Case Law Details

Case Name : M/s Ratnagiri Stainless Pvt. Ltd. Vs Income Tax Of f icer 5(3) (1) , (ITAT Mumbai)
Appeal Number : I.T.A. No. 4463/Mum/2016
Date of Judgement/Order : 04.04.2017
Related Assessment Year : 2009-10
Courts : All ITAT (4199) ITAT Mumbai (1406)

We have observed that the assessee is dealing in the business as supplier in ferrous and non-ferrous. The genesis of the case is the Information which was received by the A.O. from DGIT (Inv.), Mumbai that there are some parties who are engaged in hawala transactions and are involved in issuing bogus bills for sale of material without delivery of goods, which information was based on information received from Maharashtra Sales Tax Authorities that the assessee is beneficiary of hawala/accommodation entries for bogus purchases from 28 entry providers to the tune of Rs. 2,39,83,261/- from these accommodation entry providers. The accommodation entry providers had deposed and admitted before the Maharashtra Sales Tax Authorities vide their statement/affidavits that they were engaged in providing bogus accommodation entries where in bogus sale bills were issued without delivery of goods, in consideration for commission. These accommodation entry providers, on receipt of cheques from the parties against bogus bills for sale of material, later on withdrew cash from their bank accounts which was returned to beneficiaries of bogus bills after deduction of their agreed commission. The assessee was stated to be one of the beneficiaries of these bogus entries of sale of material by these 28 hawala entry operators in favour of the assessee to the tune of Rs.2,39,83,261/-, wherein the assessee made alleged bogus purchases to the tune of Rs.2,39,83,261/- through these bogus bills issued by hawala entry providers in favour of the assessee. These dealers were surveyed by the Sales Tax Investigation Department whereby the directors of these dealers have admitted in a deposition vide statements/affidavits made before the Sales Tax Department that they were involved in issuing bogus purchase bills without delivery of any material. There is a list of 28 such parties wherein the assessee is stated to be beneficiary of bogus purchase bills to the tune of Rs.2,39,83,261/-. It was observed by AO that these parties just issue bogus bills in lieu for earning commission without actual supply of goods. In an sworn Affidavit Cum Declaration filed before Sales Tax Investigation Branch, Mumbai and in deposition before the Assistant Commissioner of Sales tax, Investigation Branch, Mumbai,the directors of the said 28 entities have admitted of issuing only invoices for sake of entry without delivery of goods. The Directors of the said 28 entities stated in their sworn affidavit that they had only supplied bills on receipt of cheques and later on cash was withdrawn from banks and after deduction of agreed commission, balance money was returned in cash to the assessee. The details of the aforesaid bogus parties from whom the assessee is stated to have purchased material are as under:-

ASHTAVINAYAK SALES AGENCY AFWPN2169J 2008-09 21,194
STELCO STEEL
INDUSTRIES
AFYPJ0025K 2008-09 371,948
RELIANT METAL
CORPORATION
ALAPR6303A 2008-09 468,667
PADMAVATI METAL &ALLOYS AFSPJ4124P 2008-09 556,674
JINESH METAL
CORPORATION
ARDPK1291P 2008-09 48,140
RATNAJYOTI METAL & TUBES PVT. LTD AADCR3441A 2008-09 135,742
ANIKET STEEL
PVT. LTD.
AAGCA0417J 2008-09 779,845
RELIABLE METAL (INDIA) AJNPD6596Q 2008-09 957,436
TYSON STEEL AND TUBES PRIVATE LIMITED AACCT9481B 2008-09 1,131,749
VIGNESHWAR IMPEX ARDPK1 294J 2008-09 1,133,295
RISHAB METAL
(INDIA)
AACPJ6417C 2008-09 115,573
RAMANI METAL
CORPORATION
AIRPD5688A 2008-09 246,607
POOJA METAL & ALLOYS ACYPC4975E 2008-09 793,199
MAZDA STEEL
TRADE PVT. LTD.
AAECM1196L 2008-09 49,462
ARIHANT TRADE
LINK
BDRPS0342C 2008-09 320,881
TAMAS STEEL & ALLOYS PVT. LTD. AACCT1556F 2008-09 1,122,116
KANAK STEEL
(INDIA)
AFYPB6058G 2008-09 1,351,280
WEL STEEL (INDIA) AHZPD3657L 2008-09 2,651,855
TAKSHIL TRADING PVT. LTD. AABCT5406H 2008-09 112,829
RAJESHWARI TRADING PVT. LTD AACCR7829M 2008-09 2,569,340
RANAKPUR SALES CORPORATION BABPS6817D 2008-09 198,640
ELECON IMPEX
PVT LTD
AABCE6233E 2008-09 246,395
NAVRATAN METAL IMPEX AAIHM5090A 2008-09 256,513
PRIYA STEEL
CORPN
AKCPD1838M 2008-09 530,244
VANDNA METAL
SYNDICATE
AEWPJ3208B 2008-09 833,173
POOJA STEEL & ALLOYS ACSPC2231P 2008-09 1,369,290
NAVODAY TRADE IMPEX PVT LTD AACCN3641F 2008-09 2,024,972
VISHESH STEEL
SUPPLIERS
AXVPS3398H 2008-09 3,586,202

Notices u/s. 133(6) of the Act were issued by the AO to all the above 28 parties. All these notices except one notice were either returned un-served or were not replied to. Only one party namely M/s Ranakpur Sales Corporation, categorically stated that they have not supplied any material to the assessee concern. The A.O. asked the assessee to produce the parties but the assessee failed to produce the parties. The parties were not produce even before learned CIT(A). The assessee also failed to produce suppliers, transporters or brokers before the AO for verification and enquiry. The assessee did not ask for the cross examination of Ranakpur Sales Corporation. The assessee was specifically asked to produce original bills and vouchers, all original documentary evidence of movement of goods for verification, details and documentary evidence of delivery challans, vehicle numbers, weighment slips, details of godowns, details of octroi payment etc.. However, the assessee did not produce the original documents before the A.O.. The assessee also did not file documents for showing movement of goods from supplier to assessee and from assessee to customer as evidence although it stated in its reply that said documents are being filed. The assesee did not submitted documentary evidence to show that there was movement of goods. The AO observed that the assessee filed delivery challan in one case only and that too there was no mention of transportation details. It was observed that the assessee has not submitted confirmations from these parties nor transportation details of the material purported to be purchased from these suppliers were furnished. Statement of purchase and sales showing name of the supplier and customers, date of purchase and sales, quantity purchased and sold to show one to one co-relation between purchases and sales were submitted by the assessee before the AO. The assessee also submitted VAT audit report. It was submitted that sales are fully vouched and without purchases, there cannot be sales and hence all purchases are genuine. The stock register for full year and ledger copy of the suppliers were also submitted and the assessee was able to quantitatively reconcile the sale and purchase of material. The assessee has also made the payments for these purchases through cheque for which evidence has been produced. It was submitted that there was no cash deposit in the bank and the payments have been made by the assessee to selling parties by account payee cheques.. It was held by authorities below that since the assessee had made sales which were duly quantitatively reconciled by the assessee with purchases, the purchases were made by the assessee but the same were made at low price from grey market and to cover deficiencies in documents, invoices were obtained from these 28 suppliers who issued bogus bills to the assessee without supplying any material. Thus, the AO held that the assessee failed to prove the onus cast upon it to prove that purchases to the tune of Rs. 2,39,83,261/- made by the assessee were genuine purchases, which were held by the authorities below to be bogus purchases as no material was supplied to the assessee by these suppliers which material in-fact was purchased from grey market at lower price which led to higher margin of profits which need to be estimated and added to the income of the assessee. The learned CIT(A) confirmed the additions. These are information which are especially in the knowledge of the assessee and the onus is on the assessee to prove that purchases are genuine as these purchases are recorded in the books of accounts of the assessee. Section 106 of Indian Evidence Act,1872 clearly stipulates as under:

“106. Burden of proving fact especially within knowledge

When any fact is especially within the knowledge of any person, the burden of proving that fact is upon him.

Illustrations

(a) ****

(b) A is charged with traveling on a railway without a ticket. The burden of proving that he had a ticket is on him.”

The assessee was not able to discharge burden cast u/s 106 of 1872 Act as the assessee did not produce the original documents before the A.O.. The assessee also did not file documents for showing movement of goods from supplier to assessee and from assessee to customer as evidence although it stated in its reply that said documents are being filed. The assesee did not submitted documentary evidence to show that there was movement of goods. The assessee filed delivery challan in one case only and that too there was no mention of transportation details. The assessee did not file confirmations from these parties nor transportation details of the material purported to be purchased from these suppliers were furnished. The parties were also not produced before the authorities below. The only party who responded to notice u/s 133(6) of 1961 Act issued by the AO namely Ranakpur Sales Corporation deposed against the assessee. The assessee did not ask for cross examination of Ranakpur Sales Corporation who appeared before the AO in response to notice u/s 133(6) of 1961 Act and deposed against the assessee by confirming that bogus bills were issued by them in lieu of commission while no material was supplied against bogus invoices raised by them. The right of cross examination is not absolute. The assessee has to first discharge its primary onus cast under law and if the same stood duly discharged which is not rebutted by authorities, but despite that then also the authorities proceed to put assessee to prejudice solely relying on the basis of incriminating statement recorded of third party at the back of the assessee, then certainly the right to cross examination the said third party whose incriminating statement recorded at the back of the assessee is relied upon by authorities to prejudice the assessee will become absolute. But in the instant case, primary onus cast on the assessee itself did not stood discharged by the assessee as discussed above. The A.O. made gross profit additions @ 12.5% over the total bogus purchases of Rs. 2,39,83,261/-, which were held to be non-genuine by the authorities below, which addition came to Rs. 29,97,908/- which addition was confirmed by the learned CIT(A). In such circumstances,GP ratio needs to be estimated which definitely involved some estimation/guess work but the said estimation/guess work should be fair, honest and rational keeping in view factual matrix of the case and cannot be arbitrarily applied at the discretion of authorities. We have gone through the case laws relied upon by the assessee. Reference is drawn to decision of Hon’ble Supreme Court in the case of Kachwala Gems v. JCIT (2007) 288 ITR 10(SC), wherein Hon’ble Lordships held as under:

“4. The facts of the case are in a short compass. The appellant-assessee deals in precious and semi-precious stones. In the course of assessment, the Assessing Officer noticed the following defects in the books of account of the assessee:

“1. The assessee has not maintained and kept any quantitative details/stock register for the goods traded in by the assessee.

2. There is no evidence on record or document to verify the basis of the valuation of the closing stock shown by the assessee. The assessee is not able to prepare such details even with the help of books of account maintained, purchase bills & Sale Invoices.

3. Provisions of section 145(3) are clearly attracted in this case.

4. The genuineness of purchases to the extent of Rs. 42 lakhs (approx.) is not proved without any doubt.

5. The GP rate declared by the assessee at 13.49 per cent during the assessment year is not a match to the result declared by the itself in the previous assessment years.

6. M/s. Gem Plaza, engaged in local sales of similar goods declared voluntarily rate of 35 per cent in its assessment for the assessment year 1997-98.

7. M/s. Dhadda Exports, another assessee dealing in same items, but doing export business declared GP rate of 43.8 per cent (even without considering the value of export incentives) in assessment year 1997- 98.”

5. Thereafter, the books of account of the assessee were rejected by the Assessing Officer and he resorted to best judgment assessment under section 144 of the Income-tax Act. The Assessing Officer in the assessment order mentioned some comparable cases and was of the view that the case of the assessee is more or less having similar facts as that of M/s. Gem Plaza where the Gross Profit has been taken as 35.48 per cent. The Assessing Officer estimated the Gross Profit of the assessee as 40 per cent.

6. The Assessing Officer further held that the assessee has shown bogus purchases in order to reduce the Gross Profits.

7. In appeal, the Commissioner of Income-tax (Appeals) upheld most of the findings of the Assessing Officer, but reduced the Gross Profit from 40 per cent to 35 per cent.

8. In further appeal, the Tribunal had given further relief to the assessee and reduced the Gross Profit rate to 30 per cent.

9. The counsel for the assessee has submitted before us that the income-tax authorities wrongly held that appellant has shown bogus purchases, and the books of account were wrongly rejected.

10. In our opinion, whether there were bogus purchases or not, is a finding of fact, and we cannot interfere with the same in this appeal. As regards the rejection of the books of account, cogent reasons have been given by the income-tax authorities for doing so, and we see no reason to take a different view.

11. It is well-settled that in a best judgment assessment, there is always a certain degree of guess work. No doubt the authorities concerned should try to make an honest and fair estimate of the income even in a best judgment assessment, and should not act totally arbitrarily, but there is necessarily some amount of guess work involved in a best judgment assessment, and it is the assessee himself who is to blame as he did not submit proper accounts. In our opinion, there was no arbitrariness in the present case on the part of the income-tax authorities. Thus, there is no force in this appeal, and it is dismissed accordingly. No costs.”

The authorities below in the instant case did not made any industry comparisons to arrive at fair, honest and rational estimation of GP ratio, rather applied GP ratio of 12.5% on alleged bogus purchases which estimation was in addition to the normal GP ratio declared by the assessee in return of income filed with Revenue. The Revenue made aforesaid additions relying on the presumption that the material was in-fact purchased from grey market at a lower rate and to cover deficiencies in record, the invoices were procured from these entry operators to reduce the profit. It was also considered that there will be savings on account of taxes while procuring material from grey market. The authorities below relied upon decision of Hon’ble Gujarat High Court in the case of Simit P Sheth (2013) 356 ITR 451(Guj. HC), which has estimated disallowance @12.5% of the disputed bogus purchases to meet the end of justice. The authorities below has not brought on record industry comparables nor any rational comparability vis-à‑vis preceding years GP ratio are brought on record. There is no allegation brought on record by learned DR that similar additions were also made in the immediately preceding year. The assessee earned GP ratio as detailed hereunder for last three years.

Financial Year % GP
2007-08 4.3%
2008-09 5.45%
2009-10 4.9%

The books of accounts were not rejected u/s 145(3) of 1961 Act by the Revenue. In the immediately preceding year i.e. assessment year 2008-09, the assessee earned GP ratio of 4.3% on total turnover, while for the year under consideration GP ratio earned was 5.45%. In our considered view and based on facts and circumstances of the case as discussed by us in details above, end of justice will be met in this case if GP ratio of 12.5% on alleged bogus purchases is added to income of the assessee against which credit for the declared GP ratio on the alleged bogus purchases will be granted by the AO after verification by the AO because of failure of the assessee to come forward to discharge primary onus cast upon him as detailed above for which assessee is to be blamed and in the midst of afore-stated un-rebutted allegation against the assessee and non discharge of primary onus, the declared lower GP ratio of 5.45% in the instant previous year under appeal cannot be accepted. Thus, in nut-shell we are inclined to adopt GP ratio of 12.5% on alleged bogus purchases in the instant case which in our considered view is fair, reasonable and rational keeping in view factual matrix of the case, while the assessee shall be granted credit of GP ratio declared on these bogus purchases in the return of income filed with the Revenue. The assessee gets part relief. We order accordingly.

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