INCOME TAX OFFICER WARD 25(2)(1), MUMBAI V. SHRI AMIT B. MODY, MUMBAI

ITA 420/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7894 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 19-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI LD
• Assessee Lawyers: VIMAL PUNMIYA LD
• Keywords: Reopening of assessment; Bogus purchase; Rejection of books of accounts; Principle of natural justice; Reason to believe; Reassessment proceedings; Set aside
• Section: 271(1)(c); 143(3); 142(1); 234B; 133(6); 147; 145; 148

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.420/MUM/2018 ( / ASSESSMENT YEAR: 2009-10) & ./ I.T.A. NO.419/MUM/2018 ( / ASSESSMENT YEAR: 2010-11) & ./ I.T.A. NO.418/MUM/2018 ( / ASSESSMENT YEAR: 2011-12) INCOME TAX OFFICER - WA RD - 25(2)(1) C-10, ROOM NO.505,5 TH FLOOR PRATYAKSHKAR BHAVAN BANDRA KURLA COMPLEX, BANDRA MUMBAI-400 051. / VS. SHRI AMIT B IPIN MODY C-35, HASTIRAJ SOCIETY BAPUBHAI VASHI ROAD VILE PARLE-(W) MUMBAI-400 056 ! ./ ./PAN/GIR NO. AIZPM-8362-J ( /APPELLANT ) : ( / RESPONDENT ) & ./ I.T.A. NO.819/MUM/2018 ( / ASSESSMENT YEAR: 2009-10) & ./ I.T.A. NO.820/MUM/2018 ( / ASSESSMENT YEAR: 2010-11) & ./ I.T.A. NO.821/MUM/2018 ( / ASSESSMENT YEAR: 2011-12) SHRI AMIT BIPIN MODY C-35, HASTIRAJ SOCIETY BAPUBHAI VASHI ROAD VILE PARLE-W MUMBAI-400 056. / VS. INCOME TAX OFFICER - WARD - 25(2)(1) C-10, ROOM NO.505,5 TH FLOOR PRATYAKSHKAR BHAVAN BANDRA KURLA COMPLEX, BANDRA MUMBAI-400 051. ! ./ ./PAN/GIR NO. AIZPM-8362-J ( /APPELLANT ) : ( / RESPONDENT ) 2 REVENUE BY : SHRI RAM TIWARI-LD. DR ASSESSEE BY : SHRI VIMAL PUNMIYA-LD.AR / DATE OF HEARING : 15/04/2019 / DATE OF PRONOUNCEMENT : 23/04/2019 / O R D E R PER BENCH: - 1. THE AFORESAID CROSS-APPEALS FOR ASSESSMENT YEARS [AY] 2009-10, 2010-11 & 2011-12 CONTEST SEPARATE ORDERS OF LD. FI RST APPELLATE AUTHORITY ON COMMON GROUNDS OF APPEAL VIZ. ESTIMATION OF ADDI TION ON ACCOUNT OF ALLEGED BOGUS PURCHASES. SINCE THE GRIEVANCE OF THE ASSESSEE AS WELL AS REVENUE IS COMMON IN ALL THE APPEALS, FACTS ARE PARI-MATERIA THE SAME AND COMMON GROUNDS OF APPEAL HAVE BEEN RAISED IN THE CR OSS-APPEALS, WE DISPOSE-OFF THE SAME BY WAY OF THIS COMMON ORDER FO R THE SAKE OF CONVENIENCE & BREVITY. CROSS APPEALS FOR AY 2009-10 THE GROUNDS RAISED BY THE REVENUE READ AS UNDER: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.85,35,705/- ON ACCOUNT OF BOGUS PURCHASES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING THAT THE ADDITION WAS MADE ON THE BASIS OF INFORMATION RECEIVED FROM DLT(LNV.) AND SALES TAX DEPARTMENT, MAHARASHTRA WITH REGARD TO BO GUS PURCHASES MADE BY THE ASSESSEE FROM DEALERS WITHOUT ACTUAL SUPPLY OF GOODS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING THAT THE HAWALA DEALERS HAVE ADMITTED O N OATH BEFORE THE SALES TAX AUTHORITIES THAT THEY HAVE NOT SOLD ANY MATERIAL TO ANYBODY. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IS NOT CONSIDERING THAT THE ASSESSEE COULD NOT PROVE THE G ENUINENESS OF THE PARTIES DURING THE ASSESSMENT PROCEEDINGS. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN ESTIMATING THE PROFIT AT 12.5% OF THE TOTAL ALLEGED BOGUS PURCHASES FROM HAWALA DEALERS 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE DECISION OF THE HON'BLE SUPREME CO URT IN THE CASE OF N.K. PROTEINS LTD. VS. 3 DCIT (2017-TIOL-23-SC-IT) DATED 16.01.2017 WHEREIN THE HON'BLE APEX COURT CONFIRMED THE DECISION OF THE HIGH COURT FOR ADDITION OF ENTIRE I NCOME ON ACCOUNT OF BOGUS PURCHASES. 7. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. THE GROUNDS RAISED BY THE ASSESSEE READ AS UNDER: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD CIT(A) ERRED IN CONFIRMING THE INITIATION OF THE REASSESSMENT PROCEEDING 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 CANNOT BE INITIATED. A) NO REASSESSMENT CAN BE MADE JUST TO MAKE AN EN QUIRY OR VERIFICATION. B) REASSESSMENT PROCEEDING CANNOT BE INITIATE MER ELY ON THE INFORMATION RECEIVED FROM INVESTIGATION WING. C) REASSESSMENT PROCEEDING CANNOT BE INITIATED WH EN THE LD. CIT(A) HAVE REASON TO SUSPECT AND NOT REASON TO BELIEVE. 3. ON THE FACTS AND CIRCUMSTANCES OF CASE AND LA W THE LD CIT(A) ERRED IN CONFIRMING THE ASSESSMENT ORDER UNDER SECTION 143 SUB SECTION 3 R W S 147 OF INCOME TAX ACT WHICH IS PASSED AGAINST THE PRINCIPAL OF NATURAL JUSTICE. 4. THE LD CIT(A) ERRED IN CONFIRMING AND REJECTING THE BOOKS OF ACCOUNTS UNDER SECTION 145(3) OF THE INCOME TAX ACT. 5. THE LD CIT(A) ERRED IN CONFIRMING AND TREATING RS.85,35,705/- BEING 12.5 PERCENT OF THE TOTAL PURCHASES OF RS.6,82,85,638/- AS BOGUS NON-GE NUINE EXPENDITURE AND THEREBY ERRED IN ADDING THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 6. THE LD. CIT(A) ERRED IN CONFIRMING THE CHARGIN G OF INTEREST UNDER SECTION 234A, 234B 234C AND 234D OF THE INCOME TAX ACT 1961. 7. THE LD. CIT(A) ERRED IN CONFIRMING THE INITIAT ION OF THE PENALTY PROCEEDING UNDER SECTION 271(L)(C) OF THE INCOME TAX ACT 1961. THE LD. AUTHORIZED REPRESENTATIVE FOR ASSESSEE [AR] , AT THE OUTSET, HAS DRAWN OUR ATTENTION TO THE FACT THAT GROUND NUMBERS 1 TO 4 OF ASSESSEES APPEAL CHALLENGES THE REOPENING OF ASSESSMENT ON LE GAL GROUNDS AND REJECTION OF BOOKS OF ACCOUNTS. HOWEVER, AN ENDORSE MENT TO THE EFFECT HAS BEEN MADE IN THE WRITTEN SUBMISSIONS THAT THESE GRO UNDS ARE NOT BEING PRESSED IN THE APPEAL AND THEREFORE, ALL THESE GROU ND STANDS DISMISSED IN LIMINE . IN THE ABOVE BACKGROUND, WE PROCEED TO DISPOSE-OF F THE APPEALS AS ARGUED BEFORE US. 2.1 FACTS LEADING TO THE CROSS APPEALS ARE THAT THE ASSESSEE BEING RESIDENT INDIVIDUAL STATED TO BE ENGAGED IN TRADING OF IRON & STEEL UNDER PROPRIETARY CONCERN NAMELY M/S SIDHIVINAYAK ENTERPRISES WAS REASSESSED 4 FOR IMPUGNED AY U/S 143(3) READ WITH SECTION 147 ON 13/03/2015 BY LD. INCOME TAX OFFICER-25(2)(1), MUMBAI [AO] WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.177.02 LACS AFTER SOL E ADDITION ON ACCOUNT OF ALLEGED BOGUS PURCHASES FOR RS.170.71 LACS AS AGAINST RETURNED INCOME OF RS.6.30 LACS FILED BY THE ASSESSEE ON 12/09/2009 WHICH WAS PROCESSED U/S 143(1). THE ADDITION OF RS.170.71 LACS AS MADE BY LD. AO ON ACCOUNT OF ALLEGED BOGUS PURCHASES IS THE SOLE SUBJECT MATTER OF PRESENT APPEAL BEFORE US. 2.2 THE REASSESSMENT PROCEEDINGS GOT TRIGGERED PURS UANT TO RECEIPT OF CERTAIN INFORMATION FROM DGIT (INVESTIGATION) / SALES TAX DEPARTMENT, MAHARASHTRA WHEREIN IT TRANSPIRED THAT THE ASSESSEE STOOD BENE FICIARY OF ACCOMMODATION PURCHASE BILLS AGGREGATING TO RS.682. 85 LACS FROM 36 SUSPICIOUS ENTITIES, THE DETAILS OF WHICH HAVE ALRE ADY BEEN EXTRACTED IN PARA 3.1 OF THE QUANTUM ASSESSMENT ORDER DATED 13/03/2015. A CCORDINGLY, THE CASE WAS REOPENED U/S 147 BY ISSUANCE OF NOTICE U/S 148 ON 20/03/2014 WHICH WAS FOLLOWED BY STATUTORY NOTICES U/S 143(2) AND 142(1) WHEREIN THE ASSESSEE WAS DIRECTED TO SUBSTANTIATE THE AFORESAID PURCHASES. THE COPY OF REASONS RECORDED TO REOPEN THE ASSESSMENT WERE A LSO PROVIDED TO THE ASSESSEE IN DUE COURSE. 2.3 ALTHOUGH THE ASSESSEE DEFENDED THE PURCHASES MA DE BY HIM, HOWEVER, NOTICES ISSUED U/S 133(6) TO ALL THE ENTIT IES TO CONFIRM THE TRANSACTIONS, WERE RETURNED UNDELIVERED BY THE POST AL AUTHORITIES WITH REMARKS LEFT / NOT KNOWN / INCOMPLETE ADDRESS . THE ASSESSEE FAILED TO PRODUCE ANY OF THE SUPPLIERS TO CONFIRM THE TRANSAC TIONS AND ALSO FAILED TO SUBMIT DETAILS SUCH AS DELIVERY CHALLAN, TRANSPORT BILLS & WEIGHT BRIDGE S LIP TO 5 DEMONSTRATE DELIVERY OF MATERIAL . HOWEVER, IT WAS SUBMITTED THAT THE MATERIAL PURCHASED BY THE ASSESSEE WAS SOLD AND SIN CE THE SALES WERE GENUINE, THE PURCHASES WERE ALSO GENUINE. THE ASSES SEE ALSO PRODUCED STOCK MOVEMENT CHART TO SUBSTANTIATE THE PURCHASES. 2.4 HOWEVER, UPON CAREFUL CONSIDERATION OF FACTUAL MATRIX, LD. AO CAME TO A CONCLUSION THAT THE ASSESSEE COULD NOT DISCHARGE THE PRIMARY ONUS OF PROVING THE PURCHASES WITH REQUISITE DOCUMENTS AND THE BOOKS OF ACCOUNTS DID NOT REFLECT THE TRUE AND GENUINE PICTURE OF FIN ANCIAL STATUS OF THE ASSESSEE. CONSEQUENTLY, THE BOOKS OF ACCOUNTS WERE REJECTED IN TERMS OF SECTION 145 OF THE ACT. FINALLY, THE ADDITIONS AGAI NST THESE PURCHASES AGGREGATING TO RS.682.85 LACS WERE ESTIMATED @25% W HICH RESULTED INTO AN ADDITION OF RS.170.71 LACS IN THE HANDS OF THE A SSESSEE. 3. AGGRIEVED, THE ASSESSEE AGITATED THE SAME WITH P ARTIAL SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 01/11/2 017, WHEREIN THE ASSESSEE SUBMITTED THAT PAYMENTS TO THE SUPPLIERS W AS THROUGH BANKING CHANNELS. THE LD. FIRST APPELLATE AUTHORITY, AFTER CONSIDERING ASSESSEES SUBMISSIONS, FACTUAL MATRIX, DOCUMENTARY EVIDENCES ETC. CAME TO A CONCLUSION THAT THE REJECTION OF BOOKS WAS NOT JUST IFIED. AT THE SAME TIME, INTER-ALIA, RELYING UPON THE JUDGMENT OF HONBLE GUJARAT HIGH C OURT RENDERED IN CIT VS. SIMIT P.SHETH [356 ITR 451] & CIT VS. BHOLA NATH POLY FAB. P. LTD. [355 ITR 290], LD. FIRST APPELLATE AUTHORITY REDUCED THE ESTIMATED ADDITIONS TO 12.5% AS AGAINST 25% MADE BY LD. AO. T HE STAND OF LD. FIRST APPELLATE AUTHORITY HAS GIVEN RISE TO CROSS-APPEALS BEFORE US. 4. THE LD. AUTHORIZED REPRESENTATIVE FOR ASSESSEE [ AR], SHRI VIMAL PUNMIYA, DREW OUR ATTENTION TO THE FACT THAT THE ASSESSEE WA S DEALING IN 6 LOW MARGIN ITEM LIKE IRON & STEEL WHICH ATTRACTED LOWER VAT RATES IN COMPARISON TO OTHER COMMODITIES. OUR ATTENTION IS A LSO DRAWN TO THE FACT THAT THE PAYMENTS TO SUPPLIERS WERE THROUGH BANKING CHANNELS, THE SALES TURNOVER WAS ACCEPTED BY THE REVENUE, THE ACCOUNTS WERE DULY AUDITED AND THE ASSESSEE DEMONSTRATED MOVEMENT OF STOCK AND THE REFORE, THE ADDITIONS WERE ON HIGHER SIDE. RELIANCE HAS BEEN PLACED ON OT HER DECISIONS OF THE TRIBUNAL WHEREIN THE ESTIMATION HAS BEEN MADE ON TH E LOWER SIDE. THE COPIES OF THE DECISION HAVE BEEN PLACED ON RECORD. PER CONTRA, LD. DR SUBMITTED THAT FACTUAL MATRIX JUSTIFIES FULL DISALL OWANCE AND THEREFORE, LD. AO WAS ALREADY LENIENT IN RESTRICTING THE SAME TO 25%. 5. WE HAVE CAREFULLY HEARD THE RIVAL SUBMISSIONS AN D PERUSED RELEVANT MATERIAL ON RECORD INCLUDING JUDICIAL PRONOUNCEMENT S CITED BEFORE US. WE ARE OF THE CONSIDERED OPINION THAT THERE COULD BE N O SALE WITHOUT ACTUAL PURCHASE OF MATERIAL KEEPING IN VIEW THE FACT THAT THE ASSESSEE WAS ENGAGED IN TRADING ACTIVITIES. THE ASSESSEE WAS IN POSSESSION OF PRIMARY PURCHASE DOCUMENTS AND THE ACCOUNTS WERE SUBJECT TO AUDIT. THE PAYMENTS TO THE SUPPLIERS WERE THROUGH BANKING CHANNELS. TH E SALES TURNOVER HAS NOT BEEN DISPUTED BY THE REVENUE. THE ASSESSEE DEMO NSTRATED MOVEMENT OF STOCK BEFORE LOWER AUTHORITIES. AT THE SAME TIME , THE ASSESSEE FAILED TO CONCLUSIVELY SUBSTANTIATE THE DELIVERY OF MATERIAL. NOTICES ISSUED U/S 133(6) TO ALL THE SUPPLIERS DID NOT ELICIT SATISFACTORY RE SPONSE AND THE ASSESSEE FAILED TO PRODUCE EVEN A SINGLE SUPPLIER TO CONFIRM THE TRANSACTIONS. THEREFORE, IN SUCH A SITUATION, THE ADDITION, WHICH COULD BE MADE, WAS TO ACCOUNT FOR PROFIT ELEMENT EMBEDDED IN THESE PURCHA SE TRANSACTIONS TO FACTORIZE FOR PROFIT EARNED BY ASSESSEE AGAINST POS SIBLE PURCHASE OF 7 MATERIAL IN THE GREY MARKET AND UNDUE BENEFIT OF VA T AGAINST SUCH BOGUS PURCHASES, WHICH LD. FIRST APPELLATE AUTHORITY HAS RIGHTLY DONE. HOWEVER, KEEPING IN VIEW THE FACT THAT THE ASSESSEE WAS DEAL ING IN LOW MARGIN ITEM LIKE IRON & STEEL WHICH WAS SUBJECTED TO LOWER VAT RATE, WE RESTRICT THE IMPUGNED ADDITIONS TO 5% OF ALLEGED BOGUS PURCHASES. THE IMPUGNED ORDER STAND MODIFIED TO THAT EXTENT. GROUND NO. 5 OF ASSE SSEES APPEAL STAND PARTLY ALLOWED. GROUND NO.6 OF ASSESSEES APPEAL IS RELATING TO CHARGING OF INTEREST U/S 234 WHICH IS MANDATORY AS WELL AS CONS EQUENTIAL IN NATURE WHEREAS GROUND NO. 7 RELATING TO INITIATION OF PENA LTY U/S 271(1)(C) IS PREMATURE AT THIS STAGE AND HENCE, REQUIRE NO ADJUD ICATION. 6. THE REVENUE, IN ONE OF THE GROUND, HAS SUBMITTED THAT FULL DISALLOWANCE WAS TO BE MADE UNDER THE CIRCUMSTANCES IN TERMS OF THE DECISION OF HONBLE SUPREME COURT RENDERED IN N.K.PROTEINS LTD. VS. DCIT. HOWEVER, THE SAID DECISION IS NOT APPLICABLE TO THE FACT OF THE PRESENT CASE SINCE HERE THE ADDITIONS HAVE BEEN ESTIMATED @25% B Y LD. AO HIMSELF. 7. RESULTANTLY, THE REVENUES APPEAL STANDS DISMISS ED WHEREAS THE ASSESSEES APPEAL STANDS PARTLY ALLOWED IN TERMS OF OUR ABOVE ORDER. CROSS APPEALS FOR AYS 2010-11 & 2011-12 8. AS NARRATED IN THE OPENING PARAGRAPH, THE FACTS ARE PARI-MATERIA THE SAME IN THESE TWO ASSESSMENT YEARS. THE GROUNDS OF CROSS-APPEALS ARE IDENTICAL. HENCE, OUR OBSERVATIONS, CONCLUSION AND DECISION AS GIVEN FOR AY 2009-10 SHALL MUTATIS-MUTANDIS APPLY TO THESE YEARS ALSO. 9. RESULTANTLY, THE REVENUES APPEAL FOR THESE TWO ASSESSMENT YEARS STANDS DISMISSED WHEREAS THE ASSESSEES APPEAL STAN DS PARTLY ALLOWED IN TERMS OF OUR ABOVE ORDER. 8 CONCLUSION 10. ALL THE THREE APPEALS OF THE REVENUE STANDS DIS MISSED WHEREAS THE ASSESSEES APPEALS STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD APRIL, 2019. SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 23/04/2019 SR.PS:-JAISY VARGHESE ! / 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.