DCIT 14(3)(1), MUMBAI V. RE INFRA P.LTD, MUMBAI

ITA 4586/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8886 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 06-08-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bogus purchase
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D , MUMBAI BEFORE S HRI P.K. BANSAL (VP ) AND SHRI RAM LAL NEGI (JM) ITA NO. 4586 /MUM/20 1 5 ASSESSMENT YEAR: 20 10 - 11 THE DY. COMMISSIONER OF INCOME TAX 14 (3) (1), ROOM NO. 455, 4 TH FLOOR, AAYAKAR B HAVAN, MAHARSHI KARVE ROAD, MUMBAI - 400020 VS. M/S RE INFRA. PRIVATE LIMITED, OFFICE NO. 3, GANGATARA, 73 PESTOM SAGAR ROAD NO. 2, CHEMBUR, MUMBAI - 400089 PAN: AADCR7593R (APPELLANT) (RESPONDENT) REVENUE BY : SHRI PURUSHOTTAM KUMAR (SR. DR) ASSESSEE BY : SHRI BHUPENDRA SHAH ( A R) DATE OF HEARING: 11 /10 /201 7 DATE OF PRONOUNCEMENT: 23 / 10 /201 7 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST ORDE R DATED 27/05/2015 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - 22 , MUMBAI , FOR THE A S S ESSMENT YEAR 2010 - 11 , WHEREBY THE LD. CIT (A) HAS ALLOWED THE APPEAL FILED BY THE ASSESSEE AGAINST ASSESSMENT ORDER PASSED U/S 143(3) READ WITH SECTION 147 OF THE INCOME TAX ACT, 1961 (FOR SHORT THE A CT). 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION CONTRACTS SUCH AS DRAINAGE AND ROAD REPAIRS AND MAINTENANCE, FILED ITS RETURN OF INCOM E FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING TOTAL INCOME OF RS. 4,36,43,210/ - . SUBSEQUENTLY, ON THE BASIS OF INFORMATION RECEIVED FROM THE SALES TAX DEPARTMENT REGARDING BOGUS PURCHASES MADE BY VARIOUS COMPANIES INCLUDING THE PRESENT ASSESSEE, THE ASSESSMENT WAS RE - OPENED U/S 147 OF THE ACT. THE 2 ITA NO. 4586 / MUM/2015 ASSESSMENT YEAR: 2010 - 11 ASSESSEE WAS ONE OF THE COMPANIES, WHICH HAD MADE BOGUS PURCHASES FROM THE SAID ENTITIES. AS PER THE INFORMATION, THE ASSESSEE COMPANY DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION MADE BOGUS PURCHASES TO THE TUNE OF RS. 3,70,18,708/ - FROM FOUR BOGUS ENTITIES NAMELY ; HITEN ENTERPRISES, CNS TRADE LINKS PVT. LTD., DHANERA METAL CORPORATION AND MANISH INDUSTRIAL CORPORATION. 3. IN RESPONSE TO THE NOTICE U/S 148 OF THE ACT THE AUTHORIZE D REPRESENTATIVE APPEARED BEFORE THE AO AND SUBMITTED THAT THE ORIGINAL RETURN FILED U/S 139(1) OF THE ACT MAY BE TREATED AS RETURN OF INCOME IN RESPONSE TO THE SAID NOTICE. THE ASSESSEE OBJECTED THE RE - OPENING, HOWEVER, THE ASSESSEES OBJECTION WAS REJECT ED. DURING THE RE - ASSESSMENT PROCEEDINGS, THE ASSESSEE COULD NOT ESTABLISH THE GENUINENESS OF THE TRANSACTION. ACCORDINGLY, SHOW CAUSE NOTICE WAS ISSUED AS TO WHY THE AMOUNT OF BOGUS PURCHASES SHOULD NOT BE ADDED TO THE INCOME OF THE ASSESSEE. THE ASSESSEE SUBMITTED THAT THE PURCHASES WERE GENUINELY MADE THROUGH BROKER AND THE GOODS WERE DIRECTLY DELIVERED AT THE SITE. THE ASSESSEE FURTHER SUBMITTED THAT THE PAYMENTS WERE MADE TO THE PARTIES THROUGH BANKING CHANNELS. TO SUBSTANTIATE ITS CLAIM, THE ASSESSEE SUBMITTED COPIES OF PURCHASE BILLS, DETAILS OF ASSETS PURCHASED ETC. THE ASSESSEE ALSO FAILED TO PRODUCE THE PARTIES BEFORE THE AO FOR VERIFICATION . SINCE, THE ASSESSEE COULD NOT SATISFY THE AO BY PRODUCING SUFFICIENT EVIDENCE TO PROVE THE GENUINENESS OF T HE TRANSACTION, THE AO MADE ADDITION OF RS. 3,70,18,708 / - TO THE INCOME OF THE ASSESSEE AND DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT RS. 2,41,98,575 / - . 4. FEELING AGGRIEVED, THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER BEFORE THE LD. CIT (A). THE L D. CIT (A) AFTER HEARING THE ASSESSEE ALLOWED THE APPEAL KEEPING IN VIEW THE GROSS PROFIT AND NET PROFIT SHOWN BY THE ASSESSEE AND FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL RENDERED IN 3 ITA NO. 4586 / MUM/2015 ASSESSMENT YEAR: 2010 - 11 RAMESH KUMAR & CO. VS. ACIT , ITA NO 2959/MUM/2014 AND DELETED THE ADDITION MADE BY THE AO. 5 . AGGRIEVED BY THE ORDER OF LD. CIT (APPEAL S ), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING EFFECTIVE GROUND : - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD . CIT (A) ERRED IN DELETING THE ADDITION OF RS. 3,70,18,708/ - MADE ON ACCOUNT OF BOGUS/UNPROVED PURCHASES ON THE BASIS THAT THE ASSESSEE HAS SHOWN NET PROFIT @ 8% DURING THE YEAR THEN NO DISALLOWANCE CAN BE MADE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT (A) ERRED IN NOT APPRECIATING THE FACT THAT THE SUPPLIER HAS ADMITTED BEFORE SALES TAX AUTHORITIES THAT HE IS NOT INVOLVED IN ACTUAL TRADING AND NOT HAVING EVIDENCE OF SELLING GOODS TO THE ASSESSEE. 3. ON THE FACTS AND IN THE C IRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN NOT APPRECIATING THE FACT THAT THE DECISION RELIED UPON OF THE ITAT MUMBAI IN THE CASE OF M/S RAMESH KUMAR & COMPANY VS. ACIT, ITA NO. 2559/MUM/2014, HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND IS PENDING FOR ADJUDICATION BEFORE THE HONBLE BOMBAY HIGH COURT. 6. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT THE LD.CIT (A) HAS WRONGLY DELETED THE ADDITION MADE BY THE ASSESSEE DURING THE RELEVANT YEAR. SINCE, THE ASSESSEE HAS FAILED TO PROVE GENUINENESS OF THE TRANSACTION, THE LD. CIT(A) OUGHT TO HAVE CONFIRMED THE ADDITION MADE BY THE AO. 7. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SINCE THE ASSESSEE HAS SUBMITTED THE COPIES OF PURCHASE BILLS, DETAI LS OF ASSETS PURCHASED ETC. AND FURTHER PROVED THAT THE PAYMENTS WERE MADE THROUGH 4 ITA NO. 4586 / MUM/2015 ASSESSMENT YEAR: 2010 - 11 BANKING CHANNELS, THE LD. CIT (A) HAS RIGHTLY DELETED THE ADDITION MADE BY THE AO. THE LD. COUNSEL FURTHER SUBMITTED THAT SINCE, THE FINDINGS OF THE LD. CIT(A) IS BASED ON T HE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL REFERRED ABOVE, THERE IS NO MERIT IN THE REVENUES APPEAL. HENCE, THE SAME IS LIABLE TO BE DISMISSED. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ENTIRE RECORD AND ALSO GONE THROUGH THE CASES RELIE D UPON BY THE PARTIES BEFORE THE AUTHORITIES BELOW AS WELL AS REFERRED BEFORE US. THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT (A) HAS WRONGLY DELETED THE ADDITION MADE BY THE ASSESSEE. WE NOTICE THAT THE AO HAS NOT REJECTED THE BOOKS OF ACCOUNT A ND ACCEPTED THE SALES SHOWN BY THE ASSESSEE. SINCE, THE AO HAS NOT REJECTED THE SALES SHOWN DURING THE RELEVANT YEAR, THE ENTIRE AMOUNT OF PURCHASES CANNOT BE ADDED TO THE INCOME OF THE ASSESSEE AS THERE CANNOT BE SALE WITHOUT PURCHASE. IF THE ASSESSEE DID NOT PURCHASE THE GOODS IN QUESTION FROM THE PARTIES CONCERNED, IT IMPLIES THAT PURCHASES WERE MADE FROM THE PARTIES OTHER THAN THOSE MENTIONED IN THE BOOKS OF ACCOUNT . HENCE, THERE IS NO JUSTIFICATION IN MAKING ADDITION OF THE ENTIRE AMOUNT OF BOGUS PURC HASES DETERMINED BY THE AO. UNDER THESE CIRCUMSTANCES, THE AO OUGHT TO HAVE MADE ADDITION KEEPING IN VIEW THE PROFIT ELEMENT EMBEDDED IN THE PURCHASES IN QUESTION. 9. THE HONBLE BOMBAY HIGH COURT IN CIT VS. NIKUNJ EXIMP ENTERPRISES PVT. LTD. 372 ITR 61 9 , WHILE UPHOLDING THE DECISION OF MUMBAI TRIBUNAL, HAS OBSERVED THAT MERELY BECAUSE THE SUPPLIERS HAD NOT APPEARED BEFORE THE ASSESSING OFFICER OR THE CIT (A) ONE COULD NOT CONCLUDE THAT THE PURCHASES WERE NOT MADE BY THE RESPONDENT/ASSESSEE. THE HONBLE GUJRAT HIGH COURT IN CIT VS. SIMIT P. SETH 356 ITR 451(GUJ) UPHELD THE DECISION OF THE TRIBUNAL AND SUSTAINED THE ADDITION 12.5% OF THE TOTAL BOGUS PURCHASES HOLDING THAT ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES CAN BE ADDED TO INCOME OF THE ASSESSEE . 5 ITA NO. 4586 / MUM/2015 ASSESSMENT YEAR: 2010 - 11 10. SINCE, IT HAS BEEN ESTABLISHED IN THIS CASE THAT THE ASSESSEE HAD PURCHASED THE GOODS IN QUESTION FROM THE PARTIES CONCERNED AND THAT PURCHASES WERE MADE FROM THE PARTIES OTHER THAN THOSE MENTIONED IN THE BOOKS OF ACCOUNT . THE AFORE SAI D FACT GIVES R ISE TO THE CONCLUSION THAT THE ASSESSEE HAD PURCHASED THE GOODS IN QUESTION FROM GRAY MARKET WITHOUT PAYING VAT AND EXCISE DUTY. EVEN IF THE ASSESSEE HAS SHOWN NET PROFIT OF 8% THE ASSESSEE HAS EARNED PROFIT BY EVADING THE SAID TAXES. THE LD . COUNSEL FAIRL Y BROUGHT TO THE NOTICE OF THE BENCH THAT VAT ON STEEL WAS 4 % AND THE EXCISE DUTY WAS 10% DURING THE RELEVANT PERIOD. UNDER THESE CIRCUMSTANCES , WE CONSIDER IT NECESSARY TO BRING THE AMOUNT OF TAX SAVED BY THE ASSESSEE TO TAX. WE, ACCORDINGLY SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE AO TO MAKE ADDITION @ 9% OF THE TOTAL BOGUS PURCHASE I.,E., 4% VAT AND 5% EXCISE DUTY (50% OF THE EXCISE DUTY) . HENCE, WE PARTLY ALLOW THE SOLE GROUND OF THE REVENUES APPEAL. IN THE RESULT, APPEAL FILED BY THE R EVENUE FOR A SSESSMENT YEAR 2010 - 2011 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD OCTOBER , 2017 . SD/ - SD/ - ( P.K. BANSAL ) ( RAM LAL NEGI ) VICE - PRESIDENT JUDICIAL MEMBER MUMBAI ; DATED: 23 / 10 / 2017 ALINDRA, PS 6 ITA NO. 4586 / MUM/2015 ASSESSMENT YEAR: 2010 - 11 / 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 . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI