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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: Shri Shamim Yahya, AM & Shri Shaktijit Dey, JM
Revenue by : Shri Purushottam Kumar Assessee by : Shri J.P.Bairagra सुनवाई क� तार�ख / घोषणा क� तार�ख / Date of Hearing : 23.08.2017 Date of Pronouncement : 03.10.2017 आदेश / O R D E R
Per Shamim Yahya, AM
This is an appeal by the Revenue and cross objection by the assessee directed against order of learned CIT(A) dated 10.04.2015 and pertains to assessment year 2009-2010.
The issue raised in the Revenue’s appeal is that learned CIT(A) erred in deleting the entire addition made by the Assessing Officer on account of bogus purchases amounting to Rs.1,67,26,325.
The issue raised in the cross appeal read as under:-
“1. The learned CIT(A) erred in not holding that the assessment order passed under section 143(3) r.w.s. 147 of the Income-tax Act, 1961 is bad in law and void ab initio in view of decision of Hon’ble Supreme Court in the case of GKN Drive shafts (India) Limited [259 ITR 19 (|SC)] 2. The learned CIT(A) is correct on facts and in law in deleting the addition made under section 69 of the Act of Rs.1,67,26,325/- as all the purchases made from the alleged bogus purchases are in turn sold and all the evidences of both purchases and sales were filed before the Assessing Officer and the CIT(A).”
At the outset, learned Counsel of the assessee submitted that he shall not be pressing the ground No.1 raised in cross objection relating to validity of reopening. Accordingly this ground raised in the cross objection is dismissed as not pressed.
In this case the assessment was reopened. The Assessing Officer made his observations regarding the reopening as under:-
"An information is received from the office of the DGIT (Inv) which was based on enquiries conducted by the Sales Tax Department of Maharashtra that M/s. Jostars Orgotech Pvt Ltd. has taken accommodation entries from the following parties by way of taking bogus bill of purchase:- Sr. Name of the purchase party PAN FY Amount (Rs.) AAOPS7358D 2008-09 5,57,440 1) Universal Trading Co. 2) Nisha Enterprises AWGPS3492N 2008-09 10,81,600
3) AWTPS0269A 2008-09 4,21,200 Tara Enterprises 4) R.K.- Enterprises AGPVS7835C 2008-09 1,45,600 5) ABQPV4099K 2008-09 2,78,20 Grifton India Riddhi Enterprises 6) Siddhi Enterprises AHUPK6877A 2008-09 72,800 7) AHGPM4137R 2008-09 9,64,714 Classic Enterprises 8) Siddhivinayak Corporation 2008-09 2,16,320 9) Dipali Enterprises ALDPD0349R 2008-09 7,92,126 10) Shree Amaaya ABZPN7783R 2008-09 59,49,575 Entgerprises 11) Dev Enterprises ACGPG0684C 2008-09 64,97,130 1,67,26,325
It may be mentioned that the above entities have been proclaimed as hawala dealers engaged in the activity of providing bogus bills of purchases by the Sales Tax Department, Maharashtra. Analysis of the information received from the DGIT(lnv), Mumbai and the information available in the public domain i.e. the website of the Sales Tax Authorities, is that the above entities are providers of bogus bills. These parties have issued the bills without actual delivery of goods. As per the information provided by the Investigation Wing, it has emerged that the purchases shown by the assessee from the above parties are non-genuine and the assessee has obtained accommodation entries in the shape of bogus bills of purchases to suppress its income for AY 2009-10.
In view of the above, I have reason to believe that income chargeable to tax, in the garb of purchases by way of accommodation entries from the aforesaid entities has escaped assessment for AY 2009-10 within the meaning of section 147 of the Act.
Therefore, it is clear that the assessee took accommodation entries through person to regularize its purchases which is made out of books of account. The source of funds in such purchases
Thereafter the Assessing Officer made enquiries. He issued notices to the parties. But none of them responded. In these circumstances, Assessing Officer considered the issue as under:-
4.4 It is pertinent to mention here that notice u/s 133(6) of the Income Tax Act, 1961 were issued to the above mentioned parties from whom the assessee has shown purchases. However, all the notices have been returned back by the postal authorities unserved. Hence, the assessee, vide order sheet noting dt. 24.2.2015, was given opportunity to produce the above parties along with copy of Form No.704, copy of 'J1 & J2' filed by the above parties and he was also asked to show cause why the above purchases should not be disallowed and added back to its total income. However, till date the assessee has neither not able to produce any of these parties nor furnished the details called for. 4.5 Perusal of the details filed and after discussion, following facts have emerged, which prove that the purchases made by the assessee from the said tainted dealers are not genuine- 1) The genuineness of above purchases cannot be verified as the assessee is unable to produce the said dealers/parties. 2) No quantity-wise stock details have been furnished, also no proof of transportation of the material purchased has been given. 3) The assessee company is not keeping day-to-day stock register for raw materials, finished goods, manufacturing a/c. Hence it is not possible to identify, match & co-relates the corresponding consumption/sales of the items purchased from the said tainted dealers.
5 & CO 191/Mum/2017. M/s.Jostars Orogotech Private Limited. 4) The contention of the assessee that the payment were made by account payee cheque is not acceptable as it is not a fool proof method of substantiating the assessee's claim and is not sufficient to establish the genuineness of the purchases. Reliance is placed on Kachwal Gems Vs. Jt CIT (2007) 288 ITR 10 (SC). 5) It is well-settled law that strict rules of evidence do not apply to IT. Act and the real test with regard to genuineness of the transaction is 'Preponderance of Probabilities' and not 'Beyond reasonable doubt'. Reliance is placed on C. Vasantlal & Co. Vs. C1T(1962) 45 ITR 206 (SC), Chaturbhuj Panauj AIR 1969 (SC) and Sumati Dayal Vs. CIT (1995) 214 ITR 801 (SC). One has to consider the totality of facts, surrounding circumstances and human probability for arriving at a conclusion as held in CIT Vs. Durga Prasad 82 ITR 540 (SC) and Sumati Daya Vs CIT (1995) 214 ITR 801(SC). 6) The purchases from Hawala operator falls within the ambit of the term colourable devices' and the Hon'ble Supreme Court observed in the case of McDowell & Co. Ltd. Vs. CTO 154 ITR 148 that "tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertainment the belief that it is honourable to avoid the payment of tax by resorting to dubious method. It is obligation of every citizen to pay the taxes honestly without resorting to subterfuge." 4.6 The Sales Tax Department made a finding and uploaded on its website the name of entities which are involved in giving accommodation entries. As far as the independent enquiries in the above mentioned case conducted by the Sales Tax Department are concerned, the reports of the Sales Tax Department, which were given after conducting enquiries, indicates that either in their statement recorded in front of Sales Tax Authorities, the parties in question have clearly stated that they have not done any business activities and were involved merely in providing accommodation entries, though on record they show themselves as seller, trader or resellers or some of 6 & CO 191/Mum/2017. M/s.Jostars Orogotech Private Limited. the aforesaid parties were not available at the given premises. Some of the parties have confirmed that they have not maintained even books of account and bogus MVAT invoices were issued without actual sale/purchase transaction. In certain cases, though the Hawala parties have collected VAT they were not deposited into the Govt. Treasury. These Hawala parties are floating countless firms / concerns under numerous names. All these Hawala dealers were declared by the Sales Tax Department as 'Suspicious', 'bogus', 'Hawala' dealers. 