Income tax Officer, V. M/s. Trinity Steel Profiles Pvt. Ltd, Nashik

ITA 2985/PUN/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 3028 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 29-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase

Judgement Text

SMC IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, PUNE . , BEFORE SHRI D. KARUNAKARA RAO, AM . / ITA NO.2985/PUN/2016 / ASSESSMENT YEAR : 2011-12 ITO, WARD-1(4), NASHIK . /APPELLANT VS. M/S. TRINITY STEEL PROFILES PVT. LTD., PLOT NO. G-32, MIDC, AMBAD, NASHIK 422 010 PAN : AABCT8213G . / RESPONDENT C.O.NO.08/PUN/2017 (ARISING OUT OF ITA NO.2985/PUN/2016) / ASSESSMENT YEAR : 2011-12 M/S. TRINITY STEEL PROFILES PVT. LTD., PLOT NO. G-32, MIDC, AMBAD, NASHIK 422 010 PAN : AABCT8213G . CROSS OBJECTOR VS. ITO, WARD-1(4), NASHIK .APPELLANT IN THE APPEAL / APPELLANT BY : SHRI PANKAJ GARG / RESPONDENT BY : SHRI SANKET JOSHI / DATE OF HEARING : 17.05.2018 / DATE OF PRONOUNCEMENT: 25.05.2018 / ORDER PER D. KARUNAKARA RAO, AM : THE REVENUE FILED THE MAIN APPEAL ITA NO.2985/PUN/2 016 AGAINST THE ORDER OF CIT(A)-1, NASHIK, DATED 05-10-2016 FOR THE A.Y. 2011-12. ASSESSEE ALSO FILED CROSS OBJECTION FOR THE SAME. I SHALL FIRST PROCEED TO ADJUDICATE THE CROSS OBJEC TION FILED BY THE ASSESSEE. ITA NO.2985/PUN/2016 AND C.O. NO.08/PUN/2017 M/S. TRINITY STEEL PROFILES PVT. LTD., 2 C.O.NO.08/PUN/2017 BY ASSESSEE (ARISING OUT OF ITA NO.2985/PUN/2016) 2. GROUNDS RAISED BY THE ASSESSEE IN THE CROSS OBJE CTION READ AS UNDER: THE FOLLOWING GROUNDS ARE TAKEN WITHOUT PREJUDICE TO EACH OTHER - ON FACTS AND IN LAW, 1] THE LD. CIT(A) ERRED IN PARTLY CONFIRMING THE ADDITION MADE BY THE A.O. TOWARDS PURCHASES MADE FROM ALLEGED HAWALA PAR TIES ON THE BASIS OF INFORMATION RECEIVED FROM SALES TAX DEPT. WITHOU T APPRECIATING THAT NO ADDITION WAS WARRANTED ON FACTS OF THE CASE. 2. THE LD.CIT(A) ERRED IN HOLDING THAT THE PROFIT ON PURCHASES MADE FROM ALLEGED HAWALA PARTIES SHOULD BE ESTIMATED @15 % OF SUCH PURCHASES FOR THE REASON THAT THE PROBABILITY THAT THE IMPUGNED PURCHASES COULD HAVE BEEN MADE FROM ANOTHER PARTY C OULD NOT BE DENIED AND THUS, THE INVOICES ISSUED BY ALLEGED HAWALA PAR TIES COULD BE OVER- PRICED/INFLATED. 3. THE LD.CIT(A) FAILED TO APPRECIATE THAT THE AS SESSEE HAD DULY DEMONSTRATED THAT THE PURCHASED MADE FROM THE ALLEG ED HAWALA PARTIES WERE IN FACT AT A RATE LOWER THAN OR EQUAL TO THE P URCHASES MADE FROM OTHER PARTIES WHICH WERE TREATED AS GENUINE BY THE A.O. AND HENCE, THERE WAS NO REASON TO HOLD THAT THE IMPUGNED PURCHASES C OULD HAVE BEEN INFLATED AND THUS, THE ADDITION SUSTAINED IS WITHOU T ANY COGENT BASIS. 4. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT- A. THE PURCHASES MADE BY THE ASSESSEE FROM THE ABOVE P ARTY WERE SUPPORTED BY TAX INVOICES AND OTHER DOCUMENTARY EVI DENCES AND HENCE, THERE WAS NO REASON TO DOUBT THE GENUINENESS OF THE SAID PURCHASES MERELY ON THE BASIS OF UNCORROBORATED STA TEMENT OF SUCH SUPPLIER. B. THE PAYMENTS TO THE SAID PARTY WERE MADE THROUGH BA NKING CHANNEL AND THE A.O. HAD NOT BROUGHT ANY EVIDENCE ON RECORD TO SHOW THAT THE PAYMENTS MADE BY THE ASSESSEE TO THE SAID PARTY WAS WITHDRAWN BY IT AND RETURNED TO THE ASSESSEE IN CASH AND HENCE, IN THE ABSENCE OF ANY CONTRARY EVIDENCE, THERE WAS NO REASON TO DOUBT THE GENUINENESS OF THE PAYMENTS MADE TO THE SAID PARTY. 5. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT A. THE COPIES OF STATEMENTS OF THE ALLEGED HAWALA PART IES RECORDED BY THE SALES TAX DEPT. WERE NOT CONFRONTED TO THE ASSE SSEE AND HENCE, THE ADDITION MADE IN THE CASE OF THE ASSESSEE ON TH E BASIS OF THE SAID STATEMENTS WAS NOT JUSTIFIED IN LAW. B. THE A.O. HAD HIMSELF ADMITTED IN THE ASST. ORDER TH AT HE WAS NOT ABLE TO LOCATE THE ABOVE ALLEGED HAWALA PARTY AND THUS, THE A.O. WAS IN NO POSITION TO GRANT THE OPPORTUNITY OF CROSS EXAMINAT ION OF THIS PARTY TO THE ASSESSEE AND HENCE, IN VIEW OF THE RATIO LAID D OWN BY HONBLE SUPREME COURT IN THE CASE OF ANDAMAN TIMBER INDUSTR IES VS. CCE (CIVIL APPEAL NO.4228/2006 DATED 02-09-2015), THE A DDITION MADE SOLELY ON THE BASIS OF STATEMENT OF SUCH SUPPLIER R ECORDED AT THE BACK OF THE ASSESSEE WAS NOT JUSTIFIED AT ALL. ITA NO.2985/PUN/2016 AND C.O. NO.08/PUN/2017 M/S. TRINITY STEEL PROFILES PVT. LTD., 3 C. AFTER CONSIDERING THE SAME STATEMENT OF THE ALLEGED HAWALA SUPPLIER, THE SALES TAX DEPT. HAD NOT DISPUTED THE FACT THAT THERE HAS BEEN ACTUAL TRANSFER OF GOODS BETWEEN THE ASSESSEE AND T HE SUPPLIER AND HENCE, THE ASSESSEE HAS BEEN MADE LIABLE TO PAY VAT ON SUCH TRANSFER OF GOODS WHICH HAS NOT BEEN DEPOSITED BY T HE SUPPLIER AND THEREFORE, THE INCOME TAX DEPT. IS NOT JUSTIFIED IN RAISING ADDITIONAL TAX LIABILITY ON THE ASSESSEE IN RESPECT OF THESE P URCHASES BY ADOPTING A CONTRARY INTERPRETATION OF THE SAME STATEMENT TO THE EFFECT THAT THERE HAS BEEN NO ACTUAL TRANSFER OF GOODS. 5. WITHOUT PREJUDICE, THE ASSESSEE SUBMITS THAT THE ADDITION MADE BY ESTIMATING PROFIT ON ALLEGED HAWALA PURCHASES @1 5% IS VERY HIGH AND THE SAME MAY BE RESTRICTED TO A REASONABLE LEVEL CO NSIDERING THE FACTS OF THE CASE. 6. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 3. BRIEFLY STATED RELEVANT FACTS ARE THAT ASSESSEE IS A COMPANY AND IS ENGAGED IN THE BUSINESS OF TRADING IN IRON AND STEE L. ASSESSEE FILED THE RETURN OF INCOME ON 28-09-2011 DECLARING TOTAL INCOME OF R S.2,47,148/-. ASSESSEE HAS SHOWN THE NET PROFIT AT 0.43% ON THE GROSS TURNOVER OF RS.2,82,37,173/-. ON THE BASIS OF INFORMATION RECEIVED FROM THE INVESTIG ATION WING OF SALES TAX DEPARTMENT, AO ISSUED NOTICE U/S.148 OF THE ACT TO THE ASSESSEE. AO FOUND THAT ASSESSEE MADE SUSPICIOUS PURCHASES FROM COUPLE OF SUPPLIERS NAMELY, (1) CANZOOM ENTERPRISES AMOUNTING TO RS.17,14,404/- AND (2) SAHARA TRADERS CORPORATION AMOUNTING TO RS.8,58,785/-. EVENTUALLY , AT THE END OF ASSESSMENT PROCEEDINGS U/S.143(3) R.W.S. 147 OF THE ACT, THE A O MADE ADDITION OF ENTIRE SUM OF RS. 25,73,189/- AND HELD THAT THE PURCHASES MADE BY THE ASSESSEE ARE BOGUS ONES. OF COURSE, ASSESSEE FILED PURCHASE BILL S, RELATED BANK TRANSACTION STATEMENTS ETC. TO ASCERTAIN THE FACTS RELATING TO PURCHASES AND THE FACT OF MAKING PAYMENT TO THE SELLERS. 4. IN THE FIRST APPELLATE PROCEEDINGS, THE CIT(A) VIDE HIS CONSOLIDATED ORDER DATED 05-10-2016 FOR A.YRS. 2009-10, 2010-11 AND 2011-12 HELD THAT PROFIT SHOULD BE ESTIMATED AT 15% OF THE TURNOVER. CONTENTS OF PARA NO.6.1 OF ITA NO.2985/PUN/2016 AND C.O. NO.08/PUN/2017 M/S. TRINITY STEEL PROFILES PVT. LTD., 4 THE ORDER OF CIT(A) ARE RELEVANT AND THEREFORE, THE SAME ARE EXTRACTED HERE AS UNDER : 6.1 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E RIVAL CONTENTIONS, THE MATERIAL ON RECORD. IN THE INSTANT CASE, THE INFOR MATION REGARDING HAWALA DEALERS WAS RECEIVED FROM SALES TAX DEPARTMENT. TH E AO AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE HELD THAT PURCHASES MADE FROM HAWALA DEALERS TANTAMOUNT TO BOGUS PURCHASE AND MADE AN ADDITION O F RS.81,48,113/-, RS.1,16,48,157/- & RS.25,73,189/- FOR THE A.YS. 2009 -10, 2010-11 & 2011-12 RESPECTIVELY. HOWEVER, THE ASSESSING OFFICER HAS N OT MADE ANY COMMENTS ON THE QUANTITATIVE DETAILS OF PURCHASE AND SALE FILED BY THE ASSESSEE NOR HE HAS BROUGHT ANY EVIDENCE ON RECORD TO SHOW THAT THE ASS ESSEE HAS RECEIVED CASH IN LIEU OF CHEQUE ISSUED FOR THE PURCHASES. IT IS ALS O AN ESTABLISHED FACT THAT THE ASSESSEE HAS NOT BEEN ABLE TO PRODUCE THE PARTY EIT HER BEFORE AO OR ME. THE WHEREABOUTS OF THE IMPUGNED PURCHASE PARTY IS ALSO NOT KNOWN. IN SUCH CIRCUMSTANCES, THE FACT THAT THE PURCHASES ARE INDE ED MADE FROM THE IMPUGNED PARTIES CANNOT BE VERIFIED. IT IS PLAUSIBLE THAT T HE PURCHASE IS MADE FROM ONE PARTY AND BILLS ARE PROCURED FROM OTHER. HOWEVER, THE FACT THAT NO AVERMENT ON SALE IS MADE CANNOT BE OVERLOOKED. CONSIDERING THE TOTALITY OF FACTS, IN MY VIEW, THIS IS NOT A CASE OF BOGUS PURCHASE BUT RATHER A C ASE OF BOGUS PARTIES. IT IS POSSIBLE THAT ASSESSEE HAS OVER INVOICED HI S PURCHASE TO REDUCE HIS TAXABLE INCOME. IN STEEL MARKET, THIS PHENOMEN ON IS OF COMMON OCCURRENCE. TO MEET THE ENDS OF JUSTICE AND TO OFF SET ANY LEAKAGE OF REVENUE, IN MY CONSIDERED VIEW, THE PROFIT SHOULD BE ESTIMATED AT 15% OF THE TURNOVER IN ALL THE THREE TYPES, I.E. A.Y. 2009-10, 2010-11 & 2011-12. 5. AGGRIEVED WITH THE PART RELIEF GIVEN BY THE CIT( A), ASSESSEE PREFERRED THE PRESENT CROSS OBJECTION BEFORE THE TRIBUNAL WIT H THE GROUNDS EXTRACTED ABOVE. FURTHER, AGGRIEVED WITH THE ORDER OF CIT(A) THE REVENUE HAS ALSO FILED THE APPEAL. 6. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THE ORDER OF THE CIT(A) ADOPTING 15% OF GROSS PROFIT ON THE TURN OVER FOR THE ASSESSMENT YEAR UNDER CONSIDERATION IS ON HIGHER SIDE. HE FUR THER SUBMITTED THAT ASSESSEE HAS ESTABLISHED THE TRAIL OF GOODS AND THE PAYMENTS ARE MADE THROUGH BANKING CHANNELS. IN SUPPORT OF THE SAME, LD. COUNSEL FOR THE ASSESSEE RELYING ON VARIOUS DECISIONS OF PUNE BENCH OF THE TRIBUNAL ON THIS ISSUE PRAYED FOR ADOPTING A REASONABLE PERCENTAGE. ITA NO.2985/PUN/2016 AND C.O. NO.08/PUN/2017 M/S. TRINITY STEEL PROFILES PVT. LTD., 5 7. PER CONTRA, LD. DR FOR THE REVENUE RELIED ON THE ORDER OF AO AND PRAYED FOR CONFIRMING THE ENTIRE ADDITION OF RS.25,73,189/ -. 8. I HEARD BOTH THE SIDES AND PERUSED THE ORDERS OF THE REVENUE AND THE DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSE SSEE. THIS IS A CASE WHERE ASSESSEE IS ALLEGED TO HAVE RESORTED TO BOGUS PURCH ASES AMOUNTING TO RS.25,73,189/- INVOLVING TWO SUPPLIERS. THE AO MAD E ADDITION OF ENTIRE SUCH PURCHASES AS PER THE DISCUSSION GIVEN IN PARA IN PA RA NO.4.4 OF THE ASSESSMENT ORDER. AT THE END OF THE FIRST APPELLATE PROCEEDIN GS, THE CIT(A) ADOPTED 15% OF THE NET PROFIT ON THE TURNOVER AND PARTLY ALLOWE D THE APPEAL OF THE ASSESSEE. THE CIT(A) IN THE LAST LINE OF PARA NO.6.1 OF HIS O RDER HAS ERRONEOUSLY HELD THAT PROFIT SHOULD BE ESTIMATED AT 15% OF THE TURNOVER OF THE ASSESSEE FOR THE YEAR. IN OTHER WORDS, CIT(A) TREATED THE ENTIRE TURNOVER AS BOGUS AND IN EFFECT, CIT(A) REJECTED THE BOOK RESULTS. THIS DEC ISION OF CIT(A) HAS THE EFFECT OF ENHANCEMENT OF THE ASSESSMENT. CIT(A) SHOULD DO THE SAME ONLY AFTER ISSUING SHOW CAUSE NOTICE, WHICH WAS NOT ISSUED AT ALL. THEREFORE, THE LANGUAGE USED IN THE ORDER OF CIT(A) IS ERRONEOUS A ND THE SAME NEEDS TO UNDERSTOOD TO RESTRICT TO THE ALLEGED BOGUS PURCHAS E OF RS.25,73,189/- ONLY. THEREFORE, IN THE CROSS OBJECTION, FILED BY THE ASS ESSEE, IN GROUND NO.2, ASSESSEE MADE CORRECTIONS TO THE CONCLUSION OF THE CIT(A) ON THIS ISSUE AND SUBMITTED THAT PROFIT RATE OF 15% ON THE BOGUS PURC HASES IS ON THE HIGHER SIDE. IN ANY CASE, APPLYING NET PROFIT RATE OF 15% TO THE ENTIRE TURNOVER WHICH INCLUDES THE ACCOUNTED TURNOVER IS UNSUSTAINABLE, I N PRINCIPLE. THEREFORE, ON THE AMENDED CONCLUSION OF RESTRICTING THE ADDITION TO 15% OF SUCH BOGUS PURCHASES ONLY, I PROCEED TO ADJUDICA TE THE ISSUE. AS SUCH, MAKING ENTIRE ADDITION OF RS.25,73,189/- IS NOT APP ROVED AT ALL BY THE PUNE BENCH OF THE TRIBUNAL IN VARIOUS CASES WHERE THE AS SESSEE IS NOT FOUND FAULT ITA NO.2985/PUN/2016 AND C.O. NO.08/PUN/2017 M/S. TRINITY STEEL PROFILES PVT. LTD., 6 WITH THE MATTERS RELATING TO TRAIL OF GOODS, BANK P AYMENTS, ETC. IN THIS CASE, THE ASSESSEE FURNISHED ALL THE DOCUMENTS REQUIRED F OR EVIDENCING THE PURCHASES, PAYMENTS FOR PURCHASE OF THE GOODS, ETC. OF COURSE, IT IS TRUE THAT THE SAID DOCUMENTS WERE SUSPECTED BY THE AUTHORITI ES. CONSIDERING THE SAME, I AM OF THE OPINION THAT THE NET PROFIT RATE OF 15% ADOPTED BY THE CIT(A) AS CONTESTED BY THE ASSESSEE IS ON HIGHER SIDE. 9. FURTHER, I FIND THAT SIMILAR ISSUE OF BOGUS PURC HASES HAS BEEN DECIDED BY THE TRIBUNAL IN SERIES OF DECISIONS. I FIND THE CO ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF MR. KHAN AFZALHUSSAIN MOHD. SAIE VS. DCIT ITA NOS. 2708 AND 2709/PUN/2016, DATED 23-03-2018 CONFIRMING THE ADDI TION TO ONLY 10% OF SUCH ALLEGED BOGUS PURCHASES APPLY TO THE FACTS OF THIS CASE. I THEREFORE, FIND IT TO RELEVANT TO EXTRACT THE FINDINGS GIVEN BY THE TR IBUNAL IN PARA NO.11 OF ORDER OF TRIBUNAL HERE AS UNDER : 11. NOW, COMING TO THE MERITS OF ADDITION. THE IS SUE RAISED IN THE PRESENT APPEAL IS AGAINST BOGUS PURCHASES. WE HAVE ALREADY ADJUDICATED SIMILAR ISSUE IN SERIES OF DECISIONS WITH LEAD ORDER IN M/S. CHHA BI ELECTRICALS PVT. LTD. VS. DCIT IN ITA NO.795/PUN/2014, RELATING TO ASSESSMENT YEAR 2010-11, ORDER DATED 28.04.2017. THE ASSESSEE IN THE FIRST YEAR I .E. ASSESSMENT YEAR 2009-10 HAS MAINTAINED QUANTITATIVE DETAILS. IN OTHER WORD S, IT HAS THE EVIDENCE OF PURCHASING GOODS AND ITS SALES. IN SUCH CIRCUMSTAN CES, AT BEST, HIGHER GROSS PROFIT RATE CAN BE APPLIED. FOLLOWING OUR DECISION IN EARLIER ORDERS, WE HOLD THAT GP RATE OF 10% OVER AND ABOVE GP DECLARED BY T HE ASSESSEE IN ITS BOOKS OF ACCOUNT, BE APPLIED TO WORK OUT THE ADDITI ONAL INCOME IN THE HANDS OF ASSESSEE. THE GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS THUS, PARTLY ALLOWED. CONSIDERING THE SAME, I DIRECT THE ASSESSING OFFICE R TO MAKE ADDITION IN THE HANDS OF ASSESSEE BY ADOPTING GP RATE AT 10% OF BOGUS PURCHASES ONLY MADE BY THE ASSESSEE. CONSEQUENTLY, REST OF THE G ROUNDS/ARGUMENTS RAISED BY THE ASSESSEE IN THE CROSS OBJECTION ARE DISMISSED. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. 10. IN THE RESULT, THE CROSS OBJECTION OF THE ASSES SEE IS PARTLY ALLOWED. ITA NO.2985/PUN/2016 AND C.O. NO.08/PUN/2017 M/S. TRINITY STEEL PROFILES PVT. LTD., 7 ITA NO.2985/PUN/2016 BY REVENUE 11. IN THIS APPEAL, THE REVENUE CONTENDS THAT THE E NTIRE ADDITION OF RS.25,73,189/- NEEDS TO BE CONFIRMED. THIS APPROAC H OF THE REVENUE IS NOT APPROVED BY THE TRIBUNAL. CONSEQUENTLY THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. 13. TO SUM UP, THE CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 25 TH DAY OF MAY, 2018. SD/- (D.KARUNAKARA RAO) / ACCOUNTANT MEMBER / PUNE; DATED : 25 TH MAY, 2018. SATISH / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A) - 1, NASHIK 4. / THE CIT - 1, NASHIK 5. , , SMC / DR SMC, ITAT, PUNE; 6. / GUARD FILE. / BY ORDER, //TRUE COPY// SENIOR PRIVATE SECRETARY , / ITAT, PUNE