Rewale Engineering Pvt. Ltd., Pune V. Assistant Commissioner of Income-tax,

ITA 463/PUN/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 6977 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 09-10-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 15-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRASANN A L JOSHI
• Keywords: Bogus purchase; Opportunity of being heard
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NOS. 462 & 463/PUN/2015 / ASSESSMENT YEAR : 2009-10 REWALE ENGINEERING PVT. LTD., PLOT NO.78/3, S BLOCK, MIDC, BHOSARI, PUNE 411 016 PAN : AAACR8920P . /APPELLANT VS. ACIT, CIRCLE-10, PUNE . / RESPONDENT ASSESSEE BY : SHRI PRASANNA L. JOSHI REVENUE BY : SHRI RAJEEV KUMAR, CIT-DR / DATE OF HEARING : 13.12.2017 / DATE OF PRONOUNCEMENT: 15.12.2017 / ORDER PER D. KARUNAKARA RAO, AM : THERE ARE TWO APPEALS FILED BY THE ASSESSEE UNDER CONSIDERATION FOR THE COMMON A.Y. 2009-10. THE APP EAL ITA NO.462/PUN/2015 FILED IS IN CONNECTION WITH THE REA SSESSMENT ORDER PASSED BY THE AO U/S.143(3) R.W.S. 147 OF THE ACT; WHEREAS THE APPEAL ITA NO.463/PUN/2015 RELATES TO THE PENAL TY LEVIED BY THE AO U/S.271(1)(C) OF THE ACT IN CONNECTION WITH THE COUPLE OF ADDITIONS MADE IN THE REGULAR ASSESSMENT ORDER MADE U/S.143(3) OF THE ACT. THE APPEAL-WISE ADJUDICATION IS GIVEN IN THE FOLLO WING PARAGRAPHS. ITA NO.463/PUN/2015 (BY ASSESSEE A.Y. 2009-10) ITA NOS.462 & 463/PUN/2015 REWALE ENGINEERING PVT. LTD., 2 2. BRIEFLY STATED RELEVANT FACTS OF THE CASE INCLUD E THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MA NUFACTURING OF PRESS COMPONENTS, ASSEMBLY OF DIESEL GENSET AND ENGINEERING WORKSHOP. DURING THE YEAR UNDER CONSIDERATION, ASS ESSEE HAS TAKEN INTEREST BEARING SECURED AND UNSECURED LOANS AND CLAIMED INTEREST EXPENDITURE. ASSESSEE GAVE CERTAIN INTERE ST FREE ADVANCES TOO. AO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE T O EXPLAIN AS TO WHY INTEREST DEBITED TO THE PROFIT AND LOSS ACCOUNT MAY NOT BE DISALLOWED IN VIEW OF THE PRINCIPLE OF BUSINESS NEX US TO THE ADVANCES GIVEN OUT OF INTEREST BEARING FUNDS. AS P ER AO, THE ASSESSEE FAILED TO DEMONSTRATE THAT THE SAID ADVANC ES WERE UTILIZED FOR THE BUSINESS PURPOSES. THEREFORE, AO CAME TO T HE CONCLUSION THAT THE ASSESSEE HAS DIVERTED FUNDS FOR NON-BUSINE SS PURPOSES AND EVENTUALLY DISALLOWED THE SAME AS BUSINESS EXPE NDITURE. THEREFORE, THE INTEREST ON THE SAME WAS ALSO DISALL OWED U/S.36(1)(III) OF THE ACT. THUS, AN AMOUNT OF RS.2 2,36,000/- WAS DISALLOWED BY THE AO. FURTHER, AO ALSO MADE OTHER ADDITION OF RS.4.56 CRORES (ROUNDED OFF). CIT(A) CONFIRMED THE ABOVE ADDITIONS. 3. IN THE PROCEEDINGS BEFORE THE TRIBUNAL, THE ADDI TIONS RELATING TO DISALLOWANCE OF INTEREST WAS EVENTUALLY REMANDED TO THE FILE OF THE AO. CONTENTS OF PARA 8 OF THE TRIBUNALS ORDER ARE RELEVANT. WHEN IT COMES TO THE OTHER ADDITION RELATING TO THE CREDITORS, THE SAME WAS ALSO REMANDED TO THE FILE OF THE CIT(A) FO R FRESH ADJUDICATION AFTER GRANTING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. CIT(A) IS NOW CEASED UP WITH THE REMANDED ISSUES AND THE DECISION OF THE CIT(A) IS STILL PEND ING IN THE SECOND ROUND. IN THE SAID BACKGROUND FACTS OF THE ADDITIO NS, ASSESSEE MADE THE FOLLOWING PRAYER BEFORE US REQUESTING FOR REMANDING THIS ITA NOS.462 & 463/PUN/2015 REWALE ENGINEERING PVT. LTD., 3 APPEAL ITA NO. 463/PUN/2015 RELATING TO PENALTY U /S.271(1)(C) OF THE ACT TO THE FILE OF THE CIT(A) FOR FRESH ADJU DICATION. WE THEREFORE REPRODUCE THE PRAYER OF THE ASSESSEE HERE UNDER : MAY IT PLEASE YOUR HONOURS APPEAL NO: 463/PN/ 15 PE RTAINS TO LEVY OF PENALTY U/S 271(1)(C) ON ASSESSMENT U/S. 143(3). TH E APPEAL AGAINST THE ADDITIONS MADE IN THE ASSESSMENT U/S. 143(3) WE RE DECIDED AGAINST BY THE CIT(A) VIDE ORDER DATED 17/12/2012. HON'BLE INCOME TAX APPELLATE TRIBUNAL, B BENCH, BY ORDER DATED 31/3/20 15 HAS RESTORED THE APPEAL BACK TO THE CIT(A) REGARDING THE DISALLO WANCE OF UNVERIFIABLE CREDITORS. COPY OF THE SAID ORDER IS ENCLOSED. THE PENALTY PROCEEDINGS ARISE OUT OF THE DISALLOWANCE IN REGULAR ASSESSMENT OF (1) INTEREST ON BORROWINGS RS.15,47,000 AND (2) UNVERIFIABLE CREDIT ORS OF RS.4,56,45,562. IT IS PRAYED THAT AS THE QUANTUM AP PEAL HAS BEEN RESTORED TO THE CIT(A), THE APPEAL AGAINST PENALTY MAY ALSO BE RESTORED BACK TO CIT(A). 4. ON HEARING BOTH THE PARTIES AS WELL AS CONSIDERING THE FACTUAL MATRIX OF THE CASE, THE DEVELOPMENTS TOOK PLACE, PENDING ACTION BEFORE THE CIT(A), WE ARE OF THE OPINION THAT THE LD. COUNSELS PR AYER SHOULD BE CONSIDERED POSITIVELY. THEREFORE, WE REMAND THE GRO UNDS RAISED BY THE ASSESSEE BEFORE US IN THIS PENALTY-LINKED APPEAL TO HIS FILE FOR ADJUDICATION AND DECISION IN TUNE WITH HIS ORDER IN THE QUA NTUM PROCEEDINGS. ACCORDINGLY, THE GROUNDS RAISED BY THE AS SESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STA TISTICAL PURPOSES. ITA NO.462/PUN/2015 (BY ASSESSEE A.Y. 2009-10) 6. THIS APPEAL ARISES FROM THE REASSESSMENT PROCEEDING S MADE BY THE AO U/S.143(3) R.W.S. 147 OF THE ACT. 7. BRIEFLY STATED RELEVANT FACTS OF THE CASE INCLUDE THAT THERE WAS SURVEY ACTION ON THE ASSESSEE ON 06-11-2012 U/S.133A OF THE ACT. THE SURVEY ACTION RESULTED IN DISCOVERY OF ASSESSEES MODUS OPERANDI OF INFLATING THE PURCHASES BY BUYING THE BILLS-CUM-ACCOMMODATIO N ENTRIES. SUCH INFLATED BOGUS PURCHASES WAS WORKED OUT T O RS.8.77 ITA NOS.462 & 463/PUN/2015 REWALE ENGINEERING PVT. LTD., 4 CRORES (ROUNDED OFF) FOR THE ASSESSMENT YEAR UNDER CONSID ERATION. THERE ARE 10 SUPPLIERS INVOLVED. THE DETAILS ARE PROVIDED IN PARA 2 OF THE REASSESSMENT ORDER DATED 25-03-2014. THE FACTS R ELATING TO THE DISCLOSURE OF THE SAID AMOUNT AS ADDITIONAL INCOME OF THE A SSESSEE FOR THE A.Y. 2009-10 WAS ALSO DISCUSSED IN PARA NO.21 OF THE A SSESSMENT ORDER AND THE SAID DISCLOSURE WAS FOUND EVENTUALLY RETR ACTED BY THE DIRECTOR OF THE COMPANY. IT APPEARS SIMILAR BOGUS PURCHA SES WAS REPORTED INVOLVING THE OTHER ASSESSMENT YEAR AND OTHER GROUP CONCERNS. EVENTUALLY, THE REASSESSMENT WAS COMPLETED B Y THE AO MAKING THE ADDITION OF RS.6,68,56,448/- ONLY AS PER THE DISC USSION GIVEN IN PARA 7.4 OF THE ASSESSMENT ORDER. SOME OF SUCH PURCHASES RELATING TO OTHER PARTIES ARE REQUIRED TO BE TREATED IN SOME OTHER YEARS AND OTHER GOOD CONCERNS. THEREFORE, THE ADDITION WAS O NLY AROUND RS.6.69 CRORES (ROUNDED OFF) AGAINST THE DISCOVERY OF RS.8.7 7 CRORES (ROUNDED OFF). THE FACT IS THAT AO MADE THE ENTIRE SUCH BO GUS PURCHASES AS ADDITIONAL INCOME OF THE ASSESSEE. AO REJEC TED THE REQUEST FOR RESTRICTING THE ADDITION TO THE SEGMENT OF SUCH BOGUS PURCHASES. FURTHER, THE ASSESSEE COULD NOT IMPROVE HIS CASE DURING THE FIRST APPELLATE PROCEEDINGS AND THE CIT(A) DISMISSED T HE APPEAL OF THE ASSESSEE CONFIRMING THE SAID ADDITION ON ACCOUNT OF BO GUS PURCHASES. 8. IN THESE BACKGROUND FACTS OF THE CASE, ASSESSEE FILED THE PRESENT APPEAL BEFORE US. AFTER NARRATING THE ABOVE FACTS OF THE CASE, LD. COUNSEL SUBMITTED THAT THE GROUNDS RAISED BY THE ASSES SEE REVOLVES AROUND THE ERRONEOUS ADDITIONS CONFIRMED BY THE CIT(A) MA DE BY THE AO U/S.69C OF THE ACT. BEFORE US, LD. AR FOR THE ASSESSE E BROUGHT OUR ATTENTION TO THE FACT OF PENDENCY OF THE APPLICATION OF THE GROUP CONCERNS BEFORE THE INCOME-TAX SETTLEMENT COMMISSION (IN SHORT ITSC) AND MENTIONED THAT THE DECISION FROM ITSC IF ANY SH ALL HAVE ITA NOS.462 & 463/PUN/2015 REWALE ENGINEERING PVT. LTD., 5 IMPACT ON THE ADDITIONS IN THE PRESENT CASE. FURTHER, RE FERRING TO THE INTERNAL GROSS PROFITS OF THE ASSESSEE, LD. COUNSEL SUBMITTE D THAT THIS ISSUE REQUIRES RE-VISIT TO THE FILE OF AO. BRINGING OUR ATTEN TION TO PAGE NO.126 OF THE PAPER BOOK, LD. COUNSEL FOR THE ASSESSEE SU BMITTED THAT MAKING ENTIRE SUCH BOGUS PURCHASES AS ADDITION UNSUSTAIN ABLE CONSIDERING THE PLETHORA OF JUDGMENTS AVAILABLE ON THIS ISSU E. THE FACTS RELATING TO THE DECISION OF NIKUNJ EXIMP ENTERPRISES P VT. LTD. VS. 364 ITR 6, CIT VS. SIMIT P. SHETH REPORTED IN 356 ITR 45 1 AND M./S. VIJAY PROTEINS VS ACIT 58 ITD 428 WERE ALSO DISCUSSED BEFORE US. FURTHER, HE SUBMITTED THAT MAKING GP ADDITION LINED TO SUC H PURCHASES WILL MEET THE ENDS OF JUSTICE. 9. FURTHER, FROM THE DATA AVAILABLE ON THE SAID PAGE NO.12 6 OF THE PAPER BOOK, WE FIND THE GP RATES OF THE ASSESSEE VARY FR OM 7.59% IN THE A.Y. 2008-09 TO 23.5% IN THE A.Y. 2007-08. IT IS THE P RAYER OF THE ASSESSEE THAT THE AVERAGE OF THE GROSS PROFITS FOR THE 3 YEARS IN TH E PAST MAY BE CONSIDERED TO RESTRICT THE GP LINED ADDITION ACCOR DINGLY. FURTHER, REFERRING TO THE INFORMATION ABOUT FILING OF THE APPE AL BY THE OTHER GROUP CONCERNS BEFORE THE SETTLEMENT COMMISSION, L D. COUNSEL FOR THE ASSESSEE MENTIONED THAT THESE FACTS AND OUTCO ME FROM ITSC SHOULD ALSO BE CONSIDERED WHILE DECIDING THE GROUNDS OF AP PEAL OF THE ASSESSEE. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HE DECISIONS MENTIONED ABOVE SHOULD BE CONSIDERED AND DIRECT THE AO TO RESIST MAKING ENTIRE PURCHASES AS ADDITIONAL INCOME OF THE ASSESS EE FOR THE YEAR UNDER CONSIDERATION. 10. PER CONTRA, LD. DR FOR THE REVENUE RELIED HEAVILY ON THE ORDERS OF THE AO AND THE CIT(A). 11. WE HEARD BOTH THE PARTIES ON THIS ISSUE OF MAKING AD DITIONS ON ACCOUNT OF BOGUS PURCHASES. WE FIND THE DECISION OF THE JU RISDICTIONAL ITA NOS.462 & 463/PUN/2015 REWALE ENGINEERING PVT. LTD., 6 HIGH COURT IN THE CASE OF NIKUNJ EXIMP ENTERPRISES PVT. LT D., (SUPRA) IS RELEVANT FOR THE PROPOSITION THAT WHILE ACCEPTING THE SA LES, REJECTING THE BOGUS PURCHASES ENTIRELY AND MAKING ENTIRE ADDITION IS NOT IN TUNE WITH THE PRINCIPLES OF MAKING SUSTAINABLE ASSESSMENT. WE ALS O PERUSED THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN T HE CASE OF CIT VS. SIMIT P. SHETH (SUPRA) WHICH IS RELEVANT FOR THE PROPOSIT ION OF RESTRICTING THE ADDITION ON ACCOUNT OF BOGUS PURCHASES T O 12.5% IN THE CASE OF BUSINESS OF A CONTRACTOR IS FAIR AND REASONABLE. W E FIND THE HONBLE SUPREME COURT IN THE CASE OF M/S. VIJAY PROTEIN S VS ACIT (SUPRA) IS ALSO RELEVANT FOR THE PROPOSITION OF MAKING ADDITIO N OF GP @25% OF THE BOGUS PURCHASES AGAINST THE REVENUES APP EAL FOR MAKING ADDITION OF 100% OF THE BOGUS PURCHASES. HOWEVER, THERE ARE SOME REFERENCES MADE IN THE SAID JUDGMENT OF THE APEX COURT T OUCHING UPON THE ISSUE RELATING TO THE CORRECTNESS OF MAKING ENTIRE SU CH BOGUS PURCHASES IN THE ASSESSMENT AS INCOME OF THE ASSESSEE. 12. COMING TO THE FACTS OF THE PRESENT CASE, WE FIND THE GP RATES OF THE ASSESSEE ARE NEVER CONSISTENT. THEY ARE VARYING FR OM 7.59% TO 23.5%. THEREFORE, THERE IS REQUIREMENT OF GARNERING THE GP RATES OF THE OTHER YEARS MAY BE SUBSEQUENT TO THE YEAR UNDER CONSIDERATION AS WELL BEFORE COMING TO THE CORRECT CONCLUSION RELATING TO TH E GP RATES OF THE ASSESSEE. IF NECESSARY, THERE IS A REQUIREMENT OF GA THERING THE GP RATES OF THE BUSINESSES OF SIMILAR NATURE FROM THE OPEN MA RKET AND MAKE USE OF THE RELEVANT DATA FOR ARRIVING AT APPROPRIA TE GP RATE IN THIS LINE OF THE BUSINESS OF THE ASSESSEE. AS SUCH, THERE ARE VARIOUS DECISIONS AGAINST MAKING OF ENTIRE BOGUS PURCHASES AS ADD ITIONAL INCOME OF THE ASSESSEE. AO IS DIRECTED TO EXAMINE ALL THES E ANGLES METICULOUSLY, I.E. APPROPRIATE GP RATE, APPLYING THE RATES O F VARIOUS DECISIONS CITED ABOVE, THE FINDING OF THE SETTLEMENT COMMISSIO N IN CASE OF THE SISTER CONCERNS AND THE PROFITS OFFERED BY TH E ASSESSEE ON ITA NOS.462 & 463/PUN/2015 REWALE ENGINEERING PVT. LTD., 7 THIS DISCOVERY OF BOGUS PURCHASES ETC., AND GRANT REASON ABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN THE REMAN D PROCEEDINGS. ACCORDINGLY, ALL THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR ST ATISTICAL PURPOSES. 14. TO SUM UP, BOTH THE APPEALS OF THE ASSESSEE ARE ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 15 TH DAY OF DECEMBER, 2017. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) /JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 15 TH DECEMBER, 2017. / COPY OF THE ORDER FORWARDED TO : BY ORDER // TRUE COPY // //TRUE COPY// SENIOR PRIVATE SECRETARY , / ITAT, PUNE THE APPELLANT THE RESPONDENT THE CIT(A) - 6, PUNE CIT - 6, PUNE % , , A BENCH PUNE; / GUARD FILE.