M/S SEION WATERTECH PVT. LTD., Indore V. THE ITO 5(1), Indore

ITA 554/IND/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5821 (ITAT-INDORE)
• Duration Of Justice: 2 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 19-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHD JAVED
• Keywords: Bogus purchase; Rejection of books of accounts; Principle of natural justice; Accommodation entries

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER M/S.SEION WATERTECH PVT.LTD., INDORE. PAN: AACCS7878M VS. ITO, 5(1), INDORE. APPELLANT RESPONDENT APPELLANT BY SHRI ATIK BANSAL, C. A. RESPONDENT BY SHRI MOHD. JAVED, SR. DR DATE OF HEARING 18.08.2016 DATE OF PRONOUNCEMENT 18.08.2016 O R D E R PER O.P. MEENA, ACCOUTANT MEMEBR. THESE APPEALS ARE FILED BY THE ASSESSEE AGAINST THE SEPARATE ORDER OF LD. COMMISSIONER OF INCOME-TAX (A PPEALS)-II, INDORE [HEREINAFTER REFERRED TO AS THE CIT(A)] BOTH DATED 29.02.2016 AND PERTAIN TO ASSESSMENT YEAR 2009-10 A ND 2011-12 AS AGAINST APPEALS DECIDED IN PENALTY ORDER DATED I.T.A. NOS.554 & 555/IND/2016 ASSESSMENT YEAR: 2009-10 & 2011-12 SEION WATERTECH P.LTD. VS. ITO, 5(1), INDORE I.T. A.NO. 554/IND/2016 A.Y. 2009-10 PAGE 2 OF 11 30.12.2014 OF ITO WARD 5(1) INDORE [HEREINAFTER REF ERRED TO AS THE AO]. 2. THE ASSESSEE HAS TAKEN AS MANY AS FIVE GROUNDS OF APPEALS IN BOTH THE ASSESSMENT YEARS, BUT IN SUM AN D SUBSTANCE, THE EFFECTIVE GROUND IS CONFIRMING THE PENALTY OF RS. 1,10,000/- AND RS. 1,42,000/- IMPOSED U/S 271(1 )(C) OF THE INCOME-TAX ACT, 1961, IN BOTH THE ASSESSMENT YE ARS UNDER CONSIDERATION. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAD MADE PURCHASES FROM M/S. VALIANT STEEL ENGINEERING COMPANY FOR AN AMOUNT OF RS. 11,90,898/ - AND RS. 10,20,000/- IN THE ASSESSMENT YEARS UNDER CONSI DERATION AND THE PAYMENTS HAVE ALSO BEEN MADE SUBSEQUENTLY B Y ACCOUNT PAYEE CHEQUES. HOWEVER, DURING THE COURSE O F ASSESSMENT PROCEEDINGS, IT WAS NOTICED THAT ACTUAL D ELIVERY AND MOVEMENT OF THE GOODS DID NOT TAKE PLACE. IT WAS FURTHER FOUND THAT M/S. VALIANT STEEL ENGINEERING COMPANY H AD GIVEN ACCOMMODATION ENTRIES TO THE ASSESSEE. THEREFORE, T HE AO TREATED THESE PURCHASES AS BOGUS AFTER REJECTING TH E BOOKS OF ACCOUNTS AND AFTER APPLYING THE GROSS PROFIT RATE O F 14.55 SEION WATERTECH P.LTD. VS. ITO, 5(1), INDORE I.T. A.NO. 554/IND/2016 A.Y. 2009-10 PAGE 3 OF 11 PERCENT MADE THE ADDITION OF RS. 2,84,846/- AND 19. 22 % MADE THE ADDITION OF RS.3,66,284/- IN BOTH THE ASSE SSMENT YEARS UNDER CONSIDERATION AND ALSO INITIATED PENALT Y PROCEEDINGS U/S 271(1)(C) OF THE INCOME-TAX ACT, 19 61. IN THE COURSE OF PENALTY PROCEEDINGS, THE AO DID NOT FIND THE REPLY OF THE ASSESSEE AS ACCEPTABLE. THEREFORE, HE LEVIED A PENALTY OF RS. 1.10 LAKHS ON THE AMOUNT OF GROSS PROFIT ADDITI ON OF RS. 2,84,846/- AND RS. 1,42,000/- ON THE AMOUNT OF GROS S PROFIT ADDITION OF RS. 3,66,284/-. 4. THE ASSESSEE CARRIED THE MATTER IN APPEALS BEFORE T HE LD. CIT(A), WHEREIN THE LD. CIT(A) NOTED THAT THE AS SESSEE HAS NOT FILED ANY APPEALS ON THE QUANTUM ADDITIONS MADE IN THE ASSESSMENT ORDER. THE LD. CIT(A) WAS OF THE VIEW THAT BOGUS PURCHASES WERE MADE BY THE ASSESSEE WITH A VIEW TO RE DUCE THE GROSS PROFIT WHICH HAS BEEN PROVED BEYOND DOUBT, AS THE ASSESSEE HAS NOT CONTESTED THE ISSUE IN FURTHER APP EALS. ACCORDINGLY, THE LD. CIT(A) HAS CONFIRMED THE LEVY OF PENALTY IN BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION. 5. BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS NEVER TRIE D TO SEION WATERTECH P.LTD. VS. ITO, 5(1), INDORE I.T. A.NO. 554/IND/2016 A.Y. 2009-10 PAGE 4 OF 11 CONCEAL THE PARTICULARS OF INCOME NOR DID FURNISH A NY INACCURATE PARTICULARS. THE ASSESSEE HAD MADE PURCH ASES FROM VARIOUS PARTIES INCLUDING M/S. VALIANT STEEL E NGINEERING COMPANY AMOUNTING TO RS. 11,90,898/- AND RS. 10,20, 000/- IN BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION ON WHICH PAYMENTS WERE MADE SUBSEQUENTLY BY ACCOUNT PAYEE CHE QUES. THE ASSESSEE ALSO MAINTAINED QUANTITATIVE RECORDS. FURTHER, THE AO HAS APPLIED GROSS PROFIT RATE ON THE ESTIMAT ED ADDITION. THEREFORE, LEVY OF PENALTY ON AD HOC ADDITIONS MADE BY THE ASSESSING OFFICER IS NOT JUSTIFIED AND NOT A LEGAL BASIS AND IS AGAINST THE NATURAL JUSTICE. THE LD. AUTHORIZED REP RESENTATIVE OF THE ASSESSEE HAS PLACED RELIANCE ON THE DECISION IN THE CASE OF ANAND TRADERS VS. ACIT, (2015) 26 TTJ 730 (TRIB) , INDORE, WHEREIN IT WAS HELD THAT THE ASSESSEE HAS MAINTAINED THE BOOKS OF ACCOUNTS, BUT THE ASSESSEE HAS ALSO MAINTA INED TWO SETS OF BOOKS OF ACCOUNTS. THEREFORE, BASED ON THES E TWO BOOKS OF ACCOUNTS, THE AO HAS ESTIMATED THE SALES AND EST IMATED THE GROSS PROFIT BASED ON PRESUMPTION, THE ADDITION HAS BEEN MADE. THE ADDITION MAY BE JUSTIFIED, BUT PENALTY ON ESTIMATE BASIS IS NOT JUSTIFIED, WHICH IS HELD IN HARIGOPAL S INGH V. CIT, SEION WATERTECH P.LTD. VS. ITO, 5(1), INDORE I.T. A.NO. 554/IND/2016 A.Y. 2009-10 PAGE 5 OF 11 (2002) 258 ITR 85 (P & H). THEREFORE, THE TRIBUNAL IS TAKING THE CONSISTENT VIEW THAT IF THE INCOME IS ESTIMATED, NO PENALTY CAN BE LEVIED. THEREFORE, I.T.A.T. CANCELLED THE PE NALTY RELATING TO THE GROSS PROFIT ADDITION. THE LD. AUTHORIZED RE PRESENTATIVE OF THE ASSESSEE ALSO RELIED IN THE CASE OF GULABCHA ND VS. ITO, I.T.A.T., INDORE, (1980) 9 TTJ 0275 (INDORE), CIT V S. M.P. ENGINEERING WORKS PVT.LTD., (1986) 57 CTR (CAL) 307 , AND VARIOUS OTHER CASE LAWS AS PER WRITTEN SUBMISSIONS. 6. THE LD. SENIOR DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF THE LD. CIT(A). 7. WE HAVE CONSIDERED THE FACTS AND PERUSED THE MATERI AL ON RECORD. WE FIND THAT THE ASSESSEE HAS MADE PURCH ASES FROM M/S.VALIANT STEEL ENGINEERING COMPANY AMOUNTING TO RS. 11,90,898/- AND 10,20,000/- WHICH HAVE BEEN DULY REC ORDED IN THE BOOKS OF ACCOUNTS. THE PAYMENTS OF ALL THESE PURCHASES WERE ALSO MADE BY ACCOUNT PAYEE CHEQUES. HOWEVER, TH ESE WERE NOT CONSIDERED TO BE GENUINE ON THE GROUND THAT THESE WERE MERE ACCOMMODATION ENTRIES. THEREFORE, THE AO M ADE A GROSS PROFIT ADDITION ON ACCOUNT OF THESE TRANSACTI ONS AT RS. 2,84,846/- BY APPLYING GROSS PROFIT RATE OF 14.55 % AND RS. SEION WATERTECH P.LTD. VS. ITO, 5(1), INDORE I.T. A.NO. 554/IND/2016 A.Y. 2009-10 PAGE 6 OF 11 3,66,284/- BY APPLYING GROSS PROFIT RATE AT 19.22 % . IT IS THE TRITE LAW THAT ASSESSMENT PROCEEDINGS AND PENALTY PR OCEEDINGS ARE DIFFERENT. THE ASSESSEE DID NOT CONTEST THE ADD ITIONS MADE ON ACCOUNT OF GROSS PROFIT AS THE ADDITIONS WERE IN THE NATURE OF AD HOC AND ON ESTIMATE BASIS. THE ASSESSEE DID N OT WANT FURTHER MATTER TO LITIGATE THAT DOES NOT MEAN THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME OR C ONCEALED HIS INCOME. CLAUSE (A) OF EXPLANATION 1 TO SECTION 271(1)(C) PROVIDES THAT THE PENALTY WOULD BE DEEMED TO ATTRACT WHERE EITHER NO EXPLANATION IS OFFERED OR EXPLANATION OFF ERED IS FOUND TO BE FALSE. IN THIS CASE, THE ASSESSEE HAS OFFERED AN EXPLANATION VIDE LETTER DATED 8.12.2014 STATING THE REIN THAT THEY HAVE NOT CONCEALED ANY INCOME AND ALSO NOT FUR NISHED ANY INACCURATE PARTICULARS OF INCOME SO AS TO ATTRA CT PENALTY U/S 271(1)(C) OF THE INCOME-TAX ACT, 1961. IT WAS S UBMITTED THAT THE ASSESSEE HAD PURCHASED MATERIALS FROM VARI OUS PARTIES INCLUDING M/S. VALIANT STEEL ENGINEERING CO MPANY AMOUNTING TO RS. 11,90,898/- FOR ASSESSMENT YEAR 20 09-10 AND RS. 10,20,000/- FOR ASSESSMENT YEAR 2011-12 OF WHICH PAYMENTS WERE MADE SUBSEQUENTLY BY ACCOUNT PAYEE CHE QUES. SEION WATERTECH P.LTD. VS. ITO, 5(1), INDORE I.T. A.NO. 554/IND/2016 A.Y. 2009-10 PAGE 7 OF 11 THE ASSESSEE HAS ALSO STATED THAT THESE PURCHASES H AVE BEEN SHOWN IN THE STOCK REGISTER MAINTAINED BY THE ASSESS EE. HOWEVER, THE PURCHASES FROM M/S. VALIANT STEEL ENG INEERING COMPANY HAVE BEEN DOUBTED AND ADDITION ON ACCOUNT O F GROSS PROFIT ON THE BASIS OF AVERAGE RATE OF PRECEDING TH REE YEARS GROSS PROFIT IS MADE. THUS, THE ASSESSEE HAS OFFERE D AN EXPLANATION WHICH WAS NOT FOUND TO BE FALSE AND ,ACCO RDINGLY, ITS CASE IS NOT COVERED BY CLAUSE (A) OF EXPLANATIO N 1 TO SECTION 271(1)(C) OF THE ACT. FURTHER CLAUSE (B) OF EXPLANATION, PROVIDES THAT WHERE THE ASSESSEE IS NOT ABLE TO SUBS TANTIATE ITS EXPLANATION AND FAILS TO PROVE THAT SUCH EXPLANATIO N IS BONA FIDE AND ALL THE FACTS RELATING TO THE SAME HAVE BE EN DISCLOSED, THE PENALTY IS LEVIABLE. THE ASSESSEE HAS CLAIMED T HAT IT HAS MADE PURCHASES OF RAW MATERIALS FROM M/S. VALIANT S TEEL ENGINEERING COMPANY. THE PURCHASES MADE WERE REFL ECTED IN THE STOCK REGISTERS MAINTAINED BY THE ASSESSEE. THI S FACT IS ALSO ADMITTED BY THE AO IN THE ASSESSMENT ORDER AT PARA 3 AT PAGE 2, WHEREIN HE STATED THAT THE ASSESSEE HAS MAIN TAINED DETAILS OF THE STOCK REGISTER, WHICH VERIFIED THAT T HE GOODS PURCHASED AGAINST THE PURCHASE BILLS HAVE BEEN UTIL IZED IN JOB SEION WATERTECH P.LTD. VS. ITO, 5(1), INDORE I.T. A.NO. 554/IND/2016 A.Y. 2009-10 PAGE 8 OF 11 WORK/MANUFACTURING OR SALE TO CUSTOMERS. THE ASSESSE E HAS ALSO SUBMITTED A COPY OF ACCOUNT, PURCHASE BILLS AN D BANK STATEMENTS DULY REFLECTING THE PAYMENT MADE FOR THE PURCHASES OF GOODS FROM THE AFORESAID PARTIES. THE BOOKS OF ACCOUNTS WERE DULY AUDITED. ALL THE SALES TRANSACTI ONS WERE EXECUTED THROUGH PROPER SALE BILLS WHICH ARE SERIALL Y NUMBERED AND TIN NUMBERS WERE DULY MENTIONED ON IT AND ALL THESE RECEIPTS AGAINST SALES WERE RECEIVED THROUGH BANKING CHANNEL ONLY. HOWEVER, THE AO HAS NOT ACCEPTED THE EXPLANATION OFFERED BY THE ASSESSEE ON THE GROUND T HAT SUPPLIER PARTIES ARE NOT TRACEABLE AND NOTICE U/S 1 33(6) ISSUED TO SAID PARTY WAS RETURNED BY THE POSTAL AUTHORITIE S. THEREFORE, BY REJECTING THE BOOKS OF ACCOUNTS, THE AO HAS APPLIED AVERAGE GROSS PROFIT RATE OF LAST THREE YEA RS AND MADE THE ADDITION OF RS. 2,84,846/- FOR ASSESSMENT YEAR 2009-10 AND BY APPLYING AVERAGE GROSS PROFIT RATE OF 19.22 % AT RS. 3,66,284/-. JUST BECAUSE THE ASSESSEES EXPLANATION WAS NOT FOUND TO BE ACCEPTABLE BY THE AO, IT DOES NOT FOLLO W THAT THE ASSESSEE WAS UNABLE TO SUBSTANTIATE HIS EXPLANATION BY PROVIDING VARIOUS EVIDENCES AND JUDICIAL OPINION. T HE SEION WATERTECH P.LTD. VS. ITO, 5(1), INDORE I.T. A.NO. 554/IND/2016 A.Y. 2009-10 PAGE 9 OF 11 ADDITIONS HAVE BEEN MADE ON THE BASIS OF FACTS DISC LOSED BY THE ASSESSEE. THEREFORE, THE FINDING RECORDED IN TH E ASSESSMENT ORDER IS NOT CONCLUSIVE FOR DECIDING THE IMPOSITION OF PENALTY. IT ONLY HAS A PERSUASIVE VALUE. ANY FIN DING RECORDED IN THE ASSESSMENT ORDER DOES NOT MEAN THAT THE PENA LTY HAS TO BE IMPOSED AUTOMATICALLY. THEREFORE, THE ASSESSEES CASE IS NOT COVERED BY EXPLANATION 1 TO SECTION 271(1)(C) OF TH E INCOME- TAX ACT, 1961. BASED ON THESE FACTS, IT CAN BE HELD THAT THE ASSESSEE HAD MADE ALL THE NECESSARY DISCLOSURES ON A BONA FIDE PLEA WHICH IS NOT AGREEABLE TO THE AO. IT WILL N OT AUTOMATICALLY LEAD TO A CASE FOR PENALTY U/S 271(1) (C) OF THE INCOME-TAX ACT, 1961. THEREFORE, THE PENALTY IS NOT SUSTAINABLE IN LAW. IT IS THE CONTENTION OF THE REV ENUE THAT THE ASSESSEE HAS NOT CONTESTED THE QUANTUM ADDITION BEF ORE THE HIGHER AUTHORITIES IN APPEAL. THIS DOES NOT MEAN TH AT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF HIS INCOM E. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS PLACE D RELIANCE IN THE CASE OF ANAND TRADERS VS. ACIT, (2015) 26 TT J 730 (INDORE TRIBUNAL), WHEREIN THE AO HAS ESTIMATED TH E SALES AND ESTIMATED THE GROSS PROFIT BASED ON PRESUMPTION . SEION WATERTECH P.LTD. VS. ITO, 5(1), INDORE I.T. A.NO. 554/IND/2016 A.Y. 2009-10 PAGE 10 OF 11 THEREFORE, THE HON'BLE COORDINATED BENCH HAS HELD T HAT THE ADDITION MAY BE JUSTIFIED, BUT THE PENALTY ON ESTIM ATED BASIS IS NOT JUSTIFIED. SIMILAR FINDINGS WERE GIVEN IN THE CASE OF HARIGOPAL SINGH VS. CIT, (2002) 258 ITR 85 ( P&H ). THE FACTS OF THE INSTANT CASE ARE IDENTICAL TO THE CASE OF AN AND TRADERS (SUPRA) AS IN THE PRESENT CASE, THE AO HAS ESTIMATE D THE GROSS PROFIT ON THE PRESUMPTION OF INFLATED PURCHASES. TH EREFORE, WHERE THE BOOKS OF ACCOUNTS ARE MAINTAINED BY THE AS SESSEE IN REGULAR COURSE OF BUSINESS, IT CANNOT BE HELD THAT THE ASSESSEE IS GUILTY OF FRAUD, GROSS OR WILLFUL NEGLECT WITHIN T HE MEANING OF SECTION 271(1)(C) OF THE ACT, SIMPLY BECAUSE THE GR OSS PROFIT ADDITION ON THE BASIS OF THIRD PARTY ALLEGATION, WHI CH IS NOT SUBSTANTIATED WITH EVIDENCE IS LEVIABLE. CONSIDERING THE TOTALITY OF FACTS AS DISCUSSED ABOV E AND THE CASE LAWS RELIED, WE ARE OF THE CONSIDERED OPINION TH AT NO PENALTY IS LEVIABLE WHERE THE ADDITION IS MADE ON ES TIMATED BASIS BY APPLYING GROSS PROFIT RATE AFTER REJECTION OF BOOKS OF ACCOUNTS. ACCORDINGLY, WE DIRECT THE AO TO DELETE TH E PENALTY LEVIED IN BOTH THE ASSESSMENT YEARS UNDER APPEAL. SEION WATERTECH P.LTD. VS. ITO, 5(1), INDORE I.T. A.NO. 554/IND/2016 A.Y. 2009-10 PAGE 11 OF 11 8. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE AR E ALLOWED. THE ORDER HAS BEEN PRONOUNCED IN OPEN COURT ON THE 18TH AUGUST, 2016. SD/- (D.T.GARASIA) JUDICIAL MEMBER SD/- (O.P.MEENA) ACCOUNTANT MEMBER DATED : 18 TH AUGUST, 2016. CPU* COPY OF THE ORDER FORWARDED TO : THE ASSESSEE/ PCIT- INDORE/ CIT(A)-I, INDORE, AO/ D R- INDORE BENCH/ GUARD FILE BY ORDER ASSISTANT REGISTRAR OF ITAT, INDORE BENCH