MANOJ METALS, MUMBAI V. INCOME TAX OFFICER-19(2)(3), MUMBAI

ITA 4293/MUM/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1834 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 09-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Keywords: Reopening of assessment; Bogus purchase; Principle of natural justice; Opportunity of cross examination; Accommodation entries; Reassessment proceedings

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM ITA NO. 4293 / MUM/20 1 7 ( ASSESSMENT YEAR : 2010 - 11 ) M/S. MANOJ METALS 14, 1 ST CARPENTER STREET NULL BAZAR, GULALWADI MUMBAI - 400004 VS. INCOME TAX OFFICER, 19(2)(3), MUMBAI PAN/GIR NO. AAAFM1606Q ( APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY SHRI PIYUSH CHHAJED REVENUE BY SHRI RAM TIWARI & SHRI MANOJ KUMAR SINGH DATE OF HEARING 09 / 11 /201 8 DATE OF PRONOUNCEMENT 16 / 11 /201 8 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 29, MUMBAI DATED 21/03/2017 FOR A.Y.2010 - 11 IN THE MATTER OF ORDER PASSED U/S.143(3) R.W.S. 147 OF THE IT ACT. 2. THE ONLY GRIEVANCE OF ASSESSEE RELATES TO REOPENING OF ASSESSMENT U/S.147 AND MERIT OF THE ADDITION UPHELD IN RESPECT OF BOGUS PURCHASES AMOUNTING TO RS.14,51,175/ - . 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 4. IN THIS CASE, THE RETURN OF INCOME FOR THE A.Y.2010 - 11 WAS FILED ON 24.09,2010 DECLARING TOTAL INCOME OF RS.8,51,690 / - . THE RETURN WAS PROCESSED U/S.143(1) OF THE INCOME - TAX ACT, 1961. SUBSEQUENTLY, ITA NO. 4293/MUM/2017 M/S. MANOJ METALS 2 THE AO RECEIVED INFORMATION FROM THE DGIT(INV.), MUMBAI WHO IN TURN RECEIVED INFORMATION FROM SALES TAX DEPARTMENT ABOUT SOME PARTIES WHO WERE PROVIDING HAWALA ENTRY / ACCOMMODATION ENTRIES FOR PURCHASES ON THE BASIS OF WHICH THE CASE WAS REOPEN ED U/S. 147. THE INFORMATION WAS THAT THE SALES TAX DEPARTMENT HAS DUE DILIGENCE WHICH REVEALED THA T THE ASSESSEE IS INVOLVED IN TAKING A CCOMMODATION ENTRIES OF BOGUS PURCHASES FROM 3 PARTIES AMOUNTING TO RS.2,60,45,690/ - . 5. ON THE BASIS OF THIS INFORMATION, THE AO ISSUED NOTICE U/S.148 WHICH WAS SUBSEQUENTLY FOLLOWED BY NOTICES U/S.14 2(1) AND 143(2) AND COMPLETED THE ASSESSMENT U/S.143(3) R.W.S. 147 ON 27/01/2016. IN THE REASSESSMENT ORDER SO FRAMED, AO ADDED 12.5% OF ALLEGED BOGUS PURCHASES IN ASSESSEES INCOME. 6. BY THE IMPUGNED ORDER, CIT(A) DIRECTED FOR REDUCING THE GP ADDITION B Y 6.05% BEING THE GP RATE DECLARED BY THE ASSESSEE. THUS, ADDITION WAS RESTRICTED TO THE EXTENT OF 5.95% OF THE BOGUS PURCHASES. ASSESSEE IS IN FURTHER APPEAL BEFORE US. 7. LEARNED AR RELIED ON THE ORDER OF THE CO - ORDINATE BENCH IN CASE OF RAVI STEEL INDUS TRIES, ITA NO.4745, 4746/MUM/2017 ORDER DATED 08/12/2017 AND CONTENDED THAT ASSESSEE WAS ALSO DEALING IN VERY SAME MATERIAL AND THE ADDITION SO MADE BY THE AO @5% WAS DELETED BY THE TRIBUNAL. ACCORDINGLY, IT WAS PLEADED THAT ENTIRE ADDITION SHOULD BE DELET ED BY FOLLOWING THE ORDER OF CO - ORDINATE BENCH. ITA NO. 4293/MUM/2017 M/S. MANOJ METALS 3 8. ON THE OTHER HAND, LEARNED DR RELIED ON THE ORDER OF LOWER AUTHORITIES AND CONTENDED THAT CIT(A) HAS ALREADY GIVEN SUBSTANTIAL RELIEF BY REDUCING THE GP RATE OF 6.05% AS DECLARED BY THE ASSESSEE FROM THE A DDITION OF 12.5% AS MADE BY THE AO. 9. I HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND THAT CIT(A) HAS UPHELD THE ADDITION AFTER GIVING RELIEF OF GP RATE DECLARED BY THE ASSESSEE. PRECISE OBSERVA TION OF CIT(A) WAS AS UNDER: - 6.3. THE SUBMISSIONS HAVE BEEN CAREFULLY CONSIDERED. IT IS THE CONTENTION OF THE LD. COUNSEL THAT OPPORTUNITY TO CROSS EXAMINE THE PARTIES WERE NOT PROVIDED BY HE AO. THE AO TRIED TO VERIFY THE GENUINENESS OF THE PURCHASES BY ISSUE OF NOTICES U/S.133(6) WHICH WERE RETURNED UNSERVED. WHEN HIS EFFORTS TO VERIFY THE GENUINENESS FAILED, HE MADE THE PARTIES FROM WHOM THE ASSESSEE WAS SUPPOSED TO HAVE MADE THE PURCHASES, AS THE ASSESSEE'S WITNESSES AND ASKED THE APPELLANT TO PRODUCE THE PARTIES FOR VERIFICATION, WHICH HE FAILED TO DO. IN ANY CASE, AS THE PARTIES WERE NOT AVAILABLE IN THE ADDRESS GIVEN, THERE IS NO QUESTION OF THE AO PRODUCING THEM FOR CROSS EXAMINATION. MAINTENANCE OF STOCK RECORDS DOES NOT PROVE THAT THE PURCHASES RE CORDED ARE FROM THE PARTIES MENTIONED IN THE BOOKS. MOREOVER, IN THE APPELLANT'S CASE, AO HAS NOT DOUBTED THE GENUINENESS OF THE PURCHASES, HE ONLY DOUBTED THE TRANSACTIONS, OF THE ALLEGED PARTIES MENTIONED SUPRA. AS THE PARTIES WERE NOT TRACEABLE, THE GEN UINENESS OF THE PURCHASES FROM THESE PARTIES COULD NOT BE ESTABLISHED BEYOND DOUBT. ALSO, NO CONFIRMATIONS HAVE BEEN OBTAINED BY THE APPELLANT FROM THESE PARTIES. THEREFORE, THE AO PRESUMED THAT THE PURCHASES HAVE BEEN MADE FROM SOME OTHER PARTIES IN THE G REY MARKET, PROBABLY AT A LESSER RATE. THE AO HAS ONLY ESTIMATED THE ADDITIONAL PROFIT MARGIN WHICH THE ASSESSEE WOULD HAVE BEEN MADE ON ACCOUNT OF THESE PURCHASE WHICH WAS 12.5% OF THE ALLEGED BOGUS PURCHASES. 6.3.1. COMING TO THE ADDITION MADE, THE HON' BLE ITAT, AHM E DABAD 'C' BENCH IN THE CASE OF VIJAY PROTEINS LTD. VS. ACIT 58 ITD 0428 HELD THAT IN SIMILAR CIRCUMSTANCES, 25% OF THE PURCHASE PRICE ACCOUNTED THROUGH FICTITIOUS INVOICES HAS TO BE DISALLOWED. THE HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF SANJAY OIL CAKES V/S CIT 316 ITR 0274 DEALT WITH SIMILAR CASE WHERE SOME OF THE ALLEGED SUPPLIERS WHO HAD ISSUED BILLS TO THE ASSESSEE WERE NOT GENUINE AS THEY WERE NOT TRACEABLE. THE GOODS MUST HAVE BEEN RECEIVED FROM OTHER PARTIES. THE LIKELIHOOD OF THE PURCHASE ITA NO. 4293/MUM/2017 M/S. MANOJ METALS 4 PRICE OF THESE ALLEGED PURCHASES BEING INFLATED COULD NOT BE RULED OUT AND THEREFORE THE HON'BLE HIGH COURT HAS UPHELD THE DECISION OF CIT(A) AND THE ITAT DISALLOWING 25% OF THE PAYMENTS MADE TO SUCH PARTIES. THE HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF CIT VS. SIMIT P. SHETH 356 ITR 0451 HELD THAT ONCE THE SALE IS ACCEPTED BY THE AO, THE VERY BASIS OF PURCHASES COULD NOT BE QUESTIONED. NOT THE ENTIRE PURCHASE PRICE COULD BE DISALLOWED BUT ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES COU LD BE ADDED TO THE INCOME OF THE ASSESSEE. THE ESTIMATION VARIES WITH THE NATURE OF BUSINESS AND NO UNIFORM YARDSTICK COULD BE ADOPTED. GIVEN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, I FIND IT REASONABLE TO ESTIMATE THE GROSS PROFIT ON THE ALLEGED BOGUS PURCHASES AT 12.5%. THE ADDITION MADE BY THE AO @12.5% ON THE ALLEGED BOGUS PURCHASES IS UPHELD. HOWEVER, THE AO IS DIRECTED TO REDUCE THE PROFIT ALREADY DECLARED BY THE APPELLANT ON THESE PURCHASES. THESE GROUNDS OF APPEAL ARE PARTLY ALLOWED . 10. I HAD ALSO GONE THROUGH THE ORDER OF THE CO - ORDINATE BENCH AS RELIED ON BY THE AR IN THE CASE OF RAV I STEEL INDUSTRIES (SUPRA), WHEREIN PRECISE OBSERVATION OF THE TRIBUNAL WAS AS UNDER: - 14. I HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH TH E ORDERS OF THE AUTHORITIES BELOW. I HAVE 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 ME IN THE CONTEXT OF FACTUAL MATRIX OF THE CASE. IN THE INSTANT CASE, I FOUND THAT ON THE BASIS OF INFORMATION FROM SALES TAX DEPARTMENT, AO HAS INITIATED REASSESSMENT PROCEEDINGS AND CALLED FOR VARIOUS DETAILS ABOUT THE PURCHASES MADE BY THE ASSESSEE. IN RESPONSE TO THE SAME, ASSESSEE HAS FURNISHED PURCHASE BILLS, DELIVERY CHALLANS, BANK STATEMENT SHOWING PAYMENT MADE TO THE PARTIES, CONFIRMATION OF THE RESPECTIVE PARTIES, LEDGER ACCOUNT OF THE PURCHASE PARTY, COPY OF STOCK REGISTER, COPY OF TRANSPORTATION BILLS AND COPY OF DELIVERY CHALLA NS. ASSESSEE HAS ALSO FURNISHED DETAILS OF CORRESPONDING SALES AFFECTED BY IT DURING BOTH THE YEARS UNDER CONSIDERATION. IT IS NOT IN DISPUTE THAT ASSESSEE HAS ASKED FOR THE COPY OF STATEMENT ON THE BASIS OF WHICH PURCHASES FROM THESE PARTIES WERE ALLEGED AS BOGUS BY THE AO HOWEVER, THE SAME WAS NOT SUPPLIED TO THE ASSESSEE NOR AN OPPORTUNITY OF CROSS EXAMINATION WAS PROVIDED TO THE ASSESSEE. UNDER THESE CIRCUMSTANCES, I FOUND THAT PRINCIPLE OF NATURAL JUSTICE WAS GROSSLY VITIATED. THERE IS NO DOUBT THAT RE OPENING WAS BASED ON THE VALID REASON, WHERE AO WAS HAVING NECESSARY PRIMAFACIE MATERIAL JUSTIFYING THE ISSUE OF NOTICE U/S.148. I FOUND THAT MATERIAL WITH REGARD TO SUPPLY OF GOODS BY THE SUSPICIOUS DEALER WAS AVAILABLE TO THE AO ONLY AND IT WAS NOT SHARE D WITH THE ASSESSEE. AO WAS RELYING ON THE FINDINGS MADE ITA NO. 4293/MUM/2017 M/S. MANOJ METALS 5 BY THE SALES TAX DEPARTMENT. IF AO WAS RELYING UPON THE STATEMENTS OF THESE PARTIES, IT WAS HIS DUTY TO PROVIDE THE COPIES OF THEIR STATEMENT TO THE ASSESSEE AND TO AFFORD CROSS EXAMINATION OF THE SUPPLIERS. THERE IS NO BAR OF UTILISING THE MATERIAL COLLECTED BY OTHER GOVERNMENT AGENCIES AND MAKING ADDITION ON THE BASIS OF SUCH MATERIAL, BUT WHEN THE AO WAS IDENTIFYING TO MAKE SUCH ADDITION HOW CAN HE DEPRIVE THE ASSESSEE TO ACCESS TO THE MATERIAL THAT WAS BEING USED AGAINST ASSESSEE. THERE IS NO PROVERBIAL WHISPER IN THE ASSESSMENT ORDERS REGARDING REQUEST MADE BY THE ASSESSEE FOR SUPPLY OF MATERIALS AND CROSS - EXAMINATION OF THE SUPPLIERS, THE BASIC PRINCIPLE OF NATURAL JUSTICE MANDATE THAT ASSESS EE SHOULD BE GIVEN DUE OPPORTUNITY TO DEFEND ITSELF I.E., THEY SHOULD BE SUPPLIED THE MATERIAL THAT IS PROPOSED TO BE USED AGAINST THEM. IN RESPECT OF VIOLATION OF PRINCIPLES OF NATURAL JUSTICE, THE HONBLE SUPREME COURT IN THE CASE OF ANDAMAN TIMBER (SUPR A) OBSERVED AS UNDER: - '...ACCORDING TO US,NOT ALLOWING THE ASSESSEE TO CROSS EXAMINE THE WITNESS BY THE ADJUDICATING AUTHORITY THOUGH THE STATEMENTS OF THOSE WITNESSES WERE MADE THE BASIS OF IMPUGNED ORDER IS A SERIOUS FLAW WHICH MAKES THE ORDER NULLITY I N AS MUCH AS IT AMOUNTED TO VIOLATION OF PRINCIPLES OF NATURAL JUSTICE BECAUSE OF WHICH THE ASSESSEE WAS ADVERSELY AFFECTED. IT IS TO BE BORNE IN MIND THAT THE ORDER OF COMMISSIONER WAS BASED UPON THE STATEMENTS GIVEN BY THE AFORESAID TWO WITNESSES. EVEN W HEN THE ASSESSEE DISPUTED THE CORRECTNESS OF THE 1596 - 97/M/16 - FANCYWEAR STATEMENTS AND WANTED TO CROSS - EXAMINE, THE ADJUDICATING AUTHORITY DID NOT GRANT THIS OPPORTUNITY TO THE ASSESSEE. IT WOULD BE PERTINENT TO NOTE THAT IN THE IMPUGNED ORDER PASSED BY TH E ADJUDICATING AUTHORITY HE HAS SPECIFICALLY MENTIONED THAT SUCH AN OPPORTUNITY WAS SOUGHT BY THE ASSESSEE. HOWEVER NO SUCH OPTION WAS GRANTED AND THE AFORESAID PLEA IS NOT EVEN DEALT BY THE ADJUDICATING AUTHORITY.....' 15. WE ALSO FOUND THAT BOTH THE YEA RS UNDER CONSIDERATION, AO & CIT(A) HAS ACCEPTED THE CORRESPONDING SALES AND EVEN PURCHASES WERE ACCEPTED. AO ONLY MADE THE ADDITION BY ESTIMATING FURTHER PROFIT OF 5% ON SUCH PURCHASES. HOWEVER, WITH REGARD TO THE PAYMENT SO MADE BY THE CHEQUES NO EVIDENC E HAS BEEN BROUGHT ON RECORD PROVING THAT SUPPLIERS HAVE WITHDRAWN CASH IMMEDIATELY AFTER DEPOSITING THE CHEQUES OF THE ASSESSEE. UNDER THESE FACTS AND CIRCUMSTANCES, WE DO NOT FIND ANY MERIT IN TREATING THE PURCHASES AS BOGUS AND ESTIMATING FURTHER PROFIT OF 5% ON THE ALLEGED SUSPICION PURCHASES. ACCORDINGLY, AO IS DIRECTED TO DELETE THE SAME. 11. HOWEVER, IN THE INSTANT CASE BEFORE US I FOUND THAT GENUINENESS OF THE PURCHASES COULD NOT BE ESTABLISHED IN SO FAR AS NO CONFIRMATION WAS FILED BY THE ASSESSE E FROM THESE BOGUS SUPPLIERS, THE CIT(A) OBSERVED ITA NO. 4293/MUM/2017 M/S. MANOJ METALS 6 THAT AO HAS PRESUMED THAT PURCHASES HAVE BEEN MADE FROM OTHER PARTIES IN THE GREY MARKET PROBABLY AT A LESSER RATE, THEREFORE, AFTER RELYING UPON THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF VIJAY A PRINTS 5 TTD 428 UPHELD THE ADDITION AFTER REDUCING THE GP RATE DECLARED BY THE A SSESSEE. IN THE INSTANT CASE, HOWEVER, I DO NOT FIND ANY OBSERVATION BY THE LOWER AUTHORITIES WITH RESPECT TO FURNISHING OF THE DELIVERY CHALLANS, CONFIRMATION OF RESPECTIVE PARTIES, LEDGER ACCOUNT OF PURCHASE PARTY, COPY OF STOCK REGISTER, COPY OF TRANSPORTATION BILLS AND COPY OF DELIVERY CHALLANS HAVE NOT BEEN FILED BEFORE THE LOWER AUTHORITIES. HOWEVER, IN THE CASE OF RAVI STEEL AS RELIED ON BY LEARNED AR, I FOUND THAT ASS ESSEE HAS FURNISHED ALL THESE DETAILS BEFORE LOWER AUTHORITIES AND AFTER CONSIDERING THE SAME , TRIBUNAL HAS DELETED ENTIRE ADDITION MADE ON ACCOUNT OF BOGUS PURCHASES . I N ALL FAIRNESS, I RESTORE THE MATTER BACK TO THE FILE OF THE AO FOR DECIDING AFRESH IN TERMS OF OUR ABOVE OBSERVATIONS. AO IS FURTHER DIRECTED TO RE - VERIFY THE DELIVERY CHALLANS CONFIRMATION OF RESPECTIVE PARTIES ETC., AND FOR DECIDING HE ISSUE AFRESH AS PER LAW. I DIRECT ACCORDINGLY. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16 / 11 /201 8 SD/ - (R.C.SHARMA) ACCOUNTANT MEMBER MUMBAI ; DATED 16 / 11 /201 8 KARUNA SR. PS ITA NO. 4293/MUM/2017 M/S. MANOJ METALS 7 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//