DCIT 10(1)(2), MUMBAI V. KARAMTARA STEEL P.LTD, MUMBAI

ITA 4642/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8255 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 07-08-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Assessee Lawyers: M K PATEL; R S CHOKSHI
• Keywords: Bogus purchase; Unexplained expenditure; Search and seizure; Opportunity of being heard; Principle of natural justice
• Section: 69C; 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 4642/MUM/2015 ASSESSMENT YEAR: 2011 - 12 DCIT - 10(1)(2) R.NO. 209, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020. VS. M/S KARAMTARA STEEL PVT. LTD. , 705, MORYA LAND MARK - II , NEW LINK ROAD, ANDHERI(W), MUMBAI - 400053. PAN NO. AACCK5915D APPELLANT RESPONDENT ITA NO. 4831/MUM/2015 ASSESSMENT YEAR: 2011 - 12 M/S KARAMTARA STEEL PVT. LTD.705, MORYA LAND MARK - II NEW LINK ROAD, ANDHERI(W), MUMBAI - 400053. VS. DCIT (OSD) - 8(2) AAYAKAR BHAVAN, 2 ND FLOOR R.NO. 204, M.K. ROAD, MUMBAI - 400020. PAN NO. AACCK5915D APPELLANT RESPONDENT REVENUE BY : MR. RAJESH KUMAR YADAV, DR ASSESSEE BY : MS . M.K. PATEL & MR. R.S. CHOKSHI , AR DATE OF HEARING : 26 /09/2017 DATE OF PRONOUNCEMENT : 24/11/2017 ORDER PER N.K. PRADHAN, A.M. THE CROSS APPEALS - ONE BY THE REVENUE AND THE OTHER BY THE ASSESSEE - ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 17, MUMBAI AND ARISE OUT OF THE ASSESSMENT M/S KARAMTARA STEEL PVT. LTD. ITA NO. 4642 & 4831/MUM/2015 2 COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961, (THE ACT). SINCE CO MMON ISSUES ARE INVOLVED, WE ARE PROCEEDING TO DISPOSE THEM OFF BY A CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. THE GROUND S RAISED BY THE REVENUE IN THIS APPEAL ARE THAT THE LD. CIT(A) ERRED IN NOT UPHOLDING (I) THE TOTAL DISALLOWANCE OF ALLEGED PURCHASES IGNORING THE FACT THAT THE ASSESSEE IS ONE OF THE BENEFICIARIES OF NON - GENUINE TRANSACTIONS CARRIED OUT WITH HAWALA DEALERS, (II) THE TOTAL DISALLOWANCE OF ALLEGED PURCHASES IGNORING THE FACT THAT THE HAWALA DEAL ERS HAVE GIVEN STATEMENT ON OATH REGARDING THEIR MODUS OPERANDI, (III) THE TOTAL DISALLOWANCE OF ALLEGED PURCHASES IGNORING THE FACT THAT THE AO HAS MADE THE ADDITION AFTER CARRYING OUT NECESSARY INQUIRIES. TH US THE GROUND RAISED BY THE REVENUE IS THAT TH E LD. CIT(A) IS NOT JUSTIFIED IN DIRECTING THE AO TO RESTRICT THE DISALLOWANCE TO 4% OF GROSS PROFIT ON THE ALLEGED PURCHASES WHEREAS IT IS CLEARLY PROVED THAT THE SAID PURCHASES ARE NON - GENUINE AND THEREFORE, NEED TO BE FULLY DISALLOWED. 3. THE 1 ST GROUND RAISED BY THE ASSESSEE IN THIS APPEAL IS THAT THE LD. CIT(A) ERRED IN (I) REJECTING THE BOOKS OF ACCOUNTS AND INCREASING THE GROSS PROFIT IN RESPECT OF THE ALLEGED BOGUS PURCHASES AT 16.61% COMPRISING OF 12.61% THE GROSS PROFIT RATIO OF THE ASSESSEE - COMPA NY FOR THE YEAR AND 4% OF THE VAT CLAIMED ON SUCH PURCHASES, (II) CONFIRMING THE ADDITION OF RS.71,94,884/ - AS UNEXPLAINED EXPENDITURE FOR PURCHASES MADE DURING THE YEAR UNDER CONSIDERATION U/S 69C WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CAS E, (III) MAKING AN ADDITION OF RS.2,23,720/ - BEING 1% OF THE TOTAL ALLEGED PURCHASES ASSUMING THE SAME TO BE AS COMMISSION ON THE ALLEGED M/S KARAMTARA STEEL PVT. LTD. ITA NO. 4642 & 4831/MUM/2015 3 BOGUS PURCHASES WITHOUT CONSIDERING THE FACT S AND CIRCUMSTANCES OF THE CASE, (IV) REJECTING THE CLAIM OF RIGHT TO CROS S - EXAMINE THE EVIDENCES CLAIMED BY THE ASSESSEE WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSEE SUBMITS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION IN RESPECT OF THE ALLEGED BOGUS PURC HASES TO THE EXTENT OF INCREASED GROSS PROFIT RATIO BEING 16.61% OF THE ALLEGED AMOUNT IN PLACE OF 12.5% AS PER THE JUDICIAL PRONOUNCEMENT OF THE HIGH COURT. 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER (AO) RECEIVED INFORMATION FROM THE SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA THAT THE ASSESSEE IS ONE OF THE BENEFICIARIES OF HAWALA TRANSACTIONS ROUTED THROUGH THE FOLLOWING HAWALA PARTIES DURING THE YEAR UNDER CONSIDERATION: SR. NO. NAME OF THE HAWALA BILL PROVIDER MVAT T IN NO. TYPE OF PURCHASE AMOUNT OF PURCHASE (RS.) 1. SHIVRAJ TRADERS 27920665638V BILLET & H.T. ANGLES 37,90,112 2. GLOBAL TRADE IMPEX 27400608967V M.S. ANGLES & H.T. ANGLES 20,99,565 3. SPICE TRADING CO. 278 40738238V BILLET & FURNACE OIL 24,75,270 4. SHUBHAM ENTERPRISES 27790690881V BILLETS 42,00,018 5. AMEE ENTERPRISES 27270692331V M.S. ANGLE 20,88,437 6. NIRMAL TRADING CO. 27740670878V H.T. ANGLE 21,69,024 7. RAJSHREE ENTERPRISES 27360671572V BILLETS 42,00,180 8. RCL TRADING PVT. LTD. 27860749188V BILLETS 13,49,500 TOTAL 2,23,72,106 THE AO OBSERVED THAT THE SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA HAD CONDUCTED A SEARCH AND SEIZURE U/S 64 OF THE MAHARASHTRA VAT ACT, 2002 ON THE ABOVEMENTIONED PARTIES. DURING THE COURSE OF SEA RCH AND SEIZURE PROCEEDINGS, THE ABOVEMENTIONED PARTIES HAD ACCEPTED VIDE STATEMENT RECORDED U/S 14 OF THE ABOVE ACT THAT THEY M/S KARAMTARA STEEL PVT. LTD. ITA NO. 4642 & 4831/MUM/2015 4 HAD NOT DONE ANY GENUINE BUSINESS AND HAD ISSUED BOGUS SALE BILLS ONLY. THE PROPRIETOR/PERSON CONTROLLING THE ABOVE PARTIES HAD A LSO FILED AFFIDAVITS BEFORE THE SALES - TAX DEPARTMENT THAT THEY HAD ISSUED HAWALA BILLS IN THE MARKET AND HAD NOT GIVEN ANY PHYSICAL DELIVERY OF GOODS TO THE PURCHASER AND IT WAS TOTALLY HAWALA (BOGUS) BILLS. IN THE STATEMENT RECORDED, T HEY HAD ADMITTED THA T THEY HAD NOT SUPPLIED ANY GOODS TO PURCHASERS (CLIENTS) AND ONLY ISSUED INVOICES, COLLECTED CHEQUES FROM THE NEEDY DEALERS, DEPOSITED THE SAME BANK AND WITHDREW THE CASH AFTER CLEARANCE OF CHEQUES. THE CASH WAS REFUNDED BACK TO THESE DEALERS WHO HAD INCO RPORATED THOSE INVOICES AFTER DEDUCTING COMMISSION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO ISSUED NOTICES U/S 133(6) TO THE ABOVE PARTIES TO VERIFY THE GENUINENESS OF TRANSACTIONS. HOWEVER, THE SAID NOTICES WERE RETURNED UNSERVED BY THE POSTAL AUTHORITIES. THE AO THEN VIDE ORDER SHEET ENTRY DATED 27.01.2014 ASKED THE ASSESSEE TO PRODUCE THE ABOVE PARTIES FOR VERIFICATION. IN RESPONSE TO IT THE ASSESSEE VIDE LETTER DATED 10.02.2014 FILED BEFORE THE AO COPY OF LEDGER ACCOUNT OF THE ABOVE PARTIES, BANK STATEMENT REFLECTING P AYMENTS MADE TO THEM, INVOICES WITH DELIVERY CHALLAN AND INWARD RECEIPTS REPORT. THE ASSESSEE ALSO STATED BEFORE THE AO THAT THE PAYMENTS TO THE ABOVE PARTIES HAVE BEEN MADE THROUGH ACCOUNT PAYEE CHEQUE/RTGS ONLY. THE ASSESSEE STATED BEFORE THE AO THAT IT RESERVES THE RIGHT OF CROSS - EXAMINATION OF THE EVIDENCES/VARIOUS PARTIES. HOWEVER, THE AO WAS NOT CONVINCED WITH THE ABOVE EXPLANATION OF THE ASSESSEE. THE AO TOOK NOTE OF THE FACT THAT THE ASSESSEE FAILED TO M/S KARAMTARA STEEL PVT. LTD. ITA NO. 4642 & 4831/MUM/2015 5 FURNISH THE REQUISITE EVIDENCE LIKE PAYMENT O F VAT BY THE ALLEGED SUPPLIER S , EVIDENCE OF TRANSPORTATION, EVIDENCE OF GOODS HELD AS PER THE STOCK REGISTER OF THE ALLEGED SUPPLIERS. ALSO THE ASSESSEE FAILED TO FILE THE CONFIRMATION LETTERS FROM THE ABOVE PARTIES. IN VIEW OF THE ABOVE FACTS AND ALSO T HE INABILITY OF THE ASSESSEE TO PRODUCE BEFORE THE AO THE ABOVE PARTIES FOR VERIFICATION, THE AO MADE AN ADDITION OF RS.2,23,72,106/ - IN RESPECT OF TRANSACTIONS WITH THE HAWALA PARTIES AS UNEXPLAINED PURCHASES. 5. AGGRIEVED BY THE ORDER OF THE AO, THE ASS ESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT THE LD. CIT(A) AFTER REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE INCREASED THE GROSS PROFIT IN RESPECT OF THE ALLEGED BOGUS PURCHASES AT 16.61% COMPRISING OF 12.61% OF THE GROSS PROFIT RATIO OF T HE ASSESSEE - COMPANY FOR THE YEAR AND 4% OF THE VAT CLAIMED ON SUCH PURCHASES. HE ALSO CONFIRMED THE ADDITION OF RS.71,94,884/ - AS UNEXPLAINED EXPENDITURE FOR PURCHASES MADE DURING THE YEAR UNDER CONSIDERATION U/S 69C. FURTHER THE LD. CIT(A) MADE AN ADDITIO N OF RS.2,23,720/ - BEING 1% OF THE TOTAL ALLEGED PURCHASES ASSUMING THE SAME TO BE AS COMMISSION ON THE SAID PURCHASES. 6. BEFORE US, THE LD. DR RELIES ON THE ORDER OF THE AO. 7. ON THE OTHER HAND, THE LD. COUNSEL OF T HE ASSESSEE FILES A PAPER BOOK INCOR PORATING THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE AO AND THE LD. CIT(A). HE ALSO FILES A COPY OF THE AUDITED FINANCIALS AND TAX AUDIT REPORT FOR THE FINANCIAL YEAR 2010 - 11. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS O N RECORD. WE FIND THAT THE ASSESSEE HAD STATED BEFORE THE AO THAT IT RESERVES THE RIGHT OF CROSS - EXAMINATION OF THE EVIDENCES/VARIOUS M/S KARAMTARA STEEL PVT. LTD. ITA NO. 4642 & 4831/MUM/2015 6 PARTIES. THE AO HAS MENTIONED IT AT PARA 5.4 (PAGE 6 ) OF THE ASSESSMENT ORDER DATED 24.03.2014. THIS IS ALSO ONE OF THE GR OUNDS OF APPEAL OF THE ASSESSEEE. WE ARE OF THE CONSIDERED VIEW THAT THE CONTENTIOUS ISSUES IN THE INSTANT CASE COULD BE RESOLVED BY EXAMINING THE ABOVE PARTIES. IT IS THE DUTY OF THE AO TO ENFORCE ATTENDANCE OF A WITNESS IF HIS EVIDENCE IS MATERIAL. AT THE SAME TIME THE ASSESSEE MUST FURNISH THE COMPLETE ADDRESS OF SUCH PERSON. A PROPER HEARING MUST ALWAYS INCLUDE A FAIR OPPORTUNITY TO THOSE WHO ARE PARTIES IN TH E CONTROVERSY FOR CORRECTING OR CONTRADICTING ANYTHING PREJUDICIAL TO THEIR VIEW. CROSS - EXAMINATION IS ALLOWED BY PROCEDURAL RULES AND EVIDENTLY ALSO BY THE RULES OF NATURAL JUSTICE. ANY WITNESS WHO HAS BEEN SWORN ON BEHALF OF ANY PARTY IS LIABLE TO BE CRO SS - EXAMINED ON BEHALF OF THE OTHER PARTY TO THE PROCEEDINGS. THE HON'BLE SUPREME COURT IN STATE OF KERALA VS. K.T. SHADULI GROCERY DEALER AIR 1977 SC 1627, RECOGNISED THE IMPORTANCE OF ORAL EVIDENCE BY HOLDING THAT THE OPPORTUNITY TO PROVE THE CORRECTNESS OR COMPLETENESS OF THE RETURN NECESSARILY CARRY WITH IT THE RIGHT TO EXAMINE WITNESSES AND THAT INCLUDES EQUALLY THE RIGHT TO CROSS - EXAMINE WITNESSES. IN ITO VS. M. PIRAI CHOODI (2012) 20 TAXMANN.COM 733 (SC), THE HON'BLE SUPREME COURT HAS HELD THAT ORDER OF ASSESSMENT PASSED WITHOUT GRANTING AN OPPORTUNITY TO ASSESSEE TO CROSS - EXAMINE, SHOULD NOT HAVE BEEN SET ASIDE BY HIGH COURT; AT MOST, HIGH COURT SHOULD HAVE DIRECTED ASSESSING OFFICER TO GRANT AN OPPORTUNITY TO ASSESSEE TO CROSS - EXAMINE CONCERNED WITN ESS. M/S KARAMTARA STEEL PVT. LTD. ITA NO. 4642 & 4831/MUM/2015 7 THE IMPORTANCE OF CROSS - EXAMINATION HAS BEEN EMPHASIZED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF OM VINYLS P. LTD. VS. ITO [WP(L) NO. 3114 OF 2014]. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE AO TO MAKE A FRESH ASSESSMENT IN THE LIGHT OF OUR OBSERVATION HEREINBEFORE AFTER GIVING OPPORTUNITY TO THE ASSESSEE TO CROSS - EXAMINE THE CONCERNED PARTIES. WE ALSO DIRECT THE ASSESSEE TO FILE THE RELEVANT DOCUMENTS/EVIDENCE BEFORE THE AO. NEED LESS TO SAY THE AO WOULD GIVE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE FINALIZING THE ASSESSMENT ORDER. 8.1 AS THE MATTER HAS BEEN RESTORED TO THE FILE OF THE AO, WE ARE NOT ADVERTING TO THE CASE LAWS RELIED ON BY THE LD. COUNSELS DURI NG THE COURSE OF HEARING. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE AND THE 1 ST GROUND OF APPEAL OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 10. THE REMAINING GROUND OF APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) ERRED IN CONFIRMING T HE ADDITION OF RS.2,18,743/ - MADE IN RESPECT OF NON - RECONCILIATION OF AIR DETAILS WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. THE AO DURING THE COURSE OF PROCEEDINGS FOUND THAT THE ASSESSEE COULD NOT RECONCILE THE FOLLOWING INCOME: SR. NO. NAME OF THE PARTY AS PER AIR AS PER BOOKS OF ACCOUNTS DIFFERENCE REMARKS 1. PUNJAB NATIONAL BANK 9,51,543 9,45,848 5,695 SHORT INCOME BOOKED AND SHORT TDS CLAIMED BY THE ASSESSEE 2. MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. LTD. 2,13,048 0 2,13,048 TDS NOT CLAIMED BY THE ASSESSEE. M/S KARAMTARA STEEL PVT. LTD. ITA NO. 4642 & 4831/MUM/2015 8 THE AO THUS MADE AN ADDITION OF RS.2,18,743/ - . IN APPEAL, THE LD. CIT(A) HAS CONFIRMED THE ABOVE ADDITION MADE BY THE AO. 11. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD, WE S ET ASIDE THE ISSUE TO THE FILE OF THE AO TO GIVE AN OPPORTUNITY TO THE ASSESSEE TO EXPLAIN ITS CASE. WE DIRECT THE ASSESSEE TO FILE THE RELEVANT DOCUMENTS/EVIDENCE BEFORE THE AO. THUS THE 2 ND GROUND RAISED BY THE ASSESSEE IN THIS APPEAL IS ALLOWED FOR STAT ISTICAL PURPOSES. 12. IN THE RESULT, THE APPEALS FILED BY THE REVENUE AND THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 24/11/2017. SD/ - SD/ - ( MAHAVIR SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 24/11/2017 RAHUL SHARMA, SR. P.S. 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