Deputy Commissioner of Income-tax, V. M/s. Rang Rasayan,

ITA 1495/PUN/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5305 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 17-07-2018
• Assessment Year: 2009-2010
• Appeal Filed On: 07-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MUKESH JHA
• Keywords: Accommodation entries; Tax effect

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E . , , , ' BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AW ASTHY, JM . / ITA NO. 1495/PUN/2016 $ $ / ASSESSMENT YEAR : 2009-10 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-6, PUNE ....... / APPELLANT / V/S. M/S. RANG RASAYAN, 520, NEW RASTA PETH, PUNE 411 011 PAN : AABFR7731G / RESPONDENT . / ITA NO. 639/PUN/2016 $ $ / ASSESSMENT YEAR : 2009-10 M/S. RANG RASAYAN, 520, NEW RASTA PETH, PUNE 411 011 PAN : AABFR7731G ....... / APPELLANT / V/S. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-6, PUNE / RESPONDENT ASSESSEE BY : SHRI PRAYAG JHA RESPONDENT BY : SHRI MUKESH JHA / DATE OF HEARING : 17.07.2018 / DATE OF PRONOUNCEMENT : 20.07.2018 / ORDER PER D. KARUNAKARA RAO, AM THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDER OF CIT(A)-2, PUNE, DATED 01.02.2016 FOR THE A.Y. 2009-1 0. 2 ITA NO.1495/PUN/2016 AND ITA NO.639/PUN/2016 M/S. RANG RASAYAN WE SHALL TAKE UP THE APPEAL OF THE REVENUE FIRST. ITA NO.1495/PUN/2016 BY REVENUE A.Y. 2009-10 2. GROUNDS RAISED BY THE REVENUE ARE EXTRACTED BELOW : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) IS JUSTIFIED IN HOLDING THAT ONLY PRO FIT MARGIN IS EMBEDDED IN RESPECT OF PURCHASES OF RS.50,43,126/- AND THEREBY ESTIMATING SUCH PROFIT @15% AND RESTRICTING THE ADDITION TO THE EXTENT OF RS.7,56,469/- AS AGAINST THE TOTAL DISALLOWANCE OF PURCHASES OF RS.50,43,126/- W ITHOUT ANY JURISDICTION. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) IS JUSTIFIED IN DIRECTING THE ASSESSI NG OFFICER TO DELETE THE ADDITIONS OF RS.7,05,512/- WITHOUT APPRECIATING THE FACT THAT THE PURCHASES FROM M/S. SIDDHI VINAY CORPORATION AND M/S. SHAH IN DUSTRIES ARE NOT GENUINE AND THESE PARTIES HAVE BEEN DETECTED AS HAWALA PART IES BY THE SALES TAX DEPARTMENT. 3. BRIEFLY STATED RELEVANT FACTS INCLUDES THAT THE ASSESS EE IS A COMPANY ENGAGED IN THE BUSINESS AS DEALER IN INDUSTRIAL AND LABORAT ORY CHEMICALS, SOLVENTS AND ACIDS. ASSESSEE FILED THE RETURN OF INCOME O N 29-09-2009 DECLARING TOTAL INCOME OF RS.35,41,350/-. ON RECEIPT OF THE IN FORMATION FROM THE SALES TAX DEPARTMENT OF MAHARASHTRA GOVT., AO NOTICE D THAT ASSESSEE MADE PURCHASES FROM THREE PARTIES NAMELY (1) M/S. GRASIM INDUSTRIES (MADHYA PRADESH); (2) M/S. SREE RAYALASEEMA ALKALIES & ALLIED CH EMICALS LTD.; (3) M/S. LALJI LAKHAMSHI & COMPANY; AND (4) ADITYA BIRLA NUVO LTD., AMOUNTING TO RS.50,43,126/- (PARA 1.4 OF THE CIT(A)S ORDER) AND THESE PARTIES ARE IN THE LIST OF HAWALA OPERATORS. ACCORDINGLY, AO ISSUED NOTICE U/S.148 OF THE ACT AFTER RECORDING THE REASONS. ASSESSE E MADE CST ON SUCH PURCHASES AS THE PARTIES ARE OUTSIDE THE MAHARASHTRA STATE. SUCH TAX PAID WAS NOT ELIGIBLE FOR VAT SET-OFF. IT WAS ALLEGED THAT IN OR DER TO AVAIL VAT SET OFF, ASSESSEE REPLACED THE PURCHASES FROM THE ABOVE PART IES WITH BILLS OBTAINED FROM LOCAL PARTIES. ASSESSEE FURNISHED RELEVANT PA RTICULARS BEFORE THE AO SUCH AS, BILL NUMBERS, AMOUNT OF BILLS, NAME OF THE COM MODITIES 3 ITA NO.1495/PUN/2016 AND ITA NO.639/PUN/2016 M/S. RANG RASAYAN PURCHASES, QUANTITY PURCHASED, TRANSPORTERS NAME, VEHICLE NUMBERS, LR NUMBERS, TRANSPORT AGENCY, PAYMENTS ETC. AT THE END OF THE ASSESSMENT PROCEEDINGS, AO MADE ADDITION OF RS.50,43,126/- AS NON-GENU INE PURCHASES. 4. AO ALSO MADE ADDITION OF RS.7,05,512/- ON ACCOUNT OF PU RCHASE OF MATERIALS MADE FROM M/S. SHAH INDUSTRIES AND M/S. SIDDHI VIN AYAK CORPORATION. ASSESSEE SUBMITTED COPIES OF SALES INVOICES, B ANK DETAILS, DELIVERY CHALLANS, OCTROI RECEIPTS, PAYMENTS DETAILS ETC,. HOW EVER, THE AO DENIED THE CLAIM OF THE ASSESSEE TREATING THE SAME AS BO GUS PURCHASES AND EVENTUALLY ADDED THE SAME TO THE TOTAL INCOME OF THE AS SESSEE. THUS, THE AO MADE ADDITION OF RS.57,48,368. 5. IN THE FIRST APPELLATE PROCEEDINGS, THE CIT(A) DELETED T HE ADDITION OF RS.7,05,512/- MADE BY THE AO AND HELD THAT AO FAILED TO EX AMINE THE EVIDENCES PRODUCED BY THE ASSESSEE. IT WAS ALSO HELD T HAT AO DID NOT POINT OUT ANY DEFECTS IN THE BOOKS OF ACCOUNT AND DID NOT DO UBT ANY SALES MADE TO MUNICIPAL CORPORATIONS AND PROMINENT PARTIES. THE CIT(A) EVE NTUALLY CONCLUDED THAT THE AO MADE THE DISALLOWANCE BASED ON PR ESUMPTION AND SURMISES AND WITHOUT HAVING ANY MATERIAL TO SHOW THAT TH ESE PURCHASES WERE NOT GENUINE. HOWEVER, REGARDING THE ADDITION MADE BY THE AO AMOUNTING TO RS.50,43,126/-, THE CIT(A) ADOPTED THE GROSS PROFIT RATE OF 15% AS AGAINST THE 10 TO 12% SHOWN BY THE ASSESSEE R ELYING ON THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF C IT VS. BHOLANATH POLY FAB LVT. LTD. 355 ITR 290. THUS, THE CIT(A) CONFIRME D THE ADDITION TO THE EXTENT OF RS.7,56,469/- AND GAVE PART RELIEF TO THE AS SESSEE. CONTENTS OF PARA NO.5.3.3 OF THE ORDER OF CIT(A) ARE RELEVANT. 4 ITA NO.1495/PUN/2016 AND ITA NO.639/PUN/2016 M/S. RANG RASAYAN 6. AGGRIEVED WITH ORDER OF CIT(A) IN PARTLY SUSTAINING THE A DDITION TO THE EXTENT OF RS.7,56,469/- AS WELL AS DELETION OF ADDITION OF RS.7 ,05,512/- IN RESPECT OF THE PURCHASES MADE FROM M/S. SHAH INDUSTRIES AND M/S. SIDDHI VINAYAKA CORPORATION, THE REVENUE IS IN APPEAL. AGGRIEVED WITH THE CONFIRMATION OF ADDITION OF RS.7,56,469/-, THE ASSESSEE IS IN A PPEAL BEFORE THE TRIBUNAL. 7. AT THE OUTSET, LD. AR FOR THE ASSESSEE SUBMITTED THA T THE APPEAL FILED BY THE DEPARTMENT IS LIABLE TO BE DISMISSED ON ACCOUNT O F LOW TAX EFFECT. THE LD. AR POINTED THAT AS PER CBDT CIRCULAR NO.3/2018 DATE D 11 TH JULY, 2018, THE MONETARY LIMIT FOR FILING OF APPEAL BY THE DEPARTMENT BEFO RE THE TRIBUNAL IS RS.20 LAKHS, THEREFORE, THE APPEAL FILED BY THE DEPARTME NT IS NOT MAINTAINABLE. 8. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE DEFENDE D THE ASSESSMENT ORDER AND PRAYED FOR REVERSING THE FINDINGS O F THE CIT(A). HOWEVER, THE LD. DR FAIRLY ADMITTED THAT THE TAX EFFECT IN THE PRESENT APPEAL IS LESS THAN RS.20 LAKHS. 9. BOTH SIDES HEARD. A PERUSAL OF THE IMPUGNED ORDER SHOW S THAT THE ADDITION MADE IN THE ASSESSMENT YEAR UNDER CONSIDERATION IS ON ACCOUNT OF PURCHASES MADE BY THE ASSESSEE ALLEGED TO HAVE BEEN MADE FROM BOGUS/HAWALA PARTIES. THE TOTAL TAX ON DISPUTED ADDITION O F RS.55,48,638/- IN THE PRESENT APPEAL IS UNDISPUTEDLY IS LESS THAN RS. 20 LAKHS. THE CBDT CIRCULAR NO.3/2018 DATED 11 TH JULY, 2018 RAISED THE MONETARY LIMIT OF TAX EFFECT FOR FILING OF APPEAL BY THE DEPARTMENT BEFORE THE TRIB UNAL TO RS.20 LAKHS. THE CIRCULAR APPLIES TO THE PENDING APPEALS OF THE DEPARTMENT BEFORE THE TRIBUNAL TOO. THUS, IN VIEW OF THE CBDT CIRCULAR, WE ARE OF THE OPINION 5 ITA NO.1495/PUN/2016 AND ITA NO.639/PUN/2016 M/S. RANG RASAYAN THAT THE PRESENT APPEAL OF THE REVENUE IS LIABLE TO BE DIS MISSED ON ACCOUNT OF LOW TAX EFFECT. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. WE SHALL NOW TAKE UP THE APPEAL OF THE ASSESSEE. ITA NO.639/PUN/2016 BY ASSESSEE A.Y. 2009-10 11. GROUNDS RAISED BY THE ASSESSEE ARE EXTRACTED AS UNDER : 1. THE LD.CIT(A) WAS NOT JUSTIFIED IN CONFIRMING T HE ADDITION OF RS.7,56,469/- ON ACCOUNT OF GROSS PROFIT ON PURCHAS ES OF RS.50,43,126/- WITHOUT APPRECIATING THAT THE ASSESSEE HAD FURNISHE D ALL THE PARTICULARS OF PURCHASES AND SALES ALONG WITH DETAILS OF QUANTITY AND THE ASSESSEE HAD NOT EARNED ANY PROFIT ON THESE PURCHASE WHICH WAS NOT R ECORDED IN THE BOOKS OF ACCOUNT. 2. THE LD.CIT(A) WAS NOT JUSTIFIED IN SUSTAINING AD DITION OF RS.7,56,469/- ONLY ON THE BASIS OF PRESUMPTION AND SURMISES AND W ITHOUT ANY MATERIAL TO SUPPORT HIS CONCLUSION. 12. FROM THE ABOVE GROUNDS, IT IS EVIDENT THAT THE ASSES SEE IS AGGRIEVED WITH THE DECISION OF CIT(A) IN SUSTAINING THE ADDITION TO THE EXTENT OF RS.7,56,469/- ON ACCOUNT OF PURCHASES MADE FROM M/S. SHAH INDUSTR IES AND M/S. SIDDHI VINAYAKA CORPORATION BY ADOPTING 15% OF GP ON SUCH PURCHASES. THE DETAILS OF SUCH PURCHASES ARE ALREADY WA S BRIEFED IN THE ABOVE PARAGRAPHS. 13. AFTER HEARING BOTH THE PARTIES ON THIS SOLITARY ISSUE AND ON PERUSAL OF THE ORDERS OF THE REVENUE AUTHORITIES, WE FIND IT RELEVANT TO REPRODUCE THE FINDING GIVEN BY THE CIT(A) IN PARA NO.5.3.3 OF HIS ORDER AND T HE SAME READS AS UNDER : 5.3.3 IN THE LIGHT OF THE FACTS AVAILABLE IN THE CASE OF THE APPELLANT, I FEEL THAT THE RATIO OF THE DECISION OF HONBLE GUJA RAT HIGH COURT APPLIES TO THE PRESENT CASE AS WELL. IN THE CASE OF THE APPELLANT AS WELL, IT HAS BEEN ABLE TO FILE EVIDENCES REFLECTING THAT PURCHASES WERE THERE ALTHOUGH FROM SOME OTHER PARTIES AND NOT FROM THE PARTIES FROM WHOM JU ST BILLS WERE OBTAINED. THERE ARE CORRESPONDING SALES ALSO. ACCORDINGLY, FOLLOWING THE RATIO 6 ITA NO.1495/PUN/2016 AND ITA NO.639/PUN/2016 M/S. RANG RASAYAN OF THIS DECISION, IT CANNOT BE SAID THAT ENTIRE PUR CHASES OF RS.50,43,126/- IS DISALLOWABLE. I ACCORDINGLY HOLD THAT THE APPELLAN T IS TAXABLE ON THE AMOUNT OF GROSS PROFIT WHICH HAS ARISEN OUT OF SUCH PURCHASES FOR WHICH BILLS HAVE BEEN PROCURED FROM LOCAL PARTIES. THE AVERAGE RATE OF G .P. SHOWN BY THE APPELLANT DURING THE PRECEDING YEARS IS BETWEEN 10% TO 12%. CONSIDERING THE ADDITIONAL BENEFIT ON ACCOUNT OF VAT CREDIT ON THES E PURCHASES (A FACT WHICH HAS BEEN ADMITTED BY THE APPELLANT), I CONSID ER IT FAIR AND REASONABLE TO ESTIMATE GROSS PROFIT AT THE RATE OF 15% ON THE AMOUNT OF PURCHASES OF RS.50,43,126/-, FOR WHICH ADMITTEDLY B ILLS HAVE BEEN PROCURED BY THE APPELLANT FROM NON-GENUINE PARTIES. THUS, THE AMOUNT OF GROSS PROFIT IS COMPUTED AT RS.7,56,469/- BEING 15% OF RS.50,43,126/-. THE ADDITION TO THE EXTENT OF RS.7,56,469/- IS ACCORDIN GLY CONFIRMED. 14. FROM THE ABOVE, IT IS EVIDENT THAT ASSESSEE FURNISHED THE PURCHASE BILLS AND THE EVIDENCES FOR PAYMENT TO THE SUPPLIERS THROU GH BANKING CHANNELS. COPIES OF THE BANK STATEMENTS ARE EVIDENT IN T HE RECORDS. NOWHERE IT IS MENTIONED THAT THE ASSESSEE FAILED TO PROVE THE TRAIL OF GOODS TO THE PREMISES OF THE ASSESSEE. FURTHER, IT IS NOT THE CA SE OF MERE BUYING THE ACCOMMODATION ENTRIES THROUGH THE ENTRY OPERATORS BUT THERE IS AN UNDISPUTED FACT OF BUYING THE EQUIVALENT PURCHASES FROM TH E GREY MARKET. THEREFORE, IT IS A CASE OF NOT OFFERING THE RELEVANT PROFITS P ROPERLY IN THE RETURN OF INCOME. THEREFORE, THE CIT(A)S DECISION IN REST RICTING THE DISALLOWANCE TO 15% ON ACCOUNT OF SUCH PURCHASES, DESPITE THE BOOKS RESULTS ARE ALREADY OFFERED BY THE ASSESSEE, IS FAIR AND RE ASONABLE. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE DISMISSED. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. 16. TO SUM UP, BOTH THE APPEALS OF THE REVENUE AS WELL AS THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON 20 TH DAY OF JULY, 2018. SD/- SD/- ( /VIKAS AWASTHY) ( . /D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER / PUNE; / DATED : 20 TH JULY, 2018. SATISH 7 ITA NO.1495/PUN/2016 AND ITA NO.639/PUN/2016 M/S. RANG RASAYAN ' ) / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(APPEALS)-2, PUNE 4. THE PR. CIT-2, PUNE , , ' , / DR, ITAT, B BENCH, PUNE. 6. % / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE.