KINJAL CONSTRUCTION CO. & CHIRAG CONSTRUCTION CO. (JV), MUMBAI V. ITO 18(2)(4), MUMBAI

ITA 4383/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8580 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 30-01-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 17-07-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Assessee Lawyers: D B SANGHVI
• Keywords: Bogus purchase
• Section: 143(3); 133A; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH E,MUM BAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.4383/MUM/2015 (ASSESSMENT YEAR- 2009-10) M/S. KINJAL CONSTRUCTION CO. & CHIRAG CONSTRUCTION CO. (JV), OFFICE NO. 101, 1 ST FLOOR, PRATHAMESH APARTMENTS, OLD COLLEGE ROAD, DADAR, MUMBAI-400028 PAN: AAAAM8709M VS. ITO 18(2)(4) ROOM NO. 109, PIRAMAL CHAMBER, 1 ST FLOOR, LALBAUG, MUMBAI-400012. (APPELLANT) (RESPONDENT) ITA NO.4526/MUM/2015 (ASSESSMENT YEAR- 2009-10) ITO 21(2)(2) ROOM NO. 110, 1 ST FLOOR, PIRAMAL CHAMBER, PAREL, MUMBAI-400012. VS. M/S. KINJAL CONSTRUCTION CO. & CHIRAG CONSTRUCTION CO. (JV), OFFICE NO. 101, 1 ST FLOOR, PRATHAMESH APARTMENTS, OLD COLLEGE ROAD, DADAR, MUMBAI-400028 PAN: AAAAM8709M (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI D. B. SANGHVI (AR) REVENUE BY : SHRI B.S. BIST (DR) DATE OF HEARING : 02.02.2017 DATE OF PRONOUNCEMENT : 08.02.2017 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JM: 1. THESE TWO CROSS APPEALS U/S 253 OF THE INCOME-TAX A CT (THE ACT) ARE DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS) [FOR SHORT THE CIT(A)] 33, MUMBAI DATED 29.05.2015 FOR ASSESSMENT YEAR (AY) 2009-10. SINCE, BOTH THE APPEAL ARE ARISING OUT OF THE SAME ORDER T HUS BOTH THE APPEAL WERE HEARD TOGETHER AND ARE DECIDED BY COMMON ORDER TO AVOID T HE CONFLICTING DECISION. 2 ITA NOS. 4383 & 4526/M/2015 M/S. KINJAL CONSTRUCTION CO. & CHIR AG CONSTRUCTION CO. (JV), 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED RETURN OF INCOME FOR RELEVANT AY ON 22.09.2003. THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 15.12.2011 ASSESSING THE TOTAL INCOME OF ASSESSEE AT RS. 44,57,300/-. SUBSEQ UENTLY, THE RETURN OF INCOME WAS RE-OPENED U/S 147 OF THE ACT, ON THE BASIS THAT SU RVEY ACTION U/S 133A CONDUCTED ON 04.12.2010 BY DG (INVESTIGATION), THEREAFTER, INFOR MATION WAS RECEIVED FROM DG (INVEST) THAT THE PURCHASES SHOWN TO HAVE BEEN MADE BY THE ASSESSEE FROM THE FOLLOWING PARTIES; SR NO NAME OF PARTIES AMOUNT IN RS. 1 S. S. ENTERPRISES 16,04,315/- 2 NATIONAL TRADING COMPANY 13,49,004/- 3 AJAY STONE 7,80,913/- 4 MAHADESHPURE ENTERPRISES 10,36,230/- 5 ARYAN SALES CORPORATION 9,25,000/- 6 AAYUSHI ENTERPRISES 5,16,780/- TOTAL RS.62,11780/- ALL THE ABOVE PARTIES WERE BOGUS AND THE ASSESSEE S HOWN TO HAVE MADE PURCHASES WITHOUT RECEIPT OF ANY DELIVERY OF GOODS. ON THE BA SIS OF THIS INFORMATION, THE ASSESSMENT WAS RE-OPENED U/S 147 AFTER RECORDING TH E REASONS THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. NOTICE U/S 148 DATED 13.03.2013 WAS ISSUED TO THE ASSESSEE. IN RESPECT TO THE NOTICE ASSESSEE SUBMITT ED THAT THE RETURN ALREADY FILED MAY BE TREATED AS RETURN IN RESPONSE TO THE SAID NOTICE . THE ASSESSING OFFICER (AO) COMPLETED THE RE-ASSESSMENT PROCEEDING U/S 143(3) R .W.S. 147 OF THE ACT ON 26.03.2014 AND MADE THE DISALLOWANCE OF AGGREGATE A MOUNT OF PURCHASES OF RS. 62,11,780/-. ON APPEAL BEFORE THE LD. CIT(A), THE A SSESSEE CHALLENGED THE VALIDITY OF RE-OPENING AS WELL AS THE ADDITION OF AGGREGATE AMO UNT. THE LD. CIT(A) GRANTED PARTIAL RELIEF TO THE ASSESSEE AND RESTRICTED THE D ISALLOWANCE TO 12.5% OF THE PURCHASES MADE FROM SUCH ALLEGED BOGUS PARITIES. HENCE, THE R EVENUE HAS FILED THE APPEAL AGAINST RESTRICTING THE 12.5% OF THE PURCHASES. FU RTHER, AGGRIEVED THE ASSESSEE ALSO FILED APPEAL FOR DELETING THE 12.5%. THE ASSESSEE ALSO RAISED THE GROUNDS OF APPEAL AGAINST THE VALIDITY OF RE-OPENING U/S 147 OF THE A CT. 3 ITA NOS. 4383 & 4526/M/2015 M/S. KINJAL CONSTRUCTION CO. & CHIR AG CONSTRUCTION CO. (JV), 3. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE (AR ) OF THE ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (DR) FOR THE REVENUE AN D PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD. AR OF THE ASSESSEE AT OUTSET, MA DE THE STATEMENT THAT HE IS NOT PRESSING THE GROUND NO.1 RAISED BY HIM WITH REGARD TO RE-OPENING OF ASSESSMENT U/S 147 OF THE ACT. CONSIDERING THE STATEMENT OF LD. AR , GROUND NO.1 RAISED BY ASSESSEE IS DISMISSED AS NOT PRESSED. 4. GROUND NO.2 RAISED BY ASSESSEE AND THE GROUND OF AP PEAL RAISED BY REVENUE (GROUND NO.1 TO 6) WHICH ARE INTERCONNECTED. THE LD. DR FO R THE REVENUE ARGUED THAT IN ASSESSEES OWN CASE FOR AY 2010-11THE COORDINATE BE NCH OF TRIBUNAL SUSTAINED THE SIMILAR DISALLOWANCE @12.5% OF THE SIMILAR BOGUS PU RCHASES. THE COPY OF THE TRIBUNALS ORDER IN ITA NO.4384&4527/M/2015 WAS FIL ED ON RECORD. THE LD. AR OF THE ASSESSEE FAIRLY ADMITTED THE DECISION OF TRIBUN AL FOR AY 2010-11. HOWEVER, THE LD. AR OF THE ASSESSEE ARGUED THAT FOR THE YEAR UND ER CONSIDERATION, THE NET PROFIT OF THE ASSESSEE WAS LOW AND THE SAME WAS INCREASED TO 3.54% THE AY 2010-11. 5. WE HAVE CONSIDERED THE CONTENTION OF THE PARTIES AN D GONE THROUGH THE ORDER OF AUTHORITIES BELOW AND THE DECISION OF CO-ORDINATE B ENCH. THE CO-ORDINATE BENCH OF TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2010-11 IN I TA NO. 4384/MUM/2015 (ON REVENUES APPEAL) MADE THE FOLLOWING OBSERVATIONS: 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE US. ON HEARING BOTH THE PARTIES ON THIS ISSUE, WE FIND THE SALES ACCOUNT IS UNDISTURBED IN THIS CASE BY THE AO. THEREFORE, THE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF CIT VS. NIKUNJ EXIMP ENTERPRISES PVT LTD REPORTED IN 