Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCHES “SMC”, MUMBAI
Before: Shri Shamim Yahya
O R D E R This is an appeal by the assessee wherein the assessee is aggrieved by the order of the learned CIT(A) wherein 100% disallowance on account of bogus purchase amounting to Rs.15,93,644.
Brief facts of the case are as under:- 2.1 The Assessing Officer in this case made the impugned addition by holding as under:
“At the outset, it is to mention here that the Maharashtra Sales Tax Department has conducted investigation in the cases of several dealers and beneficiaries and such investigations had unearthed a fraudulent racket involving many hawala dealers and beneficiaries. In this racket, the hawala operators who exist only on paper issue fake bills to the beneficiary concerns and get a commission in return. The beneficiaries, in return, get the . M/s.Sitaram Chemicals. input tax credit from Sales Tax Department. On the materials which are not actually purchased except on paper. The Sales Tax Department has investigated this fraudulent input tax credit indulged by the hawala operators. The beneficiaries have claimed such bogus purchases as expenditure in order to fraudulently claim tax deduction thereby reducing their taxable income. The assessee firm is one of such beneficiaries identified by the Sales Tax Department. In the statements recovered by the Sales Tax authorities, these hawala operators have admitted the fact that the transactions are not genuine. The hawala operators have also submitted affidavits to the Sales Tax Authorities stating that the purchase transactions are only on paper. In some of the cases the bank statements of the hawala parties are also provided. It is clearly seen that the cheques are deposited and cash is withdrawn immediately. In some of the cases it is stated that the bank account was not operated by them but operated by the other persons.
2.2 The aforesaid purchases from the hawala parties are booked by the assessee firm in its books of accounts as expenses. Therefore, the onus to prove the genuineness correctness of the purchase transactions lies with the assessee firm only. Hence, the assessee firm was given an opportunity to prove the genuineness of the transactions made with the aforesaid hawala parties by requiring the assessee firm to furnish the supporting evidences. However, neither anybody attended on the given dates of hearings not the assessee firm furnished any of the required supporting evidences. Further, the assessee firm, vide notice u/s 144 of the IT Act 1961dated 13.09.2013, was asked to explain as to why the aforesaid purchases should not be treated as non-genuine. However, the assessee firm has neither complied with the aforesaid notice u/s 144 of the IT Act 1961 nor has submitted any explanation till this date, which implies that the assessee firm has no explanation to offer and the assessee accepts that the aforesaid purchases are non-genuine.
. M/s.Sitaram Chemicals. 2.3 On the above facts, the assessee firm's claim of expenses on account of purchases from the aforesaid hawala parties amounting to Rs. 15,93,644/- is disallowed and added to the total income of the assessee. Penalty proceedings u/s 271(l)(c) of the IT Act, 1961 are initiated separately for the default committed by the assessee within the meaning to this section for concealing its income or furnishing inaccurate particulars of such income.”
Upon assessee’s appeal, the learned CIT(A) confirmed the objections of the assessee as regards jurisdiction by observing as under:-
“Ground No.1 is directed against the order passed u/s.144 r.w.s. 147 of the Act without providing copies of affidavits and statements of the suppliers and thus depriving the reasonable opportunity and principles of natural justice (i) I have carefully considered the submissions of the appellant, the observations of the AO in the assessment order and the facts of the case.
(ii)In this case, notice u/s.148 was issued and the appellant replied that to treat the original return filed on 22.09.2009 as filed in response to notice issued u/s.l48.Thereafter, notice u/s.143(2) was issued on 12.06.2013 and the assessment order was passed on 27,09.2013, In the assessment proceedings, the AO gave three opportunities to file the details in support of the purchases made from bogus parties, but failed to do.
In the appellate proceedings, the appellant filed a paper book consisting of documents in support of its claim of purchases, which was not filed before the assessing officer. A remand report was called for from the AO, however, on perusal of the remand report, the aforesaid parties/suppliers did not attend in . M/s.Sitaram Chemicals. response to notice u/s.133(6), therefore, the appellant was asked to produce the parties for cross examination, but failed to do so. In view of the above stated facts, the appellant was given opportunity by AO as well as during the appellate proceedings, by remanding the matter to the AO, but the appellant failed to comply, hence, this ground of appeal of the appellant is dismissed.”
4. As regards the merits of the addition, the learned CIT(A) confirmed the same holding as under:-
(a) First of all, adequate opportunity was given to the appellant at the time of assessment proceedings, in fact, the AO has issued show cause u/s 144 dated 13.09.2013, served on 13.09.2013 and to attend on 25.09.2013, but failed to attend on the appointed date. Again, during appellate proceedings, on the basis of new evidence filed and in view of Rule 46A of the I.Tax Rules, the matter was remanded to AO to conduct verification, which could not be done earlier by the AO, however, as discussed in Para 6.0(A)(i) & (ii) above, the appellant has not complied and not even attempted to file details, if not produce the suppliers, therefore, the appellant could not proof the genuineness of the transaction at the first stage only, b) The appellant has not co-operated with the AO at the time of assessment proceedings as well as in remand proceedings since the details called for by the AO has not been furnished. In the grounds of appeal, the appellant has stated that the statement or affidavits of the suppliers were not provided, whereas in the appellate proceedings, the appellant is silent on this issue, therefore, it is a known fact that the so-called suppliers are bogus. c) Basically, the exchange of information amongst various enforcing agencies includes Sales tax Department, Customs and Excise, Economic Offence wing, Enforcement Directorate ,
. M/s.Sitaram Chemicals. CBI, RBI, PSD Banks etc which comes under the umbrella of Regional Economic Intelligence Committee(REIC), a Committee recognized by the Govt. of India.Therefore, the information received from sales tax department cannot be ignored as it has evidentiary values. It is a known fact that information cannot necessarily be a concrete one, therefore, the requirement is primary/basic information, and in the course of assessment proceedings, the appellant failed to prove the genuineness of the purchases in the assessment proceedings as well as remand proceedings. d) There are various reasons as to why the Hawala dealers were absconding and also not appeared before the Assessing Officer for cross examination during assessment proceedings, whereas in other purchases no such anomaly have been found by the Assessing Officer, At least, the appellant could have produced copy of return filed along with P & L a/c and B/S, bank statement of Hawala dealer before Assessing Officer, but failed to do so. By simply issuing cheques for payments and purchase invoices does not mean that the genuineness is proved, but the overall circumstances requires to proof that the expenses are genuine. Therefore, in principle the judgment of Hon'ble SC is relied upon i.e. in the case of Lachminarayan Madan Lal vs. CIT 86 ITR 439(SC), wherein held that even if there is an agreement between assessee and agents for payment, that does not bind Income tax officer to allow the payment was made exclusively and wholly for the purposes of the business. In the case of the appellant, expenditure (purchase) claimed to have been incurred; initial burden is on the appellant to prove that purchases were genuine. Reliance is placed on the decision in the case of CTT vs. Chandra Vilas Hotel (1987) 164 ITR 102(Guj). This onus has not beer; discharged by the appellant. e) It is seen that the appellant has not maintained stock register, therefore, the appellant failed to give the quantitative details with regard to opening stock, purchases, consumption of raw materials, sales and closing stock, And also, quantitative details with regard to consumption of raw materials are not . M/s.Sitaram Chemicals. verifiable. Hence, the purchases and sales cannot be co-related with the quantitative details. f) The case laws relied upon by the appellant are not similar to the facts of the case of the appellant, therefore, It is not applicable in the case of the appellant. Considering the totality of the facts of the case, I am of the considered opinion to disallow 100% as bogus / inflated purchases made from unverifiable / hawala dealer. Accordingly, the book result of the appellant is rejected u/s 145(3) of the Act. The disallowance @ 100% of unverifiable purchases from hawala dealers had been upheld in the following cases: (1) CIT vs. La Medica (2001) 250 ITR 575 (Del.) (2) Sri. Ganesh Rice Mills v. CIT (2007) 294 ITR 316 (All.) (3) Khandelwal Trading Co. v. ACIT (1996) 55 TTJ (JP) 261. (4) Swetambar Steels Ltd. v. ITO 707/1075/1262/1263/JDC2002) ITAT (Ahd). Also upheld up to Supreme Court, (5) Placed reliance in the case of Rucni Developers, ITAT 1B' Bench, . Ahmedabad in ITA Mo. 3348/Ahd/2010 - A.Y,2007-08 & ITA Mo. 1170/Ahd/2014 -A.Y.2007-08, Date of order: 05,06.2015 which held that the appellant failed to established the purchases with corroborative evidences in spite of umpteen opportunities given to It. The appellant has not maintained any quantitative details regarding purchases and consumption of various items used for construction. In view of the above stated facts/ the addition of Rs. 15,93,644/- made by the AO is confirmed as bogus purchases and the same is added to the total income of the appellant. Therefore, the appeal of the appellant on this ground is dismissed.”
Against this order, assessee has filed appeal before the ITAT. I have heard the learned Departmental Representative and perused the records. An adjournment petition has been filed on behalf of the assessee. However, the . M/s.Sitaram Chemicals. issue of bogus purchases has already been dealt with by the Mumbai Tribunal in a number of cases, hence the petition has been rejected.
Upon careful consideration, I find that the grounds raised by the assessee as regards reopening and lack of opportunity have no cogency. Assessee has been granted adequate opportunity by the Assessing Officer as well as by the learned CIT(A) in remand proceedings. The assessee has not at all been able to give cogent evidence that the concerned purchase were not bogus.
As regards the reopening of the assessee, on a careful consideration, I note that in this case information was received by the Assessing Officer from DGIT Investigation (Mumbai) there are some parties who are engaged in the hawala transactions and are also involved in issuing bogus purchase bills for sale of material without delivery of goods, which information was based on information received by Revenue from Maharashtra Sales Tax Authority. Information was received that the assessee was beneficiary of hawala accommodation entries from entry providers by way of bogus purchase. The accommodation entry provider has deposed and admitted before the Maharashtra Sales Tax Authority vide statement/ affidavit that they were engaged in providing bogus accommodation entries wherein bogus sale bills were issued without delivery of goods, in consideration for commission. These, accommodation entry providers, on receipt of cheques from parties against bogus bills for sale of material, later on withdrew cash from their bank accounts which was returned to beneficiaries of bogus bills after deduction of their agreed commission. The Assessee was stated to be one of the beneficiaries of these bogus entries of sale of material from hawala entry
. M/s.Sitaram Chemicals. operators in favour of the assessee wherein the assessee made alleged bogus purchases through these bogus bills issued by hawala entry providers in favour of the assessee. These dealers were surveyed by the Sales Tax Investigation Department whereby the directors of these dealers have admitted in a deposition vide statements/affidavit made before the Sales Tax Department that they were involved in. issuing bogus purchase bills without delivery of any material. There is a list of such parties wherein the assessee is stated to be beneficiary of bogus purchase bills.
From the above, I find that tangible and cogent incriminating material were received by the AO which clearly showed that the assessee was beneficiary of bogus purchase entries from bogus entry providers which formed the reason to believe by the AO that income has escaped assessment. The information so received by the AO has live link with reason to believe that income has escaped assessment. On these incriminating tangible material information, assessment was reopened. At this stage there has to be prima facie belief based on some tangible and material information about escapement of income and the same is not required to be proved to the guilt. In this regard, I refer to the decision of the Hon'ble Apex Court in the case of CIT(A) Vs. Rajesh Jhaveri Stock Brokers P. Ltd, 291 ITR 500:-
"Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to lax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the AO has cause or justification to know or suppose (hat income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be . M/s.Sitaram Chemicals. read to mean that the AO should have finally ascertained the fact by legal statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Managnese Ore Co, ltd. v. ITO(1991) 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the AO is within the realm of subjective satisfaction ITO v. Selected Dalurband Coal Co, (P.) Ltd. (1996) 217 ITR 597 (Supreme Court): Raymond Woollen Mills Ltd. v. ITO (1999) 236 ITR 34 (Supreme Court).”
The above discussion and precedent from Apex Court fully justify the validity of reopening in this case.
Up on careful consideration of the facts of the case, I find that overwhelming evidence have been referred by the authorities below that the impugned purchases are bogus. There is no evidence of the actual movement of the goods under dispute. In these circumstances learned Departmental Representative has referred to Hon’ble Gujarat High Court decision in the case of Tax Appeal No 240 of 2003 in the case of N K Industries vs Dy CIT , order dated 20.06.2016, wherein 100% of the bogus purchases will held to be added in the hands of the assessee and tribunals
. M/s.Sitaram Chemicals. restriction of the addition to 25% of the bogus purchases was set aside. 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 as under:-
“Delay condoned. The Special Leave Petitions are dismissed. Pending application(s) if any stands disposed of accordingly.”
I find that dismissal of Special Leave Petition by the Hon’ble Apex Court by a simple non-speaking order does not merge order of the Hon’ble High Court with that of the Hon’ble Supreme Court. Furthermore the addition / disallowance for bogus purchases depend upon the facts of each case.
I find that in this case the sales have not been doubted. It is settled law that when sales are not doubted 100% disallowance for bogus purchase cannot be done. This proposition finds support from the Hon’ble Gujarat High Court in the same combined order as mentioned above in case of therein. This proposition is further supported from Hon’ble jurisdictional High Court decision in the case of Nikunj Eximp Enterprises. However the facts of the present case indicate that assessee has made purchase from the grey market. Making purchase through the grey market gives the assessee savings on account of non-payment of tax and others at the expense of the exchequer. In similar situation on the facts and circumstance of the case a disallowance of 12.5% of the bogus purchase has been considered to meet the ends of justice in a number of cases at the Mumbai Tribunal following Hon’ble Gujarat High Court decision in the case of Simit P.Seth. Accordingly, I hold that the disallowance in this case should be restricted to 12.5% of the bogus purchase.
In the result, this appeal by the assessee stands partly allowed.
Order pronounced on this 06th day of July, 2017. Sd/- (Shamim Yahya) ACCOUNTANT MEMBER मुंबई Mumbai; �दनांक Dated : 06th July, 2017. Devdas* आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A), Mumbai 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, True copy