SHREYA TRADING COMPANY, BHIWANDI V. ACIT CIR. 1, KALYAN, KALYAN

ITA 5051/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9910 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 08-08-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V VIDHYADHAR
• Assessee Lawyers: SUNIL M MAKH IJA
• Keywords: Reopening of assessment; Bogus purchase; Principle of natural justice
• Section: 143(3); 133(6); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH G, MU MBAI BEFORE SHRI P.K. BANSAL, VICE-PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.5051/MUM/2016 (ASSESSMENT YEAR- 2010-11) M/S SHREYA TRADING COMPANY H. NO. 1662, SARASWATI COMPOUND, NR. GANESH SOCIETY, BEHIND APSARA CINEMA, BHIWANDI- 421302. PAN: ABJFS2817H VS. ACIT CIRCLE-1 KALYAN. (APPELLANT) (RESPONDENT) ITA NO.5364/MUM/2016 (ASSESSMENT YEAR- 2010-11) ACIT CIRCLE-1 KALYAN. VS. M/S SHREYA TRADING COMPANY H. NO. 1662, SARASWATI COMPOUND, NR. GANESH SOCIETY, BEHIND APSARA CINEMA, BHIWANDI- 421302. PAN: ABJFS2817H (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SUNIL M. MAKHIJA (AR) REVENUE BY : SHRI V.VIDHYADHAR (DR) DATE OF HEARING : 06.09.2017 DATE OF PRONOUNCEMENT : 06.09.2017 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER: 1. THESE CROSS APPEALS UNDER SECTION 253 OF THE INCOME -TAX ACT (THE ACT) ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A)-2, THANE D ATED 14.06.2016 FOR THE ITA NO.5051 & 5364/M/2016- M/S SHREYA TRADING COMPANY 2 ASSESSMENT YEAR (AY) 2010-11. THE ASSESSEE HAS RAIS ED THE FOLLOWING GROUNDS OF APPEAL. 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE LEARNED ASSESSING OF FICER'S STAND OF REOPENING THE ASSESSMENT U/S 147 OF THE INCOME TAX ACT. THE APPEL LANT PRAYS THAT THE REOPENING OF ASSESSMENT U/ S 147 OF THE INCOME TAX ACT MAY BE DECLARED BAD IN LAW AND REASSESSMENT ORDER MAY PLEASE BE CANCELLED. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE LEARNED ASSESSING OF FICER'S STAND FOR NOT PROVIDING THE DOCUMENTARY EVIDENCE AND CROSS EXAMIN ATION SO CALLED HAWALA DEALER OR BOGUS SUPPLIER OF GOODS WHICH HAD BEEN SO UGHT BY THE APPELLANT DURING THE COURSE OF ASSESSMENT PROCEEDINGS FURTHER FAA AL SO IGNORING THE APPELLANT PLEA AND REQUEST TO PROVIDE DOCUMENTARY EVIDENCE AND CRO SS EXAMINATION OF THE SAID DEALER IN THE LIGHT OF ABOVE FACT DECLARED ASSESSME NT ORDER BAD IN LAW VOID AB INITIO AND ILLEGAL AND ORDER OF THE FIRST APPELLATE AUTHORITY LIABLE TO QUASH FOR THE ASSESSMENT YEAR 2010-11. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED BY REJECTING THE BOOKS OF ACCOUNTS U/S 145(3) OF INCOME TAX ACT 1961 WITHOUT ISSUING A SHOW CAUSE NOTICE TO THE APP ELLANT NOR PROVIDED AN OPPORTUNITY OF HEARING. THE APPELLANT REQUEST TO DE CLARED INVOKED SECTION 145(3) OF INCOME TAX ACT 1961 IS BAD IN LAW AND ORDER OF T HE FIRST APPELLATE AUTHORITY LIABLE TO QUASH FOR THE ASSESSMENT YEAR 2010-11. 4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED BY DETERMINING THE ESTIMATED OF PROFIT AFTER REJECTING THE BOOKS OF ACCOUNTS BY IGNORING SETTLED LAW THAT ESTIMATES FRA MED WITHOUT GIVING THE BASIS FOR THEIR FIXATION OR WITHOUT FURNISHING TO THE APP ELLANT THE MATERIAL ON WHICH THE RATE OF GROSS PROFIT IS ARRIVED AT OR WITHOUT GIVIN G AN OPPORTUNITY TO THE ASSESSEE TO REBUT IT ARE BAD. [DHAKESWARI COTTON MILLS LTD., V/ S, CIT (1954) 26 ITR 775]. 5) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED BY NEITHER APPLYING ANY SCIENTIFIC MET HOD NOR COMPARATIVE NET PROFIT OF SIMILAR TYPE OF BUSINESS AT THE TIME OF DETERMIN ING THE NET PROFIT OF THE APPELLANT ITA NO.5051 & 5364/M/2016- M/S SHREYA TRADING COMPANY 3 AFTER REJECTING THE BOOKS OF ACCOUNT IS RS 26,41,47 3/- FOR THE A.Y. 2010 - 11 AGAINST THE ASSESSEE DECLARED THE PROFIT OF RS 22,0 9,270/-. 6) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED DISALLOWANCE OF PURCHASES ON ADHOC BAS IS WITHOUT ANY JUSTIFICATION. 7) THE LEARNED CIT(A) HAS BEEN IN ABSOLUTE CONFUSED STATE OF MIND WHILE CONCLUDING THE APPEAL WHICH IS CLEARLY SEEN FROM TH E PARA 7.13 'CONSIDERING THE FACTS AS DISCUSSED ABOVE AND ON AC COUNT OF APPELLANT'S NON FURNISHING OF REQUIRED DETAILS IN PRESCRIBED FORMAT , AS ABOVE, IN MY CONSIDERED OPINION, THE ESTIMATION OF GP @ 13.54% AS DECLARED IN THE A. Y. 2011 - 12, WILL BE JUSTIFIED IN THE CASE OF APPELLANT. SINCE T HE SUPPRESSED GP I.E. RS 26,41,473/- (RS 13,90,24,930/- X 1.9/100), IS MORE THAN 25% OF BOGUS PURCHASES, I.E. RS 17,40,031/- (25% OF RS 69,60,124 ), THEREFORE THE DISALLOWANCE TO THE EXTENT OF RS 26,41,473/-, AS AG AINST TOTAL DISALLOWANCE OF RS 69,60,124/-, MADE BY THE AO, IS SUSTAINED AND TH E BALANCE AMOUNT OF RS 43,18,651/- IS DELETED. THIS GROUND OF APPEAL IS, T HEREFORE, PARTLY ALLOWED.' FROM THE ABOVE PARAGRAPH ITS CRYSTAL CLEAR THAT ORD ER HAD BEEN PASSED WITHOUT APPLICATION OF MIND ON ADHOC BASIS BY IGNORING PRIN CIPLE OF NATURAL JUSTICE AND TAX JURISPRUDENCE TO BE DECLARED BAD IN LAW AND LIA BLE TO QUASH. 8) THE ORDER APPEAL AGAINST IS BAD IN LAW AND AGAIN ST THE PRINCIPLE OF NATURAL JUSTICES AND TAX JURISPRUDENCE. 9) THE ORDER APPEAL AGAINST IS BASED ON SURMISES AN D CONJECTURES. 2. THE REVENUE IN ITS CROSS APPEAL HAS RAISED THE FOLL OWING GROUNDS OF APPEAL . (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN RELYING ON THE DECISION OF SUPREME COURT IN THE CAS E OF KANCHWALA GEMS VS. JCIT 288 ITR 10(SC) AND HON'BLE HIGH COURT'S DECISI ON IN THE CASE OF VIJAY PROTEIN, SANJAY OIL CAKE INDUSTRIES, ETC. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE HON'BLE CIT(A) ERRED IN NOT FOLLOWING THE ORDER OF ITAT, PU NE IN ITA NO. 1411-1415 DATED 20.02.2015 IN THE CASE OF M/S. KOLTE PATIL DE VELOPERS LTD. WHEREIN 100% ADDITION OF BOGUS PURCHASES WAS CONFIRMED. ITA NO.5051 & 5364/M/2016- M/S SHREYA TRADING COMPANY 4 (III)ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) HAS ERRED IN GIVING RELIEF TO THE ASSESSEE TO THE EXTENT OF SUPP RESSED G.P. OUT OF TOTAL BOGUS PURCHASES EVEN THOUGH- (I) THE ASSESSEE COULD NOT PRODUCE PRIMARY EVIDENCES LI KE OCTROI RECEIPTS, DELIVERY CHALLAN ETC. EVIDENCE TO PROVE T HE GENUINENESS OF THE PURCHASES BEFORE THE AO AND BEFORE CIT(A). (II) THE AFFIDAVITS FILED BY THE ENTRY PROVIDERS BEFORE SALES TAX AUTHORITIES CANNOT BE IGNORED HAVING EVIDENTIARY VA LUE. (IV) THE ORDER OF THE CIT (A) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF TRADING OF COAL AND CHEMICALS, FILE D ITS RETURN OF INCOME FOR RELEVANT AY ON 16.10.2010 DECLARING TOTAL INCOME OF RS. 22,09,270/-. THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT. SUBSEQU ENTLY, THE ASSESSMENT WAS REOPENED U/S 147 OF THE ACT. THE ASSESSMENT WAS REOPENED ON THE BASIS OF INFORMATION RECEIVED FROM SALE TAX DEPARTMENT TH AT THE ASSESSEE IS ONE OF THE BENEFICIARY WHO HAVE AVAILED THE BOGUS BILLS FROM THE HAWALA DEALERS. THE NOTICE UNDER SECTION 148 WAS SERVED ON THE ASSE SSEE. THE ASSESSMENT WAS COMPLETED U/S 143(3) R.W.S. 147 OF THE ACT ON 2 0.03.2015. THE ASSESSING OFFICER (AO) WHILE PASSING THE ASSESSMENT ORDER MADE THE ADDITION OF RS. 69,60,124/- ON ACCOUNT OF BOGUS PU RCHASES. THE AO MADE THE ADDITION OF 100% OF THE COST OF THE ALLEGED BO GUS PURCHASES . ON APPEAL BEFORE THE LD. CIT(A), THE ADDITION WAS RESTRICTED @ 13.54% OF THE PURCHASES ON THE BASIS OF GROSS PROFIT (GP) DECLARE D IN SUBSEQUENT AY. THE ITA NO.5051 & 5364/M/2016- M/S SHREYA TRADING COMPANY 5 LD. CIT(A) FURTHER HELD THAT THE GROSS PROFIT (GP) IS RS. 26,41,473/- (13,90,24,930 X 190/100) IS MORE THAN THE 25% OF T HE BOGUS PURCHASE I.E. RS. 17,40,031/- (25% OF RS. 69,60,124/-), THEREFORE , DISALLOWED RS. 26,41,473/-. FURTHER AGGRIEVED BY THE ORDER OF LD. CIT (A), BOTH THE PARTIES HAVE FILED THEIR CROSS APPEAL BY RAISING THE GROUND S OF APPEAL AS REFERRED AS ABOVE. 4. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE (AR ) OF THE ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (DR) FOR THE REVENU E AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD. AR OF THE ASS ESSEE ARGUED THAT THE AO IDENTIFIED THE BOGUS PURCHASE OF RS. 69,60,124/-. T HE AO DISALLOWED 100% OF THE COST OF THE PURCHASES. THE LD. CIT(A) ON THE BASIS OF ESTIMATION OF GP DECLARED FOR AY 2011-12 @ 13.54% RESTRICTED THE DIS ALLOWANCE OF RS. 26,41,473/-. THE DISALLOWANCE RESTRICTED BY LD. CIT (A) IS ABOUT 38% OF THE AGGREGATE OF THE ALLEGED BOGUS PURCHASES. THE LD. A R OF THE ASSESSEE FURTHER ARGUED THAT THE AO MADE THE ADDITION ON THE BASIS O F THIRD PARTY INFORMATION WITHOUT MAKING ANY INDEPENDENT ENQUIRY. THE ASSESSE E HAS FURNISHED NECESSARY EVIDENCE IN SUPPORT OF HIS EXPENDITURE IN CURRED ON PURCHASE DURING THE RELEVANT FINANCIAL YEAR. IT WAS ARGUED T HAT THE DISALLOWANCE IS ON VERY HIGHER SIDE AND MAY BE RESTRICTED ON THE REASO NABLE BASIS. ON THE OTHER HAND THE LD. DR FOR THE REVENUE ARGUED THAT INVEST IGATION WING OF THE INCOME-TAX DEPARTMENT MADE FULL-FLEDGED ENQUIRY. TH E PARTIES FROM WHOM ITA NO.5051 & 5364/M/2016- M/S SHREYA TRADING COMPANY 6 ASSESSEE HAS SHOWN THE PURCHASES WERE HAWALA DEALER . THOSE DEALERS WERE INDULGED IN ISSUING BOGUS BILL WITHOUT DELIVERY OF ANY MATERIAL OR GOODS. THE ASSESSEE OBTAINED ACCOMMODATION BILL ONLY IN ORDER TO INFLATE THE EXPENSES AND TO BRING DOWN THE PROFITABILITY IN ORDER TO AVO ID THE TAX. THE LD. DR FOR THE REVENUE PRAYED FOR DISMISSAL OF THE APPEAL OF T HE REVENUE AND FURTHER PRAYED FOR UPHOLDING THE ADDITION MADE BY AO. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE SE EN THAT THE ASSESSEE HAS RAISED AS MANY AS TEN GROUNDS OF APPEAL. HOWEVER, A S PER OUR CONSIDERED VIEW, THE ASSESSEE HAS RAISED ONLY TWO GROUNDS OF A PPEAL WHICH ARE AS UNDER: (I) WHETHER THE LD. CIT (A) ERRED IN CONFIRMING THE OR DER OF RE-OPENING U/S 147 OF THE ACT. (II) WHETHER THE LD. CIT (A) ERRED IN CONFIRMING THE PAR TIAL ADDITION MADE BY AO. 6. SIMILARLY, THE REVENUE HAS RAISED AS MANY AS FOUR G ROUNDS OF APPEAL. HOWEVER, AS PER OUR CONSIDERED VIEW, THE ONLY SUBST ANTIAL GROUND OF APPEAL RAISED BY REVENUE IS WHETHER THE LD. CIT(A) ERRED IN SUSTAINING THE PARTIAL ADDITION TO THE EXTENT OF SUPPRESSED GP OUT OF TOTA L BOGUS PURCHASES. REST OF THE GROUNDS OF APPEAL IN BOTH THE APPEALS ARE EI THER ARGUMENTATIVE IN NATURE OR NARRATION OF FACTS. 7. THE GROUND NO. 1 IN ASSESSEES APPEAL RELATES TO RE -OPENING OF ASSESSMENT U/S 147 OF THE ACT. THE LD. AR OF THE ASSESSEE HAS NOT ARGUED ANYTHING ITA NO.5051 & 5364/M/2016- M/S SHREYA TRADING COMPANY 7 AGAINST THIS GROUND OF APPEAL. HENCE, THIS GROUND O F APPEAL IS DISMISSED AS NOT PRESSED. 8. SECOND SUBSTANTIAL GROUND OF APPEAL RAISED BY ASSES SEE AND THE SOLE GROUND OF APPEAL RAISED BY REVENUE ARE INTERCONNECTED. THE AO WHILE FRAMING THE ASSESSMENT ORDER OBSERVED THAT THE ASSESSEE HAS SHO WN THE PURCHASES OF RS. 69,60,124/- FROM 11 PARTIES WHOSE NAME ARE APPEARED IN THE LIST OF PERSONS WHO WERE INDULGED IN PROVIDING THE BOGUS BILLS WITH OUT DELIVERY OF GOODS. THE ASSESSEE WAS ASKED TO PRODUCE THE DETAILS OF PU RCHASES. THE ASSESSEE COULD NOT PRODUCE SATISFACTORY EVIDENCES WITH REGAR D TO TRANSPORTATION, DELIVERY CHALLAN, GOODS RECEIVING NOTE AND OCTROI R ECEIPT. NOTICE U/S 133(6) SENT TO THOSE PARTIES WERE RETURNED UNSERVED. THUS, THE AO MADE THE DISALLOWANCE OF AGGREGATE OF THE PURCHASES FROM ALL 11 PARTIES OF RS.69,60,124/-. THE LD. CIT(A) AFTER CONSIDERING TH E GP FOR TWO YEARS PRIOR TO THE AY UNDER CONSIDERATION AND TWO SUBSEQUENT YE ARS RESTRICTED THE ADDITION TO RS. 26,41,473/-. THE LD. CIT(A) PASSED THE FOLLOWING ORDER: 7.13 CONSIDERING THE FACTS AS DISCUSSED ABOVE AND ON ACCOUNT OF APPELLANT'S NON FURNISHING OF REQUIRED DETAILS IN THE PRESCRIBED FO RMAT, AS ABOVE, IN MY CONSIDERED OPINION, THE ESTIMATION OF GP @13.54%, A S DECLARED IN 2011-12, WILL BE JUSTIFIED IN THE CASE OF APPELLANT. SINCE THE SU PPRESSED GP I.E. RS. 26,41,473/- (RS. 13,90,24,9301- X 1.90/100), IS MORE THAN 25% O F BOGUS PURCHASES, I.E. RS 17,40,031/-(25% OF 69,60,124), THEREFORE, THE DISAL LOWANCE TO THE EXTENT OF RS 26,41,473/-, AS AGAINST TOTAL DISALLOWANCE OF RS 69 ,60,124/-, MADE BY THE AO, IS SUSTAINED AND THE BALANCE AMOUNT OF RS 43,18,651/-, IS DELETED. THIS GROUND OF APPEAL IS, THEREFORE, PARTLY ALLOWED. ITA NO.5051 & 5364/M/2016- M/S SHREYA TRADING COMPANY 8 9. THE PERUSAL OF CONCLUSION ARRIVED BY LD. CIT(A) REV EALS THAT THE ADDITION WAS RESTRICTED TO RS. 26,41,473/- WHICH IS ABOUT 37 .95% OF THE TOTAL ALLEGED BOGUS PURCHASES. IN OUR CONSIDERED VIEW, THE DISALL OWANCE ON ACCOUNT OF BOGUS PURCHASE IS ON HIGHER SIDE. IN VIEW OF THE FA CT THAT THE AO HAS NOT DISPUTED THE SALE/CONSUMPTION OF THE MATERIAL NOR R EJECTED THE BOOKS OF ACCOUNT. THE ADDITION WAS MADE ON THE BASIS OF THIR D PARTY INFORMATION. IN OUR VIEW, UNDER THE INCOME-TAX ACT ONLY THE REAL IN COME CAN BE TAXED BY THE REVENUE. EVEN IF THE TRANSACTION IS NOT VERIFIABLE, THE ONLY TAXABLE IS THE TAXABLE INCOME COMPONENT AND NOT THE ENTIRE TRANSAC TION. WE ARE OF THE CONSIDERED VIEW THAT IN ORDER TO FULFILL THE GAP OF REVENUE LEAKAGE, THE DISALLOWANCE OF REASONABLE PERCENTAGE OF ALLEGED BO GUS PURCHASES WOULD MEET THE END OF JUSTICE. CONSIDERING THE FACTS OF T HE PRESENT CASE, WE RESTRICT THE ADDITION @ 12.5% OF ALLEGED BOGUS PURCHASES (RS . 69,60,124/-). THE AO IS DIRECTED ACCORDINGLY. HENCE, THE SECOND SUBSTANT IAL GROUND OF APPEAL RAISED BY ASSESSEE IS ALLOWED AND THE GROUND OF APP EAL RAISED BY REVENUE IS DISMISSED. 10. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PART LY ALLOWED AND THE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 06 D AY OF SEPTEMBER 2017. SD/- SD/- (P.K. BANSAL) (PAWAN SINGH) VICE-PRESIDENT JUDICIAL MEMBER MUMBAI; DATED 06/09/2017 ITA NO.5051 & 5364/M/2016- M/S SHREYA TRADING COMPANY 9 S.K.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT.REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY/