DCIT 4 (2)(2), MUMBAI V. KAISHAR INTERIORS PVT. LTD., MUMBAI

ITA 2226/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8366 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 06-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Assessee Lawyers: VASANTI B PATEL
• Keywords: Bogus purchase
• Section: 143(3)

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA , AM & SHRI SANDEEP GOSAIN, JM ./ I.T.A. NO . 2226 /MUM/2016 , ( / ASSESSMENT YEAR: 2009 - 10 ) DCIT 4(2)(2) ROOM NO. 642, 6 TH FLOOR, AAYAKARBHAVAN, M. K. ROAD, MUMBAI . / VS. KAISHAR INTERIORS PVT. LTD. PANDYA HOUSE N O. 10, NAVJEEVANWADI, DHOPITALAO, MUMBAI - 400063 . ./ ./ PAN/GIR NO. A AACK1477A ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI RAM TIWARI / RESPONDENTBY : MS. VASANTI B. PATEL / DATE OF HEARING : 14 /0 9 /201 7 / DATE OF PRONOUNCEMENT : 06/12/2017 / O R D E R PER SANDEEP GOSAIN, J UDICIAL MEMBER : THE P RESENT APPE AL FILED BY THE REVENUE IS AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 9, MUMBAI DATED 2 I.T.A. NO. 2226 /MUM/201 6 KAISHAR INTERIORS PVT. LTD. 07.01 .16 FOR AY 20 09 - 10 ON THE GROUNDS MENTIONED HEREIN BELOW: - 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE 14. CIT(A) ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE AND ENHANCING THE INCOME ON ACCOUNT OF DIFFERENCE IN GP COMPARED TO PREVIOUS YEAR I.E. RS.4,37,404/ - ONLY.' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THAT ALL THE 13 PARTIES WERE NOT AVA ILABLE AND NO FURTHER INFORMATION WAS PROVIDED TO THE AO REGARDING THEIR WHEREABOUTS. IT CAN BE PRESUMED THAT ONE OR TWO PARTY MIGHT HAVE CHANGED BUSINESS PLACE NOT ALL THE 13 PARTIES.' 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE IN SPITE OF THE FACT THAT THE ASSESSEE COULD NOT PRODUCE THE DETAILS REGARDING MOVEMENT AND UTILIZATION OF THE GOODS.' 4. 'THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEWGROUND WH ICH MAY BE NECESSARY.' 2. AS PER THE FACTS OF THE PRESENT CASE, THE RETURN OF INCOME WAS FI LED ON 30.09.09 DECLARI NG TOTAL INCOME OF RS. 56,32,035 / - . 3 I.T.A. NO. 2226 /MUM/201 6 KAISHAR INTERIORS PVT. LTD. THE SAME WAS PROCESSED U/S 143(1) OF THE I.T. ACT. SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY AND A FTER SERVING STATUTORY NOTICES AND PROVIDING OPPORTUNITY OF HEARING, ASSESSMENT ORDER U/S 143(3) OF THE I.T. ACT WAS PASSED ON 2 9.12.11 , LATER O N, INFORMATION WAS RECEIVED BY THE AO FROM DGIT(INV.), MUMBAI RELATED TO BOGUS PURCHASE ENTRIES RECEIVED FROM TH E SALES TAX DEPARTMENT, MAHARASHTRA. THE AO HAD INFORMATION THAT THE PARTIES FROM WHOM THE ASSESSEE HAD MADE PURCHASES WERE BOGUS AND THEY ARE ENGAGED IN THE BUSINESS OF PROVIDING BILLS WITHOUT ACTUAL DELIVERY OF GOODS. THE AO CARRIED OUT INVESTIGATIONS AN D AFTER SEEKING REPLY FROM THE ASSESSEE, DISALLOWED THE CLAIM OF PURCHASE AMOUNTING TO RS. 49,93 , 566/ - AS BOGUS PURCHASES AND ADDED THE SAME TO T HE TOTAL INCOME OF THE ASSESSEE VIDE ORDER DATED 25.03.15 PASSED U/S 143(3) R.W.S 147 OF THE I.T. ACT 1961. AGGRIEVED BY THE ORDER OF AO, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) AND LD. CIT(A) AFTER CONSIDERING THE CASE OF BOTH THE PARTIES PARTLY ALLOWED THE APPEAL OF THE ASSESSEE . NOW BEFORE US, THE REVENUE HAS PREFERRED THE PRESENT APPEAL BY RAISING THE A BOVE GROUNDS. 4 I.T.A. NO. 2226 /MUM/201 6 KAISHAR INTERIORS PVT. LTD. GROUND NO. 1 TO 3 . 3 . SINCE ALL TH E ABOVE GROUNDS RAISED BY THE REVENUE ARE INTER - CONNECTED AND INTER - RELATED AND RELATES TO CHALLENGING THE ORDER OF CIT(A) IN RESTRICTING THE ADDITIONS , THEREFORE WE THOUGHT IT FIT TO DISPOSE OF THE SAME THR OUGH THE PRESENT COMMON ORDER. 4 . WE HAVE HEARD COUNSELS FOR BOTH THE PARTIES AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. BEFORE WE DECIDE THE MERITS OF THE CASE, IT IS NECESSARY TO EVALUAT E THE ORDERS PASSED BY LD. CIT(A). THE OPERATIVE PORTION OF THE ORDER OF LD. CIT(A) CONTAINED IN PARA NO. 6.3.15 OF ITS ORDER AND THE SAME IS REPRODUCED BELOW: - 6.3.15. THUS, KEEPING IN VIEW THE PRESENT FACTS OF THE CASE AND APPLYING THE RATIO OF THE DECISION OF HON'BLE JURISDICTIONAL ITAT OF MUMBAI AS WELL AS JURISDICTIONAL HIGH COURT OF MUMBAI WHERE VARIOUS LEGAL ISSUES ARISING OUT OF ADDITIONS OF SIMILAR NATURE HAVE BEEN THREAD - BARE DISCUSSED AND ALSO OTHER DECISIONS OF HON'BLE ITAT/ HIGH COURTS/SUPREME COURT, IT WILL BE DIFFICULT TO SUSTAIN THE ADDITIONS MADE BY THE AO ONLY ON THE GROUND THAT THE SUPPLIERS OF THE MATERIALS/GOODS WERE DEFAULTERS IN NOT PAYING VA T TO THE SALES - TAX DEPARTMENT GOVERNMENT OF MAHARASHTRA OR THE SUSPICIOUS DEALERS WERE NOT PRODUCED BEFORE THE AO DURING THE ASSESSMENT 5 I.T.A. NO. 2226 /MUM/201 6 KAISHAR INTERIORS PVT. LTD. PROCEEDINGS. THE CLAIM OF THE APPELLANT IS THAT THEY HAVE MADE THE ENTIRE PAYMENT THROUGH BANKING CHANNEL. IN FACT, WHEN THE APPELLANT WAS DIRECTED, THEY HAVE PRODUCED CHART OF SUCH PAYMENT THROUGH BANKING CHANNEL. FURTHER, THE AO HAS FAILED TO SUBSTANTIATE THAT THE ASSESSEE MADE PAYMENT THROUGH BANKING CHANNEL AND RECEIVED IT BACK IN CASH. IF THE SUPPLIERS HAVE NOT PAID VA T CHARGES TO THE GOVT. OF MAHARASHTRA, BUT TAKEN THE SAME FROM THE PURCHASERS (HERE ASSESSEE), SUCH DIFFERENTIAL AMOUNT NEEDS TO BE ADDED IN THE HANDS OF DEALERS AND THEY ARE LIABLE FOR ANY ACTION BY THE GOVT. OF MAHARASHTRA FOR THEIR SUCH DEFAULTS. UNDER THE INCOME TAX ACT, 1961 WHAT CAN BE TAXED IS THE REAL INCOME. EVEN THOUGH THE TRANSACTION IS NOT VERIFIABLE, WHAT IS TAXABLE IS THE INCOME COMPONENT AND NOT THE ENTIRE TRANSACTION AMOUNT. I FURTHER FIND THAT IN MANY SUCH CASES, THE ADDITIONS ARE MAD E BASED ON THE GP/NP RATIO WHEREVER THERE IS ANY ABNORMAL FALL IN GP/NP RATIO DURING SUCH ASSESSMENT YEAR WHEN SUCH ALLEGATIONS COMES TO HIS/HER NOTICE AND NO SATISFACTORY REPLIES ARE PROVIDED, BY THE ASSESSEE TO THE AO, IF THEY ARE ASKED TO SUBSTANTIATE T HE SAME BY THE AO. HENCE, THE ADDITION OF PURCHASES AS REFERRED ABOVE CANNOT BE MADE IN THE PRESENT CASE, IN THE MANNER AS IT HAS BEEN MADE. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, THE APPELLANT WAS DIRECTED TO GIVE GP/NP RATIO OF EARL IER ASSESSMENT YEARS FOR COMPARISON AND TO CHECK ANY PROBABLE AND POSSIBLE LEAKAGE OF REVENUE ARISING OUT OF SUCH ALLEGATIONS. IN PURSUANCE TO SUCH DIRECTIONS, THE LD.AR OF THE APPELLANT FILED GP/NP. RATIO OF EARLIER YEARS, WHICH HAS BEEN CONSIDERED AND TA KEN INTO ACCOUNT. I HAVE FURTHER COMPARED THE GP RATIO OF THE PRESENT FINANCIAL YEAR AFTER TAKING INTO CONSIDERATION THE ADDITIONS MADE BY THE AO AND FIND THAT THE SAME WILL 6 I.T.A. NO. 2226 /MUM/201 6 KAISHAR INTERIORS PVT. LTD. LEAD TO A VERY HIGH GP RATIO WHICH MAY NOT BE POSSIBLE IN THE BUSINESS ACTIVITY IN WHICH THE ASSESSEE IS ENGAGED. I FURTHER COMPARED THE GP/NP RATIO OF THE PRESENT FINANCIAL YEAR WITH THE OTHER PREVIOUS FINANCIAL YEARS AND FIND THAT THERE IS A RISE IN THE PRESENT FINANCIAL YEAR. RATIO ANALYSIS ON THE BASIS OF TOTAL REVENUE A.Y. COST O F TOTAL GROSS GP RATIO NET PROFIT N.P.RATIO SALES REVENUE PROFIT (GP) (NP) 2005 - 06 4,74,83,519 6,29,58,546 1,54,75,027 24.58% 19,46,020 3.09% 2006 - 07 3,61,70,638 4,90,73,844 1,29,03,206 26.29% 15,35,108 3.13% 2007 - 08 9,31,83,208 11,31,92,938 2,00,09,730 17.68% 39,72,169 3.51% 2008 - 09 8,45,26,389 10,31,44,479 1,86,18,090 18.05% 27,66,640 2.68% 2009 - 10 13,83,08,813 16,82,32,354 2,99,23,541 17.79% 63,15,421 1 3.75% RATIO ANALYSIS ON THE BASIS OF ADDITION ON ACCOUNT OF ALLEGED BOGUS PURCHASES AY. COST OF SALES TOTAL REVENUE GROSS PROFIT(GP) GP RATIO NET PROFIT(NP). N.P.RATIO 2009 - 10 13,33,15,247 16,82,32,354 3,49,17,10 1 20.76% 1,13,08,987 6.72% ADDITION OF RS.49,93,566/ - DURING THE APPELLATE PROCEEDINGS, THE LD.AR , SHRI PRANAV DOCTOR, ARGUED THAT THE GP OF EARLIER YEARS PRIOR TO A.Y.2009 - 10 CANNOT BE TAKEN AS REPRESENTATIVE FIGURE BECAUSE THE TURNOVER DURING THE PERIOD A.Y 2005 - 06 , 2006 - 07, 2007 - 08 AND 2008 - 09 WERE QUITE LOW COMPARED TO THE TURNOVER FOR THE A.Y.2009 - 10. IT HAS BEEN POINTED OUT THAT THE TURNOVER HAS INCREASED 34 TIMES FROM A.Y.2005 - 06 OR 2006 - 07 TO THE A.Y.2009 - 10. EVEN DURING AY 2007 - 08 AND 2008 - 09, THE TURNOVER WAS LESS THAN 60% OR SO. THEREFORE, THE GP OF A.Y.2009 - 10 CANNOT BE COMPARED WITH THAT OF A.Y.2005 - 0 6 & 2006 - 07 AT ALL. I HAVE CONSIDERED THIS ARGUMENT OF THE LD.AR AND FIND THAT THE ARGUMENT OF THE LD.AR IS PLAUSIBLE. FURTHER, IF WE COMPARE THE GP RATIO AFTER ADDITION OF THE ENTIRE 7 I.T.A. NO. 2226 /MUM/201 6 KAISHAR INTERIORS PVT. LTD. PURCHASES, THE GP COMES TO 20.76% WHICH IS QUITE HIGH, GIVEN THE NATURE OF BUSINESS AS WELL AS COMPARATIVE TURNOVER ANALYSIS. HOWEVER, KEEPING IN VIEW ALL THE FACTS AND CIRCUMSTANCES OF THE CASE, IT WILL BE WORTH THE CONSIDERING GP RATIO OF THE IMMEDIATE PRECEDING ASSESSMENT YEAR, WHICH WAS 18.05% AND WHICH WAS HIGHER THAN THE PRESENT GP OF 17.79% BY A MARGIN OF 0.26%. IN ABSOLUTE TERMS, THIS AMOUNT IS CALCULATED AT RS.4,37,404/ - ( 0.26% OF 16,82,32,354 ) . THEREFORE, IN MY OPINION, END OF JUSTICE WILL BE MET IF THE DISALLOWANCE/ADDITION ARE RESTRICTED TO RS.4,37,404/ - RATHER T HAN ADDING UP THE ENTIRE PURCHASES WHERE THE FACTS RELATED TO SALES OF THE ASSESSEE - COMPANY HAS NOT BEEN DISPROVED BY THE AO. ACCORDINGLY, THE ADDITION IS RESTRICTED TO RS.4,37,404/ - AND THE BALANCE AMOUNT OF RS.45,56,162/ - (49,93,566 - 4,37,404) IS DELETE D. IN THE RESULT, THE ABOVE GROUND NO. 4, 5,6 & 7 COMING UNDER THE ISSUE NO.2 IS PARTLY ALLOWED. AFTER ANALYZING THE AFOREMENTIONED ORDER, WE NOTICED THAT THE AO HAD MADE ADDITIONS OF RS. 49,93,566 / - BY HOLDING THAT THE PARTIES FROM WHOM THE ASSESSEE HAD MADE PURCHASES ARE BOGUS. THE LD. CIT(A) HAD APPRECIATED THE ENTIRE FACTS OF THE PRESENT CASE AND HAD RIGHTLY CONCLUDED THAT THE ADDITIONS WERE MADE BY THE AO ON THE BASIS OF INFORMATION RECEIVED FR OM INVESTIGATION WING, BASED ON THE INTERNAL INQUIRIES CARRIED OUT BY THE SALE TAX AUTHORITIES IN RESPECT OF THIRD PARTIES. ALTHOUGH THE ASSESSEE HAD PRODUCED THE LEDGER ACCOUNT, BILLS/TAX INVOICES ISSUED BY THE SAID 8 I.T.A. NO. 2226 /MUM/201 6 KAISHAR INTERIORS PVT. LTD. PARTIES AND BANK STATEMENTS SHOWING THA T PAYMENTS HAD BEEN MADE THROUGH BANKING CHANNEL BUT THERE IS NO EVIDENCE ON RECORD TO PROVE THAT ANY PART OF CASH HAS FLOWN BACK TO THE ASSESSEE. THE LD. CIT(A) HAS ALSO CONSIDERED THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE AND HAD PASSED A DETAILED OR DER IN PARA NO. 6.3(6.3.1 TO 6.3.15). AFTER ANALYZING THE FACTS MINUTELY AND THE ORDERS PASSED BY THE REVENUE AUTHORITIES, WE ARE OF THE VIEW THAT UNDER THE I.T. ACT 1961, ONLY THE REAL INCOME IS TO BE TAXED. EVEN THOUGH THE TRANSACTION IS NOT VERIFIABLE A S IN THE PRESENT CASE, HOWEVER WHAT IS TO BE TAX IS THE INCOME COMPONENT AND NOT THE ENTIRE TRANSACTION AMOUNT. WHILE RELYING UPON THESE PRINCIPLES, THE LD. CIT(A) HAD CORRECTLY TAKEN INTO CONSIDERATION THE GP/NP RATIO OF THE EARLIER ASSESSMENT YEARS FOR C OMPARISON AND WITH A VIEW TO CHECK ANY PROBABLE AND POSSIBLE LEAKAGE OF REVENUE, HAD RIGHTLY CONCLUDED THAT SINCE THE GP RATIO OF THE IMMEDIATE PROCEEDING ASSESSMENT YEAR WAS 18.5% WHEREAS THE GP OF YEAR UNDER CONSIDERATION WAS 17.79%, THEREFORE THERE WAS A MARGIN OF 0.26%. HENCE IN THESE CIRCUMSTANCES, THE LD. CIT(A) HAS TAKEN A BALANCED AND JUDICIOUS VIEW. 9 I.T.A. NO. 2226 /MUM/201 6 KAISHAR INTERIORS PVT. LTD. NO NEW FACTS OR CONTRARY JUDGMENTS HAVE BEEN BROUGHT ON RECORD BEFORE US BY THE LD. DR IN ORDER TO CONTROVERT OR REBUT THE FINDINGS RECORDED BY THE L D.CIT (A). MOREOVER, THERE ARE NO REASONS FOR US TO DEVIATE FROM THE FINDINGS RECORDED BY THE LD. CIT (A). THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE FINDINGS RECODED BY THE LD. CIT (A) ARE JUDICIOUS AND ARE WELL REASONED. ACCORDINGLY, WE UP HOLD THE SAME. RESULTANTLY, THESE GROUND S RAISED BY THE REVENUE STANDS DISMISSED. GROUND NO. 4 . 6. THIS GROUND RAISED BY THE REVENUE IS GENERAL IN NATURE, THUS REQUIRES NO SPECIFIC ADJUDICATION. 7. IN THE NET RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH DEC . , 2017 SD/ - SD/ - (SHAMIMYAHYA ) (SANDEEP GOSAIN) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 06 . 12 .201 7 SR.PS . DHANANJAY 10 I.T.A. NO. 2226 /MUM/201 6 KAISHAR INTERIORS PVT. LTD. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI