ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-4, MUMBAI V. KUNDAN INDUSTRIES LIMITED, MUMBAI

ITA 302/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3393 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2010-2011
• Appeal Filed On: 12-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Depreciation; Wrong claim
• Section: 271(1)(c); 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER AND ITA NO.302/MUM/2018 ASSESSMENT YEAR-2010-11 ACIT, CIRCLE-4, ROOM NO.02, A-WING, 6 TH FLOOR, ASHAR IT PARK, WAGLE INDUSTRIAL ESTATE, ROAD NO.16-Z, THANE (W)-400604 / VS. M/S KUNDAN INDUSTRIES LTD. KUNDAN HOUSE,GORAIPADA, VASAI (E), DIST-PALGHAR PAN NO. AAACK6811G ( / REVENUE) ( / ASSESSEE) / REVENUE BY SHRI MANOJ KUMAR SINGH / ASSESSEE BY SHRI K. GOPAL / DATE OF HEARING : 24/04/2019 / DATE OF ORDER: 26/04/2019 / O R D E R PER SHAMIM YAHYA, ACCOUNTANT MEMBER THIS APPEAL BY THE REVENUE DIRECTED AGAINST ORDER'S OF LEARNED CIT(A)-3, THANE, DATED 24/10/2017 AND PERTAINS TO ASSESSMENT YEAR 2010-11. THE GROUNDS OF APPEAL READ S AS UNDER:- 1. WHETHER ON THE FACT AND CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) FAILED TO CONSIDER THE FACT THAT THE ASS ESSEE WRONGFULLY ADJUSTED PROFIT ON SALE OF OFFICE BUILDI NG WITH THAT OF LOSS ON SALE OF VEHICLE, WHICH SHALL DEEMED TO R EPRESENT THE INCOME IN RESPECT OF WHICH INACCURATE PARTICULARS H AVE BEEN FILED. ITA NO.302/MUM/2018, KUNDAN INFRASTRUCTURE LD. 2 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) FAILED TO CONSIDER THE FACT THAT BOGUS P URCHASES WHICH WAS LIMITED TO THE EXTENT TO @ 15% OF GROSS P URCHASES BY LD. CIT(A), SHALL DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH INACCURATE PARTICULARS HAVE BEEN FILED. 3. THE ORDER OF THE CIT(A)-3, THANE SHOULD BE SET-A SIDE AND THAT OF THE A.O. SHOULD BE RESTORED. 2. THE BRIEF FACTS OF THE CASE LEADING TO THE LEVY OF PENALTY AND THE DELETION THEREOF BY THE LEARNED CIT(A) ARE AS UNDER: THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF STEEL FASTENERS I.E. NUTS, BOLTS, PLA TES ETC. UNDER THE BRAND NAME 'KUN'. THE ASSESSEE HAS FILED I TS RETURN OF INCOME ON 07/10/2010 DECLARING TOTAL INCOME OF RS.3,73,87,220/-. THE CASE WAS SELECTED FOR SCRUTINY AS PER SCRUTINY GUIDELINES ISSUED FOR A.Y. 201112. DURING THE COURS E OF ASSESSMENT PROCEEDINGS, THE THEN AO MADE THE FOLLOWING ADDITIONS/ DISALLOWANCES: ON ACCOUNT OF INTEREST U/S 36(1)(III) AND 37 OF RS. 19,58,059/-. PROFIT ON SALE OF FLAT AT 501, PRATAP ENCLAVE, GOREGAON (W), MUMBAI COMPUTED AT RS.54,06,348/- WAS ADDED TO THE RETURNED INCOME AND TAXED AS STCG U/S 50 OF THE IT ACT. IN THIS CASE, THE ASSESSEE HAS MADE ADJUSTMENT OF PROFIT AN D LOSS ON SALE OF PREMISES WITH LOSS INCURRED ON ACCOUNT OF SALE OF