DCIT 11(2)(1), MUMBAI vs. SHAAN LUBE EQUIPMENT P. LTD, THANE

We have heard the ld. Departmental Representative (DR) for the Revenue and ld. Authorized Representative (AR) of assessee and gone through the record of the case. The ld. DR for the Revenue argued that during the financial year relevant to the assessment year under consideration the assessee have shown the purchases from M/s Shivraj Traders and M/s Omkar Trading Co. who were providing accommodation entries as per the Website of Sale-Tax Department, Government of Maharashtra. During the assessment the assessee was asked to furnish the details of purchases consisting of quantity details, stock reconciliation, stock statement, stock register. The assessee failed to provide necessary details and information despite the affording opportunity. It was further argued that the ld. CIT(A) failed to distinguish the fact of assessee’s case with the decisions of M/s Nikunj Exim Enterprises Pvt. Ltd. (25 taxman 384), CIT vs. Bholanath Poly Fab (Pvt) Ltd. (355 ITR 290) and the decision of Mumbai Tribunal in DCIT vs. Rajeev G. Kalathil (ITA No. 6727/Mum/2012). In case of M/s Nikunj Exim Enterprises Pvt. Ltd.(supra) the detailed including quantity detail, stock reconciliation were never produced. In case of CIT vs. Bholanath Poly Fab (Pvt) Ltd. (supra), the quantity details/stock details, octroi receipt were submitted and the Hon’ble Court concluded that the entire receipt were not unaccounted and the profit element embedded therein can be brought to tax. Further in case of Rajeev G. Kalathil(supra), the Tribunal took a view that AO could call the details of Bank Account of the supplier to find out whether there was minimum cash withdrawal from the accounts of supplier. On the other hand, ld. AR of the assessee supported the order of ld. CIT(A). ld. AR of the assessee further argued that the assessee made the genuine purchases from the parties which was treated as a bogus/hawala transaction and the aggregate amount of the purchase from the two parties were disallowed. The disallowance was made on the basis of report of Sale-Tax Department, Government of Maharashtra. The AO has not made any independent enquiry and investigation before making any disallowance. The AO passed the 3 M/s Shaan Lube Equipment Pvt. Ltd. order u/s 144 without giving adequate and sufficient opportunity to the assessee. The assessee brought the facts before the ld. CIT(A). The ld. CIT(A) after considering the submission and the evidence furnished before him restricted 10% of the purchases.

We have considered the rival contention of the parties and gone through the orders of authorities below. The AO while framing the assessee, noticed that assessee made the purchases from M/s Shivraj Traders of Rs. 42,48,733/- and M/s Omkar Trading Co. of Rs. 16,87,810/-. Both the parties were shown in the list of person, who were indulged in providing bogus bills without delivery of goods as per the records of Sales-Tax Department, Government of Maharashtra. The AO issued a notice u/s 142(1) dated 21.01.2013 for explaining and proving the genuinity of the purchases. The assessee filed its reply. The reply of the assessee was not accepted by AO holding that the person who wants to increase his expenses to reduce his total income and approaches the hawala dealer to provide purchase invoices, accept the cheques for which the bill is prepared, the cheques are deposited by hawala dealer in his account. The amount is withdrawn in cash by dealer and passed to the purchases after deducting the certain commission. In another transaction, where a person possess the stock or goods which is not disclosed in Income-tax or Sale-Tax due to inability of sale. In such a situation, the parties/hawala dealer for providing accommodation entries in similar type of transaction and in third type of cases, the person purchase good from the Gray Market at lower price without bill, as the goods available in Grey Market in very cheap comparative to the white market. The consideration is paid in cash to cover the transaction. The purchaser approached the hawala dealer for seeking the bogus purchase bill, who issues the purchase bill and the amount paid through cheques is immediately withdrawn and paid after deducting the necessary commission. On the basis of the above reasoning the AO disallowed the aggregate amount of purchase.

We have seen that the AO has not issue any notice u/s 133(6) or u/s 131 of the Act. The AO has not collected any independent evidence against the assessee except relying upon the report of Sales-Tax Department, Government of Maharashtra. During the First Appellate Proceeding before the ld. CIT(A), the assessee urged 4 M/s Shaan Lube Equipment Pvt. Ltd. that the purchase made from the parties were genuine and all document relating to the purchase, transportation, octroi receipt, stock entry along with the payment made through cheques were submitted before the AO. The documents filed by assessee were forwarded to the AO for his report. The AO submitted his remand report dated 20.10.2014. In the remand report, the AO disclosed that assessee furnished copy of bills and claimed that payments were made through the cheques. The notice u/s 133(6) was issued to the parties. However, the notice was returned back by the postal authorities with the remark ‘Left’. The assessee was asked to produce the parties. The assessee failed to furnish additional evidence or produce the parties for examination. The other evidence furnished before the ld. CIT(A) in the form of additional evidence was opposed on the ground that the assessee was given sufficient opportunity despite availing opportunity, assessee has not furnished such details during the assessment proceeding. On the bills and challans submitted by assessee in support of details of delivery of goods, transport charges, loading and unloading, the AO made his objection that purchase order are not furnished for examination and that the challans do not contain the details and specification of goods. The purchases claimed are not included anywhere in the stock details. After considering the submission of assessee and the report of AO. The ld. CIT(A) made the following conclusion: “The Hon'ble Gujarat High Court in the case of CIT vs. Bholanath Poly Fab (P). Ltd 40 Taxmann.com 494 has held that where the assessee who purchased cloth and sell goods but purchaser was not traceable. The profit element embedded in the purchases would be subject to tax and not entire amount. Keeping in view the facts and circumstances of the present case that the facts are squarely covered by the decision of Hon'ble Bombay High Court and Gujarat High Court that the assessee has submitted complete evidences and moreover the sales were not doubted by the AO. Since' sales are accepted, therefore, purchases cannot be treated as bogus. Without purchases, there cannot be any sales. However, it is a case where purchases invoices were received from M/s. Shivraj Traders and M/s. Omkar Trading Co. but actually material was received from other Company. Thus the facts are squarely covered by the decision of Honorable Gujarat High Court in the case of CIT vs. Bholanath Poly Fab (P) Ltd (supra). Therefore, I am of the view that only the profit element embedded to these purchases of Rs.59,36,543/- @ 10% has to be confirmed. Therefore, the addition made by the AO on account of bogus purchases is restricted to Rs.5,93,654/- and balance addition is deleted. The ground of appeal is partly allowed.”