ACIT 21(1), MUMBAI V. JAYDEV CHEMICAL INDUSTRIES, MUMBAI

ITA 3932/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0016 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 09-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGSHEN LD
• Assessee Lawyers: VINAY D MULYE LD
• Keywords: Bogus purchase; Depreciation; Onus to prove
• Section: 143(3); 133(6)

Judgement Text

ITA.NO.3932/MUM/2016 JAYDEV CHEMICAL INDUSTRIES ASSESSMENT YEAR 2011-12 IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI , , BEFORE SHRI MAHAVIR SINGH, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO. 3932/MUM/2016 ( / ASSESSMENT YEAR: 2011-12) ASSISTANT COMMISSIONER OF INCOME-TAX 21(1) R.NO.116, 1 ST FLOOR PIRAMAL CHAMBER, PAREL MUMBAI 400 0 12 / VS. JAYDEV CHEMICAL INDUSTRIES 401, OM BUILDING, 118 DR.M.B.RAUT ROAD SHIVAJI PARK, DADAR MUMBAI-400 028 ./ ./PAN/GIR NO. AACFJ-1584-C ( /APPELLANT ) : ( !' / RESPONDENT ) ASSESSEE BY : VINAY D. MULYE, LD. AR REVENUE BY : M.C.OMI NINGSHEN, LD. DR / DATE OF HEARING : 19/02/2018 / DATE OF PRONOUNCEMENT : 28/02/2018 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY REVENUE FOR ASSESSMENT Y EAR [AY] 2011- 12 CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME- TAX (APPEALS)-33 [CIT(A)], MUMBAI, APPEAL NO.CIT(A)-33/RG.21/144/14-15 DATED 23/03/2016 BY RAISING THE FOLLOWING GROUNDS OF APPE AL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN: ITA.NO.3932/MUM/2016 JAYDEV CHEMICAL INDUSTRIES ASSESSMENT YEAR 2011-12 2 I) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, LD. CIT(A) HAS ERRED IN DELETING ADDITION ON ACCOUNT OF DISALLOWANCE OF DEDUCTION U/S.35(1) AMOUNTING TO RS.26,45,128/-. II) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) HAS ERRED IN DELETING ADDITION OF BOGUS PURC HASE AMOUNTING TO RS.23,81,370/- FROM VARIOUS PARTIES. THE ASSESSMENT FOR IMPUGNED AY WAS FRAMED BY LD. ADDITIONAL COMMISSIONER OF INCOME TAX-RANGE-18(1), MUMBAI [AO] U/S 143(3) OF THE INCOME TAX ACT, 1961 ON 25/03/2014 WHEREIN THE INCOME OF THE ASSESSEE HAS BEEN DETERMINED AT RS.274.98 LACS AFTE R CERTAIN ADDITIONS / DISALLOWANCES AS AGAINST RETURNED INCOME OF RS.19 7.44 LACS FILED BY THE ASSESSE ON 28/09/2011. 2.1 BRIEFLY STATED, THE ASSESSEE BEING RESIDENT FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING OF CHEMICALS REFLECTED TURNOVER OF RS.7.53 CRORES WITH NET PROFIT OF 20% APPROX. DURING ASSESS MENT PROCEEDINGS, IT WAS NOTED THAT THE ASSESSEE CLAIMED DEDUCTION U/S 3 5(1) FOR RS.26.45 LACS ON ACCOUNT OF PURCHASE OF CERTAIN PLANT & MACH INERY STATED TO BE USED FOR SCIENTIFIC PURPOSES. THE SAID DEDUCTION WA S CLAIMED IN TERMS OF THE PROVISIONS OF SECTION 35(1)(IV) READ WITH SECTION 35(2)(IA). THE ASSESSEE PURCHASED THE SAID MACHINERY FROM SEPARATE PARTIES INCLUDING AN ENTITY NAMELY MUSKAN ENTERPRISES ON VARIOUS DATED AS NOTED BY LD. AO ON PAGE NUMBERS 4 & 5 OF THE ASSESSMENT ORDER. T O CONFIRM THE TRANSACTIONS, NOTICE WERE SENT U/S 133(6) TO MUSKAN ENTERPRISES BUT THE SAME REMAINED UN-SERVED AS THE GIVEN ADDRESS WAS FOUND TO BE INCOMPLETE. THE NOTICE U/S 133(6) SENT TO AN ENTITY NAMELY ULTRA FAB WAS NOT COMPLIED WITH. AFTER CONSIDERING THE ASSESSEES SUBMISSION, LD. AO OPINED THAT THE ASSESSEE COULD NOT PROVE THAT THE S AID MACHINERIES WERE, IN FACT, USED FOR CARRYING OUT SCIENTIFIC RES EARCH. FINALLY, LD. AO, ITA.NO.3932/MUM/2016 JAYDEV CHEMICAL INDUSTRIES ASSESSMENT YEAR 2011-12 3 WHILE DENYING DEDUCTION U/S 35(1), ALLOWED DEPRECIA TION ON PLANT & MACHINERY AGGREGATING TO RS.18,59,128/- BUT TREATED THE PURCHASES MADE FROM MUSKAN ENTERPRISES FOR RS.7,86,000/- AS NON-GENUINE AND DISALLOWED THE SAME ALTOGETHER. 2.2 THE SECOND ADDITION PERTAINS TO ADDITION ON ACC OUNT OF ALLEGED BOGUS PURCHASES. TO CONFIRM THE PURCHASES MADE BY THE ASSESSEE, NOTICES U/S 133(6) WERE SENT TO VARIOUS PARTIES AND AFTER CONSIDERING THE SAME, THE ADDITIONS WERE MADE WITH RESPECT TO FOLLO WING PURCHASES MADE BY THE ASSESSEE:- 3. AGGRIEVED THE ASSESSEE CONTESTED THE SAME WITH S UCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 23/03/2016 WER E LD. CIT(A), AFTER CONSIDERING THE ASSESSEES SUBMISSIONS, DELETED DIS ALLOWANCE U/S 35(1) BY MAKING FOLLOWING OBSERVATIONS:- 9. IN THIS REGARD, I FIND THE AO HAS NOT BROUGHT AN Y MATERIAL ON RECORD TO SUBSTANTIATE HIS CLAIM THAT THE SAID MACHINERIES SUPPLIED BY VAR IOUS CONCERNS CANNOT BE USED FOR SCIENTIFIC RESEARCH. THE APPELLANT HAS CLEARLY DEMO NSTRATED BEFORE THE AO THE LOCATION OF ITS LABORATORY, WHICH IS SPREAD OVER AT AN AREA OF 800 SQ. FT. AND VARIOUS NEW CHEMICALS, MOLECULES AND INTERMEDIARIES FOR PHA RMA INDUSTRIES, DEVELOPED BY IT BY UTILIZING THOSE MACHINERIES. THE LIST OF NEW CHE MICALS AND MOLECULES ARE SUBMITTED TO THE AO FOR VERIFICATION. THE QUALIFICA TIONS OF THE RESEARCH PERSONS INVOLVED IN THESE ACTIVITIES ARE ALSO SUBMITTED TO THE AO. EVEN PHOTOGRAPHS OF THE LABORATORY WAS ALSO SUBMITTED. FROM THE LIST OF THE MACHINERIES, I FIND THAT THESE ARE NEW PREPARATIVE HPLC MACHINERIES, FUME HOOD SET, SO FTWARE FOR HPLC MACHINES, ROTARY EVAPORATORS, HIGH CHROMATOGRAPHY MACHINE ETC . WHICH CANNOT BE TERMED AS GENERAL MACHINES NOT CAPABLE TO BE USED IN SCIENTIF IC RESEARCH AND DEVELOPMENT. NO. NAME AMOUNT (RS.) 1. STAR INTACH 17,10,450/- 2. MUSKAN ENTERPRISES 16,91,256/- 3. KRISHNA CHEMICAL WORKS 4,23,360/- 4. SHREE GANESH TRADING CO. 3,40,200/- 5. V.S.CORPORATION 9,72,500/- TOTAL 51,37,776 / - ITA.NO.3932/MUM/2016 JAYDEV CHEMICAL INDUSTRIES ASSESSMENT YEAR 2011-12 4 10. DURING ASSESSMENT AS WELL AS APPELLATE PROCEEDI NGS, THE APPELLANT HAS GIVEN DETAILS OF SALES MADE OF NEW CHEMICALS, MOLECULES A ND INTERMEDIARIES FOR PHARMA INDUSTRIES, DEVELOPED BY IT, UTILIZING THESE MACHIN ES IN DIFFERENT YEARS. HENCE, THERE IS NO BASIS IN THE CLAIM OF THE APPELLANT THAT THES E MACHINES ARE NOT USED FOR SCIENTIFIC RESEARCH. AS FAR AS BOGUS NATURE OF M/S. MUSKAN ENTERPRISE IS CONCERNED, THE ISSUE IS EXTENSIVELY DISCUSSED IN THE SUBSEQUEN T PARAGRAPHS WHILE DISCUSSING THE GROUND NO.2. LOOKING TO THE OVERALL FACTS AND C IRCUMSTANCES OF THE CASE, IN MY CONSIDERED OPINION, THE REJECTION OF THE CLAIM OF D EDUCTION U/S 35(1) OF THE ACT BY THE AO, IS NOT JUSTIFIED AND HENCE THE ADDITION OF RS.2 6,45,128/- IS DELETED. THUS GROUND OF APPEAL NO.1 IS ALLOWED. THE PARTIAL ADDITION ON ACCOUNT OF NON-GENUINE PURC HASES HAS SIMILARLY BEEN DELETED BY LD.CIT(A) AFTER CONSIDERING ASSESSE ES SUBMISSIONS AND DOCUMENTARY EVIDENCES. AGGRIEVED, THE REVENUE I S IN FURTHER APPEAL BEFORE US. 4. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED TH AT THE COMPLETE ONUS TO PROVE THAT THE SAID MACHINERIES WERE USED T O CARRY OUT THE SCIENTIFIC RESEARCH WAS ON ASSESSEE AND THE ASSESSE E FAILED TO SUBSTANTIATE THE SAME. PER CONTRA, LD. AUTHORIZED REPRESENTATIVE FOR ASSESSEE [AR] PLACED RELIANCE ON THE STAND OF LD. C IT(A) AND CONTENDED THAT THE SAME WAS QUITE FAIR AND BASED ON DOCUMENTA RY EVIDENCES ADDUCED BY THE ASSESSEE. 5. WE HAVE CAREFULLY HEARD THE RIVAL CONTENTIONS AN D PERUSED RELEVANT MATERIAL ON RECORD. SO FAR AS THE CLAIM OF THE ASSE SSEE U/S 35(1) IS CONCERNED, WE FIND THAT LD. CIT(A) IN PARAS 9 & 10 AS EXTRACTED ABOVE, CONSIDERED VARIOUS DOCUMENTARY EVIDENCES SUBMITTED BY THE ASSESSEE AND AFTER WEIGHING MULTIPLE FACTORS REACHED A CONCL USION THAT THE STATED PLANT & MACHINERY WAS NOT GENERAL PURPOSE MACHINERY BUT USED BY THE ASSESSEE TO CREATE NEW MOLECULES AND CHEMICALS, THE LIST OF WHICH WAS ALREADY SUBMITTED BY THE ASSESSEE TO LD. AO. THE PH OTOGRAPHS OF THE ITA.NO.3932/MUM/2016 JAYDEV CHEMICAL INDUSTRIES ASSESSMENT YEAR 2011-12 5 LABORATORY AS WELL AS VARIOUS MACHINERIES WERE ALSO SUBMITTED BY THE ASSESSEE, WHICH LEND CERTAIN STRENGTH TO THE CLAIM OF THE ASSESSEE. THIS IS FURTHER FORTIFIED BY THE FACT THAT THE ASSESSEE EMPLOYED QUALIFIED PERSONNEL TO CARRY OUT THE RESEARCH AND MORE PARTIC ULARLY, ONE OF THE PARTNER OF ASSESSEES FIRM NAMELY SANJAY KULKARNI HAD MASTER DEGREE IN ORGANIC CHEMISTRY AND HAD RESEARCH EXPERIENCE OF MORE THAN 3 YEARS I N BABA ATOMIC RESEARCH CENTER ON VARIOUS PROJECTS. ALL THESE FACTORS / EVIDENCES, IN OUR OPINION, WERE QUITE SUFFICIENT TO ESTABLISH THE CLAIM OF THE ASSESSEE AND THEREFORE, WE FIND THE STAND OF LD . FIRST APPELLATE AUTHORITY QUITE REASONABLE AND JUSTIFIED. AT THE SA ME TIME, WE FIND THAT LD. AO HAD ALLOWED DEPRECIATION ON SOME PLANT & MAC HINERY IN THE QUANTUM ASSESSMENT ORDER AND THEREFORE, THE SAME NE EDS TO BE REVERSED. SECONDLY, THE FACT THAT THE ASSESSEE HAS NOT CLAIMED DEPRECIATION ON THE PLANT & MACHINERY AGGREGATING T O RS.26,45,128/- IN SUBSEQUENT YEARS COULD NOT BE VERIFIED BY US FROM T HE MATERIAL AVAILABLE ON RECORD. THEREFORE, WHILE CONFIRMING THE STAND OF LD. CIT(A) IN THIS REGARD, LD. AO IS DIRECTED TO REVERSE THE DEPRECIAT ION BEING ALLOWED TO THE ASSESSEE AS PER THE QUANTUM ASSESSMENT ORDER AN D ALSO VERIFY THAT DEPRECIATION ON THE STATED PLANT & MACHINERY HAS NO T BEEN CLAIMED BY THE ASSESSEE IN SUBSEQUENT YEARS. RESULTANTLY, THIS GROUND OF REVENUES APPEAL STANDS PARTLY ALLOWED FOR STATISTICAL PURPOS ES. 6. SO FAR AS THE ADDITION OF ALLEGED NON-GENUINE PURCHASES IS CONCERNED, WE FIND THAT LD. CIT(A) HAS CONFIRMED AD DITION OF RS.15.92 LACS WITH RESPECT TO ADVANCES WRITTEN OFF AGAINST MUSKAN ENTERPRISES, AGAINST WHICH THE ASSESSEE IS NOT IN APPEAL BEFORE US AND THEREFORE, THE STATED ADDITION IS NOT THE SUBJECT MATTER OF THIS A PPEAL. ITA.NO.3932/MUM/2016 JAYDEV CHEMICAL INDUSTRIES ASSESSMENT YEAR 2011-12 6 7. PROCEEDING FURTHER, LD. CIT(A), AFTER CONSIDERIN G ASSESSEES SUBMISSIONS AND RELATED EVIDENCES, CONFIRMED DISALL OWANCE TO THE EXTENT OF 25% AGAINST PURCHASES MADE FROM KRISHNA CHEMICAL WORKS & SHRI GANESH TRADING CO. THE SAID ESTIMATION, IN OUR OPINION, IS QUITE FAIR AND REASONABLE ON FACTUAL MATRIX AND THEREFORE, DO NOT REQUIRE ANY INTERFERENCE ON OUR PART. THEREFORE, THE STAND OF L D. CIT(A) WITH RESPECT TO THESE TWO PARTIES STANDS CONFIRMED. 8. FURTHER, LD. CIT(A) HAS DELETED ADDITION WITH RE SPECT TO TAX PAID FOR RS.98,250/- ON ACCOUNT OF MACHINERY PURCHASED FROM MUSKAN ENTERPRISES. THE SAME IS CONSEQUENTIAL IN NATURE AND DOES NOT RE QUIRE ANY FURTHER INTERFERENCE ON OUR PART SINCE WE HAVE CONFIRMED THE STAND OF LD. CIT(A) WITH RESPECT TO ASSESSEES CLAIM U/S 35( 1). 9. WITH RESPECT TO PURCHASES MADE FROM STAR INTACH, UPON PERUSAL OF PARA 15.1 OF THE IMPUGNED ORDER, WE FIND THAT THE ASSESSEE PR ODUCED THE BILLS, CONFIRMATION & COPY OF RETURN OF INCOME FILE D BY THE SAID ENTITY. FURTHER, THE PAYMENT THEREOF HAS BEEN MADE BY THE A SSESSEE IN APRIL, 2011. THEREFORE, WE FIND NO INFIRMITY IN THE STAND OF LD. CIT(A) IN DELETING ADDITION WITH RESPECT TO THIS PARTY. 10. SO FAR AS ADDITION WITH RESPECT TO V.S.CORPORATION IS CONCERNED, WE FIND THAT LD. AO HAS DISALLOWED THE SAME ON THE PRE MISE THAT PAYMENT TO THE SAID PARTY WAS OUTSTANDING SINCE LONG PERIOD OF TIME. AT THE SAME TIME, LD. AO OPINED THAT THE SAID EXPENDITURE SHOUL D HAVE BEEN CAPITALIZED BY THE ASSESSEE. WE FIND THAT THE ASSES SEE HAS FILED CONFIRMATION FROM THE SAID PARTY AND THEREFORE, DIS CHARGED PRIMARY ONUS IN THIS REGARD. THE LD.AO, WITHOUT BRINGING ON RECO RD ANY COGENT MATERIAL ITA.NO.3932/MUM/2016 JAYDEV CHEMICAL INDUSTRIES ASSESSMENT YEAR 2011-12 7 TO CONTROVERT THE SAME, MADE A DISALLOWANCE WHICH W AS NOT FAIR AND JUSTIFIED. THEREFORE, LD. CIT(A) HAS RIGHTLY DELETE D THE SAME. 11. TO SUM UP, THE STAND OF LD. CIT(A) QUA ASSESSEES CLAIM U/S 35(1) STANDS CONFIRMED SUBJECT TO VERIFICATIONS AS ENUMER ATED BY US IN PARA-5 ABOVE WHEREAS THE STAND OF LD. FIRST APPELLATE AUTH ORITY QUA BOGUS PURCHASES STANDS CONFIRMED BY US. 12. RESULTANTLY, THE REVENUES APPEAL STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH FEBRUARY, 2018 SD/- SD/- (MAHAVIR SINGH) ( MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 28. 02.2018 SR.PS:- THIRUMALESH / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT 3. * ( ) / THE CIT(A) 4. * / CIT CONCERNED 5. !$- , - , / DR, ITAT, MUMBAI 6. ./ / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI