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

ITA 4384/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2791 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2016
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 17-07-2015
• Court: TRIBUNAL
• Department Lawyers: PRAKASH PATHADE
• Assessee Lawyers: DILIP SANGHAVI
• Keywords: Bogus purchase; Question of law; Accommodation entries; Tax effect
• Section: 143(3); 133(6); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER I.T.A. NO.4384/M/2015 (ASSESSMENT YEAR: 2010 - 2011 ) KINJAL CONSTRUCTION CO. & CHIRAG CONSTRUCTION CO. (JV), OFFICE NO.101, 1 ST FLOOR, PRATHAMESH APARTMENTS, OLD COLLEGE ROAD, DADAR, MUMBAI 400 028. / VS. ITO 18(2)(4), R.NO.109, PIRAMAL CHAMBERS, 1 ST FLOOR, LALBAUG, MUMBAI 400 012. ./ PAN : AAAAM8709M ( / APPELLANT) .. ( / RESPONDENT ) I.T.A. NO.4527/M/2015 (ASSESSMENT YEAR: 2010 - 2011 ) ITO 18(2)(4), R.NO.109, PIRAMAL CHAMBERS, 1 ST FLOOR, LALBAUG, MUMBAI 400 012. / VS. KINJAL CONSTRUCTION CO. & CHIRAG CONSTRUCTION CO. (JV),OFFICE NO.101, 1 ST FLOOR, PRATHAMESH APARTMENTS,OLD COLLEGE ROAD, DADAR, MUMBAI 400 028. ./ PAN : AAAAM8709M ( / APPELLANT) .. ( / RESPONDENT ) / ASSESSEE BY : SHRI DILIP SANGHAVI / REVENUE BY : SHRI PRAKASH PATHADE, DR / DATE OF HEARING : 18 .08.2016 / DATE OF PRONOUNCEMENT : 30 .09.2016 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS UNDER CONSIDERATION AND THEY ARE CROSS APPEALS INVOLVING THE ASSESSMENT YEAR 2009 - 2010. SINCE, THE ISSUES INVOLVED IN THESE APPEALS ARE INTER - CONNECTED, THEREFORE, FOR THE SAKE OF CONVENIENCE, THEY ARE CLUBBED, HEARD COMBINEDLY AND DISPOSED OF IN THIS CO NSOLIDATED ORDER. APPEAL WISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAS OF THIS ORDER. 2 ITA NO.4384/M/2015 (AY 2010 - 2011) (BY ASSESSEE) 2. THIS APPEAL FILED BY THE ASSESSEE ON 17.7.2015 IS AGAINST THE ORDER OF THE CIT (A) - 33, MUMBAI DATED 29.5.2015 FOR THE ASSESSMENT YEAR 2010 - 2011. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: - 1. UNDER THE FACTS AND CIRCUMSTANCES, INITIATION OF PROCEEDINGS U/S 147 / 148 ARE ILLEGAL, WITHOUT APPLICATION OF MIND, MECHANICAL, WITHOUT JURISD ICTION AND UNSUSTAINABLE IN LAW AS WELL AS ON MERITS. WITHOUT PREJUDICE TO ABOVE AND IN ADDITION TO THE ABOVE GROUND: 2.1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN CONFIRMING ARBITRARILY THE ADDITION TO THE EXTE NT OF R S. 3,16,578/ - BEING 12.5% OF PURCHASES OF RS. 25,32,622/ - MADE FROM TWO PARTIES HOLDING THAT SOME ADDITIONAL GROSS PROFIT NEED TO BE ESTIMATED ON THE PURCHASES MADE FROM SUCH SIX PARTIES. ADDITION IS CONFIRMED ARBITRARILY IGNORING THE MERITS AND IS BAD IN LAW AND THE SAME NEEDS TO BE DELETED. 2.2. THE LD CIT (A) FAILED TO APPRECIATE THAT THE APPELLANT WAS NOT AFFORDED AN OPPORTUNITY TO CROSS EXAMINE THE ALLEGED DISPUTED PURCHASE PARTIES WHICH THE APPELLANT HAD SPECIFICALLY ASKED FOR. 3. IN THE AB OVE GROUNDS, ASSESSEE RAISED THE ISSUES RELATING TO VALIDITY OF THE REOPENING PROCEEDINGS BASED ON THE INFORMATION RECEIVED FROM THE DGIT (INV) RELATING TO THE BOGUS PURCHASES AND THE MERITS RELATED ISSUES RELATING TO THE CONCLUSION OF THE CIT (A) IN CONFI RMING THE GP ADDITION @ 12.5% OF THE SUSPECTED PURCHASES AMOUNTING TO RS. 25,32,622/ - . 4. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME DECLARING THE TOTAL INCOME OF RS. 18,25,970/ - . REGULAR ASSESSMENT WAS DU LY COMPLETED U/S 143(3) OF THE ACT. ASSESSEE IS CIVIL CONTRACTOR AND WAS SURVEYED U/S 133 A OF THE ACT ON 4.12.20 10 RELEVANT TO THE AY 2011 - 12. I NFORMATION WAS RECEIVED FROM THE DGIT (INV) OFFICE REGARDING CERTAIN BOGUS PURCHASES BY THE ASSESSEE FROM S. S. ENTERPRISES AND NATIONAL TRADING CO. AS PER THE ASSESSMENT ORDER, THE SAID PARTIES FILED THE AFFIDAVIT S WITH THE SALES TAX DEPARTMENT INFORMING THAT THEY ARE MERELY ENGAGED IN THE SUPPLY OF THE ACCOMMODATION / BILLS ENTRIES AND NEVER DELIVERED THE GOODS TO THE ASSESSEE . THE DGIT (INV) OFFICE FORWARDED THE STATEMENT OF SHRI HIRALAL SUPPORTING THE ABOVE. ACCORDINGLY, AO INITIATED THE PROCEEDINGS U/S 147 / 148 OF THE ACT. AO ISSUED NOTICES U/S 133(6) OF THE ACT TO THE SAID PARTIES WHICH WERE DULY RETURNED UNSERVED. ACCORDINGLY, AO CAME TO THE CONCLUSION THAT THE PARTIES ARE BOGUS AND THEIR NAMES APPEARED IN THE LIST OF ENTITIES ON THE OFFICIAL WEBSITE OF THE SALES TAX DEPARTMENT IE WWW.MAHAVAT.GOV.IN . 3 EVENTUALLY, AO MADE ASSESSMENT ON THE SAID AMOUNTS OF PURCHASES FROM BOTH THE PARTIES ( IE S. S. ENTERPRISES AND NATIONAL TRADING CO) AND THE ASSESSED INCOME WAS DETERMINED AT RS. 44,00,052/ - . MATTER TRAVELLED TO THE FIRST APPELLATE AUTHORITY. 5. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CIT (A) DID NOT APPRECIATE THE ABOVE LINE OF ASSESSMENT MADE BY THE AO. CIT (A) VIDE PARA 48 OF HIS ORDER CONCLUDED THAT ADDING THE ADDITIONAL GP @ 12.5% ON SUCH ALLE GED BOG US PURCHASES OF RS. 25,32,622/ - IS REASONABLE AND RESULTANTLY RS. 3,16,578/ - IS ADDED TO THE INCOME OF THE ASSESSEE. ACCORDINGLY, CIT (A) GRANTED RELIEF TO THE ASSESSEE TO THE EXTENT OF RS. 22,16,044/ - . 6. DURING THE PROCEEDINGS BEFORE US, LD COUNSEL FOR THE ASSESSEE READ OUT THE GROUNDS RAISED BY THE ASSESSEE AND SUBMITTED THAT GROUND NO.1 IS NOT PRESSED . AFTER HEARING THE LD DR IN THIS REGARD, WE DISMISSED THE SAID GROUND AS NOT PRESSED. 7. REFERRING TO T HE GROUND NO.2 , LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ADDITION OF ADDITIONAL GP OF RS. 3,16,578/ - ONLY INCREASED THE UNEARNED GP OF THE ASSESSEE . HOWEVER, REFERRING TO THE GUJARAT HIGH COURT JUDGMENT IN THE CASE OF CIT VS. SIMIT P SHETH IN ITA NO .553 OF 2012, DATED 16.1.2013 (356 ITR 451) , LD COUNSEL FOR THE ASSESSEE SUBMITTED THE SAID JUDGMENT IS RELEVANT FOR THE PROPOSITION THAT THE ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES CAN BE ADDED TO THE INCOME OF THE ASSESSEE WHEN THE ASSESSEE PURCHA SED GOODS IN GR E Y MARKET WITHOUT BILLS AND MADE UP THE SAME WITH THE ACCOMMODATION ENTRIES / BILLS . HOWEVER, THE LD AR IS OF THE OPINION TH AT THE ADDITION OF ADDITIONAL PROFIT @ 12.5% OF THE SUSPECTED PURCHASES IS NOT FAIR IN THE ASSESSEES CASE WHERE THE GP RATE OF THE ASSESSEE IS ALREADY 12.3% (PARA 45 OF THE CIT (A)S ORDER IS RELEVANT) . T HEREFORE, THE SAME SHOULD BE DELETED. 8. ON THE OTHER HAND, LD DR FOR THE REVENUE RELIED HEAVILY ON THE CONTENTS OF PARA 45 OF THE CIT (A)S ORDER AND SUPPO RTED THE DECISION OF THE CIT (A) IN ADOPTING THE GP @ 12. 5%. 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 SALE S ACCOUNT IS UNDISTURBED IN THIS CASE BY THE AO. 4 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, W E FIND, THE CIT (A) RELIED ON THE JUDG MENT 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. CONSIDERING THE SIGNIFICANCE AND FOR THE SAKE OF COMPLETENESS OF THIS ORDER THE SAME IS EXTRACTED AS UNDER: - W E ARE BROADLY IN AGREEMENT WITH THE REASONING ADOPTED 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 THE STEEL DID NOT OWN UP TO SUCH SALES. HOWEVER, VITAL QUESTION WHILE CONSIDERING WHETHER THE 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 WERE COMPLETELY BOGUS AND NON EXISTENT OR THAT THE PURCHASES WERE ACTUALLY MADE BUT NOT FROM THE PARTIES FROM WHOM IT WAS CLAIMED TO HAVE BEEN MADE AND INSTEAD MAY HAVE BEEN PURCHASED FROM GREY MAR KET WITHOUT PROPER BILLING OR DOCUMENTATION. IN THE PRESENT CASE, CIT BELIEVED THAT WHEN AS A TRADER 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 AS SESSING OFFICER, HE COULD NOT HAVE QUESTIONED THE VERY BASIS OF THE PURCHASES. IN ESSENCE THEREFORE, THE COMMISSIONER (APPEALS) BELIEVED ASSESSEE S THEORY THAT THE PURCHASES WERE NOT BOGUS BUT WERE MADE FROM THE PARTIES OTHER THAN THOSE MENTIONED IN THE BO OKS 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 ASSESSEE. 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 COMMISSIONER OF INCOME TAX - I VS. BHOLANATH POLY FAB PVT. LTD. VIDE ORDER DATED 23.10.2012 P ASSED IN TAX APPEAL NO. 63 OF 2012. THE VIEW TAKEN BY THE TRIBUNAL IN CASE OF VIJAY PROTEINS 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 WE RE MADE AT ALL, COUNSEL FOR THE REVENUE WOULD BE JUSTIFIED IN ARGUING THAT THE ENTIRE AMOUNT OF SUCH BOGUS PURCHASES SHOULD BE ADDED BACK TO THE INCOME OF THE ASSESSEE. SUCH WERE THE FACTS IN CASE OF ACIT (OSC) WARD 5(3) NADIAD VS. PAWANRAJ B BOKADIA (SUPR A). THIS BEING THE POSITION, THE ONLY QUESTION THAT SURVIVES IS WHAT SHOULD BE THE FAIR PROFIT RATE OUT OF THE BOGUS PURCHASES WHICH SHOULD BE ADDED BACK 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 YEAR 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 THE 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 QUESTION OF LAW IN SUCH ESTIMATION WOULD ARISE. THE ESTIMATION OF RATE OF PROFIT RETURN MUST NECESSAR ILY VARY WITH THE NATURE OF BUSINESS AND NO UNIFORM YARDSTICK CAN BE ADOPTED. 5 10. FROM THE ABOVE, WE FIND, THE ESSENTIAL FACTS ARE COMPARABLE TO THAT OF THE PRESENT CASE. THEY ARE: SALES ACCOUNT IS UNDISTURBED, PRESUMPTION OF PURCHASE OF GOODS OUTSIDE THE BOOKS AND ALSO WITHOUT BILLS, PROCURING THE PURCHASE BILLS FROM THE HAWALA BILL PROVIDERS ETC. UNDOUBTEDLY, THE ASSESSEE IS ENGAGED IN THE CONSTRUCTION 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 ABOVE, WE FIND, THE CIT (A) IS JUSTIFIED IN ADOPTING 12.5% OF THE SUSPECTED PURCHASES FOR AD DITION. THEREFORE, IN OUR OPINION, THE ORDER OF THE CIT (A) ON THIS ISSUE IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. THUS, GROUND NO.2 RAISED BY THE ASSESSEE IS DISMISSED . 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED . I TA NO.4527/M/2015 (AY 2010 - 2011) (BY REVENUE) 12. THIS APPEAL FILED BY THE REVENUE ON 4.8.2015 IS AGAINST THE ORDER OF THE CIT (A) - 33, MUMBAI DATED 29.05.2015 FOR THE AY 2010 - 11. 13. IN THIS APPEAL, REVENUE RAISED SIX GROUNDS IN TOTO. ALL THE GROUNDS REVOLVE AROUND THE RELIEF OF RS. 22,16,044/ - GRANTED BY THE CIT (A) ON ACCOUNT OF BOGUS PURCHASES. 14. AFTER HEARING THE LD REPRESENTATIVES OF BOTH THE PARTIES AND ON PERUSAL OF THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEV ANT MATERIAL PLACED BEFORE US, WE FIND, THE TAX EFFECT IN THIS CASE IS BELO W RS. 10 LAKHS. THEREFORE, THIS CASE IS COVERED BY THE CBDT CIRCULAR NO.21/2015, DATED 10.12.2015 WHICH IS RELEVANT FOR THE PROPOSITION THAT THE APPEALS FILED BY THE REVENUE WITH A TAX EFFECT OF RS. 10 LAKHS AND BELOW ARE TO BE EITHER DISMISSED BY THE TRIBUNAL AS NOT MAINTAINABLE OR NOT PRESSED BY THE REVENUE. CONSIDERING THE SAME, THE PRESENT APPEAL FILED BY THE REVENUE IS REQUIRED TO BE DISMISSED SINCE, THE SAME ARE NOT MAINTAINA BLE. WE ORDER ACCORDINGLY. 15. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED. 16. CONCLUSIVELY, APPEAL OF THE ASSESSEE AND THE REVENUES APPEAL A R E DISMISSED. 6 ORDER PRONOUN CED IN THE OPEN COUR T ON 3 0 T H SEPTEMBER, 2016. S D / - S D / - ( AMARJIT SINGH ) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 3 0 .09.2016 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI