Appeal by Revenue against Income Tax Appellate Tribunal deleting addition of Rs.4.92 crores for bogus purchases in a manufacturing case. High Court overturned Revenue contentions, held Tribunal correct in relying on banking evidence, books of account, and stock registers, and dismissed appeal.
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407&408.ITXA-1404-2017.doc
Digitally signed by GAURI GAURI AMIT 1 / 7 GAEKWAD AMIT Date: GAEKWAD 2021.11.27 12:03:37 IN THE HIGH COURT OF JUDICATURE AT BOMBAY +0530 ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO.1404 OF 2017
WITH
INCOME TAX APPEAL NO.1418 OF 2017
Pr. Commissioner of Income Tax – 5 ….Appellant
V/s.
Allied Blenders and Distillers Pvt. Ltd. ….Respondent
----
Mr. N.C. Mohanty for appellant.
Ms. Nikita Abhyankar i/b. Roy’s Law Firm for respondent.
----
CORAM : K.R. SHRIRAM &
AMIT B. BORKAR, JJ.
DATED : 22nd NOVEMBER 2021
P.C. :
INCOME TAX APPEAL NO.1418 OF 2017
1This is an appeal in which appellant proposes the following
three substantial questions of law :
6.1 Whether on the facts and circumstances of the case and in law, the Hon’ble ITAT was justified in deleting the addition of Rs.4,92,43,370/- made on account of bogus purchases on the basis of self serving documents produced by the assessee without appreciating the fact that these alleged suppliers were non-existent at the addresses, not engaged in genuine business activities suppliers were declared as hawala dealers by the Maharashtra Sales-tax Department on the basis of on the spot enquiries conducted and statements recorded on various parties?6.2 Whether on the facts and circumstances of the case and in law, the Hon’ble ITAT was justified in deleting the addition of Rs.4,92,43,370/- made on account of bogus purchases merely stating that payments were made through banking channel and without appreciating the fact that payment by account payee cheque itself is not sufficient to establish the genuineness of the alleged purchases?6.3 Whether on the facts and circumstances of the case and
in law, the Hon’ble ITAT was justified in deleting the addition
of Rs.4,92,43,370/- made on account of disallowance of non-
genuine purchases without appreciating the fact that the
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assessee failed to establish the physical delivery of goods
from the alleged purchase parties?
2Respondent was engaged in the business of manufacturing and
selling Indian made Foreign liquor. The return of income was filed on
27th September 2010 declaring a total income of Rs.8,39,89,526/-.
Subsequently, the case was selected for scrutiny under Section 143 (3) of
the Income Tax Act, 1961 (the said Act) and on 28th March 2013, an order
came to be passed determining the total income of respondent at
Rs.14,20,47,620/- by making various additions/disallowances to the total
income. Among the various additions/disallowances made to the total
income, an addition on account of bogus purchase was made to the tune of
Rs.4,92,43,370/-. Aggrieved by this order, respondent preferred an appeal
before the Commissioner of Income Tax (Appeals) [CIT(A)]. The appeal was
only partly allowed because the addition by the Assessing Officer on account
of alleged bogus purchases was confirmed by the CIT(A). Respondent
impugned this order of CIT(A) before the Income Tax Appellate Tribunal
(ITAT). To the extent CIT(A) had allowed the appeal, Revenue preferred an
appeal before ITAT. ITAT dismissed Revenue’s appeal and allowed
respondent’s appeal. The ITAT relied on a judgment of the co-ordinate bench
of the ITAT in the case of M/s. MPIL Steel Structure Limited V/s. DCIT (ITA
No.6602/Mum/2014) for Assessment Year 2011-2012, wherein similar issue
was involved and deleted the addition towards bogus purchases. Unhappy
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with the conclusions of the ITAT, this appeal has been preferred.
3We are inclined to agree with the opinion of the ITAT. In making
the addition, the Assessing Officer has primarily relied upon some
information received from the office of the Director General of Income Tax
(Investigation), Mumbai regarding bogus purchases. The Assessing Officer
has also relied upon a notification issued by the Sales Tax Department
declaring certain persons as hawala dealers. It is alleged that from the
purchase details submitted by respondent, it is found that during the year
under consideration, respondent made purchases amounting to
Rs.4,92,43,370/- from the bogus dealers who had issued false bills without
delivery of goods. The bogus purchases made by respondent are mentioned
to be from RCL Trading Pvt. Ltd. in the sum of Rs.29,83,250/-, Kotsons
Impex Pvt. Ltd. in the sum of Rs.2,79,74,170/-, Hermitage Trading Co. Pvt.
Ltd. in the sum of Rs.1,82,85,950/-. According to the Assessing Officer, from
the records of the Sales Tax Department, these three parties were involved
in bogus billing. They just issued bills for commission without actual supply
of goods and the Director of the said parties (not even his name is
mentioned in the Assessing Officer’s order or the date of the affidavit is
mentioned) in a sworn notarised affidavit cum declaration filed before the
Sales Tax Investigation Branch, Mumbai and in deposition before the
Assistant Commissioner of Sales Tax (I-27), Investigation Branch, Mumbai,
the Director has admitted issuing only invoices/bills without delivery of
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goods. In the assessment order, it is also stated that the said hawala bill
provider has categorically admitted during deposition before the sales tax
authorities that these bills are provided just for the sake of entry and as such
no materials were supplied by them and that they had only supplied bills on
receipt of cheques and later on cash withdrawn from the banks and after
deduction of agreed commission balance money was returned in cash. The
Assessing Officer says his statement is available on website and same is
treated as an evidence to justify the issue involved in the case. It is also
stated by the Assessing Officer that the notice issued to these three parties
under Section 133 (6) of the Act remained unserved because they are not
available/traceable. It is also stated that by an office order sheet noting
dated 19th March 2013, respondent was requested to produce the said
parties before officer for verification but respondent did not produce them.
4 It is respondent’s case that they purchased various gift article
for promoting sales and respondent also filed copies of photographs taken
during promotional activity, stock register stating the various gift item
purchased from various parties, delivery challans and also confirmation
from few wine shops about description of goods and quantity of goods
distributed.
The ITAT has on facts came to a conclusion that respondent has
filed before the Assessing Officer complete books of accounts, items wise
stock register evidencing the receipts of gift materials and issue thereof.
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ITAT has also accepted the photographs of the functions and promotional
activities and confirmations from the shop keepers. What really tilted the
opinion of ITAT in favour of respondent is that respondent had produced
copies of bank statements of Punjab National Bank and Axis Bank
evidencing the payments through banking channels by account payee
cheques to the suppliers. There is nothing in the order of the Assessing
Officer that the Assessing Officer has looked into or considered this fact
dispassionately. The ITAT, therefore, came to a conclusion that respondent
has discharged its onus by producing the books of accounts, stock register,
stock tally and also filed various documentary evidences such as statements
of banks. According to ITAT, once respondent has discharged this burden,
the onus shifts to the Revenue and the Assessing Officer has not conducted
any independent inquiry or further verification of the records produced
before him. We have to note that this view of ITAT has not even been
challenged and no substantial question of law has been proposed.
5On the Assessing Officer’s conclusions, we also observed that
admittedly the three parties are private limited companies. The Assessing
Officer does not mention anywhere to which address the notice under
Section 133 (6) of the Act was sent because being a company, certainly the
records in the office of the Ministry of Corporate Affairs or the Registrar of
Companies will indicate the address of the registered office of these three
entities. The Assessing Officer only says the notices remained unserved
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because companies are not available/traceable. That is neither here nor
there because the Assessing Officer should have stated why the notices were
not served - Was it because of any endorsement by the postal authorities
that there was no such company in existence at the address mentioned or
intimation posted but not collected or refused. Another point we have to
note is that the Director of these three companies, on whose notarised
affidavit cum declaration the Assessing Officer was relying upon, was not
even made available for cross examination.
6In our view, the Tribunal has not committed any perversity or
applied incorrect principles to the given facts and when the facts and
circumstances are properly analysed and correct test is applied to decide the
issue at hand, then, we do not think that question as pressed raises any
substantial question of law.
7The appeal is devoid of merits and it is dismissed with no order
as to costs.
INCOME TAX APPEAL NO.1404 OF 2017
8The facts in this case are almost identical to the facts as
mentioned in Income Tax Appeal No.1418 of 2017 except to the extent that
the Assessing Officer has recorded that the concerned Inspector was
deputed to serve the notice under Section 133 (6) of the Act on two parties
instead of three at their given address but in the said report of the Inspector
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dated 26th February 2014, it is noted that the address of one party was
found locked and the other party was not traceable, the address was not
correct and the said party was not operating from the said premises. It
would still not help the case of the Revenue because it it not clear from the
Assessing Officer whether the two addresses were the registered office
address and on what day of the week the Inspector went to serve and
whether it was a holiday or a working day and just because the office
premises was locked or a party was not available at the time the Inspector
visited the particular address does not mean those parties were not carrying
on business or non existent or bogus parties. We say this because even in
this case, payments have been made by cheques to these parties and the
Assessing Officer could have called upon the banks to provide details of the
payees to whose account the amounts have been credited.
9This appeal also accordingly stands dismissed.
(AMIT B. BORKAR, J.)
Gauri Gaekwad
3 issues framed by the court
Whether the ITAT was justified in deleting addition made for bogus purchases based on self-serving documents without appreciating that suppliers were non-existent.
Whether payment through banking channels and account payee cheques is sufficient to establish genuineness of alleged purchases.
Whether assessees failed to establish physical delivery of goods from alleged purchase parties necessitating addition.
Colour shows how this judgement treated each authority
M/s. MPIL Steel Structure Limited V/s. DCITReferred¶19
M/s. MPIL Steel Structure Limited V/s. DCIT (ITA No.6602/Mum/2014)
2 provisions across 1 enactments
Pr. Commissioner of Income Tax – 5
Allied Blenders and Distillers Pvt. Ltd.
K.R. Shriram
Amit B. Borkar
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court