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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI RAMIT KOCHAR
सुनवाई क" तार"ख /Date of Hearing : 06-10-2016 घोषणा क" तार"ख /Date of Pronouncement : 08-12-2016 आदेश / O R D E R
PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the assessee, being 11th January, 2016 passed by learned Commissioner of Income Tax (Appeals)- 38, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2010-11, the appellate proceedings before the learned CIT(A) arising from the penalty order dated 27th September, 2013 passed by the learned Assessing Officer (hereinafter called “the AO”) u/s 271(1)(c) of the Income-tax Act,1961 (Hereinafter called “the Act”).
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2. The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) read as under:-
“1. IN THE PRESENT CASE I FIND THAT THE ADDITION WAS MADE PURELY ON THE BASIS OF FINDINGS MADE BY THE SALES TAX DEPARTMENT WHICH WAS BEYOND THE CONTROL OF ASSESSEE. THERE IS NO CLINCHING EVIDENCE AS REGARDS TO THE CONCEALMENT.
AFTER A LAPSE OF PERIOD OVER A TIME WHEN SUPPLIER WERE DECLARED HAWAL TRADERS ASSESSEE EXPRESSED INABILITY TO PRODUCE THE PARTIES FOR CROSS-EXAMINATION. IT IS TO BE VIEWED IN THE CONTEXT THAT THE PARTIES WERE NOT DIRECTLY KNOWN TO THE ASSESSEE. IN THE CONTEXT OF THE PROVISIONS OF SECTION 68 OF THE ACT, IT WOULD NOT BE OUT OF PLACE TO MENTION THAT ONE HAS TO KEEP IN MIND THE LEGAL MAXIM; "LEX NON COGIT AD IMPOSSIBILlA" (WHICH MEANS THE LAW DOES NOT COMPEL A MAN TO DO WHICH HE CANNOT POSSIBLY PERFORM). EXPERIENCING THESE DIFFICULTIES THE ASSESSEE SURRENDERED THE AMOUNT FOR TAXATION. AS SAID IN THE PETITION, THE PURPOSE WAS TO BUY PEACE AND AVOID LITIGATION THE ASSESSING OFFICER DID NOT RECORD ANY FINDING THAT THE EXPLANATION OFFERED BY THE ASSESSEE WAS FALSE AND THE BONA FIDE WAS NOT PROVED. AS SUCH, THE CONDITIONS PRECEDENT FOR INVOKING EXPLANATION 1 TO SECTION 271(l)(C) OF THE ACT DID NOT EXIST IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. ONCE IT IS HELD THAT THE CASE OF THE ASSESSEE FALLS BEYOND THE KEN OF EXPLANATION 1 TO SECTION 271(l}(C), THE CONCLUSION IS IRRESISTIBLE THAT THE CASE DOES NOT COME WITHIN THE SWEEP OF THE RATIO LAID DOWN BY THE APEX COURT IN THE CASE OF K.P. MADHUSUDHANAN V. CIT [2001] 251 ITR 99. IT COMES WITHIN THE AMBIT OF THE DECISION LAID DOWN IN THE CASE OF CIT V. SURESH CHANDRA MITIAL [2001] 2511TR 9 (SC}. SO THERE IS NO MISSTATEMENT OF PERTICULARS, OR CONCEALMENT OF THE PERTICULARS OF THE INCOME,HENCE OUR CASE IS NOT COVERED UNDER SECTION 271(1)(C}. IN VIEW OF THIS THE DEMAND RAISED BY THE LEARNED ITO IS BAD IN LAW ,AND SHOULD BE SET ASIDE IN TOTO.
3. SINCE ASSESSEE HAS PAID THE TAXES IN ORDER TO BUY PIECE DUE TO DIFFERENCE OF OPENION,THIS SHOWES THAT THE ASSESSEE IS NOT INTERESTED OR OF THE VIEW TO AVOID THE TAXES OR HAVING THE INTENTION NOT TO PAY TAXES, IN VIEW OF ITA 1845/Mum/2016 3 THIS WE HEREBY PRAY THAT THE PENALTY UNDER SECTION 271(1)(C} SHOULD BE SET ASIDE IN TOTO.
4. THE LEARNED ACIT DISALLOWED THE ABOVE SAID PURCHASE UNDER SECTION 37(1) AS EXPENDITURE, INSPITE OF KNOWING THE FACTS THAT THE LIFT /CRANES CAN NOT WORK WITHOUT SPARE PARTS AND ASSESSEE CAN NOT PROVIDE SERVICES WITHOUT MAINTENANCE. IT IS WELL SETTLED LAW THAT CERTIN PART OF THE EXPENDITURE CAN BE DISALLOWED AND NOT THE FULL EXPENDITURE IN CASE OF PURCHASES DECLARED FROM HAWALA TRADERS, THE ITAT HAS TAKEN THE SAME VIEW IN VARIOUS CASES, BUT INSPITE OF THAT THE ASSESSEE HAS PAID THE TAX JUST TO BUY THE PIECE. IN VIEW OF ABOVE THE PENALTY IMPOSE UPON ASSESSEE SHOULD BE SET ASIDE IN TOTO.”
The brief facts of the case are that during the course of assessment proceedings, the A.O. disallowed bogus purchases amounting to Rs. 25,98,278/- on account of spares and parts. The assessee is engaged in the business of renting of Boom and scissor Lifts which are used in the infrastructure projects. Penalty proceedings were initiated by the A.O. u/s 271(1)(c) of the Act for concealment of income and furnishing inaccurate particulars of income.
It was observed by the A.O. that the assessee has debited an amount of Rs. 27,24,342/-. On perusal of the details of purchases, the A.O. noticed that out of the above total purchases, the assessee has made purchases from following three parties:-
Sr No. Name of the party Amount (in Rs) 1 M/s Arihant Traders 8,60,715/- 2 M/s Adinath Trading Co. 7,87,501/- 3 M/s Harsh Corporation 9,50,062/- Total 25,98,278/- The A.O. during the course of assessment proceedings issued notices u/s 133(6) of the Act to the above parties seeking details of the transaction done by the parties with the assessee for the period from 01-04-2009 to 31-03- ITA 1845/Mum/2016 4 2010 alongwith copy of ledger, bank statement, balance sheet with schedules and acknowledgment of income-tax return for assessment year 2010-11 , but the notices returned back with the remark ‘left addresses’. The assessee was confronted with the same and accordingly the assessee submitted new addresses of the parties and again notices were issued by the AO u/s 133(6) of the Act to these parties on new address , which again returned back with the remarks ‘non-known/not claimed’. The A.O. asked the assessee to produce the these parties and justify the expenditure for purchases from these parties amounting to Rs.25,98,278/-, but the assessee neither produced the parties nor furnished any documentary evidences to establish the genuineness of the purchases from above three parties. The A.O. observed that the assessee has failed to establish that the three parties namely M/s Arihant Traders, M/s Adinath Trading Co. and M/s. Harsh Corporation are in existence and that the purchases made from them are genuine. It was further observed by the AO that the assessee was given sufficient opportunities to produce the above parties but the assessee failed to discharge his onus to prove the purchases as genuine. The A.O. further observed that the names of these three parties were also appearing in the hawala list of the sales tax department whereby these parties were marked as hawala dealers who were merely issuing bills to various parties without actual purchase and sale of goods having taken place. The A.O. accordingly treated the purchases made from M/s Arihant Traders, M/s Adinath Trading Co. & M/s Harsh Corporation were not genuine purchases and while computing the profits and gains of the business of the assessee, the A.O disallowed the expenditure on purchases from the said three parties amounting to Rs.25,98,278/- u/s 37(1) of the Act. The A.O. also levied penalty u/s 271(1)(c) of the Act amounting to Rs. 8,02,868/- as the assessee committed default within the meaning of Explanation 1 of Section 271(1)(c) of the Act having concealed income and furnished inaccurate particulars of income, vide penalty order dated 27-09- 2013 passed by the AO u/s 271(1)(c) of the Act.
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Aggrieved by the penalty order dated 27-09-2013 passed by the A.O. u/s 271(1)(c) of the Act, the assessee filed first appeal before the ld. CIT(A).
Before the ld. CIT(A) , the assessee contended that additions have been made purely on the basis of findings made by the sales tax department which was beyond the control of assessee and that there was no clinching evidence as regards to the concealment of income. It was submitted that the principles of natural justice requires that confessional statement should be made available to the assessee and should be provided with an opportunity to cross-examine the witness. It was submitted that the purchase transactions were made through brokers and cheque payments were made , and once the suppliers were declared hawala traders, assessee expressed his inability to produce the parties and that the parties were not directly known to the assessee. It was further contended that the assessee surrendered the amount for taxation purpose to buy peace and avoid litigation and that the A.O. did not record any finding that the explanation offered by the assessee was false and the bonafide was not proved.It was submitted that law does not require man to do impossible and as the parties from whom purchases were made were declared hawala dealers by sales tax department and thereafter not traceabe, the assessee expressed its inability to produce them . It was submitted that the conditions precedent for invoking Explanation 1 to section 271(1)(c) of the Act did not exist in the facts and circumstances of the present case. Thus, the assessee prayed that the penalty levied should be set aside and relief may be granted. The assessee relied upon decision in the case of K.P.Madhusudhanan v. CIT (2001) 251 ITR 99(SC) and also in the case of CIT v. Suresh Chandra Mittal (2001) 251 ITR 9(SC).
The ld. CIT(A) observed that the assessment was completed u/s 143(3) of the Act wherein the AO disallowed an amount of Rs. 25,98,278/- treating ITA 1845/Mum/2016 6 expenditure on purchase of spare parts as bogus/non genuine against which the assessee did not file appeal before the CIT(A) and therefore such order passed by the AO stands final on merits as far as quantum additions were concerned. The Revenue disallowed the expenses based upon the information/material supplied by DGIT (Inv.) Mumbai and held that the assessee had only taken accommodation entries. The AO relied on the information of the Sales Tax Authorities as given by DGIT(Inv.), Mumbai, as per which the suppliers were stated to have given only bogus bills without supplying any material. The ld. CIT(A) further observed that the assessee failed to produce any of the aforesaid parties before the A.O.. No details regarding mode of transportation, transporter's name & address, vehicle number, weighbridge copy, octroi receipts etc. were furnished to substantiate actual delivery of goods as claimed by the assessee. The notices were issued u/s 133(6) of the Act to the said suppliers but the same could not be served due to incorrect particulars and further the assessee could not furnish the correct addresses of the said parties which could establish bonafide/genuineness of the suppliers appearing in the books of the assessee. The notices were sent twice on the old as well as new addresses furnished by the assessee but the assessee could neither produce the parties for verification nor trace the current address of the said suppliers and expressed his inability to trace the present whereabouts and voluntarily offered transaction of purchases from the parties amounting to Rs. 25,98,278/- as additional income for the impugned assessment year to buy peace of mind and to avoid protracted litigation. The AO disallowed the said sum and added the same to income of the assessee u/s 37(1) of the Act. Thus, it was established that it was due to the inability of the assessee to give the correct addresses of the parties, the assessee offered to surrender an amount of Rs. 25,98,278/- which were the purchases shown from such parties during the year under consideration. The ld. CIT(A) held that the assessee could not produce any cogent evidence before the A.O during the course of assessment ITA 1845/Mum/2016 7 proceedings which could have led credence to the submission and explanation offered by the assessee and establish the genuineness of such purchases. The burden of proving that a particular expenditure was genuine is on the assessee. By relying on the decision of Hon’ble Supreme Court in the case of Mak Data Private Limited v. CIT in civil appeal no 9772 of 2013 reported in (2013) 38 taxmann.com 448(SC) and K.P. Madhusudhanan v. CIT (2001) 169 CTR 489 (SC) , the ld. CIT(A) confirmed the penalty levied by the A.O. u/s 271(1)(c) of the Act , vide appellate orders dated 11.01.2016 passed by learned CIT(A).
Aggrieved by the appellate order dated 11.01.2016 passed by the ld. CIT(A), the assessee is in appeal before the Tribunal.
The ld. Counsel for the assessee submitted that the assessee is engaged in the business of renting of Boom and Scissor Lifts which are used in the infrastructure projects. The assessee purchased the spare parts for use in the crane which is for the purposes of his business. The said expenses of Rs. 25,98,278/- was disallowed by the A.O. on the ground that these were bogus purchases made from hawala dealers. It was the say of learned counsel for the assessee that AO has alleged that no supply of material was made by the supplier and only accommodation bills were submitted. The entire purchases were added by the A.O. during the assessment proceedings which has not been challenged by the assessee by filing first appeal before the ld. CIT(A) in order to buy peace and avoid protracted litigation. Thus, it was submitted bu learned counsel for the assessee that the quantum assessment was accepted by the assessee and no appeal was filed in order to buy peace and avoid protracted litigation. The ld. Counsel submitted that the purchase of spare parts were made for the purpose of assessee’s business which is to be used for the cranes and the payments were made through cheques. The A.O. disallowed 100% expenses towards these spare part purchases. The assessee ITA 1845/Mum/2016 8 accepted the assessment made by the A.O. and paid the taxes in the quantum assessment and no appeal was preferred. It was submitted that when the purchases were made , the parties were available and their TIN was active . The payments were made through brokers through cheque. After the parties were declared as hawala dealers,these parties were not traceable and hence the notices issues u/s 133(6) of the Act by the AO at old address and new address returned unserved and the parties could not be produced.
The ld. D.R. submitted that the assessee has made alleged spare parts purchases from three parties who were indulging in hawala activities and bogus bills were procured by the assessee from these hawala dealers to inflate expenses and to reduce income to evade taxes. He submitted that no supplies were made by the supplier and these are merely accommodation entries. The assessee has made bogus purcases to suppress the profit and to evade the taxes. Notice u/s 133(6) was issued by the A.O. but the notices were returned back by the postal authorities. The assessee had accepted the quantum addition and no appeal was filed which confirms that the assessee has made bogus purchases and accommodation bills were procured. The ld. D.R. relied on the decision of Hon’ble Supreme Court in the case of MAK Data P. Ltd. V. CIT (2013) 38 taxmann. Com 448(SC).
We have considered the rival contentions and also perused the material available on record and the legal decisions relied upon. We have observed that the assessee is engaged in the business of renting of Boom and Scissor Lifts which are used in the infrastructure projects. We have observed that the assessee has allegedly purchased spare parts costing Rs. 25,98,278/- from the following three parties who are alleged by Revenue to be hawala dealers and these purchases are alleged by Revenue to be bogus purchases being accommodation entries.
ITA 1845/Mum/2016 9 Sr No. Name of the party Amount (in Rs) 1 M/s Arihant Traders 8,60,715/- 2 M/s Adinath Trading Co. 7,87,501/- 3 M/s Harsh Corporation 9,50,062/- Total 25,98,278/- It is the allegation of the Revenue that based upon the information received from Sales Tax Authorities as given by DGIT(Inv.), Mumbai, the suppliers were stated to have given only bogus bills without supplying any material and these purchases were merely accommodation entries to suppress/reduce profits to evade taxes. The assessee did not file any evidence to prove that these were genuine transactions undertaken by the assessee. We have observed that the A.O. issued notices u/s 133(6) of the Act twice to verify the transactions of the assessee but these notices returned un-served and returned back by the postal authorities and the assessee also could not produce these parties before the authorities below. The A.O. had given sufficient opportunity to produce the parties during assessment proceedings but the assessee failed to discharge his onus. The primary onus is on the assessee to provide cogent evidences/explanations that these were genuine transactions for the purchase of spare parts which are used for the business of the assessee. The Revenue has doubted the genuineness / bonafide of the purchase transactions which are alleged to be accommodation entries/ bogus purchases. The onus is on the assessee to justify the consumption of the spare parts for the purpose of the business of the assessee. The assessee did not file any evidence to prove that these were genuine purchase transactions undertaken by the assessee. The assessee was not able to quantitatively reconcile and explain the consumption of spare parts for his business activities and prove that these were genuine purchases which were used for the purpose of the business of the assessee. No attempt has been made even before us by the learned counsel for the assessee to prove that these were genuine purchases made for business of the assessee and the spare parts ITA 1845/Mum/2016 10 were genuinely and bonafidely consumed in the business of the assessee and allegation of the Revenue was not correct.The assessee contended that in order to buy peace and avoid protracted litigation on the advice of his CA , the assessee has surrendered the amount for taxation during the course of assessment proceedings and had not preferred appeal against the quantum assessment. The quantum assessment had attained finality on merits. During penalty proceedings also , the assessee did not came forward to bring on record, cogent material/explanation to justify the consumption of spares purchased from these three parties to disprove the contentions/allegation of Revenue that these were merely bogus purchases being accommodation entries to inflate expenses and to suppress profits. In our considered view, the Revenue has rightly imposed penalty u/s 271(1)(c) of the Act which we hereby confirm and we do not find any infirmity in the order of the ld. CIT(A) which we affirm and uphold. The ld. CIT(A) has rightly distinguished judicial pronouncements cited by the assessee as detailed in his appellate orders dated 11.01.2016.We order accordingly.
In the result, the appeal filed by the assessee in 2010-11 is dismissed.