M/S.MANAV STEEL & ENGG. CO, MUMBAI V. INCOME TAX OFFICER-19(2)(3), MUMBAI

ITA 1285/MUM/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3630 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 05-03-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: RUSHABH N MEHTA
• Keywords: Reopening of assessment; Bogus purchase; Principle of natural justice; Question of law
• Section: 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC , MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER ITA NO. 1285 /MUM/201 8 (A.Y: 2009 - 10) M/S. MANAV STEEL & ENGG. CO. 95/2, PARMAR HOUSE, MARUTI MANDIR MARG, 5 TH KUMBHARWADA, MUMBAI 400 004 PAN: AAGFM 0979 E V. INCOME TAX OFFICER 19(2)(3) MATRU MANDIR, TARDEO ROAD, MUMBAI 400 007 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RUSHABH N. MEHTA DEPARTMENT BY : SHRI RAJESH OJHA DATE OF HEARING : 22 .01.2019 DATE OF PRONOUNCEMENT : 20 .02 .2019 O R D E R PER C. N. PRASAD (JM) 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 30 , MUMBAI [HEREINAFTER IN SHORT LD.CIT(A)] DATED 15.01.2018 FOR THE ASSESSMENT YEAR 2009 - 10. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL IN ITS APPEAL: - 1) (A) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 30, MUMBAI ['THE ID. CIT(A)'] ERRED IN FACTS AND LAW IN CONFIRMING THE ORDER PASSED BY THE ID. ASSESSING OFFICER U/S. 143(3) R.W.S. 147 OF THE ACT AND NOT TREATING IT AS NON - EST AND BAD IN LAW. 2 ITA NO.1285/MUM/2018 (A.Y: 2009 - 10) M/S. MANAV STEEL & ENGG. CO. (B) THE ID. CIT(A) ERRED IN FACTS AND LAW IN NOT APPRECIATING THAT THE ORDER PASSED BY THE ID. ASSESSING OFFICER IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE, SUFFERS FROM INFIRMITY, WITHOUT JUR ISDICTION AND INVALID. 2) (A) THE ID. CIT(A) ERRED IN FACTS AND LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BOOKS OF ACCOUNTS TO THE EXTENT OF ALLEGED PURCHASES AND SUSTAINING THE ADDITION ESTIMATING PROFIT @ 6.5% AS AGAINST @ 12 .5% ESTIMATED BY ASSESSING OFFICER ON THE ALLEG ED PURCHASES OF RS. 3,76,35,965/ - WITHOUT APPRECIATING THE MATERIAL EVIDENCES AND SUBMISSIONS PLACED ON RECORD. (B) THE ID. CIT(A) ERRED IN FACTS AND LAW IN NOT APPRECIATING THAT THE ASSESSEE OUGHT TO HAVE BEE N GIVEN THE COPY OF THE STATEMENTS OF THE ALLEGED SUPPLIERS RELIED UPON AND HAVE BEEN GRANTED CROSS EXAMINATION OF THESE PARTIES IN LIGHT OF NATURAL JUSTICE. 3) YOUR APPELLANT PRAYS THAT - (A) ORDER PASSED U/S. 143(3) R.W.S. 147 OF THE ACT BE TREATED AS I NVALID AND BAD IN LAW, (B) ADDITION OF ESTIMATING PROFIT @ 6.5% ON ALLEGED PURCHASES BE DELETED, (C) SUCH OTHER RELIEF AS MAY BE DEEMED FIT BE GRANTED. 4) THE GROUNDS OF APPEAL RAISED ABOVE ARE WITHOUT PREJUDICE TO ONE ANOTHER. 5) YOUR APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, DELETE OR MODIFY ANY OF OR ALL THE ABOVE GROUNDS OF APPEAL. 3. AT THE OUTSET , LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE GROUND S RAISED ON REOPENING , CHALLENGING THE RE - ASSESSMENT ORDER A S BAD IN LAW INCLUDING THE ADDITIONAL GROUNDS IS NOT PRESSED. THUS THE GROUNDS RAISED BY THE ASSESSEE ON REOPENING OF ASSESSMENT INCLUDING THE ADDITIONAL GROUND S WERE DISMISSED AS NOT PRESSED. 4. COMING TO T HE MERITS OF THE DISALLOWANCE , THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT DIS ALLOWED 12.5% OF THE ALLEGED PURCHASES WHICH WAS REDU CED BY THE LD. CIT(A) TO 6.5%. 3 ITA NO.1285/MUM/2018 (A.Y: 2009 - 10) M/S. MANAV STEEL & ENGG. CO. 5. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE IS INTO TREADING IN METALS AND ALL THE PURCHASES ARE GENUINE. STOCKS WERE RECONCILED AND THE AVERAGE GROSS PROFIT OF T HE ASSESSEE FOR THE LAST FOUR YEARS TO TILL DATE IS 2.23% . THEREFORE, ENTIRE PURCHASES CANNOT BE TREATED AS NON - GENUINE AND ESTIMATING THE PROFIT ELEMENT FROM THE ALLEGED PURCH ASES AT 6.5% IS NOT JUSTIFIED. 6. LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE AS SESSING OFFICER. REFERRING TO CLAUSE NO . (4) OF PARA NO. 5.5 OF THE ASSESSMENT O RDER SUBMITTED THAT THE ASSESSEE HAS NOT FILED ANY DETAIL OF VITAL DOCUMENTS SUCH AS DELIVERY CHAL LANS, TRANSPORT RECEIPTS ETC. THEREFORE, ASSESSEE HAS MADE PURCHASES IN GRAY MARKET AND OBTAINED ONLY BOGUS BILLS. THEREFORE, ASSESSING OFFICER HAS RIGHTLY ESTIM AT ED THE PROFIT AT 12.5%. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THIS ASPECT OF THE MATTER HAS BEEN CONSIDERED BY THE LD. CIT( A) WITH REFERENCE TO THE SUBMISSIONS OF THE ASSESSEE AND AVERMENTS OF THE ASSESSING OFFICER AND ALSO TAKING NOTE OF THE FACT TH AT THE NOTICE ISSUED U/S. 133(6) WERE RETURNED UNSERVED AND KEEPING IN VIEW THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V. SIMIT P. SHETH [356 ITR 451] AND VIJAY M. MISTRY CONSTRUCTION LTD., [355 ITR 4 ITA NO.1285/MUM/2018 (A.Y: 2009 - 10) M/S. MANAV STEEL & ENGG. CO. 498] ESTIMATED THE PROFIT ELEMENT FROM THE PURCHA SES AT 6.5% OBSERVING AS UNDER: - 7.7 LD. AO ADDED AN AMOUNT RS. 47,04,496/ - , BEING 12.5% OF THE TOTAL NON - GENUINE PURCHASES OF RS. 3,76,35,965/ - TO THE TOTAL INCOME OF THE ASSESSEE. THUS, THE ISSUE WOULD BOIL DOWN WHETHER THE ELEMENT OF PROFIT ADOPTED BY THE AO @12.5% TREATING THE SAME AS THE PROFIT ELEMENT EMBEDDED IN SUCH BOGUS PURCHASES, WHICH THE APPELLANT WOULD HAVE MADE FROM SOME UNKNOWN ENTITIES IS CORRECT OR NOT. 7.8 HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT SHETH (2013) 356 ITR 451 (GUJ), HON'BLE COURT WAS SEIZED WITH THE SIMILAR ISSUE WHERE THE A.O. HAD FOUND THAT SOME OF THE ALLEGED SUPPLIERS OF STEEL TO THE ASSESSEE HAD NOT SUPPLIED ANY GOODS BUT HAD ONLY PROVIDED SALE BILLS AND HENCE, PURCHASES FROM THE SAID PARTIES WERE HELD TO BE BOGUS. THE AO, IN THAT CASE ADDED THE ENTIRE AMOUNT OF PURCHASES TO GROSS PROFIT OF THE ASSESSEE. LD. CIT (A) HA VING FOUND THAT THE ASSESSEE HAD INDEED PURCHASED THOUGH NOT FROM NAMED PARTY BUT OTHER PARTIES FROM GREY MARKET, PARTIALLY SUSTAINED THE ADDITION AS PROBABLE PROFIT OF THE ASSESSEE. THE TRIBUNAL HOWEVER, SUSTAINED THE ADDITION TO THE EXTENT OF 12.5%. TAKI NG INTO ACCOUNT THE ABOVE FACTS, THE HON'BLE GUJARAT HIGH COURT HELD THAT SINCE THE PURCHASES WERE NOT BOGUS, BUT WERE MADE FROM PARTIES OTHER THAN THOSE MENTIONED IN BOOKS OF ACCOUNTS, ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES COULD BE ADDED TO T HE ASSESSEE'S INCOME AND AS SUCH NO QUESTION OF LAW AROSE IN SUCH ESTIMATION. WHILE ARRIVING AT THE ABOVE CONCLUSION, THE HON'BLE COURT ALSO RELIED ON THE DECISION IN THE CASE OF VIJAY M. MISTRY CONSTRUCTION LTD. 355 ITR 498 (GUJ) AND FURTHER APPROVED THE DECISION OF AHMEDABAD BENCH, ITAT IN THE CASE OF VIJAY PROTEINS 58 ITD 428. 7.9 HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT P. SHETH 356 ITR 451 (GUJ), UPHELD THE DECISION OF THE ITAT, WHICH CONFIRMED THE ADDITION @12.5% OF THE TOTAL BOGUS PURC HASE. TAKING INTO ACCOUNT THE FACTS OF THE CASE, THE HON'BLE GUJARAT HIGH COURT HELD THAT SINCE THE PURCHASES WERE NOT BOGUS, BUT WERE MADE FROM PARTIES OTHER THAN THOSE MENTIONED IN BOOKS OF ACCOUNTS, ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES COU LD BE ADDED TO THE ASSESSEE'S INCOME AND AS SUCH NO QUESTION OF LAW AROSE IN SUCH ESTIMATION. THE TRIBUNAL FOR ARRIVING THE PROFIT ELEMENT EMBEDDED IN THE TRANSACTIONS @ 12.5% HELD AS UNDER: 'HAVING HEARD THE SUBMISSIONS OF BOTH SIDES, WE HAVE BEEN INFORME D THAT THE MALPRACTICE OF BOGUS PURCHASE IS MAINLY TO SAVE 10% SALES TAX ETC., IT HAS ALSO BEEN INFORMED THAT IN THIS INDUSTRY ABOUT 2.5% IS THE PROFIT MARGIN. THEREFORE, RESPECTFULLY FOLLOWING THE DECISIONS OF THE CO - ORDINATE BENCH PRONOUNCED ON IDENTICAL CIRCUMSTANCES, WE HEREBY DIRECT THAT THE DISALLOWANCE IS REQUIRED TO BE SUSTAINED AT 12.5% OF THE PURCHASE FROM THOSE PARTIES. WITH THESE DIRECTIONS, WE HEREBY DECIDE THE GROUNDS OF THE RIVAL PARTIES WHICH ARE PARTLY ALLOWED.' 7.10 THE APPELLANT MADE PURCHASES FROM FIFTEEN PARTIES WHO ARE SAID TO BE HAWALA OPERATORS, WHO IS INDULGED IN PROVIDING BOGUS BILLS WITHOUT SUPPLY OF ANY MATERIAL. INDEPENDENT INQUIRIES CONDUCTED REVEALED THAT NO SUCH PARTIES ARE EXISTING IN THE GIVEN ADDRESS. WHEN ASKED TO PROD UCE THE PARTY DURING THE ASSESSMENT PROCEEDINGS BY THE AO, APPELLANT EXPRESSED HIS INABILITY TO DO SO. IN 5 ITA NO.1285/MUM/2018 (A.Y: 2009 - 10) M/S. MANAV STEEL & ENGG. CO. THE PRESENT CASE, A.O. ESTIMATED THE PROFIT PERCENTAGE ON BOGUS PURCHASES AS 12.5%. THE SIMPLE ISSUE TO BE DECIDED IS WHETHER THE PERCENTAGE ADOPTED B Y THE AO IS CORRECT IN THE LINE OF BUSINESS I.E. TRADING IN FERROUS AND NON - FERROUS METALS. AS NOTICED ABOVE, IN THE SIMILAR CIRCUMSTANCES OF BOGUS PURCHASES, HON'BLE GUJARAT HIGH COURT ESTIMATED THE ADDITIONAL ADVANTAGE TOWARDS TAX BENEFIT (10% AND THE PR OFIT MARGIN (2.5%) TOTALING TO 12.5%. IN THE PRESENT CASE ON PERUSAL OF COPIES OF THE INVOICES FURNISHED BY THE APPELLANT IN THE BILL THE PERCENTAGE OF VAT LEVIED IS @ 4%. APPLYING THE SAME LOGIC, THE PROFIT MARGIN SHOULD BE ADOPTED @ 2.5%. IN VIEW OF THE ABOVE, IN MY CONSIDERED OPINION, APPLYING THE LOGIC OF THE ABOVE SAID CASE THE PROFIT PERCENTAGE EMBEDDED ON SUCH PURCHASES IS RESTRICTED TO 6.5% (I.E. 4% OF VAT LEVIED + 2.5% TOWARDS PROFIT MARGIN), THAT WILL MEET THE ENDS OF THE JUSTICE. TAKING ALL THE F ACTS INTO CONSIDERATION AND APPLYING THE LOGIC OF SIMIT P. SHETH CASE, THE A.O. IS DIRECTED TO RESTRICT THE ESTIMATION @ 6.5% ON THE NON - GENUINE PURCHASES OF RS. 3,76,35,965/ - . APPEAL ON GROUND NO. 2, 3 AND 4 ARE TREATED AS 'PARTLY ALLOWED. 8. ON A PERUSAL O F THE LD. CIT(A) ORDER AND FINDINGS, WE DO NOT FIND ANY VALID REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A) IN ESTIMATING THE PROFIT ELEMENT FROM PURCHASES AT 6.5% . 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 20 TH FEBRUARY , 2019 SD / - (C.N. PRASAD) JUDICIAL MEMBER MUMBAI / DATED 20 / 0 2 / 201 9 GIRIDHAR , S R. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM