ROYAL SYNTHETICS, MUMBAI V. ADDL CIT 24(1), MUMBAI

ITA 1723/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0299 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 23-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: MAYUR A SHAH
• Keywords: Bogus purchase; Depreciation; Opportunity of being heard; Deemed dividend; Unabsorbed depreciation
• Section: 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D , MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI MANOJ KUMAR AG G ARWAL, HON'BLE ACCOUNTANT MEMBER ITA NO . 1723 /MUM/2016 (A.Y: 2010 - 11 ) ASSESSEE BY : SHRI MAYUR A. SHAH DEPARTMENT BY : SHRI PURUSHOTTAM KUMAR DATE OF HEARING : 23.11.2017 DATE OF PRONOUNCEMENT : 16 .02.2018 O R D E R PER C. N. PRASAD (JM) 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD.CIT(A) - 41 , MUMBAI DATED 01.02.2016 FOR THE A .Y. 2010 - 11 . 2. THE FIRST GROUND OF APPEAL IS IN RESPECT OF CONFIRMING THE DISALLOWANCE OF PURCHASES MADE FROM M/S. YASH ENTERPRISES AT .8,54,100/ - TREATING THEM AS BOGUS PURCHASES. 3. BR IEFLY STATED THE FACTS ARE THAT , T HE ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF TRADING IN CHEMICAL S FILED ITS RETURN ON 21.0 9.2010 M/S. ROYAL SYNTHETICS 405, PALM SPRING COMPLEX, LINK ROAD, MALAD (W), MUMBAI 400 064 PAN NO: AADFR 3102 K V. ADDL. COMMISSIONER OF INCOME TAX 24(1) CIRCLE 1 3, 5 TH FLOOR, PRATYAKSHAKAR B H AVAN, BANDRA (E), MUMBAI 400 051 (APPELLANT) (RESPONDENT) 2 ITA NO.1723/MUM/2016 (A.Y: 2010 - 11) M/S. ROYAL SYNTHETICS DECLARING INCOME OF . 3,07,22,463/ - . THE ASSESSMENT W AS COMPLETED ON 28.02.2013 U/S. 143(3) OF THE ACT DETERMINING THE INCOME AT . 3,25,41,151/ - . WHILE COMPUTING T HE INCO ME THE ASSESSI NG OFFICER DISALLOWED PURCHASES OF . 8,54,100/ - MADE FROM M/S. YASH ENTERPRISES TREATING THEM AS BOGUS AS THE SAID M/S. YASH ENTERPRISES WAS SHOWN IN THE SALES TAX DEPARTMENT S WEBSITE AS ONLY ACCOMMODATION ENTRY PROVIDER BY ISSUING BILLS WITHOUT DELIVERY OF GOODS. THE ASSESSING OFFICER ALSO OBSERVED IN THE ASSESSMENT ORDER THAT THE PROPRIETOR OF M/S. YASH ENTERPRISES SHRI. BHAVESH PUJARA HAD GIVEN A STATEMENT BEFORE THE MAHARASHTRA SALES TAX DEPARTMENT AUTHORITIE S ADMITTING THAT THE FIRM M/S. YASH ENTERPRISES HAD ISSUED ONLY BOGUS SALES BILLS AND THERE WERE NO GENUINE SALES MADE BY THEM. AN AFFIDAVIT TO THAT EXTENT IS ALSO FILED BEFORE THE SALES TAX DEPARTMENT. IN VIEW OF THE ABOVE THE ASSESSEE WAS REQUIRED TO PR OVE THE GENUINENESS OF THE PURCHASES. ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFI CER THAT IT IS NOT AWARE OF THE STATEMENT GIVEN BY SHRI. BHAVESH PUJARA OF M/S. YASH ENTERPRISES . HOWEVER, PURCHASES WERE MADE THROUGH BROKER WHO ARRANGED FOR DELIVERY OF G OODS AND INVOICES . IT WAS CONTENDED THAT THE PURCHASES MADE ARE BONAFIDE , THEY WERE RECORDED IN THE STOCK REGISTER AND UTILIZED FOR MAKING SALES. THE ASSESSIN G OFFICER HOWEVER ISSUED NOTICE U/S. 133(6) OF THE ACT TO M/S. YASH ENTERPRISES, AND SHRI. BHAVESH PUJARA PROPRIETOR OF M/S. YASH ENTERPRISES BY LETTER DATED 30.01.2013 RESPONDED STATING THAT HE HAS 3 ITA NO.1723/MUM/2016 (A.Y: 2010 - 11) M/S. ROYAL SYNTHETICS DISCONTINUED HIS BUSINESS WAY BACK IN AUGUST , 2007 DUE TO FINANCIAL PROBLEMS AND HE HAS NOT ISSUED ANY BILLS TO ABOVE REFERRED PARTIES I. E. M/S. ROYAL SYNTHETICS DURING THE F . Y 2009 - 10. THEREFORE, THE ASSESSING OFFICER TREATED THE PURCHASES SHOWN BY THE ASSESSEE FROM M/S. YASH ENTERPRISES AS BOGUS PURCHASES AND DISALLOWED THE SAME WHILE COMPUTING THE INCOME OF THE ASSESSEE. 4. ON APPEAL THE LD.CIT(A) SUSTAINED THE DISALLOWANCE. BEFORE US LEARNED COUNSEL FOR THE ASSESSEE SUBMIT TED THAT THESE PURCHASES WERE DISAL LOWED BASED ON THE INFORMATION FROM THE SALES TAX DEPARTMENT WEBSITE. THE L D. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ASSESSEE HAD MADE PURCHASES AND FILED PROOF OF INVOICES, STOCK REGISTER AND BANK STATEMENTS ETC. BEFORE THE ASSESSING OFFICER TO PROVE THE GENUINENESS OF THE PURCHASES. HE ALSO INVITED OUR ATTENTION TO THE PAGE N O. 7 OF THE PAP ER BOOK CONTAINING BOTH PURCHASES AND SAL ES MADE BY THE ASSESSEE AND STATED THAT GROSS PROFIT WAS SHOWN AT 12.35%. HE FURTHER SUBMITTED THAT OUT OF TOTAL PURCHASES OF .91 CRORES THIS IS THE ONLY PARTY WHERE THE ASSESSING OFFICER DOUBTED THE GENUINENESS OF THE PURCHASES . L D . COUNSEL FOR THE ASSE SSEE SUBMITS THAT WITHOUT THERE B EING ANY PURCHASES THERE CANNOT BE ANY CORRESPONDING SALES, THEREFORE IT IS SUBMITTED THAT ENTIRE PURCHASES CANNOT BE TREATED AS BOGU S AND NO ADDITION IS WARRANTED. 4 ITA NO.1723/MUM/2016 (A.Y: 2010 - 11) M/S. ROYAL SYNTHETICS 5. LD.DR VEHEMENTLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. IT IS THE FINDING OF THE LD. ASSESSING OFFICER THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS NOTICE U/S. 133 (6) OF THE ACT W AS ISSUED TO THE SUPPLIE R M/S. YASH ENTERPRISES AND THE PROPRIETOR SHRI. BHAVESH PUJARA ADMITTED THAT THE FIRM HAS DISCONTINUED BUSINESS IN AUGUST , 2007 DUE TO THE FINANCIAL PROBLEMS AND NO BILLS HAVE BEEN ISSUED TO THE ASSESSEE DU RING THE FINANCIAL YEAR 2009 - 10. HE ALSO FINDS THAT THE ASSESSEE COULD NOT PROVE THE MOVEMENT OF GOODS FOR THE ACTUAL DELIVERY THOUGH THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO SUBMIT THE ACTUAL DELIVERY OF GOODS. IT IS ALSO THE FINDING OF THE ASSESS ING OFFICER THAT ASSESSEE VIDE SUBMISSION DATED 29.01.2013 SUBMITTED THAT IT DOES NOT KNOWN SHRI. BHAVESH PUJARA OF M/S. YASH ENTERPRISES PERSONALLY AND ALSO NOT AWARE THAT M/S. YASH ENTERPRISES WAS ISSUING BOGUS BILLS WITHOUT ACTUAL SALES OF GOODS. HOWEV ER, IT WAS CONTENDED THAT PURCHASES WERE MADE THROUGH THE BROKER WHO ARRANGED FOR DELIVERY OF GOODS AND INVOICES. THIS FACT WOULD MAKE IT CLEAR THAT THE BROKER PURCHASED MATERIAL IN THE GRAY MARKET AND SUPPLIED TO THE ASSESSEE WITHOUT DELIVERY CHALLANS AND ALSO BY OBTAINING BOGUS BILLS FROM CERTAIN CONCERNS. THE FACT OF THE MATTER IS THE ASSESSEE RECEIVED THE GOODS AND THE SAME WERE SOLD BY THE ASSESSEE. THE ASSESSING OFFICER DID NOT DISPUTE THE SALES OF GOODS 5 ITA NO.1723/MUM/2016 (A.Y: 2010 - 11) M/S. ROYAL SYNTHETICS PURCHASED BY THE ASSESSEE. IN AN Y CASE THE ENTIRE PURCHASES CANNOT BE TREATED AS BOGUS ESPECIALLY WHEN IT WAS ACCEPTED THE CORRESPONDING SALES. 7. THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF BHOLANATH POLYFAB PVT. LTD [355 ITR 290] HELD THAT WHEN THE ASSESSEE MADE PURCHASES AND SOLD THE FINISHED GOODS AS A NATURAL COROLLARY NOT THE ENTIRE AMOUNT COVERED UNDER SUCH PURCHASES WOULD BE SUBJECT TO TAX BUT ONLY THE PROFIT ELEMENT EMBEDDED THEREIN. SIMILAR VIEW HAS BEEN TAKEN BY THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V. SIMIT P. SETH [38 TAXMAN.COM 385]. HOWEVER, AT THE SAME TIME KEEPING IN VIEW THE NATURE OF BUSINESS OF THE ASSESSEE AND THE FACT THAT THE ASSESSEE IS MAKING SOME LOCAL PURCHASES WITHOUT A NY TRANSPOR TATION BILLS LORRY RECEIPTS ETC, T HE POSSIBILITY OF MAKING PURCHASES IN GRAY MARKET ON CAS H CANNOT BE RULED OUT. THEREFORE, KEEPING IN VIEW THE GROSS PROFIT RATE SHOWN BY THE ASSESSEE AT 12.3 5 % FROM THESE PURCHASES AND THE TOTALITY OF FACTS AND CIRCUMSTANCES INTO CONSIDERATION WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOW ANCE TO 5 % OF THE ABOVE PURCHASES TO MEET THE ANOMALIES AND TO C OVER UP THE LEAKAGES OF REVENUE. THUS GROUND NO . 1 IS PARTLY ALLOWED . 8. GROUND NO . 2 RAISED BY THE ASSESSEE IS IN RESPECT OF NOT ALLOWING THE CLAIM FOR SET OFF OF UNABSORBED BUSINESS LOSS. 6 ITA NO.1723/MUM/2016 (A.Y: 2010 - 11) M/S. ROYAL SYNTHETICS 9. LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING SUBMIT TED THAT THIS GROUND IS ONLY A CONSEQUENTIAL TO THE ADDITIONS/DISALLOWANCE MADE BY THE ASSESSING OF FICER IN THE ASSESSMENT YEAR 2009 - 10. LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE ITAT ORDER FOR THE ASSESSMENT YEAR 2009 - 10 SUBMITTED THAT THE TRIBUNAL DELETED THE ADDITION MADE U/S. 2(22)(E) OF THE ACT TOWARDS DEEMED DIVIDEND AND SINCE THIS ADDITION IS DELETED THE SAID AMOUNT IS AVAILABLE FOR SETOFF AGAINST THE UNABSORBED DEPRECIATION AN D THEREFORE HE SUBMITS THAT THIS GROUND IS ONLY A CONSEQUENTIAL. IN VIEW OF THE SUBMISSION MADE BY THE LD. COUNSEL FOR THE ASSESSEE , WE RESTOR E THIS GROUND TO THE FILE OF THE ASSESSING OFFICER TO EXAM INE THE CONTENTIONS OF THE LD. COUNSEL FOR THE ASSESSEE AND PASS ORDERS IN ACCORDANCE WITH THE LAW AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRON OUNCED IN THE OPEN COURT ON THE 16 TH FEBRUARY, 2018 . SD/ - SD/ - ( MANOJ KUMAR AG G ARWAL ) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI / DATED 16 / 02/2018 GIRIDHAR , SPS 7 ITA NO.1723/MUM/2016 (A.Y: 2010 - 11) M/S. ROYAL SYNTHETICS 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, (ASST. REGISTRAR) ITAT, MUM