Kintech Synergy Pvt. Ltd., Ahmedabad V. The Dy. CIT (OSD), Circle-4, Ahmedabad

CO 186/AHD/2015

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 0314 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 05-04-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 13-10-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K DEV
• Assessee Lawyers: S N SOPARKAR
• Keywords: Bogus purchase; Cost of acquisition; Set aside
• Section: 143(3); 69; 145

Judgement Text

ITA NOS.2377 & 2378/AHD/2015 C.O. NOS.186 & 187/AHD/2015 ASSESSMENT YEARS: 2009-10 & 2010-11 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR, VP AND MS. MADHUMITA ROY, JM] ITA NOS.2377 & 2378/AHD/2015 ASSESSMENT YEARS: 2009-10 & 2010-11 DY. COMMISSIONER OF INCOME TAX (OSD)-I, CIRCLE-4, AHMEDABAD. .. .......... APPELLANT VS. KINTECH SYNERGY PVT. LTD., .... RESPONDENT 301, SHIVAM COMPLEX, B/H. SOMESHWAR MAHADEV, NEAR LAW GARDEN, AHMEDABAD - 380 015. [PAN: AAACK 8854 H] C.O. NOS.186 & 187/AHD/2015 (IN ITA NOS.2377 & 2378/AHD/2015 ASSESSMENT YEARS: 2009-10 & 2010-11 KINTECH SYNERGY PVT. LTD., ....APPELLANT 301, SHIVAM COMPLEX, B/H. SOMESHWAR MAHADEV, NEAR LAW GARDEN, AHMEDABAD - 380 015. [PAN: AAACK 8854 H] VS . DY. COMMISSIONER OF INCOME TAX (OSD)-I, CIRCLE-4, AHMEDABAD. ........RESPONDENT APPEARANCES BY S.K. DEV FOR THE REVENUE S.N. SOPARKAR FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING : 08.01.2019 DATE OF PRONOUNCING THE ORDER : 05.04.2019 O R D E R PER PRAMOD KUMAR, VICE PRESIDENT: 1. THESE TWO APPEALS, AND THE RELATED CROSS OBJECTI ONS CHALLENGE THE ORDER DATED 27 TH MAY 2015, PASSED BY THE LEARNED CIT(A), IN THE MATT ER OF ASSESSMENT UNDER SECTION 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 FOR THE ASS ESSMENT YEARS 2009-10 AND 2010-11. 2. GRIEVANCES RAISED IN THE APPALS, WHICH ARE COMMO N BUT FOR AMOUNTS INVOLVED, ARE AS FOLLOWS :- ITA NOS.2377 & 2378/AHD/2015 C.O. NOS.186 & 187/AHD/2015 ASSESSMENT YEARS: 2009-10 & 2010-11 PAGE 2 OF 5 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.79,05,758/- MADE ON ACCOUNT OF PURCHASES MADE TR EATING IT AS BOGUS AND NON-GENUINE, WITHOUT PROPERLY APPRECIATING THE FACT S OF THE CASE AND THE MATERIAL BROUGHT ON RECORD. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 3. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE L D. CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED T O THE ABOVE EXTENT. 