s Connoisseurs of Art Pvt. Ltd., Mumbai, and (2) M/s.ACG Arts and Properties Pvt. Ltd., Mumbai (formerly Universal Capsules Pvt. Ltd.) and (3) M/s.Reflection, Mumbai?
(A.Y. 2006-07) (A.Y. 2007-08)
Ans.Yes, I made business transaction with (1)M/s. Osian’s Connoisseurs of Art Pvt. Ltd., Mumbai, and (2) M/s.ACG Arts and Properties Pvt. Ltd., Mumbai (formerly Universal Capsules Pvt. Ltd.) and (3) M/s.Reflection, Mumbai. Here I wish to state that one person i.e. Shri Prashant Jhaveri(broker) has given me the cheques issued by M/s. Osian’s Connoisseurs of Art Pvt. Ltd., Mumbai, and M/s.ACG Arts and Properties Pvt. Ltd., in the name of my proprietary-ship concerns. Thereafter I have deposited these cheques in my bank accounts, after clearing the cheques I have withdrawn the cash and handed over the cash/bearer cheque/cross cheque to the same persons i.e. Shri Prashant Jhaveri after deducting my commission ranging from 0.05% to 0.10%. Since I am in the business of bill discounting, I have issued cheques to M/s. Reflection, Mumbai in connection with the adjustment of the transactions with the above concerns.” 3.2 Before the Assessing Officer, assessee contended that the purchase of paintings is duly reflected in the account books and consideration has been paid by account payee cheques including the VAT payment. The assessee also furnished a certificate issued by its bank to establish that the account payee cheques issued to the suppliers were indeed cleared. In this manner, assessee sought to justify the genuineness of the entries of purchase of paintings reflected in the account books, qua the five paintings in question amounting to Rs.1,68,75,000/-. The Assessing Officer, however, did not accept the submissions put-forth by the assessee. The Assessing Officer has based his stand primarily on the statement recorded from the issuers of purchase bills. The assessment order reveals that the assessee was asked to produce the parties from whom the paintings were claimed to be purchased; and that the summons under section 131 of the Act were also issued to such parties. The Assessing Officer records that in response to summons, only one Mr.Rashesh Shah appeared and confirmed that he had indeed sold the paintings mentioned at item-2&3 of the earlier tabulation. The said statement of Mr. Rashesh Shah was not given any credence by the Assessing Officer on the ground that he did not furnish his bank statement when asked for; and,
(A.Y. 2006-07) (A.Y. 2007-08) secondly, for the reason that in an earlier deposition before the Investigation Wing on 30/05/2007, the said person had denied having sold any paintings to the assessee and refused to accept that the relevant bills were issued by him. For all the said reasons, the Assessing Officer treated the entire amount of purchase as unexplained. At this stage, we may clarify with reference to the tabulation that out of five paintings, four are claimed to be in stock at the end of the year, and one of them i.e. the paining at item No.1 was sold during the year for a consideration of Rs.16,87,500/-, whose purchase price was stated at Rs.11,25,000/- and accordingly, the differential of Rs.5,62,500/- was declared by the assessee and offered to tax through its Profit and loss account. The Assessing Officer while determining the addition on account of unproved purchases has arrived at Rs.1,74,37,500/-, which comprises of the purchase price of four paintings in stock of Rs.1,57,50,000/- plus the sale value of painting sold of Rs.16,87,500/-.
The assessee company carried the matter in appeal before the CIT(A) assailing the addition on various grounds on facts and in law. The assessee company asserted that the purchases effected by the assessee and payments made thereto through account payee cheques were genuine and could not be rejected as unproved. Referring to the statements of the stated suppliers of paintings, assessee contended that their depositions confirmed the transactions with the assessee, inasmuch as, the suppliers have owned up the payments made by the assessee through account payee cheques. On the deposition of the suppliers of the paintings that after clearing of cheques, cash was withdrawn and handed over to the same broker who gave them the cheque after deducting their commission, assessee contended that the same did not imply that any money has come back to the assessee. It was also (A.Y. 2006-07) (A.Y. 2007-08) sought to be emphasized that whichever paintings were found in the course of search, the same have been accounted for in the books of account and payments have been duly recorded for their acquisition. The assessee also pointed out that out of five paintings, one was sold against a consideration of Rs.16,87,500/- received from M/s. Oswal Traders, and the profit thereof has been offered for tax and, therefore, the corresponding purchase could not be considered as unproved in this particular instance. For all the said reasons, the addition was sought to be assailed before the CIT(A).
4.1 The CIT(A) was not satisfied with the explanations put-forth by the assessee, and he upheld the approach of the Assessing Officer in placing reliance on the deposition made by the stated sellers of the paintings who had denied having issued the sale bills. The CIT(A) further notes that the result of investigations revealed that the persons shown as sellers of the paintings were not in the business of paintings and they have no idea or knowledge about the business of paintings and that such parties admitted that they have been carrying on cheque discounting business in the name of their several business entities. The CIT(A) also concluded that the statements of the sellers were reliable to conclude that cash corresponding to the value of the cheques issued minus the commission, has come back to the assessee through the broker. Thus, in sum and substance, the CIT(A) affirmed the conclusion of the Assessing Officer. In this background assessee is in further appeal before us.
Before us, the Ld.Representative for the assessee vehemently pointed out that the lower authorities have totally misdirected themselves in treating the purchases as unproved. It is sought to be canvassed that the factum of paintings being in the possession of the assessee is not doubted, inasmuch as,
(A.Y. 2006-07) (A.Y. 2007-08) the paintings were physically found at the time of search, except of-course, in relation to one of the painting, which had been sold. The Ld.Representative for the assessee pointed out that so far as the instant year is concerned, qua the four paintings which are in stock, there is no net debit in Profit and loss account which reduces the taxable income, inasmuch as , whatever purchase price is debited, the same has been carried forward as closing stock. In relation to one painting, whose stated cost is Rs.11,25,000/-, the same has been sold for Rs.16,87,500/- and the assessee has a net credit in its Profit & loss account of Rs.5,62,500/-. So far as the statement given by the sellers to the Department is concerned, the Ld.Representative for the assessee pointed out that the said deposition clearly bring out that the transactions were undertaken, and they cannot be interpreted to say that any consideration has flown back to the assessee and assessee alone. Referring to the nature and description of the paintings, it is pointed out that the same are art works done by renowned persons viz. M.F.Hussain, Chitabanu Mazumdar,Ganesh Haloi, etc. The Ld. Representative for the assessee pointed out that if the modus operandi sought to be established by the Assessing Officer is accepted, i.e. the consideration paid through account payee cheque has been returned to the assessee in the form of cash, it would mean that assessee has both money as well as paintings in its possession, which is quite absurd because obviously, such like art work has significant value, and could not have been acquired by the assessee for free. At the time of hearing, reliance has also been placed on the following decisions of our Co-ordinate Benches, wherein somewhat similar additions made in the cases of other group concerns, based on a similar stand of the assessing authority, has been deleted:-
(i) Mrs. Kavita Singh(Pro.of Reflections) vs.DCIT,
(A.Y. 2006-07) (A.Y. 2007-08) ITA Nos.1240& 1241/Mum/2012,A.Ys. 2006-07&2007-08 order dated 28/10/2015. (ii) ACG Associated Capsules Pvt. Ltd. vs. ACIT, ITA Nos.2829&2830/Mum/2014 A.Ys 2006-07 & 2007-08 order dated 25/02/2015. (iii) Nepean Sea Holdings Pvt. Ltd. vs. DCIT, ITA No.1237/Mum/2012, order dated 23/09/2016.
5.1 With regard to the element of addition regarding item 1 of the tabulation i.e. painting of Chitabanu Mazumdar which has been sold during the year, the Ld.Representative for the assessee relied upon the judgment of the Hon'ble Bombay High Court in the case of CIT vs. Nikunj Eximp Enterprises (P) Ltd.,(2013) 35 taxmann.com 384 (Bom). It is sought to be canvassed that where the sale of the purchased goods is not doubted, the purchases could not be treated as unexplained. It has been pointed out that so far as the sale of painting made to M/s. Oswal Traders of Rs.16,87,500/- is concerned, the same has not been doubted and, therefore, qua the corresponding purchase of Rs.11,25,000/-, no adverse view can be taken. In this manner, the addition has been sought to be assailed.
On the other hand, the Ld. Departmental Representative has primarily relied upon the stand of the authorities below, which we have already noted in some detail in earlier paras and is not being repeated for the sake of brevity. In nutshell, the Ld. Departmental Representative pointed out that the search proceedings revealed that assessee and its group concerns were in possession of valuable art works, whose source of acquisition could not be fully explained. It is pointed out that the statement of the sellers bring out that the transaction of purchase of paintings as claimed by the assessee were not proved. The Ld. Departmental Representative relied upon the judgment of the Hon’ble Calcutta High Court in the case of CIT vs. Precision Finance Pvt. Ltd.,
(A.Y. 2006-07) (A.Y. 2007-08) 208 ITR 465 (Cal), for the proposition that a transaction could not be said to be genuine merely because the payments have been made by account payee cheques.
We have carefully considered the rival submissions. In the instant, the case made out by the Assessing Officer is that the purchase of paintings by the assessee is unproved. Factually speaking, the existence of the paintings and the same being in the possession of the assessee, is not in dispute, inasmuch as, all the paintings in question, except one (which has been sold during the year) are available as a part of the closing stock. In fact, the crux of the dispute is with regard to the point of purchase of the paintings. The depositions of the stated suppliers/sellers have been relied upon by the Revenue to contend that no such paintings were indeed sold/supplied by them to the assessee. Notably, assessee demonstrated before the lower authorities that the consideration paid to such sellers/suppliers was through account payee cheques, which stood ultimately credited in the accounts of such suppliers/sellers. Our Co- ordinate Bench in the case of ACG Capsules Pvt. Ltd.(supra) in similar circumstances held that “we do not find any merit for adding the amount of paintings in the assessee’s income when the source of funds for making such purchase was not in dispute, nor the physical form of paintings.” In the case of M/s. Kavita Singh( Proprietor of Reflections) (supra) also similar situation prevailed and the addition made on account of unproved purchases was deleted. In coming to such decision, the Bench noted that “the right of cross examination which was prayed for by the assessee was also not allowed to her. If this opportunity would have been given, the picture would probably much more clear.”
(A.Y. 2006-07) (A.Y. 2007-08) 7.1 Now, we may briefly touch upon the statement of the suppliers/sellers relied upon by the Revenue. The case made out is that the stated suppliers/sellers of paintings of the assessee received cheques and after clearance withdrew the cash and after deducting their commission, balance of cash was handed over to the person who came with the cheques. The suppliers also stated that they were in the business of bill discounting and adjustment transactions. It has also been pointed out that the stated suppliers/sellers are not in the business of paintings and therefore, the transaction of purchase as canvassed by the assessee is not proved. In this context, we find that there not enough material with the Revenue to establish that the purchase of paintings is per-se bogus, as our subsequent discussion would show. Pertinently, existence of the transaction between assessee and the stated suppliers/sellers cannot be doubted, inasmuch as, the consideration has flown from the assessee to such parties by account payee cheques, which stand cleared to the credit of the bank account of such suppliers. While we agree with the reasoning of the Ld. Departmental Representative that payment by account payee cheques by itself does not prove genuineness of the transaction but in the instant case more is required to prove that the transaction was bogus. We say so for the reason that in the present case, the existence of paintings in the possession of the assessee, of-course, except one which has been sold, is not in dispute. The statement of the stated suppliers/sellers does not prove that the consideration going out of the assessee’s bank account has come back to the assessee in the form of cash. Quite clearly, even the statement given by the stated suppliers/sellers only say that cash was returned by them to the person who gave them the cheques; there is uniformity in the statements on the aforesaid aspect. At this point,
(A.Y. 2006-07) (A.Y. 2007-08) we may like to emphasize that it was for the Revenue to establish the link, if any, between the person who is stated to have received back the cash from the stated suppliers/sellers and the assessee. It is in this background, one has to appreciate the reasoning given by our Co-ordinate Bench in the case of M/s. Kavita Singh (Proprietor of Reflections)(supra) that right of cross examination of the suppliers ought to have been allowed. If the aforesaid exercise would have been done, the complete picture would have emerged. Otherwise, the only prudent inference that can be drawn is that the paintings in question have indeed been purchased, because they exist in the possession of the assessee; and, at best the purchases had been effected from some other parties and not the stated suppliers/sellers. In fact, as per the given state of verification, it can also be a probability that stated suppliers/sellers have acted for and on behalf of the actual sellers of paintings to the assessee and if that be so then no fault can be found with the transaction carried out by the assessee. Therefore, for all these reasons, we say that there is not enough material with the Revenue to treat the purchase transaction as bogus or not proved. Be that as it may, in our considered opinion, we find no justifiable reason to depart from the conclusion drawn by our Co-ordinate Benches in the cases of Mrs. Kavita Singh(Proprietor of Reflelctions) (supra) and ACG Capsules Pvt. Ltd.(supra), wherein also similar stand of the Revenue, qua purchase of paintings found in the search, has been found to be unsustainable. In the case of Nepean Holdings Pvt. Ltd. Holdings (supra) the Tribunal also found it fit to follow the earlier decision in the case of Mrs. Kavita Singh (Proprietor of Reflections) (supra) in deleting similar additions.
7.2 In fact, with regard to one of the transaction, wherein one painting has been sold and profit thereof has been credited in the P&L Account, there is no (A.Y. 2006-07) (A.Y. 2007-08) doubt about the sale made. The Ld.Representative for the assessee is quite justified in invoking the ratio laid down by the Hon'ble Bombay High Court in the case of Nikunj Eximp Enterprises (P) Ltd.(supra), in such a situation, to canvass that where sale of purchased goods is not doubted, the corresponding purchases could not be construed as bogus.
7.4 For all the above reasons, we deem it fit and proper to set-aside the order of CIT(A) and direct the Assessing Officer to delete the impugned addition. Thus, on this aspect assessee succeeds.
ITA No.3778/Mum/2012:
At the time of hearing, it was a common point between the parties that so far as appeal in for assessment year 2007-08 is concerned, the issue raised is similar to the Grounds of appeal dealt with by us in 2006-07. As a consequence, our decision in ITA No.1238/Mum/2012 for assessment year 2006-07 shall apply mutatis mutandis in the appeal for assessment year 2007-08 also.
Resultantly, captioned appeals are allowed.
Order pronounced in the open court on 23/03/2018.