DCIT CIR 4(2)(2), MUMBAI V. MANOHAR MANEK ALLOYS P.LTD, MUMBAI

ITA 5586/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8818 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 10-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIVAJI GODE
• Assessee Lawyers: NIMISHA BOTHARA
• Keywords: Bogus purchase; Unexplained expenditure; Accommodation entries
• Section: 69C; 143(3); 133A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH , JM AND SHRI RAJESH KUMAR, AM ./ I .T.A. NO. 5586 /MUM/201 5 ( / ASSESSMENT YEAR : 2010 - 11 ) DY . COMMISSIONER OF INCOME TAX CIR 4(2)(2), R. NO. 642, 6TH FLOOR, AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400020 / VS. M/S MANOHAR MANAK, ALLOYS P L 44, C P TANK ROAD, C P TANK, MUMBSI - 400002 ./ PAN : AAACM2688K / R EVENUE BY SHRI SHIVAJI GODE / ASSESSEE BY MS.NIMISHA BOTHARA / DATE OF HEARING : 7. 11. 2016 / DATE OF PRONOUNCEMENT : 16. 1. 201 7 / O R D E R PER RAJESH K UMAR , A M THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 7. 9 .201 5 , PASSED BY THE CIT(A) - 9 , MUMBAI, FOR THE ASSESSMENT YEAR 20 10 - 11 . 2. GROUNDS OF APPEAL TAKEN BY THE REVENUE ARE AS UNDER : 1. 1 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE PENALTY LEVIED U/S 271(1)(C) OF THE I T. ACT AMOUNTING TO RS.15,10,274 WITHOUT APPRECIATING THE FACT THAT 2 ITA NO.5586/MUM/2015 THE ADDITION IN RESPECT OF BOGUS PURCHASES WAS ONLY AFTER SURVEY & SCRUTINY PROCEEDINGS WH EREIN IN RESPONSE TO RELEVANT QUERIES ASSESSEE FAILED TO EXPLAIN AND SUBSTANTIATE THE GENUINENESS OF THE TRANSACTION AND THEREBY TRIGGERING DEFAULT IN TERMS OF EXPLANATION 1 TO SECTION 271(1)(C).' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE PENALTY LEVIED U/S 271(1)(C) OF THE I T. ACT AMOUNTING TO RS.15,10,274 BY HOLDING THAT THE SAME WAS BASED ON ADDITION WHICH WAS MADE ON ESTIMATION AND ADHOC BASIS, WITHOUT APPRECIATING THE FACT THAT, IT WAS NOT T HE ADDITION THAT WAS MADE ON ESTIMATION AND ADHOC BASIS, BUT MERELY THE COMPUTATION OF ADDITION THAT INVOLVED ESTIMATION. THE ADDITION WAS DUE TO FAILURE OF ASSESSEE TO EXPLAIN AND SUBSTANTIATE THE GENUINENESS OF THE PURCHASE BILLS. 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 7.9.2010 , DECLARING A TOTAL INCOME OF RS. 41,35,915/ - . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT A SEARCH WAS CARRIED OUT BY THE SALES TAX AUTHORITIES AND ALSO A SURVE Y U/S 133A OF THE INCOME TAX ACT, 1961 WAS CARRIED OUT BY THE DDIT(INV) V(I ) , MUMBAI ON SOME HAWALA OPERATORS WHO WERE ENGAGED IN PROVIDING ACCOMMODATION ENTRIES WITHOUT SUPPLYING GOODS. ON THIS BASIS, THE AO NOTED THAT THE ASSESSEE HA S ALSO TAKEN A CCOMMODATION ENTRIES . THE AO THEREAFTER CALLED FOR THE EXPLANATION F ROM THE ASSESSEE AS TO WHY THE BOOKS OF ACCOUNT SHOULD NOT BE REJECTED AND PROPORTIONATE DISALLOWANCE ON BOGUS PURCHASES SHOULD NOT BE MADE. 4 . IN RESPONSE TO THE SHOW CAUSE