DCIT, New Delhi V. M/s. Gulshan Chemicals Ltd., New Delhi

ITA 1523/DEL/2015

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 1344 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-05-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 16-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S N MEENA
• Keywords: Bogus purchase; Rectification of order; Opportunity of being heard; Principle of natural justice; Revenue expenditure; Capital expenditure
• Section: 271(1)(c); 69C; 133(6); 207; 13; 131; 154; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C, NEW DELHI BEFORE MS. SUSHMA CHOWLA, VICE PRESIDENT DR. B. R. R. KUMAR, ACCOUNTANT MEMBER ITA NO. 1523/DEL/2015 :ASSTT. YEAR : 20 11-12 ITA NO. 1524/DEL/2015 :ASSTT. YEAR : 2011-12 DCIT, CIRCLE-10(2), NEW DELHI VS M/S GULSHAN CHEMICALS LTD., E-12, GREATER KAILASH-I, NEW DELHI - 110048 (APPELLANT) (RESPONDENT) PAN NO. AAACG4002H ASSESSEE BY : SH. AJAY VOHRA, SR. ADV. REVENUE BY : SH. S. N. MEENA, SR. DR 8 DATE OF HEARING: 05.03.2020 DATE OF PRONOUNCEMENT: 21.05.2020 ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEALS HAVE BEEN FILED BY THE REVENUE AGAINST THE ORDERS OF THE LD. CIT(A)-4, NEW DELHI D ATED 24.12.2014. ITA NO. 1523/DEL/2015 2. THE FOLLOWING GROUNDS HAVE BEEN RAISED BY THE RE VENUE: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF CASE & IN LAW, THE LD. CIT (A) HAS ERRED IN HOLDING THAT AO HAS CH ARGED HIS OPINION AND IMPUGNED ORDER IS BEYOND THE SCOPE OF S ECTION 154. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. CIT (A) HAS ERRED IN IGNORING THE FACT THAT 20% OF RS.4,39,75,256/- WAS WRONGLY DISALLOWED IN THE ORDE R & IT WAS AN TYPOGRAPHICAL ERROR WHILE THE DISALLOWANCE WAS C ORRECTLY MADE IN THE COMPUTATION OF INCOME. ITA NOS. 1523 & 1524/DEL/2015 GULSHAN CHEMICALS LTD. 2 3. DURING THE ASSESSMENT PROCEEDINGS, THE NOTICES IS SUED BY THE AO U/S 133(6) OF THE INCOME TAX ACT, 1961 HAVE BEEN RE TURNED BACK WITH THE REMARKS THAT NO SUCH ENTITY EXISTS. BASED ON THE RE VISIT OF THE NOTICES, THE ASSESSING OFFICER MADE ADDITION OF RS.87,95,000/- B EING 20% OF THE PURCHASES OF RS. 4,39,75,000/- FROM ONE ENTITY NAM ELY, M/S VAIBHAV COAL MOVERS OWING TO NON-SUBSTANTIATION OF THE PURCHASES MADE. AFTER PASSING OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER RECE IVED INFORMATION REGARDING THE SAID PURCHASES ALONG WITH BANK STATEM ENTS BASED ON WHICH THE ASSESSING OFFICER PASSED AN ORDER OF RECTIFICAT ION U/S 154. VIDE RECTIFICATION ORDER U/S 154, DATED 19.05.2014, THE AO HAS BROUGHT TO TAX THE ENTIRE AMOUNT OF PURCHASES OF RS.4,39,75,000/- MADE FROM M/S VAIBHAV COAL MOVERS. 4. AGGRIEVED, THE ASSESSEE FIELD APPEAL BEFORE THE LD. CIT (A) ON THE GROUNDS THAT THE ACTION OF THE ASSESSING OFFICER IS BEYOND THE SCOPE OF POWERS FOR RECTIFICATION U/S 154. 5. THE LD. CIT (A) DELETED THE ADDITION MADE U/S 15 4 ON THE GROUNDS THAT THE ASSESSING OFFICER HAS FAILED TO ACCORD AN OPPORTUNITY WHILE ENHANCING THE ASSESSED INCOME AND THE ORDER SUFFERS FROM SEVERE INFIRMITY OF DENIAL OF NATURAL JUSTICE. 6. AGGRIEVED, THE REVENUE FILED APPEAL BEFORE THE T RIBUNAL. 7. THE ORIGINAL ASSESSMENT ORDER IS AS UNDER: DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE P URCHASES OF THE ASSESSEE COMPANY WERE LOOKED INTO FOR VERIFI CATION AND AS EVIDENT IN THE ABOVE PARAS THE PURCHASES TO THE EXTENT OF RS.3,24,54,139/- WERE FOUND BOGUS AND UNVERIFIABLE IN THE CASE OF M/S VAIBHAV COAL MOVERS. HOWEVER, THE REMAI NING PURCHASES MADE BY THE ASSESSEE COMPANY ALSO CANT B E RELIED UPON AS DESPITE OF THE NOTICES U/S 133(6) SENT TO V ARIOUS ITA NOS. 1523 & 1524/DEL/2015 GULSHAN CHEMICALS LTD. 3 PARTIES AND OF THE VIEW THAT THESE HAVE BEEN RETURN ED BACK WITH THE REMARKS THAT NO SUCH PARTIES EXISTS; THERE FORE THE GENUINENESS OF THE PURCHASES AS A WHOLE CANNOT BE A CCEPTED. FURTHER THE ASSESSEE COMPANY ALSO NOT COOPERATED WH ILE THE ASSESSMENT PROCEEDINGS AT IT HAS NOT PROVIDED THE C ORRECT ADDRESSES OF THE PURCHASES AND DID NOT PRODUCE PRIN CIPLE OFFICER OF M/S VAIBHAV COAL MOVERS DESPITE OF SPECI FIC QUERIES, NOTICES AND SUMMONS ISSUED IN THIS REGARD. THEREFOR E, IN VIEW OF THIS RS.87,95,051/- I.E. 20% OF RS.4,39,75,256/- REMAINING QUANTUM OF ALLEGED PURCHASES FROM RETAIL DEALERS IS HEREBY DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF TH E ASSESSEE COMPANY. SINCE, THE ASSESSEE HAS FILED INCORRECT PA RTICULARS OF ITS INCOME, PENALTY PROCEEDINGS UNDER SECTION 271(1 )(C) HAVE BEEN INITIATED SEPARATELY. 8. THE RECTIFICATION ORDER U/S 154 IS AS UNDER: THE PLEA OF THE ASSESSEE REGARDING FIGURE TAKEN IN COMPUTATION OF TOTAL INCOME AT RS. 4,39,75,256/- AS AGAINST ADD ITION OF RS. 87,95,051/- HAS BEEN EXAMINED AND FOUND THAT WHILE CALCULATING 20% OF THIS AMOUNT THE CORRECT FIGURE C OMES AT RS.87,95,051/- BUT IN THE INSTANT CASE VARIOUS DETA ILS AND COPIES OF BANK ACCOUNTS WERE CALLED FOR FROM VARIOU S PARTIES BUT NO DETAILS WERE RECEIVED WELL IN TIME. NOW THE DETA ILS HAS BEEN RECEIVED FROM PNB MUGAL SARA, IN THE NAME OF VIJETA COLD TRADERS AND GANPAT RAI KEVAL RAM TRADING COMPANY LT D RESPECTIVELY, AND PERUSAL THEREOF REVEALS THAT THE ASSESSEE COMPANY RECEIVED WHOLE AMOUNT OF PAYMENT MADE THROU GH CHEQUE IN CASH AS EVIDENT FROM THE COPY OF BANK ACC OUNTS WHEREIN THE AMOUNT CREDITED IN THE ABOVE NOTED PART IES THROUGH M/S. VAIBHAL COAL TRADERS WAS WITHDRAWN IN CASH ON SAME DAY OR NEXT DAY WHICH CLEARLY MEANS THAT THE ASSESSEE C OMPANY CLAIMED EXPEHDITURE ON ACCOUNT OF PURCHASES OF COAL THROUGH M/S. VAIBHAL COAL TRADERS AND THIS AMOUNT WITHDRAWN FROM BANK AND WAS RETURNED TO THE ASSESSEE COMPANY. THE RELEVANT DETAILS OF BANK ACCOUNT IN BOTH THE COMPANIES ARE R EPRODUCED HEREUNDER: ITA NOS. 1523 & 1524/DEL/2015 GULSHAN CHEMICALS LTD. 4 SL. NO. DATE NAME DEPOSIT (AMOUNT IN RS.) CASH WITHDRAWAL FROM BANK VIJETA COAL TRADERS 1. 21.07.2010 VAIBHAL COAL 6,00,000 6,00,000 2. 21.07.2010 VAIBHAL COAL 5,64,863 5,64,863 3. 28.07.2010 VAIBHAL COAL 7,00,000 4. 28.07.2010 VAIBHAL COAL 6,00,000 5. 29.07.2010 VAIBHAL COAL 7,00,000 6. 29.07.2010 VAIBHAL COAL 6,00,000 7. 07.08.2010 VAIBHAL COAL 5,57,242 8. 09.08.2010 VAIBHAL COAL 5,57,200 9. 14.08.2010 VAIBHAL COAL 8,00,000 10. 20.10.2010 VAIBHAL COAL 9,50,000 11. 20.10.2010 VAIBHAL COAL 9,50,000 12. 21.10.2010 MUGHAL SARAI 7,00,000 13. 21.10.2010 MUGHAL SARAI 6,43,2 70 14 30.10.2010 VAIBHAL COAL 8,52,381 15. 01.11.2010 MUGHAL SARAI 8,52,381 16 18.11.2010 VAIBHAL COAL 10,11,640 17 23.11.2010 MUGHAL SARAI 2,50,000 GANPAT RAI KEWAL RAM TRADING 1. 14.08.2010 VAIBHAL COAL 8,00,000 2. 14.08.210 MOGHAL SARAI 6,00,000 3. 14.08.2010 MOGHAL SARAI 5,07,600 4. 16.08.2010 MOGHAL SARAI 1,40,000 5. 16.08.2010 MOGHAL SARAI 1,50,000 6. 18.08.2010 SELF 1,22,350 7. 28.08.2010 VAIBHAL COAL 14,29,628 8. 28.08.2010 VAIBHAL COAL 14,50,000 9. 28.08.2010 MUGHAL SARAI 75,000 10. 28.08.2010 MUGHAL SARAI 7,79,620 11. 28.08.2010 MUGHAL SARAI 7,00,000 12. 28.08.2010 MUGHAL SARAI 74,900 13. 30.08.2010 MUGHAL SARAI 7,00,000 14. 30.08.2010 MUGHAL SARAI 7,00,000 15. 01.12.2010 VAIBHAL COAL 13,89,408 16. 02.12.2010 MUGHAL SARAI 4,50,000 17. 02.12.2010 MUGHAL SARAI 6,00,000 18. 02.12.2010 MUGHAL SARAI 5,78,000 19. 04.01.2011 VAIBHAV COAL 5,78,775 20. 18.01.2011 VAIBHAV COAL 6,86,790 ITA NOS. 1523 & 1524/DEL/2015 GULSHAN CHEMICALS LTD. 5 THE BANK DETAILS IN RESPECT OF ADITI ENTERPRISES AN D RAGHAV SALES ARE STILL PENDING. FROM THE FACTS NOTED ABOVE IT IS CLEAR THAT THE ASS ESSEE COMPANY HAS CLAIMED EXCESSIVE EXPENSES ON ACCOUNT O F PURCHASE OF COAL BY CLAIMING PAYMENT TO M/S. VIJETA COLD TRADERS AND GANPAT RAI KEVAL RAM TRADING COMPANY LT D, OF ADITI ENTERPRISES AND RAGHAV SALES TO THE EXTENT OF RS. 4,39,75,256/-. AT THE TIME OF ASSESSMENT THE INFORM ATION FROM THE BANKS WERE NOT RECEIVED THEREFORE THESES FACTS CANNOT BE INCORPORATED IN THE ASSESSMENT ORDER AND ACCORDINGL Y THE 20% DISALLOWANCE WAS CALCULATED ON ESTIMATED BASIS. NOW THE ACTUAL TRANSACTION HAS BEEN PROVED BOGUS THEREFORE THE ENT IRE AMOUNT AT RS. 4,39,75,256/- HAS ADDED IN THE ASSESSMENT OR DER WAS CORRECTLY ADDED. FURTHER, THE FINDINGS AS ABOVE ALS O FIND SUPPORT FROM THE JUDICIAL DECISIONS WHICH ARE QUITE RELEVANT ARE BRIEFLY MENTIONED AS UNDER: (I) THE HON'BLE BOMBAY HIGH COURT HELD IN THE CASE OF NAYAN TARA G. AGRAWAL VS. CIT, 207 ITR 639, THAT WHAT IS TO BE CONSIDERED IS TO WHETHER THE TRANSACTIONS IS A DEVI CE TO AVOID TAX AND THAT THE COURT CAP REMOVE THE VEIL TO FIND OUT THE REAL NATURE OF THE TRANSACTION. (II) THE HON'BLE ITAT, DELHI HAS HELD IN THE CASE O F HARSH V. CBADDHA LEGAL HEIR OF LATE W.N. CHADDHA VS. DDIT (I NTL. TAX), 135 TTJ 513, THAT THE TAX LIABILITY IN THE CASE OF SUSPICIOUS TRANSACTIONS IS TO BE ASSESSED ON THE BASIS OF TIRE MATERIAL AVAILABLE ON RECORD, SURROUNDING CIRCUMSTANCES, HUM AN CONDUCT, PREPONDERANCE OF PROBABILITY AND NATURE OF INCRIMINATING INFORMATION / EVIDENCE. (III) THE HON'BLE SUPREME COURT HELD IN THE CASE OF SUTLEJ COTTON MILLS LTD. VS. CIT, 116 ITR 1, THAT THE WAY IN WHICH THE ENTRIES ARE MADE BY AN ASSESSEE IN HIS BOOKS OF ACC OUNTS IS NOT DETERMINATIVE OF THE QUESTION WHETHER THE ASSESSEE HAS EARNED ANY PROFIT OR SUFFERED ANY LOSS, BUT WHAT IS NECESS ARY TO BE CONSIDERED IS THE TRUE NATURE OF THE TRANSACTIONS. PERUSAL OF ABOVE AND OTHER JUDICIAL DECISION SO THA T THE ASSESSEE HAS BEEN AVOIDING TO REVEAL TRUE NATURE OF ITS TRANSACTIONS AND TRANSACTIONS WERE DEFINITELY IN TH E NATURE OF SUSPICIOUS TRANSACTIONS. THE MATERIAL AVAILABLE ON RECORDS, HUMAN CONDUCT PREPONDERANCE OF PROBABILITY CLEARLY PROVE THAT ITA NOS. 1523 & 1524/DEL/2015 GULSHAN CHEMICALS LTD. 6 THE ASSESSEE COMPANY HAS CLAIMED EXCESSIVE/BOGUS EX PENSES ON ACCOUNT OF PURCHASE OF COAL AND BY MAKING PAYMEN T THROUGH BANK ACCOUNT RECEIVED THE SAME FROM THE CON CERNED PARTIES IN CASH. THE PURCHASES OF COAL AS NOTED ABO VE HAS BEEN PROVED BOGUS THEREFORE THE PURCHASES OF RS.4,39,75, 256/- IN THE CASE OF REMAINING PARTIES WAS RIGHTLY ADDED IN TIRE ASSESSMENT ORDER AS UNVERIFIABLE /BOGUS PURCHASES. THE MISTAKE BEING APPARENT FROM RECORD WITHIN THE MEANI NG OF SECTION 154 THEREFORE THE SAME IS HEREBY RECTIFIED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE COMPANY. S INCE THE ASSESSEE HAS FILED INCORRECT PARTICULARS OF ITS INC OME, PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) HAVE BEEN INITI ATED SEPARATELY. 9. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERU SED THE MATERIAL AVAILABLE ON RECORD. THE MOOT ISSUE PERTAINS TO SCO PE OF SECTION 154. 