RHEIN CHEMICALS PRIVATE LIMITED, MUMBAI V. INCOME TAX OFFICER, WARD 1(3), KALYAN

ITA 4655/MUM/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0988 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 29-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N HEMALATHA
• Assessee Lawyers: R C JAIN
• Keywords: Bogus purchase
• Section: 147; 148; 2

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI , BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ./ I.T.A. NO S . 4655 & 4656/MUM/2017 ( / ASSESSMENT YEAR: 2010 - 11 & 2009 - 10 ) RHEIN CHEMICALS PRIVATE LIMITED PLOT NO. 2, MIDC, OPP. MALIRAM MAKHARIA, BADLAPUR (E), KALYAN - 421 503 / VS. ITO, WARD 1(3), KALYAN ./ ./ PAN/GIR NO. AAACR 8210 L ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI R. C. JAIN / RESPONDENT BY : MS. N. HEMALATHA / DATE OF HEARING : 09.10.2017 / DATE OF PRONOUNCEMENT : 03.01 .2018 / O R D E R PER SHAMIM YAHYA , A. M.: TH ESE ARE A PPEAL S BY THE ASSESSEE AGAINST THE COMMON ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) FOR THE ASSESSMENT YEARS 2009 - 10 AND 2010 - 11. 2. THE FIRST COMMON ISSUE RELATES TO THE VALIDITY OF REOPENING AND THE SECOND COMMON ISSUE RELATES TO THE CONFIRMATION OF DISALLOWANCE OF 100% OF BOGUS PURCHASE 2 ITA NO S . 4655 & 4656 /M /2017 RHEIN C HEMICALS PRIVATE LIMITED VS. ITO AMOUNTING TO RS.2,90,784/ - FOR ASSESSMENT YEAR 2009 - 10 AND RS.1,20,089/ - FOR ASSESSMENT YEAR 2010 - 11. 3. BRIEF FACTS OF THE CASE ARE AS UNDER: IN THESE YEA RS, THE ASSESSING OFFICER HAD RECEIVED INFORMATION FROM THE SALES TAX DEPARTMENT THAT THE ASSESSEE HAD AFFECTED PURCHASES FROM THE PARTIES LISTED BELOW, WHICH WERE DECLARED AS SUSPICIOUS . THESE PARTIES, IN THEIR STATEMENTS / ON THE BASIS OF SPOT VERIFICATI ON / SURVEY ACTION, ETC , DULY ADMITTED THE FACT THAT THEY HAVE NOT ACTUALLY DELIVERED ANY GOODS, BUT HAVE MERELY PROVIDED THE BILLS AND REFUNDED BACK CASH TO THE BUYERS, AFTER DEDUCTING THEIR NOMINAL COMMISSION. THE DETAILS OF PURCHASES MADE FROM SUCH PARTIE S ARE AS UNDER: SR. NO. NAME OF THE PARTY A.Y. 2009 - 10 A.Y. 2010 - 11 1 M/S SANDESH SALES PVT. LTD 10 , 504 / - 2 UMI Y A SALES AGENCY PVT. LTD . 2,80 , 280/ - 3 RAMANAND SALES PVT. LTD. 13,000/ - 4 BLUE MOON TRADING PVT. LTD. 1,07,089/ - TOTAL 2,90,784 / - 1,20,089/ - 4. IN VIEW OF THE ABOVE FACTS, THE RELEVANT DETAILS SUCH AS COP Y OF THE AFFIDAVITS FILED BY THESE HAWALA PARTIES, THEIR STATEMENT RECORDED BY THE SALES TAX DEPARTMENT, ETC, WE RE OBTAINED BY THE ASSESSING OFFICER. THE EXAMINATION OF THESE DE TAILS CLEARLY REVEALED THAT THE SAID PARTIES WERE INDULGING IN ISSUE OF BOGUS BILLS, W ITHOUT PHYSICAL 3 ITA NO S . 4655 & 4656 /M /2017 RHEIN C HEMICALS PRIVATE LIMITED VS. ITO DELIVERY OF GOODS. THE ASSESSING OFFICER THEREFORE, CONCLUDED THA T THE ASSESSEE HAD SUPPRESSED ITS TAXABLE INCOME BY DEBITING THE PURCHASES FROM THESE HAW ALA PARTIES . A CCORDINGLY, THE ASSESSING OFFICER HAD REASONABL E BELIEF THAT THE INCOMES FOR A Y S. 2009 - 10 AND 2010 - 11 HAD ESCAPED THE ASSESSMENT, WITHIN THE MEANING OF THE PR OVISIONS OF SECTION 147 OF THE I T ACT, THEREFORE, AFTER RECORDING NECESSARY REASONS /SATISFACTION, ISSUED THE NOTICES U/S 148 OF THE 1 T ACT, IN BOTH THE YEARS, WHICH WERE DULY SERVED UPON THE ASSESSEE. THE ASSESSEE DID NOT OBJECT TO THE RE - OPENING OF ASSESSMENT, DURING THE COURSE OF RE - ASSESSMENT PROCEEDINGS. AFTER TAKING INTO ACCOU NT TH E FACTS OF THE CASE AND MATERIAL AVAILABLE ON RECORD, THE ASSESSING OFFICER PASSED THE ABOVE ORDERS, BY ADDING THE HAWALA PURCHASES . 5. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO PRODUCE THE FURNISH DETAILS SUCH AS VEHICLE NO, TYPE OF VE HICLE, T RANSPORT RECEIPTS, OCTROI RECEIPTS, ETC, FOR ESTABLISHING MO V EMENT OF GOODS FROM THESE SUPPLIERS TO THE ASSESSEE. IN COMPLIANCE, THE ASSESSEE FAILED TO PRODUCE THE SATISFACTORY DOCUMENTARY EVIDENCES TO SUBSTANTIATE THESE PURCHASES. THE ASSESSING OF FICER THEREFORE REQUIRED THE ASSESSEE TO PRODUCE THE ABOVE MENTIONED PANICS FOR EXAMINATION IN PERSON, TO PROVE THEIR IDENTITY. HOWEVER, THE ASSESSEE FAILED TO PRODUCE THE PARTIES BEFORE THE ASSESSING OFFICER . THE ASSESSING OFFICER , THEREFORE, DISALLOWED T H E ENTIRE ALLEGED PURCHASES RS 2, 90 ,784/ - & RS.1,20,089/ - IN A YS 2009 - 10 AND 2010 - 11, RESPECTIVELY AND ADDED TO THE INCOME OF THE ASSESSEE. 4 ITA NO S . 4655 & 4656 /M /2017 RHEIN C HEMICALS PRIVATE LIMITED VS. ITO 6. A GAINST THE ABOVE ORDER, THE ASSESSEE APPEALED BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CHALLENGING BOTH THE REOPENING AS WELL AS THE MERITS OF THE ADDITION. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED BOTH THE ACTION OF TH E ASSESSING OFFICER. 7. AGAINST THIS ORDER, THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 8. I HAVE HEARD BOTH THE LD. COUN SEL AND PERUSED THE RECORDS . I FIND THAT IN THIS CASE THE SALES HAVE NOT BEEN DOUBTED IT IS SETTLED LAW THAT WHEN SALES ARE NOT DOUBTED, 100% DISALLOWANCE FOR BOGUS PURCHASE CANNOT BE DONE. THIS PROPOSITION IS SUPPORTED FROM HONBLE JURISDICTIONAL HIGH COU RT DECISION IN THE CASE OF NIKUNJ EXIMP ENTERPRISES. HOWEVER, THE FACTS OF THE PRESENT CASE INDICATE THAT ASSESSEE HAS MADE PURCHASE FROM THE GREY MARKET. MAKING PURCHASES THROUGH THE GREY MARKET GIVES THE ASSESSEE S AVING ON ACCOUNT OF NON - PAYMENT OF TAX AND OTHERS AT THE EXPENSE OF THE EXCHEQUER. IN SUCH SITUATION, IN MY CONSIDERED OPINION, ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE 12.5% DISALLOWANCE OUT OF THE BOGUS PURCHASES MEETS THE ENDS OF JUSTICE. THIS IS FOLLOWING THE DECISION OF THE HONBLE G UJARAT HIGH COURT IN THE CASE OF SIMIT P. SHETH (2013) 356 ITR 451, FOLLOWED BY THE ITAT MUMBAI BENCHES IN A NUMBER OF CASES. 9 . ACCORDINGLY, I MODIFY THE ORDER OF LEARNED CIT(A) AND DIRECT THAT THE DISALLOWANCE BE LIMITED TO 12.5% OF THE BOGUS PURCHASE. THE LD. COUNSEL OF THE ASSESSEE FAIRLY AGREED TO THE ABOVE PROPOSITION. 5 ITA NO S . 4655 & 4656 /M /2017 RHEIN C HEMICALS PRIVATE LIMITED VS. ITO 1 0 . IN THE RESULT, THESE APPEALS BY THE ASSESSEE STAND PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 03.01.2018 SD/ - (S HAMIM YAHYA ) / A CCOUNTANT MEMBER MUMBAI ; DATED : 03.01.2018 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI