LIPI DATA SYSTEMS LTD, MUMBAI V. DCIT CIR 3(2), MUMBAI

ITA 3308/MUM/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9718 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 18-05-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 01-06-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGSHEN
• Keywords: Reopening of assessment; Bogus purchase; Business income; Accommodation entries; Reassessment proceedings
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI RAVISH SOOD , JM ITA NO. 3308 / MUM/20 1 4 TO 3310/MUM/2014 ( ASSESSMENT YEAR : 2009 - 10 TO 2011 - 12 ) M/S. LIPI DATA SYSTEMS LTD., 61 A WING, AURUS CHAMBERS, BEHIND MAHINDRA TOWERS, S.S.AMRUTWAR MARG, WORLI 400013 VS. DCIT CIT 3(2) - MUMBAI PAN/GIR NO. AAACL0916F APPELLANT ) .. RESPONDENT ) ITA NO. 3989/ MUM/20 15 TO 3991/MUM/2015 ( ASSESSMENT YEAR : 2009 - 10 TO 2011 - 12) DCIT CIT 3(2) - MUMBAI VS. M/S. LIPI DATA SYSTEMS LTD., 61 A WING, AURUS CHAMBERS, BEHIND MAHINDRA TOWERS, S.S.AMRUTWAR MARG, WORLI 400013 PAN/GIR NO. AAACL0916F APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI VIJAY MEHTA AND SHRI ANUJ KISNADWALA REVENUE BY SHRI M.C.OMI NINGSHEN DATE OF HEARING 18/05 /201 7 DATE OF PRONOUNCEME NT 31 / 07 /201 7 / O R D E R PER R.C. SHARMA (A.M.) : THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE AGAINST THE ORDER OF CIT(A) 8, MUMBAI DATED 26/03/2015 FOR THE A.Y.2009 - 10 TO 2011 - 12 IN THE MATTER OF ORDER PASSED U/S.143(3) R.W.S.147 OF THE IT ACT. 2. COMMON GRIEVANCE OF ASSESSEE AND REVENUE BOTH RELATE TO MAKING THE ADDITION AND PARTLY DELETING THE SAME ON ACCOUNT OF BOGUS PURCHASES. ITA NO. 3308/MUM/2015 M/S. LIPI DATA SYSTEMS LTD., 2 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 4. FACTS IN BRIEF ARE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF H EAVY DUTY PRINTERS, ATM MACHINE CARTRIDGES ETC. ON THE BASIS OF INFORMATION REC EIVED FROM DGIT (INVESTIGATION) SPECIFYING THAT ASSESSEE WAS BENEFICIARY AND RECIPIENT OF ACCOMMODATION ENTRIES BY WAY OF BOGUS SALES, T HE AO REOPENED THE ASSESSMENT BY ISSUE OF N OTICE U/S. 147. IN THE REASSESSMENT PROCEEDINGS ENTIRE SUCH PURCHASES WERE ADDED BY AO IN ASSESSEES INCOME U/S.69A OF THE IT ACT. 5. BY THE IMPUGNED ORDER , CIT(A) RESTRICTED ADDITION TO 25% OF SUCH PURCHASES BY FOLLOWING JUDICIAL PRONOUNCEMENTS IN THE CASE OF SANJAY OIL CAKE INDUSTRIES 316 ITR 274 . AGAINST THIS ORDER OF CIT(A) BOTH ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. 6. IT WAS CONTENDED BY LEARNED AR THAT ASSESSEE HAS FILED FULL DETAILS OF PURCHASES OF PRINT - HEADS, SPARES AND CONSUMABLES FROM M/S. DEV ENTERPRISES ALONGWITH COPIES OF PURCHASE ORD ERS, BILLS, DELIVERY CHALLANS, G RNS AND ACCOUNTS STATEMENT TO ESTABLISH GENUINENESS OF PURCHASES. AS PER THE LEARNED AR, AO HAS NOT DISPUTED SALES / JOB WORK UNDERTAKEN BY THE ASSESSEE WHEREIN THE MATER IAL S SO PURCHASED WERE USED. UNDER THESE FACTS AND CIRCUMSTANCES, AS PER LEARNED AR, ADDITION OF 25% OF SUCH PURCHASE WAS NOT WARRANTED AND THE CIT(A) HAS WRONGLY UPHELD THE ADDITION TO THE EXTENT OF 25% BY DISREGARDING OF THESE DOCUMENTARY EVIDENCES FILED BEFORE THE LOWER AUTHORITIES. 7. ON THE OTHER HAND, LEARNED DR RELIED ON THE ORDER OF THE AO AND CONTENDED THAT ASSESSEE WAS SUPPLIED WITH THE COPY OF STATEMENT OF SHRI ITA NO. 3308/MUM/2015 M/S. LIPI DATA SYSTEMS LTD., 3 DEVARSHI MAHESH, PROPRIETOR M/S. DEV ENTERPRISES WHEREIN HE CONFESSED THAT HE IS INVOL VED IN ISSUIN G BOGUS BILLS. 8 . LEARNED AR PLACED BEFORE US WORKING OF GROSS PROFIT RATIO BY THE ASSESSEE FOR THE SIX ASSESSMENT YEARS I.E., 2007 - 08 TO 2013 - 14 WHICH INDICATED THE FOLLOWING RESULTS. WORKING OF GROSS PROFIT RATIO ASSESSMENT YEARS PARTICU LARS 2007 - 08 2008 - 09 2009 - 10 2010 - 11 2011 - 12 2012 - 13 2013 - 14 INCOME RS. IN LACS SALES & SERVICES 12,258.44 16331.21 18342.83 16515.96 19621.93 24851 24201 CHANGES IN STOCKS 292.71 5.85 100.97 87.43 416.46 399 343 12,551.15 16,337.06 18,443.80 16,60 3.39 20,038.39 25,250.00 24,544.00 EXPENDITURE RAW MAT E RIAL CONSUMED 2559.39 4678.75 5208.18 5232.6 5642.95 5927 5977 PURCHASES 6025.09 6016.39 7511.89 6312.96 8696.95 13019 12833 MANUFACTURING EXPENSES 217.79 255.62 506.89 263.88 345.04 632 592 WAGES 99.16 122.74 160.15 176.92 248.75 325 375 8901.43 11073.5 13387.11 11986.36 14933.69 19903 .00 19777 .00 GROSS PROFIT 3649.72 5263.56 4854.75 4617.03 5104.7 5347 4767 G.P.RATIO 29.77 32.23 26.47 27.95 26.02 21.52 19.7 ALLEGED BOGUS PURCHASES - - 105.53 88.13 121.56 - - BOGUS PURCHASES AS % OF TOTAL SALES - - 0.58 0.53 0.62 - - ASSESSMENT ORDER 143(3) 143(3) 143(3) 143(3) 143(3) 143(3) 143(3) 9. IN VIEW OF THE ABOVE CHART, CO NTENTION OF LEARNED AR WAS THAT ASSESSEE WAS ALREADY SHOWING VERY GOOD GP WHICH IS MOR E THAN WHAT IS PREVAILING IN THIS TRADE THEREFORE, MAKING ANY FURTHER ADDITION TO THE GP IS NOT SUSTAINABLE. AS PER LEARNED AR, CIT(A) HAS PLACED WRONG RELIANCE ON THE D E CISION IN THE CASE OF SANJAY OIL CAKE INDUSTRIES WHEREIN FACTS WERE ITA NO. 3308/MUM/2015 M/S. LIPI DATA SYSTEMS LTD., 4 DIFFERENT, HOWEVER, IN THE INSTANT CASE, ASSESSEE HAS PROVIDED ALL THE DOCUMENTS TO SUBSTANTIATE GENUINENESS OF PURCHASES AND THE SALES AFFECTED OUT OF SUCH PURCHASES. 10 . WE HAVE HEARD RI VAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS WORKING ON THE SALES , PERCENTAGE OF BOGUS PURCHASES TO SALES, GROSS PROFIT EARNED BY THE ASSESSEE IN THE LAST SIX YEARS I.E., 2007 - 08 TO 2013 - 14. FROM THE RECORD WE F OUND THAT THE ASSESSEE FURNISHED COMPLETE DETAILS OF PURCHASE OF PRINT - HEADS, SPARES AND CONSUMABLES FROM M/S.DEV ENTERPRISES ALONGWITH COPIES OF PURCHASE ORDER, BILLS, DELIVERY CHALLANS, GRNS AND ACCOUNT STATEMENTS TO ESTABLISH GENUINENESS OF PURCHASES. T HE SYSTEM REQUEST SLIPS, ADVANCE DELIVERY CHALLANS FOR MATERIAL ISSUED TO BRANCH, FILED CALL REPORTS (FCRS) RECEIVED FROM BRANCHES SHOWING CONSUMPTION OF MATERIALS FOR ANNUAL MAINTENANCE AND WARRANTY SUPPORT, STOCK REGISTER SHOWING CONSUMPTION OF THESE IMP UGNED ITEMS ETC., AS PER THESE DOCUMENTS, THE ASSESSEE HAS AFFECTED SALES OF THE GOODS PURCHASED FROM M/S. DEV ENTERPRISES, WHICH WERE CONSUMED FOR ANNUAL MAINTENANCE CONTRACT AND WARRANTY SUPPORT. UNDER THESE FACTS AND CIRCUMSTANCES DISALLOWANCE OF 25% OF THE PURCHASES WAS NOT JUSTIFIED. WE OBSERVE THAT ALL THE ASSESSMENTS OF ASSESSEE WERE FRAMED U/S.143(3) WHEREIN GP S O DISCLOSED BY THE ASSESSEE WAS RANGING BETWEEN 19.7% TO 29.77%. WE FOUND THAT DURING THE A.Y.2009 - 10, 2010 - 11 AND 2011 - 12 BOGUS PURCHASES SO FOUND CONSTITUTED ONLY 0.58%, 0.53% AND 0.62% OF TOTAL SALES. IN THESE YEARS, GP RATE SHOWN BY ASSESSEE IS AT 26.47%, 27.95% ITA NO. 3308/MUM/2015 M/S. LIPI DATA SYSTEMS LTD., 5 AND 26.02% RESPECTIVELY. THEREFORE, KEEPING IN VIEW THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, WE DIRECT THE AO TO RES TRICT THE ADDITI ON BY ESTIMATING FURTHER GP OF 2 % ON THESE ALLEGED BOGUS PURCHASES. WE DIRECT ACCORDINGLY. 11. OUR ABOVE VIEW IS ALSO SUPPORTED BY THE DECISION OF THE CO - ORDINATE BENCH IN CASE OF SHRI MADHUKANT B. GANDHI IN ITA NO.1950/MUM/2009 ORDER DATED 23/ 02/2010, WHEREIN TRIBUNAL HELD AS UNDER: - 3. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD WE FIND FROM THE TRADING AND PROFIT AND LOSS ACCOUNT OF THE ASSESSEE FOR THE YEAR ENDED 31ST MARCH, 2005 RELEVANT TO THE A SSESSMENT YEAR UNDER CONSIDERATION, COPY PLACED AT PAGE 18 OF THE PAPER BOOK, THAT THE OPENING STOCK AND CLOSING STOCK WAS SHOWN AT RS.3.55 LAKHS AND RS.12.37 LAKHS RESPECTIVELY. PURCHASES WORTH RS.67.53 LAKHS WERE MADE AGAINST WHICH THE SALES OF RS.66.45 LAKHS WERE REFLECTED. PAGE 52 ONWARDS IS A QUANTITATIVE TALLY OF THE OPENING STOCK, PURCHASE, SALE AND CLOSING STOCK. WHEN WE CONSIDER THE QUANTUM OF THE PURCHASES HELD BY THE AO TO BE BOGUS VIS - - VIS THE TOTAL QUANTITY OF SALES AND CLOSING STOCK, IT BECOM ES CLEAR THAT SOME GOODS WERE IN FACT PURCHASED BY THE ASSESSEE WHICH WERE SUBSEQUENTLY SOLD, AS BUT FOR THE INCLUSION OF SUCH QUANTITY PURCHASED THE SALE OF THE QUANTITY DECLARED IS NOT POSSIBLE. AT THE SAME TIME THE ASSESSING OFFICER ALSO BROUGHT THE INQ UIRY TO THE LOGICAL CONCLUSION THAT THE PURCHASES FROM THESE THREE PARTIES WERE BOGUS. IT IS SIMPLE AND PLAIN THAT UNLESS SOME PURCHASES ARE MADE THERE CANNOT BE CORRESPONDING SALE. THE ONLY POSSIBILITY WHICH EXISTS IN SUCH A SITUATION IS THAT ASSESSEE MA DE THE ENTRIES FOR BOGUS PURCHASES AT INFLATED RATES WHILE KEEPING THE ACTUAL PURCHASES AT LOWER RATES OUTSIDE THE BOOKS OF ACCOUNT. IN SUCH A SCENARIO IF WE APPROVE THE VIEW TAKEN BY THE LOWER AUTHORITIES THAT THE PURCHASES FROM THESE THREE PARTIES TOTALI NG TO RS.42.99 LAKHS WERE BOGUS, THEN THE CORRESPONDING SALE WOULD ALSO HAVE TO BE DECLARED AS BOGUS, WHICH IS NOT THE CASE OF THE REVENUE IN AS MUCH AS THE FIGURE OF SALES HAS BEEN ACCEPTED BY THE AO. AT THE SAME TIME THE FIGURES OF PURCHASES FROM THESE P ARTIES CAN NOT BE EQUALLY ACCEPTED. 4. IT IS SEEN THAT THE ASSESSEE HAD SHOWN NET PROFIT RATE AT 2.13%. FROM THE IMPUGNED ORDER IT IS SEEN THAT THE RATE OF NET PROFIT FROM ASSESSMENT YEAR 2001 - 2002 TO ASSESSMENT YEAR 2005 - 2006 RANGED BETWEEN 2.13 TO 3.40% . IN VIEW OF THE FACT THAT IT HAS BEEN AMPLY ESTABLISHED THAT THE PURCHASES RECORDED IN THE BOOKS OF ACCOUNT FROM THESE THREE PARTIES WERE BOGUS WITH A VIEW TO SUPPRESS THE PROFIT, NOW NEED TO ZERO IN ON THE CORRECT RATE OF NET PROFIT WHICH COULD BE APPLIE D UNDER THESE CIRCUMSTANCES. SECTION 44AF, THOUGH NOT STRICTLY APPLICABLE IN THIS CASE, PROVIDES FOR 5% NET PROFIT RATE ON THE TOTAL TURNOVER. IN OUR CONSIDERED OPINION, IT WILL BE JUST AND FAIR IF THE NET PROFIT RATE OF 5% IS APPLIED ON THE GOODS SOLD WHI CH WERE ALLEGEDLY ITA NO. 3308/MUM/2015 M/S. LIPI DATA SYSTEMS LTD., 6 PURCHASED THROUGH THESE PARTIES. ON THE CONCLUSION OF THE HEARING IN THIS CASE, A PROPOSAL TO THIS EFFECT WAS MADE FROM THE BENCH. BOTH THE SIDES FINALLY AGREED TO IT. WE HOLD THAT THE NET PROFIT RATE OF 5% BE APPLIED. ON THE APPLICATION OF SUCH NET PROFIT RATE, THE EFFECTIVE ADDITION WILL BE RS.1,18,826 AS FOLLOWS: - PURCHASE FROM THESE THREE P ARTIES RS.42,99,845 CONVERSION OF PURCHASE PRICE INTO SALE PRICE WITH PROFIT RATE OF 5%. (42,99,845 / 100 X 105) RS.45,14, 837 NET PROFIT (45,14,837 - 42,99,845) RS. 2,14,992 LESS : NET PROFIT DECLARED BY THE ASSESSEE (45,14,837 X 2.13 / 100) RS. 96,166 [SINCE THE NET PROFIT RATE DECLARED BY THE ASSESSEE IS 2.13%] FURTHER ADDITION (2,14,992 - 96,166) RS. 1,18,826 5. WE, THEREFORE, UPHOLD THE ADDITION AT RS.1,18,826 ALLOWING RELIEF O F RS.41,81,019. THIS GROUND IS PARTLY ALLOWED. 12. GROUND TAKEN BY THE ASSESSEE WITH REGARD TO VALIDITY OF REOPENING OF ASSESSMENT AND RE - COMPUTATION OF DEDUCTION U/S.80IB CONSEQUENT UPON INCREASE IN INDUSTRIAL UNDERTAKING DUE TO ADDITION OF ALLEGED BOGUS PURCHASE HAS NO MERIT, ACCORDINGLY THE SAME ARE DISMISSED. 10. SIMILAR GROUND HAS BEEN TAKEN BY THE ASSESSEE IN ALL THE YEARS UNDER CONSIDERATION. FOLLOWING THE REASONING GIVEN HEREINABOVE, WE DIRECT THE AO TO APPLY THE SAME PROPOSITION IN ALL THE YEARS UN DER CONSIDERATION. 11. IN THE RESULT, APPEALS OF THE REVENUE ARE DISMISSED WHEREAS APPEALS OF THE ASSESSEE ARE ALLOWED IN PART AS INDICATED HEREINABOVE. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 31 / 07 /2017 SD/ - ( RAVISH SOOD ) SD/ - ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 31 / 07 /201 7 KARUNA SR. PS ITA NO. 3308/MUM/2015 M/S. LIPI DATA SYSTEMS LTD., 7 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//