LAXMI SANITARY ENGINEERS & CONTRACTS, MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX 19(2), MUMBAI

ITA 560/MUM/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6049 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 30-01-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N HEMALATHA
• Keywords: Reopening of assessment; Bogus purchase; Gross profit estimation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI , JM ITA NO. 560 / MUM/20 18 ( ASSESSMENT YEAR : 2009 - 10 ) M/S. LAXMI SANITARY ENGINEERS & CONTRACTS 4A, TRIUMPH INDUSTRIAL PREMISES CO - OP SOC LTD. , DINDOSHI, VITBHATTI GOREGAON (EAST) MUMBAI 400 063 VS. ASST. CIT 19(2) MUMBAI PAN/GIR NO . AABFL3994M APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI VIJAY MEHTA REVENUE BY MS. N. HEMALATHA DATE OF HEARING 03 / 06 /201 8 DATE OF PRONOUNCEMENT 02 / 07 /201 8 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORDER OF CIT(A) - 3 4, MUMBAI DATED 24/08/2017 FOR A.Y.2009 - 10 IN THE MATTER OF ORDER PASSED U/S.143(3) R.W.S. 147 OF THE IN COME TAX ACT, 1961. 2. IN THIS APPEAL, ASSESSEE IS AGGRIEVED FOR REOPENING OF ASSESSMENT U/S.147 AS WELL AS MERIT OF THE ADDITION MADE ON ACCOUNT OF BOGUS PURCHASES AMOUNTING TO RS.22,52,569/ - . 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. ITA NO. 560/MUM/2018 M/S. LAXMI SANITARY ENGINEERS & CONTRACTS 2 4. TH E FACTS OF THE CASE ARE THAT THE A SSESSEE IS REGISTERED FIRM AND IS ENGAGED IN THE BUS INESS OF SERVICE CONTRACT OF PLUMBING AND SANITARY WORK. THE RETURN OF INCOME FOR A.Y 2009 - 10 WAS FILED BY THE ASSESSEE ON 30.09.2009 DECLARING THE TOTAL INCOME OF RS.10. 37,530/ - . SUBSEQUENTLY, AN INFORMATION HAS BEEN RECEIVED BY THE AO FROM SALES TAX AUTHORITIES THAT THE ASSESSEE HAD TAKEN BOGUS BILLS AMOUNTING TO RS.90,10,276/ - FROM 7 PARTIES, AS MENTIONED IN PARA 4.1 OF THE ASSESSMENT ORDER, WITHOUT ACTUALLY PURCHASING AND TAKING DELIVERY OF GOOD. 5. ON THE BASIS OF INFORMATION FROM SALES TAX DEPARTMENT, AO REOPENED THE ASSESSMENT AND ADDED 25%OF SUCH BOGUS PURCHASES IN ASSESSEES INCOME, ON THE PLEA OF PROFIT EMBEDDED IN SUCH PURCHASES. 6. BY THE IMPUGNED ORDER, CIT(A) CONFIRMED THE ACTION OF THE AO AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. 7. IT WAS ARGUED BY LEARNED AR THAT DURING THE COURSE OF ASSESSMENT PROCEEDING, THE ASSESSEE HAD SUBMITTED ALL THE DETAILS REGARDING ALLEGED BOGUS BILLS INCLUDING COPY OF LEDGER ACCOUNT APPEARING IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE , COPIES OF PURCHASE BILLS ALONG WITH THE DELIVERY CHALLANS OF ALL THE PARTIES FROM WHOM THE ASSESSEE HAS PURCHASED GOODS AND COPIES OF BANK STATEMENT REFLECTING THE PAYMENT OF THE SAID BILL AND ALSO STATED THAT THE SUPPLIERS HAVE ISSUED PROPER INVOICES, GOODS HAVE ACTUALLY BEEN DELIVERED AND ALL THE PAYMENTS TO THE SUPPLIERS WERE THROUGH ACCOUNT PAYEE CHEQUES ONLY. ITA NO. 560/MUM/2018 M/S. LAXMI SANITARY ENGINEERS & CONTRACTS 3 8. AS PER LEARNED AR, THE ASSESSEE HAS ALSO SUBMITTED THE COMPARISON CH ART FOR CONSUMPTION OF MATERIALS AS REGARDS TO % OF PURCHASE TO SALE EXPLAINING THE CONSUMPTION OF MATERIALS INCLUDES MATERIALS PURCHASE FROM THE SAID PARTIES. IT WAS CONTENDED THAT INSPITE OF GENUINE PURCHASE AND CONSUMPTION OF MATERIALS FOR ON - GOING 'PRO JECTS ULTIMATELY CONVERTED IN TO SALES AND CREDITED TO PROFIT AND LOSS ACCOUNT AND DECLARED AS REVENUE WHILE FILING OF RETURN OF INCOME . AS PER LEARNED AR, THE ASSESSEE HAS GENUINELY PURCHASED MATERIALS OF RS. 90,10,276/ - FROM THE SAID PARTIES. THESE SUPPL IERS ARE HAVING REGISTRATION CERTIFICATION (TIN) GRANTED BY THE SALES TAX DEPARTMENT. THIS CERTIFICATE IS GIVEN TO THEM AFTER THOROUGH INQUIRY AND ALL RELEVANT DOCUMENTS I.E. PAN, PROOF OF RESIDENCE, PROOF OF PLACE OF BUSINESS, BANK DETAILS, IDENTITY PROOF S, ARE KEPT ON REGISTRATION RECORD. THERE AFTER OFFICER FROM 'ADVISORY CELL' OF SALES TAX DEPARTMENT VISIT THEIR PLACE OF BUSINESS TO VERIFY THE BUSINESS ACTIVITIES AND GIVE REPORT TO AUTHORITY, THIS IS STANDARD PROCEDURE FOLLOWED BY THE SALES TAX DEPARTME NT FOR ALL THE DEALERS. ALL THESE SUPPLIERS WERE FILING RETURN UNDER MVAT ACT AND CST ACT AND PROBABLY FILED AUDIT REPORT UNDER MVAT ACT, DULY CERTIFIED BY THE CHARTERED ACCOUNTANTS ALSO. THESE FACTS CAN BE VERIFIED FROM THE SALES TAX DEPARTMENT BY YOUR OF FICE. LEARNED AR SUBMITTED TH AT MERE ON THE BAS I S OF DEPOSITION BY SAID PERSONS BEFORE THE SALES TAX OFFICER, THESE SUPPLIERS HAVE BEEN DECLARED HAWALA DEALER; IT HAS HARDLY ANY EVIDENCE VALUE AGAINST THEIR CLIENT IN PROCEEDINGS UNDER INCOME TAX ACT FUR THER , NO OPPORTUNITY WAS GIVEN ITA NO. 560/MUM/2018 M/S. LAXMI SANITARY ENGINEERS & CONTRACTS 4 TO ASSESSEE TO CROSS EXAMINE THESE PARTIES, NEITHER BY SALES TAX DEPARTMENT NOR INCOME TAX DEPARTMENT. THESE SUPPLIERS HAVE ISSUED PROPER INVOICES, GOODS HAS BEEN ACTUALLY DELIVERED TO US AND ALL THE PAYMENTS TO THESE SUPPLIE RS WERE THROUGH ACCOUNT PAYEE CHEQUES ONLY, WHICH ARE DEBITED IN OUR BANK ACCOUNT AND PROPERLY ACCOUNTED IN THE BOOKS OF ACCOUNTS 9. IN VIEW OF THE ABOVE, IT WAS CONTENDED THAT GENUINE PURCHASES USED IN MANUFACTURING PROCESS AND WHEN THE ASSESSEE HAS EARNE D VERY GOOD PROFIT THEREON THERE IS NO REASON FOR CONSIDERING SUCH PURCHASES AS BOGUS. ACCORDINGLY, IT WAS REQUESTED THAT ADDITION SO MADE SHOULD BE DELETED. 10. ON THE OTHER HAND, LEARNED DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES AND CONTENDED THAT AO HAS VERY REASONABLY ESTIMATED PROFIT @25% OF ALLEGED BOGUS PURCHASES . 11. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM RECORD THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF SERVICE CONTR ACT OF PLUMBING AND SANITARY WORK. AS PER DOCUMENTS SO PLACED ON RECORD, THE PURCHASES SO MADE DURING THE YEAR WAS CONSUMED IN THE PROCESS OF PLUMBING AND SANITARY WORK. THE RATIO OF PURCHASE VIS - - VIS SALES DURING THE YEAR UNDER CONSIDERATION AS WELL AS D URING THE EARLIER FOUR YEARS ARE AS UNDER: - ITA NO. 560/MUM/2018 M/S. LAXMI SANITARY ENGINEERS & CONTRACTS 5 YEAR PURCHASE SALES % OF PURCHASE OF SALE REMARK 2005 - 06 2006 - 07 2007 - 08 2008 - 09 2,77,48,377 6,73,28,840 6,22,85,752 10,33,95,073 4,56,90,387 9,85,45,190 9,15,90,595 13,15,32,639 60.73 68.32 68.00 78.61 - - - INCREASE M PURCHASE MAINLY DUE TO SUBSTANTIAL INCREASE IN SALES 2009 - 10 2010 - 11 2011 - 12 2012 - 13 10,33,09,256 9,60,58,687 4,06,17,640 12,86,75,014 14,21,53,680 13,44,08,281 6,01,25,668 16,73,51,298 72.67 71.47 67.55 76.89 - - - INCREASE M PURCHASE MAINLY DUE TO SUBSTANTIAL INCREASE IN SALES 12. WE OBSERVE THAT THE CONSUMPTION OF MATERIALS INCLUDES MATERIALS PURCHASE FROM THE SAID PARTIES. THUS, THE MATERIAL SO PURCHASED ULTIMATELY CONVERTED INTO SALES AND CREDITED TO PROFIT AND LOSS ACCOUNT AND DE CLARED AS REVENUE WHILE FILING OF RETURN OF INCOME . 13. WE ALSO FOUND THAT DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HAD SHOWN GROSS PROFIT OF 16.98% AS AGAINST GROSS PROFIT OF IMMEDIATELY PRECEDING A.Y.2008 - 09 @16.63%. THUS, GROSS PROFIT DECLARED DUR ING THE YEAR WAS BETTER THAN THE GROSS PROFIT DECLARED IN THE PRECEDING YEAR. IT IS ALSO NOT THE CASE OF DEPARTMENT THAT ASSESSEE HAD SHOWN LOWER GROSS PROFIT IN RESPECT OF ALLEGED BOGUS PURCHASE AS COMPARED TO THE PROFIT SHOWN IN RESPECT OF NORMAL PURCHAS ES. UNDER THESE FACTS AND CIRCUMSTANCES, WE DO NOT FIND ANY JUSTIFICATION FOR THE ADHOC ADDITION OF 25% MADE IN RESPECT OF SUCH ALLEGED BOGUS PURCHASES. KEEPING IN VIEW ITA NO. 560/MUM/2018 M/S. LAXMI SANITARY ENGINEERS & CONTRACTS 6 THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, WE DIRECT THE AO TO RESTRICT THE A DDITION TO THE EXTENT OF 2% OF THE ALLEGED BOGUS PURCHASE. WE DIRECT ACCORDINGLY. 14. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 02 / 07 /201 8 SD/ - ( RAM LAL NEGI ) SD/ - (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 02 / 07 /201 8 KARUNA SR. 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, MUMB AI 6. GUARD FILE. //TRUE COPY//