M/S.COOLTECH ENTERPRISES, MUMBAI V. INCOME TAX OFFICER WARD-18(1)(3), MUMBAI

ITA 2352/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8334 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 16-04-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Bogus purchase; Reason to believe
• Section: 143(3); 133(6); 143(1); 147; 148; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC , MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER ITA NO. 2352 & 2353 /MUM/201 8 (A.Y S : 2010 - 11 & 2011 - 12 ) M/S. COOLTECH ENTERPRISES 311, 3 RD FLOOR, PIONEER INDL. ESTATE, SUBHASH ROAD, JOGESHWARI (E) MUMBAI 400 060 PAN: AAEFC 7983 L V. INCOME TAX OFFICER WARD 18(1)(3) ROOM NO. 407, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400 020 (APPELLANT) (RESPONDENT) ASSESSEE BY : MS. DINKLE HARIYA DEPARTMENT BY : SHRI RAJESH OJHA DATE OF HEARING : 2 3 .01.2019 DATE OF PRONOUNCEMENT : 29 .03 .2019 O R D E R PER C. N. PRASAD (JM) 1. THESE TWO APPEALS ARE FILED BY THE ASSESSEE AGAINST DIFFERENT ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 29, MUMBAI [HEREINAFTER IN SHORT LD.CIT(A)] DATED 22.01.2018 FOR THE A.YS. 2010 - 11 AND 2011 - 12 IN SUSTAINING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IN RESPECT OF PURCHASES @12.5% TREATING THEM AS NON - GENUINE. 2 ITA NO. 2352 & 2353 /MUM/2018 (A.Y: 2010 - 11 & 2011 - 12 ) M/S. COOLTECH ENTERPRISES 2. BRIEFLY STATED THE FACTS ARE THAT, ASSESSEE FILED RETURNS OF INCOME ON 18.09.2010 AND 29.09.2011 DECLARING INCOME OF .18 , 86 , 484/ - & .9 , 07 , 654/ - FOR THE A.YS. 2010 - 11 & 2011 - 12 RESPECTIVELY . THE RETURNS WERE PROCESSED U/S. 143(1) OF THE ACT. SUBSEQUENTLY, ASSESSMENTS WERE REOPENED BY ISSUE OF NOTICE U/S. 148 OF THE ACT A S THE ASSESSING OFFICER RECEIVED INFORMATION FROM D IT (INV . ) AND SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA , INFORMING THAT THE ASSESSEE HAS TAKEN BOGUS PURCHASE ENTRIES FROM VARIOUS DEALERS DURING THESE ASSESSMENT YEARS. IN THE COURSE OF THE RE - ASSESSMENT PROCEEDINGS THE ASSESSEE WAS REQUIRED TO PROVE THE GENUINENESS OF THE PURCHASES MADE FROM THE DEALERS AS MENTIONED IN THE RE - ASSESSMENT ORDER . ASSESSING OFFICER ALSO ISSUED NOTICES U/S. 133(6) OF THE ACT TO ALL THESE DEALERS , HOWEVER , THE NOTICES WERE RETURNED UNSERVED. 3. THE ASSESSEE IN THE COURSE OF THE ASSESSMENT PROCEEDINGS OBJECTED FOR REOPENING OF ASSESSMENT AND ALSO SUBMITTED ITS REPLY ON MERITS STATING THAT , PURCHASES MADE BY THE ASSESSEE ARE GENUINE AND THE ASSESSEE RECEIVED THESE ITEMS WHICH WE RE PURCHASED FROM THE DEALERS. IT WAS CONTENDED THAT T HERE IS CORRELATION BETWEEN PU RCHASES AND THE PRODUCTION , WITHOUT THERE BEING ANY PROCUREMENT OF SUCH GOODS THERE CANNOT BE ANY PRODUCTION , THE PRODUCTION AND CONSEQUENT SALES ARE NOT IN DISPUTE. THE DEALERS HAVE ISSUED REGULAR BILLS INCLUDING VAT NUMBER AND 3 ITA NO. 2352 & 2353 /MUM/2018 (A.Y: 2010 - 11 & 2011 - 12 ) M/S. COOLTECH ENTERPRISES THE SALES TAX DEPARTMENT H AS NOT CANCELED VAT REGISTRATION. IT IS ALSO SUBMITTED THAT THE ASSESSEE GIVEN JOB WORK OF FABRICATION TO M/S. YASH ENGINEERING WORKS AND THEY HAVE PROCURED THE MATERIALS FROM THE DEALERS DIRECTLY, T HEREFORE , THE PURCHASES ARE GENUINE. 4. NOT CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE THE ASSESSING OFFICER TAKING NOTE OF THE FACT THAT NONE OF THE DEALERS HAVE RESPONDED TO THE NOTICES ISSUED U/S. 133(6) OF THE ACT, THE ASSESSEE H A S NOT PROVED THE PHYSICAL DELIVERY OF GOODS AND SINCE THE ASSESSEE HAS NOT PRODUCED THE DEALERS FOR VERIFICATION , THE ASSESSING OFFICER WAS OF THE VIEW THAT ASSESSEE PURCHASED THE GOODS IN GRAY MARKET AND OBTAINED ONLY BOGUS ENTRY BILLS , ACCORDINGLY THE PROFIT ELEMENT FROM SUCH PURCHASES WAS ESTIMATED @12.5% AND THE SAME WAS BROUGHT TO TAX TREATING THEM AS NON - GENUINE PURCHASES . 5. BEFORE THE LD.CIT(A) THE ASSESSEE CHALLENGED THE RE - OPENING AS WELL AS CONTESTED THE DISALLOWANCE ON MERITS. THE LD.CIT(A) CONSIDERING THE SUBMISSIONS OF THE ASSESSEE , HE UPHELD THE RE - OP ENING AS WELL AS THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 6. LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. IN SO FAR AS THE REOPENING OF ASSESSMENT IS 4 ITA NO. 2352 & 2353 /MUM/2018 (A.Y: 2010 - 11 & 2011 - 12 ) M/S. COOLTECH ENTERPRISES CONCE RNED , LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT INITIATION OF RE - ASSESSMENT PROCEEDINGS IS BAD AND ILLEGAL, THERE IS NO REASON TO BELIEVE THAT THE INCOME HAD ESCAPED ASSESSMENT. LD. COUNSEL FOR THE ASSESSEE ALSO REFERRED TO PAGE NO. 50 OF THE PAPER BOOK WHICH IS THE REPLY FILED BEFORE THE ASSESSING OFFICER AND SUBMITTED THAT ASSESSEE IS CONSISTENTLY FOLLOWING THE METHOD OF OUTSOURCING OF MACHINING WORK FROM M/S. YASH ENGINEERING WORKS WHICH HAS UNDERTAKEN MAXIMUM JOB WORK DURING THESE ASSESSMENT YEARS. THE MATERIAL WAS DIRECTLY SUPPLIED TO M/S. YASH ENGINEERING WORKS AND THEY HAVE COMPLETED JOB WORK FOR US. A N AFFIDAVIT TO THAT EXTANT WAS AL SO FURNISHED BY SHRI PRAVIN V. KHANDEKAR, PROPRIETOR OF M/S. YASH ENGINEERING WORKS . THEREFORE, IT WAS CONTENDED T HAT THE PURCHASES WERE GENUINE. 7. LD. DR VEHEMENTLY SUPPORTED THE O RDERS OF THE AUTHORITIES BELOW. 8. HEARD RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE MATERIALS PLACED BEF ORE ME . IN BOTH THESE ASSESSMENT YEARS THE RETURNS WERE PROCESSED U/S. 143(1) OF THE ACT AND THERE IS NO SCRUTINY ASSESSMENT U/S. 143(3) OF THE ACT. BASED ON THE INFORMATION RECEIVED FROM D G IT(INV.) AND SALES TAX DEPARTMENT, THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT THE INCOME HAD ESCAPED ASSESSMENT. IN THE REASONS RECORDED , THE ASSESSING OFFICER HAS STATED THAT THE PROPRIETORS OF 5 ITA NO. 2352 & 2353 /MUM/2018 (A.Y: 2010 - 11 & 2011 - 12 ) M/S. COOLTECH ENTERPRISES THE HAWALA PARTIES HAVE ADMITTED UNDER OATH AND THE STATEMENTS RECORDED BY THE SALES TAX DEPARTMENT THAT , THEY HAVE NOT CARRIED OUT ACTUAL TRADING ACTIVITY BUT HAVE ISSUED ONLY BOGUS BILLS. BASED ON THIS INFORMATION THE ASSESSING OFFICER RECORDED THE REASONS THAT HE HAS REASON TO BELIEVE THAT THE INCOME IS ESCAPED ASSESSMEN T . 9. THE HON'BLE SUPREME COURT IN THE CASE OF A CIT V. RAJESH JHA VERI STOCK BROKERS (P) LTD [291 ITR 500] HELD AS UNDER: - 17. THE SCOPE AND EFFECT OF SECTION 147 AS SUBSTITUTED WITH EFFECT FROM 1 - 4 - 1989, AS ALSO SECTIONS 148 TO 152 ARE SUBSTANTIALLY DIFFERENT FROM THE PROVISIONS AS THEY STOOD PRIOR TO SUCH SUBSTITUTION. UNDER THE OLD PROVISIONS OF SECTION 147, SEPARATE CLAUSES (A) AND (B) LAID DOWN THE CIRCUMSTANCES UNDER WHICH INCOME ESCAPING ASSESSMENT FOR THE PAST ASSESSMENT YEARS COULD BE ASSESSED OR REASSESSED. TO CONFER JURISDICTION UNDER SECTI ON 147(A) TWO CONDITIONS WERE REQUIRED TO BE SATISFIED FIRSTLY THE ASSESSING OFFICER MUST HAVE REASON TO BELIEVE THAT INCOME PROFITS OR GAINS CHARGEABLE TO INCOME TAX HAVE ESCAPED ASSESSMENT, AND SECONDLY HE MUST ALSO HAVE REASON TO BELIEVE THAT SUCH ESCAP EMENT HAS OCCURRED BY REASON OF EITHER (I) OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY OR TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT OF THAT YEAR. BOTH THESE CONDITIONS WERE CONDITIONS PRECEDENT TO BE SATISFIED BEFORE THE A SSESSING OFFICER COULD HAVE JURISDICTION TO ISSUE NOTICE UNDER SECTION 148 READ WITH SECTION 147(A). BUT UNDER THE SUBSTITUTED SECTION 147 EXISTENCE OF ONLY THE FIRST CONDITION SUFFICES. IN OTHER WORDS IF THE ASSESSING OFFICER FOR WHATEVER REASON HAS REASO N TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT IT CONFERS JURISDICTION TO REOPEN THE ASSESSMENT. IT IS HOWEVER TO BE NOTED THAT BOTH THE CONDITIONS MUST BE FULFILLED IF THE CASE FALLS WITHIN THE AMBIT OF THE PROVISO TO SECTION 147. THE CASE AT HAND IS COV ERED BY THE MAIN PROVISION AND NOT THE PROVISO. 10. AS COULD BE SEEN FROM THE ABOVE, HON'BLE SUPREME COURT HAS HELD THAT , IF THE ASSESSING OFFICER FOR WHATEVER REASON HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT IT CONFERS JURISDICTION TO REOPEN THE ASSESSMENT. THIS IS ESPECIALLY IN THE CASES WHERE THE R ETURN WAS PROCESSED U/S. 143(1) OF THE ACT. IN THE CASE ON HAND THE ASSESSING 6 ITA NO. 2352 & 2353 /MUM/2018 (A.Y: 2010 - 11 & 2011 - 12 ) M/S. COOLTECH ENTERPRISES OFFICER POSSESSED THE INFORMATION RECEIVED FROM DIT(INV.) AND SALES TAX DEPARTMENT TO FORM A BEL IEF THAT THE INCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT . 11. IN VIEW OF THE ABOVE , THE GROUND RAISED BY THE ASSESSEE ON REOP ENING OF ASSESSMENT IS REJECTED. 12. COMING TO THE MERITS OF THE CASE THE LD.CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE MATERIAL AVAILABLE ON RECORD CONCLUDED THAT THE ESTIMATION MADE BY THE ASSESSING OFFICER IS REASONABLE AND THE LD.CIT( A) FOLLOWING THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF SIMIT P . SETH [356 ITR 451] SUSTAINED THE ESTIMATION OF PROFIT ON ALLEGED BOGUS PURCHASES @12.5% OBSERVING AS UNDER: - 4 3 THE SUBMISSIONS AND CASE LAWS RELIED BY THE LD. COUNSEL FOR THE APPELLANT HAVE BEEN CAREFULLY CONSIDERED. WHEN THE EXPENDITURE HAS BEEN CLAIMED BY THE ASSESSEE THE ONUS IS ON THE ASSESSEE TO PROVE THE GENUINENESS OF THE SAME. AS IT IS THE CLAIM OF THE ASSESSEE THAT HE HAS MADE PURCHASES FROM THE SAID PARTIES, THE A.O HAD REQUESTED THE ASSESSEE TO PRODUCE THE PARTIES FOR VERIFICATION. HOWEVER, THE ASSESSEE FAILED TO DO SO. AS THE PARTIES FROM WHOM THE PURCHASES WERE SUPPOSED TO HAVE BEEN MADE WERE NOT F OUND EXISTING, THE GENUINENESS OF THE PURCHASES FROM SUCH NON EXISTING PARTIES WAS NOT ESTABLISHED. 4.3.1. COMING TO THE ADDITION, THE HON'BLE ITAT, AHMEDABAD C BENCH IN THE CASE OF VIJAY PROTEINS LTD. VS. ACIT 58 ITD 0428 HELD THAT IN SIMILAR CIRCUMSTAN CES, 25% OF THE PURCHASE PRICE ACCOUNTED THROUGH FICTITIOUS INVOICES HAS TO BE DISALLOWED. THE HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF SANJAY OIL CAKES V/S CIT 316 ITR 0274 DEALT WITH SIMILAR CASE WHERE SOME OF THE ALLEGED SUPPLIERS WHO HAD ISSUED BIL LS TO THE ASSESSEE WERE NOT GENUINE AS THEY WERE NOT TRACEABLE. THE GOODS MUST HAVE BEEN RECEIVED FROM OTHER PARTIES. THE LIKELIHOOD OF THE PURCHASE PRICE OF THESE ALLEGED PURCHASES BEING INFLATED COULD NOT BE RULED OUT AND THEREFORE THE HON'BLE HIGH COURT HAS UPHELD THE DECISION OF CIT(A) AND THE ITAT DISALLOWING 25% OF THE PAYMENTS MADE TO SUCH PARTIES. THE HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF CIT VS. SIMIT P. SHETH 356 ITR 0451 HELD THAT ONCE THE SALE IS ACCEPTED BY THE AO, THE VERY BASIS OF PURC HASES COULD NOT BE QUESTIONED. NOT THE ENTIRE PURCHASE PRICE COULD BE DISALLOWED BUT ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH 7 ITA NO. 2352 & 2353 /MUM/2018 (A.Y: 2010 - 11 & 2011 - 12 ) M/S. COOLTECH ENTERPRISES PURCHASES COULD BE ADDED TO THE INCOME OF THE ASSESSEE. THE ESTIMATION VARIES WITH THE NATURE OF AND NO UNIFORM YARDSTICK COULD BE ADOPTED. GIVEN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, I FIND IT REASONABLE TO ESTIMATE THE GROSS PROFIT ON THE ALLEGED BOGUS PURCHASES AT 12.5%. 13. ON A CAREFUL READING OF THE ORDER OF THE LD.CIT(A) AND THE ORDER OF THE ASSESSING OFFICER, I DO NOT SEE ANY VALID REASON TO REVERSE THE FINDINGS OF THE LOWER AUTHORITIES. ACCORDINGLY, THE ORDER OF THE LD.CIT(A) IS SUSTAINED. THE GROUNDS RAISED BY THE ASSESSEE ON MERITS AR E REJECTED. 14. IN THE RESULT, APPEALS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 29 TH MARCH , 2019 SD / - (C.N. PRASAD) JUDICIAL MEMBER MUMBAI / DATED 29 / 0 3 / 201 9 GIRIDHAR , S R. PS 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 (ASSTT. REGISTRAR) ITAT, MUM