NOTICE, THE A SSESSEE VIDE LETTER DATED 6.3.2013 SUBMITTED BEFORE THE AO THAT THE MATERIAL WAS ACTUALLY PURCHASED AND RECEIVED AND PAID THROUGH THE BANKING CHANNEL. THE AO AFTER CONSIDER ING THE 3 ITA NO.5586/MUM/2015 CONTENTIONS AND ARGUMENTS OF THE ASSESSEE REJECTED THE SAME AND CAME TO TH E CONCLUSION ON THE BASIS OF STATEMENT S OF PARTIES GIVEN TO THE SALES TAX DEPARTMENT , GOVT OF MAHARASHTRA THAT BOGUS BILLS WERE GIVEN TO THE ASSESSEE WITHOUT SUPPLYING ACTUAL MATERIALS . A SHOW CAUSE NOTICE WAS GIVEN THE ASSESSEE CALLING UPON TO PROVE THE GENUINENESS OF THE PURCHASES BY PRODUCING THE SUPPLIERS IN PERSON . THE AO OBSERVED THAT THE ASSESSEE HAS FAILED TO PRODUCE THE PURCHASER FOR VERIFICATION AND THEREFORE THE ONUS CAST UPON THE ASSESSEE WAS NOT DISCHARGED AND BOOKS OF ACCOUNTS AS MAINTA INED AND PRODUCED BY THE ASSESSEE COULD NOT BE RELIED UPON FOR THE PURPOSE OF ASSESSING THE INCOME AS PER THE ACT WHICH WERE ULTIMATELY REJECTED U/S 145(3) OF THE ACT AND ESTIMATED AND ASSESSED THE INCOME BY MAKING AN ADDITION RS.45,76,587/ - ON ADHOC B ASIS @ 5% OF TOTAL PURCHASES RS.9,15,31,738/ - U/S 143(3) R.W.S.144 OF T HE ACT AT RS.87,10,500/ - . THE AO ALSO INITIATED PENALTY PROCEEDINGS U/S 271 (1)(C) OF THE ACT FOR CONCEALMENT OF THE PARTICULARS OF INCOME. 5 . THOUGH AGGRIEVED BY THE ADDITIO N MADE BY THE AO, THE ASSESSEE IN ORDER TO BUY PEACE OF MIND, DID NOT CHALLENGE THE ASSESSMENT ORDER BEFORE THE FIRST APPELLATE AUTHORITY . 6 . THE AO INITIATED PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT AND LEVIED A PENALTY OF RS.15,10,274/ - . AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY WHO AFTER CONSIDERING THE CONTENTIONS AND SUBMISSIONS OF THE ASSESSEE AND VARIOUS CASE 4 ITA NO.5586/MUM/2015 LAW S RELIED UPON BY THE ASSESSEE DELETED THE PENALTY LEVIED BY THE AO BY OBSERVING AND HOLDING AS UNDER : THUS, IT IS SEEN THAT THE AO HAS IMPOSED PENALTY ON AN ADDITION WHICH WAS BASED ON ESTIMATION AND THAT TOO, ALL ADHOC ADDITION AND HAD HARDLY ANY CHANCE OF SURVIVAL AT HIGHER APPELLATE FORUMS. THE ASSES SEE DID NOT PR EFER APPEAL AGAINST THE ADDITION TO BUY MENTAL PEACE AND AVOID LITIGATIONS, BUT THAT ITSELF DOES NOT PROOF ANY CONCEALMENT ON PART OF THE ASSESS E E OR FURNISHING OF ANY INACCURATE DETAILS. FOR IMPOSITION OF PENALTY, THE ADDITIONS HAS TO BE ON SOUND FOOTING WITH CONCRETE EVIDENCES OF CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS, WHICH IS LIKELY IN THE PRESENT CASE. IN THE GIVEN FACTS AND CIRCUMSTANCES AS WELL AS THE JUDICIAL PRONOUNCEMENTS REFERRED BY ME IN EARLIER PARAGRAPHS, I DO NOT THINK THAT THIS TO BE A FIT CASE WHERE PENALTY U/S 271(1)(C) CAN BE SUSTAINED. THEREFORE, AMOUNT OF RS.15, 10 ,274/ - IS DIRECTED TO BE DELETED. AGGRIEVED BY THE ORDER OF LD.CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 7 . THE LD. DR SUBMITTED BEFORE US THAT THE ASSESSEE D ID CHALLENGE THE QUANTUM ORDER BEFORE THE FIRST APPELLATE AUTHORITY AND THUS ATTAINED FINALITY WHICH SHOWED THAT THE ASSESSEE WAS IN AGREEMENT WITH THE FINDINGS OF THE AO. THE AO HAS ALSO GIVEN DETAILED FINDINGS THAT SUFFICIENT OPPORTUNIT IES W ERE ALSO GIVEN TO THE ASSESSEE BEFORE REJECTING THE BOOKS OF ACCOUNT U/S 145(3) OF THE ACT AND THEREAFTER FRAMED THE ASSESSMENT ORDER U/S 143(3) R.W.S.144 OF THE ACT HOWEVER THE LD. CIT(A) IGNORED ALL THESE ASPECTS BEFORE DELETING THE PENALTY LEVIED BY THE AO AND THEREFORE THE ORDER OF CIT(A) WAS BAD IN LAW AND SHOULD BE REVERSED . 5 ITA NO.5586/MUM/2015 8 . THE LD. AR SUBMITTED BEFORE US THAT THE AO HAS MADE THE ADDITION ON THE BASIS OF INFORMATION RECEIVED BY THE AO FROM THE SALES TAX AUTHORITIES AND DDIT(INV) V(I), MUMBAI. THE AR SUBMITTED THAT THE ADDITIONS MADE BY THE AO WAS PURELY ON ESTIMATED BASIS BY APPLYING A PERCENTAGE TO TOTAL PURCHASES IN ORDER TO BRING TO TAX THE PROFIT THE SO CALLED BOGUS PURCHASE S AND HAS NOT GIVEN ANY CONCRETE AND DEFINITE FINDINGS OR CORROBORATED H IS ACTIONS WITH ANY FURTHER INVESTIGATION OR BY BRINGING ANY MATERIALS ON RECORDS OTHER THAN THE STATEMENT S OF THE PARTIES BEFORE THE SALES TAX AUTHORITIES. IN FACT THE ENTIRE ASSESSMENT WAS BASED ON ESTIMATE , SURMISES AND PRESUMPTIONS. THE LD. AR ALSO SU BMITTED THAT THE SIMILAR ADDITION S MADE BY THE AO ON THE BASIS OF INFORMATION RECEIVED FROM SALES TAX DEPARTMENTS WERE DELETED IN SERIES OF CASE CASES BY THE ITAT AS WELL AS JURISDICTIONAL HIGH COURT . THE LD. AR, THEREFORE, SUBMITTED THAT THE ADDITIO N MADE BY THE AO THOUGH NOT CHALLENGED BY THE ASSESSEE BEFORE FAA TO BUY P EACE OF MIND COULD NOT BE TAKEN TO MEAN THAT ASSESSEE HAS ACCEPTED THE CHARGES LEVELED BY THE AO AND THIS DID NOT PER SE PROVED THE CONCEALMENT OF INCOME OF THE ASSESSEE . THE LD COUN SEL ALSO SUBMITTED THAT IT WAS TRITE LAW THAT THE PENALTY WAS NOT LEVIABLE IN A CASE WHERE THE ADDITIONS WERE MADE ON ESTIMATED BASIS. THEREFORE, THE LD.AR PRAYED THAT THE PENALTY LEVIED BY THE AO DESERVED TO BE DELETED . 6 ITA NO.5586/MUM/2015 9 . WE HAVE HEARD THE RIVAL PARTIE S AND CAREFULLY CONSIDERED MATERIAL PLACED BEFORE US INCLUDING THE ORDER OF THE AUTHORITIES BELOW. WE FIND FROM THE ASSESSMENT ORDER THAT THE AO HAS MADE AN ADDITION OF RS.45,76,587/ - BEING 5% ON TOTAL PURCHASES ON ESTIMATED BASIS IN ORDER TO BRING THE BO GUS PURCHASES O TAX ON THE BASIS OF INFORMATION RECEIVED FROM THE THIRD PARTY I.E. STATE SALES TAX DEPARTMENT AND DDIT(INV) V(I), MUMBAI WHICH WAS NOT CHALLENGED BY THE ASSESSEE BEFORE THE FAA AND ATTAINED FINALITY . THEREAFTER T HE AO LEVIED PENA LTY U/S 271(1)( C ) OF THE ACT ON THE GROUND THAT THE ASSESSEE DID NOT CHALLENGE THE ASSESSMENT ORDER AND ACCEPTED ADDITIONS SO MADE THEREBY ACCEPTING THE CONCEALMENT OF INCOME . WE FIND F ROM THE RECORD THAT THE ADDITIONS AS MADE BY THE AO WAS A PURE ES TIMATE AND NOTHING CONCRETE AS TO BOGUS PURCHASES WERE BROUGHT ON RECORDS BY THE AO BY MAKING ANY FURTHER ENQUIRIES OR INVESTIGATION . IN OU R VIEW THE PENALTY CAN NOT BE IMPOSED WHERE THE ADDITIONS ARE MADE ON ESTIMATE BASIS. THE TRIBUNAL HAS CONSIDERED AN IDENTICAL ISSUE IN THE CASE OF DEEPAK POPATLAL GALA, IN ITA NO. 5920/M/13 AND VIDE ORDER DATED 27.3.2015, IT HAS HELD AS UNDER:- 10. THE NEXT ISSUE RELATES TO DISALLOWANCE MADE OUT OF PURCHASES AND ASSESSED U/S 69C OF THE ACT. WE HEARD THE PARTIES AN D PERUSED THE RECORD. THE TOTAL PURCHASE EXPENDITURE CLAIMED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WAS RS.7,36,27,555/ - . THE AO NOTICED THAT THE SALES TAX DEPARTMENT OF GOVERNMENT OF MAHARASHTRA HAS LISTED OUT NAMES OF CERTAIN DEALERS, WHO WE RE ALLEGED TO HAVE BEEN PROVIDING ACCOMMODATION ENTRIES WITHOUT DOING ACTUAL BUSINESS. THE AO NOTICED THAT THE ASSESSEE MADE PURCHASES TO THE TUNE OF RS.38.69 LAKHS FROM TWO PARTIES NAMED M/S UMIYA SALES AGENCY PVT LTD AND M/S MERCURY ENTERPRISES, WHOSE NA MES 7 ITA NO.5586/MUM/2015 FOUND PLACE IN THE LIST PROVIDED BY THE SALES TAX DEPARTMENT. THE AO PLACED FULL RELIANCE ON THE ENQUIRIES CONDUCTED BY SALES TAX DEPARTMENT IN RESPECT OF THE PARTIES, REFERRED ABOVE. ACCORDINGLY, THE AO TOOK THE VIEW THAT THE PURCHASES TO THE TUNE OF RS.38.69 LAKHS HAVE TO BE TREATED AS UNEXPLAINED EXPENDITURE. ACCORDINGLY, HE ASSESSED THE SAME U/S 69C OF THE ACT. 11. THE LD. CIT(A) DELETED THE ADDITION AND HENCE THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 12. THE LD. DR STRONGLY PLACED RELIANCE ON THE ORDER OF ASSESSING OFFICER. 13. ON THE OTHER HAND, THE LD. AR SUBMITTED THAT THE ADDITIONS MADE IN THE CASE OF SOME OTHER ASSESSES ON IDENTICAL REASONS HAVE BEEN DELETED BY THE CO - ORDINATE BENCHES OF THE TRIBUNAL IN THE FOLLOWING CASES : A ) RAMESH KUMAR AND CO V/S ACIT IN ITA NO.2959/MUM/2014 (AY - 2010 - 11) DATED 28.11.2014; B ) DCIT V/S SHRI RAJEEV G KALATHIL IN ITA NO.6727/MUM/2012 (AY - 2009 - 10) DATED 20.8.2014; AND C ) SHRI GANPATRAJ A SANGHAVI V/S ACIT IN ITA NO. 2826/MUM/2013 (AY - 2009 - 1 0) DATED 5.11.2014 IN ALL THE ABOVE SAID CASES, THE CO - ORDINATE BENCHES OF THE TRIBUNAL HAS HELD THAT THE AO WAS NOT JUSTIFIED IN MAKING THE ADDITION ON THE BASIS OF STATEMENTS GIVEN BY THE THIRD PARTIES BEFORE THE SALES TAX DEPARTMENT, WITHOUT CONDUCTIN G ANY OTHER INVESTIGATION. IN THE INSTANT CASE ALSO, THE ASSESSING OFFICER HAS MADE THE IMPUGNED ADDITION ON THE BASIS OF STATEMENTS GIVEN BY THE PARTIES BEFORE THE SALES TAX DEPARTMENT. WE NOTICE THAT THE LD.CIT(A) HAS TAKEN NOTE OF THE FACT THAT NO SALES COULD BE EFFECTED WITHOUT PURCHASES. HE HAS FURTHER PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. M.K. BROTHERS (163 ITR 249). HE HAS FURTHER RELIED UPON THE DECISION RENDERED BY THE TRIBUNAL IN THE CAE OF I TO VS. PREMANAND (2008)(25 SOT 11)(JODH), WHEREIN IT HAS BEEN HELD THAT WHERE THE AO HAS MADE ADDITION MERELY ON THE BASIS OF OBSERVATIONS MADE BY THE SALES TAX DEPT AND HAS NOT CONDUCTED ANY INDEPENDENT ENQUIRIES FOR MAKING THE ADDITION ESPECIALLY IN A CA SE WHERE THE ASSESSEE HAS DISCHARGED ITS PRIMARY ONUS OF ITA. NO.5920/MUM/2013 AND 6203/MUM/2013 7 SHOWING BOOKS OF 8 ITA NO.5586/MUM/2015 ACCOUNT, PAYMENT BY WAY OF ACCOUNT PAYEE CHEQUE AND PRODUCING VOUCHERS FOR SALE OF GOODS, SUCH AN ADDITION COULD NOT BE SUSTAINED. THE LD CI T(A) HAS ALSO APPRECIATED THE CONTENTIONS OF THE ASSESSEE THAT HE WAS NOT PROVIDED WITH AN OPPORTUNITY TO CROSS EXAMINE THE SELLERS, WHICH IS REQUIRED TO BE GIVEN AS PER THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF PONKUNNAM TRADERS (83 ITR 508 & 102 ITR 366). ACCORDINGLY, THE LD CIT(A) HAS DELETED THE IMPUGNED ADDITION. ON A CAREFUL PERUSAL OF THE DECISION RENDERED BY LD CIT(A) WOULD SHOW THAT THE FIRST APPELLATE AUTHORITY HAS ANALYSED THE ISSUE IN ALL ANGLES AND APPLIED THE RATIO LAID DOWN BY THE HIGH COURTS AND TRIBUNALS IN DECIDING THIS ISSUE. HENCE, WE DO NOT FIND ANY REASON TO INTERFERE WITH HIS ORDER ON THIS ISSUE. WE ALSO FIND THAT IN THE FOLLOWING CASES THE TRIBUNAL HAS TAKEN SIMILAR VIEW IN SOME OF THE CASE THAT ON THE BASIS OF THI RD PARTY EVIDENCE, ADDITION MADE BY THE AO CANNOT BE HELD AS GOOD LAW AND DELETED THE ADDITION WHICH ARE AS UNDER: A) RAMESH KUMAR AND CO V/S ACIT IN ITA NO.2959/MUM/2014 (AY - 2010 - 11) DATED 28.11.2014; B) DCIT V/S SHRI RAJEEV G KALATHIL IN ITA NO.6727/ MUM/2012 (AY - 2009 - 10) DATED 20.8.2014; AND C) SHRI GANPATRAJ A SANGHAVI V/S ACIT IN ITA NO. 2826/MUM/2013 (AY - 2009 - 10) DATED 5.11.2014 10. IN ALL THE ABOVE SAID CASES, THE CO - ORDINATE BENCHES OF THE TRIBUNAL HAS HELD THAT THE AO WAS NOT JUSTIFIED IN MAK ING THE ADDITION ON THE BASIS OF STATEMENT S GIVEN BY THE THIRD PARTIES BEFORE THE SALES TAX DEPARTMENT , WITHOUT CONDUCTING ANY OTHER INVESTIGATION. IN THE INSTANT CASE ALSO, THE ASSESSING OFFICER HAS MADE THE IMPUGNED ADDITION ON THE BASIS OF STATEMENTS G IVEN BY THE PARTIES BEFORE THE SALES TAX DEPARTMENT. CONSIDERING THE FACTS AS DISCUSSED 9 ITA NO.5586/MUM/2015 HEREINABOVE , WE ARE OF THE CONSIDERED OPINION THAT IN VIEW OF THE RATIO IN THE VARIOUS DECISIONS AS ABOVE PENALTY CANNOT BE SUSTAINED. IT IS ALSO A SETTLED LEGAL POSI TION OF LAW THAT PENALTY CANNOT BE LEVIED WHEREIN THE ASSESSMENT IS MADE ON ESTIMATION BASIS. ACCORDINGLY, WE ARE INCLINED TO UPHOLD THE ORDER PASSED BY THE LD.CIT(A) BY DISMISSING THE APPEAL OF THE REVENUE . 1 1 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 16. 1.2017 . S D SD ( MAHAVIR SINGH ) ( RAJESH KUMAR ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 16. 1.2017 SR.PS:SRL: / COPY OF THE ORDER FORWARDED TO : 1. / TH E APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, T RUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI