9911796707
TMI Blog2019 (4) TMI 761X X X X Extracts X X X X X X X X Extracts X X X X ..... r to the impugned assessment year which was not allowed by the AO for those years. However, since the claim of the assessee is now allowed by the tribunal as above, the AO is directed to make necessary verification while allowing set off of un-absorbed deprecation for AY 1998-99, 1999-00 and 2000-01 against income of the impugned assessment to ensure that the same was not allowed for earlier years to avoid duplications. CIT(A) has also given similar directions to the AO for verifications to avoid duplication of the same claim. We donot find any infirmity in the order of learned CIT(A) granting relief to the assessee for the impugned assessment year. The Revenue fails. X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment order. v. "The appellant prays that the order of the CIT (A) on the above grounds be set aside and that of the A.O. be restored." vi. "The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary." 3. The assessee is engaged in the business of manufacturing and trading of spectacle lenses. The assessee filed its return of income on 5th October 2010 declaring taxable income of Rs. Nil. The return of income was processed u/s 143(1) of the 1961 Act. The assessment of the assessee was reopened by the AO u/s. 147 of the Act vide issuance of notice dated 24.03.2015 u/s 148 of the 1961 Act. It is pertinent to mention that reopening of the concluded assessment was done by Revenue by invocation of provisions of Section 147 of the 1961 Act within four years from the end of the assessment year and originally no scrutiny assessment was framed by the Revenue u/s 143(3) read with Section 143(2) of the 1961 Act. There is no challenge to reopening of the concluded assessment u/s 147 by the assessee as neither an appeal has been filed by the assessee against it nor any cross objections are filed by assessee and hence it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing invoices for bogus purchases and sales without supplying/delivering any goods. The AO was of the view that parties to these transactions had only provided accommodation entries and issued bogus bills without supplying/delivering goods. The payments were made by the parties who obtained bogus bills without delivery of material, to these hawala dealers through banking channel to route the funds and show that transactions as genuine. It was observed that merely payments being made from account payee cheque and bills for these goods being received does not authenticate the transactions. The AO was of the view that the assessee procured the goods from someone else whose particulars, mode and sources of payments, the assessee does not wish to disclose to Revenue. The assessee was confronted with this incriminating information by the AO during reassessment proceedings. The assessee during the course of reassessment proceedings was asked by the AO to prove genuineness of these purchases made from alleged hawala dealers. 3.3 The assessee submitted before the AO during reassessment proceedings that purchases from M/s Lahree Impex to the tune of ₹ 14,60,369/- were debited to Machin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were seizure of huge cash from these alleged hawala dealers which were withdrawn by these hawala dealers from their bank accounts to return the same back after deducting their commission to the parties from whom cheques were received against bogus bills. The AO observed that the assessee had failed to discharge onus cast on it to prove that purchases made by it were genuine. The assessee could not produce these parties before the AO. The AO issued notices u/s. 133(6) of the 1961 Act and it was found by the AO that most of these parties were not traceable or did not responded to notices issued u/s 133(6) of the 1961 Act. The AO observed that the onus lies on the assessee to prove genuineness of these purchases and to prove that these suppliers are genuine suppliers of the material. The assessee also did not submitted evidences of purchases like delivery challans, transport bills etc.. The AO was of the view that purchases have been made by the assessee from undisclosed parties in the open market in cash at much lower prices , and the assessee obtained invoices from these hawala dealers. The AO observed that these hawala dealers did not pay VAT/Sales Tax and /or income tax on sale o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the form of admission of the so-called seller about issuing bogus bills of purchases. f). The Hon'ble I.T.A.T, Jaipur in the case of M/s. Kanchwala Gems. Vs. JCIT No. 134/JP/202 dt 10.12.2003 affirmed by the Supreme Court in the case of M/s. Kanchwala Gems vs. JCIT (2006) 206 CTR (SC)585, 288 ITR 10(SC) has held that even payment by account payee cheque is not sufficient to establish the genuineness of purchases. g). It is well-settled law that strict rules of evidence do not apply to I.T. Act and the real test with regard to genuineness of the transaction is Preponderance of Probabilities" and not "Beyond reasonable doubt". Reliance is placed on C. Vasantlal & Co. Vs.CIT (1962) (SC) and Sumti Dayal Vs. CIT(1995) 214 ITR 801 (SC). One has to consider the totality of facts, surrounding circumstances and human probability for arriving at a conclusion as held in CIT Vs Durga Prasad 82 ITR 540 (SC) and Sumati Dayal Vs. CIT 214 ITR 801 (SC). h). The purchases from hawala operator falls within tie ambit of the term 'Colorable devices" and the Supreme Court observed in the case of Mc Dowell and Co. Ltd Vs. CTO 154 ITR 148 that "Tax planning may be legi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be willing to charge lower rates for unaccounted goods as compared to accounted for goods. Keeping all these factors in mind and also keeping in view of the decision of the Hon'ble I.T.A.T, Mumbai in the case of Sanjay Oil Cake Industries (Supra) we hold that 25% the purchase price accounted for in the books of accounts through such fictitious invoices in the name of 33 bogus parties should be disallowed out of the amount of purchases shown to have been made from those 33 bogus suppliers. We direct the Assessing Officer to disallow 25% of the aforesaid amount on account of inflation of purchase prices. 11. After carefully going through the legal instances available on this issue the onus lay upon the assessee to prove the genuineness of the transaction when it claimed that the purchases are genuine. From the above case laws and the discussion on investigation, it is crystal clear that- i) The primary onus is on the assessee to establish the genuineness of the purchase claimed by it, ii). Since the primary facts are in the knowledge of the assessee it is his duty to provide the correct address or contact modes of the alleged suppliers, iii). If the investigation d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r what investigation is expected from the assessing officer. It is for the assessee to prove the genuineness of the purchases claimed. Thus disallowance is warranted in this case. No particular reason has been given by assessing officer for computing the disallowance at 25% of the impugned purchases. In AY 2009-10 and AY 2011-12 , on similar facts, the disallowance was restricted to 12.5% of the purchases in the appellate order. In keeping with the consistence, the disallowance is restricted to 12.5% of the purchases. Thus disallowance is restricted to ₹ 1,82,730/- the ground of appeal no. 1 is partly allowed." 5. Now the matter is before tribunal at the behest of Revenue who is aggrieved by part relief granted by Ld.CIT(A) wherein additions to the income on account of bogus purchases were made by the AO to the tune of 25% of alleged bogus purchases , which additions to the income were restricted by learned CIT(A) to 12.5% of the said bogus purchases. The Ld. DR submitted that bogus purchases were made by the assessee wherein the AO made additions to the income of the assessee to the tune of 25% of the said alleged bogus purchases , which was reduced to 12.5% of the said al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of CIT v. Simit P. Sheth pronounced on 16.01.2013 in tax appeal no. 5531 of 2012. The appellate order dated 26.05.2016 passed by learned CIT(A)-21, Mumbai for AY 2009-10 in appeal number CIT(A)-21/ITO-13(3)(3)/IT-11/2015-16 is placed in file. The grounds of appeal mentioned in tribunal order in ITA No. 4961/Mum/2016 dated 17.04.2018 in assessee's own case for AY 2009-10 in Revenue' s appeal which clearly shows that the Revenue did not challenge upholding of additions to the income of the assessee to the tune of 12.5% of alleged bogus purchases by learned CIT(A) as against additions to the tune of 100% of alleged bogus purchases as were made by the AO for AY 2009-10. The said order of the tribunal is placed in file. 6. We have considered rival contentions and perused the material on record including cited case laws. We have observed that the assessee is engaged in the business of manufacturing and trading of spectacle lenses. The assessee filed its return of income on 05.10.2010 which was processed u/s 143(1) of the 1961 Act. The assessment of the assessee was reopened by the AO u/s. 147 of the Act vide issuance of notice dated 24.03.2015 u/s 148 of the 1961 Act. It is pertinen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The sales tax department had further stated that the purchases made by the assessee from various hawala dealers amounting to ₹ 14,61,825/- were bogus purchases. The searches were conducted by Maharashtra Sales Tax Authorities on these alleged hawala dealers wherein huge cash was found which were withdrawn by these hawala dealers from their banks against cheques received from the parties who had obtained bogus bills from these hawala dealers to be returned to them against cheques received from these parties, after deducting their commission. The assessee had made alleged purchases from two accommodation entry providers namely Lahreee Impex and M/s Siddhivinayak Corporation, aggregating to ₹ 14,61,825/-. The payments to Lahree Impex was made through account payee cheques while payment to M/s Siddhivinayak Corporation was made in cash through petty cash book. The material were claimed to be procured for Machinery Maintenance from Lahree Impex, while on the other hand material was allegedly procured for General Repairs and Maintenance from M/s Siddhivinayak Corporation. The AO asked assessee to produce these parties for verification which could not be produced by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought to tax as income over and above income declared by the assessee in its return of income filed with Revenue , while learned CIT(A) was of the view that fair and reasonable estimate of profit should be 12.5% of the alleged bogus purchases as an income to be brought to tax over and above income declared by the assessee. The view taken by the authorities below to estimate profits embedded in bogus purchases as an income to be brought to tax instead of bringing to tax entire bogus purchases is a plausible view based on the entire factual matrix of the case and cannot be considered as a perverse view. Reference is drawn to decision of Hon'ble Supreme Court in the case of Kachwala Gems v. JCIT reported in (2007) 288 ITR 10(SC). The contention of learned DR to bring to tax as income the entire alleged bogus purchases based on the Hon'ble Apex Court decision in the case of N K Proteins Limited(supra) cannot be acceded to. There are no clinching and conclusive evidences available on record which could justify disallowing 100% of the bogus purchases. The AO has not made any in-depth verification and analysis of Machinery Maintenance Material Account nor of the General Repairs Account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... department. Hon'ble Supreme Court in the case of Kanchwala Gems v. JCIT reported in (2007) 288 ITR 10(SC) has held that in best judgment assessment an honest and fair estimate of income is to be made. We at this stage do not want assessee to be relegated to pains of another round of litigation based on material on record. In our considered view based on facts and circumstances of the case, we find that estimation of profit by Ld. CIT(A) to the tune of 12.5% of the alleged bogus purchases as income of the assessee over & above what was declared by the assessee in his return of income , is considered to be a reasonable and fair estimate , which we confirm/affirm. In the result, the appeal of the revenue on this ground stood dismissed. The ground no.(iv) filed by revenue in its appeal with tribunal stand dismissed. We order accordingly. 7. The second issue in this Revenue's appeal vide grounds of appeal no. (i) to (iii) concerns itself with set off of un-absorbed depreciation of ₹ 1,24,09,517/- against the income of the current year. The depreciation which was claimed by the assessee to be set off against income of the current year is depreciation carry forward for the AY 1998 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... j.HC) was pleased to grant relief to the assessee , by holding as under:- "5.1. Grounds of Appeal No.2 is in respect of unabsorbed depreciation brought forward of ₹ 1,24,09,517/- pertaining to A.Yrs 1998-99, 1999-99 and 2000-01 in computation of taxable income. This issue has been discussed in para 5 of the assessment order. The Assessing Officer noted that the Appellant had claimed carried forward of unabsorbed depreciation of AY 1998-99 , 1999-2000 and AY 2000-2001 of ₹ 210,04,962 against which an amount of ₹ 124,09,517 was set off in the current year. The assessing further noted that such claim of set off had been disallowed in earlier years also. He noted that 'Unabsorbed Depreciation' of AY 1998-99, 1999-2000 and 2001-01, the same cannot be adjusted against the income for AY 2010-11 as 8 years have already elapsed. He therefore disallowed the claim of set off of unabsorbed depreciation brought forward from AY 1998-99, 1999-2000 and 2000-01. 5.2. The appellant submitted that the issue of set off of unabsorbed depreciation for AY 1998-99, 1999-2000 and 2000-01 has to be dealt with in accordance with section 32(2) of the Act as amended by the Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Gujarat delivered in the case of General Motors India Pvt. Ltd. dated 3.08.2012. Departmental Representative (DR) supported the order of the AO and FAA. He relied upon the order of Special Bench of ITAT in the case of Times Guaranty Ltd. (ITA No. 4917 &4918/Mum/2008-AY 2003-04 & 20W-05 (131 TTJ) (Mum) (S.B. 257). 2.3. We have heard the rival submission and perused the material before us. We have heard the rival submissions and perused the material on record. It appears that while deciding the issue of un-absorbed depreciation, AO and the FAA have not considered the amended provisions of the Sec 32(2) of the Act in right perspective. Perusal of provisions of section 32 show that prior to 01-04-1997, un-absorbed depreciation of the previous year used to be claimed as current depreciation and would be allowed to be set-off against income from any other head. By an amendment to the provisions of Section 32(2) of the Act, w.e.f. 01-04-1997, treatment of un-absorbed depreciation underwent a change-because as per the amended provision un-absorbed depreciation was no longer deemed to be part of current deprecation and the period available for set-off of such unabsorbed depreciation f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orward of unabsorbed depreciation and set-off to a limit of 8 years, from lthe A.Y.I997-98. Circular No.762 dated 18.2.1998 issued by the Central Board of Direct Taxes (CBDT) in the form, of Explanatory Notes categorically provided, that the unabsorbed depreciation allowance for any previous year to which fill effect cannot be given in that previous year shall be carried forward and aided to the depreciation allowance of the next year and be deemed to be part thereof. 32.So, the unabsorbed depreciation allowance of A.Y. 1996-97 would be added to the allowance of A.Y. 1997-98 and the limitation of 8 years for the carry-forward and set-off of such unabsorbed depreciation would start from A.Y. 1997-98. 36.The purpose of this amendment has been clarified by Central Board of Direct Taxes in the Circular No. 14 of 2001. The relevant portion of the said Circular reads as under:- "Modification of provisions relating to depreciation. 30.1 Under the existing provisions of section 32 of the Income-tax Act, carry forward and set off of unabsorbed depreciation is allotted for 8 assessment years. 30.2 With a view to enable the industry to conserve sufficient funds to replace plant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words used in the section, the benefit accruing to the assessee cannot be denied. Howsoever, Circular No. 14 of 2001 had clarified that under Section 32(2), in computing the profits and gains of business or profession for any previous year, deduction of depreciation under Section 32 shall be mandatory. Therefore, the provision of section 32(2) as amended by Finance Act, 2001 would allow the unabsorbed depreciation allowance available in the A.Y. 1997-98, 1999-2000, 2000-01 ad 2001-02 to be carried forward the succeeding years, and if any unabsorbed depreciation or part thereof could not be set off till the A.Y. 2002-03 then it would be carried forward till the time it is set off against the profits and gains of subsequent years. 38. Therefore, it can be said that, current depreciation is deductible in the first place from the income of the business to which it relates. If such deprecation amount is larger than the amount of the profits of that business, then such excess comes for absorption from the profits and gains from any other business or business, if any, carried on by the assessee. If a balance is left even thereafter, that becomes deductible from out of income from any s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is seen that there are certain amounts that have already been adjusted and thus the quantum mentioned in the return of income in AY 2010-11 has to modified. The assessing officer is directed to verify and explicitly tabulate the amount of bought forward unabsorbed depreciation assessment year wise and the adjustment in the current year. Subject to above, the ground of appeal no 2 is allowed. 6. In the result, appeal is partly allowed." 9. Aggrieved by the relief granted by learned CIT(A) vide appellate order dated 24.04.2017, the Revenue has now filed an appeal with tribunal. The Ld. DR submitted that the issue involved in this appeal before tribunal is with respect to carry forward and set off of un-absorbed depreciation of earlier years viz. AY 1997-98, 1998-99 and 2000-01 against the income of the impugned assessment year. It was submitted by learned DR that prior to assessment year 1997-98 unabsorbed depreciation was allowed to be carried forward for set off for unlimited period, while however with effect from the assessment year 1997-98 un-absorbed depreciation is allowed to be carried forward for a period of eight years owning to amendment made by Finance Act no. 2 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only to eight Assessment Years immediately succeeding Assessment Year for which the loss was first computed and setoff against any other heads of income. Therefore, he held that unabsorbed depreciation for the Assessment Years 1998-99 and 1999-2000 cannot be adjusted against the income for Assessment Year 2009-10 as eight years have already lapsed. Accordingly, the unabsorbed depreciation of ₹ 55,54,310/- brought forward from Assessment Year 1999-2000 was disallowed. 7. On appeal Ld.CIT(A) following the decision of the Mumbai Bench in the case of Arch Fine Chemicals v. ACIT in ITA. No. 2414 and 2415/Mum/2012, where the Tribunal followed the decision of the Hon'ble Gujarat High Court in the case of General Motors India Pvt Ltd., the Ld.CIT(A) allowed the claim of the assessee to adjust the unabsorbed depreciation and carried forward unabsorbed depreciation for Assessment Year 2000-01 and earlier years as current depreciation and allowed to be set-off against business income in the current Assessment Year. We have also gone through the decision of the Hon'ble Jurisdictional High Court and find that the issue has been covered in favour of the assessee. The question rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ext of re-opening notice it has also examined the issue on merits and drew support from the CBDT circular which is beneficial to the assessee to conclude as aforesaid. Nothing has been shown to us to indicate why the decision of the Gujarat High Court in General Motors (India) Ltd. should not be followed in the present facts. (d) In the above view question No.7 as raised does not give rise to any substantial question of law. Thus not entertained." 8. Therefore, as could be seen from the above the Hon'ble Jurisdictional High Court held that no substantial question of law arises against the Tribunal order in allowing set-off of unabsorbed depreciation pertaining to Assessment Years 1996-97 and 1997-98 beyond eight years against the income of the assessee in subsequent years. While holding so the Hon'ble Jurisdictional High Court considered the decision of the Hon'ble Gujarat High Court in the case of General Motors India (P) Ltd v. Dy. CIT [354 ITR 244]. Therefore, in view of the above discussion we uphold the order of the Ld.CIT(A) and reject the grounds raised by the Revenue. ." 10. We have considered rival contentions and have perused the material on record incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and allowed to be set-off against business income in the current Assessment Year. We have also gone through the decision of the Hon'ble Jurisdictional High Court and find that the issue has been covered in favour of the assessee. The question raised before the Hon'ble Jurisdictional High Court is as under: "7. Whether on facts and in circumstances of the case and in law the Tribunal was right in directing to allow the set off of brought forward depreciation losses of amalgamating company for the Assessment Years 1996-97 and 1997-98 i.e. for the period prior to amendment in sub section (2) of Section 32 of the Act w.e.f 01.04.2002?". The Hon'ble Jurisdictional High Court with regard to this question held as under: "6. Regarding question No. 7 (a) The impugned order of the Tribunal has allowed the respondent - assessee's appeal on the issue of allowing unabsorbed depreciation pertaining to Assessment Year 1996-97 and 1997-98 which was carried forward to be set off in the subject Assessment Year. (b) The grievance of the Appellant is that in view of the fetter (of eight years) in carrying forward depreciation for Assessment Year 1997-98 upto Assessment Ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P) Ltd v. Dy. CIT [354 ITR 244]. Therefore, in view of the above discussion we uphold the order of the Ld.CIT(A) and reject the grounds raised by the Revenue. ." Respectfully following the decision of Mumbai-tribunal in assessee's own case for AY 2009-10, we hold that the assessee is entitled for set off of unabsorbed depreciation for AY 1998-99,1999-00 and 2000-01 , aggregating to ₹ 1,24,09,517/- against the income of the impugned assessment year. We have also noted that the AO has observed that assessee has already sought set off of this un-absorbed deprecation against the income of years prior to the impugned assessment year which was not allowed by the AO for those years. However, since the claim of the assessee is now allowed by the tribunal as above, the AO is directed to make necessary verification while allowing set off of un-absorbed deprecation for AY 1998-99, 1999-00 and 2000-01 against income of the impugned assessment to ensure that the same was not allowed for earlier years to avoid duplications. The learned CIT(A) has also given similar directions to the AO for verifications to avoid duplication of the same claim. We donot find any infirmity in the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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