ACIT, New Delhi V. M/s Uniword Telecom Ltd., New Delhi

ITA 4843/DEL/2010

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5959 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 28-06-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 04-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Search and seizure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D, NEW DELHI BEFORE SH. G.D. AGRAWAL, PRESIDENT AND SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 4843/DEL/2010 A.Y. : 2006-07 ACIT CIRCLE-18(1), ROOM NO. 211A, C.R.BUILDING NEW DELHI VS. UNIWORD TELECOM LTD. 125A, SHAHPUR JAT NEW DELHI PAN : AAACU5105D PAN : ASESSEE BY : SH. SATISH AGARWAL, SH DHARMENDER KUMAR, CA REVENUE BY : SH. AMIT JAIN, SR. DR. DATE OF HEARING : 23.04.2018 DATE OF PRONOUNCEMENT : 25.05.2018 O R D E R PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER DATED 24/08/2010 PASSED BY THE LD. CIT (A)-XXI, NEW DELHI AND PERTAINS TO ASSESSMENT YEAR 2006-07. 2. THE BRIEF FACTS OF THE CASE ARE THAT IN ASSESSME NT YEAR 2006- 07, THE ASSESSEE WAS ENGAGED IN MANUFACTURING, SALE AND EXPORT OF TELECOM AND ELECTRONIC COMPONENTS. THERE WAS A SEARC H OPERATION 2 ITA NO.4843/DEL/2010 (UNIWORD TELECOM LTD.) CARRIED OUT BY THE CENTRAL EXCISE AUTHORITIES ON 01 /02/2006 AND SOME PURCHASES WERE HELD TO BE BOGUS AS A CONSEQUENC E OF THIS SEARCH. ADDITIONS ON ACCOUNT OF BOGUS PURCHASES WERE MADE IN AY 2005-06. THE RETURN OF INCOME FOR AY 2006-07 WAS FIL ED ON 30-11- 2006 DECLARING A LOSS OF RS. 1,67,94,894/-. THE ASS ESSMENT WAS COMPLETED AT AN INCOME OF RS. 41,16,925/- AFTER MAK ING THE FOLLOWING ADDITIONS/DISALLOWANCES (I) ADDITION @10% ON TOWARDS ALLEGED BOGUS PURCHASE S AMOUNTING TO RS. 4.29 CRORES 42,90,000/- (II) GP ADDITION @ 2% ON ALLEGED BOGUS PURCHASES A MOUNTING TO RS. 79.40 CRORES OF RS. 1,58,80,000/- (III) PRELIMINARY EXPENSES WRITTEN OFF BUT NOT ALLO WED OF RS. 7,22,350/- (IV) PROVISION FOR GRATUITY DISALLOWED U/S 40A(7) OF THE INCOME TAX ACT, RS. 19,289/- 2.1 AGGRIEVED, THE ASSESSEE APPROACHED THE LD. C IT (A) AND CHALLENGED THE ADDITIONS/ DISALLOWANCES. THE LD. CIT (A), WITH RESPECT TO ADDITION OF RS. 42,90,000/-, SUSTAINED A DDITION OF RS. 20,84,000/- BY RELYING ON THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06. WITH RESPECT TO O THER GP 3 ITA NO.4843/DEL/2010 (UNIWORD TELECOM LTD.) ADDITION OF RS. 1,58,80,000/-, THE LD. CIT(A) DELET ED THE ADDITION IN VIEW OF THE ORDER OF ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06. THE LD. CIT (A) ALSO DELETED THE ADDITION OF RS. 19,289/- PERTAINING TO PROVISION OF GRATUITY BY NOTING THAT A DOUBLE ADDITION HAD BEEN MADE BY THE ASSESSING OFFICER. THE LD. CIT (A) ALSO HELD THAT THE PRELIMINARY EXPENSES AMOUNTING TO RS. 7,22 ,530/-, WHICH WERE WRITTEN OFF BY THE ASSESSEE BUT WERE DISALLOWED B Y THE AO, WERE ALLOWABLE IN VIEW OF THE PROVISIONS OF SECTION 3 5D OF THE INCOME TAX ACT, 1961. 