4.7 It is settled law that onus is on the assessee to prove the genuineness of any expenditure which is claimed as deduction in computing its taxable income. Therefore, the onus, in the instant case, squarely lay on the assessee to prove the genuineness of the purchases which is shown to have been made from the parties which have been held to be bogus by the government authorities. It was incumbent on the assessee to prove that the suppliers were genuine suppliers and they really supplied material to the assessee and the assessee really made payments by cheques, to these very parties and none else. Such a burden had to be discharged by the assessee with very strong and clinching evidence. No serious efforts were made by the assessee to discharge such burden of proving the genuineness of the transactions with these parties by producing them before the undersigned. Though in some instances, the assessee has shown payment by cheque, but this is also not a fool proof method of substantiating the assessee's claim and is not sufficient to establish the genuineness of the purchases [reliance is placed on Kachwal Gems Vs. Jt. CIT (supra)] 4.8 The assessee has failed to produce any of the suppliers before the undersigned in spite of opportunity being granted. It is unimaginable that all the suppliers suddenly vanished from the scene soon after the enquiries were started by the undersigned. 4.9 In view of the detailed findings discussed above, it is held that the assessee has failed to establish the genuineness of the purchases shown to have made from the above mentioned parties. The assessee has not given any evidence which leads
7 & CO 191/Mum/2017. M/s.Jostars Orogotech Private Limited. to conclusion that there were actual purchases from above mentioned parties and that these parties actually exist. The only inescapable conclusion that can be drawn from above is that the purchase from the above parties is bogus and not genuine. Hon'ble Delhi High Court in the case of CIT Vs. La Medica 117 Taxman 628 (2001) has held that once it is accepted that the supplies were not made by the bogus party to whom the payments were alleged to have been made, the question whether the purchases were made from some other source ought not to have weighted with the Tribunal as a factor in favour of the assessee. In light of the above exercise and conclusions, I am not satisfied with the submissions given by the assessee. From the above transactions, I am satisfied that the assessee has intentionally inflated the purchases to reduce his taxable income. This has been done by only showing the quantum of purchases in rupees and not the units of purchases which would otherwise clearly establish the matching aspect of number of units purchased with number of units sold with individual purchases and sales cost thereof. Thus, the above transactions clearly establish mens rea on the- part of the assessee.”
Against the above order, assessee appealed before the learned CIT(A)
Learned CIT(A) put the onus on the Assessing Officer and held that the Assessing Officer has not brought on record relevant material to prove the purchases as bogus. He also mentioned a list of orders and accordingly deleted the addition.
We may gainfully refer to the order of learned CIT(A) as under:-
“It is seen that A.O. has erred on the facts of the case in making addition of Rs. 1,67,26,325/- on account of bogus purchases. The case has been reopened on the basis of information
8 & CO 191/Mum/2017. M/s.Jostars Orogotech Private Limited. received from DGIT (Inv) and Maharashtra Sales Tax Department. However, during the course of appellate hearing, it is seen that the appellant has submitted all ledger accounts of the concerned parties, sale and purchase bills, delivery challans, details of transportation, the supporting vouchers and copy of bank statements. Nothing has been brought out on record by the A.O. to prove that the purchases are bogus. The A.O. is also ignoring the fact that corresponding sales have been reflected in the books and A.O. has not negated this finding. Reliance is placed on the following judicial decisions of Hon. Apex Court, Hon. Gujarat High Court, Hon. Mumbai High Court and Hon. Mumbai IT AT wherein the Hon. High Courts, Hon. IT AT and Hon. Supreme Court has deleted the additions in other cases of bogus purchases :
1. 1. Munjal Sales Corpn Vs CIT (2008) 168 Taxman 43 (SC) 2. CIT Vs Reliance Utilities & Power Ltd. (2009) 178 Taxman 135 (Bom) 3. Yatish Trading Co. (P) Ltd. Vs ACIT (2011) 129 ITD 237/9 taxmann.com 164 (Mum) 4. ITO Vs Strides Arcolab Ltd. (2012) 138 ITD 323/24 taxmann.com 89(Mum) 5. Morgan Stanley India Securities P. Ltd. Vs ACIT in ITA No. 5072/M/2005 ITAT, Mumbai.
