SHAH TEHCHNICAL CONSULTANTS P.LTD, MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 2(3)(2), MUMBAI

ITA 249/MUM/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 0697 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Assessment Year: 2014-2015
• Appeal Filed On: 10-01-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN KUMAR SINGH
• Assessee Lawyers: DR K SHIVARAM
• Keywords: Sham transactions; Set aside
• Section: 143(3); 115JB; 133(6); 251; 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.249/M/2018 ASSESSMENT YEAR: 2014-15 M/S. SHAH TECHNICAL CONSULTANTS PVT. LTD., 407, RAHEJA CENTRE, FREE PRESS JOURNAL MARG, MUMBAI 400 021 PAN: AADCS4968D VS. ACIT 2(3)(2), ROOM NO.552, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (R ESPONDENT) PRESENT FOR: ASSESSEE BY : DR. K. SHIVARAM, A.R. REVENUE BY : SHRI CHAUDHARY ARUNKUMAR SINGH, D.R . DATE OF HEARING : 01.05.2019 DATE OF PRONOUNCEMENT : 21.05.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 23.11.2017 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2014-15. 2. THE ONLY ISSUE RAISED BY THE ASSESSEE IN THE VAR IOUS GROUNDS OF APPEAL IS AGAINST THE CONFIRMATION OF DI SALLOWANCE OF ENTIRE PRINTING AND STATIONERY EXPENSES OF RS.1,47, 55,602/- BY LD. CIT(A) AS MADE BY THE AO ON ACCOUNT OF THE SAID PURCHASES BEING BOGUS AND UNVERIFIED. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE FILED T HE RETURN OF INCOME 22.11.2014 DECLARING INCOME OF RS.16,83,57,6 30/- ITA NO.249/M/2018 M/S. SHAH TECHNICAL CONSULTANTS PVT. LTD. 2 UNDER THE NORMAL PROVISIONS OF THE ACT AND RS.10,99 ,79,430/- UNDER SECTION 115JB OF THE ACT. THE CASE OF THE AS SESSEE WAS SELECTED FOR SCRUTINY AND DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, THE AO OBSERVED THAT ASSESSEE HAS DEBI TED A SUM OF RS.2,24,22,076/- UNDER THE HEAD PRINTING AND STA TIONERY VIS- -VIS RS.76,69,896/- IN THE PRECEDING PREVIOUS YEAR THEREBY REGISTERING AN ABNORMAL INCREASE OF 192% UNDER THIS HEAD WHILE THE TURNOVER OF THE ASSESSEE REGISTERED AN INCREASE OF 3.66% ONLY. ACCORDINGLY, THE ASSESSEE WAS ASKED TO FURNI SH THE DETAILS OF PRINTING AND STATIONERY ALONG WITH NECESSARY BIL LS AND VOUCHERS. THE ASSESSEE SUBMITTED BEFORE THE AO THA T IT HAS TAKEN NEW ASSIGNMENTS IN THE NEW SECTOR OF TOURISM WHEREIN THE ASSESSEE WAS AWARDED 4 PROJECTS IN THE STATE OF PUN JAB, HIMACHAL PRADESH, UTTARAKHAND AND TAMIL NADU AND TH E WORK INVOLVED IS IN THE NATURE OF ARCHITECTURE THAN ENGI NEERING. THEREFORE WORK DONE BY OUR COMPANY IN THIS YEAR INC LUDED THE ARCHITECTURAL WORKS WHICH INVOLVED A LOT OF COLOURE D PRINTING AND MAPPING WORKS. THE ASSESSEE SUBMITTED BEFORE THE A O THAT THE CONSUMPTION OF STATIONERY IS MORE IN THE NEW ASSIGN MENT AND DRAWINGS AND MAPS HAVE TO BE PREPARED IN COLOURED F ORM AND THEREFORE THE EXPENDITURE INCURRED DURING THE YEAR WAS SEVERAL TIME HIGH AS COMPARED TO PREVIOUS YEAR BY FURNISHI NG NECESSARY SUPPORTING DETAILS. THE AO AFTER EXAMINI NG THE SAME ISSUED NOTICES UNDER SECTION 133(6) TO AXIS BANK, F ORT BRANCH AND CANARA BANK, FORT BRANCH FOR FURNISHING BANK S TATEMENTS, ACCOUNT OPENING FORM AND KYC DETAILS OF ALL THESE P ARTIES. THE AO FOUND FROM THESE DETAILS THAT MOST OF TRANSACTIO NS WERE SUSPICIOUS IN NATURE BECAUSE THE ADDRESS, NAME AND CONTACT DETAILS OF THE PROPRIETOR DOES NOT MATCH WITH THE ASSESSEES ITA NO.249/M/2018 M/S. SHAH TECHNICAL CONSULTANTS PVT. LTD. 3 SUBMISSION AND THE KYC FORMS PRODUCED BY BANKS. THE ASSESSEE WAS ASKED TO PRODUCE THE LEDGER ACCOUNT OF THE PARTIES WHICH WAS FILED BY THE ASSESSEE ON 15.11.2016. SUM MON UNDER SECTION 131 WAS ISSUED TO PROP. OF M/S. NITYANAND E NTERPRISES ON 24.11.2016 AND IN RESPONSE, SHRI SAGAR NAMDEVE P AGDE, PROPRIETOR OF M/S. NITYANAND ENTERPRISES APPEARED A ND HIS STATEMENT WAS RECORDED ON THE SAME DATE. IN THE ST ATEMENT OF SHRI SAGAR NAMDEVE PAGDE IT WAS CONFIRMED THAT HE I S NOT THE PROPRIETOR OF THE SAID FIRM AND ALSO CONFIRMED THAT HE HAS NOT SOLD ANY PRINTING AND STATIONERY ITEMS TO M/S. SHAH TECHNICAL CONSULTANTS PVT. LTD. BESIDES CONFIRMING THAT THE A DDRESS AND VAT REGISTRATION ON INVOICE PRODUCED BY M/S. SHAH TE CHNICAL CONSULTANTS PVT. LTD. IS HIS HOME ADDRESS AND THE P HONE NUMBER ALSO NOT BELONGING TO HIM AND SAID PERSON IS DRIVER BY PROFESSION. SIMILARLY, SUMMON WAS ISSUED TO M/S. S ANKET ENTERPRISES ON 24.11.2016 AND HE ALSO DENIED OF HAV ING ANY TRANSACTION WITH THE ASSESSEE. SIMILARLY, SUMMON W AS ISSUED TO PROPRIETOR OF M/S. RIDDHI ENTERPRISES ON 25.11.2016 AND THE STATUS WAS SAME AS IN THE CASE OF OTHER TWO PARTIES . FINALLY, THE AO ADDED THE AMOUNT TO THE INCOME OF THE ASSESSEE O N THE GROUND THAT ASSESSEE HAS NO SATISFACTORY EXPLANATIO N FOR THE SAID EXPENSES INCURRED AND THE GENUINENESS AND CORR ECTNESS OF THE EXPENDITURE WAS NOT PROVED BY FRAMING ASSESSMEN T UNDER SECTION 143(3) OF THE ACT DATED 30.12.2016. 4. THE LD. CIT(A) DISMISSED THE APPEAL OF THE ASSES SEE BY HOLDING THAT AO HAS CONDUCTED A DETAILED ENQUIRIES AND IT WAS FOUND THAT ASSESSEE HAS NOT PURCHASED ANY MATERIAL OF PRINTING AND STATIONERY FROM THESE PARTIES OF RS.1,47,55,602 /- AS HAS BEEN STATED BY THE ASSESSEE. ITA NO.249/M/2018 M/S. SHAH TECHNICAL CONSULTANTS PVT. LTD. 4 5. THE LD. A.R. VEHEMENTLY SUBMITTED BEFORE US THAT THE ASSESSEE HAS DIVERSIFIED AND EXPANDED ITS BUSINESS BY UNDERTAKING THE ARCHITECTURAL WORK DURING THE YEAR WHILE THE ASSESSEE WAS DOING ONLY ENGINEERING WORK TRADITIONA LLY. THE LD. A.R. SUBMITTED THAT FOR THE PURPOSE OF ARCHITECTURA L WORKS, MAPS AND DRAWINGS HAVE TO BE PREPARED IN COLOUR PRINTING AND SO MANY SETS ARE TO BE PREPARED WHICH INVOLVED HUGE PR INTING COST FOLLOWING AWARDING OF CONTRACTS IN FOUR STATES PUN JAB, HIMACHAL PRADESH, UTTARAKHAND AND TAMIL NADU. THE LD. A.R. SUBMITTED THAT ENGINEERING WORKS, THE REPORTS AND DRAWINGS AR E VERY SIMPLE MOSTLY IN BLACK AND WHITE WHEREAS THE REPORT S IN ARCHITECTURAL WORKS ARE MORE COMPLICATED AND EXPENS IVE ALSO. THE LD. A.R. SUBMITTED THAT THOUGH THE ASSESSEE HAS PRODUCED THE BILLS, VOUCHERS, PAYMENT DETAILS ETC. COUPLED W ITH THE DOCUMENTS PERTAINING TO FOUR PROJECTS IN 4 STATES B EFORE THE AUTHORITIES BELOW WHICH ITSELF JUSTIFIES THE CONSUM PTION OF THESE MATERIAL IN THE BUSINESS OF THE ASSESSEE. THE LD. A.R. ALSO SUBMITTED THAT IN ADDITION TO THE NEW ARCHITECTURAL WORK THE ASSESSEE HAS ALSO COMPLETED THE MAJOR PROJECTS NAME LY KERALA WATER SUPPLY PROJECT, THE INDORE WATER SUPPLY PROJE CT, JAMMU & KASHMIR WATER & SEWERAGE PROJECT AND THE HOGENEKK AL WATER SUPPLY PROJECT DURING THE YEAR AND HANDED OVER TO T HE CONCERNED AUTHORITY AND THUS INVOLVED IN HUGE EXPEN DITURE OF DRAWING ,COPIES, MAPS AND OTHERS BACK UP RECORDS ET C. THE LD. A.R. SUBMITTED THAT THERE HAS BEEN INCREASE OF 25% IN THE TURNOVER DURING THE YEAR. THE LD. A.R. SUBMITTED T HAT THOUGH THE ASSESSEE COULD NOT PROVE THE EVIDENCES TO THE S ATISFACTION OF REVENUE AUTHORITIES AS THE ASSESSEE WAS DEALING AND PROCURING MATERIAL THROUGH A PARTICULAR PERSON AND WAS NOT DE ALING ITA NO.249/M/2018 M/S. SHAH TECHNICAL CONSULTANTS PVT. LTD. 5 DIRECTLY WITH ANY SUPPLIERS WHICH IS THE PRACTICE P REVALENT IN THE INDUSTRY AND IT IS ALSO VERY COMMON THAT SUCH TYPE OF PEOPLE ARRANGE MATERIAL FROM VARIOUS SOURCES WHILE THE BI LLS WERE ISSUED OF DIFFERENT PERSONS. THE LD. A.R. THEREFOR E SUBMITTED THAT THE ASSESSEES ACCOUNTS WERE DULY AUDITED AND THERE WAS NO ADVERSE COMMENTS REPORTED BY THE AUDITORS. THE LD. A.R. SUBMITTED THAT ONE OF THE DIRECTORS OF THE ASSESSEE COMPANY SHRI PRASHANT SHAH WAS LOOKING AFTER THE ADMINISTRATION OF THE COMPANY AND HE HAS TO DEAL WITH THESE MATTERS OF SU PPLY OF STATIONERY WITH MR. DARMESH SHAH WHO USED TO ARRANG E BULK QUANTITY OF PRINTING AND STATIONERY FROM M/S. RIDDH I ENTERPRISES. THE LD. A.R. SUBMITTED THAT M/S. RIDD HI ENTERPRISES USED TO ARRANGE THE GOODS FROM M/S. SAN KET ENTERPRISES AND M/S. NITYANAND ENTERPRISES. THUS S HRI PRASHANT SHAH IS NOT HAVING ANY PERSONAL KNOWLEDGE OF THE PROPRIETOR OF M/S. RIDDHI ENTERPRISES, M/S. SANKET ENTERPRISES AND M/S. NITYANAND ENTERPRISES. THE LD. A.R. REITE RATED THAT ASSESSEE HAS MADE PAYMENTS THROUGH BANKING CHANNEL AS PROVIDED BY MR. DARMESH SHAH AND THE DETAILS OF GOO DS RECEIVED AND UTILISED FOR IN THE ARCHITECTURE WORK WERE SHOW N IN THE STOCK REGISTER. THE INVOICES OF THE THREE SUPPLIERS CONT AINED VAT NUMBER, TIN NUMBER AND PAN NUMBER ALSO. FINALLY, T HE LD. A.R. PRAYED BEFORE THE BENCH THAT THE CONSUMPTION O F MATERIAL IS NOT IN DOUBT SO THE ORDER PASSED BY LD. CIT(A) I S BAD IN LAW AS THE 100% DISALLOWANCE OF PURCHASES COULD NOT BE MAD E. THE LD. A.R. PRAYED BEFORE THE BENCH THAT A REASONABLE PERC ENTAGE MAY KINDLY BE DISALLOWED IN ORDER TO TAX THE SAVINGS WH ICH THE ASSESSEE MAY HAVE MADE FROM NON PAYMENT OF VAT AND O THER INCIDENTAL SAVINGS MADE BY THE ASSESSEE. MOREOVER, THE LD. A.R. ITA NO.249/M/2018 M/S. SHAH TECHNICAL CONSULTANTS PVT. LTD. 6 SUBMITTED THAT BOOKS OF ACCOUNTS WERE NOT REJECTED AND SALES WERE ACCEPTED AND THUS THE ENTIRE PURCHASES COULD N OT BE DISALLOWED AND THE ORDER OF LD. CIT(A) DESERVED TO BE QUASHED. THE LD. A.R. RELIED ON A SERIES OF DECISIONS IN SUP PORT OF HIS ARGUMENT WHICH ARE AS UNDER: 1. BABULAL C. BORANA VS. ITO (2006) 282 ITR 251 (B OM.) CIT VS. 2. CIT VS. NIKUNJ EXIM ENTERPRISES (P.) LTD. (2015 ) 372 ITR 619 (BOM.-HC) 3. CIT VS. SMT. ANJU JINDAL (2016) 387 ITR 418 (P&H ) HIGH COURT. 6. THE LD. D.R., ON THE OTHER HAND, RELIED HEAVILY ON THE ORDER OF AUTHORITIES BELOW BY SUBMITTING THAT THE GENUINE NESS OF THE PURCHASE OF MATERIAL WAS IN DOUBT AS ALL THE PARTIE S HAVE DENIED TO HAVE SUPPLIED SUCH MATERIALS TO THE ASSESSEE AND THEREFORE IT IS A CLEAR CUT CASE OF SHAM TRANSACTIONS AND THUS T HE ORDER OF LD. CIT(A) MAY KINDLY BE AFFIRMED. 7. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD INCLUDING THE IMPUGNED ORDER, WE OBSERVE THA T UNDISPUTEDLY THE ASSESSEE HAS MADE SUBSTANTIAL PURC HASES OF PRINTING AND STATIONERY FROM THREE PARTIES NAMELY M /S. RIDDHI ENTERPRISES RS.93,51,632/-, M/S. SANKET ENTERPRISES RS.32,81,534/- AND M/S. NITYANAND ENTERPRISES RS.21 ,22,436/- AGGREGATING TO RS. RS.1,47,55,602/-. ALL THESE PAR TIES WERE PAID THROUGH RTGS. THIS IS ALSO TRUE THAT ASSESSEE HAS ENTERED INTO A NEW VENTURE IN ARCHITECTURAL FIELD AND HAVE OBTA INED 4 PROJECTS IN THE STATE OF PUNJAB, HIMACHAL PRADESH, UTTARAKHAND AND TAMIL NADU. THE ASSESSEE HAS ALSO COMPLETED FO UR MAJOR PROJECTS NAMELY KERALA WATER SUPPLY PROJECT, THE IN DORE WATER SUPPLY PROJECT, JAMMU & KASHMIR WATER & SEWERAGE PR OJECT ITA NO.249/M/2018 M/S. SHAH TECHNICAL CONSULTANTS PVT. LTD. 7 AND THE HOGENEKKAL WATER SUPPLY PROJECT DURING THE YEAR. THE LD. A.R. SUBMITTED BEFORE US THAT IT IS ONLY DUE TO THIS NEW LINE OF BUSINESS THE ASSESSEE HAS TO INCUR THE HUGE EXPE NDITURE ON PRINTING AND STATIONERY WHICH IS COMPARATIVELY VERY COSTLY AS THE ASSESSEE HAS TO PREPARE MAPS AND DRAWING IN THE COL OUR FORMAT WITH MULTIPLE COPIES WHEREAS IN THE EXISTING LINE O F BUSINESS WHICH IS ENGINEERING WHICH ENTAILS RELATIVELY CHEAP ER PRINTING COST . IT IS ALSO FACT THAT IN THIS CASE THE BOOKS OF ACCOUNTS HAVE NOT BEEN REJECTED BY THE AO. MOREOVER, THE CONSUMP TION OF PRINTING MATERIAL IS ALSO NOT IN DOUBT AS THE ASSES SEE HAS EXECUTED VARIOUS PROJECTS DURING THE YEAR. UNDER T HESE FACTS, THE POSSIBLE PRESUMPTION IS THAT THE ASSESSEE MIGHT HAVE PROCURED THE MATERIAL FROM DIFFERENT SOURCES MAY BE GREY MARKET. THUS TO DISALLOW THE ENTIRE PURCHASES ON T HE GROUND OF BEING NON GENUINE AND NON PROVED IS NOT CORRECT. T HE ASSESSEE HAS MAINTAINED STOCK RECORDS AND ENTERED ALL THE RE CEIPT AND CONSUMPTION OF MATERIALS THEREIN. THEREFORE, WE AR E NOT IN AGREEMENT WITH THE CONCLUSION DRAWN BY THE LD. CIT( A) THAT 100% ADDITION ACCOUNT OF THE ALLEGED PURCHASES SHOU LD BE MADE. IN OUR OPINION IT WOULD BE REASONABLE IF SOM E PERCENTAGE OF THESE PURCHASES IS ADDED TO THE INCOME OF THE AS SESSEE IN ORDER TO BRING TO TAX THE VARIOUS SAVINGS WHICH THE ASSESSEE MAY HAVE MADE BY MAKING PURCHASES FROM THE GREY MARKET. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE , WE ARE OF THE VIEW THAT IT WOULD BE APPROPRIATE IF 15% OF THE TOTAL PURCHASES ARE DISALLOWED AND BROUGHT TO TAX. ACCOR DINGLY, WE SET ASIDE THE ORDER OF LD. CIT(A) AND DIRECT THE AO TO MAKE ADDITION AT 15% OF THE TOTAL ALLEGED PURCHASES. ITA NO.249/M/2018 M/S. SHAH TECHNICAL CONSULTANTS PVT. LTD. 8 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21.05.2019. SD/- SD/- ( RAM LAL NEGI) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 21.05.2019. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASS TT. REGISTRAR, ITAT, MUMBAI.