SKM REAL INFRA LTD, MUMBAI V. PR CIT 4, MUMBAI

ITA 3277/MUM/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4819 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 04-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R MANJUNATHA SWAMY
• Assessee Lawyers: PRADEEP SHARMA
• Keywords: Opportunity of being heard
• Section: 143(3); 148; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 3277/MUM/2017 ASSESSMENT YEAR: 2009 - 10 M/S S.K.M. REAL INFRA LTD. RAAJ CHAMBERS, PLOT NO.115, R.K. PARAMHANS MARG, ANDHERI (E), MUMBAI - 400069 VS. PR. COMMISSIONER OF INCOME TAX, CENTRAL - 4, INCOME TAX OFFICE, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020. PAN NO. AAFCS2659R APPELLANT RESPONDENT ASSESSEE BY : MR. PRADEEP SHARMA, AR REVENUE BY : MR. R. MANJUNATHA SWAMY, CIT DR DATE OF HEARING : 03/10/2018 DATE OF PRONOUNCEMENT : 23/10/2018 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2009 - 10. THE APPEAL IS DIRECTED AGAINST THE ORDER U/S 263 OF THE INCOME TAX ACT 1961, (THE ACT) PASSED BY THE PR. COMMISSIONER OF INCOME TAX - 4, MUMBAI [IN SHORT PCIT]. 2. THE GROU NDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER: 1. THE PCIT HAS ERRED IN INVOKING PROVISIONS AT SECTION 263 OF THE INCOME TAX ACT, 1961 BY ISSUING THE NOTICE IN SPITE OF THE FACT THAT SCRUTINY ASSESSMENT U/S. 143(3) R.W.S. 147 OF THE ACT HAS BEEN COMPLETED BY TH E DCIT CIRCLE - M/S S.K.M. REAL INFRA LTD. ITA NO. 3277/MUM/2017 2 4(3)(2), MUMBAI AFTER DULY EXAMINING AND CONSIDERING FACTS WHILE FRAMING THE ASSESSMENT ORDER U/S 143 (3) R.W.S. 147 OF THE ACT. THE PCIT HAS ERRED IN RAISING THE ISSUES AND MAKING RO V ING ENQUIRIES IN THE PROCEEDINGS U /S 263 OF THE AC T. FURTHER ORDER U /S 263 IS ALSO PASSED WITHOUT CONSIDERING THE SUBMISSION MADE BEFOR E THE PCIT AGAINST THE NOTICE U/S 263 OF THE ACT AND WITHOUT PROVIDING THE REASONABLE OPPORTUNITY OF BEING HEARD. FURTHER ORDER PASSED WITHOUT ANY CONCLUSION MERELY SETTING ASIDE THE ASSESSMENT TO THE FILE OF THE ASSESSING OFFICER WHICH IS UNJUSTIFIED. IT IS THEREFORE SUBMITTED T HAT THE ORDER PASSED U/S 263 SHOULD BE CANCELLED. 2. WITHOUT PREJUDICE TO THE GROUND NO. 1, T HE PCIT MENTIONED THAT ESTIMATION OF OPERATING PROF IT ON THE BASIS OF SALES FIGURE (5% OF RS . 21,37,89,905/ - I. E RS. 1,06,89,495/ - ) INSTEAD O F THE PURCHASE FIGURE (5% OF RS. 32,45,71,664 / - I.E RS.1 ,62,28,583/ - ) RESULTED IN SHORT DETERMINATION OF TOTAL INCOME BY RS .55,39,088/ - (RS.1,62,28,583/ - MINUS RS. 1, 0 6,8 9,495/ - ). THE ISSUE RAISED WITH REGARD TO SUCH AMOUNT WAS DULY EXAMINED AND THE SAME CANNOT BE CONSIDERED IN THE ORDER U/S 263 OF THE ACT. FURTHER SUFFICIENT DETAILS WERE SUBMITTED BEFORE THE ASSESSING OFFICER TO GENUINENESS OF THE PURCHASE AND ASSESSING O FFICER HAS APPLIED HIS MIND ON THE SAID ISSUE WHILE PASSING THE ASSESSMENT ORDER U/S 143(3) R.W .S 147 OF THE ACT . IN CONCLUSION, THE PCIT HAS SET ASIDE THE ORDER WITHOUT EXAMINING THE DOCUMENTS AND EXPLANATION FILED DURING THE 263 PROCEEDINGS AND MERE SET ASIDE OF THE ORDER TO SUCH EXTENT IS UNJUSTIFIED. ACCORDINGLY, THE NECESSARY DIRECTION SHOULD BE GIVEN IN THIS REGARD. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2009 - 10 ON 27.09.2 009 DECLARING A TOTAL INCOME OF RS.9,74,454/ - . THE ASSESSING OFFICER ( AO ) COMPLETED THE ASSESSMENT U/S 143(3) ON 23.12.2011 ON A TOTAL INCOME OF RS.9,84,454/ - . SUBSEQUENTLY, THE AO MADE AN ASSESSMENT U/S 143(3) R.W.S. 147 ON 31.03.2015 DETERMINING THE INCOME AT RS.1,16,63,950/ - . M/S S.K.M. REAL INFRA LTD. ITA NO. 3277/MUM/2017 3 THE IMPUGNED ORDER U/S 263 PASSED BY THE PCIT IS CONCERNED WITH THE ESTIMATION OF PROFIT MADE BY THE AO WITH THE OBSERVATION THAT THE OPERATING PROFITS IN THIS LINE OF BUSINESS RANGES FROM 5% TO 10%, BUT HE ESTIMATED THE PROFIT AT RS.1,06,89,495/ - BY TAKING 5% OF THE SALES FIGURE OF RS.21,37,89,905/ - . THE PCIT IS OF THE VIEW THAT ESTIMATING OF OPERATING PROFIT BY THE AO ON THE BASIS OF SALES FIGURE INSTEAD ON THE BASIS OF PURCHASE FIGURE RESULTED IN SHORT DETERMINATION OF TOTAL INCOME BY RS.55,39,088/ - . THEREFORE, THE PCIT SET ASIDE THE ORDER OF THE A O WITH A DIRECTION TO MAKE A FRESH ASSESSMENT AFTER MAKING INQUIRIES AND ALLOWING THE ASSESSEE PROPER OPPORTUNITY OF BEING HEARD. 4. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT THE PCIT HAS ADMITTED IN PARA 4 OF HIS NOTICE THAT THE AO HAS EXAM INED THE ISSUES BUT NOT EXAMINED IT THOROUGHLY AND IT IS SETTLED PROPOSITION OF LAW THAT IF AN ISSUE HAS BEEN EXAMINED AND CONSIDERED BY THE AO, T HEN THE PCIT DOES NOT GET JURISDICTION U/S 263 OF THE ACT. BESIDES THE PCIT IS NOT SURE WHETHER PREJUDICE TO REVENUE IS CAUSED AS IT HAS BEEN STATED THAT PRIMA FACIE, IT APPEARS TO BE PREJUDICIAL TO THE INTEREST OF REVENUE. ALSO IT IS SUBMITTED BY THE LD. COUNSEL THAT THE SHOW CAUSE NOTICE U/S 263 DATED 14.03.2017 HAS BEEN RECEIVED BY THE ASSESSEE ON 23.03.201 7 AND THIS WAS THE ONLY DATE OF HEARING GIVEN BY THE PCIT. NEITHER IT WAS FOUND OUT BY THE PCIT AS TO WHEN THE NOTICE HAS BEEN SERVED OR A FRESH OPPORTUNITY GIVEN BEFORE THE DATE OF PASSING ORDER WHICH IS STATED TO BE 31.03.2017. IT IS STATED THAT THE ASSE SSEES REPLY DATED 24.03.2017 FOR ADJOURNMENT HAS BEEN COMPLETELY IGNORED AND THE M/S S.K.M. REAL INFRA LTD. ITA NO. 3277/MUM/2017 4 SUBMISSION MADE BY THE ASSESSEE ON 31.03.2017 HAS ALSO NOT AT ALL BEEN CONSIDERED. THE LD. COUNSEL FURTHER SUBMITS THAT THE AO HAS APPLIED HIS MIND WHILE PASSING ORDER U/S 1 43(3) R.W.S. 147. IT IS STATED THAT EVEN EARLIER, THE WHOLE MATERIAL HAS BEEN CONSIDERED BY THE AO AS WELL AS THE JOINT COMMISSIONER, WHO HAD APPROVED ISSUANCE OF NOTICE U/S 147 OF THE ACT . RELYING ON THE DECISION IN MAX INDIA LTD . 295 ITR (SC) AND MALABAR INDUSTRIES CO. LTD. V. CIT 243 ITR 83 (SC), IT IS SUBMITTED BY HIM THAT WHEN THE AO HAS TAKEN ONE OF THE TWO VIEWS PERMISSIBLE IN LAW, IT CANNOT BE HELD TO BE ERRONEOUS. ON THE OTHER HAND, THE LD. DR SUPPORTS THE ORDER PASSED BY THE PCIT. 5. WE HAVE HEAR D THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISION ARE GIVEN BELOW. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR ON 27.09.2009 DECLARING TOTAL INCOME AT RS.9,74,454/ - . THE ASSESS EE IS ENGAGED IN TRADING OF MS PLATES. THE AO COMPLETED THE ASSESSMENT U/S 143(3) ON 23.12.2011 DETERMINING TOTAL INCOME AT RS.9,84,454/ - . THEN THE AO REOPENED THE ASSESSMENT BY ISSUING NOTICE U/S 148 ON 24.03.2014. THE REASON FOR REOPENING THE ASSESSMENT WAS THE INFORMATION RECEIVED FROM THE SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA THAT THE GROUP COMPANIES CONSISTING OF SHREE RAM URBAN INFRASTRUCTURE LTD., SKM REAL INFRA LTD. (THE ASSESSEE) AND RAGHUVEER M/S S.K.M. REAL INFRA LTD. ITA NO. 3277/MUM/2017 5 URBAN CO. PVT. LTD. HAD TAKEN ACCOMMODATION E NTRIES AMOUNTING TO RS.15.97 CRORES AFTER PROCURING BOGUS BILLS FROM 12 HAWALA OPERATORS. IN THE REASSESSMENT THE AO ESTIMATED PROFIT @ 5% ON VALUE OF SALES OF RS.21,37,89,905/ - SHOWN IN THE BOOKS OF ACCOUNT AND THEREBY MADE AN ADDITION OF RS.1,06,89,495/ - . IN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE AO, THE LD. CIT(A) VIDE ORDER DATED 14.09.2017 HELD AS UNDER: 5.4 THE APPELLANT HAS ALSO PLEADED THAT WITHOUT PREJUDICE, THE ADDITION @ 5% SHOULD BE RESTRICTED TO THE PURCHASE PARTIES WHICH WERE CONSIDERED AS BOGUS AS REFLECTED IN THE REASONS RECORDED FOR REOPENING OF THE ASSESSMENT. I FIND THAT THE REASONS RECORDED FOR REOPENING OF THE ASSESSMENT SPECIFIES THE NAMES OF THE BOGUS PARTIES ALONG WITH THE AMOUNT OF PURCHASES. FURTHER, IN THE DET AILS OF PURCHASES AND SALES PROVIDED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND APPELLATE PROCEEDINGS, THE NAMES OF THE PURCHASE PARTIES AND THE CORRESPONDING PURCHASE AMOUNTS MATCH WITH THE NAMES AND AMOUNTS APPEARING IN THE REASONS RECORDED. IN BOTH THESE DETAILS, I.E. REASONS RECORDED AND DETAILS OF PURCHASES, THERE IS ONE PARTY, NAMELY, FERVENT FINANCE PVT. LTD. PURCHASE FROM WHOM AMOUNTS TO RS.18,35,35,577/ - AND WHOSE CORRESPONDING SALES AMOUNTS TO RS.15,93,15,812/ - WHICH IS NOT APPEARING IN THE L IST OF BOGUS PARTIES MENTIONED IN THE REASONS RECORDED FOR OPENING THE ASSESSMENT. LD. AO HAS NOT SUBSTANTIATED AS TO WHY THAT PARTY SHOULD BE TREATED AS A HAWALA ENTITY. THEREFORE, SUCH A MECHANICAL APPROACH WITHOUT ANY EVIDENCE CANNOT BE SUSTAINED. IN TH E CIRCUMSTANCES, THE TOTAL ADDITION SHOULD BE REDUCED BY AN AMOUNT OF RS.79,65,790/ - (5% OF 15,93,15,812/ - ) AND THE ADDITION IS CONFIRMED TO THE EXTENT OF RS.27,23,705/ - (TOTAL ADDITION RS.1,06,89,495/ - LESS RS.79,65,790). ACCORDINGLY, THIS GROUND OF APPEA L IS PARTLY ALLOWED. M/S S.K.M. REAL INFRA LTD. ITA NO. 3277/MUM/2017 6 5.1 IN THE ORDER U/S 263, THE PCIT HAS OBSERVED THAT ESTIMATING OF OPERATING PROFIT BY THE AO ON THE BASIS OF SALES FIGURE (5% OF RS.21,37,89,905/ - I.E. RS.1,06,89,495/ - ) INSTEAD ON THE BASIS OF PURCHASE FIGURE (5% OF RS.32,45,71,664 / - I.E. RS.1,62,28,583/ - ) RESULTED IN SHORT DETERMINATION OF TOTAL INCOME BY RS.55,39,088/ - (RS.1,62,28,583 RS.1,06,89,495/ - ) IN THE CASE OF CIT V. MAX INDIA LTD . (295 ITR 282) (SC), IT IS HELD THAT IF TWO VIEWS WERE POSSIBLE ON THE DISPUTED ISSUE ON TH E DAY WHEN THE COMMISSIONER PASSES THE ORDER, THEN THE ORDER U/S 263 IS NOT TENABLE. IN THE INSTANT CASE, TWO VIEWS WERE POSSIBLE ON THE ISSUE WHEN THE COMMISSIONER PASSED THE ORDER ON 24.03.2017. PROFITS ARE GENERATED BY SALES. THE GROSS PROFIT MARGIN IS THE SURPLUS AVAILABLE OUT OF SALES REVENUE, AFTER SUBTRACTING THE COST OF GOODS SOLD. THE NET INCOME IS THE OVERALL SURPLUS AVAILABLE OUT OF THE SALES. AS A PERCENTAGE OF THE SALES, IT IS OFTEN KNOWN AS NET PROFIT MARGIN . IN FACT THE ESTIMATION OF PROFIT MADE BY THE AO OUT OF SALES IS THE CORRECT ONE AS PER ACCOUNTING PRINCIPLES. THUS FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN MAX INDIA LTD . (SUPRA), WE SET ASIDE THE ORDER U/S 263 PASSED BY THE PCIT. 6. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23/10/2018. SD/ - SD/ - (MAHAVIR SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; M/S S.K.M. REAL INFRA LTD. ITA NO. 3277/MUM/2017 7 DATED: 23/10/2018 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (SR. PRIVATE SECRETARY) ITAT, MUMBAI