2013-TIOL IS APPLICABLE IN THIS CASE. FURTHER, WE FIND, THE CIT (A) RELIED ON THE JUDGMENT IN THE CASE OF SIMIT P SHETH (SUPRA). ON PERUSAL OF THE CITED JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SIMIT P SHETH (SUPRA), WE FIND, THE HELD PORTION OF THE JUDGMENT IS RELEVANT IN THIS REGARD. CONSID ERING THE SIGNIFICANCE AND FOR THE SAKE OF COMPLETENESS OF THIS ORDER THE SAME IS EXTRACTED AS UNDER:- WE ARE BROADLY IN AGREEMENT WITH THE REASONING ADO PTED BY THE COMMISSIONER (APPEALS) WITH RESPECT TO THE NATURE OF DISPUTED PURCHASES OF STEEL. IT MAY BE THAT THE THREE SUPPLIERS FROM WHOM THE ASSESSEE CLAIMED TO HAVE PURCHASED TH E STEEL DID NOT OWN UP TO SUCH SALES. HOWEVER, VITAL QUESTION WHILE CONSIDERING WHETHER T HE ENTIRE AMOUNT OF PURCHASES SHOULD BE ADDED BACK TO THE INCOME OF THE ASSESSEE OR ONLY THE PROFIT ELEMENT EMBEDDED THEREIN WAS TO ASCERTAIN WHETHER THE PURCHASES THEMSELVES W ERE COMPLETELY BOGUS AND NON EXISTENT OR THAT THE PURCHASES WERE ACTUALLY MADE BUT NOT FR OM THE PARTIES FROM WHOM IT WAS CLAIMED TO HAVE BEEN MADE AND INSTEAD MAY HAVE BEEN PURCHASED FROM GREY MARKET WITHOUT PROPER BILLING OR DOCUMENTATION. IN THE PRESENT CASE, CIT BELIEVED THAT WHEN AS A TR ADER IN STEEL THE ASSESSEE SOLD CERTAIN QUANTITY OF STEEL, HE WOULD HAVE PURCHASED THE SAME QUANTITY FROM SOME SOURCE. WHEN THE TOTAL SALE IS ACCEPTED BY THE ASSESSING OFFICER, HE COULD NOT HAVE QUESTIONED THE VERY BASIS OF THE PURCHASES. IN ESSENCE THEREFORE, THE COMMISS IONER (APPEALS) BELIEVED ASSESSEE S 4 ITA NOS. 4383 & 4526/M/2015 M/S. KINJAL CONSTRUCTION CO. & CHIR AG CONSTRUCTION CO. (JV), THEORY THAT THE PURCHASES WERE NOT BOGUS BUT WERE M ADE FROM THE PARTIES OTHER THAN THOSE MENTIONED IN THE BOOKS OF ACCOUNTS. THAT BEING THE POSITION, NOT THE ENTIRE PURCHASE PRICE BUT ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES CAN BE ADDED TO THE INCOME OF THE AS SESSEE. SO MUCH IS CLEAR BY DECISION OF THIS COURT. IN PARTICULAR, COURT HAS ALSO TAKEN A SIMILAR VIEW IN CASE OF COMMISSIONER OF INCOME TAX-IV VS. VIJAY M MISTRY CONSTRUCTION LTD. VIDE ORDER DATED 10.01.2011 PASSED IN TAX APPEAL NO. 1090 OF 2009 AND IN CASE OF COMMISSI ONER OF INCOME TAX-I VS. BHOLANATH POLY FAB PVT. LTD. VIDE ORDER DATED 23.10.2012 PASS ED IN TAX APPEAL NO. 63 OF 2012. THE VIEW TAKEN BY THE TRIBUNAL IN CASE OF VIJAY PROTEIN S PVT. LTD. VS. CIT REPORTED IN 58 ITD 428 CAME TO BE APPROVED. IF THE ENTIRE PURCHASES WERE WHOLLY BOGUS AND THERE WAS FINDING OF FACT ON RECORD THAT NO PURCHASE WERE MADE AT ALL, COUNSEL FOR THE REVENUE WOULD BE JUSTIFIED IN ARGUING THAT THE ENTIRE AMOUNT OF SUCH BOGUS PURCHASES SHOULD BE ADD ED BACK TO THE INCOME OF THE ASSESSEE. SUCH WERE THE FACTS IN CASE OF ACIT (OSC) WARD 5(3) NADIAD VS. PAWANRAJ B BOKADIA (SUPRA). THIS BEING THE POSITION, THE ONLY QUESTION THAT SUR VIVES IS WHAT SHOULD BE THE FAIR PROFIT RATE OUT OF THE BOGUS PURCHASES WHICH SHOULD BE ADDED BA CK TO THE INCOME OF THE ASSESSEE. THE COMMISSIONER ADOPTED RATIO OF 30% OF SUCH TOTAL SALES. THE TRIBUNAL, HOWEVER, SCALED DOWN TO 12.5%. WE MAY NOTICE THAT IN THE IMMEDIATELY PRECEDING YE AR TO THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE HAD DECLARED GROSS PROFIT @ 3.56% OF THE TOTAL TURNOVER. IF THE YARDSTICK OF 30%, AS ADOPTED BY TH E COMMISSIONER, IS ACCEPTED GP RATE WILL BE MUCH HIGHER. IN ESSENCE, THE TRIBUNAL ONLY ESTIMATED THE POSSIBLE PROFIT OUT OF PURCHASES MADE THROUGH NON-GENUINE PARTIES. NO QUES TION OF LAW IN SUCH ESTIMATION WOULD ARISE. THE ESTIMATION OF RATE OF PROFIT RETURN MUST NECESSARILY VARY WITH THE NATURE OF BUSINESS AND NO UNIFORM YARDSTICK CAN BE ADOPTED. 10. FROM THE ABOVE, WE FIND, THE ESSENTIAL FACTS ARE CO MPARABLE TO THAT OF THE PRESENT CASE. THEY ARE: SALES ACCOUNT IS UNDISTURBED, PRES UMPTION OF PURCHASE OF GOODS OUTSIDE THE BOOKS AND ALSO WITHOUT BILLS, PROCURING THE PURCHAS E BILLS FROM THE HAWALA BILL PROVIDERS ETC. UNDOUBTEDLY, THE ASSESSEE IS ENGAGED IN THE CONSTRU CTION ACTIVITY AND GP RATE 12.5% IS NOT UNCOMMON. IN THE CITED JUDGMENT, THE ADDITION @ 12 .5% OF THE SUSPECTED PURCHASES WAS CONFIRMED BY THE HONBLE HIGH COURT WHEN THE RECORD ED PROFIT OF THE ASSESSEE SIMIT P SHETH (SUPRA) IS ONLY @ 3.56%. CONSIDERING THE ABO VE, WE FIND, THE CIT (A) IS JUSTIFIED IN ADOPTING 12.5% OF THE SUSPECTED PURCHASES FOR ADDIT ION. THEREFORE, IN OUR OPINION, THE ORDER OF THE CIT (A) ON THIS ISSUE IS FAIR AND REAS ONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. THUS, GROUND NO.2 RAISED BY THE ASSE SSEE IS DISMISSED . 6. WE FIND THAT IN THE YEAR UNDER CONSIDERATION THE NP RATIO OF ASSESSEE HAS INCREASED TO 3.54 AS AGAINST 2.58 IN AY 2007-08 (PAGE 228 OF P/B ). THE NP RATIO WAS NOT DISPUTED BY LD DR FOR THE REVENUE. THE HONBLE BOMBAY HIGH C OURT IN CIT VS HARIRAM BHAMBHANI IN ITA NO. 313 OF 2013 DECIDED ON 04.2.2015 HELD THAT REVENUE IS ENTITLED TO BRING THE ENTIRE SALES CONSIDERATION TO TAX, BUT ONLY THE PROFIT ATTRIBUTABLE ON THE TOTAL UNRECORDED SALES CONSIDERATION ALONE CAN BE SUBJECT TO INCOME TAX. CONSIDERING THE ABOVE REFERRED FACTUAL POSITION AND THE DECISION OF CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2010-11, WE DEEM IT A PPROPRIATE TO RESTRICT THE DISALLOWANCE @ 10% OF THE IMPUGNED PURCHASES. WE OR DER ACCORDINGLY. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. 5 ITA NOS. 4383 & 4526/M/2015 M/S. KINJAL CONSTRUCTION CO. & CHIR AG CONSTRUCTION CO. (JV), 7. IN THE RESULT, THE APPEAL FILED BY ASSESSEE IS PART LY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 8 TH FEBRUARY, 2017. SD/- SD/- (B.R. BASKARAN) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 08/02/2017 S.K.PS 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/