Pr. Commissioner of Income-tax-13, Mumbai v. Vaman International Pvt. Ltd
[Citation -2020-LL-0129-74]

Citation 2020-LL-0129-74
Appellant Name Pr. Commissioner of Income-tax-13, Mumbai
Respondent Name Vaman International Pvt. Ltd.
Court HIGH COURT OF BOMBAY
Relevant Act Income-tax
Date of Order 29/01/2020
Assessment Year 2010-11
Judgment View Judgment
Keyword Tags unexplained expenditure • source of expenditure • purchase transaction • delivery of goods • material evidence • sham transaction • sworn statements • bogus purchase • genuineness of transaction • bogus sale • genuineness of purchase
Bot Summary: Show cause notice was issued by the Assessing Ofcer to the assessee to show cause as to why the aforesaid amount should not be treated as unexplained expenditure and added back to the income of the assessee. Assessing Ofcer observed that the assessee did not produce lorry receipts and other related documents to refect movement of goods sold and purchased which were crucial for determining genuineness of the purchase transaction. Mr. Sharma has taken us to the order passed by the 5 of 14 Uploaded on - 07/02/2020 Downloaded on - 08/02/2020 10:49:36 Sonali Kilaje 17-ITXA-1940-17.doc Assessing Ofcer and submits that considering the goods involved in the purchase and sale, assessee was required to produce documents to show the movement of materials as well as stock ledger of the goods. At the outset, we may advert to Section 69C of the Act which is extracted hereunder :- 69C : Where in any fnancial year an assessee has incurred any expenditure and he ofers no explanation about the source of such expenditure or part thereof or the explanation, if any, ofered by him is not, in the opinion of the Assessing Ofcer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such fnancial year. As per the deeming provision, if an assessee incurs any expenditure in the relevant previous year but he ofers no explanation about the source of such expenditure or part thereof or if the explanation provided is not satisfactory to the Assessing Ofcer, then the 7 of 14 Uploaded on - 07/02/2020 Downloaded on - 08/02/2020 10:49:36 Sonali Kilaje 17-ITXA-1940-17.doc amount covered by such expenditure or part thereof shall be deemed to be the income of the assessee and once it is so deemed, the same shall not be allowed as a deduction under any head of income. On an appreciation of the materials on record, it is evident from the order of assessment that it is on the basis of information obtained from Sales Tax Department that the AO issued the show cause notice to the assessee to explain the said purchases and issued notices under section 133(6) of the Act to the said two parties from whom the said purchases were made, to which there was no response. 10 of 14 Uploaded on - 07/02/2020 Downloaded on - 08/02/2020 10:49:36 Sonali Kilaje 17-ITXA-1940-17.doc 4.4.3 In the factual matrix of the case, where the AO failed to cause any enquiry to be made to establish his suspicions that the said purchases are bogus, the assessee has brought on record documentary evidences to establish the genuineness of the purchase transactions, the action of the AO in ignoring these evidences cannot be accepted.


Sonali Kilaje 17-ITXA-1940-17.doc IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY 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 Appellant. CORAM: UJJAL BHUYAN, & MILIND N. JADHAV, JJ. DATE : JANUARY 29, 2020. ORAL ORDER (PER UJJAL BHUYAN, J.) :- Heard Mr. Akhileshwar Sharma, learned standing counsel, revenue for appellant. 2. This appeal has been fled by revenue under Section 260A of Income Tax Act, 1961 ( Act for short) against order dated 16.11.2016 passed by Income Tax Appellate Tribunal, F Bench, Mumbai (Tribunal for short) in Income Tax Appeal No. 794/Mum/2015 for Assessment Year 2010-11. 1 of 14 Uploaded on - 07/02/2020 Downloaded on - 08/02/2020 10:49:36 Sonali Kilaje 17-ITXA-1940-17.doc 3. Revenue has preferred appeal projecting following questions as substantial questions of law : (A) Whether on facts and in circumstances of case and in law, Tribunal was justifed in holding that provisions of section 69C of Income Tax Act, 1961 are not applicable in case of bogus purchases or sales where genuineness of transaction is not explained or explanation ofered by assessee is not satisfactory and same is to be treated as income of assessee ? (B) Whether on facts and in circumstances of case and in law, Tribunal was justifed in holding that in order to prove genuineness of said purchase transaction even though assessee did not provide any lorry receipts or delivery challans for delivery of goods and that same fact is established by Assessing Ofcer, then is it mandatory for Assessing Ofcer to limit himself to mere submission and other documents provided by assessee even though purchases are non-genuine ? 2 of 14 Uploaded on - 07/02/2020 Downloaded on - 08/02/2020 10:49:36 Sonali Kilaje 17-ITXA-1940-17.doc (C) Whether on facts and in circumstances of case and in law, Tribunal was justifed in holding that while applying provisions of Section 69C of Income Tax Act, 1961, Assessing Ofcer was required to cause further enquiries in matter to ascertain genuineness or otherwise of sham transaction ? 4. From above, it is evident that issue before Court for consideration is addition made by Assessing Ofcer to income of assessee on account of unexplained expenditure under Section 69C of Act which was deleted by frst appellate authority and afrmed by Tribunal. 5. Assessee is company engaged in business of trading and sale of furniture and allied items on wholesale basis. For Assessment Year under consideration assessee fled e- return of income declaring total income of Rs.13,80,371/- and book proft under Section 115JB of Act at Rs.14,55,806/-. 6. case was selected for scrutiny and notices under Sections 143(2) and 142(1) of Act were issued. In course of 3 of 14 Uploaded on - 07/02/2020 Downloaded on - 08/02/2020 10:49:36 Sonali Kilaje 17-ITXA-1940-17.doc assessment proceeding, Assessment Ofcer doubted expenditure of Rs.4,75,42,385/- stated to be on account of purchase from two parties i.e. Impex Trading Co. for amount of Rs.2,90,80,292/- and Victor Intertrade Pvt. Ltd. for amount of Rs. 1,84,62,093/-. Assessing Ofcer acted on basis of information received from ofce of Director General of Income Tax (Inv), Mumbai and from Sales Tax Department that in list of bogus sales parties names of aforesaid two parties were included which rendered purchase transaction doubtful. Show cause notice was issued by Assessing Ofcer to assessee to show cause as to why aforesaid amount should not be treated as unexplained expenditure and added back to income of assessee. It is seen that assessee submitted reply and matter was heard. 7. Assessing Ofcer observed that assessee did not produce lorry receipts and other related documents to refect movement of goods sold and purchased which were crucial for determining genuineness of purchase transaction. In absence thereof, Assessing Ofcer drew negative presumption. 4 of 14 Uploaded on - 07/02/2020 Downloaded on - 08/02/2020 10:49:36 Sonali Kilaje 17-ITXA-1940-17.doc 8. By assessment order dated 22.03.2013 passed under Section 143(3) of Act, Assessing Ofcer added said amount to total income of assessee u/s. 69C of Act by treating expenditure as bogus purchases. 9. Aggrieved by aforesaid order of Assessing Ofcer, assessee preferred appeal before Commissioner of Income Tax (Appeals)-20, Mumbai (hereinafter referred to as first appppellate authorrit ). On grounds and reasons mentioned in appellate order dated 12.11.2014, frst appellate authority held that such addition by Assessing Ofcer could not be sustained. Accordingly, Assessing Ofcer was directed to delete addition of Rs.4,75,42,385/-. 10. Against decision of frst appellate authority, revenue preferred appeal before Tribunal. Tribunal by order dated 16.11.2016 upheld order of frst appellate authority and dismissed appeal of revenue. 11. Hence, revenue is before us in appeal. 12. Mr. Sharma has taken us to order passed by 5 of 14 Uploaded on - 07/02/2020 Downloaded on - 08/02/2020 10:49:36 Sonali Kilaje 17-ITXA-1940-17.doc Assessing Ofcer and submits that considering goods involved in purchase and sale, assessee was required to produce documents to show movement of materials as well as stock ledger of goods. In absence thereof, Assessing Ofcer was justifed in invoking provisions of Section 69C of Act in making addition. This fact was overlooked by two lower appellate authorities below, thus vitiating impugned order. 13. We have considered submissions made by Mr. Sharma and also perused orders passed by authorities below. 14. At outset, we may advert to Section 69C of Act which is extracted hereunder :- 69C : Where in any fnancial year assessee has incurred any expenditure and he ofers no explanation about source of such expenditure or part thereof or explanation, if any, ofered by him is not, in opinion of Assessing Ofcer, satisfactory, amount covered by such expenditure or part thereof, as case may be, may be deemed to be income of assessee for such fnancial year. 6 of 14 Uploaded on - 07/02/2020 Downloaded on - 08/02/2020 10:49:36 Sonali Kilaje 17-ITXA-1940-17.doc Provided that, notwithstanding anything contained in any other provisions of this Act, such unexplained expenditure which is deemed to be income of assessee shall not be allowed as deduction under any head of income. 15. Section 69C deals with unexplained expenditure. It says that where assessee has incurred any expenditure and he ofers no explanation about source of such expenditure or part thereof or if explanation ofered by him is in opinion of Assessing Ofcer not satisfactory, amount covered by such expenditure or part thereof, as case may be, may be deemed to be income of assessee for fnancial year under consideration. As per proviso, once such expenditure is treated as unexplained expenditure which is deemed to be income of assessee, same shall not be allowed as deduction under any head of income. 15.1. Thus, Section 69C contains deeming provision. As per deeming provision, if assessee incurs any expenditure in relevant previous year but he ofers no explanation about source of such expenditure or part thereof or if explanation provided is not satisfactory to Assessing Ofcer, then 7 of 14 Uploaded on - 07/02/2020 Downloaded on - 08/02/2020 10:49:36 Sonali Kilaje 17-ITXA-1940-17.doc amount covered by such expenditure or part thereof shall be deemed to be income of assessee and once it is so deemed, same shall not be allowed as deduction under any head of income. 15.2 Gujarat High Court in Krishna Textiles v/s. CIT, 310 ITR227; has held that under Section 69C onus is on revenue to prove that income really belongs to assessee. 16. frst appellate authority while deleting addition made by Assessing Ofcer under Section 69C held that Assessing Ofcer did not doubt sales and stock records maintained by assessee. By submitting confrmation letters, copies of invoices, bank statement, payment order, payment by account payee cheques etc., assessee had proved that sale and purchases had taken place. By highlighting fact that all payments against purchases were made through banking channel by way of account payee cheques, frst appellate authority held that source of expenditure was fully established by assessee beyond any doubt. He has further recorded that during appellate proceedings assessee had furnished complete 8 of 14 Uploaded on - 07/02/2020 Downloaded on - 08/02/2020 10:49:36 Sonali Kilaje 17-ITXA-1940-17.doc quantitative details of items of goods purchased during year under consideration and their corresponding sales. 17. We may now advert to order passed by Tribunal, relevant portion of which is extracted hereunder : 4.4.1 We have heard rival contentions and perused and carefully considered materials on record, including judicial pronouncements cited. On appreciation of materials on record, it is evident from order of assessment that it is on basis of information obtained from Sales Tax Department that AO issued show cause notice to assessee to explain said purchases and issued notices under section 133(6) of Act to said two parties from whom said purchases were made, to which there was no response. AO primarily relying on information obtained from Sales Tax Department and sworn statements given before Sales Tax Department by Sri Pradeep Vyas of M/s. Victor Intertrade P. Ltd. and Shri Ketan Shah of M/s Impex Trading Company held said purchases to be bogus. While it may be true that said two purchase parties did not appear before AO, for whatever reasons, fact remains that assessee itself had fled copies of purchase bills, copies of purchase/sale invoices, challan-cum tax invoices in respect of purchases, extracts of stock ledgers showing entry/exit of materials; copies of bank statements to evidence that payment from these purchases were made 9 of 14 Uploaded on - 07/02/2020 Downloaded on - 08/02/2020 10:49:36 Sonali Kilaje 17-ITXA-1940-17.doc through normal banking channels, etc. to establish genuineness of said purchases. It is fact evident on record that AO has not doubted sales efected by assessee and therefore it is in order to conclude that without corresponding purchases being efected, assessee could not have made sales. 4.4.2 In our considered view, AO has not brought on record any material evidence to conclusively prove that said purchases are bogus. Mere reliance by AO on information obtained from Sales Tax Department or sworn statement of two parties before Sales Tax Department, without afording assessee any opportunity to cross examine those witnesses in this regard or fact that these parties did not respond to notice under section 133(6) of Act, would not in itself sufce to treat purchases as bogus and make addition. If AO doubted genuineness of this said purchases, it was incumbent upon him to cause further inquiries in matter to ascertain genuineness or otherwise of transactions. Without causing any further enquires in respect of said purchases, AO cannot make addition under section 69C of Act by merely relying on information obtained from Sales Tax Department, statement/afdavit of third parties, Shri Pradeep Vyas and Ketan Shah; without assessee being aforded any opportunity of cross examination of that persons and for non-response to notices under section 133(6) of Act. 10 of 14 Uploaded on - 07/02/2020 Downloaded on - 08/02/2020 10:49:36 Sonali Kilaje 17-ITXA-1940-17.doc 4.4.3 In factual matrix of case, where AO failed to cause any enquiry to be made to establish his suspicions that said purchases are bogus, assessee has brought on record documentary evidences to establish genuineness of purchase transactions, action of AO in ignoring these evidences cannot be accepted. Further, Hon'ble Bombay High Court in case of Ashish International (supra) has held that genuineness of statements relied upon by Revenue is not established when assessee disputes correctness of those statements and has not been aforded adequate opportunity to cross examine these parties even though he has asked for same. Moreover, as correctly observed by learned CIT(A), when payment for said purchases to concerned two parties is through proper banking channels and there is no evidence brought on record by AO to establish that said payments were routed back to assessee, addition made by AO under section 69C of Act is unsustainable. We are fortifed in this view of ours by decisions of, inter alia, Hon'ble Bombay High Court in cases of Nikunj Eximp Enterprises Pvt. Ltd. (supra), Ashish International (supra), decision of Coordinate Benches of this Tribunal in case of Hiralal Chunilal Jain (supra) and Imperial Imp & Exp (supra). In this factual matrix of case, as discussed above, we fnd no requirement for interference in order of learned CIT(A) and consequently uphold same. Therefore, Revenue s fve grounds (i) to (vii) are dismissed. 11 of 14 Uploaded on - 07/02/2020 Downloaded on - 08/02/2020 10:49:36 Sonali Kilaje 17-ITXA-1940-17.doc In result, Revenue s appeal for A.Y. 2010-11 is dismissed. Order pronounced in open court on 16 th November, 2016. 17.1. Thus, from above, it is seen that Tribunal had returned fnding of fact that assessee had fled copies of purchase bills, copies of purchase/ sale invoices, challan cum tax invoices in respect of purchases, extracts of stock ledger showing entry/exit of materials purchased, copies of bank statements to show that payment for such purchases were made through regular banking channels, etc., to establish genuineness of purchases. Thereafter, Tribunal held that Assessing Ofcer could not bring on record any material evidence to show that purchases were bogus. Mere reliance by Assessing Ofcer on information obtained from Sales Tax Department or statements of two persons made before Sales Tax Department would not be sufcient to treat purchases as bogus and thereafter to make addition under Section 69C of Act. Tribunal has also held that if Assessing Ofcer had doubted genuineness of purchases, it was incumbent upon Assessing Ofcer to have caused further enquiries in matter to ascertain genuineness or otherwise of transaction 12 of 14 Uploaded on - 07/02/2020 Downloaded on - 08/02/2020 10:49:36 Sonali Kilaje 17-ITXA-1940-17.doc and to have given opportunity to assessee to examine/cross-examine those two parties vis-a-vis statements made by them before Sales Tax Department. Without causing such further enquiries in respect of purchases, it was not open to Assessing Ofcer to make addition under Section 69C of Act. 18. We are in agreement with view expressed by Tribunal. In fact, Tribunal has only afrmed fnding of frst appellate authority. Thus, there is concurrent fnding of fact by two lower appellate authorities. 19. This Court in case of Cormmissiorner orf Incorme Tax -1, Mumbai v/s. Nikunj Eximpp Enterpprises(P.) Ltd. , 372 ITR 619; wherein identical fact situation arose did not interfere with order passed by Tribunal and held that no substantial question of law arose from such order. It was held that merely because suppliers had not appeared before Assessing Ofcer, no conclusion could be arrived at that purchases were not made by assessee. 13 of 14 Uploaded on - 07/02/2020 Downloaded on - 08/02/2020 10:49:36 Sonali Kilaje 17-ITXA-1940-17.doc 20. On thorough consideration of matter, we do not fnd any error or infrmity in view taken by Tribunal. No substantial question of law arises therefrom. Thus, there is no merit in appeal. Appeal is accordingly dismissed. However, there shall be no order as to costs. (MILIND N. JADHAV, J.) (UJJAL BHUYAN,J.) 14 of 14 Uploaded on - 07/02/2020 Downloaded on - 08/02/2020 10:49:36 Pr. Commissioner of Income-tax-13, Mumbai v. Vaman International Pvt. Ltd
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