2.2 AGGRIEVED WITH THE ORDER OF THE LD. CIT (A), THE DEPARTMENT HAS NOW APPROACHED THE ITAT AND HAS CHALLENGED THE DELET ION MADE BY THE LD. CIT (A) WITH RESPECT TO THE GP ADDITION. THE GROUNDS RAISED BY THE DEPARTMENT ARE AS UNDER:- 1. THE LD. CIT (A) HAS ERRED ON FACTS AND IN LAW B Y RESTRICTING ADDITION OF RS. 42,90,000/- MADE ON ACC OUNT OF BOGUS PURCHASES TO RS. 20,84,000/- WITHOUT DECIDIN G ON MERITS THE FACTS OF THE CASE WHICH ESTABLISH THAT T HE SUPPLIERS DID NOT ACTUALLY EXIST AND BY IGNORING THAT THE ASS ESSEE HAD OBTAINED ONLY PURCHASE VOUCHERS WITHOUT ACTUAL PURC HASES WITH THE PURPOSE OF INFLATING EXPENSE CLAIMS. 2. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW BY DELETING ADDITION OF RS. 1,58,80,000/- MADE BY APPLYING A RE ASONABLE 4 ITA NO.4843/DEL/2010 (UNIWORD TELECOM LTD.) RATE OF 2% ON BOGUS PURCHASES OF RS. 79.40 CRORES B Y IGNORING AND BY NOT DECIDING ON MERITS THE CONCLUSI VE PROOF BROUGHT ON RECORD BY THE AO REGARDING THE NON-EXIST ENCE OF THE SUPPLIERS. 3. THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE ADDITION OF RS. 42,90,000/- HAD BEEN MADE BY THE AO BY ESTIMATING GROSS PROFIT @ 10% ON PURCHASES MADE FO R MANUFACTURE AMOUNTING TO RS. 4.29 CRORES FROM THRE E PARTIES VIZ. M/S GLASS PLASTIC & CHEMICALS, M/S SHIVA UDYOG AND M/S S.M. ENTERPRISES. IT WAS FURTHER SUBMITTED THAT THER E WAS A COMPUTATIONAL ERROR MADE BY THE AO IN RESPECT OF TH E PURCHASES FROM THE THREE PARTIES AS THE ACTUAL PURCHASES AMOU NTED TO RS. 2,91,67,330/- AND NOT RS. 4.29 CRORES AS TAKEN BY T HE ASSESSING OFFICER. IT WAS FURTHER SUBMITTED THAT THE LD. CIT ( A) HAD NOTED THIS DIFFERENCE IN PARA 3.1. OF HIS ORDER AND HAD, THEREAFTER, APPLIED THE RATIO OF THE ORDER OF THE ITAT IN ASSES SEES OWN CASE FOR ASSESSMENT YEAR 2005-06 AND HAD RESTRICTED THE DISALLOWANCE TO RS. 20,84,000/- BEING 10% OF THE TOTAL AMOUNT O F PURCHASES MADE FROM M/S SHIVA UDYOG AND M/S S.M. ENTERPRISES. IT WAS FURTHER SUBMITTED THAT THE ADDITION IN RESPECT OF M /S GLASS 5 ITA NO.4843/DEL/2010 (UNIWORD TELECOM LTD.) PLASTIC & CHEMICALS WAS NOT SUSTAINED BECAUSE THIS P ARTY HAD NOT BEEN INCLUDED IN THE LIST OF 9 PARTIES FOR WHICH DISALLOWANCE @ 10% HAD BEEN SUSTAINED BY THE ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06. OUR ATTENTION WAS DRAWN TO THE RELEVANT PARAGRAPH OF THE LD. CIT (A) ORDER AND IT WAS ALSO SUBMITTED THAT THIS ISSUE WAS COVERED IN FAVOUR OF THE ASSESSEE BY ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR ASSE SSMENT YEAR 2005-06 WHICH WAS LATER UPHELD BY THE HONBLE DELHI HIGH COURT. 3.1 WITH RESPECT TO THE OTHER GP ADDITION DELETED B Y THE LD. CIT (A), THE LD. AUTHORISED REPRESENTATIVE SUBMITTED TH AT AN IDENTICAL ISSUE HAD BEEN DECIDED BY ITAT IN ASSESSE ES OWN CASE FOR ASSESSMENT YEAR 2005-06 IN ASSESSEES FAVOUR BY HOLDING THAT SINCE A DISALLOWANCE OF 10% HAD ALREADY BEEN MADE O UT OF PURCHASES, NO OTHER DISALLOWANCE FOR GROSS PROFIT WOU LD BE REQUIRED THERE WILL BE NO CASE OF APPLYING FURTHER R ATE OF 2% ON GP. THE LD. AUTHORISED REPRESENTATIVE ALSO SUBMITTE D THAT THIS ORDER OF THE TRIBUNAL WAS SUBSEQUENTLY UPHELD BY THE HONBLE DELHI HIGH COURT VIDE ORDER DATED 25.02.2014 IN ITA NO. 269/2011, CM APPL. 14021/2012. IT WAS SUBMITTED THAT BOTH THE ISSUES BEING CONTESTED BY THE DEPARTMENT WERE CO VERED IN 6 ITA NO.4843/DEL/2010 (UNIWORD TELECOM LTD.) FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT AND FURTHER UPHELD BY THE HONBLE DELHI HIGH COURT AND, THEREFO RE, THE DEPARTMENTS APPEAL WAS LIABLE TO BE DISMISSED. 4. IN RESPONSE THE LD. SR. DR PLACED EXTENSIVE RELI ANCE ON THE FINDINGS RECORDED BY THE ASSESSING OFFICER AND VEHE MENTLY ARGUED THAT THERE WAS NO ERROR IN THE FINDINGS OF THE LD. C IT (A) AND THAT THE LD. CIT(A) HAD ERRED IN LAW AND ON FACTS BY RES TRICTING/ DELETING THE IMPUGNED ADDITIONS WITHOUT CONSIDERING THE ACTUAL FACTUAL MATRIX. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALS O PERUSED THE MATERIAL ON RECORD. AS FAR AS THE ISSUE OF DELE TION OF ADDITION OF RS. 42,90,000/- IS CONCERN, IT IS SEEN THAT THIS ADDITION HAD BEEN MADE BY THE AO BEING ADDITIONAL 10% OF PROFIT ON PURCHASE OF RS. 4.29 CRORES FROM M/S. GLASS PLASTIC AND CHEM ICALS, M/S. SHIVA UDYOG AND M/S. S.M.ENTERPRISES ON MANUFACTURI NG ACCOUNT WHEREAS THE CORRECT FIGURE OF PURCHASES, WHIC H HAS BEEN DULY ACKNOWLEDGED BY THE LD. CIT(A), WAS ONLY RS. 2,9 1,67,330/- FROM THESE 3 PARTIES. IT IS FURTHER SEEN THAT THE N AME OF M/S GLASS PLASTIC AND CHEMICALS HAD TO BE EXCLUDED BECA USE IT HAD RESPONDED TO THE NOTICES ISSUED BY THE STATUTORY AU THORITIES AND 7 ITA NO.4843/DEL/2010 (UNIWORD TELECOM LTD.) ITAT DELHI BENCH IN ASSESSEES OWN CASE FOR ASSESSME NT YEAR 2005-06 IN ITA NO. 641/DEL/2009 REPORTED IN 45 DTR 433 (DEL.) (TRIB.) HAS HELD THAT 10% OF PURCHASES ONLY FROM TH E PARTIES WHO HAD NOT RESPONDED TO ENQUIRIES SHOULD BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF DISALLOWANCE. THERE FORE, THE FIGURE ON WHICH DISALLOWANCE HAD TO BE MADE AMOUNTED TO RS. 2,08,42,870/- AFTER EXCLUDING THE PURCHASE AMOUNT O F RS. 83,24,460/- MADE FROM M/S. GLASS PLASTIC AND CHEMIC ALS. THE LD. CIT(A) HAS ACCORDINGLY EXCLUDED THIS AMOUNT AND HAS MADE THE DISALLOWANCE TO @ 10% ON THE REMAINING AMOUNT O F RS. 2,98,42,870/- AFTER DULY FOLLOWING THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 (SUP RA) WHILE ALLOWING RELIEF TO THE ASSESSEE IN ASSESSMENT YEAR 2 005-06. THE ITAT HAD HELD THAT FACTS ESTABLISHED BEFORE THE SET TLEMENT COMMISSION WILL HAVE TO BE TAKEN INTO ACCOUNT FOR TH E PURPOSE OF COMPUTATION OF THE INCOME OF THE ASSESSEE BUT ALL A LLEGATIONS MADE IN THE SHOW CAUSE NOTICE CANNOT BE TAKEN INTO CONSIDERATION AS IN THE FIRST PLACE THESE WERE ONLY ALLEGATIONS AND IN THE SECOND PLACE MANY OF THEM WERE PROVED TO BE WR ONG BEFORE THE SETTLEMENT COMMISSION. THE ITAT WENT ON TO HOL D THAT THE 8 ITA NO.4843/DEL/2010 (UNIWORD TELECOM LTD.) ORDER OF THE SETTLEMENT COMMISSION CAN BE SAID TO B E THE RIGHT BASIS FOR SETTLED FACTS AS NO EVIDENCE WAS BROUGHT O N RECORD BY EITHER PARTY TO DISPLACE SUCH FINDINGS. THEREAFTER, THE ITAT PROCEEDED TO MAKE DISALLOWANCE IN RESPECT OF ALL VE NDORS WHO HAD NOT RESPONDED TO THE NOTICES ISSUED BY THE STAT UTORY AUTHORITIES @ 10% OF THE PURCHASE PRICE. ON IDENTIC AL FACTS, WE FIND NO REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT (A) IN THIS REGARD AND WE UPHOLD HIS ADJUDICATION OF RESTRI CTING THE DISALLOWANCE TO RS. 20,84,000/- IN THIS REGARD. ACCO RDINGLY, GROUND NO. 1 RAISED BY THE DEPARTMENT STANDS DISMIS SED. 5.1 COMING TO GROUND NO. 2 OF THE DEPARTMENTS APPE AL WITH CHALLENGES DELETION OF ADDITION OF RS. 1,58,80,000/ -, IT IS SEEN THAT THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE AS SESSEE BY ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YE AR 2005-06. IT IS SEEN THAT THIS ADDITION WAS MADE WITH RESPECT T O PURCHASES FROM 4 PARTIES AMOUNTING TO RS. 79.40 CRORES AND A RATE OF 2% WAS APPLIED BY THE AO TOWARDS ALLEGED ADDITIONAL GROS S PROFIT EARNED BY THE ASSESSEE ON ESTIMATED BASIS. THE LD. CIT (A) HAS NOTED THAT THESE PARTIES ALSO DID NOT FIGURE IN THE LIST OF 9 PARTIES WHO HAD NOT RESPONDED TO THE NOTICES ISSUED BY THE S TATUTORY 9 ITA NO.4843/DEL/2010 (UNIWORD TELECOM LTD.) AUTHORITIES. THE LD. CIT (A) HAD ALSO CALLED FOR C OMMENTS FROM THE AO WITH RESPECT TO THIS ADDITION THROUGH A REMAN D REPORT AND AFTER DULY CONSIDERING THE SAME HE HAS NOTED THAT N O DISALLOWANCE WOULD BE MADE IN THIS REGARD AS THE PRO FITS CANNOT BE ESTIMATED WITHOUT CONSIDERING THE BOOK RESULTS AN D FURTHER THERE WAS NO CASE FOR MAKING A FURTHER GP ADDITION A FTER ALREADY DISALLOWING 10% OUT OF ALLEGED BOGUS PURCHASES. THE LD. SR. DR COULD NOT POINT OUT ANY FACTUAL INACCURACY IN THE F INDINGS OF THE LD. CIT (A) AND WE FIND THAT THE ITAT DELHI BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 HAS ALSO UPHELD THE ASSESSEES CONTENTION THAT NO FURTHER DISALLOWANCE WAS REQUIRED AFTER MAKING A DISALLOWANCE ON ACCOUNT OF BOGUS PUR CHASES. THIS ORDER OF ITAT HAS BEEN SUBSEQUENTLY UPHELD BY THE H ONBLE DELHI HIGH COURT WHEREIN THE HONBLE HIGH COURT HAS HELD I N PARAGRAPH 13 THAT RESTRICTING THE DISALLOWANCE AMOU NTS BOTH IN TERMS OF THE NUMBER OF VENDORS AND TO 10 % IS NEITH ER UNREASONABLE NOR WITHOUT JUSTIFICATION. THE HONBLE HIGH COURT OBSERVED THAT THE FACT THAT THE ASSESSEE WAS UNABLE TO PIN POINT OR ENSURE THE PRESENCE OF THE VENDORS IN THE ASSESS MENT PROCEEDINGS COULD NOT HAVE BEEN THE SOLE GROUND FOR REJECTING ITS 10 ITA NO.4843/DEL/2010 (UNIWORD TELECOM LTD.) ENTIRE BOOKS OF ACCOUNTS, PARTICULARLY WHEN THERE WAS RELEVANT MATERIAL TO SUGGEST THAT THE INPUTS HAD, IN FACT, B EEN UTILIZED AND PAID FOR. THE HONBLE HIGH COURT ALSO APPROVED THE FINDING OF THE ITAT WHEREIN THE ITAT HAD OBSERVED THAT ALTHOUGH THE AO WAS AWARE OF THE SEARCH AND SEIZURE OPERATIONS BY THE EX CISE AUTHORITIES, HE DID NOT MAKE ANY EFFORTS TO OBTAIN THE BOOKS OF ACCOUNTS FROM THE EXCISE AUTHORITIES AND, THEREFORE , THE FAILURE OF THE REVENUE COULD NOT BE USED TO BE ASSESSEES DISA DVANTAGE. ACCORDINGLY, WE FIND NO REASON TO INTERFERE WITH THE ADJUDICATION OF THE LD. CIT (A) IN THIS REGARD ALSO AND WE DISMI SS GROUND NO. 2 RAISED BY THE DEPARTMENT. 6. IN THE RESULT, APPEAL OF THE REVENUE STANDS DIS MISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH MAY, 2018). SD/- SD/- (G.D.AGARWAL) (SUDHANSHU SRIVASTAVA ) PRESIDENT JUDI CIAL MEMBER DATE: 25.05.2018 BINITA COPY OF ORDER TO: - 1) THE APPELLANT; 2) THE RESPONDENT; 3) THE CIT; 4) THE CIT(A)-, NEW DELHI; 5) THE DR, I.T.A.T., NEW DELHI; TRUE COPY BY ORDER ITAT, NEW DELHI 11 ITA NO.4843/DEL/2010 (UNIWORD TELECOM LTD.)