Savas Engineering Company Pvt.Ltd, Pune V. Pr.Commissioner of Income tax -3, Pune

ITA 1348/PUN/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6595 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 29-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Revision of order; Question of law; Reassessment proceedings; Set aside
• Section: 143(3); 143(1); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE VIRTUAL COURT BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO.1348/PUN/2017 / ASSESSMENT YEAR : 2010-11 SAVAS ENGINEERING COMPANY PVT. LTD., 498 1 RADHE INDUSTRIAL ESTATE, TAJPUR ROAD, VILLAGE CHANGODAR, TALUKA SANAND, AHMEDABAD, GUJARAT 382213 PAN : AAJCS6950R VS. PR.CIT-3, PUNE APPELLANT RESPONDENT / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 23-03-2017 PASSED BY THE PR. COMMISSIONER OF INCOME-TAX -3, PUNE U/S.263 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMENT YEAR 2010-11. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSE E FILED A RETURN DECLARING TOTAL INCOME OF RS.2.44 CRORE. THE RETUR N WAS PROCESSED U/S 143(1) OF THE ACT. THEREAFTER, THE AO INITIATED REASSESSMENT PROCEEDINGS ON THE BASIS OF INFORMATION THAT TH E ASSESSEE BY SHRI P.I. PATWA REVENUE BY SHRI DEEPAK GARG DATE OF HEARING 17-09-2020 DATE OF PRONOUNCEMENT 17-09-2020 ITA NO.1348/PUN/2017 SAVAS ENGINEERING COMPANY PVT. LTD., 2 ASSESSEE WAS BENEFICIARY OF THE HAWALA PURCHASES. THE A SSESSMENT WAS COMPLETED U/S.143(3) R.W.S. 147 DETERMINING TOTAL INCOME AT RS.2.51 CRORE, MAKING ADDITION OF RS.6,93,574/-, BEING, 20% OF BOGUS PURCHASES AMOUNTING TO RS.34,67,870/-. THE LD. P R.CIT, EXERCISED HIS REVISIONAL POWER U/S.263 OF THE ACT, HELD THA T THE AO WAS NOT JUSTIFIED IN ADDING ONLY 20% OF THE BOGUS PURCHASE PRICE. HE ALSO HELD THAT THE AO FAILED TO EXAMINE SUNDRY CREDITORS S HOWN BY THE ASSESSEE, DETAILS OF OTHER PURCHASES, VALUATION OF S TOCK AND VARIOUS EXPENSES AS CLAIMED BY THE ASSESSEE IN THE PROFIT A ND LOSS ACCOUNT IN THE REASSESSMENT PROCEEDINGS. THE LD. PR.CIT H ELD THE ASSESSMENT ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTE REST OF REVENUE, AGAINST WHICH THE ASSESSEE HAS COME UP IN APPEA L BEFORE THE TRIBUNAL. 3. THE ASSESSEE HAS ALSO RAISED AN ADDITIONAL GROUND REA DING AS UNDER: THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX, HAS ERRED IN PASSING ORDER U/S.263 FOR REVISION OF ORDER PAS SED U/S.143(3) R.W.S.147 DATED 30-05-2014 ON THE ISSUES OTHE R THAN ISSUES MENTIONED IN REASONS RECORDED IN WRITING WHILE RE-OPENING THE ORIGINAL ASSESSMENT FOR A.Y. 2010-11. HEN CE THE REVISIONS ORDER PASSED U/S.263 BEING BAD IN LAW BE TR EATED AS NULL AND VOID. ITA NO.1348/PUN/2017 SAVAS ENGINEERING COMPANY PVT. LTD., 3 4. THE HONBLE SUPREME COURT IN NATIONAL THERMAL POWER COMPANY LTD. VS. CIT (1998) 229 ITR 383 (SC) HAS OBSERVED THAT THE PURPOSE OF THE ASSESSMENT PROCEEDINGS BEFORE THE TA XING AUTHORITIES IS TO ASSESS CORRECTLY THE TAX LIABILITY OF AN ASSESSE E IN ACCORDANCE WITH LAW. IF, FOR EXAMPLE, AS A RESULT OF A JU DICIAL DECISION GIVEN WHILE THE APPEAL IS PENDING BEFORE THE TRIBUNA L, IT IS FOUND THAT A NON-TAXABLE ITEM IS TAXED OR A PERMISSIBLE DEDUCTIO N IS DENIED, WE DO NOT SEE ANY REASON WHY THE ASSESSEE SHOU LD BE PREVENTED FROM RAISING THAT QUESTION BEFORE THE TRIBUNAL FOR THE FIRST TIME, SO LONG AS THE RELEVANT FACTS ARE ON RECORD IN RESPE CT OF THAT ITEM. ANSWERING THE QUESTION POSED BEFORE IT IN AFFIRMATIVE, THEIR LORDSHIPS HELD THAT ON THE FACTS FOUND BY THE AUTHORITIES BELOW , IF A QUESTION OF LAW ARISES (THOUGH NOT RAISED BEFORE THE AUTHORITIE S) WHICH HAS BEARING ON THE TAX LIABILITY OF THE ASSESSEE, THE TR IBUNAL HAS JURISDICTION TO EXAMINE THE SAME. HAVING GONE THROUGH THE SUBJECT MATTER OF THE ADDITIONAL GROUND TAKEN BY THE ASSESSEE , IT IS DISCERNIBLE THAT THE ADDITIONAL GROUND RAISES A PURE QUESTION OF LAW. WE, THEREFORE, ADMIT THE ADDITIONAL GROUND AND ESPOUSING IT FOR DISPOSAL ON MERITS. ITA NO.1348/PUN/2017 SAVAS ENGINEERING COMPANY PVT. LTD., 4 5. THE CONTENTION OF THE ASSESSEE THROUGH THE ADDITIONAL GROU ND IS THAT THE LD. PR.CIT OUGHT NOT TO HAVE TRAVELLED BEYOND THE REASONS RECORDED AT THE TIME OF INITIATION OF REASSESSMENT PROCEEDINGS. IT WAS SUBMITTED THAT INITIATION OF REASSESSMENT PROCEEDINGS WAS ONLY ON THE PREMISE OF HAWALA PURCHASES AND HENCE A DIRECTION GIVEN BY HIM TO THE AO FOR EXAMINING THE SUNDRY CREDITORS, PURCHASE AND OTHER EXPENSES ETC. WAS WITHOUT JURISDICTION. THE LD. AR RELIED ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF ASHOKA BUILDCON VS. ACIT AND ANOTHER (2010) 325 ITR 574 (BOM.) IN SUPPORT OF THIS CONTENTION. PER CONTRA, THE LD. DR SUBMITTED THAT NO FRESH ISSUE WAS DIRE CTED TO BE EXAMINED BY THE LD. PR. CIT, INASMUCH AS THESE ITEMS WER E CONCERNED WITH THE BOGUS PURCHASES ASPECT ONLY. 6. HAVING HEARD BOTH THE SIDES AND GONE THROUGH THE RELEVA NT MATERIAL ON RECORD, WE OBSERVE THAT THE ISSUE IN ASHOKA BUILDCON (SUPRA) WAS ABOUT LIMITATION IN TERMS OF SECTION 263(2) OF THE ACT. THE HONBLE HIGH COURT HELD THAT IN RESPECT OF THE ISSUES W HICH WERE NOT THE SUBJECT MATTER OF THE ASSESSMENT, PERIOD OF LIM ITATION PROVIDED IN SUB-SECTION (2) OF SECTION 263 SHOULD BE RECK ONED FROM THE DATE OF ORDER OF ORIGINAL ASSESSMENT AND NOT THE DATE ON WHICH ITA NO.1348/PUN/2017 SAVAS ENGINEERING COMPANY PVT. LTD., 5 THE ORDER REOPENING THE ASSESSMENT WAS PASSED. WE FIND THAT THIS JUDGMENT HAS NO RELEVANCE IN THE PRESENT CONTEXT. FIRSTLY, THE LD . AR HAS NOT ADVERTED TO ANY LIMITATION ISSUE BEFORE THE TRIBUN AL. SECONDLY, SUCH A CONTENTION COULD NOT HAVE BEEN POSSIBLY RA ISED BECAUSE NO ASSESSMENT TOOK PLACE IN THIS CASE U/S 143(3) O F THE ACT PRIOR TO THE REASSESSMENT. THE RETURN OF INCOME FILED BY TH E ASSESSEE U/S.139(1) OF THE ACT WAS PROCESSED U/S.143(1) OF THE ACT. IN THAT VIEW OF THE MATTER, THERE DID NOT EXIST ANOTHER ASSESS MENT ORDER U/S.143(3) BEFORE THE PASSING OF ORDER U/S 143(3) READ WITH SECTION 147. THE ONLY ASSESSMENT ORDER WHICH HAS BEEN PA SSED IN THE INSTANT CASE IS THE ONE WHICH HAS BEEN THE SUBJECT MATTER OF REVISION BEFORE THE TRIBUNAL. AS SUCH, WE DO NOT FIND ANY MERIT IN THE ADDITIONAL GROUND, WHICH IS HEREBY DISMISSED. 7. COMING TO THE MERITS OF THE APPEAL, IT IS OBSERVED FROM TH E ASSESSMENT ORDER PASSED U/S.143(3) R.W.S.147 OF THE AC T ON 30-05- 2014 THAT THE ASSESSEE COULD NOT SATISFY THE AO AS REGARDS THE GENUINENESS OF ALLEGED HAWALA PURCHASES RECORDED IN THE BOOKS OF ACCOUNT, WHICH WERE CONSUMED IN THE MANUFACTURING PROCES S. THE AO OBSERVED THAT THE GROSS PROFIT RATIO IN THIS CASE CAME DOW N TO 34.69% FOR THE YEAR AS AGAINST 42.68% FOR THE PRECEDING YEAR, ITA NO.1348/PUN/2017 SAVAS ENGINEERING COMPANY PVT. LTD., 6 WHICH REFLECTED THAT THE ASSESSEE REDUCED GROSS PROFIT RATIO BY WAY OF EXAGGERATED BOGUS PURCHASE BILLS. CONSIDERING THE ENTIRE TY OF FACTS AND CIRCUMSTANCES, THE AO HELD THAT 20% OF TOTAL BOGUS PURCHASES MADE FROM THE ALLEGED HAWALA OPERATORS WAS REQ UIRED TO BE ADDED, FOR WHICH HE MADE AN ADDITION OF RS.6,93,574/ -. 8. IT IS PERTINENT TO NOTE THAT WE ARE DEALING WITH REVISION U/S 263 OF THE ACT, WHICH CONTEMPLATES REVISION OF AN ASSESS MENT ORDER THAT IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. IT IS TRITE THAT THE POWER OF REVISION DOES NOT EXTEND TO A DEBATABLE ISSUE. IN OTHER WORDS, IF TWO POSSIBLE VIEWS EXIST A ND THE AO TAKES ONE OF SUCH POSSIBLE VIEWS IN THE ASSESSMENT ORDE R, THE REVISION IS OUSTED. 9. IT IS SEEN THAT THE LD. PR.CIT HELD THE ASSESSMENT ORDE R TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE PRIMARIL Y ON THE GROUND THAT THE AO DID NOT PROPERLY EXAMINE THE ISSUE OF BOGUS PURCHASES. THE VIEW TAKEN BY THE AO IN NOT TAXING 100% BUT ONLY PROFIT ELEMENT IN SUCH HAWALA PURCHASES IS FORTIFIED BY THE JUDGMENT DATED 11-02-2019 OF HONBLE JURISDICTIONAL HIGH COURT IN PR.CIT VS. MOHOMMAD HAJI ADAM & CO. (IN ITA NO.1004 OF ITA NO.1348/PUN/2017 SAVAS ENGINEERING COMPANY PVT. LTD., 7 2016) WHEREIN IT HAS BEEN HELD THAT NO AD HOC ADDITION FOR BOGUS PURCHASES CAN BE MADE. RATHER, THE ADDITION SHOULD BE MAD E TO THE EXTENT OF DIFFERENCE BETWEEN THE GROSS PROFIT RATE ON GENU INE PURCHASES AND GROSS PROFIT RATE ON HAWALA PURCHASES. S INCE THE AO IN THE INSTANT CASE HAS MADE ADDITION FOR THE ADDITIONAL PROFIT A T THE RATE OF 20% OF BOGUS PURCHASES, WE HOLD THAT THE IMPUGNE D ORDER, TREATING SUCH ASSESSMENT ORDER AS ERRONEOUS AND PREJUDICIA L TO THE INTEREST OF REVENUE, CANNOT BE VALIDATED. 10. THE LD. DR RELIED ON THE JUDGMENT IN SHORELINE HOTEL (P.) LTD. VS. CIT (2018) 98 TAXMANN.COM 234 (BOM) TO SUPPORT THE CONTENTION THAT THE ASSESSMENT ORDER MAKING ADDITION AT A PARTICULAR RATE OF BOGUS PURCHASE BILLS RIGHTLY CALLED FOR INTERFERENCE AT THE LEVEL OF THE CIT U/S 263. THE FACTS OF TH AT CASE ARE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF RUNN ING A HOTEL. IT SHOWED TO HAVE PURCHASED CERTAIN GOODS IN THE N ATURE OF PLUMBING AND FURNITURE ITEMS, PAINTING AND BUILDING ITEMS FROM SOME OF THE PARTIES, WHICH WERE FOUND TO BE BOGUS. THE A O MADE ADDITION AT A PARTICULAR PROFIT RATE OF SUCH BOGUS BILLS. THE C IT HELD THE ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF TH E REVENUE. THE TRIBUNAL AFFIRMED THE VIEW CANVASSED BY THE CIT. ITA NO.1348/PUN/2017 SAVAS ENGINEERING COMPANY PVT. LTD., 8 THE HONBLE HIGH COURT ACCORDED ITS SEAL OF APPROVAL TO THE REVISION ORDER. 11. WE FIND THAT THE FACTS OF THE CASE IN SHORELINE HOTEL (SUPRA) LIE IN DIFFERENT COMPASS. IN THAT CASE THE BOGUS PURCHASE B ILLS WERE NOT THAT OF THE ITEMS RELATING TO TRADING OR MANUFACTURING STRUCTU RE, BUT OF THE FIXED ASSETS. THE LOGIC BEHIND THE DECISIONS UPH OLDING THE ADDITION UPTO A CERTAIN PROFIT LEVEL IN THE BOGUS PURCHASE BILLS IS THAT THE ASSESSEE, IN FACT, PURCHASED THE MATERIAL, BUT PRO CURED THE BILLS OF HIGHER VALUE SO AS TO DEFLATE THE PROFIT. IF BOGUS PURCHASE BILLS DO NOT RELATE TO THE PURCHASES OF GOODS FOR RESALE OR CONSUMPTION IN THE MANUFACTURING PROCESS, THERE CAN BE NO QUESTION OF ADDITION OF THE PART AMOUNT OF BOGUS PURCHASE B ILLS. THERE CAN BE TWO POSSIBILITIES OF THE RAW MATERIAL ETC. PURCHA SED THROUGH BOGUS BILLS - EITHER THESE ARE SOLD/CONSUMED DURING THE YEAR OR ARE LYING IN THE CLOSING STOCK. IN BOTH THE EVENTUALITIE S, ONLY THE EXCESS COST OF PURCHASE CALLS FOR ADDITION. AS THE FACTU AL PANORAMA IN THE CASE OF SHORELINE HOTEL (SUPRA) IS DIFFERENT INASMUCH AS IT DEALT WITH THE BOGUS BILLS IN RESPECT OF NON-TRADIN G ITEMS, THE RATIO LAID DOWN IN THAT CASE CANNOT APPLY TO THE CASE ITA NO.1348/PUN/2017 SAVAS ENGINEERING COMPANY PVT. LTD., 9 UNDER CONSIDERATION. RATHER THE CASE WILL BE COVERED BY THE RATIO IN THE CASE OF MOHOMMAD HAJI ADAM (SUPRA). 12. THE AO IN THE INSTANT CASE HAS TAKEN A VIEW OF TAXING ONLY 20% OF BOGUS PURCHASE, WHICH CANNOT, BY ANY STANDARD, BE CONSTRUED AS A NON-PLAUSIBLE VIEW. THE PUNE BENCHES OF THE TRIBUNAL IN ITS ORDER DATED 16.09.2020 IN VINOD BHAGWAN PATIL VS. PR. CIT IN ITA NO.750/PUN/2018 HAS QUASHED THE ORDER U/S 263 OF THE ACT IN SIMILAR CIRCUMSTANCES. WE, THEREFORE, SET-A SIDE THE IMPUGNED ORDER ON THIS SCORE. 13. WE NOW ACCENTUATE THE OTHER POINT OF VIEW TAKEN BY THE LD. PR. CIT THAT THE AO FAILED TO EXAMINE SUNDRY CREDITORS SHOW N BY THE ASSESSEE, DETAILS OF OTHER PURCHASES, VALUATION OF STOCK AND VARIOUS EXPENSES AS CLAIMED IN THE PROFIT AND LOSS ACCOUNT IN THE REASSESSMENT PROCEEDINGS. THE LD. DR HAS CATEGORICALLY S UBMITTED THAT THE DIRECTION OF THE LD. PR.CIT FOR EXAMINING THE CREDITORS AND PURCHASE ACCOUNTS ETC. ALONG WITH VALUATION OF STOCK WAS C ONNECTED WITH THE BOGUS PURCHASES ONLY AND NOT DE HORS THE SAME. WE FIND THIS POSITION TO BE AMPLY EMERGING FROM THE IMMEDIATELY NEXT LIN E IN PARA 6.1 OF THE IMPUGNED ORDER TO THE EFFECT THAT: SINCE ITA NO.1348/PUN/2017 SAVAS ENGINEERING COMPANY PVT. LTD., 10 ASSESSEES COMPUTATION OF PROFIT ARE DEPENDENT ON ALL THE ABO VE ISSUES AND WHEN BOGUS PURCHASES HAVE COME TO HIS NOTICE, IT WAS IMPERATIVE ON THE PART OF THE AO TO VERIFY ALL THESE ASPECTS WHILE COMPLETING THE ASSESSMENT . THAT APART, WE FIND THAT THE LD. PR.CIT HAS NOT INDICATED ANYTHING AMISS IN THESE ITEMS INDEPENDENT OF THE ISSUE OF BOGUS PURCHASES. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER. 14. IN THE RESULT, THE APPEAL IS ALLOWED ON MERITS. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH SEPTEMBER, 2020. SD/- SD/- (S.S. VISWANETHRA RAVI) (R.S.SY AL) JUDICIAL MEMBER VIC E PRESIDENT PUNE; DATED : 17 TH SEPTEMBER, 2020 SATISH / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE PR.CIT-3, PUNE 4. 5. THE ACIT, RANGE-6, PUNE , , / DR B, ITAT, PUNE 6. / GUARD FILE / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE ITA NO.1348/PUN/2017 SAVAS ENGINEERING COMPANY PVT. LTD., 11 DATE 1. DRAFT DICTATED ON 17-09-2020 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 17-09-2020 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *