ASST CIT 10(1)(2), MUMBAI V. KBA INFRASTRUCTURE P.LTD, MUMBAI

ITA 2429/MUM/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3710 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2011-2012
• Appeal Filed On: 06-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Accommodation entries
• Section: 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 2429 /MUM/2017 ASSESSMENT YEAR: 2011 - 12 ACIT - 10(1)(2), MUMBAI R OOM NO. 651, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020. VS. M/S KBA INFRASTRUCTURE PVT. LTD., 31, JAI HIND COTTAGE SHIVAJI RAJE MARG, VILE PARLE, MUMBAI - 400057. PAN NO. AA DCK8198B APPELLANT RESPONDENT REVENUE BY : M R . MANOJ KUMAR SINGH , DR ASSESSEE BY : M S . DINKLE HARIYA , AR DATE OF HEARING : 0 2/08 /2018 DATE OF PRONOUNCEMENT : 08/08/2018 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE REVENUE. THE RELEVANT ASSESSMENT YEAR IS 2011 - 12 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMIS SIONER OF INCOME TAX (APPEALS) - 17 [IN SHORT CIT(A) ], MUMBAI 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 READ AS UNDER: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE LAW THE LD. CIT(A) IS JUSTIFIED IN NOT UPHOLDING THE TOTAL D ISALLOWANCE OF M/S KBA INFRASTRUCTURE ITA NO. 2429/MUM/2017 2 ALLEGED PURCHASES IGNORING THE FACT THAT ASSESSE E IS ONE OF THE BENEFICIARY OF NON - GENUINE TRA NSACTIONS CARRIED OUT WITH HAWAL A DEALERS? 2. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE LAW THE L D . CIT(A) IS JUSTIFIED IN NOT UPHOLDING THE TOTAL DISALLOWANCE OF ALLEGED PURCHASES IGNORING THE FACT THAT AO HAS MADE THE ADDITION AFTER CARRYING OUT NECESSARY INQUIRIES? 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE LAW THE LD . CI T(A) IS JUSTIFIED IN NOT UPHOLDING THE TOTAL DISALLOWANCE OF ALLEGED PURCHASES WHILE IN PARA 11 OF HIS ORDER THE LD . CIT(A) HAS HELD THAT THE ASSESSE E WAS UNAB LE TO SUBSTANTIATE ITS PURCHASES FROM THE SUPPLIERS WHO HAD ALREADY BEEN ESTABLISHED AS HAWALA DEALERS BY THE SALES TAX DEPARTMENT (GOVT OF MAHARASHTRA ) AND INVESTIGATION WING OF THE DEPARTMENT. 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE LAW THE LD. CIT(A) IS JUSTIFIED IN NOT UPHOLDING THE TOTAL DISALLOWANCE OF ALLEGED PURCHASES IGNORING THE FACT THAT HAWALA PARTIES HAVE GIVEN THE STATEMENT ON OAT H REGARDING THEIR MODUS OPERANDI ? 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE LAW THE LD. CIT ( A) IS JUSTIFIED IN DIRECTING TO RESTRICT THE DISA LLOWANCE TO 12.5% OF THE ALLEGED PURCHASES WHEREAS I T IS CLEARLY PROVED THAT THE SAID PURCHASES ARE NON - GENUINE AND THEREFORE NEEDS TO BE FULLY DISALLOWED? 6. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE A. O. BE RESTORED. 3. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2011 - 12 ON 29.09.2011 DECLARING TOTAL INCOME OF RS.1,59,51,458/ - . THE ASSESSEE IS BASICALLY ENGAGED IN THE BUSINESS OF CONSTRUCTION, INFRASTRUCTURE, REPAIRS ETC. M/S KBA INFRASTRUCTURE ITA NO. 2429/MUM/2017 3 IN A NUTSHELL, THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER (AO) RECEIVED INFORMATION FROM THE INVESTIGATION WING OF THE INCOME TAX DEPARTMENT THAT THE ASSESSEE WAS HAVING TRANSACTION OF RS.4,57,20,006/ - FROM PARTIES WHO WERE ENGAGED IN HAWALA TRAN SACTIONS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ISSUED NOTICE U/S 133(6) TO THE CONCERNED PARTIES TO VERIFY THE PURCHASES. HOWEVER, THE NOTICES WERE RETURNED BACK AS UNSERVED BY THE POSTAL AUTHORITIES. ALSO, DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, THE AO ASKED THE ASSESSEE TO PRODUCE THESE PARTIES BEFORE HIM TO ASCERTAIN THE GENUINENESS OF PURCHASES. HOWEVER, THE ASSESSEE FAILED TO PRODUCE THEM. IN RESPONSE TO A QUERY RAISED BY THE AO TO EXPLAIN AS TO WHY THE PURCHASES FROM THE ABOVE PART IES SHOULD NOT BE HELD AS BOGUS, THE ASSESSEE SUBMITTED THE COPY OF LEDGER ACCOUNTS, SALES INVOICES TOWARDS MATERIALS PURCHASED FROM THE PARTIES ALONG WITH ACCOUNT CONFIRMATIONS OF SOME PARTIES. IT WAS THE SUBMISSION OF THE ASSESSEE BEFORE THE AO THAT THE PAYMENTS HAVE BEEN MADE BY CHEQUE AND THE PURCHASES ARE GENUINE. HOWEVER, THE AO WAS NOT CONVINCED WITH THE ABOVE EXPLANATION OF THE ASSESSEE. THE AO REFERRED TO THE INVESTIGATION REPORT PREPARED BY THE SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA AND T HE STATEMENT OF THE CONCERNED PERSONS PROVIDING ACCOMMODATION ENTRIES. AS THE ASSESSEE FAILED TO FURNISH THE REQUISITE EVIDENCE IN THE FORM OF PAYMENT OF VAT BY THE ALLEGED SUPPLIER, EVIDENCE OF GOODS HELD AS PER THE STOCK REGISTER OF THE CONCERNED SUPPLIE RS, THE AO MADE AN ADDITION OF THE FULL AMOUNT OF RS.4,57, 20,006/ - . M/S KBA INFRASTRUCTURE ITA NO. 2429/MUM/2017 4 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) OBSERVED THAT IF THE PURCHASES ARE BOGUS BUT DIRECT SALES ARE PROVED, THE ASSUMPTION S ARE THAT THE PURCHASES WERE MADE FROM UNKNOWN PARTIES AND THE AO CAN APPLY A PROFIT RATE TO DETERMINE THE TAX LIABILITY OF THE ASSESSEE. THE LD. CIT(A) HELD THAT IN THE INSTANT CASE, THE ASSESSEE HAD INFLATED ITS EXPENSES BY TAKING BOGUS BILLS OF PURCHAS ES FROM THE HAWALA DEALERS. THUS CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) RELIED ON THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SIMIT P. SHETH (2013) 356 ITR 451 (GUJ) AND DIRECTED THE AO TO RESTRICT THE DISALLO WANCE TO 12.5% OF SUCH PURCHASES OF RS.4,57,20,006/ - . 5. BEFORE US, THE LD. DR SUBMITS THAT THE LD. CIT(A) SHOULD NOT HAVE RESTRICTED THE DISALLOWANCE TO 12.5% OF SUCH BOGUS PURCHASES OF RS.4,57,20,006/ - BECAUSE THE ASSESSEE WAS UNABLE TO SUBSTANTIATE BEFO RE THE AO ITS PURCHASES FROM THE SUPPLIERS WHO HAD ALREADY BEEN ESTABLISHED AS HAWALA DEALERS BY THE SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA. IT IS SUBMITTED BY HIM THAT THE ADDITION OF RS.4,57,20,006/ - MADE BY THE AO BE CONFIRMED. 6. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT THE DEPARTMENT HAS NOT FOUND FAULT ON THE SALES MADE BY THE ASSESSEE. ALSO IT IS STATED BY HIM THAT THE PAYMENTS TO THE CONCERNED PARTIES HAVE BEEN MADE BY CHEQUES ONLY. THUS THE LD. COUNSEL SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). M/S KBA INFRASTRUCTURE ITA NO. 2429/MUM/2017 5 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISIONS ARE GIVEN BELOW. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO HAD ISSUED NOTICE U/S 133(6) TO THE A LLEGED PARTIES IN THE ADDRESS GIVEN BY THE ASSESSEE IN ORDER TO VERIFY THE PURCHASES. HOWEVER, THE SAID NO TICES WERE RETURNED AS UNSERVED BY THE POSTAL AUTHORITIES. THE ASSESSEE FAILED TO PRODUCE THE SAID PARTIES BEFORE THE AO. ON THE OTHER HAND, WE FIND THAT THE ASSESSEE HAD SUBMITTED COPIES OF LEDGER ACCOUNTS OF THE DISPUTED PARTIES, SALES INVOICES OF SOME OF THE DISPUTED PARTIES. ALSO IT IS THE CONTENTION OF THE ASSESSEE THAT PAYMENTS HAVE BEEN MADE TO THE CONCERNED PARTIES BY CHEQUES ONLY. IN THE CAS E OF SIMIT P. SHETH (SUPRA) , 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 PURCH ASES CAN BE ADDED TO INCOME OF THE ASSESSEE. THAT BEING THE POSITION, NOT THE ENTIRE PURCHASE PRICE BUT ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES CAN BE ADDED TO THE INCOME OF THE ASSESSEE. THE HONBLE HIGH COURT REFERRED TO A SIMILAR VIEW TAKEN I N 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). THUS IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS RIGHTLY DIRECTED THE AO TO RESTRICT THE DISALLOWANCE TO 12.5% OF SUCH BOGUS PURCHASES OF RS.4,57,20,006/ - . M/S KBA INFRASTRUCTURE ITA NO. 2429/MUM/2017 6 8. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 08/08/2018. SD/ - SD/ - ( C.N. PRASAD ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 08/08/2018 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 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