HANS CHEMICALS P.LTD, MUMBAI V. ITO 9(2)(1), MUMBAI

ITA 3316/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9420 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2011-2012
• Appeal Filed On: 05-05-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V JUSTIN
• Keywords: Bogus purchase; Principle of natural justice; Opportunity of cross examination
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN , JM ITA NO. 3316 / MUM/20 1 7 ( ASSESSMENT YEAR : 2011 - 12 ) M/S. HANS CHEMICALS PVT. LTD., 407, PANCHSHEEL 2A RAHEJA TOWNSHIP L.S. RAJEKA CROSS ROAD NO.3, MALAD (E), MUMBAI 400 097 VS. ITO 9(2)(1) AAYAKAR BHAVAN MUMBAI 400 020 PAN/GIR NO. AABCH5433N APPELLANT ) .. RESPONDENT ) ITA NO. 3970/ MUM/20 17 ( ASSESSMENT YEAR : 2011 - 12 ) ITO 12(2)(3) AAYAKAR BHAVAN MUMBAI 400 020 VS. M /S. HANS CHEMICALS PVT. LTD., 407, PANCHSHEEL 2A RAHEJA TOWNSHIP L.S. RAJEKA CROSS ROAD NO.3, MALAD (E), MUMBAI 400 097 PAN/GIR NO. AABCH5433N APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI NEEL KHANDELWAL REVENUE BY SHRI V. JUST IN DATE OF HEARING 06/09 /201 7 DATE OF PRONOUNCEME NT 18/09 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THESE ARE THE CROSS APPEALS FILED BY ASSESSEE AND REVENUE AGAINST THE ORDER OF CIT(A) - 20, MUMBAI DATED 27/03/2017 FOR A.Y. 2011 - 12. 2. THE GRIEVANCE OF BOTH ASSESSEE AND REVENUE RELATES TO ADDITION MAD E ON ACCOUNT OF BOGUS PURCHASES. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. ITA NO. 3316/MUM/2017 & 3970/MUM/2017 M/S. HANS CHEMICALS PVT. LTD., 2 4. FACTS IN BRIEF ARE THAT D URING THE COURSE OF SCRUTINY PROCEEDINGS IT WAS FOUND THAT THE ASSESSEE HAD ENTERED INTO TRANSACTIONS WITH CERTAIN PARTIES WHOSE NAMES WERE APPEARING IN THE LIST OF HAWALA ENTRY PROVIDERS PUBLISHED IN THE OFFICIAL WEBSITE OF MAHARASHTRA SALES TAX DEPARTMENT. THE TRANSACTION OF THE ASSESSEE WITH THESE PARTIES PERTAINS TO PURCHASES WHICH WERE CLAIMED AS EXPENDITURE IN THE P & L ACCOUNT . ACCORDINGLY AO ADD ED ENTIRE AMOUNT OF RS.2,26,33,661/ - U/S.69C. 5. BY THE IMPUGNED ORDER, CIT(A) RESTRICTED ADDITION TO THE EXTENT OF 5% AFTER OBSERVING AS UNDER: - 6.4 I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSIONS MADE IN THIS REGARD. IT IS NOTED THAT THE A.O. HA D MADE ADDITION OUT OF PURCHASE MADE BY THE ASSESSEE TO THE TUNE OF RS.2,26,33,661/ - . THE A/R OF THE ASSESSEE HAS OPPOSED THE ADDITIONS AND SUBMITTED THAT THE PURCHASES WERE AT WAS ALSO SUBMITTED THAT PAYMENT WAS ALL MADE THROUGH BANKING CHANNEL AND THE DE LIVERY OF MATERIALS WAS SUPPORTED BY DELIVERY CHALLANS. IT IS STATED THAT THE A.O. HAD MADE ADDITION ON THE BASIS OF INFORMATION RECEIVED FROM VAT AUTHORITIES WITHOUT AFFORDING OPPORTUNITY OF CROSS EXAMINATION TO THE ASSESSEE. IT IS NOTED THAT THE ENTIRE M ATTER PERTAINS TO HAWALA PURCHASES FROM SO CALLED SUSPICIOUS DEALERS AS PER THE INFORMATION OF VAT AUTHORITIES. THE A.O. HAS DISALLOWED THESE PURCHASES AS THE ASSESSEE COULD NOT PRODUCE THESE PARTIES FOR VERIFICATION. IT IS NOTED THAT PRIMARY ONUS TO ESTAB LISH THAT THE PURCHASES WERE GENUINE WAS ON THE ASSESSEE. THE ASSESSEE IS ONLY PARTLY ABLE TO DISCHARGE THE COMPLETE ONUS. IT IS ALSO NOTED THAT A.O. HAS SIMPLY MADE ADDITION ON THE BASIS OF STATEMENT WITHOUT MUCH ENQUIRY INTO THE FACTS OF THE CASE. ON THE OTHER HAND ASSESSEE HAS FILED COPIES OF BILLS, BANK STATEMENT ETC. TO ESTABLISH THAT PURCHASES WERE GENUINE. ON THE FACE OF THESE EVIDENCES THE ENTIRE PURCHASES CANNOT BE HELD TO BE BOGUS MERELY ON THE BASIS OF A STATEMENT OF SELLER WHO WAS NEVER CROSS EX AMINED BY THE ASSESSEE. IT IS ALSO NOTED THAT THE ITEMS PURCHASED WERE USED AS INPUT INTO ASSESSEE'S PRODUCT FOR SALES WHICH HAVE BEEN ACCEPTED BY THE DEPARTMENT. 6.5 IT IS NOTED THAT ONLY PROFIT ELEMENT IS LIABLE TO TAX IN SUCH CASES AS WAS HELD IN THE CA SE OF : 1. CIT VS. BHOLANATH POLY FAB LTD. (2013) 355 ITR 290 (GUJ). (HC) 2. CIT V SIMIT P. SHETH (2013) 356 ITR 451 (GUJ) (HC) 3. CIT VS. SANJAY OIL CAKE INDUSTRIES (2009) 316 ITR 274 (GUJ) (HC) 4. ITO VS. PERMANAND (2007) 107 TTJ 395 (JD)(TRIB.) 5. SHRI MADHUKANT B. GANDHI VS. ITO ITA NO. 1950/M/2009 BENCH 'B' DT. 23 - 02 - 2010 (AY 2005 - 06) (MUM.)(TRIB.) 5. SANJEEV WOOLEN MILLLS VS. CIT (2005) 279 ITR 434 (SC) 6.6 IN VIEW OF THE ABOVE DISCUSSION, IT IS SEEN THAT THE ADDITION MADE BY THE AO ON ACCOUNT OF ALLE GED BOGUS PURCHASE CANNOT BE SUSTAINED FULLY IN APPEAL. HAVING REGARD TO FACTS OF THE CASE AND SUBMISSIONS MADE, IT WOULD BE FAIR AND REASONABLE IF THE ADDITION MADE BY THE A.O. IS RESTRICTED TO 5% ON THE ALLEGED ITA NO. 3316/MUM/2017 & 3970/MUM/2017 M/S. HANS CHEMICALS PVT. LTD., 3 BOGUS PURCHASES OF 2,26,33,661/ - WHICH COME S TO RS, 11,31,683/ - . ACCORDINGLY, THE GROUND OF APPEAL IS PARTLY ALLOWED. 6. WE HAVE CONSIDERED RIVAL CONTENTIONS AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM RECORD THAT ADDITION WAS MADE BY AO IN RESPECT OF PURCHASES, SUPPLIER OF WHICH COULD NOT BE VERIFIED. 7. IT WAS CONTENDED BY LEARNED AR THAT THE ADDITION MADE IS BASED ON THE INFORMATION RECEIVED FROM THE SALES TAX DEPARTMENT AND THE STATEMENT OF THE SUPPLIERS . IT WAS FURTHER SUBMITTED THAT ALTHOUGH, THE ADDITION IS MADE ON TH E BASIS OF THE STATEMENTS RECORDED OF THE THIRD PARTIES AS WELL AS AFFIDAVITS FILED BY THEM BEFORE THE STATE AUTHORITIES, BUT THE SAME WERE NEVER PROVIDED WITH TO THE ASSESSEE FOR CROSS EXAMINATION. HENCE, THE LEARNED A.O. ERRED IN COMPLETING THE ASSESSMEN T BY PASSING THE ORDER U/S 143(3) OF THE INCOME TAX ACT, 1961 USING THE STATEMENTS RECORDED FROM THIRD PARTY AT THE BACK OF ASSESSEE. THEREFORE, THE ASSESSMENT ORDER PASSED IS NOTHING BUT THE BREACH OF PRINCIPLE OF NATURAL JUSTICE AND EQUITY DONE TO ASSESS EE. HE FURTHER CONTENDED THAT ASSESSEE HAS SHOWN GP OF 40.38%. UNDER THESE CIRCUMSTANCES, THERE IS NO JUSTIFICATION FOR MAKING FURTHER ADDITION OF 5% ; KEEPING IN VIEW THE NATURE OF TRADE ASSESSEE WAS ENGAGED IN. 8. ON THE OTHER HAND, LEARNED DR RELIED ON T HE ORDER OF THE AO AND CONTENDED THAT AO DISALLOWED THESE PURCHASERS BECAUSE ASSESSEE COULD NOT PRODUCE THESE PARTIES FOR VERIFICATION. AS PER LEARNED DR, PRIMARY ONUS WITH THE PURCHASES WERE GENUINE , WAS ON THE ASSESSEE. ACCORDINGLY, CONTENDED FOR CONFIRM ATION ACTION OF THE AO. ITA NO. 3316/MUM/2017 & 3970/MUM/2017 M/S. HANS CHEMICALS PVT. LTD., 4 9. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE HAD ALSO DELIBERATED ON THE JUDICIAL PRONOUNCEMENTS REFERRED BY LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS AS WELL AS CITED BY LEARNED AR AND DR DURING THE COURSE OF HEARING BEFORE US IN THE CONTEXT OF FACTUAL MATRIX OF THE CASE. FROM THE RECORD, WE FOUND THAT ADDITION MADE BY AO U/S.69C WAS DELETED BY CIT(A) BY OBSERVING THAT AO HAD SIMPLY MADE ADDITION ON THE BASIS OF STATEM ENT WITHOUT MUCH ENQUIRY INTO THE FACTS OF THE CASE. HOWEVER, CIT(A) HAS ESTIMATED EXTRA PROFIT OF 5% ON SUCH PURCHASES AND CONFIRMED THE ADDITION TO THAT EXTENT. THE CIT(A) HAVE OBSERVED THAT ASSESSEE HAD FILED COPIES OF THE BILLS, BANK STATEMENT ETC., TO ESTABLISH THAT PURCHASES WERE GENUINE. CIT(A) ALSO FOUND THAT MERELY ON THE BASIS OF STATEMENT OF SELLER WHO WAS NEVER CROSS EXAMINED BY THE ASSESSEE, ADDITION CANNOT BE MADE. A CATEGORICAL FINDING HAS ALSO BEEN RECORDED BY CIT(A) TO THE EFFECT THAT ITEMS PURCHASED WERE USED AS INPUT INTO ASSESSEES PRODUCT FOR SALE WHICH HAVE BEEN ACCEPTED BY THE DEPARTMENT. WE ALSO FOUND THAT GP SHOWN BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WAS 40.38%. UNDER THESE FACTS AND CIRCUMSTANCES, WE MODIFY THE ORDER OF BOTH THE LOWER AUTHORITIES AND DIRECT THE AO TO RESTRICT THE ADDITION TO THE EXTENT OF 2% OF SUCH PURCHASES. WE DIRECT ACCORDINGLY. 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED WHEREAS APPEAL OF THE ASSESSEE IS ALLOWED IN PART. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 18 / 09 /2017 S D/ - ( SANDEEP GOSAIN ) S D/ - ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 18 / 09 /201 7 KARUNA SR. PS ITA NO. 3316/MUM/2017 & 3970/MUM/2017 M/S. HANS CHEMICALS PVT. LTD., 5 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//