LIFELINE DRUGS AND INTERMEDIATES PVT.LTD., MUMBAI v. DY. CIT 9(2), MUMBAI

ITA 5535/MUM/2007 | 2004-2005
Pronouncement Date: 30-04-2010 | Result: Dismissed

Appeal Details

RSA Number 553519914 RSA 2007
Assessee PAN AAACP9087F
Bench Mumbai
Appeal Number ITA 5535/MUM/2007
Duration Of Justice 2 year(s) 8 month(s) 8 day(s)
Appellant LIFELINE DRUGS AND INTERMEDIATES PVT.LTD., MUMBAI
Respondent DY. CIT 9(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-04-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted H
Tribunal Order Date 30-04-2010
Date Of Final Hearing 22-04-2010
Next Hearing Date 22-04-2010
Assessment Year 2004-2005
Appeal Filed On 21-08-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH MUMBAI BEFORE SHRI R.S. PADVEKAR JM & BEFORE SHRI R.K. PA NDA AM I.T.A. NO. 5535/MUM/2007 (ASSESSMENT YEAR 2004-05) M/S. LIFELINE DRUGS AND INTERMEDIATES PVT. LTD. A-WING 4 TH FLOOR MASTERMIND III ROYAL PALM ESTATE MAYUR NAGAR AAREY MILK COLONY GOREGAON (EAST) MUMBAI-400 065 PAN: AAACP9087F VS. DY. CIT 9(2) AAYAKAR BHAVAN MUMBAI APPELLANT RESPONDENT I.T.A. NO. 5546/MUM/2007 (ASSESSMENT YEAR 2004-05) ACIT 9(2) ROOM NO. 218 2 ND FLOOR AAYAKAR BHAVAN MUMBAI-400 020 VS. M/S. LIFELINE DRUGS AND INTERMEDIATES PVT. LTD. A-WING 4 TH FLOOR MASTERMIND III ROYAL PALM ESTATE MAYUR NAGAR AAREY MILK COLONY GOREGAON (EAST) MUMBAI-400 065 PAN: AAACP9087F APPELLANT RESPONDENT ASSESSEE BY: MR. SUBHASH SHETTY REVENUE BY: MR. S.K. PAHWA O R D E R DATE OF HEARING: 22.04.2010 DATE OF ORDER: 30.04.2010 PER R.K. PANDA AM: THESE ARE CROSS APPEALS THE FIRST ONE FILED BY TH E ASSESSEE AND THE SECOND ONE FILED BY THE REVENUE AND ARE DIRECTED AG AINST THE ORDER DATED 27 TH JUNE 2007 OF THE CIT(A)-IX MUMBAI RELATING TO AS SESSMENT YEAR I.T.A. NOS. 5535&5546/MUM/2007 M/S. LIFE LINE DRUGS & INTERMEDIATES P. LTD. ============================== 2 2004-05. THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESS EE FILED ITS RETURN OF INCOME DECLARING A TOTAL INCOME OF RS.33 27 400. D URING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D FROM PARA 32 OF THE 3CD REPORT FURNISHED BY THE AUDITORS U/S. 44AB THAT THERE IS A DRASTIC FALL IN THE PERCENTAGE OF GROSS PROFIT AND NET PROFIT AS COMPARED TO THE FIGURES OF THE PRECEDING ASSESSMENT YEAR. THE ASSESSING OF FICER THEREAFTER CONDUCTED DEEP INVESTIGATION AND CERTAIN PURCHASE P ARTIES WERE PICKED UP BY HIM FOR VERIFICATION. 3. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HA D PURCHASED RAW MATERIAL OF RS.55 64 931 FROM M/S. DEEP CHEM HAVING THEIR OFFICE AT 2/32 RONAK BHUVAN 2 ND FLOOR B.N. ROAD MALAD (EAST) MUMBAI-97. HE ISS UED NOTICE U/S. 133(6) OF THE INCOME-TAX ACT 1961 (THE ACT) TO THE ABOVE PARTY CALLING FOR CERTAIN SPECIFIC DETAILS SUCH AS DETAILS OF SALES MADE TO THE ASSESSEE DURING THE IMPUGNED ASSESSMENT YEAR COPY OF LEDGER ACCOUNT OF THE ASSESSEE IN THEIR BOOKS OF ACCOUNT THEIR INCOM E-TAX PARTICULARS AND BANK ACCOUNT. IN RESPONSE TO SUCH NOTICE SHRI APU RVA ASHWIN MASALIA PROPRIETOR OF M/S. DEEP CHEM APPEARED BEFORE THE AS SESSING OFFICER AND SUBMITTED THAT HE HAD NOT SOLD ANY MATERIAL TO THE ASSESSEE AND HAS ONLY ISSUED ACCOMMODATION BILLS. THE ASSESSING OFFICER RECORDED THE STATEMENT OF SHRI MASALIA U/S. 131 OF THE ACT AND C ONFRONTED THE SAME TO THE ASSESSEE. HOWEVER THERE WAS NO RESPONSE FROM THE ASSESSEE IN SPITE OF SPECIFIC OPPORTUNITIES GIVEN BY THE ASSESSING OF FICER EITHER TO EXPLAIN THE SAME OR TO CROSS EXAMINE SHRI MASALIA. THE ASS ESSING OFFICER ACCORDINGLY HELD THAT THE ASSESSEE HAS NO EXPLANATI ON TO OFFER AND HAS INFLATED HIS PURCHASES THROUGH BOGUS PURCHASES TO R EDUCE ITS TAXABLE INCOME. HE ACCORDINGLY ADDED AN AMOUNT OF RS.55 64 931 TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF BOGUS PURCHASE S. I.T.A. NOS. 5535&5546/MUM/2007 M/S. LIFE LINE DRUGS & INTERMEDIATES P. LTD. ============================== 3 4. SIMILARLY THE ASSESSING OFFICER ISSUED NOTICES U/S. 133(6) TO THE FOLLOWING PARTIES TO EXAMINE THE GENUINENESS OF PUR CHASES MADE BY THE ASSESSEE: I) M/S. CHEMBRO II) M/S. JIGAR CORPORATION III) M/S. UNIVERSAL ENTERPRISES IV) M/S. PRATEEN LABORATORIES V) M/S. PUSHPAM CHEMICALS VI) M/S. SANJIVANEE ENTERPRISES VII) M/S. SATYAM ENTERPRISES 5. HOWEVER THE ASSESSING OFFICER NOTED THAT THE LETTE R SENT TO M/S. CHEMBRO WAS RETURNED UNSERVED AS NO SUCH PARTY WAS AVAILABLE AT THE GIVEN ADDRESS AND THE OTHER SIX PARTIES DID NOT SUB MIT ANY DETAILS. SINCE THERE WAS NO COMPLIANCE FROM THE ABOVE PARTIES THE ASSESSING OFFICER ASKED THE ASSESSEE TO PRODUCE THE ABOVE PARTIES FOR HIS VERIFICATION. HOWEVER IN ABSENCE OF ANY COMPLIANCE TO THE NOTICE BY THE ABOVE PARTIES AND NON PRODUCTION OF THE ABOVE PARTIES BY THE ASSE SSEE BEFORE THE ASSESSING OFFICER THE ASSESSING OFFICER HELD THE P URCHASES AMOUNTING TO RS.4 70 72 384 FROM THE ABOVE 7 PARTIES AS BOGUS. HE ACCORDINGLY MADE AN ADDITION OF RS.5 26 37 315 (RS.55 64 931 + RS.4 70 72 384) TO THE TOTAL INCOME OF THE ASSESSEE. 