NIKOPAS ENGINEERING PVT. LTD., MUMBAI V. ITO 2(2)(3), MUMBAI

ITA 5229/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7684 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 19-08-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Bogus purchase; Cost of acquisition
• Section: 143(3); 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 5229/MUM/2016 ASSESSMENT YEAR: 2009-10 M/S. NIKOPAS ENGINEERING PVT. LTD., VS. ITO 2(2)(3 ) 41/42, PADDAR CHAMBERS, 5 TH FLOOR, AAYAKR BHAVAN, S.A. BRELVI ROAD, FORT, M.K. ROAD, MUMBAI 400 001 MUMBAI - 400020 PAN NO. AAACN1371J (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI BHUPENDRA SHAH, AR REVENUE BY: SHRI PURUSHOTTAM KUMAR, DR DATE OF HEARING : 16/01/2 017 DATE OF PRONOUNCEMENT: 30/03/2017 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2009-10. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER (APPEALS) 5, MUMBAI AND ARISES OUT O F ORDER U/S 143(3) R.W.S 147 OF THE INCOME TAX ACT 1961(THE AC T). 2. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER:- A. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LA W IN CONFIRMING THE ADDITION @ 12.50% RS. 3,20,927/- ON THE PURCHASES OF RS. 25,67,420/- WITHOUT APPRECIATING THE ACTUAL FACTS OF THE CASE. THE APPE LLANT PRAYS THAT THE ADDITION OF RS. 3,20,927/- BE DELETED. B. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LA W, BY IGNORING THE FACT THAT THE AMOUNT OF RS. 25,67,420/- INCLUDES MACHINERY PU RCHASED OF RS. 11,47,500/-. ITA NO. 5229/MUM/2016 2 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS IGNORED THE FACTS THAT ASSESSEE HAS PURCHASED MACHINERY OF RS. 11,47,500/- , WHICH IS INSTALLED IN FACTORY AND USED BY ASSESSEE IN ITS BUSINESS AND AMOUN T IS NOT DEBITED TO PURCHASES BUT SHOWN AS FIXED ASSETS IN BALANCE SHEET . APPELLANT PRAYS THAT THE ADDITION OF RS. 143,438/- BEING 12.50% OF RS. 11,47,5 00/- CONFIRMED BY THE LEARNED COMMISSIONER OF INCOME TAX BE DELETED. 3. IN A NUTSHELL, THE FACTS ARE THAT THE ASSESSING OFFICER(AO) NOTED THAT AS PER THE INFORMATION RECEIVED FROM SALES TAX DEPARTMENT THE ASSESSEE WAS INVOLVED IN TAKING ENTRIES OF BOGUS PU RCHASES FROM THE FOLLOWING PARTIES: 1 M/S. NIKHIL ENTERPRISES RS. 2,75,625/- 2 M/S. SAMBHAV SALES CORP. RS. 8,71,875/- 3 M/S. PAYAL ENTERPRISES RS. 2,22,750/- 4 M/S. M.R. CORPORATION RS. 1,08,680/- 5 M/S. SUN ENTERPRISES RS. 2,11,640/- 6 M/S. BHUMI ENTERPRISE RS. 3,85,632/- 7 M/S. LIBERTY TRADERS RS. 4,17,508/- 8 M/S. MERIDIAN SALES AGENCY RS. 1,85,085/- TOTAL RS. 26,78,795/- THE AO FOUND THAT THE TIN PROVIDED BY THE ASSESSEE IN THE ABOVE MENTIONED CASES WAS EXACTLY THE SAME AS APPEA RING IN THE INFORMATION AVAILABLE. IN RESPONSE TO THE NOTICE U/ S 142(1) ALONG WITH QUESTIONNAIRE DATED 04.12.2014 ISSUED BY THE AO, TH E ASSESSEE FILED SUBMISSIONS. THE AO HAVING EXAMINED THE SAME FOUND THE FOLLOWING FEATURES: I. THE ASSESSEE COMPANY HAS STATED THAT THE MENTIONED AB OVE PARTIES ARE NOT AVAILABLE. THE GENUINENESS OF SAID PURCHASES CANNOT BE VERIFIED AS THE ASSESSEE IS UNABLE TO GIVE PRESENT ADDRESS OF THE SAI D PARTIES, AND ALSO UNABLE TO PRODUCE THE SAID DEALERS/PARTIES. II. TRANSPORT RECEIPT IS NOT PROVIDED. III. THE ASSESSEE COMPANY HAS STATED IN ITS SUBMISSION TH AT THE COMPANY IS ASSEMBLING SMALL PARTS & MAKING PRODUCTS, THEREFORE TO MAINTAIN QUANTITY DETAILS IS NOT POSSIBLE. IV. THE ASSESSEE COMPANY IS NOT KEEPING DAY-TO-DAY STOCK REGISTER FOR RAW MATERIALS, FINISHED GOODS, MANUFACTURING A/C. IT IS A LSO EVIDENT FROM THE TAX AUDIT REPORT, THE AUDITOR HAS MENTIONED AS AS COMPANY HAS NOT (ITEM-WIDE) MAINTAINED STOCK RECORD, IT IS NOT POSSIBLE TO GIVE QUANTITATIVE DETAILS . HENCE IT ITA NO. 5229/MUM/2016 3 IS NOT POSSIBLE TO IDENTIFY, MATCH & CO-RELATE THE C ORRESPONDING CONSUMPTION/SALES OF THE ITEMS PURCHASED FROM THE SA ID TAINTED DEALERS. 3.1 IN VIEW OF THE ABOVE, THE AO MADE ADDITION OF R S. 26,78,795/- AS SUPPRESSED PROFIT BY WAY OF BOGUS PURCHASES. 4. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LEAR NED CIT(A). THE LEARNED CIT(A) REDUCED RS. 1,11,375/- (EVIDENCE FOR WHICH WAS PRODUCED BEFORE HIM STATING THE SAID PURCHASES WHIC H HAD BEEN WRITTEN OFF IN A.Y. 2010-11 AND OFFERED TO TAX) FRO M RS. 26,78,795/-. WE FIND THAT THE LEARNED CIT(A) TOOK INTO ACCOUNT A N IDENTICAL CASE WHERE BOGUS PURCHASES WERE INVOLVED AND FOLLOWING T HE JUDGEMENT OF THE HON'BLE GUJRAT HIGH COURT IN THE CASE OF CIT VS. SIMIT P. SETH 356 ITR 451 (GUJ) DIRECTED THE AO TO ESTIMATE PROFIT @1 2.5% ON PURCHASES OF RS. 25,67,420/- AND MAKE AN ADDITION O F RS. 3,20,927/-. 5. BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE S UBMITS THAT THE ALLEGED PURCHASES OF RS. 26,78,795/- INCLUDES RS. 1 1,47,500/- TOWARDS PURCHASE OF MACHINERY. HE FILED DETAILS OF PURCHASES FROM THE ABOVE EIGHT SUPPLIERS. IT IS SUBMITTED BY HIM T HAT THE PARTIES CONCERNED WERE PROPER TRADERS IN THE MARKETS, WHO H AVE DELIVERED THE GOODS TO THE ASSESSEE. THESE PARTIES WERE REGIS TERED WITH SALES TAX DEPARTMENT. THESE PARTIES MAY HAVE AVOIDED PAYM ENT OF VAT. IT IS SUBMITTED THAT DURING THE COURSE OF ASSESSMENT P ROCEEDINGS BEFORE THE AO, THE DETAILS OF PURCHASES MADE FROM THESE PA RTIES, CORRESPONDING SALES, COPY OF SECURITY/GOODS INWARD REGISTER MAINTAINED AT THE FACTORY, CERTIFICATE FROM BANK CE RTIFYING THE PAYMENTS WERE SUBMITTED. THE LEARNED COUNSEL OF THE ASSESSEE RELIES ON THE ORDER OF THE TRIBUNAL IN DCIT VS. SHRI RAJEEV G. KALATHIL (ITA NO. 6727/MUM/2012) ITAT D BENCH, MUMBAI; SHRI GANPATRAJ A. SANGHAVI VS. ACIT (ITA NO. 2826/MUM/2013) ITAT G BENCH, MUMBAI; RAMESH KUMAR & CO. VS. ACIT (ITA NO. 2959/MUM/2014) ITA NO. 5229/MUM/2016 4 ITAT D BENCH MUMBAI; ITO VS. SHRI DEEPAK POPOTLAL GALA (ITA NO. 5920/MUM/2013) ITAT D BENCH, MUMBAI; ACIT VS. SHRI RAMILA PRAVIN SHAH (ITA NO. 5246/MUM/2013) ITAT D BENCH, MUMBAI; ACIT VS. TARLA S. SHAH (ITA NO. 5295/MUM/2013) ITAT E BENCH, MUMBAI; SHRI HIRALAL CHUNILAL JAIN VS. ITO (ITA NO. 4547/MUM/2014) ITAT H BENCH, MUMBAI; M/S. IMPERIAL IMP & EXP VS. ITO (ITA NO. 5427/MUM/2015) ITAT I BENCH, MUMBAI; ITO VS. SHRI PARESH ARVIND GANDHI (ITA NO. 5706/MUM/2013) ITAT C BENCH, MUMBAI; DCIT VS. SHIV SANKAR R. SHARMA (2016) 48 CCH 0143 MUM-TRIB AND SHRI GOVIND BHILU RATHOD VS. ITO (ITA NO. 439/MUM/2016). 6. THE LEARNED DR SUPPORTS THE ORDER PASSED BY THE LEARNED CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE FACT REMAINS THAT (I) THE A SSESSEE COULD NOT FILE BEFORE THE AO THE PRESENT ADDRESS OF THE SAID DEALERS / PARTIES , THEREFORE THE LATTER WAS NOT IN A POSITION TO MAKE ANY VERIFICATION (II) THE ASSESSEE ALSO FAILED TO FILE BEFORE THE AO THE TRANSPORT RECEIPT AND (III) THE ASSESSEE COMPANY WAS NOT KEEPING DAY-TO -DAY STOCK REGISTER FOR RAW MATERIALS, FINISHED GOODS, MANUFAC TURING ACCOUNT . THE AUDITOR HAS ALSO CERTIFIED THAT AS THE COMPANY HAS NOT MAINTAINED ANY STOCK RECORD, IT IS NOT POSSIBLE TO GIVE QUANTI TATIVE DETAILS. 7.1 THE LEARNED COUNSEL OF THE ASSESSEE HAS PLACED RELIANCE ON THE ORDER OF THE ITAT AS MENTIONED AT PARA 5 HERE-IN-AB OVE. HOWEVER, WE HAVE THE BENEFIT OF HAVING THE JUDGEMENT OF THE HON 'BLE GUJARAT HIGH COURT IN SIMIT P. SHETH (SUPRA) ON SIMILAR ISSUES. IN THAT CASE, THE ASSESSEE WAS ENGAGED IN BUSINESS OF TRADING IN STEE L ON WHOLESALE BUSINESS. THE AO HAVING FOUND THAT SOME ALLEGED SUP PLIERS OF STEEL TO ITA NO. 5229/MUM/2016 5 ASSESSEE HAD NOT SUPPLIED STEEL TO ASSESSEE BUT HAD ONLY PROVIDED SALE BILLS, HELD THAT PURCHASES MADE FROM SAID PART IES WERE BOGUS. HE, ACCORDINGLY, ADDED ENTIRE AMOUNT OF PURCHASES TO GR OSS PROFIT OF THE ASSESSEE. THE COMMISSIONER (APPEALS), HAVING FOUND THAT ASSESSEE HAD INDEED MADE PURCHASES, THOUGH NOT FROM NAMED PA RTIES BUT OTHER PARTIES FROM THE GREY MARKET, SUSTAINED ADDIT ION TO THE EXTENT OF 30% OF PURCHASE COST AS PROBABLE PROFIT OF THE A SSESSEE. THE TRIBUNAL, HOWEVER, SUSTAINED ADDITION TO THE EXTENT OF 12.5% OF THE DISPUTED PURCHASES AS BUSINESS PROFIT OF THE ASSESS EE. THE REVENUE THEN FILED APPEAL AGAINST THE ORDER OF THE TRIBUNAL BEFORE THE HIGH COURT. WE FIND THAT THE HON'BLE HIGH COURT HELD THA T SINCE PURCHASES WERE NOT BOGUS BUT WERE MADE FROM PARTIES OTHER THA N THOSE MENTIONED IN THE BOOKS OF ACCOUNT, ONLY PROFIT ELEM ENT EMBEDDED IN SUCH PURCHASES COULD BE ADDED TO ASSESSEES INCOME. THE HON'BLE HIGH COURT RELIED ON THE SIMILAR VIEW TAKEN IN THE CASE OF CIT VS. VIJAY M. MISTRY CONSTRUCTION LTD. [2013] 355 ITR 498 (GUJ) AND CIT VS. BHOLANATH POLY FAB (P) LTD. [2013] 355 ITR 290 (GUJ). FINALLY, THE HON'BLE HIGH COURT HELD THAT THE ORDER OF THE TRIBU NAL NEEDED NO INTERFERENCE. 7.2 IT WILL BE JUST AND PROPER FOR US TO FOLLOW THE DECISION OF THE HON'BLE GUJARAT HIGH COURT ON THE ABOVE ISSUE. 7.3 IN VIEW OF THE ABOVE, THE ORDER OF THE LEARNED CIT(A) DIRECTING THE AO TO ESTIMATE 12.5% OF THE BOGUS PURCHASES OF RS.25,67,420/- AND TAX ONLY THE PROFIT EMBEDDED THEREIN OF RS. 3,2 0,927/- IS UPHELD. 8. IN THE RESULT, THE APPEAL IS DISMISSED. ITA NO. 5229/MUM/2016 6 ORDER PRONOUNCED IN THE OPEN COURT ON 30.03.2017 SD/- SD/- (SAKTIJIT DEY) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBE R MUMBAI; DATED: 30.03.2017 BISWAJIT, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI