ITO, WARD - 8(1), , KOLKATA vs. M/S. AAR BEE MACHINERIES PVT. LTD., , KOLKATA

order

: February 19th, 2020 ORDER

Per J. Sudhakar Reddy, AM:

Assessment Year: 2011-12 M/s. Aar Bee Machineries Pvt. Ltd. 6. The brief facts related to the assessee are given below:

M/s. Aar Bee Machineries Pvt. Ltd. is a company incorporated under the Companies Act, 1956 in the year 1982. The primary business of the company has been production and sale of tea machinery items & its parts. The company has been performing at decent levels & has attained goodwill and credentials of its own in the market over the years.

7. The facts as submitted by the assessee relevant to the issue on hand at page 8 of the CIT(A) order is extracted for ready reference:

“This ground of appeal is regarding disallowance of supervision charges paid by the appellant of Rs.32,38,9552/-. It is observed that during the previous year the appellant has paid supervision charges to one company namely M/s. Spring Vincom Pvt. Ltd. The Assessing Officer in the assessment order has stated that as per the enquiry report of DDIT(Inv.), unit-3(1), Kol the said company was engaged in providing accommodation entry in the form of bogus billing. Accordingly he treated the supervision charges paid as bogus expenditure and disallowed the sum of Rs.32,38,9552/-. The basic facts of the case are that the appellant is engaged in the production and sale of tea machinery items and spare parts. During the previous year a contract was signed by the appellant company with M/s. Mitsubishi Corporation India Pvt. Ltd. (MCIPL) for performing the duty of a liasioning agent with respect to the sale of purified terephthalic Acid to M/s. Dhunseri Petrochem Ltd. The appellant further subcontracted the said work to one M/s. Spring Vincom Pvt. Ltd. on a back to back basis and in the process a certain amount of commission was retained by them. As per the agreement signed with M/s. Spring Vincom Pvt. Ltd. all the services to M/s. MCIPL was to be performed by them. It was also agreed that the payment to M/s. Spring Vincom Pvt. Ltd. would only be released on receipt of the inward payment from M/s. MCIPL. In the said transaction the appellant company was merely and intermediary for which it was entitled to a small profit margin of around 2-3%. The contractual stipulation being that all liasioning work was to be performed by Spring Vincom Pvt. Ltd. The Assessing Officer has made the disallowance relying on the report of the investigation wing that M/s. Spring Vincom Pvt. Ltd. was only an accommodation entry provider and that no services have been performed by them.”

8. The ld. CIT(A) summarized the case of the assessee as follows:

“The case of the appellant can be summarized as follows:

1. 1. When the payment received for services performed has not been doubted then the payment made to M/s. Spring Vincom Pvt. Ltd. for services received should also not be doubted. This is because M/s. Spring Vincom Pvt. Ltd. rendered the services directly to M/s. MCIPL and the appellant had no active role in it.

2. The Assessing Officer has relied on the report of investigation wing and a copy of the said report was not been furnished to them.

3. The investigation report is based on the statement of the Director, Shri Sumit Sharma which was recorded on 10/03/2016. The matter relates to assessment year 2011-12 and 2012-13. It has been argued that the statement has been given by a Director, who was not occupying the said position when the transactions took place. How can such a statement be the sole basis of the disallowance.

4. A copy of the statement of Shri Sumit Sharma was not given to them and the opportunity to cross examine him was also not given to them.

5. There is no tangible evidence that no services were rendered by M/s. Spring Vincom Pvt. Ltd.

6. Statement of a person who was not the Director of M/s. Spring Vincom Pvt. Ltd. has been relied upon however there is no evidence to show that the money has been routed back to the appellant. No action or adverse inference has been drawn in the case of the ultimate beneficiary of the transaction i.e. M/s. MCIPL.

Assessment Year: 2011-12 M/s. Aar Bee Machineries Pvt. Ltd. 7. As the whole scheme was a back to back contract for supervision charges then if the payment has to be treated as bogus then the receipt should also be treated as bogus.” 9. The ld. CIT(A) at page 9 held as follows:

In this case it is observed that the appellant has received supervision charges from M/s. MCIPL of Rs.3,37,52,892/-. The appellant has further paid supervision charges to M/s. Spring Vincom Pvt. Ltd. of Rs.3,23,89,552/-. This payment is also on account of the contractual obligation. Therefore it is observed that in the entire transaction, entered back to back with both parties, the appellant company has made a profit of Rs. 13,63,340/-. The Assessing Officer has stated that M/s. Spring Vincom Pvt. Ltd. has not performed any services and has disallowed the payment of supervision charges made by the appellant company. The order of the Assessing Officer is silent with respect to the supervision charges received by the appellant company. Any transaction has to be considered in its totality. The Assessing Officer has considered only one limb of the transaction i.e. the expense part. He has treated the payment made by the appellant as bogus. However, to arrive at a logical conclusion, the entire gamut of the transaction has to be seen. In this case the Assessing Officer has ignored that the appellant has also received supervision charges. The services were required to be performed for M/s. MCIPL. The said company was the ultimate beneficiary of the transaction and the appellant company is merely acting as an intermediary between M/s. MCIPL and M/s. Spring Vincom Pvt. Ltd. If the contention of the Assessing Officer is to be accepted then the entire transaction of supervision charges paid and received has to be considered as a bogus transaction. Any evidence has to be viewed in totality otherwise it would lead to perplexing results. The Appellant has disclosed a profit of Rs. 13,63,340/- from the total back to back transaction of receiving the contract and subsequently assigning it to M/s. Spring Vincom Pvt. Ltd. For the sake of argument, assuming that the report of the investigation wing is correct, and no services have been performed then, both, the receipt and payment would become mere accommodation entries. The Assessing Officer has considered only the payment aspect of the transaction as bogus and he has disregarded the receipt amount completely. The revenue received by the appellant has been treated by him to be genuine however the expenditure made by the appellant has been treated as bogus. Further the ultimate beneficiary in this case is M/s. MCIPL and it has been stated by the Authorised Representative that the expenses in their hand has most probably not been doubted. The Accounting entries representing the entire matrix of the transaction relating to supervision charges is as follows: Cr. Dr. By Supervision charges received from By Supervision charges paid to M/s. MCIPL Rs.3,37,52,892/-. Spring Vincom Pvt. Ltd. Rs. 3,23,89,552/-. Profit from the transaction: Rs. 13,63,340/- On perusal of the above accounting entries it can be seen that the appellant has not booked any losses on account of the so called accommodation entries as observed by the Assessing Officer in his order. In fact the appellant has made a profit of Rs. 13,63,340/-. It is a well settled legal proposition that there cannot be a sale without any corresponding purchase. To extend the said analogy in this case it can be said that if no services were rendered by M/s. Spring Vincom Pvt. Ltd. then no services were performed by the appellant company for M/s. MCIPL because the duty to give the services had been assigned to M/s. Spring Vincom Pvt. Ltd. If the payment made for services is treated to be bogus then by the same analogy the payment received for services should also be treated as bogus. However in this case the Assessing Officer has only ignored the payment side, and he has accepted the receipt side as genuine. The conclusion, therefore, drawn by him is erroneous. On the proposition that when the sales have not been doubted the purchase cannot be doubted the Authorised Representative has placed reliance on the decision of the jurisdictional tribunal in the case of Shri Puspal Kr. Das, order dated 10/12/2015.

Assessment Year: 2011-12 M/s. Aar Bee Machineries Pvt. Ltd. “As per the report of the Service Tax Department above they have found, from the investigation, that the appellant had rendered liasioning services to M/s. MCIPL. Nothing adverse has been found by them during the course of the investigation in the said matter. In fact the results of their investigations support the case of the appellant. Even if the findings of the Service Tax Department, along with other evidences relied upon by the appellant is ignored and the findings of the investigation wing is taken into consideration then also the basic fact remains that if the transaction has to be treated as bogus then both receipt and payment has to be ignored. One cannot view a part of the evidence in isolation. This was a back to back transaction and the services were required to be performed by M/'s. Spring Vincom Pvt. Ltd. If the director’s statement is to be accepted that no services have been performed in this case, then both the payment and the receipt should be considered as an accommodation entry.”

In the impugned case also it is observed that there was a back to back contract entered into by the appellant with the M/s. MCIPL and the sub-contractor M/s. Spring Vincom Pvt. Ltd. Admittedly appellant did not perform any services and the same was sub-contracted to M/s. Spring Vincom Pvt. Ltd. The only evidence with the Assessing Officer is the report of the investigation wing wherein the Director, Sumit Sharma gave a statement that they had not performed any services and had only given an accommodation entry. The appellant has argued that Shri Sumit Sharma was not a director in the said company when the transactions took place so his statement cannot be relied upon. Even if this argument is ignored, as discussed above, and if the statement has to be relied upon then it has to be implemented to both the limbs of the transaction. In that case both the services rendered and services received would then have to be treated as accommodation entries and both debit and credit entries in the Profit & Loss Account of the appellant, pertaining to supervision charges, would have to be ignored. In such a situation the profit of the appellant will go down by Rs. 1363340/-. However in this case the appellant has admitted to only acting as an intermediary and in the process earning a profit of Rs. 1363340/-. So, in short, for the appellant there is a commission income for acting as an intermediary. Accordingly the profit shown from supervision charges in the case of the appellant of Rs. 1363340/- is accepted and the addition made by the Assessing Officer on account of supervision charges paid of Rs.32389552/- is deleted.

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of (Bogus ourchase) - Certain portion of purchases made by assessee was disallowed - Commissioner Appeals) found that entire disallowance was based on third party information gathered by Investigation Wing of Department, which had not been independently subjected to further verification by Assessing Officer and he had not provided copy of such statements to appellant, thus, denying opportunity of cross examination to appellant, who on other hand, had prima facie discharged initial burden of substantiating purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and fact of payment through cheques, VAT Registration of sellers and their Income-tax Return - He held that purchases made by appellant was acceptable and disallowance was to be deleted -Tribunal dismissed revenue's appeal - High Court affirmed judgments of Commissioner (Appeals) and Tribunal being concurrent factual findings - Whether no substantial question of law arose from impugned order of Tribunal.

Assessment Year: 2011-12 M/s. Aar Bee Machineries Pvt. Ltd. should also be doubted by the AO. This is not done. Thus, we uphold the order of the ld. first appellate authority and dismiss this appeal of the Revenue. 14. In the result, the appeal of the Revenue is dismissed. Kolkata, the 19th February, 2020.