NAVNIDHI STEEL AND ENGG CO. P.LTD, MUMBAI V. PR.CIT-5, MUMBAI

ITA 2580/MUM/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 7393 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 25-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K MADHUSUDHAN
• Keywords: Corroborative evidences; Assessment record
• Section: 40A(3); 133(6); 143(1); 250; 147; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL , ACCOUNTANT MEMBER ITA NO . 2580 & 2581 / MUM . /2018 ( ASSESSMENT YEAR : 20 10 11 & 2011 12 ) NAVNIDHI STEEL AND ENGINEERING CO. P. LTD. 297, TARDEO ROAD WILLE MANSION, OPP. GANK OF INDIA NANA CHOWK, MUMBAI 400 007 PAN AACCN2748R . APPELLANT V/S PRINCIPAL COMMISSIONER OF INCOME TAX, CIRCLE 5, MUMBAI . RESPONDENT ASSESSEE BY : SHRI RAJ KUMAR SINGH REVENUE BY : SHRI K. MADHUSUDHAN DATE OF HEARING 30.09.2019 DATE OF ORDER 25.10.2019 O R D E R PER SAKTIJIT DEY, J.M. AFORESAID APPEAL S BY THE ASSESSEE ARISE OUT OF TWO SEPARATE ORDERS , BOTH DATED 26 TH MARCH 2018, PASSED UNDER SECTION 263 OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) BY THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX 5 , MUMBAI, PERTAINING TO THE ASSESSMENT YEAR S 2010 11 AND 20 11 12. 2 M/S. BOMBAY GOW RAKSHAK MANDALI 2. BRIEF FACTS LEADING TO FILING OF THE PRESENT APPEALS ARE, THE ASSES SEE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING IN FERROUS AND NON FERROUS METALS. FOR THE ASSESSMENT YEAR 2010 11, THE ASSESSEE FILED ITS RETURN OF INCOME ON 29 TH SEPTEMBER 2010, DECLARING TOTAL INCOME OF ` 61,47,739. SIMILARLY, FOR THE ASSESSMENT YEAR 2011 12, THE ASSESSEE FILED ITS RETURN OF INCOME ON 18 TH SEPTEMBER 2011, DECLARING TOTAL INCOME OF ` 91,95,059. THE RETURNS OF INCOME FILED BY THE ASSESSEE WERE INITIALLY PROCESSED UNDER SECTION 143(1) OF THE ACT. SUBSEQUENTLY, ON THE BASIS OF INFORMATION RECEIVED FROM THE DGIT (INV.), MUMBAI, AND THE SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA, THE ASSESSING OFFICER FOUND THAT THE PURCHASES WORTH ` 16,78,983, FROM FOUR PARTIES IN THE ASSESSMENT YEAR 2010 11 AND PURCHASES WORTH ` 31,74,652, CLAIMED TO H AVE BEEN MADE FROM TWO PARTIES IN THE ASSESSMENT YEAR 2011 12, WERE NON GENUINE AS THE CONCERNED PARTIES WERE IDENTIFIED AS HAWALA OPERATORS PROVIDING ACCOMMODATION BILLS. THUS, ON THE BASIS OF SUCH INFORMATION, THE ASSESSING OFFICER RE OPENED THE ASSESSME NT S UNDER SECTION 147 OF THE ACT FOR BOTH THE ASSESSMENT YEARS . IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO PROVE THE GENUINENESS OF PURCHASES MADE THROUGH SUPPORTING EVIDENCE. IN RESPONSE, THE ASSESSEE FILED COPY OF THE LEDGER ACCOUNT OF THE SELLING DEALERS APPEARING IN ITS BOOKS, COPY OF PURCHASE BILLS, COPY OF BANK 3 M/S. BOMBAY GOW RAKSHAK MANDALI STATEMENT SHOWING PAYMENTS MADE FOR THE MATERIAL PURCHASED , STOCK STATEMENT SHOWING MOVEMENT OF STOCK, QUANTITATIVE DETAILS OF PURCHASES AND SALE S, ETC. AFTER VERIFYING THE EVIDENCE S FURNISHED BY THE ASSESSEE, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE WAS NOT ABLE TO ESTABLISH ON RECORD THAT PURCHASES WERE MADE FROM THE DECLARED SOURCE. THUS, HE HELD THAT PURCHASES MADE BY THE ASSESSE E CANNOT BE ACCEPTED AS GENUINE. HOWEVER, HE ALSO OBSERVED THAT THE ASSESSEE MUST HAVE EFFECTED THE PURCHASES FROM SOME OTHER SOURCES AS THE ENTIRE QUANTITY OF STOCK WAS SOLD BY THE ASSESSEE. THUS, HE OBSERVED , IN SUCH CIRCUMSTANCES ONLY THE PROFIT MARGIN EMBEDDED IN SUCH PURCHASES HAS TO BE BROUGHT TO TAX. ACCORDINGLY, RELYING UPON CERTAIN JUDICIAL PRECEDENTS INCLUDING THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN CIT V/S SIMIT P. SHETH, [2013] 356 ITR 451 (GUJ.), HE ESTIMATED THE PROFIT MARGIN ON THE NON GENUINE PURCHASES @ 12.5% AND ADDED BACK TO THE INCOME OF THE ASSESSEE IN BOTH THE ASSESSMENT YEARS. AFTER COMPLETION OF THE ASSESSMENT S AS AFORESAID, THE LEARNED PRINCIPAL CIT CALLED FOR THE ASSESSMENT RECORDS FOR EXAMINATION. AFTER EXAMINING THE ASSE SSMENT RECORDS, HE WAS OF THE VIEW THAT THE ASSESSMENT ORDERS PASSED ESTIMATING THE INCOME ON NON GENUINE PURCHASES @ 12.5% IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE , BECAUSE , ONCE THE ASSESSING OFFICER HAS CONCLUDED THAT THE PURCHASES ARE B OGUS, HE COULD NOT HAVE ESTIMATED THE INCOME ON SUCH 4 M/S. BOMBAY GOW RAKSHAK MANDALI PURCHASES BY APPLYING THE RATE OF 12.5%. FURTHER, HE OBSERVED , THE ASSESSING OFFICER HAS NOT EXAMINED THE APPLICABILITY OF SECTION 40A(3) OF THE ACT TO THE CASH PURCHASES MADE IN THE GREY MARKET. ACCORDI NGLY, HE ISSUED NOTICE S UNDER SECTION 263 OF THE ACT DIRECTING THE ASSESSEE TO EXPLAIN WHY THE ASSESSMENT ORDER S SHOULD NOT BE REVISED. IN RESPONSE TO THE SHOW CAUSE NOTICE S , THOUGH , THE ASSESSEE FURNISHED ITS REPLY OBJECTING TO THE INITIATION OF PROCEEDIN GS UNDER SECTION 263 OF THE ACT, HOWEVER, LEARNED PRINCIPAL CIT WAS NOT CONVINCED WITH THE SU BMISSIONS OF THE ASSESSEE. L EARNED PRINCIPAL CIT OBSERVED , THE ASSESSING OFFICER HAVING RECEIVED SPECIFIC INFORMATION IN RESPECT OF THE N ON GENUINE PURCHASES MADE BY THE ASSESSEE DID NOT CARRY OUT THE NECESSARY ENQUIRY WHICH WAS REQUIRED TO BE DONE. WHILE COMING TO SUCH CONCLUSION, HE SPECIFICALLY REFERRED TO THE DECISION OF THE HON'BLE SUPREME COURT IN N.K. PROTEINS LTD. V/S DCIT, [2017] 250 TAXMANN.COM 22 (SC), WH EREIN , THE HON'BLE SUPREME COURT CONFIRMED THE DECISION OF THE LOWER AUTHORITIES IN MAKING 100% ADDITION ON ACCOUNT OF NON GENUINE PURCHASES. THUS, ULTIMATELY, LEARNED PCIT CONCLUDED THAT THE ASSESSMENT ORDERS PASSED BY THE ASSESSING OFFICER ARE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE AND SET THEM ASIDE WITH A DIRECTION TO THE ASSESSING OFFICER TO MAKE FRESH ASSESSMENT AFTER CONDUCTING ENQUIRIES IN TH E LIGHT OF THE DECISION 5 M/S. BOMBAY GOW RAKSHAK MANDALI WHICH MAY BE AVAILABLE BEFORE HIM INCLUDING THE DECISION OF THE HON'BL E SUPREME COURT IN N.K. PROTEINS LTD. (SUPRA). 3. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , IN COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAD SPECIFICALLY ENQUIRED INTO GENUINENESS OF P URCHASES MADE BY THE ASSESSEE. H E SUBMITTED , DURING T HE ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD PRODUCED ALL SUPPORTING EVIDENCES INCLUDING STOCK REGISTER AND QUANTITATIVE DETAILS OF PURCHASES AND SALES TO NOT ONLY PROVE THE GENUINENESS OF PURCHASES, BUT ALSO TO CO RELATE THE PURCHASES WITH SALES. HE SUBMIT TED , THE PAYMENTS MADE TOWARDS PURCHASES WERE THROUGH BANKING CHANNEL AND CORRESPONDING BANK STATEMENT WAS ALSO FURNISHED BEFORE THE ASSESSING OFFICER TO DEMONSTRATE SUCH FACT. HE SUBMITTED , THE ASSESSING OFFICER HAD ALSO CONDUCTED ENQUIRY INDEPENDENTLY BY ISSUING NOTICES UNDER SECTION 133(6) OF THE ACT TO ASCERTAIN THE GENUINENESS OF PURCHASES. THUS, HE SUBMITTED , THE ALLEGATION MADE BY THE LEARNED PRINCIPAL CIT THAT THE ASSESSING OFFICER HAD NOT MADE ANY ENQUIRY IS WITHOUT ANY BASIS. HE SUBMITTED , MERELY BECAUSE THE CONCERNED SELLING DEALERS DID NOT COME FORWARD TO CONFIRM THE TRANSACTION OR THEY DID NOT PARTICIPATE IN THE ENQUIRY , THE PURCHASES WERE TREATED AS NON GENUINE IN SPITE OF THE PRIMARY DOCUMENTS FILED BY THE ASSESSEE. HE SUBMITTED , SINCE THE ASS ESSEE HAD FURNISHED THE DETAILS OF MOVEMENT OF STOCK THROUGH STOCK REGISTER 6 M/S. BOMBAY GOW RAKSHAK MANDALI AS WELL AS QUANTITATIVE DETAILS, THERE CANNOT BE A NY DOUBT REGARDING THE PURCHASE OF GOODS , AS , IN ABSENCE OF SUCH PURCHASES, THE ASSESSEE COULD NOT HAVE SOLD THE GOODS. THAT BEING THE CASE, THE ENTIRE PURCHASES COULD NOT HAVE BEEN DISALLOWED, BUT ONLY THE PROFIT ELEMENT EMBEDDED THEREIN COULD HAVE BEEN BROUGHT TO TAX TO PREVENT LEAKAGE OF REVENUE ON ACCOUNT OF NON PAYMENT OF VAT AND SUPPRESSION OF PROFIT DUE TO POSSIBILITY OF PURCH ASES HAVING BEEN MADE FROM GREY MARKET. HE SUBMITTED , THIS VIEW HAS NOT ONLY BEEN HELD BY DIFFERENT HIGH COURTS BUT ALSO HAS BEEN CONSISTENTLY EXPRESSED BY THE TRIBUNAL. HE SUBMITTED , ONLY BECAUSE THE DECISION OF THE ASSESSING OFFICER IN ESTIMATING THE PROFIT ELEMENT AT 12.5% OF THE NON GENUINE PURCHASES IS NOT ACCEPTABLE TO LEARNED PRINCIPAL CIT, THE ASSESSMENT ORDER S CANNOT BE HELD TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF R EVENUE. FURTHER, HE SUBMITTED , RELIANCE PLACED BY LEARNED PRINCIPAL CIT ON THE DECISION OF N.K. PROTEINS LTD. (SUPRA) IS TOTALLY MISPLACED AS THE FACTS ARE COMPLETELY DISTINGUISHABLE. THUS, HE SUBMITTED , THE ASS ESSMENT ORDERS CANNOT BE HELD TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. CONSEQUENTLY, THE ORDERS PASSED UNDER SECTION 263 OF THE ACT HAVE TO BE DECLARED AS INVALID. IN SUPPORT OF SUCH CONTENTION, THE LEARNED AUTHORISED REPRESENTATIVE RELIED UPON THE FOLLOWING DECISIONS: 7 M/S. BOMBAY GOW RAKSHAK MANDALI I) MALABAR IN DUSTRIAL CO. LTD. V/S CIT, [2000] 243 ITR 083 (SC); II) CIT V/S GREENWORLD CORPORATION, [2009] 314 ITR 081 (SC); III) CIT V/S GABRIAL INDIA LTD., [1993] 203 ITR 108 (BOM.); IV) CIT & ANR. V/S GOKULDAS EXPORTS & ORS., [2011] 333 ITR 214 (KAR.); V) CIT V/S SOHANA WOOLLE N MILLS, [2008] 296 ITR 238 (P&H); VI) VENKATA KRISHNA RICE CO. V/S CIT, [1987] 163 ITR 129 (MAD.); AND VII) SHRI GANESH RICE MILLS V/S CIT, [2007] 294 ITR 316 (ALL.). 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELYING UPON THE OBSERVATIONS OF LEARNED PRINCIPAL CIT SUBMITTED THAT ONCE THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE PURCHASES MADE BY THE ASSESSEE WERE BOGUS, THE ENTIRE PURCHASES SHOULD HAVE BEEN ADDED TO THE INCOME OF THE ASSESSEE INSTEAD OF RESTRICTING THE ADDITION TO THE PROFIT M ARGIN OF 12.5%. HE SUBMITTED , THE ASSESSING OFFICER FELL INTO ERROR BY RESTRING THE ADDITION TO THE PROFIT ELEMENT. IN SUPPORT OF HIS CONTENTION, THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE FOLLOWING DECISIONS: VIII) SHORELINE HOTEL PVT. LTD. V/S C IT, [2018] 98 TAXMANN.COM 234 (BOM.); IX) SHORELINE HOTEL PVT. LTD. V/S CIT, ITA NO.964/MUM./2015; 8 M/S. BOMBAY GOW RAKSHAK MANDALI X) HORIZON INVESTMENT CO. LTD. V/S ITA NO.1593/MUM./2013; AND XI) ARVEE INTERNATIONAL V/S ACIT, ITA NO.3543/MUM./2003. 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISIONS RELIED UPON. UNDISPUTEDLY, ON THE BASIS OF INFORMATION RECEIVED BY THE DEPARTMENT FROM THE SALES TAX AUTHORITIES INDICATING THAT CERTAIN PARTIES FROM WHOM THE ASSESSEE CLAIMED TO HA VE MADE PURCHASES HAVE BEEN IDENTIFIED AS HAWALA OPERATOR BY THE SALES TAX DEPARTMENT, THE ASSESSING OFFICER RE OPENED THE ASSESSMENT UNDER SECTION 147 OF THE ACT. DURING THE RE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO FURN ISH SUPPORTING EVIDENCES TO PROVE THE PURCHASES. IT IS EVIDENT, IN RESPONSE TO THE QUERY RAISED BY THE ASSESSING OFFICER, THE ASSESSEE DID PRODUCE SOME EVIDENCES WHICH OF COURSE WAS NOT ENOUGH TO SATISFY THE ASSESSING OFFICER REGARDING THE GENUINENESS OF T HE TRANSACTIONS . THEREFORE, THE ASSESSING OFFICER HIMSELF CONDUCTED ENQUIRY BY ISSUING NOTICES UNDER SECTION 133(6) OF THE ACT TO THE CONCERNED PARTIES. THUS, FROM THE AFORESAID FACTS IT IS VERY MUCH CLEAR THAT THE ASSESSING OFFICER HAS NOT OVERLOOKED THE INFORMATION/MATERIAL AVAILABLE ON RECORD. THEREFORE, ALLEGATION OF LEARNED PRINCIPAL COMMISSIONER THAT WHILE COMPLETING THE ASSESSMENT THE ASSESSING OFFICER OVERLOOKED THE MATERIALS ON RECORD OR HAS NOT 9 M/S. BOMBAY GOW RAKSHAK MANDALI MADE ENQUIRY IS WITHOUT ANY BASIS. A READING OF THE I MPUGNED ORDER OF LEARNED PRINCIPAL COMMISSIONER CERTAINLY GIVES AN IMPRESSION THAT CERTAIN JUDICIAL PRECEDENTS INCLUDING THE DECISION OF THE HON'BLE SUPREME COURT IN N.K. PROTEINS LTD. (SUPRA) HAVE TRIGGERED THE EXERCISE OF POWER UNDER SECTION 263 OF THE A CT. IN OUR VIEW, THE DECISIONS REFERRED TO BY LEARNED PRINCIPAL COMMISSIONER HAVE BEEN RENDERED IN THE CONTEXT OF SPECIFIC FACTS INVOLVED THEREIN, HENCE, CANNOT APPLY UNIFORMLY TO ALL THE CASES. PERTINENTLY, IN THE DECISION OF N.K. PROTEINS LTD. (SUPRA), I N COURSE OF SEARCH CONDUCTED IN THE PREMISES OF THE ASSESSEE INCRIMINATING MATERIAL SUCH AS VARIOUS CHEQUE BOOKS IN THE NAME OF DIFFERENT PARTIES WERE RECOVERED. THUS, ON THE BASIS OF SUCH FACTS THE HON'BLE SUPREME COURT UPHELD THE ADDITION OF THE ENTIRE P URCHASES. HOWEVER, THE FACTS INVOLVED IN THE PRESENT APPEAL ARE DIFFERENT AS THE BASIS OF ADDITION IS THE INFORMATION RECEIVED FROM OUTSIDE SOURCE I.E., THE SALES TAX DEPARTMENT. EVEN OTHERWISE ALSO, NO FAULT CAN BE FOUND WITH THE ASSESSING OFFICER IN MAKI NG ADDITION BY ESTIMATING PROFIT ON THE NON GENUINE PURCHASES, AS THE ASSESSEE WAS ABLE TO CO RELATE THE PURCHASES WITH SALES AND THE DOUBT, IF ANY WAS ONLY WITH REGARD TO THE SOURCE OF PURCHASES. IT IS RELEVANT TO OBSERVE, THE DECISION OF THE ASSESSING OF FICER IN MAKING DISALLOWANCE @ 12.5% IS IN TUNE WITH THE VIEW EXPRESSED IN VARIOUS JUDICIAL PRECEDENTS RENDERED IN SIMILAR NATURE OF DISPUTE INCLUDING THE 10 M/S. BOMBAY GOW RAKSHAK MANDALI DECISIONS OF THE TRIBUNAL AND THE HON'BLE JURISDICTIONAL HIGH COURT. IN FACT, THE HON'BLE JURISDICTIO NAL HIGH COURT IN MOHOMMAD HAJI ADAM & CO. (SUPRA) HAS HELD THAT EVEN IF THE PURCHASES ARE FOUND TO BE BOGUS, HOWEVER, THE ENTIRE PURCHASES CANNOT BE ADDED IF THE SALES ARE NOT DOUBTED OR DISPUTED. THE HON'BLE JURISDICTIONAL HIGH COURT HELD THAT IN SUCH CI RCUMSTANCES, THE ADDITION CAN BE MADE BY APPLYING THE GROSS PROFIT RATE OF NORMAL PURCHASES. THUS , IN OUR CONSIDERED OPINION, THE DECI SION OF THE ASSESSING OFFICER IN MAKING ADDITION APPLYING THE PROFIT RATE IS IN CONSONANCE WITH VARIOUS JUDICIAL PRECEDENTS AVAILABLE ON THE ISSUE. THEREFORE, IT CANNOT BE CONSIDERED TO BE AN ERRONEOUS VIEW AS IT IS A POSSIBLE VIEW. MOREOVER, THE ALLEGATION OF LEARNED PRINCIPAL COMMISSIO NER THAT THE ASSESSING OFFICER HAS OVERLOOKED THE MATERIAL ON RECORD AND HAS NOT MADE ANY ENQUIRY WHICH OUGHT TO HAVE BEEN MADE, APPEARS TO BE ON WRONG ASSUMPTION OF FACTS, HENCE, NOT TENABLE. IN VIEW OF THE AFORESAID, WE HOLD THAT IN THE GIVEN FACTS AND C IRCUMSTANCES OF THE CASE, THE ASSESSMENT ORDER S PASSED CANNOT BE HELD AS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. THAT BEING THE CASE, EXERCISE OF POWER UNDER SECTION 263 OF THE ACT TO REVISE THE ASSESSMENT ORDER S IS NEITHER JUSTIFIED NOR VAL ID. ACCORDINGLY, WE ARE INCLINED TO QUASH THE IMPUGNED ORDER S PASSED BY LEARNED PRINCIPAL COMMISSIONER UNDER SECTION 263 OF THE ACT. GROUND RAISED BY THE ASSESSEE ARE ALLOWED. 11 M/S. BOMBAY GOW RAKSHAK MANDALI 6. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN C OUR T ON 25.10.2019 SD/ - MANOJ KUMAR AGGARWAL ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 25.10.2019 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT, MUMBAI