Case Law Details
K.S. Softnet Solutions Pvt. Ltd Vs ACIT (ITAT Delhi)
ITAT Delhi held that unless there was specific material collected to rebut the submissions of assessee then merely on basis of inference from the circumstances, the purchase could not have been held to be bogus.
Facts- The assessee company is engaged in the business of trading and development of software and hardware, also construction of road and civil contracts in the shape of E-Check post. Based on the search conducted by VAT Department of Mumbai at the addresses of some concerns, it was found that the purchase bills issued by these concerns to various parties including the assessee company were bogus and non genuine.
These parties used to issue the bogus invoices to various persons after charging the commission varying from 0.05% to 0.15% of the invoice amount. The assessee company is one of the beneficiary companies who had found to have procured the invoices from these concerns after paying the commissions as per information received from the VAT Department, Mumbai.
Accordingly, a show cause notice dated 21.03.2013 was issued to the assessee to explain as to why purchase invoices procured from the following entities should not be treated as non genuine and bogus and explain as to why the books of accounts should not be rejected within the meaning of section 145(3) of the Act.
AO made addition of Rs. 53,88,909/-. CIT(A) dismissed the appeal of the assesse. Being aggrieved, the present appeal is filed.
Conclusion- Thus, what can be concluded is that in spite of Ld. AO having been given opportunity, he was unable to lay hand on any material evidence to rebut the submissions of assessee. The order of Ld. AO and the examination of facts and circumstances by Ld. CIT(A) indicate as if a presumption of truth was attached to all proceedings of VAT department, Mumbai and the onus was on assessee to rebut the same. Rather once Ld. CIT(A) had called for specific report from Ld AO then unless there was specific material collected to rebut the submissions of assessee then merely on basis of inference from the circumstances, the purchase could not have been held to be bogus, by the Ld CIT(A).
FULL TEXT OF THE ORDER OF ITAT DELHI
The appeal has been filed by the Assessee against order dated 01.12.2016 in appeal no. Del/CIT(A)-5/0134/2013-14 passed u/s 250 of the Income Tax Act, 1961(hereinafter referred to as ‘the Act’) by Commissioner of Income Tax (Appeals)-5, Delhi (hereinafter referred to as the First Appellate Authority in short ‘Ld. F.A.A.’) in regard to the appeal before it arising out of assessment order dated 11.03.2014 u/s 143(3) of the Income Tax Act, 1961 passed by Dy. Commissioner of Income Tax, Spl. Circle 5(1), New Delhi (hereinafter referred to as the Ld. Assessing Officer or in short ‘Ld. AO’).
2. The facts in brief are the assessee company is engaged in the business of trading and development of software and hardware, also construction of road and civil contracts in the shape of E-Check post. It is also trading in allied materials. Return of income of Rs. 84,16,530/- was filed and the case was selected for scrutiny. During the assessment proceedings, an information was received from the DIT(lnvestigation)-l, Delhi vide letter F.No. DIT [lnv]-l/MVAT/Del/2012-13/70 dated 26.02.2013 forwarding information received from the VAT Department, Mumbai. The said information was received in this office containing details of such companies who had procured bogus invoices from certain parties. On perusal of information revealed that the assessee company was one of the company who had procured the bills from the following proprietary concerns namely,
1. M/s Asian Steel ( TIN-27860346038v/c(Prop-Dushyant Singh) for Rs.35,09,387/-
2. M/s Suraj Tube Corporation ( TIN-275503044371v/c(Prop.Shri Suresh Singh) for Rs.6,08,044/-
3. M/s Chanchal Tube Corporation ( TIN-27460355491 v/c)(Prop – Shri Shivanand Singh) for Rs.12,71,478/-
2.1 The background is that a search was conducted by VAT Department of Mumbai at the addresses of above concern and it was found that the purchase bills issued by these concerns to various parties including the assessee company were bogus and non genuine. These parties used to issue the bogus invoices to various persons after charging the commission varying from 0.05% to 0.15% of the invoice amount. The assessee company is one of the beneficiary companies who had found to have procured the invoices from these concerns after paying the commissions as per information received from the VAT Department, Mumbai. In this regard, copy of affidavit of the proprietor of these concerns has also been forwarded along with the copy of statement recorded during the search proceedings.
2.2 Accordingly, a show cause notice dated 21.03.2013 was issued to the assessee to explain as to why purchase invoices procured from the following entities should not be treated as non genuine and bogus and explain as to why the books of accounts should not be rejected within the meaning of section 145(3) of the Act.
3. However Ld. AO being not satisfied of the submissions made addition of Rs. 53,88,909/- and in appeal the same were sustained by Ld. CIT(A) while dismissing the appeal and accordingly the assessee is before this Tribunal raising following grounds :-
“1. The Id CIT (A) without appreciating the correct facts of the case is not justified in law and facts and circumstances of the case in confirming the action of ld. assessing officer in disturbing the trading results declared by the appellant company without invoking the provision of section 145(3) of the I.T.Act.
2. The ld. CIT(A) without appreciating the correct facts of the case is not justified in law and facts and circumstances of the case in confirming the addition of Rs. 53,88,909/-/- made by Id assessing officer on account of alleged bogus purchases in the total income of the appellant company only on the basis of information received from investigation unit without pointing out any defect in the explanation/documents furnished and confronting any adverse material and conducting any independent enquiry by ld. assessing officer and thus addition so made against the principal of natural
3. Appellant has every right to make, add, delete, modify or alter any grounds of appeal at the time of hearing.”
4. Heard and perused the record.
5. On behalf of the assessee it has been submitted that the Ld. CIT(A) has confirmed the conclusion of Ld. AO for various reasons without taking into consideration the averments and evidence of the assessee which have been summarized on behalf of the assessee as follows :-
“6. The Ld. CIT(A) confirmed the conclusions of the AO for various reasons are referred herein below. The said conclusions as well as Assessee’s rebuttal thereof, based on facts and material on record, are as under :-
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No. |
CIT(A)’s Finding | Assessee’s Averment & Evidence |
| 1.
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Assessee claimed sales to Government of Jharkhand, but no work order was placed on record. Further, as of 31.03.2010, the Jharkhand Government owed the Assessee Rs.8.55 crores, of which a sum of Rs. 3.66 crores was over 6 months due.
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| 2. | There is nothing on record that Assessee was required to supply extra steel items to Mettier Toledo, or that EWB’s as supplied required 600-800 weighments per day. | Mettler Toledo’s quotations containing technical details of the EWBs as well as conditions of supply (PB 96-108) specifically provide for both factors.
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| 3. | Assessee had not provided any evidence of receiving extra steel items from the three suppliers. | Work orders, for supply of steel items with all 3 vendors, featuring at PB 88-95 contain quantitative details matching eventual invoices, and specifically require supply of material directly to Mettler Toledo. When material stood supplied directly by vendors to mettle Toledo, the Assessee would not have documents such as delivery challan & lorry receipts. |
| 4. | No details of OCTROI were provided confirming supply of steel items. | Copies of work order (PB 88-95), as well as |
| 5. | Assessee’s invoices refer to purchase order dated 11.12.2004, while work is being executed in FY 2009-10. |
The Assessee’s invoices, along with details of transportation (PB 125-176) only relate to supply of EWB’s. CIT(A) has overlooked the fact noticed at page 9 of her own order, that the order from Transport Department, Government of Jharkhand, was for development of integrated check posts at various locations. It is only after land was provided to the Assessee, drawings and designs were sanctioned, and civil work was completed, that the EWB’s could be deployed. The timelines provide no reason for dissonan income from the contract, the revenue authorities could not disbelieve the same. |
| 6. | Mettler Toledo’s invoices do not provide for any price reduction against material supplied by the Assessee. | Mettler Toledo’s quotation as well as the Assessee’s purchase orders (PB 96-124) contain rates based on Mettler Toledo’s specifications and require the Assessee to supply further material at its own cost. Such an arrangement is perfectly normal. |
| 7. | Mumbai VAT Department found that vendors were operating from small rooms in slum areas, and the spece therein was inadequate to store the quantity of steel stated to be supplied. | It is commonplace for small trading and supply businesses to operate from small premises, and To stack inventory in further and far-flungareas to save on rental costs. Given the product’s industrial nature, this also helps in transporting the goods without having to enter city limits in many cases. Further, details of parties stated to be given by them to Investigation Wing are as per their balance sheet filed during A.Y. 1995-96 (Page 8 of CIT(A)’s order), while the Assessee has transacted with them in AY 2010-11. |
6. On the other hand, Ld. DR submitted that there is no error in the findings of ld. Revenue Authorities below. He referred to various observations of Ld. CIT(A) and submitted that the assessee failed to discharge its burden either of getting a work order from Government of Jharkhand or the use of allegedly purchased Iron from three black listed firms. It was submitted that Ld. CIT(A) has justified its findings on examination of purchase order given to M/s. Mettler Toledo India Pvt. Ltd. Which does not have any such information or condition under which the extra steel items were to be supplied by the assessee.
7. After giving thoughtful consideration to the matter on record it can be observed that the grounds raised are primarily on the basis that revenue have questioned the genuineness of purchase of TMT bars and Steel from three vendors who are allegedly black listed by the Sales tax department, Mumbai. The Ld. AO had disbelieved the submissions of assessee with following relevant observations :
“7. The contention of the assessee is not in accordance with the queries raised vide show cause notice dated 21.03.2013. In the show cause notice the issue was whether the invoices procured from the above three entities were genuine or not. In this regard the assessee should have filed the complete details from the order of purchase to the delivery of goods either at godown or to the destination of sale or to the place where it was consumed. In this regard the assessee had filed the copy of ledger account with copies on invoices and payment details. In a case whether purchase is doubted the assessee is required to prove the purchase with details of delivery with supporting documents. Thus, the assessee has completely failed to prove that the actual purchases made from the above three concerns.”
8. As the same time, Ld. CIT(A) has examined every bit of evidence before it and Ld. CIT(A) even sought remand report from the AO on following points :-
“a. The AO was to ascertain from Mettler Toledo as to whether the Assessee had supplied extra steel beams and TMT bars to it, and whether such had been thereafter utilized in fabrication of EWB’s.
b. The AO was also to confirm with Government of Jharkhand as to warranty obligations at the Assessee’s end, which required deployment of additional steel.
c. The AO was also to examine bank accounts of the steel vendors (referred by AO at pages 8 and 9 of assessment order), to ascertain as to whether the Assessee’s payments to them thereafter steed withdrawn in cash, as per charges of Investigation Wing.”
9. In regard to the remand report, the ld. CIT(A) observed in his :
“4.2 In the remand proceedings, the AO has stated that requisition u/s 133(6) was made to M/s. Mettler Toledo India (P) Ltd. vide letter dated 15.12.2015 for verifying the contention of the appellant that extra steel beams and TMT bars had to be supplied by the appellant and to inform whether the impugned purchases were actually received at the factory site and utilized in the fabrication of the electronic weigh bridges. Parallely, commission had been issued u/s 131(l)(d) of the IT Act on 12.04.2016 to make the necessary queries with regard to the bank payments. A reminder was sent on 21.07.2016 to M/s Mettler Toledo India (P) Ltd. and to the Investigation Wing in absence of any response from them. The AO also emailed the M/s Mettler Toledo India (P) Ltd. on 16.08.2016 at the email id available in the public domain requesting for the information. However, there has been no response from that party. Without prejudice to the above, the AO has stated that the contention of the appellant regarding orders received from the Transport Department Govt, of Jharkhand could not be verified as the assessee had not furnished any copy of such work order or tender received from the Govt, of Jharkhand during the assessment proceedings. The bills raised by the appellant on the Transport Department does not bear any confirmation or acknowledgement by the Transport Department, Govt, of Jharkhand. The only supporting documents placed are the consignment notes and permits issued by the commercial taxes department of the Govt, of Jharkhand. Without any explanation that the same pertained to Govt, of Jharkhand. No such evidentiary document has been produced and hence, it cannot be confirmed that the said order was indeed place on the assessee. Further, the only material placed by the assessee on record in support of its contention that additional material was to be dispatched to the factory site of M/s Mettler Toledo India (P) Ltd. is the enquiry letter dated 02.07.2009. No purchase order placed on the assessee company or contract or documents/details showing the transportation of purchased material or delivery at the factory site of M/s Mettler Toledo India (P) Ltd. have been furnished The A.O has mentioned that since repeated queries from M/s Mettler Toledo India (P) Ltd. had gone unanswered, this indicates that it is in no position to answer the queries raised by the department. Moreover, the AO stated that when there is sufficient material with the A.O to come to the conclusion that the appellant had received only fake bills and there was no actual delivery of goods, the initial burden to prove is on the assessee. In the present case, the initial burden of proof has not been discharged as the complete details from the order of purchase to the delivery of goods either to the destination of sale or to the place of consumption has never been proved. The assessee company has tried to shift the onus of proof to the AO without itself discharging the onus. It is stated that the assessee company has never denied that it had made trade transactions with the above said three parties and hence in the absence of concrete supporting evidence that the said transactions were genuine and there was actual delivery of goods, the additions made should be sustained.”
10. Thus, what can be concluded is that in spite of Ld. AO having been given opportunity, he was unable to lay hand on any material evidence to rebut the submissions of assessee. The order of Ld. AO and the examination of facts and circumstances by Ld. CIT(A) indicate as if a presumption of truth was attached to all proceedings of VAT department, Mumbai and the onus was on assessee to rebut the same. Rather once Ld. CIT(A) had called for specific report from Ld AO then unless there was specific material collected to rebut the submissions of assessee then merely on basis of inference from the circumstances, the purchase could not have been held to be bogus, by the Ld CIT(A).
11. In fact assesse’s own accounts stand admitted by revenue which reflect that the work order with Govt of Jharkhand was source of revenue as shown in the balance sheet of assessee, where the Transport Department of Jhankhand is shown as a debtor of Rs. 85,51,993/-. The Revenue has accepted the income of assessee and relevant is scheduled at 13 available at page no. 63 of the paper book, being part of the copy of ITR of assessee company, wherein income from sales (E-cheque post), for which purchases were made and sub contracted to M/s. Mettler Toledo India (P) Ltd, has been shown to be Rs. 12,33,81,325/-. Thus, it was unfair on the part of Ld. Tax authorities below to consider the purchases of stocks used for earning this revenue by alleging it as bogus. Therefore, grounds raised are sustained and the appeal is allowed.
Order pronounced in the open court on 20th September, 2022.
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