ITO 12(3)(2), MUMBAI V. M/S KEMEX INTERNATIONAL PVT LTD., MUMBAI

ITA 1213/MUM/2020

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5242 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2011-2012
• Appeal Filed On: 19-02-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Tax effect; Set aside
• Section: 143(3); 142(1); 133(6); 143(1); 13

Judgement Text

ITA NO. 1213 & 1214/MUM/2020 A.Y 2010 - 11 & 2011 - 12 ITO VS. M/S KEMEX INTERNATIONAL PVT. LTD. 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H MUMBAI BEFORE SHRI SHAMIM YAHYA (ACCOUNTANT MEMBER) AND SHRI RAVISH SOOD (JUDICIAL MEMBER) ITA NO. 1213 / MUM/2020 (ASSESSMENT YEAR: 2011 - 1 2 ) & ITA NO. 1214 / MUM/2020 (ASSESSMENT YEAR: 2010 - 11 ) ITO - 12(3)(2), ROOM NO. 145, 1 ST FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020 VS. M/S KEMEX INTERNATIONAL PRIVATE LIMITED, B - 7, BONANZA INDL. ESTATE, ASHOK CHAKRAVARTI ROAD, KANDIVALI (E), MUMBAI 400 102 PAN NO. AABCK3717E ( REVENUE ) ( ASSESSEE ) REVENUE BY : SHRI. NEERAJ KUMAR , D . R ASSESSEE BY : SHRI. KIRIT SANGHVI , A . R DATE OF HEARING : 08/09 /2021 D ATE OF PRONOUNCEMENT : 20 /0 9 /2021 ORDER PER RAVISH SOOD, J.M: THE PRESENT APPEAL S FILED BY THE REVENUE ARE DIRECTED AGAINST THE RESPECTIVE ORDER S PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 2 0 , MUMBAI [ FOR SHORT CIT (A) ] , DATED 14.11.2019 , WHICH IN TURN ARISES FROM THE RESPECTIVE ASSESSMENT ORDER S PASSED BY THE A.O U/S 143(3) R .W.S. 147 OF THE INCOME TAX ACT, 1961 (FOR SHORT ACT ) , DATED 30.11.2017 FOR A . Y 2010 - 11 AND A . Y 2011 - 12. ITA NO. 1213 & 1214/MUM/2020 A.Y 2010 - 11 & 2011 - 12 ITO VS. M/S KEMEX INTERNATIONAL PVT. LTD. 2 2. A S COMMON ISSUES ARE INVOLVED IN THE AFOREMENTIONED APPEALS, THEREFORE, THE SAME ARE BEING TAKEN UP AND DISPOSED OF F BY WAY OF A CONSOLIDATED ORDER. WE SHALL FIRST TAKE UP THE APPEAL FOR A . Y 2010 - 11 WHEREIN THE REVENUE HAS ASSAILED THE IMPUGNED ORDER ON THE FOLLOWING GROUNDS BEFORE US: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE ADDITION BY RETYING ON THE DECISION OF THE HON'BLE GUJARAT HIGH COURT AND RESTRICTED THE DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASES AT 12.8% OF RS.1,86,75,300/AS AGAINST 25% MADE BY THE AO WITHOUT APPRECIATING THE FACT THAT ASSESSEE FAILED TO ESTABLISH THE GENUINENESS OF THE PURCHASES. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS RIGHT IN RESTRICTING THE ADDITION TO 12.5% OF BOGUS PURCHASES WITHOUT T AKING INTO CONSIDERATION THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF M/S N.K. PROTEINS LTD. VS DY. CIT NO. 769 OF 2017 DATED 16.01.2017 (SC) WHEREIN IT WAS HELD THAT ADDITION ON THE BASIS OF UNDISCLOSED INCOME COULD NOT BE RESTRICTED TO CERTAI N PERCENTAGE WHEN THE ENTIRE TRANSACTION WAS FOUND TO BE BOGUS? 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE HONBLE ITAT IS REQUESTED TO ENTERTAIN THIS APPEAL THOUGH THE TAX EFFECT IS BELOW THE MONETARY LIMIT PRESCRIBED IN THE CBDT INSTRUCTION NO. 17 OF 2019 DATED 08.08.2019 AND EARLIER INSTRUCTION NO.3/2018 DATED 11.07.2018 AS AMENDED ON 20.08.2018 AS THE CASE FALLS IN THE EXCEPTION PROVIDED IN PARA 10(E) OF THE SAID INSTRUCTION IN AS MUCH AS THE ADDITION IS BASED ON INFORMATION RECEIVED FROM EXTER NAL SOURCES IN THE NATURE OF LAW ENFORCEMENT AGENCIES, NAMELY, SALES TAX AUTHORITIES. 4. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT(A) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO AM END OR ALTER ANY GROUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3. BRIEFLY STATED, THE ASSESSEE COMPANY WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF F IRE FIGHTING E QUIPMENTS, C HEMICALS AND A CCESSORIES HAD FILED ITS RETURN OF INCOME FOR A . Y 2010 - 11 ON 13.10.2010, DECLARING A LOSS OF RS. ( 10,66,374/ - ) . THE RETURN OF INCOME FILED BY THE ASSESSEE COMPANY WAS INITIALLY PROCESSED AS SUCH U/S 143( 1 ) OF THE ACT. SUBSEQUENTLY, ON THE BASIS OF ITA NO. 1213 & 1214/MUM/2020 A.Y 2010 - 11 & 2011 - 12 ITO VS. M/S KEMEX INTERNATIONAL PVT. LTD. 3 INFORMATION RECEIVED BY THE A . O FROM THE DGIT (INV.), MU MBAI THAT THE ASSESSEE AS A BENEFICIARY HAD OBTAINED CERTAIN BOGUS PURCHASE BILLS ITS CASE WAS REOPENED U/S 147 OF THE ACT. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE AO THAT THE ASSESSEE HAD CLAIMED TO HAVE CARRIED OUT PURCHASE S FROM THE FOLLOWING NINE TAINTED PARTIES. S. NO. HAWALA PARTY NAME TIN AMOUNT IN RS. 1 M/S RAJ TRADERS 27450262425V 39,47,840 2. M/S N.B. ENTERPRISES 27490339033V 13,99,216 3. M/S SHREE GANESH ENTERPRISES/STAR ENTERPRISES (GRACIOUS PHARMA) 27210286613V 2,34,000 4. M/S NEELAM ENTERPRISES 27320366238V 17,64,880 5. M/S P.K. TRADING CO. 27830258239V 2,27,760 6. M/S SHYAM ENTERPRISES 27350304190V 1,89,280 7. M/S MARUTI ENTERPRISES/APEX CORPORATION 27800563272V 4,12,880 8. M/S TRISHNA IMPEX 27890650959V 4,76,840 9. M/S SAMARTH CORPORATION 27820625535V 16,76,480 TOTAL 1,03,29,176 IN ORDER TO VERIFY THE GENUINENESS AND VERACITY OF THE AFORESAID PURCHASE TRANSACTION S THE A . O DIRECTED THE ASSESSEE TO SUBSTANTIATE THE SAME ON THE BASIS OF SUPPORTING DOCU MENTARY EVIDENCE. VIDE A NOTICE ISSUED U/S 142(1) OF THE ACT, DATED 03.11.2017, THE ASSESSEE WAS SPECIFICALLY DIRECTED BY THE A.O TO FURNISH CERTAIN DETAILS IN RESPECT OF THE AFOREMENTIONED PARTIES VIZ. NAME S , ADDRESS ES , CONTACT NO S . ETC. ALSO, THE ASSESSE E WAS DIRECTED TO FURNISH THE REQUISITE DETAILS QUA THE RESPECTIVE PURCHASES THAT WERE CLAIMED TO HAVE BEEN MADE FROM THE AFOREMENTIONED PARTIES IN A SPECIFIED PROFORMA. FURTHER, THE ASSESSEE WAS DIRECTED TO SUBMIT A COPY OF THE STOCK REGISTER WHEREIN THE ENTRIES OF GOOD RECEIPT S WE R E MADE A/W THE DETAILS AS REGARDS THE ISSUANCE OF THE SAID MATERIAL /GOODS FOR SALE OR PRODUCTION. I N ORDER TO VERIFY THE AUTHENTICITY OF THE AFORESAID PURCHASE TRANSACTION S THE A.O ISSUED NOTICE S U/S 133(6) OF THE ACT TO THE ABO VEMENTIONED PARTIES WHEREIN THEY WERE CALLED UPON TO FURNISH CERTAIN DETAILS IN RESPECT OF THE PURCHASES THAT WERE CLAIMED BY THE ASSESSEE TO HAVE ITA NO. 1213 & 1214/MUM/2020 A.Y 2010 - 11 & 2011 - 12 ITO VS. M/S KEMEX INTERNATIONAL PVT. LTD. 4 BEEN MADE FROM THEM. HOWEVER, THE AFORESAID NOTICES ISSUED BY THE A.O U/S 133(6) WERE RETURNED UN - SERVED BY THE POSTAL AUTHORITIES WITH THE REMARKS 'UNCLAIMED'. ON A N ENQUIRY CONDUCTED BY THE WARD INSPECTOR, IT STOOD REVEALED THAT THE AFOREMENTIONED SUPPLIER PARTIES WERE NOT AVAILABLE AT THE GIVEN ADDRESS ES . BACK ED BY THE AFORESAID FACTS, THE A . O WAS OF THE VIEW THAT AS THE ASSESSEE HAS FAILED TO SUBSTANTIATE THE AUTHENTICITY OF THE PURCHASE TRANSACTION S IN QUESTION ON THE BASIS OF SUPPORTING MATERIAL WHICH WOULD HAVE EVIDENCE D THE PROOF OF DELIVERY OF GOODS, QUANTITY AND NATURE OF GOODS, HOW AND WHEN THE ITEMS G OT DELIVERED AT THE PREMISES OF THE ASSESSEE, DETAILS OF LR NO . AND DELIVERY CHALLAN NO S . ETC. , THEREFORE, IT COULD SAFELY BE CONCLUDED THAT NO GENUINE PURCHASES WERE MADE FROM THE AFOREMENTIONED PARTIES. THE A . O IN ORDER TO SUPPORT HIS AFORESAID CONVICTIO N TOOK COGNIZANCE OF THE FACT THAT THE NOTICES THAT WERE ISSUED BY HIM UNDER SEC. 133(6) OF THE ACT WERE RETURNED SERVED. ALSO , THE ASSESSEE WAS THOUGH SPECIFICALLY DIRECTED BY THE A.O TO PRODUCE THE AFOREMENTIONED PARTIES FOR NECESSARY EXAMINATION, HOWEVE R, IT FAIL ED TO DO THE NEEDFUL . OBSERVING , THAT THE ASSESSEE HAD FAILED TO DISCHARGE THE ONUS THAT WAS CAST UPON IT AS REGARDS PROVING THE AUTHENTICITY OF THE AFOREMENTIONED PURCHASES TRANSACTIONS IN QUESTION, THE A . O IN THE TOTALITY OF THE FACTS , CONCLUDE D , THAT THE ASSESSEE HAD NOT MADE ANY GENUINE PURCHASES FROM THE AFOREMENTIONED TAINTED PARTIES . BACKED BY HIS AFORESAID CONVICTION, THE A.O STAMPED THE IMPUGNED PURCHASES AS BOGUS AND DISALLOWED 25% OF THE VALUE OF THE SAID IMPUGNED PURCHASES AMOUNTING TO RS. 1,03,29,176/ - AND WORKED OUT AN ADDITION /DISALLOWANCE OF RS. 25,82,294/ - IN THE HANDS OF THE ASSESSEE COMPANY. 5 . AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A). OBSERVING THAT THE A . O HAD ACCEPTED THAT THE ASSESSEE HAD PURC HASE D THE GOODS/MATERIALS IN QUESTION, THOUGH, NOT FROM THE AFOREMENTIONED HAWALA PARTIES BUT FROM THE OPEN/GREY MARKET, THE CIT(A) WAS OF THE VIEW THAT THE ADDITION IN THE HANDS OF THE ASSESSEE WAS LIABLE TO RESTRICTED ONLY TO THE EXTENT OF THE PROFIT THA T IT WOULD HAD MADE BY CARRYING OUT SUCH PURCHASES AT A ITA NO. 1213 & 1214/MUM/2020 A.Y 2010 - 11 & 2011 - 12 ITO VS. M/S KEMEX INTERNATIONAL PVT. LTD. 5 DISCOUNTED VALUE . HOWEVER, IT WAS OBSERVED BY THE CIT(A) THAT THE A.O HAD WORKED OUT THE PROFIT ELEMENT AT AN EXORBITANT FIGURE I.E @ 25% OF THE VALUE OF THE IMPUGNED PURCHASES. BACK ED BY HIS AFORESAID OBSERVATION, THE CIT(A) BY DRAWING SUPPORT FROM THE JUDGMENT OF THE HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF SIMIT P. SHETH (38) TAXMANN.COM 385 (GUJARAT), THEREIN CONCLUDED THAT IN ALL FAIRNESS THE ADDITION QUA THE PROFIT WHICH THE ASSESSEE WOULD HAV E MADE BY PROCURING THE GOODS AT A DISCOUNTED VALUE FROM THE OPEN/GREY MARKET COULD SAFELY BE TAKEN AT 12.5% OF THE VALUE OF THE IMPUGNED PURCHASES. 6 . THE REVENUE BEING AGGRIEVED WITH THE ORDER OF THE CIT(A) HAS CARRIED THE MATTER IN APPEAL BEFORE US. 7 . WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE FOR BOTH THE PARTIES , PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, IT IS A MATTER OF FACT BORNE FROM THE RECORD THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE ITS CLAIM OF HAVING MADE GENUINE PURCHASES FROM THE AFOREMENTIONED PARTIES IN QUESTION TO THE SATISFACTION OF THE A.O . AS THE ASSESSEE HA D NOT ASSAILED THE ORDER OF THE CIT(A) ANY IN FURTHER IN APPEAL BEFORE US , T HEREFORE, THE VIEW TAKEN BY THE LOWER AUTHO RITIES THAT THE ASSESSEE HAD FAILED TO PROVE THE GENUINENESS AND VERACITY OF THE PURCHASE TRANSACTION S IN QUESTION HAD ATTAINED FINALITY. AFTER GIVING A THOUGHTFUL CONSIDERATION TO THE ISSUE BEFORE US, WE FIND THAT THE FACT THAT THE A . O HAD RESTRICTED THE DISALLOWANCE QUA THE IMPUGNED PURCHASES TO 25% OF THE VALUE OF SAID IMPUGNED PURCHASES IN ITSELF REVEALS THAT HE WAS OF THE VIEW THAT THE ASSESSEE HAD PROCURED THE GOODS IN QUESTION THOUGH NOT FROM THE AFOREMENTIONED HAWALA PARTIES, BUT FROM THE OPEN/GREY MARKET. IN OUR CONSIDERED VIEW, THE SOLITARY ISSUE BEFORE US IS AS TO WHETHER THE QUANTIFICATION OF THE PROFIT ELEMENT BY THE A . O I.E. @ 25% OF THE VALUE OF THE IMPUGNED PURCHASES HAD RIGHTY BEEN SCALED DOWN AND THEREIN RESTRICTED BY THE CIT(A) TO 12.5% OF THE VALUE OF THE PURCHASES IN QUESTION. IN OUR CONSIDERED VIEW, THE ESTIMATION OF THE PROFIT ELEMENT EMBEDDED IN THE PURCHASES MADE BY THE ASSESSEE FROM THE OPEN/GREY MARKET HAD IN A HOST OF THE JUDICIAL PRONOUNCEMENT S BEEN TAKEN BY THE VARIOUS ITA NO. 1213 & 1214/MUM/2020 A.Y 2010 - 11 & 2011 - 12 ITO VS. M/S KEMEX INTERNATIONAL PVT. LTD. 6 JUDICIAL F OR U MS @ 12.5% OF THE VALUE OF THE IMPUGNED PURCHASES . B EFORE US , NO SUCH MATERIAL HAD BEEN PLACED ON RECORD WHICH WOULD IRREFUTABLY PROVE TO THE HILT THAT THE ADOPTION OF THE PROFIT ELEMENT BY THE CIT(A) AT 12.5% OF THE VALUE OF THE IMPUGNED PURCHASES IS EI THER INCORRECT OR SUFFERS FROM ANY PERVERSITY. WE, THUS, ARE OF THE CONSIDERED VIEW THAT THE ESTIMATION OF THE PROFIT WHICH THE ASSESSEE WOULD HAD MADE BY PURCHASING THE GOODS FROM THE OPEN/GREY MARKET AT 12.5% OF THE VALUE OF THE IMPUGNED PURCHASES HAD RI GHTLY BEEN DONE BY THE CIT(A) ; AND THE SAME DOES NOT SUFFER FROM ANY INFIRMITY . ACCORDINGLY, WE HEREIN CONCUR WITH THE CIT(A) AND UPHOLD THE VIEW TAKEN BY HIM I.E. SCALING DOWN OF THE DISALLOWANCE QUA THE IMPUGNED PURCHASES TO 12.5% OF THE VALUE OF SUCH PURCHASES. ACCORDINGLY, THE G ROUNDS OF APPEAL NO. 1 TO 5 ARE DISMISSED. 8 . THE A PPEAL FILED BY THE REVENUE IS DISMISSED. ITA NO. 1213/MUM/2020 ( AY 2011 - 12 ) 9 . WE SHALL NOW TAKE UP THE APPEAL FILED BY THE REVENUE FOR A . Y 2011 - 12 IN ITA NO. 1213/MUM/2020. 10. BRIEFLY STATED, THE ASSESSEE COMPANY HAD FILED ITS RETURN OF INCOME FOR A . Y 2011 - 12 ON 29.09.2011 , DECLARING A TOTAL INCOME OF RS. NIL. THE RETURN OF INCOME FILED BY THE ASSESSEE WAS INITIALLY PROCESSED AS SUCH U/S 143(1) O F THE ACT. SUBSEQUENTLY, ON THE BASIS OF INFORMATION RECEIVED FROM THE DGIT (INV.), MUMBAI THAT THE ASSESSEE AS A BENEFICIARY HAS OBTAINED CERTAIN BOGUS PURCHASE BILLS, ITS CASE WAS REOPENED U/S 147 OF THE ACT. 11 . OBSERVING, THAT THE ASSESSEE HAD CLAIMED TO HAVE MADE PURCHASES AGGREGATING TO RS. 1,86,75,300/ - FROM CERTAIN TAINTED PARTIES, THE A . O CALLED UPON IT TO SUBSTANTIATE THE GENUINENESS AND VERACITY OF THE SAID PURCHASE TRANSACTIONS . HOWEVER, AS THE ASSESSEE FAILED TO PROVE THE AUTHENTICITY OF THE IMPUGNED PURCHASES TO THE SATISFACTION OF THE AO, THEREFORE, HE DISALLOWED 25% OF THE VALUE OF THE SUCH PURCHASES AND MADE AN ADDITION /DISALLOWANCE OF RS. 46,68,825/ - . A FTER INTER ALIA MAKI NG THE AFORESAID ADDITION /DISALLOWANCE THE ITA NO. 1213 & 1214/MUM/2020 A.Y 2010 - 11 & 2011 - 12 ITO VS. M/S KEMEX INTERNATIONAL PVT. LTD. 7 A . O VIDE HIS ORDER PASSED U/S 143(3) R.W.S. 147, DATED 13.11.2017 DETERMINED THE INCOME OF THE ASSESSEE COMPANY AT RS. 57,61,980/ - . 12 . AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) , WHO A FT ER NECESSARY DELIBERATIONS RESTRICTED THE ADDITION QUA THE BOGUS PURCHASES TO 12.5% OF THE VALUE OF THE IMPUGNED PURCHASES IN QUESTION. 13 . THE REVENUE BEING AGGRIEVED WITH THE ORDER OF THE CIT(A) HAS CARRIED THE MATTER IN APPEAL BEFORE US. 14 . A S THE FA CTS AND THE ISSUE INVOLVED IN THE PRESENT APPEAL REMAINS THE SA ME AS WERE INVOLVED IN THE APPEAL FILED BY THE REVENUE IN THE ASSESSEE'S OWN CASE FOR A . Y 2010 - 11 IN ITA NO. 1214/MUM/2020 , THEREFORE, OUR ORDER THEREIN PASSED WHILE DISPOS ING OFF THE AFOREMENT IONED APPEAL FOR A . Y 2010 - 11 SHALL APPLY MUTATIS MUTANDIS FOR THE PURPOSE OF DISPOS ING OF F THE PRESENT APPEAL FOR A . Y 2011 - 12 IN ITA NO. 1213/MUM/2020. ACCORDINGLY, ON THE SAME TERMS THE APPEAL FILED BY THE REVENUE IS DISMISSED. 15 . THE APPEAL FILED BY THE REVENUE IS DISMISSED. 16 . RESULTA NTLY , BOTH THE APPEALS FILED BY THE REVENUE FOR A . Y 2010 - 11 IN ITA NO. 1214/MUM/2020 AND FOR A . Y 2011 - 12 IN ITA NO. 1213/MUM/2020 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 /09/2021. SD/ - SD/ - ( SHAMIM YAHYA ) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 20 .09 .2021 ALINDRA, PS ITA NO. 1213 & 1214/MUM/2020 A.Y 2010 - 11 & 2011 - 12 ITO VS. M/S KEMEX INTERNATIONAL PVT. LTD. 8 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (SR. PRIVATE SECRETARY) ITAT, MUMBAI