3. WHEN THE APPEALS WERE CALLED OUT FOR HEARING, LE ARNED REPRESENTATIVES FAIRLY AGREED THAT THE ISSUE IN APPEAL ARE NOW COVERED BY HONBLE JURISDICTIONAL HIGH COURT JUDGEMENTS WHEREIN IT IS CONSISTENTLY HELD THAT A PROFIT PERCE NTAGE OF 12.5% CAN BE APPLIED IN THE CASES OF SUCH BOGUS PURCHASES. THAT IS PRECISELY WHAT TH E LEARNED CIT(A) HAS DONE, AS EVIDENT FROM THE FOLLOWING OBSERVATION IN THE IMPUGNED CIT( A)S ORDER:- ON A CAREFUL CONSIDERATION OF ENTIRE FACTS OF THE CASE, IT IS NOTED THAT THE APPELLANT HAS MADE PURCHASES OF THE PARTIES IN RESP ECT OF WHICH THERE WAS SUFFICIENT EVIDENCE WITH THE SALES TAX DEPT TO PROVE THAT THEY WERE INVOLVED IN ISSUE OF BOGUS BILLS IN RESPECT OF MATERIALS. THE PARTIES HAVE ACC EPTED BEFORE THE SALES TAX AUTHORITIES ABOUT THE MODUS OPERANDI AND ON RECEIPT OF THE INFORMATION IN RESPECT OF THESE PARTIES, THE ASSESSMENTS HAVE BEEN REOPENED A ND ADDITIONS HAVE BEEN MADE BY DISALLOWING THE PURCHASES MADE FROM THOSE PARTIE S. THE APPELLANT HAS MADE FOLLOWING PURCHASES FROM THE PARTIES WHICH WERE INV OLVED IN ISSUE OF BOGUS BILLS IN TWO DIFFERENT YEARS AS UNDER: - A.Y. 2009-10 SR. NO. NAME OF THE HAWALA PARTY AMOUNT INVOLVED (RS.) 1 DHARMESH TRADING COMPANY 13,83,471 2 JAIN CORPORATION 17,36,445 3 KRSNA ENTERPRISES 13,73,964 4 OM ENTERPRISE 20,99,599 5 YASH IMPEX 24,41,674 90,35,153/ - A.Y. 2010-11 SR. NO. NAME OF THE PARTY RS. 1 BHARAT STEEL CORPORATION 16,11,480/- 2 JAIN CORPORATION 8,36,160/- 3 KRSNA ENTERPRISE 72,563/- 4 MAHAVIR ENTERPRISE 6,76,915/- 5 RIDDHI SIDDHI TRADING CO. 5,70,960/- TOTAL 37,68,078/- ITA NOS.2377 & 2378/AHD/2015 C.O. NOS.186 & 187/AHD/2015 ASSESSMENT YEARS: 2009-10 & 2010-11 PAGE 3 OF 5 IT IS NOTED THAT THE INFORMATION RECEIVED IN RESPEC T OF THE ABOVE PARTIES FROM THE SALES TAX DEPT WERE SPECIFIC. THE ENTIRE METHOD OF ISSUING BOGUS BILLS WAS ACCEPTED BY VARIOUS OWNERS OF THE ABOVE MENTIONED P ARTIES AND THE ASSESSING OFFICER HAS RELIED ON THE INFORMATION RECEIVED WHILE MAKING THE ADDITION. THE APPELLANT HAS NOT PRODUCED ANY CREDIBLE EVIDENCE EXCEPT RELYING O N THE FACT THAT THE PAYMENT HAS BEEN MADE BY CHEQUE AND THE MATERIAL HAS BEEN RECEI VED. IN VIEW OF THE SPECIFIC ACCEPTANCE BY THE ABOVE PARTIES THAT THEY WERE INVO LVED IN ISSUE OF BOGUS BILLS, THE ACTION OF THE AO BY TREATING THE PURCHASES FROM ABO VE PARTIES AS BOGUS IS UPHELD. HOWEVER, IT IS ALSO NOTED THAT THE APPELLANT HAS BE EN ABLE TO RECONCILE THE PURCHASES MADE AND THE MATERIALS CONSUMED BY IT, AG AINST WHICH IT ISSUED BILLS TO THE PARTIES FROM WHOM IT HAS DONE CONSTRUCTION WORK. IT IS ALSO NOTED THAT THE APPELLANT HAS BEEN SHOWING CONSISTENT GP RATIO IN EARLIER YEA RS. THE GP RATIO OF THE YEARS UNDER APPEAL ARE ALSO IN LINE WITH THE EARLIER YEAR S. THE APPELLANT HAS GIVEN A CHART SHOWING THE GP WHICH IS REPRODUCED HEREUNDER FOR TH E SAKE OF CLARITY: - FINANCIAL YEAR TURNOVER (IN LACS) GROSS PROFIT & RATIO NET PROFIT & RATIO 2008-09 3061.03 601.68 19.66% 72.64 2.37% 2009-10 3081.97 562.47 18.25% 89.13 2.89% 2010-11 6527.67 1183.72 . 18.13% 287.03 4.40% IT IS NOTED FROM THE ABOVE CHART THAT THERE IS A MI NOR VARIATION IN GP AND THAT CAN BE ATTRIBUTED TO NORMAL BUSINESS CIRCUMSTANCES. ON AN OVERALL CONSIDERATION OF FACTS, IT IS SEEN THAT THE APPELLANT HAS CONSUMED T HE MATERIAL WHICH HAS BEEN PURCHASED BUT AT THE SAME TIME, THE ENQUIRIES MADE BY THE SALES TAX DEPT ALSO SHOW THAT THE BILLS ISSUED BY THE ABOVE MENTIONED P ARTIES FROM WHOM THE APPELLANT HAS CLAIMED TO HAVE PURCHASED THE MATERIAL WERE BOG US. IT IS, THEREFORE, APPARENT FROM THESE FACTS THAT THE APPELLANT HAS PURCHASED T HE MATERIAL FROM OPEN MARKET AND OBTAINED THE BILLS FROM THE ABOVE MENTIONED PARTIES . IT IS ALSO NOTED THAT, THERE IS NO FINDING BY THE AO TO SHOW THAT THE APPELLANT HAS TR IED TO INFLATE THE RAW MATERIAL PURCHASES. IT HAS BEEN OBSERVED ON EXAMINATION OF THE RECORDS AND THE DETAILS FURNISHED BY THE APPELLANT THAT THE APPELLANT IS IS SUING SEPARATE BILLS FOR MATERIAL CONSUMED AGAINST THE CONSTRUCTION AT DIFFERENT SITE S AND LABOUR BILLS IN RESPECT OF THOSE WORK ARE ISSUED SEPARATELY. THEREFORE, IT IS POSSIBLE TO RECONCILE THE AMOUNT OF MATERIAL CONSUMED AT EACH SITE. THE APPELLANT HAS A CCORDINGLY GIVEN A RECONCILIATION OF THE MATERIAL PURCHASED AND CONSUMED. CONSIDERING THE FACT THAT THE APPELLANT HAS BEEN ABLE TO RECONCILE THE QUANTITY OF PURCHASES WI TH THE CONSUMPTION, AND THE BILLS ISSUED, IT IS CLEAR THAT THE APPELLANT HAS PURCHASE D RAW MATERIAL FROM ONE PERSON AND OBTAINED THE BILL FROM SOMEBODY ELSE. IN THESE CIRC UMSTANCES, IT WOULD NOT BE APPROPRIATE TO DISALLOW THE ENTIRE PURCHASES AS THE APPELLANT HAS CONSUMED THE RAW MATERIAL AND THERE IS NO INFLATION IN PURCHASES. IT WOULD, THEREFORE, BE PROPER TO TAX A REASONABLE PERCENTAGE OF TOTAL PURCHASES MADE FOR W HICH THE BILLS HAVE BEEN FOUND TO BE BOGUS. THE VIEW FINDS SUPPORTS FROM THE FOLLO WING JUDGEMENTS: - I. CIT V SATHYANARAYAN P. RATHI (2013) 351 ITR 150 (GUJ.) :- SECTION 143 OF THE INCOME-TAX ACT, 1961 - ASSESSMEN T - ADDITIONS TO INCOME [PURCHASES FROM MARKET] - ASSESSMENT YEAR 2003-04 - ASSESSING OFFICER MADE ADDITION OF ENTIRE AMOUNT OF PURCHASE ON GROUND THA T CONCERNED SUPPLIERS HAD NEVER SUPPLIED GOODS AS NAMED BY ASSESSEE - COMMISSIONER (APPEALS) AS WELL AS TRIBUNAL ITA NOS.2377 & 2378/AHD/2015 C.O. NOS.186 & 187/AHD/2015 ASSESSMENT YEARS: 2009-10 & 2010-11 PAGE 4 OF 5 HAVING FOUND THAT THOUGH PURCHASES WERE NOT MADE FR OM PARTIES FROM WHOM ASSESSEE CLAIMED BUT SUCH MATERIALS WERE PURCHASED FROM OPEN MARKET INCURRING CASH PAYMENT AND BILLS WERE PROCURED FROM VARIOUS S OURCES, HELD THAT ONLY PROFIT ELEMENT AT RATE OF 12.5 PER CENT WAS TO BE ADDED TO INCOME OF ASSESSEE - WHETHER PRESENT CASE BEING ONE OF ONLY PURCHASE BUT NOT FRO M DISCLOSED SOURCES IT WOULD BE ONLY PROFIT ELEMENT EMBODIED IN SUCH PURCHASE WHICH COULD BE ADDED IN INCOME OF ASSESSEE AND THUS, RIGHTLY SO DONE BY COMMISSIONER (APPEALS) AND TRIBUNAL - HELD, YES [PARAS 6 & 7] [IN FAVOUR OF ASSESSEE] II. CIT V SIMIT P. SHETH (2013) 219 TAXMAN 85 ( GUJ.) :- SECTION 145 OF THE INCOME-TAX ACT, 1961 - METHOD OF ACCOUNTING -ESTIMATION OF PROFITS [BOGUS PURCHASES] - ASSESSMENT YEAR 2006 -07 - ASSESSEE WAS ENGAGED IN BUSINESS OF TRADING IN STEEL ON WHOLESALE BASIS - A SSESSING OFFICER HAVING FOUND THAT SOME OF ALLEGED SUPPLIERS OF STEEL TO ASSESSEE HAD NOT SUPPLIED STEEL TO ASSESSEE BUT HAD ONLY PROVIDED SALE BILLS, HELD THAT PURCHASES M ADE FROM SAID PARTIES WERE BOGUS - HE, ACCORDINGLY, ADDED ENTIRE AMOUNT OF PURCHASES TO GROSS PROFIT OF ASSESSEE - COMMISSIONER (APPEALS) HAVING FOUND THAT ASSESSEE H AD INDEED MADE PURCHASES, THOUGH NOT FROM NAMED PARTIES BUT OTHER PARTIES FRO M GREY MARKET, SUSTAINED ADDITION TO EXTENT OF 30 PER CENT OF PURCHASE COST AS PROBAB LE PROFIT OF ASSESSEE - TRIBUNAL HOWEVER, SUSTAINED ADDITION TO EXTENT OF 12.5 PERCE NT - WHETHER SINCE PURCHASES WERE NOT BOGUS BUT WERE MADE FROM PARTIES OTHER THA N THOSE MENTIONED IN BOOKS OF ACCOUNT, ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCH ASES COULD BE ADDED TO ASSESSEE'S INCOME - HELD, YES - WHETHER HENCE, ORDE R OF TRIBUNAL NEEDED NO INTERFERENCE - HELD, YES [PARAS 6, 7 & 9] [IN FAVOU R OF ASSESSEE] EVEN IN THE CASE OF THE APPELLANT FIRM THE PURCHASE S THOUGH NOT VERIFIABLE THE UTILIZATION OF THE MATERIAL HAS BEEN EXPLAINED. III. CIT V BHOLANATH POLYFAB (P) LTD. (2013) 35 5 ITR 290 (GUJ.):- SECTION 69 OF THE INCOME-TAX ACT, 7967 - UNDISCLOSE D INVESTMENTS [BOGUS PURCHASES] - ASSESSMENT YEAR 2005-06 - ASSESSEE WAS ENGAGED IN BUSINESS OF TRADING IN FINISHED FABRICS - ASSESSING OFFICER FOU ND THAT CONCERNED PARTIES FROM WHOM MATERIAL WAS PURCHASED WERE NOT FOUND AT THEIR ADDRESSES AND HELD THAT PURCHASES MADE BY ASSESSEE WERE BOGUS - ACCORDINGLY , HE MADE DISALLOWANCE - TRIBUNAL FOUND THAT THOUGH PURCHASES WERE MADE FROM BOGUS PARTIES, BUT PURCHASES THEMSELVES WERE NOT BOGUS AS ENTIRE QUANTITY OF STO CK WAS SOLD BY ASSESSEE AND HELD THAT ONLY PROFIT MARGIN EMBEDDED IN SUCH PURCH ASES WOULD BE SUBJECTED TO TAX AND NOT ENTIRE PURCHASES - WHETHER NO ILLEGALITY WA S COMMITTED BY TRIBUNAL - HELD, YES [PARA 6] [IN FAVOUR OF ASSESSEE] THE FACTS OF THE PRESENT CASE ARE IDENTICAL AND SIM ILAR TO THE CASE DECIDED BY HONOURABLE GUJARAT HIGH COURT. THE APPELLANT HAS EX PLAINED THE CONSUMPTION OF THE RAW MATERIAL PURCHASE. THE GROSS PROFIT &. NET PRO FIT RATIOS SHOWN BY IT DURING THE YEARS UNDER DISPUTE ARE ALSO NORMAL. THE PROFITS H AVE IN FACT IMPROVED IN THESE TWO YEARS. IT IS ALSO NOTED FROM THE COPIES OF ACCOUNT FURNISHED BY THE APPELLANT THAT THERE HAVE BEEN REGULAR PURCHASES AND PAYMENTS IN THE ACC OUNTS OF ABOVE SUPPLIERS THEREFORE, THERE IS ENOUGH ROTATION OF FUNDS. CONSI DERING OVERALL FACTS AND CIRCUMSTANCES OF THE CASE, IT WOULD BE APPROPRIATE TO APPLY A PROFIT PERCENTAGE OF 12.5% ITS APPROVED BY HONBLE GUJARAT HIGH COURT IN ABOVE REFERRED CASES ON THE BOGUS PURCHASES MADE BY THE APPELLANT DURING EACH Y EAR. THE AO IS DIRECTED TO WORK OUT THE ADDITION ACCORDINGLY. ITA NOS.2377 & 2378/AHD/2015 C.O. NOS.186 & 187/AHD/2015 ASSESSMENT YEARS: 2009-10 & 2010-11 PAGE 5 OF 5 4. RESPECTFULLY FOLLOWING THE ESTEEMED VIEWS OF HON BLE HIGH COURT, AND AS NO CONTRARY DECISION HAS BEEN CITED BEFORE US, WE APPROVE THE C ONCLUSIONS ARRIVED AT BY THE LEARNED CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 5. IN THE RESULT, THE APPEALS ARE DISMISSED. 6. AS REGARDS THE CROSS OBJECTIONS FILED BY THE ASS ESSEE, LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRESS THE SAME. 7. IN THE RESULT, CROSS OBJECTIONS ARE DISMISSED FO R WANT OF PROSECUTION. TO SUM UP, THE APPEALS AS ALSO THE CROSS OBJECTIONS ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 5 TH DAY OF APRIL, 2019. SD/- SD/- MS. MADHUMITA ROY PR AMOD KUMAR (JUDICIAL MEMBER) (VICE PRESIDENT) AHMEDABAD, THE 5 TH DAY OF APRIL, 2019 PBN/* COPIES TO: (1) THE APPELLANT (2) THE RESPOND ENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD