M/S. BIO- VET INDUSTRIES,MUMBAI vs. THE ACIT 25(1), MUMBAI

These two appeals, filed by the assessee, being and ITA No. 3084/Mum/2009 both for assessment year 1998-99, are directed against two separate appellate orders dated 30-05-2007 and 02-04-2009 respectively both passed by the learned Commissioner of Income Tax (Appeals)- XXV, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 1998-99, the appellate proceedings before the learned CIT(A) arising from two separate orders dated 28-02-2006 and 28-03-2008 ITA No. 5327/Mum/2007 & 2 respectively passed by the learned Assessing Officer (hereinafter called “the AO”) u/s 143 (3) and second order u/s 271(1)(c) of the Income-tax Act,1961 (Hereinafter called “the Act”) both for assessment year 1998-99.

First, we shall take up the quantum appeal of the assessee in for assessment year 1998-99 whereby the following grounds of appeal are raised by the assessee in the memo of the appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”).

Brief facts of the case are that the assessment order u/s 143(3) of the Act was passed by the A.O. on 28th February, 2006 wherein additions to the income were made on account of bogus purchases and hawala commissions, based upon the information received from the I.T.O., Ward 9(3)(2) who completed assessment in the case of M/s Subheksha Exports Ltd. for assessment year 1998-99. It was stated in the intimation received by the AO from ITO, Ward 9(3)(2), Mumbai that in the course of assessment proceedings of M/s Subheksha Exports Ltd., Shri Chandrakant Thakker, Director of the said company M/s Subheksha Exports Ltd.,, filed an affidavit admitting that & 3 ITA No. 4084/Mum/2009 he was issuing accommodation bills for pharmaceutical raw material to interested parties and payment received against the bills issued was returned to the party after deducting commission for the services rendered. A list of parties to whom the accommodation bills were issued by Subheksha Exports Limited was also furnished by Shri Chandrakant Thakker and in the list, the name of the assessee was also there and the accommodation bills for Rs. 4,31,100/- was stated to be issued by the said Subheksha Exports Limited to the assessee. On being asked, the assessee submitted that it had made purchases of Rs. 2,06,100/- from Subheksha Exports Limited vide bill dated 10-12-1997 and 24-12-1997 wherein the raw material purchased was 50 Kg. Calciam-D. Penthonate USP and 60 kg of Riboflavine Feed Grade which was used in the manufacture of Spectro BE and Spectro MIX. Thus, the assessee had admitted purchases to the tune of Rs. 2,06,100/- only from M/s Subheksha Exports Ltd. as against sale of Rs. 4,31,100/- shown by M/s Subheksha Exports Ltd. to the assessee. The A.O. issued summons on 23- 02-2006 to Subheksha Exports Limited which were served through affixture by Inspector as M/s Subheksha Exports Ltd. have left the place and their whereabouts were not known to the local parties. The hearing was fixed for 27-02-2006 which was not attended by anybody on behalf of Subheksha Exports Limited. The A.O. observed that in the affidavit filed by Shri Chandrakant Thakker , it has been admitted that the company only issued hawala/accommodation bills and there was no actual delivery of goods. The A.O. observed that the assessee obtained hawala bills from Subheksha Exports Limited to the tune of Rs. 4,31,000/- against which payment of Rs. 2,06,100 was made as purchases to the tune of Rs. 2,06,100/- were accounted in the books of accounts of Subhaksha Exports Limited , while the balance payment of Rs. 2,25,000/- was allegedly made outside the books of accounts of the assessee and therefore the purchases to the tune of Rs. 2,25,000/- were not accounted for in the books of accounts of the assessee, which is required to be added to the income of the assessee u/s 69 of the Act ITA No. 5327/Mum/2007 & 4 ITA No. 4084/Mum/2009 of 1961 as ‘income from other sources’ and the assessee profits were required to be increased by Rs. 47,025/- i.e. GP @20.90% on Rs. 2,25,000/- as income under the head ‘ income from business’, vide assessment order dated 28-02- 2006 passed u/s 143(3) of the Act. The AO also made additions to the income of the assessee to the tune of Rs. 2,06,100/- towards bogus purchases which were added to income under the head ‘income from business’ and commission payment to Subshaksha Exports Limited for services rendered to the assessee paid outside the books were estimated @ 5% on total purchases from Subheksha Exports Limited and additions were made to the tune of Rs. 21,555/- as income of the assessee under the head ‘income from other sources’ vide assessment order dated 28-02-2006 passed u/s 143(3) of the Act .

Aggrieved by the rejection of rectification application u/s 154 of the Act by the AO vide orders dated 09-02-2007, the assessee filed appeal before the ld. CIT(A) , which appeal of the assessee was rejected by the ld. CIT(A) wherein the learned CIT(A) held that both the additions made on account of bogus/unexplained purchases outside books and unexplained commissions falls u/s 69C of the Act as both these items are debited to Profit and Loss Account but keeping in view the Proviso to section 69C of the Act , the deduction u/s 80IB of the Act cannot be allowed. The learned CIT(A) referred to Proviso to Section 69C of the Act which reads as under:-

Aggrieved by the appellate order dated 30-05-2007 passed by the ld. CIT(A), the assessee is in appeal before the tribunal.

None appeared on behalf of the assessee, hence, we proceed to dispose of the appeal after hearing the ld. D.R. and material placed on record.

The ld. D.R. relied upon the order of the A.O. and the ld. CIT(A). It is submitted that the assessee had made purchases of Rs. 4,31,100/- from M/s Subhaksha Exports Ltd. which are bogus purchases being accommodation/hawala entries from Subheksha Exports Limited who was engaged in providing bogus accommodation /hawala entries wherein only bogus bills were issued by said Subhaksha Exports Limited and no delivery of material took place . The assessee did not accounted for purchases to the tune of Rs. 2,25,000/- in its books of accounts as also no payments were reflected in the books of the assessee towards as said purchases were made outside the books of accounts and additions were made u/s 69 of the Act under the head ‘income from other sources’. It was stated that further additions of Rs. 21,555/- was made towards commission paid by the assessee @5% of total purchases of Rs. 4,31,100/- from Subhaksha Exports Limited towards services for arranging bogus/accommodation hawala bills which were also made outside books of accounts , and both the additions were made under the head ‘income from other sources’ . Thus, additions have been made u/s 69 of the Act which is based upon the affidavit given by Shri Chandrakant Thakker, director of the company Subheksha Exports Limited that the said Subheksha Exports Limited is engaged in providing bogus/hawala accommodation bills . It is submitted that section 154 of the & 7 ITA No. 4084/Mum/2009 Act has limited mandate and only mistake apparent from records can be rectified and it was submitted that the AO while giving effect to the appellate order of the learned CIT(A) who sustained the additions denied the benefit of deduction u/s 80IB of the Act keeping in view Proviso to Section 69C of the Act.

We have heard ld. D.R. and also perused the material available on record. We have observed that the assessee is engaged in the business of manufacturing of poultry and cattle feeds . We have observed that assessee had dealings with M/s Subheksha Exports. Ltd. and Shri Chandrakant Thakker, Sirector of the said company Subheksha Exports Limited, filed an affidavit admitting that he was issuing accommodation/bogus bills for pharmaceutical raw material to interested parties and payment received against the bills issued was returned to the party after deducting commission for the services rendered. The assessee had made purchases of Rs. 2,06,100/- vide bill dated 10-12-1997 and 24-12-1997 whereby the raw material was purchased and used in the manufacture of Spectro BE and Spectro MIX, which bills of purchases to the tune of Rs. 2,06,100/- were accounted for in the books of accounts of the assessee. Thus, the assessee had admitted purchases of Rs. 2,06,100/- only from M/s Subheksha Exports Ltd. as against sale of Rs. 4,31,100/- shown by M/s Subheksha Exports Ltd. made to the assessee. The A.O. has made addition of Rs. 2,25,000/- u/s 69 of the Act and matter went up the ld. CIT(A) who dismissed the appeal of the assessee. Similarly , additions of Rs. 21,555/- as made by the AO towards commissions @5% paid on total purchases of Rs. 4,31,100/- made from Subheksha Exports Limited for providing services for providing accommodation/bogus bills were also upheld by the learned CIT(A). However, it was directed by learned CIT(A) to the AO to give relief u/s 80IB of the Act of the Act , which was denied by the AO on these afore-stated two additions on the ground that these additions were not income from business of industrial & 8 ITA No. 4084/Mum/2009 undertaking as additions were made under the head ‘income from other sources’. The assessee moved an rectification applications dated 16.11.2006 and 20.11.2006 u/s 154 of the Act, which were rejected by the AO vide orders dated 09-02-2007 on merits as well as on the grounds that Section 154 of the Act has limited application wherein only mistake apparent from records can be rectified . Section 154 of the Act of 1961 as applicable for relevant period is reproduced hereunder:-

In the result, appeal of the assessee in for assessment year 1998-99 is dismissed.

The facts of the case in respect of this appeal is already enumerated above while dealing with the appeal of the assessee in which are not repeated for sake of brevity. This appeal is with respect to the levy of penalty of Rs. 86,296/- u/s 271(1)(c) of the Act, vide orders dated 28-03-2008 passed by the AO u/s 271(1)(c) of the Act which was upheld by learned CIT(A) vide appellate orders dated 02-04-2009 passed by learned CIT(A).

The grounds of appeal raised by the assessee in the memo of appeal filed with tribunal reads as under:-

The assessment for the year 1998-99 was completed on 28th February, 2006 by the AO , whereby the following additions were made to the income of the assessee by the AO in the assessment order:-

The ld. D.R. relied upon the orders of authorities below.On being asked by the bench , learned DR admitted that affidavit of said Mr Chanderkant Thakkar, Director of Subheksha Exports Limited given against the assessee was not confronted to the assessee nor cross examination was allowed to the assessee.

We have heard ld. D.R. and also perused the material available on record. We have observed that the Revenue had made additions based upon the affidavit of Shri Chandrakant Thakker, Director of M/s Subheksha Exports Ltd. whereby Shri Chandrakant Thakker , Director through his affidavit deposed and confirmed that he is engaged in issuing hawala/accommodation bills wherein no delivery of material takes place. It & 13 ITA No. 4084/Mum/2009 was deposed by him in the affidavit that the said company Subheksha Exports Ltd. had issued accommodation/hawala bill for Rs. 4,31,000/- to the asessee against which no material was delivered to the assessee. The assessee disowned the purchases to the tune of Rs. 2,25,000/- as not been entered into by the assessee with said Subheksha Exports Ltd., while purchases to the tune of Rs.2,06,100/- were admitted by the assessee and were duly entered in books of accounts of the assessee against which payment of Rs. 2,06,100/- was also made by assessee by account payee cheque to Subheksha Exports Limited. The affidavit of Shri Chandrakant Thakker was not supplied to the assessee nor cross examination of said Sh Chanderkant Thakkar was allowed to the assessee. The assessee has given an explanation that the assessee has not made purchases of Rs. 2,25,000/- from Subheksha Exports Limited and the payments were alleged by Revenue to be made outside books of accounts which was also denied by the assessee. The additions has been made only on the basis of said affidavit of Shri Chandrakant Thakker and there is no other incriminating material with the Revenue to conclusively prove the alleged purchase of material of Rs. 2,25,000/- by the assessee from Subheksha Exports Ltd. outside books of accounts for which payments were also alleged by Revenue to be made by assessee to Subheksha Exports Ltd. outside books of accounts. The affidavit was not confronted to the assessee nor cross examination was allowed.Further, the commission payment to the tune of Rs. 21,555/- @5% on purchases of Rs. 4,31,100/- for services rendered by Subheksha Exports Limited for arranging accommodation bills alleged to be made by assessee to said Subheksha Exports Ltd. were also made on estimate basis by the AO without any cogent evidences on record, which was also denied by the assessee. No evidence has been brought on record by Revenue as well learned DR that the affidavit of Sh Chanderkant Thakkar was provided to the assessee and he was offered by Revenue for cross examination by assesse nor any other incriminating material is brought on record by learned DR to ITA No. 5327/Mum/2007 & 14 ITA No. 4084/Mum/2009 conclusively prove that the assessee indulged in said alleged transactions out of books. Principles of natural justice are clearly breached as there are no other corroboratory evidence in possession of Revenue to corroborate the affidavit of said Sh. Chanderkant Thakkar , Director of Subheksha Exports Ltd.. The assessee cannot be asked to prove negative, once the assessee denied the alleged transaction and it was all the more incumbent on Revenue to have provided affidavit of Sh Chanderkant Thakkar and also provided cross examination of said Sh Chanderkant Thakkar to the assessee as the Revenue is relying on the said affidavit to prejudice the assessee and the said affidavit incriminating assessee was executed and furnished by said Sh Chanderkant Thakkar at the back of the assessee. Moreover, burden on Revenue under penalty proceedings u/s 271(1)(c) of the Act to fasten the liability on the assessee to have either concealed particulars of income or have furnished inaccurate particulars of income is certainly on a higher pedestrial vis-à-vis assessment proceedings, which in the instant case in our considered view, Revenue is unable to discharge based on factual matrix of the case. Thus, we are of the considered view based on peculiar facts and circumstances of the case keeping in view factual matrix of the case that under these circumstances penalty of Rs. 86,296/ levied by the AO u/s 271(1)(c) of the Act as confirmed by learned CIT(A) in first appeal cannot be sustained and is hereby ordered to be deleted. We order accordingly.

In the result, appeals filed by the assessee in for assessment year 1998-99 is dismissed and the appeal filed by the assessee in ITA No. 3084/Mum/2009 for assessment year 1998-99 is allowed. & 15 ITA No. 4084/Mum/2009

Order pronounced in the open court on 27th February, 2017. आदेश क� घोषणा खुले �यायालय म� �दनांकः 27-02-2017 को क� गई ।