6. IN APPEAL IT WAS SUBMITTED THAT THE ASSESSEE COMPA NY WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING BULK DRUGS MAINTAINED PROPER BOOKS OF ACCOUNT AS REQUIRED UNDER VARIOUS LAWS LIK E THE COMPANIES ACT INCOME-TAX ACT SALES TAX ACT AND EXCISE ACT. THE ASSESSEE COMPANY ALSO MAINTAINED PROPER STOCK REGISTER FOR RAW MATERIALS AS WELL AS FINISHED GOODS WHICH WERE REGULARLY AUDITED AND INSPECTED BY VARIOUS GOVERNMENT AUTHORITIES. QUANTITATIVE DETAILS IN RE SPECT OF RAW MATERIAL CONSUMPTION SALES PRODUCTION OPENING STOCK AND C LOSING STOCK ETC. WERE SUBMITTED IN THE AUDIT REPORT UNDER THE COMPAN IES ACT AS WELL AS INCOME-TAX ACT. IT WAS SUBMITTED THAT ONCE THE RAW MATERIALS WERE I.T.A. NOS. 5535&5546/MUM/2007 M/S. LIFE LINE DRUGS & INTERMEDIATES P. LTD. ============================== 4 RECEIVED AT THE FACTORY PROPER ENTRIES WERE MADE I N THE STOCK REGISTER SUPPORTED BY GOODS RECEIVED NOTE AND DELIVERY CHALL AN OF THE PARTY. SUCH RAW MATERIAL WAS SENT FOR CHEMICAL TESTING AND CHEM ICAL REPORTS WERE AVAILABLE ON THE RECORD. EACH PURCHASE WAS SUPPORT ED BY SUPPLIERS INVOICE AND DELIVERY CHALLAN. IT WAS ACCORDINGLY S UBMITTED THAT THE ASSESSEE WAS HAVING PROPER DOCUMENTARY EVIDENCES IN SUPPORT OF PURCHASE OF RAW MATERIAL THEIR RECEIPTS IN THE FAC TORY THEIR CONSUMPTION IN THE FACTORY AND THE PRODUCTION COST UNDER WHICH FINAL SALES WERE MADE. IT WAS SUBMITTED THAT THE ASSESSEE HAD PAID CENTRAL EXCISE DUTY OF RS.49 66 206 AND SALES-TAX OF RS.8 52 924 AGAINST T HE SALES RECORDED FOR THE YEAR UNDER CONSIDERATION. IT WAS ALSO SUBMITTE D THAT IN THE CHEMICALS MARKET GOODS ARE USUALLY PURCHASED THROUGH BROKER A ND PURCHASERS DO NOT HAVE DIRECT CONTACT WITH THE SUPPLIER. SAME WA S THE CASE IN THE CASE OF THE ASSESSEE. HOWEVER IN THE CASE OF THE ASSESSEE ALL THE PURCHASES WERE MADE THROUGH PROPER PURCHASE ORDERS. FURTHER ALL P AYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUES. AS FAR AS THE STATEMENT OF MR. MASALIA WAS CONCERNED IT WAS SUBMITTED THAT THE STATEMENT OF M R. MASALIA WAS NOT PROPERLY TESTED BY THE ASSESSING OFFICER AND HIS ST ATEMENT WAS A SELF- SERVING STATEMENT TO SAVE HIS SKIN INASMUCH AS HE M IGHT NOT HAVE RECORDED THE TRANSACTION IN HIS BOOKS OF ACCOUNT TO AVOID PAYMENT OF TAX. HENCE THIS STATEMENT COULD NOT BE USED AGAINST THE ASSESSEE FOR ALLEGED ADDITION. IT WAS ALSO SUBMITTED BEFORE THE CIT(A) THAT IF THE ADDITION MADE BY THE ASSESSING OFFICER IS SUSTAINED THEN THE GROSS PROFIT RATIO COMES TO 56% AND NET PROFIT RATIO COMES TO 49.95% W HICH IS NOT POSSIBLE IN THIS LINE OF BUSINESS. THE DECISION OF THE TRIB UNAL IN THE CASE OF BHASIN DRUGS LTD. VS. ITO VIDE I.T.A. NOS. 4328 TO 4324/MU M/2003 WAS RELIED UPON. 7. BASED ON THE VARIOUS ARGUMENTS ADVANCED BY THE AS SESSEE THE CIT(A) NOTED THAT THE ASSESSEE HAS MAINTAINED PROPE R BOOKS OF ACCOUNT WHICH ARE AUDITED BY THE AUDITORS AND THE ASSESSING OFFICER HAS NOT FOUND FAULT IN ORDER TO REJECT THE SAME. ACCORDING TO HI M THE ASSESSEE MIGHT HAVE INSERTED THE ACCOMMODATION BILLS FOR ITS OTHER PURCHASES MADE I.T.A. NOS. 5535&5546/MUM/2007 M/S. LIFE LINE DRUGS & INTERMEDIATES P. LTD. ============================== 5 WITHOUT BILLS TO PROPERLY SET RIGHT ITS RECORDS OF PRODUCTION AND SALES. HE NOTED THAT THE ASSESSING OFFICER HAS NOT FOUND ANY FAULT WITH SALES MADE DURING THE YEAR UNDER CONSIDERATION AND THEREFORE WHEN THE SALES ARE NOT DISPUTED THERE IS NO REASON TO ASSUME THAT THERE WA S NO PURCHASE EFFECTED AGAINST SUCH SALE. THEREFORE THE ASSESSING OFFICE RS ACTION IN DISALLOWING THE ENTIRE CLAIM OF PURCHASES CANNOT BE ACCEPTED. FURTHER THE ASSESSEE COMPANY HAD MAINTAINED STOCK RECORDS AS WELL AS PRO DUCTION RECORDS WHICH WERE PRODUCED BEFORE THE ASSESSING OFFICER WH ICH CLEARLY INDICATE THAT ALTHOUGH PURCHASES WERE NOT MADE FROM THE RECO RDS IN WHOSE NAMES THEY WERE CREDITED NEVERTHELESS THERE WERE PURCHAS ES MADE BY THE ASSESSEE COMPANY TO THE TOTAL QUANTITY SHOWN IN ITS PRODUCTION RECORD. THUS LOOKING TO THE OVERALL FACTS OF THE CASE THE CIT(A) OBSERVED THAT THE ASSESSEE HAD PURCHASED THE GOODS FROM THE MARKET WI THOUT OBTAINING THE BILLS AND SUCH PURCHASES WERE SET RIGHT IN BOOKS BY BRINGING ON RECORD THE ACCOMMODATION INVOICES AND IN SUCH PROCESS THE INFL ATION OF PRICE CAN ALSO NOT BE RULED OUT. HE ALSO ACCEPTED THE CONTEN TION OF THE ASSESSEE THAT THE REDUCTION IN GROSS PROFIT WAS DUE TO CHANGE IN PRODUCT STRUCTURE. HE NOTED THAT IN THIS LINE OF BUSINESS THE OTHER PHAR MACEUTICAL COMPANIES WHO ARE CARRYING ON SIMILAR BUSINESS HAS GROSS PRO FIT OF 10%. HE THEREFORE AGREED WITH THE CONTENTION OF THE ASSESS EE THAT THE ALLEGED ADDITION OF PURCHASES TO THE INCOME WOULD INCREASE THE GROSS PROFIT AT 56% AS AGAINST 10.65% AND NET PROFIT AT 49.93% AS A GAINST 4.6% IS TOTALLY UNREALISTIC. HE FURTHER OBSERVED THAT THERE IS FOR CE IN THE ASSESSEES CONTENTION THAT IF PURCHASES WERE BOGUS THEN SALES TO THAT EXTENT ALSO SHOULD HAVE BEEN TREATED AS BOGUS AND SHOULD HAVE B EEN REDUCED FROM THE SALES BECAUSE FOR EVERY PURCHASE THERE WAS COR RESPONDING SALES. 8. ACCORDING TO THE CIT(A) THE ASSESSEE COULD NOT HAV E MANUFACTURED AND SOLD THE FINISHED GOODS WITHOUT PURCHASING THE RAW MATERIAL. THERE CAN BE A POSSIBILITY THAT RAW MATERIAL MUST HAVE BE EN PURCHASED IN THE OPEN MARKET FOR WHICH INVOICES WERE OBTAINED FROM T HE ABOVE PARTIES. THERE IS EVERY POSSIBILITY OF INFLATION AT PURCHASE S IN VALUE. CONSIDERING ALL THESE ASPECTS HE HELD THAT IT WOULD BE FAIR TO DISALLOW AN AMOUNT OF 8% I.T.A. NOS. 5535&5546/MUM/2007 M/S. LIFE LINE DRUGS & INTERMEDIATES P. LTD. ============================== 6 OF THE TOTAL PURCHASES OF RS.5.26 37 320 WHICH WORK S OUT TO RS.42 10 985 AND WHICH WOULD INCREASE THE NET PROFIT APPROXIMATE LY FROM 4.8% TO 8%. HE ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO RE STRICT THE DISALLOWANCE AT 8% OF RS.5 26 37 320. 9. AGGRIEVED WITH SUCH PART RELIEF THE ASSESSEE AS WE LL AS THE REVENUE ARE IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS: ASSESSEES GROUNDS OF APPEAL: 1. THE LEARNED CIT(A)-IX ERRED IN DISALLOWING 8% OF PURCHASES OF RS.5 26 37 320/- AMOUNTING TO RS.42 10 985/-. 2. THE LEARNED CIT(A) ERRED IN CONCLUDING THAT WITH TH E ADDITION OF RS.42 10 985/- THE NET PROFIT OF THE APPELLANT ALSO INCREASE FROM 4.6 TO 8%. THE APPELL ANT PRAY THAT THE NET PROFIT 8% IS TOO HIGH CONSIDERING THE NATURE OF BUSINESS AND INDUSTRY. 3. THE LEARNED CIT(A) FAILED TO CONSIDER THE REASONS SUBMITTED BEFORE HER FOR FALL IN G.P. RATIO AND N.P . RATIO COMPARED TO THE EARLIER YEAR. REVENUES GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE CIT(A) ERRED IN RESTRICTING THE DISALLO WANCE @ 8% OF ADDITION MADE OF RS.5 26 37 320/- ON ACCOUN T OF BOGUS PURCHASES WITHOUT APPRECIATING THE FACTS OF THE CASE. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ITO/AC/DC BE RESTORED. 10. THE LEARNED DR WHILE ASSAILING THE ORDER OF THE CI T(A) SUBMITTED THAT THE SAME IS A PERVERT ORDER. REFERRING TO THE ASSESSMENT ORDER HE SUBMITTED THAT DESPITE SEVERAL OPPORTUNITIES GIVEN BY THE ASSESSING OFFICER THE ASSESSEE NEITHER FURNISHED ANY SUPPORT ING EVIDENCE NOR ASKED FOR CROSS EXAMINATION OF SHRI MASALIYA WHO HAD CLEA RLY STATED THAT THEY HAVE NOT SOLD ANY MATERIAL TO THE ASSESSEE COMPANY AND HAS ONLY ISSUED ACCOMMODATION BILLS. AS REGARDS THE OTHER PURCHASE PARTIES THE NOTICE IN ONE CASE WAS RETURNED UNSERVED AND THE REMAINING SI X PARTIES DID NOT RESPOND TO SUCH NOTICES. IN SPITE OF SPECIFICALLY BEING ASKED BY THE I.T.A. NOS. 5535&5546/MUM/2007 M/S. LIFE LINE DRUGS & INTERMEDIATES P. LTD. ============================== 7 ASSESSING OFFICER THE ASSESSEE REMAINED SILENT AND DID NOT PRODUCE THE PARTIES BEFORE HIM FOR HIS EXAMINATION. REFERRING TO THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. LA MEDICO REPORTED IN 117 TAXMAN 628 (250 ITR 575) HE SUBMITTED THAT UNDER I DENTICAL CIRCUMSTANCES THE HONBLE HIGH COURT HAD REVERSED T HE DECISION OF THE TRIBUNAL AND HELD THAT THE ENTIRE PURCHASES HAVE TO BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE. HE SUBMITTED THAT IT IS IM MATERIAL IF THE GP GOES UP TO A HIGHER PERCENTAGE BECAUSE OF ADDITION ON AC COUNT OF BOGUS PURCHASES. REFERRING TO THE ORDER OF THE CIT(A) WH ERE HE HAS MENTIONED THAT THE ASSESSEE HAS INSERTED ACCOMMODATION BILLS FOR ITS OTHER PURCHASES MADE WITHOUT BILLS TO PROPERLY SET RIGHT ITS RECORD S OF PRODUCTION AND SALES AND THAT SALES WERE NOT DISPUTED THEREFORE THERE IS NO REASON TO ASSUME THAT THERE WAS NO PURCHASES HE SUBMITTED TH AT SUCH PROPOSITION WILL LEGALISE THE ILLEGAL TRANSACTIONS AND IT IS AG AINST THE HONEST TAX PAYERS. HE ACCORDINGLY SUBMITTED THAT THE ENTIRE PURCHASES HAVE TO BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE IRRESPECTIVE OF TH E FACT THAT THE GP RATIO AND NET PROFIT RATIO WILL GO UP AND WHICH MAY NOT B E OF THE AVERAGE INDUSTRY STANDARD. 11. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OTHER HAND SUBMITTED THAT WHEN THE GROSS PROFIT AND NET PROFIT RATIOS HA VE BEEN ACCEPTED BY THE ASSESSING OFFICER AND THE AUDITED ACCOUNTS FURNISHE D BY THE ASSESSEE WERE NOT REJECTED BY THE ASSESSING OFFICER NO ADDIT ION CAN BE MADE ON ACCOUNT OF THE PURCHASES. REFERRING TO THE FINANCI AL STATEMENT FOR THE A.Y. 2004-05 TO 2006-07 HE SUBMITTED THAT THE ASSESSEE HAS SHOWN GP RATE OF 10.65% FOR THE A.Y. 2004-05 GP RATE OF 6.88% IN TH E A.Y. 2005-06 AND 10.60% DURING THE A.Y. 2006-07. SIMILARLY THE AS SESSEE HAS SHOWN NET PROFIT OF 4.55% DURING THE A.Y. 2004-05 AND 2.25% I N THE A.Y. 2006-07. HOWEVER THERE WAS A LOSS DURING THE A.Y. 2005-06 D UE TO FIRE. REFERRING TO THE SCRUTINY ASSESSMENT ORDER FOR THE A.Y. 2005- 06 HE SUBMITTED THAT THE ASSESSING OFFICER HAS NOT MADE ANY ADDITION ON ACCOUNT OF PURCHASES. HE ACCORDINGLY SUBMITTED THAT NO ADDITION SHOULD BE MADE. I.T.A. NOS. 5535&5546/MUM/2007 M/S. LIFE LINE DRUGS & INTERMEDIATES P. LTD. ============================== 8 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BO TH THE SIDES PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE DECISION RELIED ON BY THE LEARNED DR. THERE IS NO DISPUTE T O THE FACT THAT DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER CALLED FOR INFORMATION U/S. 133(6) OF THE ACT FROM 8 PARTIES. IN CASE OF PURCH ASES MADE BY THE ASSESSEE FROM M/S. DEEP CHEM WE FIND THE PROPRIETO R OF THE SAID FIRM MR. MASALIA APPEARED BEFORE THE ASSESSING OFFICER AND S TATED THAT HE HAD NOT MADE ANY SALES TO THE ASSESSEE COMPANY AND HAS ISSU ED ONLY ACCOMMODATION BILLS. ?WE FIND THE ASSESSING OFFICE R HAS RECORDED THE STATEMENT OF SHRI MASALIA U/S. 131(1) OF THE ACT AN D IN RESPONSE TO QUERY NOS. 3 4 AND 5 HE HAS SUBMITTED AS UNDER: Q.3 ARE YOU AWARE OF M/S. LIFE LINE DRUGS AND INTERMEDIATES PVT. LTD. IF YES HAVE YOU SOLD ANY MATERIAL TO ABOVE PARTY DURING A.Y. 2004-05? ANS. YES I AM AWARE OF M/S. LIFE LINE DRUGS AND INTERMEDIATES PVT. LTD. AND DURING THE A.Y. 2004-0 5 I HAVE ISSUED ACCOMMODATION BILLS OF RS.58 93 355/- T O ABOVE COMPANY. IN THIS TRANSACTION I HAVE EARNED O NE PER CENT COMMISSION. Q.4 HAVE YOU SUPPLIED ANY MATERIAL TO ABOVE CONCERN ? ANS. I HAVE ALREADY STATED IN REPLY TO QUESTION NO. 3 THAT I HAVE ISSUED ONLY ACCOMMODATION BILLS TO M/S. LIFE L INE DRUGS AND INTERMEDIATES PVT. LTD. AND NO ACTUAL SAL ES HAVE BEEN MADE TO THEM AND ON TOTAL SALES THEY HAVE PAID ME ONE PER CENT COMMISSION. Q.5 HOW YOU HAVE RECEIVED THE PAYMENTS AND HOW THE ENTIRE TRANSACTION HAS BEEN RECORDED? ANS. I HAVE RECEIVED ENTIRE PAYMENT BY CHEQUES AND THE SAME WAS DEPOSITED IN MY CURRENT ACCOUNT WITH ABHUDAYA CO-OP BANK LTD. MALAD (E) BRANCH BOMBAY 400 097. IMMEDIATELY CASH IS WITHDRAWN AND AFTER RETAINING ONE PER CENT COMMISSION BALANC E IS RETURNED TO THE PARTY. 13. WE FIND THE ASSESSING OFFICER IN ORDER TO EXAMINE T HE AUTHENTICITY OF SHRI MASALIA HAD ISSUED SUMMONS TO ABHUDAYA CO-O PERATIVE BANK I.T.A. NOS. 5535&5546/MUM/2007 M/S. LIFE LINE DRUGS & INTERMEDIATES P. LTD. ============================== 9 MALAD (EAST) AND OBTAINED THE STATEMENT AND FOUND T HE CONTENTION OF SHRI MASALIA TO BE TRUE SINCE AS SOON AS THE CHEQUE WAS RECEIVED FROM THE ASSESSEE COMPANY EQUIVALENT AMOUNT OF CASH HAS BEE N WITHDRAWN. WE FIND THE ASSESSING OFFICER HAS CONFRONTED THE STATE MENT OF SHRI MASALIA TO THE ASSESSEE ALONG WITH A COPY OF THE BANK STATEMEN T BOTH BY FAX AS WELL AS BY SPEED POST. FURTHER WE FIND THE ASSESSEE NEI THER APPEARED BEFORE THE ASSESSING OFFICER TO COUNTER THE STATEMENT MADE BY MR. MASALIA NOR TOOK OPPORTUNITY TO CROSS EXAMINE MR. MASALIA. THE SUBMISSION OF THE ASSESSEE BEFORE THE CIT(A) THAT MR. MASALIA MIGHT B E TRYING TO SAVE HIS SKIN AS HE MIGHT NOT HAVE RECORDED THE TRANSACTION IN HIS BOOKS OF ACCOUNT TO AVOID PAYMENT OF TAX IS WITHOUT ANY BASIS ESPECI ALLY WHEN THE ASSESSEE HAS SILENTLY ACCEPTED THE STATEMENT GIVEN BY SHRI M ASALIA BY NOT RESPONDING TO THE ASSESSING OFFICERS QUERY DESPITE PROPER OPPORTUNITY GIVEN. WE THEREFORE ARE OF THE CONSIDERED OPINIO N THAT THE ENTIRE AMOUNT OF RS.55 64 931 HAS TO BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF BOGUS PURCHASES. WE DO NOT FIND ANY MER IT IN THE OBSERVATIONS OF THE LEARNED CIT(A) THAT THE ASSESSEE MIGHT HAVE INSERTED THE ACCOMMODATION BILLS FOR ITS OTHER PURCHASES MADE WI THOUT BILLS TO PROPERLY SET RIGHT ITS RECORDS OF PRODUCTION AND SA LES. IN OUR OPINION WHEN THE ASSESSEE HAS NO EXPLANATION TO OFFER FOR T HE BOGUS PURCHASE THE SAME HAS TO BE ADDED TO THE TOTAL INCOME. IT CANNO T BE SAID THAT NO ADDITION CAN BE MADE SINCE THE ASSESSEE MIGHT HAVE PURCHASED FROM GREY MARKET. AN ASSESSEE CANNOT BE GIVEN AN OPPORTUNITY TO LEGALISE ITS ILLEGAL TRANSACTION THROUGH ACCOMMODATION ENTRIES. THEREFO RE IN OUR OPINION THE ENTIRE AMOUNT OF RS.55 64 931 HAS TO BE ADDED T O THE TOTAL INCOME OF THE ASSESSEE. 14. AS REGARDS THE PURCHASES FROM THE REMAINING SEVEN P ARTIES WE FIND IN RESPONSE TO THE NOTICE ISSUED BY THE ASSESS ING OFFICER SIX PARTIES DID NOT RESPOND WHEREAS THE LETTER ISSUED TO ONE M/ S. CHEMBRO WAS RETURNED UNSERVED. WE FIND DESPITE OPPORTUNITIES G IVEN BY THE ASSESSING OFFICER THE ASSESSEE DID NOT PRODUCE THE ABOVE PAR TIES FOR HIS EXAMINATION. SINCE ONE OF THE PARTIES WHO APPEARED BEFORE THE ASSESSING I.T.A. NOS. 5535&5546/MUM/2007 M/S. LIFE LINE DRUGS & INTERMEDIATES P. LTD. ============================== 10 OFFICER HAD CLEARLY STATED THAT HE HAD ISSUED ACCOM MODATION BILLS AND NOT MADE ANY SALES TO THE ASSESSEE THEREFORE IN ABSEN CE OF PROPER VERIFICATION FROM THE REMAINING 7 PARTIES IT CANNOT BE SAID THAT THE PURCHASES ARE GENUINE. 15. AS REGARDS THE CONTENTION OF THE LEARNED COUNSEL FO R THE ASSESSEE THAT WHEN SALES ARE MADE PURCHASES HAVE TO BE MADE AND WHEN SALES ARE ACCEPTED PURCHASES HAVE TO BE ACCEPTED WE DO NOT F IND ANY MERIT IN THE SAME. AN ASSESSEE MAY INSERT BOGUS PURCHASES TO RE DUCE ITS TAX LIABILITY WHEN THE PROFIT MARGIN IS MORE AND WHICH IS IN THE EXCLUSIVE KNOWLEDGE OF THE ASSESSEE. THEREFORE THE ASSESSEE HAS TO PR OVE THE GENUINENESS OF THE PURCHASES FOR THEIR ALLOWABILITY. HOWEVER SIN CE IN THE INSTANT CASE THE 7 PARTIES NEITHER APPEARED BEFORE THE ASSESSING OFFICER NOR THE ASSESSEE WAS ABLE TO PRODUCE THEM BEFORE THE ASSESS ING OFFICER THEREFORE WE IN THE INTEREST JUSTICE DEEM IT PROPER TO REST ORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO G IVE ONE MORE OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE WITH EVIDENCE TO TH E SATISFACTION OF THE ASSESSING OFFICER THAT THE PURCHASES FROM THE ABOVE 7 PARTIES AMOUNTING TO RS.4 70 72 384 ARE GENUINE. THE ASSESSING OFFI CER SHALL DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW ON ACCOUNT OF THE SEVEN PARTIES ONLY. WE HOLD AND DIRECT ACCORDINGLY. 16. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL FILED BY THE AS SESSEE IS DISMISSED. ORDER PRONOUNCED ON 30 TH APRIL 2010. SD/- (R.S. PADVEKAR) JUDICIAL MEMBER SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI DATED 30 TH APRIL 2010 I.T.A. NOS. 5535&5546/MUM/2007 M/S. LIFE LINE DRUGS & INTERMEDIATES P. LTD. ============================== 11 COPY TO: (1) THE APPELLANT (2) THE RESPONDENT (3) THE CIT(A) -IX MUMBAI (4) THE CIT MC-IX MUMBAI (5) THE DR H BENCH ITAT MUMBAI. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI TPRAO