Assistant Commissioner of Income-tax, V. M/s. Ovac Switchgear Services Pvt. Ltd., Nashik

ITA 300/PUN/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9262 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 29-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUKESH JHA
• Keywords: Bogus purchase; Principle of natural justice

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE . . . . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO. 300/PUN/2016 / ASSESSMENT YEAR : 2010-11 ACIT, CIRCLE - 2, NASHIK . / APPELLANT V/S M/S. OVAC SWITCHGEAR SERVICES PVT. LTD., W-153A, MIDC, AMBAD, NASHIK 422 010 PAN : AAACO2640K . / RESPONDENT ASSESSEE BY : SHRI KISHORE PHADKE REVENUE BY : SHRI MUKESH JHA, JCIT / ORDER PER D. KARUNAKARA RAO, AM : THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF CIT(A)-2, NASHIK DATED 31-12-2015 FOR THE ASSESSMENT YEAR 201 0-11. 2. GROUNDS RAISED BY THE REVENUE ARE EXTRACTED AS U NDER : 1 . ON THE FACTS AND THE C I RCUMSTANCES OF THE CASE, THE DECISION OF THE ID. CIT(A)-2 , NASHIK IS ERRONEOUS , SINCE THE ASSESSEE HAS ACCEPTED I N PRINCIPLE THAT PURCHASES OF RS.50,96,195/- ARE BOGUS AND THER EBY OFFERED FOR ADDITION OF 4% OF THE PURCHASES ON ACCOUNT OF BOGUS BILLS DE BITED TO THE ACCOUNT (REFERENCE PARA 11 OF THE CIT(A)-2, NASHIK ' S IMPUGNED ORDER DATED 31.12.2015). (T.E. IN THIS CASE IS RS.14,17 , 253/- WHICH IS EXCLUSIVELY ON THE ISSUE OF NON-GENUINE PURCHASES - HAWALA ). 2 . THE LD . CIT(A)-2 , NASHIK WAS NOT JUSTIFIED IN OBSERVING THAT AFTER REMOVING THE IMPUGNED PURPOSE , THE GROSS PROFIT WOULD RISE TO 12 . 27% WITHOUT GIV I NG ANY BASIS AS WHAT WOULD BE THE CORRECT PERCENTAG E OF THE GROSS PROFIT OF SUCH BUSINESSES . THE LD . CIT(A) HAS ERRED IN IMPOSING THE CORRECT MARGIN OF 10% OF THE IMPUGNED PURCHASES TO BE ADDED TO THE INCOME WITHOUT INCLUDING I NITIAL CAPITAL EMPLOYED THE PEAK I NVESTMENT AND CONSIDERING THE TURNOVER CYCLE . / DATE OF HEARING :06.07.2017 / DATE OF PRONOUNCEMENT: 07.07.2017 2 ITA NO.300/PUN/2016 3 . WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT(A) WAS JUSTIFIED IN DELETING THE PURCHASES TREATED AS BOGU S WHEN THE APPELLANT HAD NOT BEEN ABLE TO PRODUCE THE CERTAIN PARTIES FROM W HOM PURCHASES WERE MADE WHEN LETTER SENT TO THE PARTIES WERE RETURN UN DELIVERED OR THE PARTIES DID NOT RESPOND? 4 . WHETHER THE LD. CIT(A) ERRED IN ASSUMING THAT THE P URCHASES WERE ONLY INFLATED WHEN IT WAS CLEAR FROM THE CONDUCT OF THE ASSESSEE, THE PARTIES FOUND MISSING AND RESULT OF THE INVESTIGATION OF AN OTHER GOVT. DEPARTMENT (SALES TAX), THAT THE PURCHASES COULD NOT BE PROVED AS GENUINE AND THEREFORE THE DISALLOWANCE BY THE AO WAS JUSTIFIED? 5. WHETHER THE LD. CIT(A) ERRED IN PRESUMING THAT S IMPLY BECAUSE NO ADDITION WAS MADE IN CASE OF SALES, IT WAS ACCEPTED AS GENUINE AND FURTHER ASSUMING THAT THEREBY PURCHASES SHOULD BE GENUINE? 6. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. C IT(A)-2, NASHIK MAY PLEASE BE CANCELLED AND THE ORDER OF ASSESSING OFFI CE MAY PLEASE BE RESTORED . 3. BRIEFLY STATED RELEVANT FACTS ARE THAT THE ASSES SEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF TRADING, REPAIRS AND SERVICES OF SWITCHGEAR PRODUCT AND EXECUTION OF WORKS CONTRACT. ASSESSEE FILED THE RETURN OF INCOME ON 30-09-2010 DECLARING TOTAL INCOME OF RS.46,22,62 0/-. BASED ON THE INFORMATION RECEIVED FROM THE MAHARASHTRA SALES TAX DEPARTMENT, AO CAME TO KNOW THAT ASSESSEE MADE PURCHASES FROM VARIOUS PAR TIES AMOUNTING TO RS.50,96,195/-. IN THE ASSESSMENT PROCEEDINGS, NOT ICES U/S.133(6) WERE SENT TO THE PARTIES FROM WHOM THE ASSESSEE MADE PURCHASES, HOWEVER, THEY WERE RETURNED BACK UNSERVED. A SHOW CAUSE NOTICE WAS IS SUED TO THE ASSESSEE ON 07-10-2014 TO PROVE THE GENUINENESS OF THE PURCHASE S MADE. ASSESSEE SUBMITTED COPIES OF INVOICES, DELIVERY CHALLANS, BA NK STATEMENT SHOWING PAYMENT BY CHEQUES, STATEMENT SHOWING SALES FROM TH E PARTIES ETC., AO ISSUED NOTICE U/S.148 ON 28-11-2013 FOR REOPENING THE ASSE SSMENT. ASSESSEE SUBMITTED HIS REPLY STATING THAT THE RETURN FILED O RIGINALLY MAY BE TREATED AS THE RETURN FILED IN RESPONSE TO NOTICE U/S.148 OF THE A CT. HOWEVER, AO REJECTED THE CLAIM OF THE ASSESSEE STATING THAT ASSESSEE COULD N OT ESTABLISH GENUINENESS OF THE PURCHASES, FAILED TO PRODUCE THE RELEVANT PARTI ES, FAILED TO PROVIDE ADDRESSES OF THE PARTIES AND HENCE COULD NOT DISCHARGE THE ON US CAST ON HIM. ACCORDINGLY, 3 ITA NO.300/PUN/2016 AO DISALLOWED RS.50,96,195/- AS NON-GENUINE PURCHAS ES AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4. ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). CIT (A) PARTLY ALLOWED THE CLAIM OF THE ASSESSEE RESTRICTING THE DISALLOWANCE TO RS.5,09,620/- (10% OF RS.50,96,195/-) AND DELETED THE ADDITION TO THE EXT ENT OF RS.45,86,575/-. WHILE DOING SO, CIT(A) AFTER CONSIDERING THE JUDGEMENT OF BOMBAY HIGH COURT JUDGMENT IN THE CASE OF NIKUNJ EXIMP ENTERPRISES PV T. LTD. VS. CIT 216 TAXMANN 171 (BOM,) (MAG.) AND VARIOUS DECISIONS OF THE MUMBAI BENCH OF THE TRIBUNAL ON THE ISSUE HELD THAT THE AO IS NOT J USTIFIED IN MAKING SUCH DISALLOWANCE SINCE THE AO NEITHER SUPPLIED THE SAID STATEMENTS OF THE PARTIES NOR ALLOWED CROSS EXAMINATION OF THE DEPONENTS. 5. BEING AGGRIEVED WITH THE ORDER OF CIT(A) THE REV ENUE IS IN APPEAL BEFORE US WITH THE GROUNDS EXTRACTED ABOVE. 6. AFTER HEARING BOTH THE SIDES AND PERUSING THE ORDER OF THE REVENUE, WE FIND THE AO HAS NEITHER SUPPLIED THE STATEMENTS OF THE SUPPLIERS NOR ALLOWED CROSS EXAMINATION OF THE SUPPLIERS, DESPITE THE REQUEST OF THE ASSESSEE VIDE ITS LETTER DT.21-10-2014. AO IS SIL ENT ON THE REQUEST OF THE ASSESSEE IN HIS ASSESSMENT AND THE EVIDENCES OF THE SUPPLIERS WERE USED AGAINST THE ASSESSEE DEPRIVING THE OPPORTUNITY OF C ROSS EXAMINATION. IT IS SETTLED LEGAL POSITION THAT MAKING ADDITION OF ENTI RE BOGUS PURCHASES IS NOT SUSTAINABLE WHEN THE SALES ACCOUNT OF THE ASSESSEE STANDS UNDISTURBED. IT IS RELEVANT TO MENTION THAT MAKING OF ADDITION ON ENTI RE BOGUS PURCHASES WAS NOT APPRECIATED IN THE JUDGMENT/ORDERS RELIED ON BY THE LD.CIT(A). LD.CIT(A) IN HIS ELABORATE DISCUSSION GIVEN IN PARA 6 HAS CONSIDERED THE SUBMISSIONS OF THE ASSESSEE IN DETAIL AND THE SET P RINCIPLES OF NATURAL JUSTICE ON THE SOLITARY ISSUE OF BOGUS PURCHASES, AS PER LA W. IT IS A SETTLED LEGAL PROPOSITION THAT MAKING ADDITION OF ENTIRE SUSPECTE D PURCHASES IS 4 ITA NO.300/PUN/2016 UNSUSTAINABLE. CIT(A) HAS RIGHTLY RESTRICTED ADDIT ION TO 10% OF THE SAID PURCHASES. WE, THEREFORE, ARE OF THE VIEW THAT THE FINDING GIVEN BY THE CIT(A) IS REASONABLE AND DO NOT CALL FOR ANY ADVERS E INFERENCE AGAINST THE ORDER OF CIT(A). ACCORDINGLY, THE GROUNDS RAISED B Y THE REVENUE ARE DISMISSED. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 07 TH DAY OF JULY, 2017. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE; DATED : 07 TH JULY, 2017. / COPY OF THE ORDER FORWARDED TO : / BY ORDER , // TRUE COPY // //TRUE COPY// /ASSISTANT REGISTRAR , / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A) - 2, NASHIK 4. THE CIT - 2, NASHIK 5 . DR, ITAT, A BENCH PUNE; 6 . / GUARD FILE.