10. IN THE CONTEXT OF MISTAKE APPARENT FROM RECORD WITH RELEVANCE TO THE PROVISIONS OF SECTION 154 ARE BEING EXAMINED IN THE INSTANT CASE. THE PROVISIONS OF SECTION 154 READ AS UNDER: SECTION 154. [(1) WITH A VIEW TO RECTIFYING ANY MI STAKE APPARENT FROM THE RECORD AN INCOME-TAX AUTHORITY RE FERRED TO IN SECTION 116 MAY, (A) AMEND ANY ORDER PASSED BY IT UNDER THE PROVISIO NS OF THIS ACT ; [(B) AMEND ANY INTIMATION OR DEEMED INTIMATION UNDE R SUB- SECTION (1) OF SECTION 143;]] [(C) AMEND ANY INTIMATION UNDER SUB-SECTION (1) OF SECTION 200A;] [(D) AMEND ANY INTIMATION UNDER SUB-SECTION (1) OF SECTION 206CB.] [(1A) WHERE ANY MATTER61 HAS BEEN CONSIDERED AND DE CIDED IN ANY PROCEEDING BY WAY OF APPEAL OR REVISION RELATIN G TO AN ORDER REFERRED TO IN SUB-SECTION (1), THE AUTHORITY PASSING SUCH ORDER MAY, NOTWITHSTANDING ANYTHING CONTAINED IN AN Y LAW FOR THE TIME BEING IN FORCE, AMEND THE ORDER UNDER THAT SUB- SECTION IN RELATION TO ANY MATTER OTHER THAN THE MA TTER WHICH HAS BEEN SO CONSIDERED AND DECIDED.] ITA NOS. 1523 & 1524/DEL/2015 GULSHAN CHEMICALS LTD. 7 (2) SUBJECT TO THE OTHER PROVISIONS OF THIS SECTION , THE AUTHORITY CONCERNED (A) MAY MAKE AN AMENDMENT UNDER SUB-SECTION (1) OF ITS OWN MOTION, AND (B) SHALL MAKE SUCH AMENDMENT FOR RECTIFYING ANY SU CH MISTAKE WHICH HAS BEEN BROUGHT TO ITS NOTICE BY THE ASSESSEE [OR BY THE DEDUCTOR] [OR BY THE COLLECTOR], AND WHE RE THE AUTHORITY CONCERNED IS THE [***] [COMMISSIONER (AP PEALS)], BY THE [ASSESSING] OFFICER ALSO. [* * *] (3) AN AMENDMENT, WHICH HAS THE EFFECT OF ENHANCING AN ASSESSMENT OR REDUCING A REFUND OR OTHERWISE INCREA SING THE LIABILITY OF THE ASSESSEE [OR THE DEDUCTOR] [OR THE COLLECTOR], SHALL NOT BE MADE UNDER THIS SECTION UNLESS THE AUT HORITY CONCERNED HAS GIVEN NOTICE TO THE ASSESSEE [OR THE DEDUCTOR] [OR THE COLLECTOR] OF ITS INTENTION SO TO DO AND HA S ALLOWED THE ASSESSEE [OR THE DEDUCTOR] [OR THE COLLECTOR] A REA SONABLE OPPORTUNITY OF BEING HEARD. (4) WHERE AN AMENDMENT IS MADE UNDER THIS SECTION, AN ORDER SHALL BE PASSED IN WRITING BY THE INCOME-TAX AUTHOR ITY CONCERNED. 71[(5) WHERE ANY SUCH AMENDMENT HAS THE EFFECT OF R EDUCING THE ASSESSMENT OR OTHERWISE REDUCING THE LIABILITY OF THE ASSESSEE OR THE DEDUCTOR 72[OR THE COLLECTOR], THE ASSESSING OFFICER SHALL MAKE ANY REFUND WHICH MAY BE DUE TO S UCH ASSESSEE OR THE DEDUCTOR 72[OR THE COLLECTOR].] (6) WHERE ANY SUCH AMENDMENT HAS THE EFFECT OF ENHA NCING THE ASSESSMENT73 OR REDUCING A REFUND 74[ALREADY MA DE OR OTHERWISE INCREASING THE LIABILITY OF THE ASSESSEE OR THE DEDUCTOR 75[OR THE COLLECTOR], THE ASSESSING OFFICE R SHALL SERVE ON THE ASSESSEE OR THE DEDUCTOR 75[OR THE COLLECTOR ], AS THE CASE MAY BE] A NOTICE OF DEMAND IN THE PRESCRIBED F ORM SPECIFYING THE SUM PAYABLE76, AND SUCH NOTICE OF DE MAND SHALL BE DEEMED TO BE ISSUED UNDER SECTION 156 AND THE PROVISIONS OF THIS ACT SHALL APPLY ACCORDINGLY. ITA NOS. 1523 & 1524/DEL/2015 GULSHAN CHEMICALS LTD. 8 (7) SAVE AS OTHERWISE PROVIDED IN SECTION 155 OR SU B-SECTION (4) OF SECTION 18677 NO AMENDMENT UNDER THIS SECTIO N SHALL BE MADE AFTER THE EXPIRY OF FOUR YEARS 78[FROM THE END OF THE FINANCIAL YEAR IN WHICH THE ORDER79 SOUGHT TO BE AM ENDED WAS PASSED.] [(8) WITHOUT PREJUDICE TO THE PROVISIONS OF SUB-SEC TION (7), WHERE AN APPLICATION FOR AMENDMENT UNDER THIS SECTI ON IS MADE BY THE ASSESSEE [OR BY THE DEDUCTOR] [OR BY TH E COLLECTOR] ON OR AFTER THE 1ST DAY OF JUNE, 2001 TO AN INCOME- TAX AUTHORITY REFERRED TO IN SUB-SECTION (1), THE A UTHORITY SHALL PASS AN ORDER, WITHIN A PERIOD OF SIX MONTHS FROM T HE END OF THE MONTH IN WHICH THE APPLICATION IS RECEIVED BY I T, (A) MAKING THE AMENDMENT; OR (B) REFUSING TO ALLOW THE CLAIM.] 11. SECTION 154 (1) OF THE INCOME TAX ACT, 1961 PRO VIDES THAT WITH A VIEW TO RECTIFYING ANY MISTAKE APPARENT FROM THE RE CORD AN INCOME-TAX AUTHORITY REFERRED TO IN SECTION 116 MAY (A) AMEND ANY ORDER PASSED BY IT UNDER THE PROVISIONS OF THIS ACT; (B) AMEND ANY INT IMATION OR DEEMED INTIMATION UNDER SUB-SECTION (1) OF SECTION 143. TH US, THE ESSENTIAL INGREDIENTS OF SECTION 154 (1) ARE AS FOLLOWS: (I) THE MISTAKE MUST EMANATE FROM RECORD IN THE CON TEXT OF INCOME TAX PROCEEDINGS; AND (II) THE MISTAKE SHOULD BE APPARENT FROM RECORD. 12. WHAT IS A MISTAKE? MISTAKE CONNOTES INCORRECT I DEA OR OPINION, THING INCORRECTLY DONE OR THOUGHT, ERROR OF JUDGMENT, MIS UNDERSTAND THE MEANING OF. IT DOESNT MEAN ONLY THE COMPUTATIONAL MISTAKE BUT ALSO MISTAKES OF UNDERSTANDING AND INTERPRETATION OF AN ESTABLISHED, UNDISPUTED JUDGMENT. IT COULD BE AN ERROR OF LAW OR AN ERROR OF FACT WITH THE EXCLUSION OF ANY DEBATABLE ISSUE OF LAW. OVERLO OKING OF IGNORING OF A MANDATORY PROVISION OF THE INCOME TAX ACT CAN ALSO BE CONSIDERED AS A MISTAKE. THUS, THE FOLLOWING CAN BE CONSIDERED AS A MISTAKE FOR THE PURPOSE OF SECTION 154 OF INCOME TAX ACT. ITA NOS. 1523 & 1524/DEL/2015 GULSHAN CHEMICALS LTD. 9 MISREADING A CLEAR PROVISION APPLICATION OF WRONG PROVISION ERRONEOUS APPLICATION OF THE PROVISION APPLYING AN INAPPLICABLE PROVISION OVERLOOKING MANDATORY PROVISION CONTRAVENING THE RATIO DECIDENDI OR STARE DECISIS 13. RECORD DENOTES INFORMATION OR EVIDENCE COLLECTE D, AVAILABLE, PRESERVED BEFORE CAPTIVATING A DECISION. IT IS THE SUM OF THE WHOLE EVIDENCE THAT HAS GONE INTO THE MIND OF THE ASSESSI NG OFFICER TO TAKE A DECISION. THE RECORD FOR INCOME TAX PURPOSE IS THE RECORD OF THE ASSESSEE ONLY BUT NOT THE RECORD OF ANY OTHER ENTITY UNLESS IT IS MADE A PART OF THE RECORD OF THE ASSESSEE IN THE PROCEEDINGS RELEVANT TO WHICH SUCH RECORD OF THE OTHER PERSONS HAS BEEN OBTAINED. THE RECORD FOR THE INCOME TAX PROCEEDINGS AND FOR THE PURPOSE OF SECTION 154 IS T HE ENTIRE PROCEEDINGS, ORDER SHEETS, NOTICES, DOCUMENTS, MATERIALS COLLECT ED BY THE REVENUE, REPLIES PRODUCED BY THE PARTIES, RESULT OF THE DIRE CT AND COLLATERAL ENQUIRIES CONDUCTED BY THE AUTHORITIES WHICH ARE AVAILABLE AT THE TIME OF PASSING OF THE ORDER WHICH IS THE SUBJECT MATTER PROCEEDING FO R RECTIFICATION. 14. APPARENT FROM RECORD SIGNIFIES, A MISTAKE WHICH IS OBVIOUS, PATENT AND DISCERNABLE FROM THE RECORD AVAILABLE WHICH IS A SUBJECT MATTER OF RECTIFICATION. ANY DEBATABLE POINT CANNOT BE CONSID ERED AS A MISTAKE APPARENT FROM RECORD. THE WORD APPARENT MISTAKE D ENOTES AN OBVIOUS, PLAIN, EVIDENT, NOTICEABLE OR VISIBLE ERROR. AN APP ARENT MISTAKE IS GLARING, OBVIOUS, SELF-EVIDENT AND SHOULD BE FREE FROM DEBAT E. 15. FROM THE ABOVE FACTS AND PROVISIONS OF THE ACT, WE FIND THAT THE ASSESSING OFFICER HAS TAKEN INTO CONSIDERATION THE MATERIAL AND THE OUTCOME OF THE ENQUIRIES RECEIVED SUBSEQUENT TO CON CLUSION OF THE ASSESSMENT PROCEEDINGS. HENCE, IT CANNOT BE HELD TH AT THE ACTION OF THE ITA NOS. 1523 & 1524/DEL/2015 GULSHAN CHEMICALS LTD. 10 ASSESSING OFFICER OF RECTIFYING THE MISTAKE DO NOT EMANATE FROM THE RECORD OF THE ASSESSING OFFICER AVAILABLE AT THE TIME OF A SSESSMENT. ERGO, IT CANNOT BE HELD TO BE A MISTAKE APPARENT FROM THE RE CORD RECTIFIABLE U/S 154. THERE ARE OTHER PROVISIONS ENSHRINED IN THE AC T TO BRING THE AMOUNTS TO THE TAX FOLD WHICH ARE BASED ON THE REPLIES RECE IVED FOR THE QUERIES RAISED DURING THE ASSESSMENT PROCEEDINGS BUT SUCH A CTION CANNOT BE RESORTED TO UNDER THE PROVISIONS OF SECTION 154. HE NCE, THE ACTION OF THE REVENUE IS HELD TO BE LEGALLY VOID. AS A RESULT, T HE APPEAL OF THE REVENUE IS DISMISSED. ITA NO. 1524/DEL/2015 16. THE FOLLOWING GROUNDS HAVE BEEN RAISED BY THE R EVENUE: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF CASE & IN LAW, THE LD. CIT (A) ERRED IN DELETING THE ADDITION OF R S.7,54,584/- MADE ON ACCOUNT OF CAPITALIZATION OF REPAIR AND MAI NTENANCE EXPENSE. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. CIT (A) ERRED IN DELETING THE ADDITION OF RS.3,24,54,139/- MADE ON ACCOUNT OF INFLATED/NON-VE RIFIABLE COAL PURCHASES U/S 69C OF THE I.T. ACT, 1961. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. CIT (A) ERRED IN DELETING THE ADDITION OF RS.4,39,75,256/- MADE ON ACCOUNT OF UNVERIFIABLE PU RCHASES. CAPITALIZATION OF REPAIR & MAINTENANCE: 17. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY IS A MANUFACTURING UNIT FOR PRODUCTION OF SODIUM HYDRO S ULPHITE AND SODIUM SULPHITE. DURING THE ASSESSMENT PROCEEDING, THE AO OBSERVED THAT THE ASSESSEE HAD INCURRED EXPENSES AM OUNTING TO RS.43,86,498/- TOWARDS REPAIRS & MAINTENANCE OF PLA NT & MACHINERY. THE AO IDENTIFIED CERTAIN BILLS IN RESPE CT OF WHICH HE WAS OF THE VIEW THAT THE SAME WERE CAPITAL IN NATUR E. ITA NOS. 1523 & 1524/DEL/2015 GULSHAN CHEMICALS LTD. 11 ACCORDINGLY, AN AMOUNT OF RS.7,54,584/- WAS HELD AS CAPITAL IN NATURE AND DISALLOWED WHICH DELETED BY THE LD.CIT ( A).AGAINST WHICH THE REVENUE IS IN APPEAL BEFORE US. 18. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PER USED THE MATERIAL AVAILABLE ON RECORD. 19. ONE OF THE EXPENDITURE PERTAINS TO PAINTING OF OLD MACHINES USED IN THE FACTORY PREMISES AND PLASTER A ND REPAIR OF FLOORING. THE OTHER EXPENDITURE INVOLVES PURCHASE O F FUJI FILTER, WHICH IS AN IMPORTED FILTER MEMBRANE AND IS FREQUEN TLY REQUIRED TO BE REPLACED IN THE CHAMBER DURING THE PRODUCTION PROCESS. IT WAS ALSO INFORMED THAT IN THE EARLIER ASSESSMENT YE ARS 2006-07 ALSO, THIS PARTICULAR PART WAS CONSIDERED BY THE AO AS A CAPITAL EXPENDITURE, HOWEVER, ON APPEAL, THE ITAT CONSIDERE D THE SAME AS A CONSUMABLE ITEM AND ADDITIONS ON THIS ACCOUNT WERE DELETED. IT WAS SUBMITTED THAT THOUGH THE AO HAD AL LOWED THE COST OF THE MATERIAL PURCHASED (FUJI FILTER) OF RS. 1,98,795/- BUT HAS DISALLOWED THE CUSTOM DUTY PAID OF RS. 52,909/- ON THE IMPORT OF (FUJI FILTER). FURTHER, THE ADDITIONS OF RS.2,14,720/- WAS MADE ON AD-HOC BASIS WHICH WAS INFACT REPLACEME NT OF PARTS OF THE EXISTING MACHINERY AND ALLOWABLE AS RE PAIRS TO MACHINERY. ON PERUSAL OF ASSESSMENT ORDER, WE ALSO FIND THAT THE ASSESSING OFFICER HAS GIVEN NO REASON FOR DISAL LOWANCE OF RS.2,14,720/-. THE BILLS HAVE BEEN SHORT LISTED ONL Y AN AMOUNT OF RS.5,18,000/-. THE SHORT LISTED BILLS ALSO CONSI ST OF BILLS FOR REPAIRS, REPLACEMENT OF PARTS, CUSTOM DUTY, FLOORIN G AND PLASTER. KEEPING IN VIEW THE NATURE OF THE EXPENDITURE, IT C ANNOT BE TREATED AS CAPITAL EXPENDITURE. THE REPAIRS TO MACH INERY AND REPLACEMENT OF MEMBRANE FILTERS OR EXPENSES WHICH A RE ITA NOS. 1523 & 1524/DEL/2015 GULSHAN CHEMICALS LTD. 12 REGULARLY INCURRED IN THE MANUFACTURING PROCESS AND CANNOT BE TREATED AS CAPITAL EXPENDITURE IN NATURE. HENCE, WE DECLINE TO INTERFERE WITH THE ORDER OF THE LD. CIT (A) ON THIS ISSUE. 20. REGARDING THE DISALLOWANCE OF RS.2,14,720/- WHI CH ARE RELATED TO THESE REVENUE EXPENDITURE WHICH WERE DIS ALLOWED BY THE ASSESSING OFFICER WITHOUT BRINING ANYTHING ON R ECORD IS ALSO HENCE LIABLE TO BE DELETED. DISALLOWANCE ON ACCOUNT OF COAL PURCHASES: 21. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE COMPANY WAS USING STEAM COAL AS MAIN FUEL AND HAD MADE PURCHASES THEREOF OF RS.10,6 1,00,200/- DURING THE YEAR. IT WAS ALSO OBSERVED THAT THE MAIN SUPPLIERS OF STEAM COAL ARE M/S VAIBHAV COAL MOVERS AND M/S AGGARWAL COAL CORPORATION PVT. LTD. 22. THE AO OBSERVED THAT THE ASSESSEE WAS MAKING PA YMENT TO M/S VAIBHAV COAL MOVERS @ RS.7600/- PER METRIC TON, WHEREAS THE SAID PARTY HAD PURCHASED FROM THE CONCERNED RET AIL SUPPLIER @ 4000 PER METRIC TON. THE ASSESSING OFFICER OBSERV ED THAT THE SAID M/S VAIBHAV COAL MOVERS SUPPLIES COAL FROM ITS SUPPLIERS TO THE FACTORY OF THE ASSESSEE, FOR WHICH THE ASSESSEE MAKES PAYMENT TO M/S VAIBHAV COAL MOVERS. THE AO, BASED O N THE ABOVE FACTS, ENQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY PAYMENT WAS MADE TO M/S VAIBHAV COAL MOVERS @ RS.76 50 PER METRIC TON, WHILE THAT PARTY PAYS PURCHASE PRICE @ RS.4000 PER METRIC TON FOR WHICH THE ASSESSEE EXPLAINED THAT IT HAD A WRITTEN CONTRACT WITH M/S VAIBHAV COAL MOVERS FOR S UPPLY OF ITA NOS. 1523 & 1524/DEL/2015 GULSHAN CHEMICALS LTD. 13 STEAM COAL @ RS 7650 PER METRIC TON, UNDER WHICH SU CH PAYMENT WAS MADE, AND SUCH PAYMENTS WERE MADE BY CH EQUE AND SUPPORTED BY EVIDENCE OF ACTUAL DELIVERY OF COA L, WAS NOT FOUND ACCEPTED BY THE AO. THE AO THEREAFTER, CARRIE D OUT ENQUIRY FROM M/S VAIBHAV COAL MOVERS, HOWEVER, IN R ESPONSE TO SUMMONS U/S 131 ISSUED BY THE AO, THAT PARTY DID NO T MAKE COMPLIANCE BEFORE THE AO. 23. THE AO TOOK COGNIZANCE OF THE PLEA OF THE ASSES SEE THAT SUCH PAYMENT WAS MADE THROUGH THE ACCOUNT PAYEE CHE QUE BUT HOWEVER, WAS NOT SATISFIED AS TO WHY THE ASSESSEE W OULD BE PAYING ALMOST DOUBLE THE AMOUNT AT WHICH IT WAS SUP PLIED BY THE WHOLESALE DEALER. IN VIEW OF THIS, THE AO HELD THAT THE ASSESSEE HAD FAILED TO DISCHARGE THE ONUS IN THIS R EGARD, AND ACCORDINGLY HELD THAT THE ASSESSEE HAD USED THIS MO DUS OPERANDII FOR REDUCING ITS PROFITS. ACCORDINGLY, AP PLYING THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CI T VS. SMT. SUMATI DAYAL, 214 ITR 801 (SC), THE AO DISALLOWED T HE EXCESS PAYMENT OF RS.2650 PMT (RS.7650-4000 PMT) PAID IN R ESPECT OF PURCHASES MADE FROM M/S VAIBHAV COAL MOVERS AND ACC ORDINGLY, MADE AN ADDITION IN RESPECT OF PURCHASES AMOUNTING TO RS.3,24,54,139/- U/S 69C. 24. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PER USED THE MATERIAL AVAILABLE ON RECORD. 25. THE REASON FOR THE DISALLOWANCE IS THAT THE ASS ESSEE IS PAYING HIGHER AMOUNT FOR PURCHASE OF COAL FROM M/S VAIBHAV COAL MOVERS (VCM) OF RS.7,600/- PER METRIC TON (PMT ) WHEREAS THE VCM IN TURN PROCURING THE COAL FROM ADITI ENTER PRISES AND OTHER AFFILIATED DEALERS @ RS. 4,000 PMT. THE SUPPL Y OF THE COAL ITA NOS. 1523 & 1524/DEL/2015 GULSHAN CHEMICALS LTD. 14 PER SE HAS NOT BEEN IN DISPUTE. THE ASSESSEE HAS EN TERED INTO AN AGREEMENT WITH VCM FOR SUPPLY OF COAL AT RS.7,65 0 PMT. THE AGREEMENT IS INCLUSIVE OF ALL INDIRECT EXPENSES, LA BOUR COST, LOADING UNLOADING COST, TRANSPORTATION FROM MINING AREA TO THE FACTORY PREMISES. THE SALES TAX AND THE OCTRAI PAYM ENTS ARE TO BE BORNE BY VCM AS PER THE AGREEMENT. THUS, THE AMO UNT OF RS.7,600/- PAID BY THE ASSESSEE TO VCM INCLUDES THE BARE COST OF THE COAL AND THE OTHER ALLIED EXPENSES SUCH AS T RANSPORTATION AND LABOUR. THE PAYMENTS HAVE NOT BEEN DISPUTED AND THERE WAS NO RECORD OF ANY AMOUNTS OR KICK BACK RECEIVED FROM VCM TO THE ASSESSEE. SINCE, VCM AND THE ASSESSEE WERE N OT RELATED CONCERN AS PER THE PROVISIONS OF INCOME TAX ACT, NO PASSING OF THE PROFITS COULD ALSO BE ATTRIBUTABLE. 26. IN NUTSHELL, IN THE ABSENCE OF ANY EVIDENCE AS TO NON- SUPPLY OF THE MATERIAL (COAL) AND IN THE ABSENCE OF ANY EVIDENCE THAT THE PURPORTED EXCESS MONEY PAID HAS BEEN RECEI VED BACK BY THE ASSESSEE, THE AMOUNT OF ADDITION MADE ON THE DIFFERENCE OF THE AMOUNT PAID BY THE ASSESSEE TO VCM AND VCM T O ITS SUPPLIERS CANNOT BE BROUGHT TO TAX TREATED AS UNEXP LAINED EXPENDITURE AS PER THE PROVISIONS OF SECTION 69C. T HE APPEAL OF THE REVENUE ON THIS GROUND IS DISMISSED. ADDITION ON ACCOUNT OF UNVERIFIABLE PURCHASES: 27. THE ASSESSEE PURCHASED COAL OF AN AMOUNTS OF RS.10,61,00,200/- FROM VCM AND M/S AGGARWAL COAL CORPORATIONS PVT. LTD. IN RESPECT OF VCM, THE AO AT PAGE NO. 4 OF ASSESSMENT ORDER MADE ADDITION OF RS.3,24,54,139 /- ON ACCOUNT OF INFLATED PURCHASES/EXCESS AMOUNT PAID BY THE ASSESSEE TO VCM. FURTHER, THE AO HAS DISALLOWED 20% ON THE ITA NOS. 1523 & 1524/DEL/2015 GULSHAN CHEMICALS LTD. 15 AMOUNTS OF RS.4,39,75,252/- AMOUNTING TO RS.87,95,0 51/- AS THESE PURCHASES ARE SAID TO BE UNVERIFIABLE, OWING TO NON- COMPLIANCE TO THE NOTICES ISSUED TO VARIOUS PARTIES U/S 133(6). SUBSEQUENTLY, OWING TO THE RECEIPT OF REPLIES, THE ADDITION OF 20% MADE BY THE AO WAS ENHANCED TO THE ABSOLUTE PUR CHASE OF RS. 4,39,75,252/-. THIS ACTION OF MAKING ADDITION O F THE ENTIRE PURCHASES U/S 154 HAS BEEN A SUBJECT MATTER OF SEPA RATE APPEAL BEFORE THE LD. CIT (A) AND AS WELL AS BEFORE THE TR IBUNAL WHEREIN IT WAS HELD THAT THE ACTION OF THE ASSESSIN G OFFICER IS BEYOND THE SCOPE OF SECTION 154. THIS LEAVES US WIT H THE ISSUE TO BE ADJUDICATED, WHETHER THE 20% DISALLOWANCE MA DE BY THE ASSESSING OFFICER ON THE AMOUNT OF PURCHASES MADE B Y THE ASSESSEE IS LEGALLY CORRECT OR NOT. 28. RESTRICTING OURSELVES TO THE ISSUE OF 20% DISAL LOWANCE MADE BY THE AO, WE FIND THAT THE ASSESSEE HAS SUBMI TTED THE ENTIRE BILLS AND THE TRANSPORT VOUCHERS BEFORE THE ASSESSING OFFICER ALONGWITH THE DETAILS OF THE TRUCKS. THE BI LLS OF VARIOUS COMPANIES FROM WHICH THE VCM PROCURED THE COAL HAS ALSO BEEN SUBMITTED BEFORE THE AO ALONGWITH THE WEIGHMENT SLI PS. IN THE CONTEXT OF DISALLOWANCE OF 20% OF PURCHASES, WE DO NOT FIND ANY EVIDENCE GATHERED BY THE AO TO RESORT TO SUCH ACTIO N. AS PER THE RECORD, THERE IS NO REASON TO DISALLOW MERE 20% OF THE PURCHASES, IF THE ASSESSING OFFICER BELIEVES THAT T HE PURCHASES WERE BOGUS. THE ACTION OF THE ASSESSING OFFICER WIT HOUT ANY EVIDENCES COLLECTED EITHER BY THE WAY OF ENQUIRY OF THE MOVEMENT OF TRUCKS OR BY BRINING ON RECORD ANY EVID ENCE REGARDING THE NON-PURCHASE/RECEIPT OF THE COAL CANN OT BE HELD TO BE VALID. ON THE OTHER HAND, THE ASSESSEE HAS FU RNISHED ALL THE EVIDENCES REGARDING THE PLACEMENT OF PURCHASE O RDER, ITA NOS. 1523 & 1524/DEL/2015 GULSHAN CHEMICALS LTD. 16 CONTRACTS, PURCHASES, TRANSPORT AND DELIVERY OF THE COAL FROM MUGHALSARAI (UP) TO BHIWADI (RAJ.). HENCE, THE 20% DISALLOWANCE ON THE SAID PURCHASES MADE BY THE AO I N THE ABSENCE OF ANY EVIDENCES CONTRA BROUGHT ON RECORD C ANNOT BE UPHELD. THE ORDER OF THE LD. CIT (A) ON THIS GROUND IS HEREBY CONFIRMED. 29. IN THE RESULT, THE APPEALS OF THE REVENUE ARE D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21/05/2020. SD/- SD/- (SUSHMA CHOWLA) (DR. B. R. R. KUMAR) VICE PRESIDENT ACCO UNTANT MEMBER DATED: 21/05/2020 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. 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