DCIT 10(2)(2), MUMBAI V. MIRAJ ELECTRICAL & MACHANICAL CO. P.LTD, MUMBAI

ITA 3471/MUM/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5449 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 12-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Principle of natural justice
• Section: 14A; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NOS.3471, 3464, 3472 & 4178/M/2017 ASSESSMENT YEARS: 2009-10, 2010-11, 2011-12 & 2012- 13 DCIT-10(2)(2), R. NO.209, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 VS. M/S. MIRAJ ELECTICAL & MECHANICAL CO. PVT. LTD., 1 & 2, ANSA INDUSTRIAL ESTATE, SAKI VIHAR ROAD, SAKINA, MUMBAI 400 072 PAN: AAACM8022D (APPELLANT) (RE SPONDENT) ITA NOS.3571 & 3572/M/2017 ASSESSMENT YEARS: 2011-12 & 2012-13 M/S. MIRAJ ELECTICAL & MECHANICAL CO. PVT. LTD., 1 & 2, ANSA INDUSTRIAL ESTATE, SAKI VIHAR ROAD, MUMBAI 400 072 PAN: AAACM8022D VS. DCIT-10(2)(2), C-10, 5 TH FLOOR, PRATYAKSHA KAR BHAVAN, B.K.C., MUMBAI 400 051 (APPELLANT) (RE SPONDENT) PRESENT FOR: ASSESSEE BY : SHRI VIMAL PUNMIYA, A.R. REVENUE BY : SHRI SAURABHKUMAR RAI, D.R. DATE OF HEARING : 11.07.2018 DATE OF PRONOUNCEMENT : 25.07.2018 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE ABOVE TITLED APPEALS BY THE REVENUE AND CROSS APPEALS BY THE ASSESSEE HAVE BEEN PREFERRED AGAINST THE ORDER DATED 27.02.2017 & 06.03.2017 OF THE COMMISSIONER OF ITA NOS.3471, 3464, 3472 & 4178/M/2017 & ORS. M/S. MIRAJ ELECTICAL & MECHANICAL CO. PVT. LTD. 2 INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEARS 2009-10, 2010-11, 2011 -12 & 2012-13. FIRST WE TAKE UP THE APPEAL OF THE REVENU E. ITA NO.3572/M/2017 (ASSESSMENT YEAR: 2012-13) 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT(A) ERRED IN CONFIRMING THE INITIATION OF THE REASSESSMENT PROCE EDING UNDER SECTION 147. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD CIT(A) FAILED TO CONSIDER THAT REASSESSMENT PROCEEDING CAN NOT BE INITIATED. A) NO REASSESSMENT CAN BE MADE JUST TO MAKE AN ENQUIRY OR VERIFICATION. B) REASSESSMENT PROCEEDING CANNOT BE INITIATE MERELY O N THE INFORMATION RECEIVED FROM INVESTIGATION WING. C) REASSESSMENT PROCEEDING CANNOT BE INITIATED WHEN TH E LD. CIT(A) HAVE REASON TO SUSPECT AND NOT REASON TO BEL IEVE. 3. ON THE FACTS AND CIRCUMSTANCES OF CASE AND LAW T HE LD CIT(A) ERRED IN CONFIRMING THE ASSESSMENT ORDER UNDER SECTION 143 S UB SECTION R W S 147 OF INCOME TAX ACT WHICH IS PASSED AGAINST THE PRINCIPA L OF NATURAL JUSTICE. 4. THE LD CIT(A) ERRED IN REJECTING THE BOOKS OF ACCOU NTS UNDER SECTION 145(3) OF THE INCOME TAX ACT. 5. THE LD CIT(A) ERRED IN TREATING RS.9,76, 167/- BEIN G 25 PERCENT OF THE TOTAL PURCHASES OF RS.39,04,666/- AS BOGUS NON-GENUINE EX PENDITURE AND THEREBY ERRED IN ADDING THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 6. THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWING OF RS.4,619/- U/S 14A READ WITH RULE 8D OF THE I.T. ACT AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 7. THE LD. CIT(A) ERRED IN CONFIRMING THE CHARGING OF INTEREST UNDER SECTION 234B, 234C AND 234D OF THE INCOME TAX ACT 1961. 8. THE LD. CIT(A) ERRED IN CONFIRMING THE INITIATION O F THE PENALTY PROCEEDING UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT 1961. THE ASSESSEE CRAVES LEAVE TO ADD FURTHER GROUNDS OR TO AMEND OR ALTER THE EXISTING GROUNDS OF APPEAL ON OR BEFORE THE DATE OF HEARING. 3. THE GROUND NOS.1, 2, 3, 4 & 6 ARE NOT PRESSED AT T HE TIME OF HEARING AND THEREFORE ARE BEING DISMISSED AS NOT BEING PRESSED. 4. THE ISSUE RAISED IN GROUND NO.5 IS AGAINST THE CONFIRMATION OF ADDITION OF RS.9,76,176/- BY LD. CIT( A) BEING ITA NOS.3471, 3464, 3472 & 4178/M/2017 & ORS. M/S. MIRAJ ELECTICAL & MECHANICAL CO. PVT. LTD. 3 25% OF THE TOTAL PURCHASES OF RS.39,04,666/- AS AGAIN ST THE DISALLOWANCE OF TOTAL BOGUS PURCHASES BY THE AO. 5. THE LD. A.R. AT THE OUTSET SUBMITTED BEFORE THE BEN CH THAT THE SIMILAR ISSUE CAME UP BEFORE THE CO-ORDINA TE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.3611 & 3612/M/2017 FOR 2009-10 AND 2010-11 WHICH WAS PART LY ALLOWED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN FAVOUR OF THE ASSESSEE. THE LD. A.R. SUBMITTED THAT SINCE THE F ACTS OF THE CASE ARE IDENTICAL AND THEREFORE THE PRESENT AP PEALS ARE ALSO BE DECIDED FOLLOWING THE SAME ANALOGY. 6. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE GROUN D OF APPEAL FILED BY THE REVENUE. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE P ARTIES AND PERUSED THE MATERIAL ON RECORD. THE FACTS IN BR IEF ARE THAT THE AO DURING THE ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSEE HAS MADE PURCHASES FROM 8 PARTIES AS MENTI ONED IN THE PARA 6 OF THE ASSESSMENT ORDER AGGREGATING TO RS.39,04,666/-. THE SAID PARTIES WERE LISTED IN THE HAWALA RACKET AS BROUGHT OUT BY THE SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA QUA WHICH THE ASSESSEE CO ULD NOT FURNISH THE NECESSARY DETAILS/EVIDENCES SUCH AS ADD RESSES, VAT, TIN COPY OF BILLS ETC. AND THE ENTIRE PURCHASE S OF RS. 39,04,666/- WERE ADDED TO THE INCOME OF THE ASSESSEE WHILE FRAMING THE ASSESSMENT BESIDE ADDING THE GP ON THE SAID PURCHASES AND ALSO THE COMMISSION PAID FOR ARRANGIN G SUCH BOGUS PURCHASES AND THUS RESULTED INTO A TOTAL DISA LLOWANCE OF ITA NOS.3471, 3464, 3472 & 4178/M/2017 & ORS. M/S. MIRAJ ELECTICAL & MECHANICAL CO. PVT. LTD. 4 RS.40,99,900/-. LD. CIT(A), IN THE APPELLATE PROCEEDIN GS SUSTAINED THE ADDITION PARTLY EQUAL TO 25% OF THE TOTAL BOGUS PURCHASES OF RS.39,04,666/- WHICH WORKED OUT TO RS. 9,76,176/-AND NOW THE ASSESSEE IS IN APPEAL BEFORE U S. AFTER PERUSING THE DECISION OF THE CO-ORDINATE BENCH OF T HE TRIBUNAL, WE FIND THAT THE IDENTICAL ISSUE WAS ALSO INVOLVED IN ITA NO.3611 & 3612/M/2017 FOR A.Y. 2009-10 & 2010-11 WHER EIN THE CO-ORDINATE BENCH OF THE TRIBUNAL HAS PARTLY AL LOWED THE APPEALS BY DIRECTING THE AO TO MAKE THE ADDITION BY APPLYING 11.50% OF THE BOGUS PURCHASES MINUS VAT CREDIT DENIE D TO THE ASSESSEE BY THE SALES TAX DEPARTMENT. THE OPER ATIVE PART OF THE DECISION IS REPRODUCED BELOW: 5.4.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. WE FIND THAT IN THE PRESENT CASE THE ASSESSEE HAS AVAI LED BOGUS BILLS OF PURCHASES FROM 10 PARTIES AMOUNTING TO RS.2,72,13,601/-. DURING TH E ASSESSMENT PROCEEDINGS, THE ASSESSEE PRODUCED BEFORE THE ASSESSING OFFICER THE BILLS, VOUCHERS, DELIVERY CHALLANS, BANK STATEMENTS, QUANTITATIVE DETAIL OF P URCHASES, GOODS MANUFACTURED AND SOLD. HOWEVER, ASSESSEE COULD NOT PRODUCE PARTI ES BEFORE THE ASSESSING OFFICER FOR CROSS VERIFICATION. THE NOTICE ISSUED TO THESE PARTIES WERE EITHER NOT SERVED OR WERE NOT REPLIED TO AND HENCE, THE ASSESSING OFFICE R ADDED 100% OF THE BOGUS PURCHASES TO THE INCOME OF THE ASSESSEE. THE LD.CIT (A) REDUCED THE ADDITION TO 25% OF THE BOGUS PURCHASES BY OBSERVING THAT IN CASE OF HAWALA PURCHASES WHERE BILLS ARE OBTAINED FROM HAWALA TRADERS AND SIMULTANEOUSLY THE GOODS ARE PURCHASED FROM THE GREY MARKET THEREBY SAVING VAT AND OTHER I NCIDENTAL CHARGES. WE ALSO OBSERVED THAT THE ASSESSING OFFICER HAS NOT DOUBTED THE SALES OF THE ASSESSEE. DURING THE COURSE OF HEARING THE LD.AR BROUGHT TO T HE NOTICE OF THE BENCH THAT IN THE AY 2009-10, THE ASSESSEE HAD MADE PAYMENT OF RS .24,61,874/- TOWARDS VAT ON THE PURCHASES FROM HAWALA DEALERS AND SALES TAX DEP ARTMENT HAS DISALLOWED VAT CREDIT FROM THE HAWALA PARTIES TO THE TUNE OF RS.24 ,61,874/-. THE LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT DISALLOWANCE MADE BY A SSESSING OFFICER IS INCLUSIVE OF VAT AND FURTHER THE CREDIT OF VAT WAS DENIED BY THE SALES TAX DEPARTMENT AND RAISED A DEMAND WHICH WAS RECOVERED FROM THE ASSESS EE. WE FIND MERIT IN THE SUBMISSION OF THE LD.AR THAT THE SUSTENANCE OF 25% OF BOGUS PURCHASES IS EXCESSIVE AND UNREASONABLE PARTICULARLY WHEN THE VAT CREDIT W AS NOT ALLOWED TO THE ASSESSEE BY THE SALES TAX DEPARTMENT AND DEMAND OF VAT ON BE HALF OF HAWALA SUPPLIERS WAS REALIZED FROM THE ASSESSEE. IF WE LOOK AT THE GROSS PROFIT DISCLOSED BY THE ASSESSEE, IT IS 16.78 % WHICH IS MUCH MORE THAN THE DISALLOWA NCE @ 11.50% WHICH IS NORMALLY MADE BY THE COORDINATE BENCHES IN THE CASE OF HAWAL A PURCHASES. BUT TO DISCOURAGE THE PRACTICE OF BOGUS TRADING SOME DETERRENT HAS TO BE THERE. IN THE PRESENT ITA NOS.3471, 3464, 3472 & 4178/M/2017 & ORS. M/S. MIRAJ ELECTICAL & MECHANICAL CO. PVT. LTD. 5 CIRCUMSTANCES WE ARE OF THE CONSIDERED VIEW THAT EN DS OF JUSTICE WOULD BE MET IF THE ADDITION IS SUSTAINED EQUAL TO AN AMOUNT ARRIVE D AT BY CALCULATING 11.50% OF BOGUS PURCHASES MINUS THE VAT CREDIT DENIED TO THE ASSESSEE BY THE SALES TAX DEPTT WHICH COMES TO RS. 6,66,690/- (RS.31,29,564 M INUS 24,62,874). ACCORDINGLY THE AO IS DIRECTED TO DELETE THE ADDITIONS OF RS. 6 1,36,710/-. APPEAL IS PARTLY ALLOWED. 8. IN THE PRESENT CASE, WE FIND THAT THE GP DECLARED BY THE ASSESSEE IS 19.55% AND THE VAT CREDIT DENIED TO THE ASSESSEE IS RS.2,34,075/-. WE, THEREFORE, FOLLOWING THE ORDER OF THE CO- ORDINATE BENCH OF THE TRIBUNAL DIRECT THE AO TO RES TRICT THE ADDITION EQUAL TO 11.50% OF THE BOGUS PURCHASES MIN US VAT CREDIT DENIED TO THE ASSESSEE. IN OTHER WORDS 11. 50 % OF PURCHASES COMES TO RS.4,49,037/- AND VAT CREDIT DENIED TO THE ASSESSEE BY VAT DEPARTMENT IS RS.2,34,075/- AND T HUS THE ADDITION OF RS.2,14,962/- IS CONFIRMED THEREBY DELETI NG THE ADDITION OF RS.7,61,205/-. THE APPEAL OF THE ASSESS EE FOR A.Y. 2012-13 IS PARTLY ALLOWED. ITA NO.4178/M/2017 AY 2012-13 (REVENUES APPEAL) 9. THIS CROSS APPEAL BY THE REVENUE IS RENDERED INFR UCTUOUS IN VIEW OF THE DECISION IN THE APPEAL IN ITA NO.357 2/M/2017 AND THEREFORE THE SAME IS DISMISSED. ITA NO.3571/M/2017 (ASSESSEES APPEAL) ITA NO.3472/M/2017(REVENUE APPEAL) FOR A.Y. 2011-12) 10. THE ISSUES INVOLVED IN THESE APPEAL ARE IDENTIC AL TO ONES AS DECIDED BY US IN ITA NO.3572/M/2017 &4178/M/2017 AND THEREFORE OUR FINDINGS IN THE SAID APPEALS WOULD ,M UTATIS MUTANDIS, APPLY TO THIS APPEALS AS WELL. THEREFORE, THE APPEAL ITA NOS.3471, 3464, 3472 & 4178/M/2017 & ORS. M/S. MIRAJ ELECTICAL & MECHANICAL CO. PVT. LTD. 6 OF THE ASSESSEE IS PARTLY ALLOWED AND THAT OF THE R EVENUE IS DISMISSED. 11. IN THE RESULT, THE ADDITION IS SUSTAINED TO THE EXTENT OF RS.1,83,460/- WHICH IS CALCULATED BY APPLYING 11.5% O F THE BOGUS PURCHASES WHICH COMES TO RS.23,70,953/- MINUS VA T CREDIT DENIED TO THE ASSESSEE OF 21,87,493/-. ITA NO.3471/M/2017 (A.Y. 2009-10) & 3464/M/2017 (A.Y.2010-11) 12. THE APPEALS FILED BY THE ASSESSEE AGAINST THE O RDER OF CIT(A) FOR THE ASSESSMENT YEARS 2009-10 & 2010-11 IN ITA NO.3611& 3612/M/2017 WERE PARTLY ALLOWED IN FAVO UR OF THE ASSESSEE VIDE ORDER DATED 27.09.2017 IN THE ASSESSEE S APPEALS WHILE THE REVENUE APPEALS WERE NOT ADJUDICA TED AS THESE WERE NOT CLUBBED WITH THE ASSESSEES APPEALS FOR THESE YEARS . THE SAID APPEALS OF THE REVENUE ARE DISMISS ED IN VIEW OF OUR ORDER PASSED IN THE ABOVE APPEALS. IN THE RE SULT, THE APPEALS OF THE REVENUE ARE DISMISSED. 13. IN THE RESULT, ALL THE APPEALS OF THE REVENUE A RE DISMISSED AND THE APPEALS OF THE ASSESSEE ARE PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25.07.2018. SD/- SD/- (MAHAVIR SINGH) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 25.07.2018. * KISHORE, SR. P.S. ITA NOS.3471, 3464, 3472 & 4178/M/2017 & ORS. M/S. MIRAJ ELECTICAL & MECHANICAL CO. PVT. LTD. 7 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY /ASSTT. REGISTRAR, ITAT, MUMBAI.