CARS. THEREFORE, IN THE INSTANT CASE, ALTHOUGH THE RATE OF DEPRECIATION WAS 10/O FOR OFFICE BUILDING (FLATS) AN D VEHICLES, THEY DID NOT BELONG TO THE SAME CLASS OF ASSETS AND THER EFORE INTERCLASS SET OFF OF PROFIT AND LOSS WAS NOT ALLOWABLE . THE A.R. ADMITTED THE LAPSE ON HIS PART WHICH WAS DUE TO AN ERRON EOUS UNDERSTANDING OF THE CONCEPT OF BLOCK OF ASSETS AND AG REED TO THE ADDITION OF SHORT TERM CAPITAL GAIN ON SALE OF FLATS . PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE I T ACT WAS INITIATED FOR FURNISHING INACCURATE PARTICULARS OF INCOME. DURING THE ASSESSMENT PROCEEDINGS, FROM THE SUBMISSION OF THE ASSESSEEE COMPANY, IT WAS FOUND BY THE THEN AO THAT ASSESSEE COMPANY HAD MADE PURCHASES AMOUNTING TO RS.2,96,38,387/- FROM THE 17 PARTIES. AS, THE ITA NO.302/MUM/2018, KUNDAN INFRASTRUCTURE LD. 3 ASSESSEE HAD NOT BEEN ABLE TO LEAD ANY EVIDENCE TO SHO W THE GENUINENESS OF THE SO-CALLED PURCHASES OF CONSUMABLE S/STORES, IT WAS CONCLUDED THAT THE SAID AMOUNT OF RS.2,96,38,387/- DEBITED IN THE ACCOUNTS ON THE BASI S OF ACCOMMODATION BILLS/HAWALAS OBTAINED FROM THESE 17 BOG US SUPPLIERS, WERE UNEXPLAINED AND BOGUS PURCHASES. PE NALTY PROCEEDINGS U/S. 271(1)(C) OF THE IT ACT WAS INITIATE D FOR FURNISHING INACCURATE PARTICULARS OF INCOME. THE ASSESSEE COMPANY HAD FILED AN APPEAL BEFORE THE LD. CIT(A)-II, THANE AGAINST THE ORDER PASSED U/S 143(3) ON 28/03/2013. HENCE, THE PENAL PROCEEDINGS INITIATED U/ S 271(1)(C) OF THE ACT VIDE NOTICE DATED 28/03/2013 WER E KEPT IN ABEYANCE TILL THE DISPOSAL OF FIRST APPEAL. THE LD. CIT(A)-3, THANE HAS PASSED AN ORDER DATED 19/10/2015. THE CIT(A) HAS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE COMPANY AND STATED IN PARA 6 OF THE ORDER THAT 'DURING THE APPELLATE PROCEEDINGS, THE AR OF THE APPELL ANT HAD AGREED TO WITHDRAW THIS GROUND AND HAD GIVEN IN WRITI NG, VIDE LETTER DATED 09.10.2015; THEREFORE, THE DISALLOWANCE O F INTEREST PAID OF RS. 19,58,0591- BY THE THEN AO WAS CONFIRMED AND THE ASSESSEE GROUND OF APPEAL ON THIS ISSUE WAS DISMISSE D.' CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE AN D ALSO VARIOUS COURTS HAD UP HELD THE DISALLOWANCE ON SUCH PURCHASES FROM 12.5 % TO 25%, THEREFORE, I WAS OF THE CONSIDERED OPINION TO DISALLOW 15% AS INFLATED PURCHA SES ON THE TOTAL PURCHASES MADE FROM UNVERIFIABLE PARTIES. THE PURCHASES MADE FROM M/S. AMI TRADERS OF RS. 14,12,4 381- WAS ADDED AS BOGUS PURCHASES BECAUSE THEY HAD DENIED HAVING ANY TRANSACTION WITH THE ASSESSEE IN REPLY TO NO TICE ISSUED U/S. 133(6) OF THE ACT. THEREFORE, THE DISALLOW ANCE @ 15% WOULD BE ON RS.(2,96,38,387- 14,12,438)= 2,82,2 5,949/- IN VIEW OF THE ABOVE STATED FACTS, THE DISALLOWANCE @ 1 5% OF RS. RS. 2,82,25,94 9/ - WORKS OUT TO RS. 42,33,8921 - WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE PLUS RS. 14,12 ,438 = RS.56,46,3301 -THE APPELLANT GET RELIEF OFRS. (2,82,2 5,949- 42,33,892) = 2,39,92,057/-.' FURTHER AS PER PARA 8 OF THE APPEAL ORDER DATED 19/10 /2015, THE LD. CIT(A)-3, THANE HAS STATED THAT 'DURING THE APPE LLATE PROCEEDINGS, THE AR OF THE APPELLANT HAS AGREED TO WITH DRAW ITA NO.302/MUM/2018, KUNDAN INFRASTRUCTURE LD. 4 THIS GROUND AND HAD GIVEN IN WRITING, VIDE LETTER DATE D 09.10.2015. THEREFORE, THE ADDITION MADE ON ACCOUNT OF SHORT TERM CAPITAL GAIN ON SALE OF FLAT OF RS. 54,06,348/- BY THE THEN AO WAS CONFIRMED.' THEREAFTER, AO AFTER GIVING OPPORTUNITY TO ASSESSEE & CONSIDERING THE SUBMISSION OF THE AR OF THE ASSESSE, H AS LEVIED THE PENALTY OF RS. 32,76,718/- U/S 271(1)(C) OF THE ACT ON ACCOUNT OF ADDITIONS OF SHORT TERM CAPITAL GAIN OF RS.54,06,348/-, UNEXPLAINED AND BOGUS PURCHASES TO E XTENT OF RS.56,46,330/- FOR AY 2010-11 ON 31.03.2017. AGGRIEVED BY THE PENALTY ORDER, THE ASSESSEE HAS FIL ED AN APPEAL BEFORE THE LD. CIT(A)-3,THANE ON 02.05.2017, WHEREIN IT WAS HELD BY THE CIT(A) THAT ON THE ENTIRE ADDITION OF BOGUS PURCHASES MADE BY THE AO, THE CIT(A) HAS RESTRICTED THE DISALLOWANCE BY ESTIMATING @ 15% OF THE TOTAL BOGUS PURC HASES IN QUANTUM APPEAL, VIDE APPEAL NUMBER 256-THN/13-14 DATED 19.10.2015. THEREFORE CONSIDERING THE VARIOUS TRIBUNAL'S DECISION, IT WAS HELD THAT NO PENALTY CAN BE LEVIED IN A CASE WHERE ASSESSEE HAS MADE PURCHASES FROM HAWALA PARTIE S THOUGH THE QUANTUM APPEAL HAS BEEN CONFIRMED & THUS PENALTY ON ACCOUNT OF BOGUS ADDITION WAS ALLOWED TO THE ASSESSEE. ON THE ISSUE OF PROFIT ON SALE OF PREMISES , THE LD. CIT(A).-3, THANE HAS HELD THAT THE PROFIT ON ACCOUNT O F SALE OF PREMISES IS ALREADY REFLECTED IN THE DEPRECIATION CHA RT AS WELL AS IN COMPUTATION OF INCOME FILED WITH THE RETURN OF IN COME. THEREFORE, IT IS NOT A FALSE CLAIM BUT IT IS A WRONG C LAIM MADE BY THE APPELLANT, THEREFORE, IN SUCH A SITUATION PENAL TY IS NOT ATTRACTED. 3. THE ORDER OF LEARNED CIT-A DELETING THE PENALTY MAY BE GAINFULLY REFERRED AS UNDER ON THE ENTIRE ADDITION OF BOGUS PURCHASES MADE BY THE AO, THE UNDERSIGNED HAS RESTRICTED THE DISALLOWANCE BY ESTI MATING 15% OF THE TOTAL BOGUS PURCHASES IN QUANTUM APPEAL, VIDE APPEA L NUMBER:256- THN/13-14 DATED 19.10.2015. AFTER CONSIDERING THE A BOVE STATED FACTS, I AM OF CONSIDERED VIEW THAT IT IS NOT A FIT CASE TO LEVY PENALTY AS THE ADDITION CONFIRMED WAS MADE ON ESTIMATED BASIS TO T HE EXTENT 15% OF THE TOTAL PURCHASES MADE FROM UNVERIFIABLE SUPPLIER AND THIS FACT HAS BEEN SUPPORTED BY THE VARIOUS JUDICIAL PRONOUNCEMEN TS- A) IN THIS REGARD, THE HON'BLE AHMEDABAD ITAT IN TH E CASE OF BIDIWALA BROTHERS VS. ITO IN ITA NO.2451 & 2452/AHD/2012 HAS HELD THAT, NO ITA NO.302/MUM/2018, KUNDAN INFRASTRUCTURE LD. 5 PENALTY U/S.271(1)(C) FOR FURNISHING INACCURATE PAR TICULARS OF INCOME CAN BE LEVIED WHEN ADDITIONS IN RESPECT OF ALLEGED BOGU S PURCHASES WERE MADE ONLY ON ESTIMATED BASIS. B) ON SIMILAR FACTS, IN THE CASE OF M/S.RUCHI DEVEL OPER VS. ITO (2015) ITA NO.1170/AHD/2014 ORDER DATED 05.06.2015 HAS HEL D THAT THE PARTIES FROM WHOM PURCHASES WERE MADE IS REPORTED TO BE LEF T BY THE POSTAL AUTHORITIES. THIS REASON MAY BE SUFFICIENT TO SUSTA IN THE ADDITION, BUT IN OUR CONSIDERED VIEW, THIS BASIS IS NOT SUFFICIENT T O CONFIRM THE PENALTY IN VIEW OF AHMEDABAD TRIBUNAL IN CASE OF MANISH ORGANI CS (ITA NO.2155/AHD/2010) AND ALSO GUJARAT HIGH COURT IN NA TIONAL TEXTILES 249 ITR 125. C) ON SIMILAR FACTS, THE HONBLE MUMBAI TRIBUNAL IN THE CASE OF CHEMPURE VS. ITO IN ITA NO.451,452, & 453 /MUM/2006 A.YS. 1996-97, 1997-98 & 1998- 99 ORDER DATED 07.05.2010 HAS HELD THAT NO PENALTY CAN BE LEVIED IN A CASE WHERE ASSESSEE HAS MADE PUR CHASES FROM HAWALA PARTIES EVEN THOUGH THE QUANTUM APPEAL HAS B EEN CONFIRMED. IN VIEW OF THE ABOVE STATED FACTS AND LEGAL DECISIO NS, THE PENALTY IMPOSED BY THE AO IS NOT JUSTIFIED AND ACCORDINGLY, DELETED. THE APPEAL OF THE APPELLANT ON THIS GROUND IS ALLOWED. D) PROFIT ON SALE OF PREMISES:- REGARDING THE ADDITION MADE ON ACCOUNT OF CAPITAL G AIN ON SALE OF PREMISES OF RS.54,46,330/-, THE PROFIT ON SALE OF P REMISES IS ALREADY REFLECTED IN THE DEPRECIATION CHART AS WELL AS IN C OMPUTATION OF INCOME FILED WITH THE RETURN OF INCOME. THEREFORE, IT IS N OT A FALSE CLAIM BUT IT IS A WRONG CLAIM MADE BY THE APPELLANT, THEREFORE, IN SU CH A SITUATION PENALTY IS NOT ATTRACTED. IN SUPPORT OF HIS EXPLANATION, TH E APPELLANT HAS PLACED RELIANCE IN THE CASE OF BUILDBYTE.COM VS. ACIT OF M UMBAI BENCH REPORTED IN ITA NO.7350/MUM/2013 A.Y.2002-03 ORDER DATED 13.09.2017, WHICH IS SQUARELY APPLICABLE IN THE CAS E OF APPELLANT. FURTHER, THE APPELLANT HAS ALSO RELIED UPON ON VARI OUS JUDICIAL PRONOUNCEMENTS VIZ, HLS ASIA LTD. VS. ACIT CIR 12(1 ), NEW DELHI REPORTED IN ITA NO.483/DEL./2012 A.Y.2001-02 ORDER DATED 22.06.2012; A.H.WHEELERS & CO.(P) LTD. REPORTED IN (2011) 12 TA XMANN.COM 358 (ALL- ITAT); CIT VS. CAPLIN POINT LABORATORIES LTD. REPOR TED IN (2007) 293 ITR 0524 IN VIEW OF THE ABOVE FACTS, THE APPEAL OF THE APPEL LANT ON THIS GROUND IS ALLOWED AND PENALTY IMPOSED BY THE AO IS DELETED. 4. AGAINST ABOVE ORDER REVENUE IS IN APPEAL BEFORE US. 5. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT LEARNED CIT(A) HAS CORRECTLY DELETED THE ADDITION. HE SUBMI TTED THAT ADDITION ON ACCOUNT OF BOGUS PURCHASE WAS SOLELY DO NE ON ITA NO.302/MUM/2018, KUNDAN INFRASTRUCTURE LD. 6 ACCOUNT OF ESTIMATE BASIS, JUST BECAUSE ASSESSEE WA S NOT IN A POSITION TO PRODUCE THE SELLERS. IN THESE CIRCUMSTA NCES HE PLEADED THAT THERE CANNOT BE ANY CASE OF FURNISHING OF INACCURATE PARTICULARS OF INCOME OR CONCEALMENT OF INCOME. AS REGARDS THE ISSUE OF WRONG BOOKING OF PROJECT ON SA LE OF PREMISES, WITH ADJUSTMENT FOR LOSS ON SALE OF CAR. LEARNED COUNSEL SUBMITTED THAT ALL THE MATERIALS WERE DISCL OSED. IT WAS ONLY INADVERTENT ERROR ON THE PART OF THE ASSESSEE TO MAKE THE WRONG TREATMENT IN THE BOOKS OF ACCOUNT. HE SUBMITT ED THAT ON THIS ISSUE ALSO THERE IS NO CASE OF CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. HENCE LEARNED COU NSEL PLEADED THAT LEARNED CIT(A) HAS RIGHTLY DELETED THE PENALTY. 6. LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER'S OF THE ASSESSING OFFICER 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSION PERU SED THE RECORDS .UP ON CAREFUL CONSIDERATION WE FIND THAT L EARNED CIT-A HAS PASSED A REASONABLE ORDER. AS REGARDS THE PENAL TY ON ACCOUNT OF BOGUS PURCHASE, WE NOTE THAT THE ADDITIO N WAS MADE IN AN AD HOC MANNER ON ESTIMATED BASIS SOLELY ON TH E GROUND THAT ASSESSEE WAS NOT IN A POSITION TO PRODUCE THE SELLERS. THE SALES ARE NOT DOUBTED. IN THESE CIRCUMSTANCES IN OU R ITA NO.302/MUM/2018, KUNDAN INFRASTRUCTURE LD. 7 CONSIDERED OPINION THERE IS NO INFIRMITY IN THE ORD ER OF LEARNED CIT(A) DELETED THE PENALTY. 8. AS REGARDS THE DELETION OF PENALTY ON ACCOUNT OF WRONGFULLY ADJUSTMENT OF GAIN ON PREMISES SALE WITH LOSS ON SALE OF CAR, WE FIND THAT ON THIS ISSUE ALSO ALL TH E NECESSARY PARTICULARS WERE DULY DISCLOSED BY THE ASSESSEE. IT WAS UP ON EXAMINATION OF THOSE PARTICULARS ONLY THAT THE ASSE SSING OFFICER MADE THE ADDITIONS. THE ASSESSEE ALSO HAS ACCEPTED THE SAME THAT THERE HAS BEEN INADVERTENT ERROR IN THE TREATM ENT IN ACCOUNTING. IN THESE CIRCUMSTANCES, IN OUR CONSIDER ED OPINION THE ASSESSEE'S CONDUCT IS NOT CONTUMACIOUS SO AS TO WARRANT LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. 9. IN THESE CIRCUMSTANCES, IN OUR CONSIDERED OPINI ON, THERE IS NO INFIRMITY IN THE REASONABLE ORDER PASSED BY T HE LEARNED CIT(A) DELETING THE PENALTY. ACCORDINGLY WE UPHOLD THE ORDER OF LEARNED CIT(A). 10. IN THE RESULT, THIS APPEAL BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26/04/2019. SD/- S D/- (RAVISH SOOD) (SHAMIM YAHYA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 26/04/2019 F{X~{T? P.S/. .. ITA NO.302/MUM/2018, KUNDAN INFRASTRUCTURE LD. 8 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT (RESPECTIVE ASSESSEE) 2. !'# / THE RESPONDENT. 3. $# $# % ( ) / THE CIT, MUMBAI. 4. $# $# % / CIT(A)- , MUMBAI, 5. ()*# ! + , $# # +- , / DR, ITAT, MUMBAI 6. *. / / GUARD FILE. / BY ORDER, '#( ! //TRUE COPY// / (DY./ASSTT. REGISTRAR) $ %&', / ITAT, MUMBAI