CORE ENERGY SYSTEMS P.LTD, DOMBIVALI V. ASST CIT CIR 1, KALYAN

ITA 1722/MUM/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1707 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 10-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ABI RAMA KARTIKEYAN
• Assessee Lawyers: KRUNAL TATE
• Keywords: Bogus purchase; Principle of natural justice
• Section: 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 1722/MUM/2017 ASSESSMENT YEAR: 2011 - 12 M/S. CORE ENERGY SYSTEMS PRIVATE LIMITED, PLOT - X - 16, PRAT HAMESH VYAPARI SANKUL, BEHIND KAMAT HOSPITAL, MIDC, DOMBIVLI - 421 203. VS. ACIT - CIRCLE - 1, KALYAN. PAN NO. AACCC 4753 F APPELLANT RESPONDENT ASSESSEE BY : MR. KRUNAL TATE, AR REVENUE BY : MR. ABI RAMA KARTIKEYAN, DR DATE OF HEARING : 21 /08/2018 DATE OF PRONOUNCEMENT: 31/08/2018 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2011 - 12. THE APPEAL IS DIRECTED AGAI NST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 2 [IN SHORT CIT(A)], THANE AND ARISES OUT OF THE ASSESSMENT ORDER U/S 143(3) R.W.S. 147 OF THE INCOME TAX ACT 1961, (THE ACT). 2. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO HAS ERRED IN LAW AND IN FACTS IN ALLEGING THAT THE PURCHASES ARE NON - GENUINE BASED ON STATEMENTS GIVEN BY THIRD PARTIES BEFORE THE SALES TAX DEPARTMENT AND WITHOUT BRINGING ON RECORD ANY INDEP ENDENT AND RELIABLE EVIDENCE. ITA NO. 1722/ MUM/2017 M/S. CORE ENERGY SYSTEMS PRIVATE LIMITED 2 2. FURTHER, THE AO HAS ERRED IN MAKING ADDITION OF RS. 36,73,2177 - PERTAINING TO ALLEGED BOGUS PURCHASE WITHOUT PROVIDING AN OPPORTUNITY TO CROSS EXAMINE THE EVIDENCE RECEIVED FROM THE SALES TAX DEPARTMENT AND HAS THEREBY VIO LATED THE PRINCIPLES OF NATURAL JUSTICE. 3. WITHOUT PREJUDICE TO THE ABOVE GROUND, THE AO HAS ERRED IN LAW AND IN FACTS IN ALLEGING THAT THE APPELLANT COMPANY HAS MADE BOGUS PURCHASES BY COMPLETELY IGNORING VARIOUS INFORMATION AND DOCUMENTARY EVIDENCE S UCH AS PURCHASE INVOICE SUBMITTED IN SUPPORT OF THE ALLEGED NON GENUINE PURCHASE TRANSACTIONS. 4. WITHOUT PREJUDICE TO THE ABOVE GROUND, ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE A.O. HAS ERRED IN MAKING ADDITION OF THE ENTIRE ALLEGED BOGUS PURCHASE OF RS. 36,73,2177 - AND NOT RESTRICTING IT TO THE EXTENT OF GROSS PROFIT EMBEDDED IN THE ALLEGED BOGUS PURCHASE TRANSACTION THAT IS 34,85%. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER (AO) RECEIVED INFORMATION FROM TH E SALES TAX DEPTT. , GOVT. OF MAHARASHTRA THAT THE APPELLANT HAD OBTAINED BOGUS PURCHASE BILLS FROM THE FOLLOWING THREE ENTRY PROVIDERS : - SR.NO. NAME OF PARTY TIN AMOUNT (RS.) 1. NIMESH STEELS PVT.LTD. 27180686997V 460325 2. RIDHI SALES CORPN. 273440725 515V 1834119 3. NAINA MULTITRADE PVT.LTD. 27520731818V 1378773 TOTAL 3673217 DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE AO ASKED THE APPELLANT TO PRODUCE DETAILS IN RESPECT OF PURCHASES MADE FROM THE ABOVE MENTIONED PARTIES. THE AO NOTED THAT T HE SAID TRANSACTIONS WERE NOT PROPERLY SUPPORTED BY RELEVANT DOCUMENTS SUCH AS TRANSPORTATION BILLS, DELIVERY CHALLANS, GOODS RECEIVED NOTES, OCTROI RECEIPTS ETC. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE STATEMENT OF SHRI NAGESH NARAYAN BASARKAR, D IRECTOR OF M/S. CORE ENERGY SYSTEMS PVT. LTD. (THE ASSESSEE COMPANY) WAS RECORDED U/S. 131(1) OF THE ACT. THEREAFTER, THE AO ISSUED NOTICE U/S. 133(6) TO THE ABOVE THREE PARTIES ASKING THEM TO PRODUCE DETAILS OF TRANSACTIONS THEY HAD WITH THE ASSESSEE. ON E NOTICE REMAINED ITA NO. 1722/ MUM/2017 M/S. CORE ENERGY SYSTEMS PRIVATE LIMITED 3 UNSERVED AND FROM THE REMAINING TWO, NO REPLY WAS RECEIVED TILL THE DATE OF ASSESSMENT ON 10 TH MARCH , 2015. IN VIEW OF THE ABOVE FACTS, THE AO CAME TO A FINDING THAT THE SAID PURCHASES AS CLAIMED BY THE ASSESSEE FROM M/S. NIMESH STEELS PV T.LTD., M/S. RIDHI SALES CORPN. AND M/S. NAINA MULTITRADE PVT.LTD. WERE ON ACCOUNT OF UNSUBSTANTIATED BILLS AND THESE BILLS WERE OBTAINED BY THE ASSESSEE FROM THE ABOVE ENTRY PROVIDERS TO INFLATE ITS PURCHASES, AS A RESULT OF WHICH, THE INCOME OF THE ASSE SSEE FOR THE YEAR UNDER CONSIDERATION HAS BEEN UNDERSTATED TO THE EXTENT OF RS.36,73,217/ - . THEREFORE, THE AO MADE AN ADDITION OF RS.36,73,217/ - TO THE INCOME DISCLOSED BY THE ASSESSEE. 4. AGGRIEVED BY THE ORDER OF THE AO , THE ASSESSEE FILED AN APPEAL BEFO RE THE LD. CIT(A). DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LD. CIT(A) NOTICED THAT THE GP RATE, DURING THE YEAR UNDER CONSIDERATION, HAS GONE DOWN TO 34.85% AS AGAINST 42.19% SHOWN IN AY 2014 - 15, FOR WHICH THE ASSESSEE COULD NOT OFFER ANY VALID EX PLANATION. THE LD. CIT(A) THUS ARRIVED AT A FINDING THAT THE APPELLANT HAS SUPPRESSED THE GROSS PROFIT BY 7.34% (42.19% - 34.85%). THE QUANTUM OF G ROSS PROFIT IS THUS WORKED OUT TO RS.59,15,213/ - (RS.8,05,40,841 X 42.19 /100=RS.3,39,80,180 LESS GP DECLARED OF RS.2,80,64,967/ - ). ALSO THE LD. CIT(A) OBSERVED THAT THE APPELLANT WAS ABLE TO HAVE A GP @ 39.13% IN IMMEDIATE NEXT YEAR AND 42.19% IN AY 2014 - 15, FROM SAME BUSINESS, BY SAME MANAGEMENT AS AGAINST 34.85% DECLARED IN THE IMPUGNED ASSESSMENT YEAR. AS THE QUANTUM OF SUPPRESSED GP OF RS.59,15,213/ - IS MORE THAN THE AMOUNT OF BOGUS PURCHASES OF RS.36,73,217/ - , THE LD. CIT(A) SUSTAINED THE DISALLOWANCE MADE BY THE AO. ITA NO. 1722/ MUM/2017 M/S. CORE ENERGY SYSTEMS PRIVATE LIMITED 4 5. BEFORE US, THE LD, COUNSEL OF THE ASSESSEE SUBMITS THAT THE LD. CIT(A) HAS ERRED IN CONFI RMING THE PURCHASES OF RS.36,73,217/ - WITHOUT APPRECIATING THE FACTS THAT THE AO MADE THE ABOVE ADDITION PERTAINING TO ALLEGED BOGUS PURCHASES WITHOUT PROVIDING AS OPPORTUNITY TO CROSS EXAMINE THE EVIDENCE RECEIVED FROM THE SALES TAX DEPARTMENT AND THUS VI OLATED THE PRINCIPLES OF NATURAL JUSTICE. IT IS STATED THAT THE LD. CIT(A) IGNORED VARIOUS INFORMATION AND DOCUMENTARY EVIDENCE SUCH AS PURCHASE INVOICE FILED BY THE ASSESSEE BEFORE THE AO. THEREFORE, THE LD. COUNSEL SUBMITS THAT THE ORDER OF THE LD. CIT(A ) CONFIRMING THE ORDER OF THE AO MAKING ADDITION OF RS.36,73,217/ - BE SET ASIDE. 6. ON THE OTHER HAND THE LD. DR SUBMITS THAT THE LETTERS ISSUED BY THE AO U/S. 133(6) COULD NOT ELICIT ANY INFORMATION FROM THE SAID PARTIES. ONE NOTICE RETURNED UNSERVED AND FROM THE REMAINING TWO, NO REPLY WAS RECEIVED BY THE AO TILL THE DATE OF ORDER ON 10 TH MARCH, 2015. THE LD. DR FURTHER SUBMITS THAT IN THE INSTANT CASE THE QUANTUM OF SUPPRESSED GP IS MORE THAN THE AMOUNT OF BOGUS PURCHASE DISALLOWED. SINCE THE SUPPRESSED GP OF RS.59,15,213/ - IS MORE THAN THE BOGUS PURCHASES OF RS.36,73,217/ - , IT IS SUBMITTED THAT THE LD. CIT(A) HAS RIGHTLY CONFIRMED THE DISALLOWANCE OF RS.36,73,217/ - . 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE THE RELEVANT MATERIALS ON RECORD. IN T HE INSTANT CASE, THE NOTICES WERE ISSUED BY THE AO U/S. 133(6)OF THE ACT. ONE NOTICE RETURNED UNSERVED AND FROM THE REMAINING TWO NO REPLY WAS RECEIVED BY THE AO. THE AO HAD ISSUED THESE NOTICES IN THE ADDRESS GIVEN BY THE ASSESSEE. ALSO WE FIND THAT THE A O DOES NOT DISPUTE THE SALES MADE BY THE ASSESSEE. IN SUCH A CONTEXT, ONLY THE PROFIT EMBEDDED IN SUCH BOGUS PURCHASES HAS TO BE ESTIMATED AND BROUGHT ITA NO. 1722/ MUM/2017 M/S. CORE ENERGY SYSTEMS PRIVATE LIMITED 5 TO TAX. IN THE CASE OF CIT VS. SIMIT P. SHETH (2013) 38 TAXMANN.COM (GUJ), THE HONBLE GUJARAT HIGH COURT HAS HELD THAT WHERE PURCHASES WERE NOT BOGUS BUT WERE MADE FROM PARTIES OTHER THAN THOSE MENTIONED IN THE BOOKS OF ACCOUNT, NOT ENTIRE PURCHASE PRICE BUT ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES CAN BE ADDED TO INCOME OF THE ASSESSEE. THE HONBLE HI GH COURT REFERRED TO A SIMILAR VIEW TAKEN IN THE CASE OF CIT VS. VIJAY M. MISTRY CONSTRUCTION LTD. [2013] 355 ITR 498 (GUJ) AND CIT VS. BHOLANATH POLY FAB (P) LTD. [2013] 355 ITR 290 (GUJ). THAT BEING THE POSITION, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE AO TO ESTIMATE THE PROFIT @ 12.5% ON THE DISPUTED PURCHASES OF RS.36,73,217/ - AND BRING TO TAX RS.4,59,150/ - IN PLACE OF RS.36,73,217/ - DONE BY HIM. 8. IN THE RESULT THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31/ 08/2018 SD/ - SD/ - ( MAHAVIR SINGH ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 31/08/2018 JV . , SR.PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELL ANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI .