INCOME TAX OFFICER-13(2)(2), MUMBAI V. SONAL DYE CHEM PRIVATE LIMITED , MUMBAI

ITA 5130/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8817 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 03-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAHIM CHOTALIYA
• Assessee Lawyers: N HEMALATHA SR
• Keywords: Bogus purchase

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH SMC, MUMBAI BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER ITA NO.5130/M/2017 ASSESSMENT YEAR: 2010-11 INCOME TAX OFFICER-13(2)(2), ROOM NO.147, 1 ST FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 20 VS. M/S. SONAL DYE CHEM PVT. LTD., C-101, BLUE BELL TOWER, EKSAR ROAD, BORIVALI (W), MUMBAI-400 092 PAN: AAICS3288F (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SMT. N. HEMALATHA, SR.A.R. REVENUE BY : SHRI RAHIM CHOTALIYA, D.R. DATE OF HEARING : 30.10.2017 DATE OF PRONOUNCEMENT : 31.10.2017 O R D E R PER D.T. GARASIA, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVENU E AGAINST THE ORDER DATED 15.05.2017 OF THE COMMISSIONER OF I NCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] R ELEVANT TO ASSESSMENT YEAR 2010-11. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN BUSINESS OF MANUFACTURING TEXTILE SUPPLIER AND YARN MANUFACTURER. DURING THE YEAR THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) FOUND THAT ASSESSEE HAD MADE BOGUS PURCHASES FR OM FOLLOWING PARTIES: SR. NO. NAME OF THE PARTY AMOUNT OF PURCHASE (RS) ITA NO.5130/M/2017 M/S. SONAL DYE CHEM PVT. LTD. 2 1. KANTILAL BROTHERS 34518 2. INSPIRE TRADERS 34580 3. PRATHI TRADING COMPANY 152650 4. S.P. CONSTRUCTION 220085 5. J.B. TRADERS 234853 6. L.P. TRADERS 341093 7. KRISHNA CHEMICAL WORKS 1105187 8. SHREYAS MARKETING AGENCY 1178191 TOTAL 39,05,449 3. THE ASSESSEE WAS ASKED TO PRODUCE THE ABOVE PART IES FOR VERIFICATION. THERE WAS NO COMPLIANCE OF NOTICE UND ER SECTION 133(6). THEREFORE, THE AO HAS MADE THE ADDITION ON ACCOUNT OF BOGUS PURCHASES OF RS.39,05,449/-. 4. MATTER CARRIED TO THE LD. CIT(A) AND THE LD. CIT (A) HAS PARTLY ALLOWED THE CLAIM BY OBSERVING AS UNDER: 6.7. ON THE BALANCE, IN MY VIEW THE ITEMS PURCHASE D ARE USED FOR MANUFACTURE AND THAT 53% OF PURCHASES CANN OT BE DISALLOWED. YET, THE AUTHENTICITY OF PURCHASES FROM THESE 9 PARTIES CANNOT BE FULLY PROVED. IN THESE FACTS, IT WILL BE APPROPRIATE TO DISALLOW ONLY THE PROFIT ELEMENT EMBEDDED IN THE IMPUGNED PURCHAS ES AS HELD IN THE CASE OF CIT VS SIMIT P. SETH BY THE HON'BLE GUJARAT HIGH CO URT. A DISALLOWANCE OF 12.5% OF THE IMPUGNED PURCHASES WILL TAKE CARE OF T HE PROFIT ELEMENT AND ROTATION OF CAPITAL UTILIZED FOR SUCH TRANSACTI ONS. ACCORDINGLY, THE DISALLOWANCE IS RESTRICTED TO RS 4,88,121/- THE GROUNDS OF APPEAL ARE PARTLY ALLOWED. 5. I HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE P ARTIES. LD. D.R. RELIED UPON THE DECISION OF THE TRIBUNAL, AHMEDABAD BENCH IN THE CASES OF SHWETAMBAR STEELS VS. ITO AHMEDABAD AND GA NESH RICE MILLS VS. CIT (294 ITR 316). THE FACTS IN THE PRES ENT CASE SHOW THAT ASSESSEE COULD NOT PRODUCE THE PARTIES FROM WHOM GO ODS ARE STATED TO HAVE BEEN PURCHASED. THE SUPPLIERS WERE FOUND TO BE ENGAGED IN PROVIDING BOGUS BILL WITHOUT ACTUAL DEALING OF GOOD S. IN THIS REGARD, ITA NO.5130/M/2017 M/S. SONAL DYE CHEM PVT. LTD. 3 THE ASSESSEE HAS STATED THAT THEY HAD SUBMITTED QUA NTITATIVE DETAILS OF STOCK WITH RESPECT OF THE SALES WITH PURCHASES FROM THE PARTIES DURING THE ASSESSMENT PROCEEDINGS. THE ASSESSEE HAS SUBMIT TED THE DETAIL OF CORRESPONDING SALES IN RESPECT OF THE PURCHASE FROM THE SAID PARTIES. AS MENTIONED ABOVE THE AO HAS NEVER DISPUTED OR EXA MINED THE ASPECT OF SALES RECEIPTS. SINCE THE SALES MADE BY T HE ASSESSEE WAS NOT DOUBTED OR DISPUTED BY THE AO AND HE HAS ACCEPTED T HE SALES RECEIPTS OF THE ASSESSEE AS IT IS, THEREFORE, THE AO CANNOT DENY THAT PURCHASES WERE NOT MADE BY THE ASSESSEE AND THE MATERIAL WAS NOT USED FOR ITS SALES. WHAT IS UNDER DISPUTE IS THE PURCHASES FROM T HE PARTIES FROM WHOM BILLS HAVE BEEN TAKEN AND CHEQUES HAVE BEEN IS SUED TO THEM. PURCHASES ARE NOT IN DISPUTE BUT THE PARTIES FROM W HOM PURCHASE ARE SHOWN TO HAVE BEEN MADE ARE DISPUTED AND SUSPICIOUS . THE AO HAD MADE THE ADDITION AS SOME OF THE SUPPLIERS WERE DEC LARED HAWALA DEALERS BY THE VAT DEPARTMENT. THIS MAY BE A GOOD R EASON FOR MAKING FURTHER INVESTIGATION BUT THE AO DID NOT MAK E ANY FURTHER INVESTIGATION AND MERELY COMPLETED THE ASSESSMENT O N SUSPICION. ONCE THE ASSESSEE HAS BROUGHT ON RECORD THE DETAILS OF PAYMENTS BY ACCOUNT PAYEE CHEQUE, IT WAS INCUMBENT ON THE AO TO HAVE VERIFIED THE PAYMENT DETAILS FROM THE BANK OF THE ASSESSEE A ND ALSO FROM THE BANK OF THE SUPPLIERS TO VERIFY WHETHER THERE WAS A NY IMMEDIATE CASH WITHDRAWAL FROM THEIR ACCOUNT. NO SUCH EXERCISE HAS BEEN DONE OR FINDINGS RECORDED. THERE WAS NO DETAILED INVESTIGAT ION MADE BY THE AO HIMSELF. IT IS ALSO FOUND THAT THE PAYMENTS HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUE WHICH ARE DULY REFLECTED IN TH E BANK STATEMENT OF THE ASSESSEE. THERE IS NO EVIDENCE TO SHOW THAT THE ASSESSEE HAS ITA NO.5130/M/2017 M/S. SONAL DYE CHEM PVT. LTD. 4 RECEIVED CASH BACK FROM THE SUPPLIERS. MERELY BECAU SE THE SUPPLIERS DID NOT APPEAR BEFORE THE AO OR SOME CONFIRMATION L ETTERS WERE NOT FURNISHED, ONE CANNOT CONCLUDE THAT THE PURCHASES W ERE NOT MADE BY THE ASSESSEE. THIS VIEW IS SUPPORTED BY THE DECISIO N OF NIKUNJ EXIMP ENTERPRISES VS. CIT 216 TAXMAN 171 (BOM). TO THIS E XTENT, I AM OF THE VIEW THAT IF THE ASSESSEE HAS FULFILLED ITS ONU S OF MAKING THE PAYMENT BY CHEQUE AND HAS SUPPLIED THE ADDRESSES OF THE SELLERS THEN IT CANNOT BE PRESUMED THAT SUPPLIER WERE BOGUS SIMP LY BECAUSE THE SELLERS WERE NOT FOUND AT THE GIVEN ADDRESS. THERE IS A CONSIDERABLE TIME GAP BETWEEN THE PERIOD OF PURCHASE TRANSACTION AND PERIOD OF SCRUTINY PROCEEDINGS. THE AO HAS NOT BROUGHT ANY MA TERIAL ON RECORD TO SHOW THAT THERE IS SUPPRESSION OF SALES. IT IS B ASIC RULE OF ACCOUNTANCY AS WELL AS OF TAXATION LAWS THAT PROFIT FROM BUSINESS CANNOT BE ASCERTAINED WITHOUT DEDUCTING COST OF PUR CHASE FROM SALES. ESTIMATION OF PROFIT RANGING FROM 12.5% TO 15% HAS BEEN UPHELD BY THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V S SIMIT P SHETH 356 ITR 451 (GUJ.). RESPECTFULLY FOLLOWING THE DEC ISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT P. SHETH 38 TAXMAN 385 (GUJ), I DISMISS THE DEPARTMENTAL APPEAL. 6. IN THE RESULT, DEPARTMENTAL APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31.10.2017. SD/- (D.T. GARASIA) JUDICIAL MEMB ER MUMBAI, DATED: 31.10.2017. * KISHORE, SR. P.S. ITA NO.5130/M/2017 M/S. SONAL DYE CHEM PVT. LTD. 5 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.