Itxa/1940/2017 Of Pr. Commissioner Of Income Tax - 13, Mumbai v. Vaman International Pvt. Ltd

Sonali Kilaje IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 1940 OF 2017 Pr.Commissioner of Income Tax-13, Mumbai ..Appellant v/s. Vaman International Pvt. Ltd. ..Respondent Mr. Akhileshwar Sharma for the Appellant. CORAM: UJJAL BHUYAN, & MILIND N. JADHAV, JJ. DATE : JANUARY 29, 2020. ORAL ORDER (PER UJJAL BHUYAN, J.) :- .Heard Mr. Akhileshwar Sharma, learned standingcounsel, revenue for the appellant. 2.This appeal has been fled by the revenue under Section260A of the Income Tax Act, 1961 (“the Act” for short) against theorder dated 16.11.2016 passed by the Income Tax AppellateTribunal, “F” Bench, Mumbai (“Tribunal” for short) in Income TaxAppeal No. 794/Mum/2015 for the Assessment Year 2010-11. 3.Revenue has preferred the appeal projecting thefollowing questions as substantial questions of law : “(A) Whether on the facts and in the circumstances of the case and in law, Tribunal was justifed in holding that provisions of section 69C of the Income Tax Act, 1961 are not applicable in case of bogus purchases or sales where the genuineness of the transaction is not explained or explanation ofered by the assessee is not satisfactory and the same is to be treated as income of the assessee ? (B)Whether on the facts and in the circumstances of the case and in law, Tribunal was justifed in holding that in order to prove genuineness of the said purchase transaction even though assessee did not provide any lorry receipts or deliverychallans for the delivery of goods and that the same fact is established by the Assessing Ofcer, then is it mandatory for the Assessing Ofcer to limit himself to the mere submission and other documents provided by the assessee even though the purchases are non-genuine ? 17-ITXA-1940-17.doc (C)Whether on the facts and in the circumstances of the case and in law, Tribunal was justifed in holding that while applying the provisions of Section 69C of the Income Tax Act, 1961, the Assessing Ofcer was required to cause further enquiries in the matter to ascertain the genuineness or otherwise of the sham transaction ?” 4. From the above, it is evident that the issue before the Court for consideration is the addition made by the AssessingOfcer to the income of the assessee on account of unexplainedexpenditure under Section 69C of the Act which was deleted by thefrst appellate authority and afrmed by the Tribunal. 5.Assessee is a company engaged in the business oftrading and sale of furniture and allied items on wholesale basis.For the Assessment Year under consideration assessee fled e-return of income declaring total income of Rs.13,80,371/- and bookproft under Section 115JB of the Act at Rs.14,55,806/-. 6.The case was selected for scrutiny and notices underSections 143(2) and 142(1) of the Act were issued. In the course of 17-ITXA-1940-17.doc the assessment proceeding, Assessment Ofcer doubted theexpenditure of Rs.4,75,42,385/- stated to be on account ofpurchase from two parties i.e. Impex Trading Co. for an amount ofRs.2,90,80,292/- and Victor Intertrade Pvt. Ltd. for an amount of Rs.1,84,62,093/-. Assessing Ofcer acted on the basis of informationreceived from the ofce of Director General of Income Tax (Inv),Mumbai and from the Sales Tax Department that in the list of bogussales parties the names of the aforesaid two parties were includedwhich rendered the purchase transaction doubtful. Show causenotice was issued by the Assessing Ofcer to the assessee to showcause as to why the aforesaid amount should not be treated asunexplained expenditure and added back to the income of theassessee. It is seen that the assessee submitted reply and thematter was heard. 7.Assessing Ofcer observed that the assessee did notproduce lorry receipts and other related documents to refectmovement of goods sold and purchased which were crucial fordetermining genuineness of the purchase transaction. In theabsence thereof, Assessing Ofcer drew a negative presumption. 8.By the assessment order dated 22.03.2013 passedunder Section 143(3) of the Act, Assessing Ofcer added the saidamount to the total income of the assessee u/s. 69C of the Act bytreating the expenditure as bogus purchases. 9.Aggrieved by the aforesaid order of the AssessingOfcer, assessee preferred appeal before the Commissioner ofIncome Tax (Appeals)-20, Mumbai (hereinafter referred to as the“first app ellate authorit””). On the grounds and reasonsmentioned in the appellate order dated 12.11.2014, the frstappellate authority held that such addition by the Assessing Ofcercould not be sustained. Accordingly, Assessing Ofcer was directedto delete the addition of Rs.4,75,42,385/-. 10.Against the decision of the frst appellate authority,revenue preferred appeal before the Tribunal. Tribunal by the orderdated 16.11.2016 upheld the order of the frst appellate authorityand dismissed the appeal of the revenue. 11.Hence, revenue is before us in appeal. 12.Mr. Sharma has taken us to the order passed by the Sonali Kilaje Assessing Ofcer and submits that considering the goods involvedin the purchase and sale, assessee was required to producedocuments to show the movement of materials as well as stockledger of the goods. In the absence thereof, Assessing Ofcer wasjustifed in invoking the provisions of Section 69C of the Act inmaking the addition. This fact was overlooked by the two lowerappellate authorities below, thus vitiating the impugned order. 13.We have considered the submissions made by Mr.Sharma and also perused the orders passed by the authoritiesbelow. 14.At the outset, we may advert to Section 69C of the Actwhich is extracted hereunder :- “69C :Where in any fnancial year an assessee hasincurred any expenditure and he ofers no explanationabout the source of such expenditure or part thereof orthe explanation, if any, ofered by him is not, in theopinion of the Assessing Ofcer, satisfactory, the amountcovered by such expenditure or part thereof, as the casemay be, may be deemed to be the income of the assesseefor such fnancial year. 17-ITXA-1940-17.doc Provided that, notwithstanding anything contained in anyother provisions of this Act, such unexplained expenditurewhich is deemed to be the income of the assessee shallnot be allowed as a deduction under any head of income.” 15.Section 69C deals with unexplained expenditure. It saysthat where an assessee has incurred any expenditure and he ofersno explanation about the source of such expenditure or partthereof or if the explanation ofered by him is in the opinion of theAssessing Ofcer not satisfactory, the amount covered by suchexpenditure or part thereof, as the case may be, may be deemedto be the income of the assessee for the fnancial year underconsideration. As per the proviso, once such expenditure is treatedas unexplained expenditure which is deemed to be the income ofthe assessee, the same shall not be allowed as a deduction underany head of income. 15.1. Thus, Section 69C contains a deeming provision. As perthe deeming provision, if an assessee incurs any expenditure in therelevant previous year but he ofers no explanation about thesource of such expenditure or part thereof or if the explanationprovided is not satisfactory to the Assessing Ofcer, then the Sonali Kilaje amount covered by such expenditure or part thereof shall bedeemed to be the income of the assessee and once it is sodeemed, the same shall not be allowed as a deduction under anyhead of income. 15.1. Thus, Section 69C contains a deeming provision. As perthe deeming provision, if an assessee incurs any expenditure in therelevant previous year but he ofers no explanation about thesource of such expenditure or part thereof or if the explanationprovided is not satisfactory to the Assessing Ofcer, then the Sonali Kilaje amount covered by such expenditure or part thereof shall bedeemed to be the income of the assessee and once it is sodeemed, the same shall not be allowed as a deduction under anyhead of income. 15.2Gujarat High Court in Krishna Textiles v/s. CIT, 310ITR227; has held that under Section 69C the onus is on the revenueto prove that the income really belongs to the assessee. 16.The frst appellate authority while deleting the additionmade by the Assessing Ofcer under Section 69C held thatAssessing Ofcer did not doubt the sales and stock recordsmaintained by the assessee. By submitting confrmation letters,copies of invoices, bank statement, payment order, payment byaccount payee cheques etc., assessee had proved that sale andpurchases had taken place. By highlighting the fact that all thepayments against the purchases were made through bankingchannel by way of account payee cheques, the frst appellateauthority held that source of expenditure was fully established bythe assessee beyond any doubt. He has further recorded thatduring appellate proceedings the assessee had furnished complete quantitative details of the items of goods purchased during theyear under consideration and their corresponding sales. 17.We may now advert to the order passed by the Tribunal,relevant portion of which is extracted hereunder : “4.4.1 We have heard the rival contentions and perusedand carefully considered the materials on record,including the judicial pronouncements cited. On anappreciation of the materials on record, it is evident fromthe order of assessment that it is on the basis ofinformation obtained from Sales Tax Department that theAO issued the show cause notice to the assessee toexplain the said purchases and issued notices undersection 133(6) of the Act to the said two parties fromwhom the said purchases were made, to which there wasno response. The AO primarily relying on the informationobtained from the Sales Tax Department and swornstatements given before the Sales Tax Department by SriPradeep Vyas of M/s. Victor Intertrade P. Ltd. and ShriKetan Shah of M/s Impex Trading Company held the saidpurchases to be bogus. While it may be true that the saidtwo purchase parties did not appear before the AO, forwhatever reasons, the fact remains that the assesseeitself had fled copies of purchase bills, copies ofpurchase/sale invoices, challan-cum tax invoices inrespect of purchases, extracts of stock ledgers showingentry/exit of materials; copies of bank statements toevidence that payment from these purchases were made through normal banking channels, etc. to establish thegenuineness of the said purchases. It is a fact evident onrecord that the AO has not doubted the sales efected bythe assessee and therefore it is in order to conclude thatwithout corresponding purchases being efected, theassessee could not have made sales. through normal banking channels, etc. to establish thegenuineness of the said purchases. It is a fact evident onrecord that the AO has not doubted the sales efected bythe assessee and therefore it is in order to conclude thatwithout corresponding purchases being efected, theassessee could not have made sales. 4.4.2 In our considered view, the AO has not brought onrecord any material evidence to conclusively prove thatthe said purchases are bogus. Mere reliance by the AO oninformation obtained from the Sales Tax Department orthe sworn statement of two parties before the Sales TaxDepartment, without afording the assessee anyopportunity to cross examine those witnesses in thisregard or the fact that these parties did not respond tonotice under section 133(6) of the Act, would not in itselfsufce to treat the purchases as bogus and make theaddition. If the AO doubted the genuineness of this saidpurchases, it was incumbent upon him to cause furtherinquiries in the matter to ascertain the genuineness orotherwise of the transactions. Without causing any furtherenquires in respect of the said purchases, the AO cannotmake the addition under section 69C of the Act by merelyrelying on information obtained from the Sales TaxDepartment, the statement/afdavit of third parties, ShriPradeep Vyas and Ketan Shah; without the assesseebeing aforded any opportunity of cross examination ofthat persons and for non-response to notices undersection 133(6) of the Act. 4.4.3 In the factual matrix of the case, where the AOfailed to cause any enquiry to be made to establish hissuspicions that the said purchases are bogus, theassessee has brought on record documentary evidencesto establish the genuineness of the purchasetransactions, the action of the AO in ignoring theseevidences cannot be accepted. Further, the Hon'bleBombay High Court in the case of Ashish International(supra) has held that the genuineness of the statementsrelied upon by Revenue is not established when theassessee disputes the correctness of those statementsand has not been aforded adequate opportunity to crossexamine these parties even though he has asked for thesame. Moreover, as correctly observed by the learnedCIT(A), when the payment for the said purchases to theconcerned two parties is through proper banking channelsand there is no evidence brought on record by the AO toestablish that the said payments were routed back to theassessee, the addition made by the AO under section 69Cof the Act is unsustainable. We are fortifed in this view ofours by the decisions of, inter alia, the Hon'ble BombayHigh Court in the cases of Nikunj Eximp Enterprises Pvt.Ltd. (supra), Ashish International (supra), the decision ofthe Coordinate Benches of this Tribunal in the case ofHiralal Chunilal Jain (supra) and Imperial Imp & Exp(supra). In this factual matrix of the case, as discussedabove, we fnd no requirement for interference in theorder of the learned CIT(A) and consequently uphold thesame. Therefore, Revenue’s fve grounds (i) to (vii) aredismissed. In the result, Revenue’s appeal for A.Y. 2010-11 isdismissed. Order pronounced in the open court on 16[th]November, 2016.” 17.1. Thus, from the above, it is seen that Tribunal had In the result, Revenue’s appeal for A.Y. 2010-11 isdismissed. Order pronounced in the open court on 16[th]November, 2016.” 17.1. Thus, from the above, it is seen that Tribunal had returned a fnding of fact that the assessee had fled copies ofpurchase bills, copies of purchase/ sale invoices, challan cum taxinvoices in respect of the purchases, extracts of stock ledgershowing entry/exit of the materials purchased, copies of bankstatements to show that payment for such purchases were madethrough regular banking channels, etc., to establish thegenuineness of the purchases. Thereafter, Tribunal held thatAssessing Ofcer could not bring on record any material evidenceto show that the purchases were bogus. Mere reliance by theAssessing Ofcer on information obtained from the Sales TaxDepartment or the statements of two persons made before theSales Tax Department would not be sufcient to treat thepurchases as bogus and thereafter to make addition under Section69C of the Act. Tribunal has also held that if the Assessing Ofcerhad doubted the genuineness of the purchases, it was incumbentupon the Assessing Ofcer to have caused further enquiries in thematter to ascertain genuineness or otherwise of the transaction 17-ITXA-1940-17.doc and to have given an opportunity to the assessee toexamine/cross-examine those two parties vis-a-vis the statementsmade by them before the Sales Tax Department. Without causingsuch further enquiries in respect of the purchases, it was not opento the Assessing Ofcer to make the addition under Section 69C ofthe Act. 18.We are in agreement with the view expressed by theTribunal. In fact, Tribunal has only afrmed the fnding of the frstappellate authority. Thus, there is concurrent fnding of fact by thetwo lower appellate authorities. 19.This Court in the case of Cormmissiorner orf IncormeTax -1, Mumbai v/s. Nikunj Eximpp Enterpprises(P.) Ltd., 372ITR 619; wherein an identical fact situation arose did not interferewith the order passed by the Tribunal and held that no substantialquestion of law arose from such order. It was held that merelybecause the suppliers had not appeared before the AssessingOfcer, no conclusion could be arrived at that the purchases werenot made by the assessee. 20.On thorough consideration of the matter, we do not fndany error or infrmity in the view taken by the Tribunal. Nosubstantial question of law arises therefrom. Thus, there is nomerit in the appeal. Appeal is accordingly dismissed. However,there shall be no order as to costs. (MILIND N. JADHAV, J.) (UJJAL BHUYAN,J.)