UNITED WATERPROOFING CORPORATION , MUMBAI V. ITO 31(3)(2), MUMBAI

ITA 495/MUM/2020

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5905 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 21-01-2020
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SMITA VERMA
• Assessee Lawyers: PH ALGOON DESAI
• Keywords: Bogus purchase; Reasonable cause; Set aside
• Section: 40A(3); 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH SMC, MUMBAI BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.495/M/2020 ASSESSMENT YEAR: 2011-12 M/S. UNITED WATERPROOFING CORPORATION, 5/2-A, PRAKASH APARTMENT, BANDIWALI HILL ROAD, JOGESHWARI (W), MUMBAI -400 102 PAN: AAAFU1604Q VS. INCOME TAX OFFICER- 31(3)(2), 625 KAUTILYA BHAVAN, BKC BANDRA EAST, MUMBAI - 400051 (APPELLANT) (RE SPONDENT) PRESENT FOR: ASSESSEE BY : SHRI PHALGOON DESAI, A.R. REVENUE BY : MS. SMITA VERMA, D.R. DATE OF HEARING : 23.08.2021 DATE OF PRONOUNCEMENT : 14.09.2021 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 22.11.2019 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2011-12. 2. GROUND NO.1 IS DISMISSED AS NOT PRESSED. 3. THE ONLY ISSUE RAISED BY THE ASSESSEE IN GROUND NO.2 IS AGAINST THE ORDER OF LD. CIT(A) ENHANCING THE ADDIT ION OF RS.15,373/- MADE BY THE AO TO RS.1,22,985/- WHICH I S 100% OF BOGUS PURCHASES. ITA NO.495/M/2020 M/S. UNITED WATERPROOFING CORPORATION 2 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE FILED T HE RETURN OF INCOME ON 30.09.2011 DECLARING A TOTAL INCOME OF RS.13,21,493/- WHICH WAS PROCESSED UNDER SECTION 14 3(1) OF THE ACT. THE CASE OF THE ASSESSEE WAS THEREAFTER REOPE NED BY THE AO AFTER RECEIPT OF INFORMATION FROM DGIT (INV.), MUMB AI THAT ASSESSEE IS BENEFICIARY OF HAWALA PURCHASE ENTRIES TO THE EXTENT OF RS.1,22,985/- AND ACCORDINGLY THE NOTICE UNDER S ECTION 148 OF THE ACT WAS ISSUED ON 17.06.2014. THE AO CALLED FO R VARIOUS DETAILS AND INFORMATION FROM THE ASSESSEE FROM TIME TO TIME DURING THE COURSE OF ASSESSMENT PROCEEDINGS WHICH W ERE DULY FILED BEFORE THE AO. THE AO FINALLY REJECTED THE C ONTENTIONS OF THE ASSESSEE AND TREATED THE PURCHASES AS NON GENUI NE THEREBY MAKING AN ADDITION OF RS.15,373/-, BEING 12.5% OF T HE PURCHASES, TO THE INCOME OF THE ASSESSEE BY FRAMING ASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 147 OF THE A CT DATED 25.03.2016. 5. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) DIS MISSED THE APPEAL OF THE ASSESSEE AND FURTHER DIRECTED THE A O TO APPLY RATE 100% OF THE BOGUS PURCHASES ON THE GROUND THAT THE ASSESSEE HAS FAILED TO PROVE THE GENUINENESS OF THE PURCHASES AND CONSUMPTION/UTILIZATION OF THE MATERIALS PURCHA SED. 6. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE NOTE THAT LD. CIT(A) HAS ENHANCED THE AD DITION ON ACCOUNT OF BOGUS PURCHASES TO 100% OF THE BOGUS PUR CHASES AS AGAINST 12.5% APPLIED BY THE AO. THE ONLY REASON G IVEN BY THE LD. CIT(A) IS THAT THE ASSESSEE HAS FAILED TO PROVE THE GENUINENESS OF PURCHASES AND CONSUMPTION OF MATERIA L. WE NOTE THAT IN CASE OF BOGUS PURCHASES THE ENTIRE PUR CHASES CAN ITA NO.495/M/2020 M/S. UNITED WATERPROOFING CORPORATION 3 NOT BE BROUGHT TO TAX AS HAS BEEN HELD IN A SERIES OF DECISIONS OF THE CO-ORDINATE BENCH WHEREIN IT HAS BEEN HELD THAT ONLY PROFIT ELEMENT CAN BE BROUGHT TO TAX DESPITE THE PURCHASES BEING BOGUS. AFTER TAKING INTO ACCOUNT THE FACTS OF THE ASSESSEES CASE, WE ARE OF THE CONSIDERED OPINION THAT LD. CIT(A) HA S WRONGLY ENHANCED THE ADDITION TO 100% AND THE SAME CAN NOT BE SUSTAINED. ACCORDINGLY, WE ARE SETTING ASIDE THE O RDER OF LD. CIT(A) ON THIS ISSUE BY RESTORING THE ASSESSMENT OR DER. 7. ACCORDINGLY, GROUND NO.2 IS ALLOWED. 8. THE ISSUE RAISED IN GROUND NO.3 IS AGAINST THE C ONFIRMATION OF ADDITION OF RS.4,14,421/- BY LD. CIT(A) AS MADE BY THE AO BY INVOKING THE PROVISIONS OF SECTION 40A(3) OF THE AC T. 9. THE FACTS IN BRIEF ARE THAT THE AO ON THE BASIS OF EXAMINATION OF BOOKS OF ACCOUNTS OBSERVED THAT ASSE SSEE HAS MADE VARIOUS CASH PAYMENTS EXCEEDING RS.20,000/- TO VARIOUS PARTIES AND ACCORDINGLY A SHOW CAUSE NOTICE DATED 0 2.03.2016 WAS ISSUED TO THE ASSESSEE AS TO WHY THE PAYMENT EX CEEDING THE LIMIT AS SPECIFIED UNDER SECTION 40A(3) OF THE ACT SHOULD NOT BE DISALLOWED WHICH WAS REPLIED BY THE ASSESSEE BY SUB MITTING THAT THE PAYMENTS IN MOST OF THE CASES WERE BELOW RS.20, 000/- AND WHERE THE PAYMENTS EXCEEDED RS.20,000/-, THE SAME W ERE COVERED UNDER RULE 6DD(K) OF IT RULES. THE LD. A.R . SUBMITTED THAT THESE ARE THE PURCHASES MADE FROM THE SAND SUP PLIERS WHO BROUGHT TRUCKS FILLED WITH SAND TO THE PROJECT SITE AND UNLOADED THE TRUCK ON THE CONDITION THAT THE PAYMENTS WOULD BE MADE IN CASH ONLY. THE ASSESSEE COULD NOT FURNISH THE PAN, NAMES AND ADDRESSES, HOWEVER, PRODUCED THE VOUCHERS CONTAININ G NAMES AND RECEIPTS FOR PAYMENT GIVEN BY THESE TRUCK DRIVE RS. ITA NO.495/M/2020 M/S. UNITED WATERPROOFING CORPORATION 4 ACCORDING TO THE AO SINCE THE ASSESSEE HAS FAILED T O GIVE THE NAMES AND ADDRESSES OF THE AGENT THROUGH WHOM THESE SUPPLIES OF SAND WERE RECEIVED WHICH REMAINED TO BE VERIFIED . FINALLY, THE AO DISALLOWED THESE PURCHASES UNDER SECTION 40A(3) OF THE ACT BY ADDING THE SAME TO THE INCOME OF THE ASSESSEE. 10. THE LD. CIT(A) DISMISSED THE APPEAL OF THE ASSE SSEE BY UPHOLDING THE ORDER OF AO BY OBSERVING THAT THE PAY MENT EXCEEDING RS.20,000/- IN CASH CAN ONLY BE ALLOWED I F THE ASSESSEE COULD ESTABLISH THE UNAVOIDABLE CIRCUMSTAN CES NECESSITATING THE PAYMENTS IN CASH, HOWEVER, NOTHIN G HAS BEEN DONE BY THE ASSESSEE TO PROVE THAT THERE WERE PRACT ICAL DIFFICULTIES AND UNAVOIDABLE CIRCUMSTANCES UNDER WH ICH THE PAYMENTS WERE MADE IN CASH AND COVERED UNDER RULE 6 DD(K). FINALLY, THE LD. CIT(A) DISMISSED THE APPEAL BY DIS TINGUISHING THE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL I N M/S A DAGA ROYAL ARTS VS. ITO ITA NO. 1065/JP/2016 DATED 15. 05.2018 BY OBSERVING THAT IN THAT CASE IDENTITY OF THE SELLER AND THE GENUINENESS OF THE TRANSACTIONS WERE ESTABLISHED WH EREAS IN THE PRESENT CASE THE ASSESSEE HAS FAILED TO ESTABLISH T HE IDENTITIES OF BOTH THE AGENT AS WELL AS SUPPLIERS. 11. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT ASSESSEE IS ENGAGED IN THE BUS INESS OF WATER PROOFING AND LABOUR JOB WORK. IT WAS SUBMITTED BEF ORE US THAT SAND IS PURCHASED BY THE ASSESSEE FROM AGENT WHO AR RANGED THE LOADED TRUCK OF SAND AT THE SITE OF THE ASSESSEE ON THE CONDITION THAT PAYMENT WOULD BE ACCEPTED IN CASH ONLY. THESE TRANSPORTERS ARE NOT HAVING ANY FIXED PLACE OF BUSI NESS BUT BRING SAND FILLED LORRIES AND COME TO THE SITE THROUGH SO ME REFERENCE. ITA NO.495/M/2020 M/S. UNITED WATERPROOFING CORPORATION 5 THESE TRUCK DRIVERS ARE NOT HAVING ANY PAN NUMBERS AND THEREFORE WE FIND MERIT IN THE CONTENTION OF THE AS SESSEE THAT KEEPING IN VIEW OF THE NATURE OF BUSINESS OF THE AS SESSEE AND NATURE OF MATERIAL PURCHASE, IT IS IMPRACTICABLE TO MAKE PAYMENT OTHERWISE THAN IN CASH. WE ARE THEREFORE N OT IN AGREEMENT WITH THE CONCLUSION DRAWN BY THE LD. CIT( A) THAT THE IDENTITY OF THE AGENT AS WELL AS SUPPLIERS WERE REQ UIRED TO BE ESTABLISHED IN ORDER TO CLAIM THE EXPENDITURE WHERE THE PAYMENTS ARE MADE IN CASH. WE HAVE EXAMINED THE DE TAILS FURNISHED BY THE ASSESSEE QUA THESE SUPPLIERS A COP Y OF WHICH IS FILED AT PAGE NO.105 OF THE PAPER BOOK AND FOUND TH AT ONLY IN THREE CASES THE PAYMENT HAS EXCEEDED RS.20,000/- AN D IN ALL OTHER CASES THE PAYMENTS WERE BELOW RS.20,000/-. I N THE CASE OF BHATI CONSTRUCTION COMPANY WHO IS A SUB CONTRACT OR, THE PAYMENT WAS RS.25,410/- WHEREAS IN THE CASE OF BHAN WARLAL, THE PAYMENT WAS MADE OF RS.26,722/- FOR SAND FOR L& T SPLENDOR SITE AND LASTLY THE PAYMENT WAS MADE TO MR . IBRAHIM BHAI KABODIA FOR PURCHASE OF BRICKS WORTH RS.25,370 /-. EVEN IN THREE CASES THE REASONABLE CAUSE HAS BEEN EXPLAINED BY THE ASSESSEE BEFORE US THAT PAYMENT HAD TO BE MADE OUT OF BUSINESS EMERGENCIES AND PRACTICAL DIFFICULTIES. IN VIEW OF THESE FACTS, WE ARE INCLINED TO SET ASIDE THE ORDER OF LD. CIT(A) A ND DIRECT THE AO TO DELETE THE DISALLOWANCE. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.09.2021. SD/- SD/- (MAHAVIR SINGH) (RAJESH KUMAR) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 14.09.2021. * KISHORE, SR. P.S. ITA NO.495/M/2020 M/S. UNITED WATERPROOFING CORPORATION 6 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY /ASSTT. REGISTRAR, ITAT, MUMBAI.