PRECISE ELECTRICALS, MUMBAI V. DCIT, CIRCLE-3, THANE

ITA 2622/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9754 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2009-2010
• Appeal Filed On: 11-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTAL
• Keywords: Reopening of assessment; Bogus purchase; Application of stay
• Section: 142(1); 133(6); 147; 148; 139

Judgement Text

1 ITA 2622 & 2623/MUM/2016 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) S.A. NOS 45, 46 & 47/MUM/2018 (ARISING OUT OF I.T.A NOS.2622 & 2623/MUM/2016 & IT A NO.6230/MUM/2016 ) (ASSESSMENT YEARS: 2009-10 & 2011-12 & 2010-11) & I.T.A NOS.2622 & 2623/MUM/2016) (ASSESSMENT YEARS: 2009-10 & 2011-12) M/S PRECISE ELECTRICALS, C/O VMD & CO, CAS, AVMS PREMISES, 4 TH FLOOR, SHREE NIWAS HOUSE, H S MARG, FORT MUMBAI 400 001 PAN : AAFP8589K VS DY.CIT, CIR.3, THANE APPELLANT BY SHRI BHUPENDRA SHAH / MS UMA MAHADEVKAR REVENUE BY SHRI RAJAT MITTAL DATE OF HEARING 12-03-2018 DATE OF PRONOUNCEMENT 21-03-2018 O R D E R PER G MANJUNATHA, AM : THESE TWO APPEALS FILED BY THE ASSESSEE ARE DIRECT ED AGAINST COMMON ORDER OF THE CIT(A)-2, THANE DATED 28-01-201 6 FOR THE ASSESSMENT YEARS 2009-10 AND 2011-12. SINCE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, THESE APPEALS WERE HEARD TOGETHE R AND ARE DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF C ONVENIENCE. 2. THE BRIEF FACTS OF THE CASE EXTRACTED FROM ITA N O.2622/MUM/2016 2 ITA 2622 & 2623/MUM/2016 FOR AY 2009-10 ARE THAT THE ASSESSEE IS A PARTNERSH IP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING TRANSFORMERS, FILED I TS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 ON 30-09-2009 DECLARING TOTAL INCOME AT RS.1,87,25,690. SUBSEQUENTLY, THE ASSESSMENT HAS B EEN REOPENED U/S 147 ON THE BASIS OF INFORMATION RECEIVED FROM SALES -TAX DEPARTMENT OF MAHARASHTRA WHICH SUGGESTED THAT THE ASSESSEE IS TH E BENEFICIARY OF BOGUS PURCHASE BILLS ISSUED BY HAWALA / SUSPICIOUS DEALERS. ACCORDINGLY ISSUED NOTICE U/S 148 CALLING FOR RETURN OF INCOME. IN RESPONSE TO NOTICE, THE ASSESSEE, VIDE LETTER DATED 12-04-2013 SUBMITTE D THAT RETURN ORIGINALLY FILED U/S 139 MAY BE TREATED AS RETURN F ILED IN RESPONSE TO NOTICE U/S 148 OF THE ACT. THE CASE HAS BEEN SELEC TED FOR SCRUTINY AND NOTICES U/S 143(2) AND 142(1) OF THE ACT WERE ISSUE D. IN RESPONSE TO NOTICES, THE ASSESSEE SUBMITTED VARIOUS DETAILS, AS CALLED FOR. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICE D THAT THE ASSESSEE IS A BENEFICIARY OF PURCHASE BILLS ISSUED BY 7 PARTIES TO THE TUNE OF RS.88,62,616. TO ASCERTAIN THE GENUINENESS OF PURCHASES FROM THOSE PARTIES, THE AO ISSUED NOTICES U/S 133(6) OF THE I.T. ACT WHICH WERE RETURN UNSERVED. THEREAFTER, THE AO HAS DIREC TED THE WARD INSPECTOR TO CAUSE NECESSARY ENQUIRIES ABOUT THE EX ISTENCE OF THOSE PARTIES. HOWEVER, THE WARD INSPECTOR REPORTED THAT NO SUCH PARTIES WERE EXISTED FROM SAID PREMISES. BASED ON THE INFO RMATION RECEIVED FROM SALES-TAX DEPARTMENT COUPLED WITH FURTHER ENQU IRIES CONDUCTED 3 ITA 2622 & 2623/MUM/2016 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO CAME TO THE CONCLUSION THAT PURCHASES FROM THOSE PARTIES WERE B OGUS IN NATURE AND ACCORDINGLY MADE ADDITION OF RS.88,62,616 TO THE TO TAL INCOME. 3. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREF ERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), ASSESSEE HAS CHALLENGED REOPENING OF ASSESSMENT. THE ASSESSEE ALSO FILED E LABORATE WRITTEN SUBMISSIONS ON PURCHASES FROM THOSE PARTIES TO ARGU E THAT ITS PURCHASES ARE SUPPORTED BY PROPER EVIDENCE INCLUDING PURCHASE BILLS AND PAYMENT FOR SUCH PURCHASES HAS BEEN MADE THROUGH CHEQUES. THE CIT(A), AFTER CONSIDERING RELEVANT SUBMISSION OF THE ASSESSEE AND ALSO RELYING UPON VARIOUS JUDICIAL PRECEDENTS, UPHELD FINDINGS OF THE AO AND REJECTED APPEAL FILED BY THE ASSESSEE. AGGRIEVED BY THE ORD ER OF CIT(A), ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD.AR FOR THE ASSESSEE, AT THE TIME OF HEARI NG SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY T HE DECISION OF ITAT, MUMBAI BENCH K IN ASSESSEES OWN CASE FOR AY 2010 -11 IN ITA NO. 6230/MUM/2016, WHEREIN UNDER SIMILAR SET OF FACTS T HE ITAT, HAS RESTRICTED ADDITION MADE BY THE AO TO 12.5% OF TOTA L PURCHASES. ON THE OTHER HAND, THE LD.DR STRONGLY SUPPORTED THE ORDER OF THE LD.CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. THE ONLY ISSUE TO BE RESOLVED FROM ASSESSEES APPEALS IS WHETHER A DDITION CAN BE 4 ITA 2622 & 2623/MUM/2016 MADE TOWARDS 100% OF BOGUS PURCHASE OR ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES. THE ISSUE IS NO LONGER RES INTEGRA. THE CO-ORDINATE BENCH OF ITAT, MUMBAI IN SEVERAL CASES HAS TAKEN A CONSISTENT VIEW IN THE CASE OF BOGUS PURCHASES AND HELD THAT ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES NEEDS TO BE TAXE D AND ACCORDINGLY, DEPENDING UPON FACTS OF EACH CASE ESTI MATED ONLY NET PROFIT OF 12.5% ON BOGUS PURCHASES. WE FURTHER OBSERVE TH AT IN ASSESSEES OWN CASE FOR AY 2010-11, THE ITAT, HAS RESTRICTED A DDITION MADE TOWARDS BOGUS PURCHASES @12.5% OF TOTAL PURCHASES. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED BELOW:- 5. WE HAVE CAREFULLY HEARD THE CONTENTIONS AND PER USED RELEVANT MATERIAL ON RECORD. WE ARE OF THE CONSIDERED OPINIO N THAT THERE COULD BE NO SALE WITHOUT PURCHASE /CONSUMPTION OF M ATERIAL SINCE THE ASSESSEE WAS ENGAGED IN MANUFACTURING ACTIVITY. THE SALES TURNOVER ACHIEVED BY THE ASSESSEE HAS NOT BEEN DISP UTED BY THE REVENUE AND THE PAYMENTS WERE THROUGH BANKING CHANN ELS. THE ASSESSEE WAS IN POSSESSION OF PRIMARY PURCHASES DOC UMENTS. AT THE SAME TIME, THE ASSESSEE COULD NOT SUBSTANTIATE DELIVERY OF MATERIAL IN ANY MANNER AND COULD NOT PROVIDE SATISF ACTORY DETAILS OF CONSUMPTION OF RAW MATERIAL BEFORE LOWER AUTHORI TIES. FURTHER, THE ASSESSEE FAILED TO PRODUCE ANY OF THE SIX SUPPL IERS TO CONFIRM THE TRANSACTIONS AND THESE SUPPLIERS, BEFORE SALES TAX AUTHORITIES, ADMITTED TO BE INDULGING IN THE ACTIVI TY OF BOGUS BILLING WITHOUT CARRYING OUT ANY ACTUAL SALE OR PURCHASE. A LL THESE FACTORS CAST A SERIOUS DOUBT ON ASSESSEE'S CLAIM. THEREFORE, IN SUCH A SITUATION, THE ADDITION, WHICH COULD BE MADE, WAS T O ACCOUNT FOR PROFIT ELEMENT EMBEDDED IN THESE PURCHASE TRANSACTI ONS TO FACTORIZE FOR PROFIT EARNED BY ASSESSEE AGAINST POS SIBLE PURCHASE OF MATERIAL IN THE GREY MARKET AND UNDUE BENEFIT OF VAT AGAINST SUCH BOGUS PURCHASES. KEEPING IN VIEW THE OVERALL F ACTUAL MATRIX AND GROSS PROFIT RATE OF SEVERAL YEARS, WE ESTIMATE THE ADDITIONS @12.5% OF ALLEGED BOGUS PURCHASES OF RS.61,62,9937- WHICH COMES TO RS.7,70,374/- AND DELETE THE BALANCE ADDIT IONS OF 5 ITA 2622 & 2623/MUM/2016 RS.53,92,619/-. 6. RESULTANTLY, THE ASSESSEE'S APPE AL STANDS PARTLY ALLOWED. 6. FACTS REMAIN UNCHANGED. THEREFORE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO CONSISTENT WITH THE VIEW TAKEN BY THE CO-ORDINATE BENCH, WE DIRECT THE AO TO RESTRICT ADD ITION @ 12.5% ON BOGUS PURCHASES. 7. ANOTHER ISSUE AGITATED BY THE ASSESSEE IS WITH R EGARD TO REOPENING OF ASSESSMENT. THE ASSESSEE HAS CHALLENGED REOPENI NG OF ASSESSMENT ON THE GROUND THAT THE AO HAD NO RIGHT TO REOPEN TH E ASSESSMENT ON THE BASIS OF INFORMATION RECEIVED FROM THIRD PARTIES WI THOUT ARRIVING AT A SATISFACTION ON ESCAPEMENT OF INCOME. THE LD.AR FO R THE ASSESSEE, AT THE TIME OF HEARING SUBMITTED THAT HE DID NOT WANT TO PRESS THE GROUND CHALLENGING REOPENING OF ASSESSMENTS; HENCE, THE GR OUND RELATING TO REOPENING OF ASSESSMENT IS DISMISSED, AS NOT PRESSE D. 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS P ARTLY ALLOWED. ITA NO.2623/MUM/2016 9. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM THIS APPEAL IS ADDITION MADE TOWARDS BOGUS PURCHASES. THE AO MADE ADDITION OF RS.71,54,412 TOWARDS BOGUS PURCHASES. THE LD.AR FO R THE ASSESSEE SUBMITTED THAT THE ITAT, MUMBAI BENCH K IN ITA NO .6230/MUM/2016 FOR AY 2010-11 RESTRICTED ADDITION MADE BY THE AO T OWARDS BOGUS PURCHASES @12.5% ON TOTAL PURCHASES. THIS ISSUE HA S BEEN DECIDED BY 6 ITA 2622 & 2623/MUM/2016 US ABOVE WHILE DEALING WITH APPEAL IN ITA NO.2622/M UM/2016. SINCE THERE IS NO CHANGE IN FACTS AND CIRCUMSTANCES, FOR THE DETAILED REASONS GIVEN THEREIN, WE DIRECT THE AO TO RESTRICT THE ADD ITION TO THE EXTENT OF 12.5% WORKED OUT ON THE TOTAL BOGUS PURCHASES. 10. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS ADHOC DISALLOWANCE OF RS.3,80,674 TOWARDS EXPENSES DEBITE D IN THE P&L ACCOUNT. THE AO DISALLOWED 15% OF EXPENSES CLAIMED UNDER THE HEAD TRAVELLING EXPENSES, CONVEYANCE EXPENSES, OTHER EXP ENSES, FESTIVAL EXPENSES, TELEPHONE EXPENSES AND REPAIRS AND MAINTE NANCE ON THE GROUND THAT THE EXPENSES ARE SUPPORTED BY SELF MADE VOUCHERS WHICH ARE ALSO NOT FOUND TO BE VERIFIED FROM THIRD PARTIE S. THE LD.CIT(A) SCALED DOWN ADHOC DISALLOWANCE FROM 15% TO 10%. THE ASSES SEE FAILED TO BRING ON RECORD ANY EVIDENCE TO JUSTIFY EXPENSES CL AIMED UNDER THOSE HEADS. THEREFORE, WE ARE OF THE CONSIDERED VIEW TH AT THE CIT(A) WAS RIGHT IN RESTRICTING ADHOC DISALLOWANCE @10% TOWARD S EXPENSES. WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE ORDER OF THE CIT(A). HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF THE CIT(A) AND R EJECT GROUND RAISED BY THE ASSESSEE. 11. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. 12. SINCE THE APPEALS OF THE ASSESSEE HAVE BEEN DEC IDED, THE STAY APPLICATIONS FILED BY THE ASSESSEE BECOME INFRUCTUO US AND DISMISSED AS SUCH. WITH REGARD TO SA NO.47/MUM/2018, WE FIND TH AT THIS APPLICATION 7 ITA 2622 & 2623/MUM/2016 PERTAINS TO ASSESSMENT YEAR 2010-11, APPEAL OF WHIC H HAS BEEN DECIDED IN ITA NO.6230/MUM/2016 VIDE ORDER DATED 07-02-2018 . HENCE, THIS STAY APPLICATION ALSO BECOMES INFRUCTUOUS; THEREFOR E, DISMISSED, AS SUCH. 13. AS A RESULT, THE APPEALS FILED BY THE ASSESSEE IN ITA NO.2622 & 2623/MUM/2016 ARE PARTLY ALLOWED AND THE STAY APPL ICATIONS FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST MARCH, 2018. SD/- SD/- (MAHAVIR SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 21 ST MARCH, 2018 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER SR.PS, ITAT, MUMBAI