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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: MRS. ANNAPURNA GUPTA & SHRI T.R. SENTHIL KUMAR
आदेश/O R D E R
PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER:
This appeal is preferred by the Revenue against the order of the learned Commissioner of Income-tax (Appeals)-3, Rajkot (“CIT(A)” for short) dated 16.03.2018 passed for Assessment Year 2011-12.
The grounds of appeal raised by the Revenue read as under:
“1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in reducing the addition made by the AO from Rs. 1,87,63,920/- to Rs.9,38,196/-on account of bogus purchase made by the assessee without appreciating the fact that the seller has itself admitted to have indulged in providing bogus bills.
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in granting relief even after accepting that the appellant cannot escape the entire disallowance in view of the incompleteness in the details of purchases and thereafter granted relief to a great extent.
3. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) ought to have upheld the order of the Assessing Officer.
4. It is, therefore, prayed that the order of the CIT(A) be set aside and that of the AO be restored to the above extent.”
ITO Vs. M/s. Rang Cera Coat, Morbi AY :2011-12
At the outset itself, it was pointed out that the solitary grievance of the Revenue against the order of the learned CIT(A) was the deletion of addition made by the Assessing Officer on account of bogus purchases to the tune of Rs.1,87,63,920/-, restricting it to the Gross Profit element thereon amounting to Rs.9,38,196/-.
The facts of the case being that the Assessing Officer was in possession of information received from the office of the Director General of Income-tax (Inv.) [DGIT] through DGIT (Inv.), Ahmedabad in respect of bogus purchases made by several concerns which included the names of beneficiaries alongwith scanned copies of statements recorded under Section 131 of the Income-tax Act, 1961 (“the Act)” for short), of 201 Hawala Dealers. This information was received by the DGIT (Inv)/DGIT (Inv.), Ahmedabad from the DGIT, Mumbai. As per the information, the Directors of one M/s. Parth Chem Impex Pvt. Ltd. had made deposition before the Income-tax Authorities that their company had not done any actual trading activity but had only taken/given accommodation entries by way of showing sales to different parties on commission basis. The list of beneficiaries in the information included the name of the assessee. The Assessing Officer noted that the assessee had shown purchases of Rs.1,87,63,920/- from the aforesaid concern, i.e. M/s. Parth Chem Impex Pvt. Ltd., in the impugned year i.e. FY 2010-11 relevant to Assessment Year 2011-12. Accordingly, a notice under Section 148 of the Act was issued to the assessee and after confronting the information to the assessee and obtaining due replies thereon from the assessee, the entire amount of purchases made by the assessee from M/s. Parth Chem Impex Pvt. Ltd. was held to be bogus and addition was made to that effect to the income of the assessee amounting to Rs.1,87,63,920/-. The assessee carried the matter in appeal before the learned CIT(A) where he contended that, except for the statement of one of the directors of the company, there was no other adverse material with the Revenue while the assessee had demonstrated the genuineness of the transactions by pointing out that the ITO Vs. M/s. Rang Cera Coat, Morbi AY :2011-12 assessee was a trader in goods, its entire sales/turnover during the year had been returned to the Sales Tax Authorities and accepted as such and which had not been doubted also by the Department in the present case. The assessee had furnished all quantitative details of sales and purchases made and had also submitted purchase bills and bank statement showing payments made through banking channel for purchase, as also lorry receipts for transportation in support of purchases made in the impugned period. The assessee further submitted that, as opposed to the adverse statement made by the directors of M/s. Parth Chem Impex Pvt. Ltd., in the course of inquiry conducted by the Assessing Officer of the assessee by issuing notice to it under Section 133(6) of the Act, the said party had confirmed the sales made to the assessee during the year. It was pointed out that the witness of the Assessing Officer himself had thus not confirmed the stand of the Assessing Officer. The assessee further pointed out that cross-examination of M/s. Parth Chem Impex Pvt. Ltd. sought by the assessee was also denied by the Assessing Officer expressing his inability to provide the same and stating that the statements recorded under Section 131 of the Act had evidentiary value. The learned CIT(A) was convinced with the explanation of the assessee that the entire purchases could not be disallowed as being bogus noting the fact that being a trader and the sales having not been doubted, there was no question of corresponding purchases in relation to the said sales having not been made by the assessee; but at the same time, he noted that the assessee was not able to convincingly establish the genuineness of the purchases made from M/s. Parth Chem Impex Pvt. Ltd. and, therefore, he held that the assessee must have derived some benefit on account of profits earned on these purchases and accordingly considering the GP rate earned by the assessee in the preceding year at the rate of 4.47%, as opposed to the GP in the impugned year at the rate of 1.22%, he held that it would be just and fit if 5% of the purchases are disallowed to take care of incompleteness on the part of the assessee which lead to probable
ITO Vs. M/s. Rang Cera Coat, Morbi AY :2011-12 revenue leakages. He accordingly directed the Assessing Officer to restrict the disallowance to 5% of total purchases made by the assessee from M/s. Parth Chem Impex Pvt. Ltd. which amounted to Rs.9,38,196/- and deleted the balance disallowance of Rs.1,78,25,724/-. His findings in this regard at paragraph Nos. 7 to 7.4 of the order are as under:-
“7. I have duly considered the assessment order as well as the above submission of the appellant before coming to the conclusion. 7.1 It is observed that the appellant submitted before the A.O. various details like ledger account, confirmation from seller, purchase bills, bank statement showing payments made through banking channel for purchases, form C of sales tax department and lorry receipts for transportation in support of purchases made from M/s Parth Chem Impex Pvt. Ltd. it was also submitted by the appellant that they were engaged in trading activity and the goods purchased from M/s Parth Chem Impex Pvt. Ltd. were sold as such and such sales were disclosed in books of accounts. The appellant also submitted quantitative details to show that the goods purchased were sold. It is observed from the show cause notice of the A.O. reproduced in the assessment order that in the assessment proceedings, the A.O. issued notice to M/s Parth Chem Impex Pvt. Ltd. and in response, the said party submitted ledger account of the appellant from their books and thus, confirmed the sale to the appellant. However, the A.O. did not give credit of the same on the ground that the reply submitted by the said party was not complete.
7.2 On perusal of assessment order, it is observed that the A.O. disbelieved the purchases of the appellant from M/s Parth Chem Impex Pvt. Ltd. mainly on the ground that the directors of M/s Parth Chem Impex Pvt. Ltd. admitted to have given bills for accommodation entries in their statements. However, the appellant submitted specific confirmation of M/s Parth Chem Impex Pvt. Ltd. in the course of assessment proceedings in support of purchases made by them. The said supplier also appears to have confirmed having made sales to the appellant in response to the notice u/s 133(6) issued by the A.O. Thus, the witness of the A.O. himself has not confirmed the stand of the A.O. Under the circumstances, it is clear that the very basis of addition and the adverse material in the hands of the A.O. did not remain. The A.O. did not have any other adverse evidence in his possession as is evident from the assessment order. Hence, I am of the considered view that the A.O. was not justified in making the addition only on the basis of statement of the directors of M/s Parth Chem Impex Pvt. Ltd. Accordingly, the contention of the appellantregarding cross-examination is also found to be irrelevant and superfluous when the witness himself has not continued with the adverse statement..
ITO Vs. M/s. Rang Cera Coat, Morbi AY :2011-12 7.3 It is further seen that the A.O. has disallowed entire amount of purchases from M/s Parth Chem Impex Pvt. Ltd. of Rs. 1,87,63,920/-. This is apparently absurd. The appellant is a trader and the goods purchased from M/s Parth Chem Impex Pvt. Ltd. were shown to have been sold and the A.O. has accepted such sales offered for tax by the appellant. The appellant has maintained quantitative details in respect of such goods which is evident from the relevant part of tax audit report submitted by the appellant in the paper-book. The A.O. has also not found any issue in quantitative details of the appellant. It is matter of common sense that there cannot be any sales without corresponding purchases in case of a trader. Hence, I found that the action of the A.O. of making disallowance of entire amount of purchases while accepting the sales made from such purchases is paradoxical and dichotomous. The reported GP of the appellant from trading is disclosed at 1.3% and with the disallowance of entire amount of purchases, the GP rises to the level of 65.90% which prima facie appears to be improbable and unrealistic. I therefore, hold that action of the A.O. to make disallowance of entire amount of purchases from M/s Parth Chem Impex Pvt. Ltd. is improper and untenable in law. This view holds good even if the purchases are treated as bogus. This view is also supported by the Hon'ble Gujarat High Court judgment in case of Bholanath Ply Fab Pvt. Ltd. (355 ITR 290) and Simit P. Sheth (356 ITR 451) relied upon by the appellant. 7.4 In view of the above facts, it emerges that the appellant has submitted relevant documents in support of purchases made from M/s Parth Chem Impex Pvt. Ltd.; the appellant has disclosed sales from such purchases which has not been doubted; the appellant has also maintained quantitative details; the said party has also confirmed sales to the appellant in response to the notice issued by the A.O. and that the only adverse material with the A.O. in the form of statements of directors of M/s Parth Chem Impex Pvt. Ltd. did not ultimately remain. In view of these aspects, I hold that the action of the A.O. of making disallowance of entire amount of purchases from M/s Parth Chem Impex Pvt. Ltd. can not be sustained. However, at the same time, I am of the view that the submission of the appellant to delete the entire disallowance is also not found to be acceptable. It is observed that the A.O. pointed out certain issues in respect of pattern of bills and pattern of lorry receipts. In this regard, it is observed that the counter replies of the appellant are not supported by any documentary evidences. The seller (i.e. M/s Parth Chem Impex Pvt. Ltd.) has also failed to submit complete details before the A.O. though they confirmed the sales to the appellant. Hence, in the course of appellate proceedings, the AR of the appellant was asked whether the appellant can furnish the details which were incomplete and furnish the confirmations of transporters. In reply, the AR of the appellant submitted that the appellant is unable to furnish the same in view of long lapse of time and the matter being more than 6 years old. Considering this, I am of the view that the appellant can not escape the entre disallowance in view of incompleteness in the details of purchases. During the relevant previous year the appellant has declared profit of Rs. 355769/- against total turnover of Rs.29045202/- (Total purchases of Rs. 2,86,22,135) Thus the ITO Vs. M/s. Rang Cera Coat, Morbi AY :2011-12 declared GP for the current previous year is 1.22%. The ld. AR was requested to submit same details for the earlier previous year (such details are not available for later year as appellant is not operating any more). The same was 4.47% for assessment year 2010-11. The AO has not rejected the books of account of the appellant but nonetheless the rate variation in GP is significant. As already discussed, entire purchase claim of the appellant cannot be accepted in toto; the possibility of rate variance benefit derived by the appellant cannot be totally ruled out in the absence of verification. It will be just and fit if 5% of purchases are disallowed to take care of incompleteness on the part of the appellant which leads to probable revenue leakages. therefore direct the A.O. to retain the disallowance of Rs.9,38,196/- (5% of 1,87,63,920) and delete the balance disallowance of Rs.1,78,25,724/-. The disallowance confirmed will result in GP ratio of around 4.5% which is at par with the GP ratio of the appellant for immediately preceding year at 4.47%. The Hon'ble Gujarat High Court in case of Simit P. Sheth (356 ITR 451) has also approved that the disallowance should be made keeping in mind nature of business of the assessee and that the disallowance should not result in unduly high or unrealistic GP ratio. The addition confirmed of Rs.9,38,196/- meets with this yardstick. With this decision ground no. 3 is partly allowed.”
Aggrieved by the order of the learned CIT(A), the Revenue has come up in an appeal before us.
Before us, the learned Departmental Representative contended that the directors of M/s. Parth Chem Impex Pvt. Ltd.had categorically stated that the purchases made to the assessee were all bogus. In this regard, he drew our attention to the statement on oath recorded of Shri Mehul Chandrakant Bhuta, Director of the company, reproduced at page Nos. 7 to 9 of the Assessment Order and our attention was more particularly drawn to question raised at Question Nos. 20 to 25 and the statement of the Director as under:-
“Q.20 I have given you time of two hours to produce the supporting documents in respect of your purchases and also to locate purchase bills of all concerns. Please go through the Purchase Invoices of the above concerns and kindly produce the supporting documents like Purchase Order, copy of Bills, Delivery Challans, Goods Receipt Register and Transport Receipts. Ans: As stated earlier, I cannot produce any of the supporting documents like Purchase Orders, Delivery Challans, Goods Receipt Register.
ITO Vs. M/s. Rang Cera Coat, Morbi AY :2011-12 Q.21 I am showing you the you the web-site of Maharashtra Sales Tax www.mahavat.gov.in wherein they have listed 1555 entities as Hawala Operators giving false bills without delivery of goods. Please go through the list and verify if any of the above concerns are listed in the Hawala Operators list.
Ans : Yes, I have seen web-site of Maharashtra Sales Tax www.mahavat.gov.in wherein they have listed 1555 entities as Hawala operators giving false bills without delivery of goods. I do confirm that all the above 15 concerns are listed as Hawala Operators in www.mahavat.gov.in Q.22. In the light of your response to Q.No. 18, 19, 20, 21 please state why purchases from the above concerns as stated in Q.No. 17 amounting to Rs. 14,84,55,610/- should not be created as bogus purchases wherein you did not receive any material from these concerns.
Ans:-We are in trading business of chemicals s & when there is any purchase requirement from our clients oil in market through brokers, we in-turn contact other brokers in market to make arrangement for supply of material. In the year 2011 sales tax department visited our premises at that time we came to know these facts then after we stopped the doing the business with such type of companies and brokers. But however we agree that 15 concerns are hawala bogus billers who did not supply any material to actual customers. As we are in trading business we did not consume any material from these above 15 concerns and we only made bogus sales against the same.
Q23. Please produce the list of your major buyers.
Ans : Our major buyers are Lorenzo Vitrifie Tiles Pvt. Ltd., Sunshine Tiles Co. Pvt. Ltd, Speciality Polyers Pvt. Ltd, Polson Limited, Asian Granito India Ltd., Jalram Ceramics Ltd, Carol Petrolume Pvt. Ltd., Lakeland Chemicals India Ltd. & Symed Labs Ltd. Majority of my customers are in ceramic business in Gujarat.
Q.24. Please provide the list of concerns to whom you made Bogus sale of material against the Bogus purchases booked from 15 hawala concerns.
Ans. I have gone through the Sales Register for F.Y.. 2008-09 to 2010-11 and verified the stock statement and identified the parties to wham Bogus sales was made of materials which was purchased from 15 hawala concerns. I am here by submitting the list of 44 concerns to whom Bogus sales was made along with flow chart of material-wise bogus sales against Bogus purchases from Hawala parties, which is marked as Annexure -2.
ITO Vs. M/s. Rang Cera Coat, Morbi AY :2011-12 Q.25. Please produce the copies of Sales Bills along with the Purchase Order of the buyer, Transport Receipts and Delivery Challans of the above 44 concerns.
Ans. As of now, I can produce only some of the Sales Bills. However on talking to my staff it is seen that the supporting documents are not available in case of any sales made to the above concerns in respect of Bogus sales made as per Annexure -2.”
Our attention was also drawn to the statement recorded of the other Director Shri Ambrish Doshi, reproduced at page Nos. 10 to 12 of the Assessment Order, more particularly to Question No. 12 and 13, as under:-
“Q.12. I am showing you, the list of hawala dealers , bogus suppliers declared by the Sales Tax Department, Mumbai. It is seen that you have also shown huge purchases from these hawala dealers as mentioned above. Please substantial your claim by producing sufficient supporting evidences?
Ans- Sir, I have verified the said list published by the Sales Tax Department. I do agree that I am not able to produce all the purchase bills of these concerns. I am also not able to produce any supporting vouchers in support of these purchases.
A.13 From the above, it is established that the purchases made from these concerns are bogus purchases./accommodated purchases made by you. Please state your say in this matter.?
Ans. We are in trading business of chemicals & when there is any purchase requirement from our clients or in market through broker, we in-turn contact other brokers in market to make arrangement for supply of material. I do agree that we have obtained accommodated purchase bills from the above parties. Sir, I do agree that no actual purchases are made from theseparties and these are only paper transaction. These are only paper transactions and there is no actual purchase, movement of goods and sale thereof. I do agree that the purchases from the above concerns are non-genuine purchases wherein we have taken bills but we did not receive any material. As we are in trading business we did not consume any material from these above 5 (five) concerns and we only made bogus sales against the same.
The details of year-wise purchases made from these hawala dealers are as under:-
ITO Vs. M/s. Rang Cera Coat, Morbi AY :2011-12
NAME OF THE PARTY PAN TIN FY 2008-09 FY 2009-10 PURCHAS PURCHASE E STHAPNA TRADE AAKCS6555K 27610598880V 1,30,55,397 16,87,920 IMPEX PVT. LTD RITESH CORPORATION AZFPK3051K 27810669045V 2,34,42,666 20,80,000 SHUBHAM AYVPS0870R 27770666157V 0 83,39,135 ENTERPRISE MIHIR SALES PVT. LTD. AAFCM6408C 27100669193V 0 30,87,084 RAJ TRADERS AIJPD9848G 27450262425V 0 62,33,269 3,64,98,063 2,14,27,408
I am also submitting herewith year-wise purchases made from the above concerns/suppliers alongwith TIN and addresses separately. The same is part of this statement as Annexure A.
We have also shown sales of these goods to our buyers which are also paper transactions and there is no actual delivery of goods. Thus, we are not actual consumers of these goods which are only paper transactions. I do agree that all the purchase and sales are bogus transactions only.
I am also giving you the list of party-wise sales/bogus sales made against the bogus purchases separately. The same is part of this statement as Annexure B.
I have to state that the income earned from these bogus purchases as well as sales are duly offered as income in the respective financial year/assessment year as mentioned in the details provided by me.”
Ld.DR pointed out that the assessee’s name was included in the list of beneficiaries. He stated that, in view of the statements of the directors of the company, it was clearly established that the purchases made by the assessee were all bogus and, therefore, the learned CIT(A) had erred in restricting the disallowance to the extent of profit element embedded therein only.
The learned Counsel for the assessee, on the other hand, reiterated the contentions made before the learned CIT(A) and relied on the order of the learned CIT(A) in this regard.
We have heard the rival contentions and gone through the orders of the authorities below. The entire case of the Revenue for disallowance of the entire
ITO Vs. M/s. Rang Cera Coat, Morbi AY :2011-12 purchases made from M/s. Parth Chem Impex Pvt. Ltd. rests on the statement of the Directors of the said company admitting to having issued bogus bills of sales to certain parties which included the assessee also. On the contrary, we find that the Ld. CIT(A) has appreciated the fact that the assessee was a trader in goods and the sales made by it were duly returned to Sales Tax, accepted by it and even have not been doubted by the Department. Therefore, the corresponding purchases in relation to the same could not be doubted. The assessee had submitted quantitative details of purchases and sales made also. Then it had also been demonstrated to the Ld. CIT(A) that all the payments for purchases made from M/s. Parth Chem Impex Pvt. Ltd. were made through banking channels. The most clinching fact is that on a notice issued by the Assessing Officer to M/s. Parth Chem Impex Pvt. Ltd., the said party had confirmed making sales to the assessee. The Revenue has not found any infirmity in this confirmation of M/s. Parth Chem Impex Pvt. Ltd., therefore, the findings of the Ld. CIT(A) to the effect that the very basis with the Department for holding the entire purchases to be bogus is demolished by the subsequent affidavit of the said company confirming the fact of making sales to the assessee. The Ld. CIT(A) has noted that no other evidence, other than the statement of the Directors, was in possession of the Revenue. The Ld. DR was unable to controvert the factual findings of the Ld. CIT(A) nor was he able to draw our attention to any adverse material other than the statements of the Directors for treating the entire purchases made by the assessee from M/s. Parth Chem Impex Pvt. Ltd. as bogus. We therefore see no reason to interfere in the order of the Ld.CIT(A) holding that no case has been made out by the Revenue in the light of voluminous evidences filed by the assessee to the extent of the party itself confirming making sales to the assessee ,for disallowing the entire purchases made from it as bogus.
On the contrary, we find that the Ld. CIT(A) has been fair enough in disallowing the profit component involved in the purchases so made, noting
ITO Vs. M/s. Rang Cera Coat, Morbi AY :2011-12 the fact that the assessee being a trader in goods and the sales not being doubted the assessee surely must have done purchases against said sales and further finding that the assessee was unable to clinchingly establish the fact of purchases made from M/s. Parth Chem Impex Pvt. Ltd. finding loopholes in the evidences filed by the assessee. He fairly enough disallowed only 5% out of same to cover up Revenue leakages on account of the said purchases. In view of the above, we uphold the order of the Ld. CIT(A) and grounds of appeal raised by the Revenue are dismissed.
In effect, the appeal of the Revenue is dismissed.
Order pronounced in the open Court on 25/01/2023 at Ahmedabad.