6. Four Dimensions Securities (India) Ltd. Vs Addl.CIT in ITA No. 0693/M/2011 ITAT, Mumbai 7. Kodak India (P) Ltd. Vs Addl.CIT(IT Appeal no. 7349/Mum/2012 dated 30/4/2013) 8. ACIT 11(2) Vs. Iqbal M. Chagala, Palloni Mansion ITAno. 877/Mum/2013, ITAT, Mumbai 9. Hon. Mumbai High Court decision in the case of Babulal C. Borana Vs ITO (2006) 282 ITR 251.
10. Hon. Gujarat High Court decision in case of CIT Vs M.K. Bros (1987) 163 ITR 249 11. Hon. Gujarat High Court decision in case of CIT Vs Nangalia Fabrics P. Ltd. (2014) 220 Taxman 17 9 & CO 191/Mum/2017. M/s.Jostars Orogotech Private Limited.
12. Hon. Mumbai ITAT judgment dated 17.6.2016 in the case of M/s. Om Shree International Vs ACIT in ITA No. 3304/M/2014 and ITA No. 4575/M/2012.
Kishanchand Chelaram Vs. CIT-125 ITR 713-SC 14. H.R. Mehta Vs ACIT in ITA No.58 of 2001 (Bom) 15. CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. [372 ITR 619 (Bom)2015] 16. ACIT Vs. Ramila Pravin Shah (ITA No.5246/Mum/2013) 17. ACIT Vs.Tristar Jewellery Exports Pvt. Ltd. (ITA No.7593/Mum/2011) 18. ITO Vs. Deepak Popatlal Gala (ITA No.5920/Mum/2013 and ITA No.6203/Mum/2013) 19. DCIT Vs.Rajiv G.Kalathil (ITA No.6727/Mum/2012/RGR 20. Ramesh Kumar & Co. Vs. ACIT in ITA No.2959/MUM/2014 dt.28.11.2014.
Shri.Ganpatraj A.Sanghavi Vs. ACIT in ITA No.2826/Mum/2013 dt.5.11.2014.
West Coast Paper Mills Vs.JCIT[100 TT] 833(Mum)] 23. ITO Vs.A.C Export[13 DTR 98(Mum)].
Unitex Products [22 SOT 429(Mum)].
Teletronics Dealing System Pvt. Ltd. [53 Taxmann.com20(Mum)].
Free India Assurance Services Ltd. Vs. DCIT(132 ITD 60) Mumbai Tribunal.
Balaji Textiles Industries Pvt. Ltd.[49 ITD 177 (Mum).] Therefore, since the facts and circumstances of the appellant’s case here is identical to the abovementioned judicial orders, Grounds of appeal No.2 to 4 are allowed.”
Against the above order, Revenue has filed appeal and assessee has filed cross objection.
We have heard both the Counsel and perused the records. We find that credible and cogent information was received in this case by the assessing officer that certain accommodation entry provider/bogus suppliers
10 & CO 191/Mum/2017. M/s.Jostars Orogotech Private Limited. were being used by certain parties to obtained bogus bills, assessee was found to have taken accommodation entry/bogus purchase bills during the concerned assessment year from different parties. Based upon this information assessment was reopened. The creditability of information relating to reopening remains un-assailed. In such factual scenario the Assessing Officer has made the necessary enquiry. The issue of notice to all the 11 parties have returned unserved. Assessee has not been able to provide any confirmation from any of the parties. In this factual scenario it is amply clear that assessee has obtained bogus purchase bills. Mere preparation of documents for purchases cannot controvert overwhelming evidence that the provider of these bills are bogus and non-existent.
The Sales Tax Department in its enquiry have found that parties to be providing bogus accommodation entries. The Assessing Officer also issued notices to these parties at the addresses provided by the assessee. All these notices have returned unserved. Assessee has not been able to produce any of the parties. The assessing officer has noted that there is no cogent evidence of the provision of goods. Neither the assessee has been able to produce any confirmation from these parties. In such circumstances, there is no doubt that these parties are non-existent. We find it further strange that assessee wants the Revenue to produce assessee’s own venders, whom the assessee could not produce. The purchase bills from these non-existent / bogus parties cannot be taken as cogent evidence of purchases. In light of the overwhelming evidence the revenue authorities cannot put upon blinkers and accept these purchases as genuine. This proposition is duly supported by Hon’ble Apex Court decision in the case of Sumati Dayal 214 ITR 801 and 11 & CO 191/Mum/2017. M/s.Jostars Orogotech Private Limited. Durga Prasad More 82 ITR 540. In the present case the assessee wants that the unassailable fact that the suppliers are non-existent and thus bogus should be ignored and only the documents being produced should be considered. This proposition is totally unsustainable in light of above Apex Court decisions.
13. Hence we find that learned CIT(A)’s observation that Assessing Officer has not made proper enquiry is totally incorrect. Further, learned CIT(A) has referred to a list of orders without discussing anything about the contents. Learned Counsel of the assessee has also referred to them without making any discussion about the contents therefrom. Furthermore, we note that learned Counsel of the assessee has placed reliance on a couple of Tribunal decision. But in the light of Hon’ble Apex Court decision and Hon’ble High Court’s decision referred hereinbelow, we are following the precedent from Hon’ble High Court.
In these circumstances learned departmental representative has referred to Hon’ble Gujarat High Court decision in the case of Apex Appeal No. 240 of 2003 in the case of N K Industries vs Dy CIT, order dated 20.06.2016, wherein hundred percent of the bogus purchases was held to be added in the hands of the assessee and tribunals restriction of the addition to 25% of the bogus purchases was set aside. It was expounded that when purchase bills have been found to be bogus 100% disallowance was required. The special leave petition against this order along with others has been dismissed by the Hon’ble Apex Court vide order dated 16.1.2017.
We further note that Hon’ble Rajasthan High Court in the case of CIT Jaipur v. M/s.Shruti Gems in vide order dated 23.05.2017 has inter alia referred to the decision of Hon’ble Rajasthan High Court in ITA No.234/2008 in case of CIT Jaipur v. Aditya Gems for the following decision:-
Considering the law declared by the Supreme Court in the case of Vijay Proteins Ltd. Vs. Commissioner of Income Tax, Special Leave to Appeal (C) No.8956/2015 decided on 06.04.2015 by the Supreme Court has dismissed the SLP confined the order dated 09.12.2014 passed by the Gujarat High Court and other decisions of the High Court of Gujarat in the case of Sanjay Oilcake Industries Vs. Commissioner of Income Tax (2009) 316 ITR 274 (Guj) and N.K. Industries Ltd. Vs. Dy. C.I.T, Tax Appeal No.240/2003 decided on 20.06.2016, the parties are bound by the principle of law pronounced in the aforesaid three judgments.
We further find that Hon’ble jurisdictional High Court in the case of Niraj Eximp Enterprises has held that when sales are not doubted 100% disallowance for bogus purchases is not sustainable. In that case the assessee has made sales to Government Departments. Hence, the ratio from the decision is not fully applicable on the facts of the case.
In the background of aforesaid discussion and precedents, in our considered opinion, the facts and circumstances of the case clearly prove that assessee has booked bogus purchases. The assessee has made purchase from grey market. Making purchases from the grey market gives the assessee selling on account of non-payment of tax and others at the expense of the exchequer. In such circumstances, following the precedent from Hon’ble Gujarat High Court decision in the case of Simit P. Sheth
13 & CO 191/Mum/2017. M/s.Jostars Orogotech Private Limited. (2013) 356 ITR 451, we are of the considered opinion that 12.5% disallowance in this case would serve the interest of justice. Accordingly, we modify the order of the learned CIT(A) and hold that disallowance in this case should be restricted to 12.5% of the bogus purchases.
In the result, this appeal by the Revenue stands partly allowed and cross objection by the assessee stands dismissed.