NILESH RAMESHCHANDRA SHAH, MUMBAI V. ITO 14(1)(1), MUMBAI

ITA 107/MUM/2017

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 4293 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 05-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN VP LD DR
• Assessee Lawyers: N M PORWAL LD
• Keywords: Bogus purchase; Peak credit; Tangible material; Reason to believe; Reassessment proceedings
• Section: 69C; 143(3); 147; 69; 148

Judgement Text

ITA.NO.107/MUM/2017 NILESH RAMESHCHANDRA SHAH ASSESSMENT YEAR-2009-10 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM I.T.A. NO.107/MUM/2017 ( ASSESSMENT YEAR: 2009-10) NILESH RAMESHCHANDRA SHAH C/O NITON STEELS & ALLOYS CABIN NO.1, SHOP NO.4 GROUND FLOOR, 202/204 J N NETHAWA BUILDING 3 RD KHUMBHARWADA LANE S.V.P ROAD, MUMBAI-400 004 VS. INCOME TAX OFFICER - 14(1)(1) MUMBAI ! ' PAN/GIR NO. AMKPS-7905-G ( !# APPELLANT ) : ( $%!# RESPONDENT ) ASSESSEE BY : N.M.PORWAL, LD. AR REVENUE BY : ASGHAR ZAIN VP, LD. DR & DATE OF HEARING : 25/09/2018 '() / DATE OF PRONOUNCEMENT : 10/10/2018 O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [AY] 2009-10 CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-29 [CIT(A)], MUMBAI, APPEAL NO.CIT(A)-29/IT-107/ITO-18(2)(4)/14-15 DATED 23/11/2016 QUA CONFIRMATION OF CERTAIN ADDITION ON ACCOUNT OF ALLEGED ITA.NO.107/MUM/2017 NILESH RAMESHCHANDRA SHAH ASSESSMENT YEAR-2009-10 2 BOGUS PURCHASES. ALTHOUGH THE ASSESSEE HAS RAISED MULTIPLE ORIGINAL GROUNDS AS WELL AS ADDITIONAL GROUNDS, HOWEVER, ONL Y THE FOLLOWING GROUNDS HAVE BEEN URGED BEFORE US DURING HEARING BY LD. AUTHORIZED REPRESENTATIVE [AR] FOR ASSESSEE, SHRI N.M.PORWAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) ERRED IN CONFIRMING THE ADDITION AT 12.5% OF THE ALLEGED BOG US PURCHASES. 2. THE CIT(A) ERRED IN NOT APPRECIATING THAT THE IN FORMATION RECEIVED FROM DIRECTOR GENERAL OF INCOME-TAX, MUMBAI WAS MADE THE BASIS FOR REOPENING THE ASSESSMENT WITHOUT THERE BEING ANY INDEPENDENT APPLICATION OF MIND BY THE A.O. 3. THE CIT(A) ERRED IN NOT APPRECIATING THAT EXCEPT FOR ASSERTION THAT THERE WERE BOGUS PURCHASES, THE A.O. HAS NOT REFERRED TO ANY M ATERIAL ON THE BASIS OF WHICH HE PROCEEDED TO INVOKE THE PROVISIONS OF SECT ION 147 OF THE INCOME-TAX ACT. THE ASSERTION MADE BY THE A.O. IS A BARE ONE, WITHOUT ANY REFERENCE TO THE MATERIAL ON THE BASIS OF WHICH HE MADE SUCH ASS ERTION. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN NOT APPRECIATING THAT IF AFTER ISSUING A N OTICE U/S.148, A.O. ACCEPTED THE CONTENTION OF THE ASSESSEE AND HOLDS THAT THE I NCOME WHICH HE HAS INITIALLY FORMED A REASON TO BELIEVE HAD ESCAPED AS SESSMENT, HAS AS A MATTER OF FACT NOT ESCAPED ASSESSMENT, IT IS NOT OPEN TO H IM TO INDEPENDENTLY ASSESS SOME OTHER INCOME (BOMBAY HIGH COURT JUDGMENT IN TH E CASE OF CIT VS. JET AIRWAYS (I) PVT.LTD- 331 ITR 0236). 5. THE CIT(A) ERRED IN NOT APPRECIATING THAT ON THE BASIS OF STATEMENTS RECORDED OF SALES-TAX DEPARTMENT, A.O. HAD REASON TO BELIEVE THAT THE SUPPLIERS OF THE ASSESSEE ARE BOGUS AND THAT PURCHASES HAVE BEEN INF LATED WHEREAS THE A.O. HAS MADE ADDITIONS TOWARDS UNEXPLAINED CASH U/S.69C INSTEAD OF ADDL. PROFITS TOWARDS INFLATED PURCHASES DEBITED TO P&L A /C. WHICH IS NOT PERMITTED. 2.1 THE ASSESSMENT FOR IMPUGNED AY WAS FRAMED BY LD. INCOME TAX OFFICER 14(1)(1), MUMBAI [AO] U/S 143(3) READ WITH SECTION 147 VIDE ORDER DATED 27/08/2014 WHEREIN THE INCOME OF THE ASSESSEE HAS BEEN ASSESSED AT RS.13.45 LACS AFTER CERTAIN ADDITION OF ALLEGED BOGUS PURCHASES U/S 69C FOR RS.11.13 LACS AS AGAINST RETURNED INCOM E OF RS.2.31 LACS FILED BY THE ASSESSEE ON 15/09/2009. T HE ORIGINAL RETURN WAS PROCESSED U/S 143(1). DURING IMPUGNED AY, THE A SSESSEE BEING ITA.NO.107/MUM/2017 NILESH RAMESHCHANDRA SHAH ASSESSMENT YEAR-2009-10 3 RESIDENT INDIVIDUAL WAS ENGAGED AS TRADER OF STEEL UNDER PROPRIETORSHIP CONCERN NAMELY NITON STEEL & ALLOYS. 2.2 THE REASSESSMENT PROCEEDINGS WERE INITIATED VID E ISSUANCE OF NOTICE U/S 148 DATED 14/03/2014 PURSUANT TO RECEIPT OF CERTAIN INFORMATION FROM THE SALES TAX DEPARTMENT, MAHARASHTRA WHEREIN IT WAS FOUND THAT THE ASSESSEE STOOD BENEFITTED OF ALLEGED BOGUS PURCHASES AGGREGATING TO RS.28.61 LACS FROM FOUR PARTIES, THE DETAILS OF WHICH HAVE ALREADY BEEN EXTRACTED AT PARA-2 OF THE QUANTUM ASSESSMENT ORDER. THE ASSESSEE OFFERED THE ORIGINAL RETURN OF INCOME IN R ESPONSE TO NOTICE U/S 148. THE LD. AR, BEFORE US, DULY ADMITTED THAT THE COPY OF THE REASONS RECORDED TO INITIATE REASSESSMENT PROCEEDINGS WERE DULY SUPPLIED TO THE ASSESSEE DURING RE-ASSESSMENT PROCEEDINGS. 2.3 ACCORDINGLY, THE ASSESSEE WAS ASKED TO SUBSTANT IATE THE PURCHASE TRANSACTIONS AS WELL AS TO PRODUCE THE SUPPLIERS TO CONFIRM THE PURCHASE TRANSACTIONS. IN RESPONSE, THE ASSESSEE WHILE FILIN G THE COPIES OF INVOICES, LEDGER ACCOUNT AND BANK STATEMENTS EVIDEN CING PAYMENTS TO THE SUPPLIER EXPRESSED INABILITY TO PRODUCE ANY OF THE PARTY TO CONFIRM THE TRANSACTIONS. THE ASSESSEE ALSO FAILED TO PROVIDE L AST KNOWN ADDRESSES AND RESIDENTIAL ADDRESSES OF THE SUPPLIERS. THE ASS ESSEE DEFENDED THE PROPOSED ADDITION U/S 69C BY SUBMITTING THAT THE GO ODS WERE ACTUALLY PURCHASED AND THE SAME WERE ACCOUNTED FOR IN THE ST OCK REGISTER. THE SALES TURNOVER ACHIEVED BY THE ASSESSEE WAS NOT DIS PUTED. THE OVERALL FACTUAL MATRIX LED THE LD. AO TO BELIEVE THAT THE G OODS WERE SOURCED FROM UNREGISTERED DEALERS IN THE OPEN MARKET WHEREA S THE BILLS WERE PROCURED FROM HAWALA DEALERS. IT WAS ALSO NOTED THAT THE ASSESSEE PAID VALUE ADDED TAX [VAT] OF RS.1.10 LACS TO THE SALES TAX AUTHORITIES ITA.NO.107/MUM/2017 NILESH RAMESHCHANDRA SHAH ASSESSMENT YEAR-2009-10 4 AGAINST WRONG INPUT CREDIT CLAIMED AGAINST THESE AL LEGED BOGUS PURCHASES. FINALLY, LD. AO WORKED OUT THE PEAK CRED IT AVAILED BY THE ASSESSEE FROM ALLEGED HAWALA PARTIES WHICH CAME TO RS.11.13 LACS AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE U/S 69 C. IN OTHER WORDS, LD. AO OPINED THAT THE ASSESSEE USED MAXIMUM UNACCO UNTED CASH OF RS.11.13 LACS TO PURCHASE THE GOODS FROM THE OPEN M ARKET WHILE BOOKING A TOTAL PURCHASE OF RS.25.61 LACS FROM SUCH HAWALA PARTIES. 3. AGGRIEVED, THE ASSESSEE AGITATED THE SAME WITHOU T ANY SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 23/11/2 016 WHEREIN THE LD. CIT(A), RELYING UPON SEVERAL JUDICIAL PRONOUNCEMENT S, INSTEAD OF PEAK CREDIT, RESTRICTED THE IMPUGNED ADDITIONS TO 12.5% OF THE ALLEGED BOGUS PURCHASES. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. THE LD. AUTHORIZED REPRESENTATIVE FOR ASSESSEE [ AR], SHRI N.M.PORWAL, DRAWING OUR ATTENTION TO THE DOCUMENTS PLACED IN TH E PAPER BOOK CONTESTED THE ADDITION WHICH HAS BEEN CONTROVERTED BY LD. DEPARTMENTAL REPRESENTATIVE [DR], SHRI ASGHAR ZAIN VP. 5. WE HAVE CAREFULLY HEARD THE RIVAL CONTENTIONS AN D PERUSED THE RELEVANT MATERIAL ON RECORD INCLUDING DOCUMENTS PLA CED IN THE PAPER BOOK AND JUDICIAL PRONOUNCEMENTS AS CITED BEFORE US . WE ARE OF THE CONSIDERED OPINION THAT THERE COULD BE NO SALE WITH OUT ACTUAL PURCHASE OF MATERIAL SINCE THE ASSESSEE WAS ENGAGED IN TRADING ACTIVITIES . THE SALES TURNOVER ACHIEVED BY THE ASSESSEE HAS NOT BEE N DISTURBED BY THE REVENUE AND THE PAYMENTS WERE THROUGH BANKING CHANN ELS. THE ASSESSEE WAS IN POSSESSION OF PRIMARY PURCHASES DOC UMENTS. AT THE SAME TIME, THE ASSESSEE COULD NOT PRODUCE EVEN A SI NGLE PARTY TO CONFIRM THE TRANSACTIONS AND EVEN FAILED TO PROVIDE THE ADDRESSES OF THE ITA.NO.107/MUM/2017 NILESH RAMESHCHANDRA SHAH ASSESSMENT YEAR-2009-10 5 SUPPLIERS SO AS TO ENABLE FURTHER INVESTIGATION BY LD. AO. THE DELIVERY OF THE MATERIAL COULD NOT BE SUBSTANTIATED DESPITE THE FACT THAT THE ASSESSEE WAS DEALING IN ITEM LIKE STEEL. ALL THESE FACTORS CAST A SERIOUS DOUBT ON ASSESSEES CLAIM. THEREFORE, IN SUCH A SIT UATION, THE ADDITION, WHICH COULD BE MADE, WAS TO ACCOUNT FOR PROFIT ELEM ENT EMBEDDED IN THESE PURCHASE TRANSACTIONS TO FACTORIZE FOR PROFIT EARNED BY ASSESSEE AGAINST POSSIBLE PURCHASE OF MATERIAL IN THE GREY M ARKET AND UNDUE BENEFIT OF VAT AGAINST SUCH BOGUS PURCHASES, WHICH FIRST APPELLATE AUTHORITY HAS RIGHTLY DONE. HOWEVER, KEEPING IN VIE W THE FACT THAT THE ASSESSEE WAS DEALING IN PRICE SENSITIVE ITEM LIKE STEEL, WE FIND THE ESTIMATION OF 12.5% TO BE ON THE HIGHER SIDE. WE RE STRICT THE SAME TO 8% OF ALLEGED BOGUS PURCHASES OF RS.25,61,087/- WHICH COMES TO RS.2,04,887/-. GROUND NUMBER-1 STAND PARTLY ALLOWED . 6. THE LD. AR HAS ALSO AGITATED THE REASSESSMENT PR OCEEDINGS ON LEGAL GROUNDS FROM VARIOUS ANGLES. SO FAR AS THE RE ASSESSMENT JURISDICTION IS CONCERNED, WE FIND THAT THE ORIGINA L RETURN WAS PROCESSED U/S 143(1) AND THE REOPENING HAS BEEN DONE WITHIN A PERIOD OF FOUR YEARS. THEREFORE, THE ONLY REQUIREMENT, IN SUCH A C ASE, TO ACQUIRE THE VALID JURISDICTION WAS THAT THE ASSESSING OFFICER H AD REASONS TO BELIEVE THAT CERTAIN INCOME ESCAPED ASSESSMENT. THE TANGIBL E MATERIAL IN THE SHAPE OF INFORMATION FROM SALES TAX DEPARTMENT CAME TO THE POSSESSION OF LD. AO WHICH LED THE LD. AO TO FORM T HE REQUISITE BELIEF. THE COPIES OF REASONS WERE DULY SUPPLIED TO THE ASS ESSEE DURING PROCEEDINGS. BY UTILIZING THE TANGIBLE MATERIAL, LD . AO FORMED THE BELIEF THAT CERTAIN INCOME ESCAPED ASSESSMENT AND THEREFOR E, HE PROCEEDED TO REASSESS THE INCOME ON THE BASIS OF THIS TANGIBLE I NFORMATION. AFTER ITA.NO.107/MUM/2017 NILESH RAMESHCHANDRA SHAH ASSESSMENT YEAR-2009-10 6 ANALYZING THE FACTUAL MATRIX, LD. AO MADE ADDITION OF PEAK CREDIT U/S 69C ON THE PREMISE THAT MATERIAL WAS PURCHASED IN C ASH FROM THE OPEN MARKET WHEREAS THE ACCOMMODATION PURCHASE BILLS WER E PROCURED FROM THE ALLEGED HAWALA DEALERS. THE LD. CIT(A) WHILE CONFIRMING THE STAND OF LD. AO, ESTIMATED THE ADDITIONS @12.5% INSTEAD OF P EAK CREDIT KEEPING IN VIEW SEVERAL JUDICIAL PRONOUNCEMENTS AND THEREFO RE, THERE WAS NO NEW ADDITION MADE BY LD. CIT(A) AS IS ALLEGED BY LD. AR BEFORE US. ONLY THE METHOD OF ESTIMATION HAS BEEN MODIFIED BY LD. CIT(A ) AND NOTHING MORE. NEVERTHELESS, THE ADDITION AS MADE BY BOTH THE LOWE R AUTHORITIES SPRING OUT OF THE FACT THAT THE ASSESSEE, AS PER THE INFOR MATION OF SALES TAX AUTHORITIES, WAS FOUND TO BE INDULGING IN PROCURING ACCOMMODATION BILLS FROM CERTAIN PARTIES. THEREFORE, WE DO NOT FIND ANY SUBSTANCE IN THE LEGAL ARGUMENTS AS RAISED BY LD. AR BEFORE US. GROUND NUM BERS 2 TO 5 STAND DISMISSED. 7. RESULTANTLY, THE APPEAL STAND PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH OCTOBER, 2018. SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER *& MUMBAI; DATED :10.10.2018 SR.PS:-THIRUMALESH ITA.NO.107/MUM/2017 NILESH RAMESHCHANDRA SHAH ASSESSMENT YEAR-2009-10 7 ! COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. / THE CIT(A) 4. / CIT CONCERNED 5. + ,$ - -) *& / DR, ITAT, MUMBAI 6. , ./0 & GUARD FILE ' / BY ORDER, # '$% (DY./ASSTT.REGISTRAR) *& / ITAT, MUMBAI