M/S-SB PANCHAL &CO., MUMBAI V. ITO21(3)(2), MUMBAI

ITA 4191/MUM/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 6222 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 11-06-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY J SETHI
• Keywords: Reopening of assessment; Tangible material
• Section: 133(6); 143(1); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.4191/MUM./2019 (ASSESSMENT YEAR : 200910 ) M/S. S.B. PANCHAL & COMPANY UNIT NO.8, JOGANI INDUSTRIAL ESTATE SENAPATI BAPAT MARG, MUMBAI 400 028 PAN AAAFS5950K . APPELLANT V/S INCOME TAX OFFICER WARD21(3)(2), MUMBAI . RESPONDENT ASSESSEE BY : SHRI MADHUR AGARWAL REVENUE BY : SHRI SANJAY J. SETHI DATE OF HEARING 17.12.2020 DATE OF ORDER 28/01/2021 O R D E R AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE CHALLENGING THE ORDER DATED 10 TH APRIL 2019, PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)33, MUMBAI, FOR THE ASSESSMENT YEAR 200910. 2. AT THE OUTSET, SHRI MADHUR AGARWAL, LEANED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ON THE INSTRUCTIONS OF THE ASSESSEE, HE WOULD NOT PRESS GROUND NO.3. ACCORDINGLY, GROUND NO.3, IS DISMISSED AS NOT PRESSED. 3. IN GROUND NO.1, THE ASSESSEE HAS CHALLENGED THE VALIDITY OF RE OPENING OF ASSESSMENT UNDER SECTION 147 OF THE INCOME TAX ACT, 1961 2 M/S. S.B. PANCHAL & COMPANY (FOR SHORT 'THE ACT' ). WHEREAS, IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED THE MERITS OF THE DISALLOWANCE MADE ON ACCOUNT OF ALLEGED NONGENUINE PURCHASES. 4. BRIEF FACTS ARE, THE ASSESSEE, A PARTNERSHIP FIRM, IS ENGAGED IN MANUFACTURE AND SALE OF PHARMACEUTICAL MACHINERIES. FOR SUCH MANUFACTURING ACTIVITIES, THE ASSESSEE PURCHASES STEEL FROM VARIOUS PARTIES. FOR THE ASSESSMENT YEAR UNDER DISPUTE, THE ASSESSEE HAD FILED ITS RETURN OF INCOME ON 25 TH SEPTEMBER 2009, DECLARING TOTAL INCOME OF ` 3,00,018. THE RETURN OF INCOME FILED BY THE ASSESSEE WAS INITIALLY PROCESSED UNDER SECTION 143(1) OF THE ACT. SUBSEQUENTLY, THE ASSESSING OFFICER RECEIVED INFORMATION FROM THE SALES TAX DEPARTMENT INDICATING THAT STEEL PURCHASED AMOUNTING TO ` 14,80,433, FROM TWO PARTIES ARE NONGENUINE AS THE CONCERNED PARTIES HAVE BEEN FOUND TO BE PROVIDING ACCOMMODATION BILLS. ON THE BASIS OF SUCH INFORMATION, THE ASSESSING OFFICER REOPENED THE ASSESSMENT UNDER SECTION 147 OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO PROVE THE GENUINENESS OF PURCHASES. FURTHER, TO INDEPENDENTLY VERIFY THE GENUINENESS OF SUCH PURCHASES, THE ASSESSING OFFICER ISSUED NOTICES UNDER SECTION 133(6) OF THE ACT TO THE SELLING DEALERS. HOWEVER, THE NOTICES ISSUED RETURNED BACK UN SERVED. THEREFORE, THE ASSESSING OFFICER WAS OF THE VIEW THAT 3 M/S. S.B. PANCHAL & COMPANY PURCHASES ARE NONGENUINE. HOWEVER, CONSIDERING THE FACT THAT THE ASSESSEE HAS EFFECTED SALES HE CONCLUDED THAT THE GOODS MUST HAVE BEEN PURCHASED FROM GREY MARKET BY SUPPRESSED PROFIT. ACCORDINGLY, HE DISALLOWED 25% OUT OF THE PURCHASES OF ` 14,80,433, AND ADDED BACK AN AMOUNT OF ` 3,70,108. THOUGH, THE ASSESSEE CONTESTED THE AFORESAID ADDITION BEFORE THE FIRST APPELLATE AUTHORITY, HOWEVER, HE SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER. 5. THE LEANED COUNSEL FOR THE ASSESSEE SUBMITTED, THE REOPENING OF ASSESSMENT IS BADINLAW AS IN THE REASONS RECORDED THE ASSESSING OFFICER HAS REFERRED TO EXPENDITURE OF ` 7,776, WHEREAS, IN THE ASSESSMENT ORDER, HE HAS TREATED THE PURCHASES OF ` 14,80,433, AS NONGENUINE. THUS, HE SUBMITTED, THE REASONS RECORDED CLEARLY REVEAL COMPLETE NONAPPLICATION OF MIND BY THE ASSESSING OFFICER. 6. AS REGARDS THE MERITS OF THE ISSUE RAISED IN GROUND NO.2, THE LEANED COUNSEL FOR THE ASSESSEE SUBMITTED, THE ASSESSEE HAS PAID THE VAT COMPONENT ON THE DISPUTED PURCHASES. FURTHER, HE SUBMITTED, THE PROFIT RATIO ON THE GOODS (STEEL) PURCHASED BY THE ASSESSEE VARIES BETWEEN 5% TO 8%. THEREFORE, HE SUBMITTED, DISALLOWANCE @ 25% IS HIGH AND EXCESSIVE AND HAS TO BE SCALED DOWN TO A REASONABLE FIGURE. 4 M/S. S.B. PANCHAL & COMPANY 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND LEARNED COMMISSIONER (APPEALS). 8. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS REGARDS THE ISSUE RELATING TO REOPENING OF ASSESSMENT UNDER SECTION 147 OF THE ACT, I FIND THAT AFTER PROCESSING OF RETURN OF INCOME UNDER SECTION 143(1) OF THE ACT, THE ASSESSING OFFICER HAD RECEIVED SPECIFIC INFORMATION FROM THE SALES TAX DEPARTMENT THAT CERTAIN PURCHASES CLAIMED TO HAVE BEEN MADE BY THE ASSESSEE DURING THE YEAR ARE NONGENUINE. THEREFORE, THE ASSESSING OFFICER HAS TANGIBLE MATERIAL IN HIS POSSESSION TO FORM A BELIEF REGARDING ESCAPEMENT OF INCOME. MENTIONING OF A WRONG FIGURE IN THE REASONS RECORDED, THEREFORE, WOULD NOT INVALIDATE THE PROCEEDING. THEREFORE, I UPHOLD THE VALIDITY OF REOPENING OF ASSESSMENT UNDER SECTION 147 OF THE ACT. AS REGARDS THE MERITS OF THE ISSUE, THE ASSESSMENT ORDER ITSELF REVEALS THAT THE ASSESSING OFFICER ACCEPTS THE FACT THAT AS AGAINST THE PURCHASES MADE, THE ASSESSEE HAS EFFECTED CORRESPONDING SALES. THEREFORE, HE HAS ONLY DOUBTED THE SOURCE OF PURCHASES, HENCE, HAS ADDED BACK THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES BY ESTIMATING IT @ 25%. CONSIDERING THE FACT THAT THE DISPUTED GOODS PURCHASED BY THE ASSESSEE IS STEEL, WHEREIN, AS PER INDUSTRY NORMS, THE PROFIT RATE VARIES BETWEEN 5% AND 8% AND FURTHER, THE FACT THAT 5 M/S. S.B. PANCHAL & COMPANY THE ASSESSEE HAS PAID APPLICABLE VAT ON SUCH PURCHASES TO THE SALES TAX AUTHORITIES BECAUSE OF THE DEFAULT MADE BY THE SELLING DEALERS, I AM OF THE CONSIDERED OPINION THAT DISALLOWANCE @ 8% OF THE ALLEGED NONGENUINE PURCHASES WOULD BE FAIR AND REASONABLE. ACCORDINGLY, I DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO 8% OF THE NONGENUINE PURCHASES. THE GROUNDS RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. 9. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON 28/01/2021 MUMBAI, DATED: 28/01/2021 SD/- SAKTIJIT DEY JUDICIAL MEMBER COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT, MUMBAI