REINFIBRE PRODUCTS (I) P.LTD, MUMBAI V. ITO 13(3)(1), MUMBAI

ITA 5669/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8438 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 20-09-2016
• Court: TRIBUNAL
• Department Lawyers: BEENA SANTOSH
• Keywords: Bogus purchase; Opportunity of being heard; Principle of natural justice; Rule of consistency; Revenue expenditure
• Section: 133(6); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO.5669/M/2016 (AY 2010 - 2011) ITA NO.5668/M/2016 (AY 2011 - 2012) M/S. REINFIBRE PRODUCTS (I) PVT LTD, 410, EVEREST APARTMENT, JPN ROAD, VERSOVA, ANDHERI (W), MUMBAI 400 061. / VS. ITO - 13(3)(1), MUMBAI. ./ PAN : AACCR0813R ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI PRAMOD KUMAR PARIDA / RESPONDENT BY : MS. BEENA SANTOSH, DR / DATE OF HEARING : 09.02.2017 / DATE OF PRONOUNCEMENT : 21 .02.2017 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS UNDER CONSIDERATION. BOTH THESE APPEALS ARE FILED BY THE ASSESSEE AGAINST THE DIFFERENT ORDERS OF THE CIT (A) - 21, MUMBAI COMMONLY DATED 24.8.2016 FOR THE ASSESSMENT YEARS 2010 - 11 AND 2011 - 12. SINCE, THE ISSUES RAISED IN BOTH THE APPEALS ARE IDENTICAL, T HEREFORE, FOR THE SAKE OF CONVENIENCE, THEY ARE CLUBBED, HEARD COMBINEDLY AND DISPOSED OF IN THIS CONSOLIDATED ORDER. APPEAL WISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAS OF THIS ORDER. 2. SINCE, THE GROUNDS RAISED BY THE ASSESSEE IN BOTH THE APPEALS ARE IDENTICAL, THE ONLY DIFFERENCE IS IN FIGURES, THEREFORE, FOR ADJUDICATION PURPOSE AND REFERENCE SAKE, GROUNDS RAISED IN THE APPEAL FOR THE AY 2010 - 11 ARE EXTRACTED AS UNDER: - 1. PARTIAL AD - HOC (6%) DISALLOWANCE ON ACCOUNT OF ALLEGED INGENUINE PURCHASE S RS. 14,13,082/ - . (A) THE LD AO ERRED IN CONFIRMING DISALLOWANCE PARTIALLY ON ACCOUNT OF ALLEGED INGENUINE PURCHASES WITHOUT APPRECIATING THAT THE BASIC ONUS CAST UPON THE APPELLANT ON ITS GENUINE CLAIM HAD BEEN DISCHARGED AND IT IS NOT THE CASE OF REVENUE THAT THE CORRESPONDING SALES MADE ONLY TO GOVT. DEPARTMENT ARISING OUT OF SAID PURCHASES OF MATERIALS WERE ALSO DOUBTFUL; THEREFORE, MERELY BECAUSE THE APPELLANT HAD FAILED TO PRODUCE THE PARTIES WHO WERE NOT UNDER ITS CONTROL, NO PARTIAL DISALLOWANCE IS C ALLED FOR BY APPLYING ARBITRARY RATE, THEREFORE, THE DISALLOWANCE BASED ON THE PRESUMPTIONS, SURMISES AND CONJECTURES MAY BE DELETED. (B) WITHOUT PREJUDICE TO THE ABOVE, IN THE ABSENCE OF INVOKING SECTION 145 NO DISALLOWANCE OF DIRECT REVENUE EXPENDITURE ON ACCOUNT OF ALLEGED INGENUINE PURCHASES IS CALLED FOR. 2 (C) WITHOUT FURTHER PREJUDICE TO THE ABOVE, IN A COMMERCIAL TRANSACTION OF PURCHASE AND APPELLANT BEYOND BILLS, RECEIPT OF MATERIALS, DELIVERY CHALLANS, MEETING TO TRANSPORT AND OCTROI AND SUBSEQUENT PAYMEN TS TO SUPPLIERS, DOES NOT TAKE RESPONSIBILITY TO PRODUCE THE PARTIES WITH WHOM IT HAD DISCONTINUED ITS SERVICES SINCE TWO YEARS WHICH IS QUITE A LONG PERIOD, THEREFORE, CERTAIN THINGS WHICH ARE IMPOSSIBLE SHOULD NOT BE INSISTED UPON AND THE DISALLOWANCE MA Y BE DELETED ON ITS MERITS. 2. LEVY OF INTEREST U/S 234A, 234B, 234C AND 234D . THE APPELLANT, ON MERITS, DENIES ITS LIABILITY TO PENAL INTEREST. 3. THE ONLY COMMON ISSUE RAISED IN BOTH THE APPEALS RELATES TO THE GROSS PROFIT (GP) ADDITION @ 6% ON ACCOUN T OF ALLEGED INGENUINE PURCHASES. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS A TRADER IN FIBRE. ASSESSEE FILED THE RETURN OF INCOME FOR THE AY 2010 - 11 DECLARING THE TOTAL INCOME OF RS. 15,86,890/ - . ASSESSMENT WAS COMPLETED U/S 1 43(3) R.W.S 147 OF THE ACT AND THE ASSESSED INCOME WAS DETERMINED AT RS. 45,30,812/ - . IN THE ASSESSMENT, AO HELD THAT THE ASSESSEE MADE PURCHASES FROM THE HAWALA PARTIES, WHO ARE BLOCK LISTED IN THE OFFICIAL WEBSITE OF THE SALES TAX AUTHORITIES. ASSESSEE MADE PURCHASES FROM TWO SUCH PARTIES VIZ (I) HARSHIL FERROMET PVT LTD (RS. 1,33,55379/ - ) AND (II) HANS ENTERPRISES (RS. 1,01,95,995/ - ). AFTER CONDUCTING ENQUIRIES WITH THE SAID TWO PARTIES U/S 133(6) OF THE ACT AND AFTER BEING DISSATISFIED REGARDING THE NON - COOPERATION FROM THE PARTIES, ASSESSING OFFICER PROCEEDED TO MAKE ASSESSMENT APPLYING FLAT RATE OF 12.5% ON THE TOTAL TURNOVER FROM THESE TWO PARTIES, WHICH AMOUNTS TO RS. 2.36 CRS (ROUNDED OF). ACCORDINGLY, AO MADE ADDITION ON ACCOUNT OF BOGUS PURCH ASES AMOUNTING TO RS. 29,43,922/ - . AGGRIEVED, ASSESSEE CARRIED THE MATER APPAL BEFORE THE FIRST APPELLATE AUTHORITY. 4. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CIT (A) GRANTED PART RELIEF TO THE ASSESSEE. THE CONTENTS OF PARAS 5 AND 6 OF HIS ORDER ARE RELEVANT IN THIS REGARD. WHILE GRANTING RELIEF, CI T (A) NOTICED THAT THERE IS NO DEFAULT SO FAR AS THE DOCUMENTATION OR PAYMENT TRANSACTIONS ARE CONCERNED. CIT (A) ALSO ANALYSED GP MARGINS OF THE ASSESSEE BEFORE COMING TO THE CONCLUSION THAT 12.5% APPLIED BY THE ASSESSING OFFICER IS HIGHER SIDE. NOT SAT ISFIED WITH THE SAID DECISION OF THE CIT (A), ASSESSEE IS FURTHER APPEAL BEFORE THE TRIBUNAL BY RAISING THE ABOVE MENTIONED GROUNDS. 5. DURING THE PROCEEDINGS BEFORE THE TRIBUNAL, LD COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. 3 6. ON THE OTHER HAND, LD DR FOR THE REVENUE RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES AND SUPPORTED THEM DUTIFULLY. 7. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLAC ED BEFORE THE TRIBUNAL. ON PERUSAL OF THE ORDER OF THE CIT (A) IN GENERAL AND PARA 8 IN PARTICULAR, I FIND THE SAME IS RELEVANT HERE. FOR THE SAKE OF COMPLETENESS, THE SAID PARA 8 FROM THE IMPUGNED ORDER IS EXTRACTED AS UNDER: - 8. THERE IS SOME MERIT I N THE ARGUMENT THAT THE DISALLOWANCE @ 12.5% IS HIGH. IT IS SEEN FROM THE BILLS SUBMITTED THAT THE VAT APPLICABLE IS 4%. CERTAIN EXPENSES ARE ADDED AS FREIGHT AND HANDLING CHARGES. THE APPELLANT IS LIKELY TO HAVE BENEFITED ON ACCOUNT OF VAT AND SOMEWHAT LESSER COST AT WHICH ACTUAL PURCHASES MAY HAVE BEEN MADE IN CASH. IN MY VIEW, A DISALLOWANCE OF 6% WILL MEET THE ENDS OF JUSTICE. ACCORDINGLY, THE DISALLOWANCE IS RESTRICTED TO RS. 14,13,080/ - . THE APPELLANT GETS A RELIEF OF RS. 15,30,842/ - . THE GROUN D OF APPEAL IS PARTLY ALLOWED. 8. FROM THE ABOVE, IT IS CLEAR THAT THE CIT (A) HAS RESTRICTED THE GP ADDITION TO THE FLAT RATE OF 6% AFTER CONSIDERING THE VAT SEGMENT ALLEGEDLY AFFECTED BY THE ASSESSEE IN RESPECT OF THE EQUIVALENT PURCHASES AFFECTED FROM THE GREY MARKET. IN MY VIEW, THE ABOVE ORDER OF THE CIT (A) IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUNDS NO. 1 AND 2 RAISED BY THE ASSESSEE FOR THE AY 2010 - 11 ARE DISMISSED. 9. IN THE RESULT, APPEAL OF THE ASSES SEE IS DISMISSED. ITA NO.5668/M/2016 (AY 2011 - 12) 10. THIS APPEAL FILED BY THE ASSESSEE ON 20.9.2016 AGAINST THE SAID ORDER OF THE CIT (A) - 21, MUMBAI. 11. IN THIS APPEAL ALSO ASSESSEE RAISED IDENTICAL GROUNDS TO THAT OF THE GROUNDS RAISED IN ITS APPEAL FOR THE AY 2010 - 11. SOME OF THE BACKGROUND FACTS GIVEN IN THE ABOVE APPEAL FOR THE AY 2010 - 11 ARE IDENTICAL TO THE PRESENT APPEAL TOO. THE ONLY DIFFERENCE FOR T HIS AY 2011 - 12 RELATES TO THE FACT THAT THE ASSESSEE AFFECTED THE PURCHASES OF RS. 20,66,774/ - FROM THE ABOVE MENTIONED PARTY NO.1 VIZ HARSHIL FERROMET PVT LTD. ASSESSING OFFICER COMPLETED THE ASSESSMENT APPLYING THE FLAT RATE OF 12.5% ON THE SAID PURCHASES AND THE ADDITION MADE FOR THIS AY WORKED OUT TO RS. 2,58,347/ - . MATTER TRAVELLED TO THE FI RST APPELLATE AUTHORITY. 12. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, CIT (A) CONSIDERED THE FACTS OF THE CASE AND ANALYSED THE SUBMISSIONS OF THE ASSESSEE AND 4 DECIDED TO DEVIATE FROM HIS EARLIER DECISION IN THE AY 2010 - 11. INSTEAD OF RESTRICTING TO THE GP RATE OF 6% (FOR THE AY 2010 - 11), CIT (A) CONFIRMED THE ENTIRE DISALLOWANCE MADE BY THE AO IE 12.5% OF RS. 20, 66,774/ - . AGGRIEVED, ASSESSEE CARRIED THE SAME BEFORE THE TRIBUNAL. 13. DURING THE PROCEEDINGS BEFORE THE TRIBUNAL, LD COUN SEL FOR THE ASSESSEE ARGUED THAT THE ENTIRE SALES ARE MADE WITH THE GOVERNMENT DEPARTMENT AND MAKING SUCH ADDITIONS IN THE ASSESSMENT WITHOUT INVOKING THE PROVISIONS OF SECTION 144(5) OF THE ACT ARE UNSUSTAINABLE IN LAW. WITHOUT PREJUDICE, LD AR ALSO SUBM ITTED THAT THE CIT (A) ERRED IN NOT FOLLOWING HIS OWN DECISION FOR THE AY 2010 - 11 AND ERRED IN CONFIRMING THE GP ADDITION @ 12.5% IN THIS AY 2011 - 12. 14. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE THE TRIBUNAL , I FIND, THERE IS ERROR COMMITTED BY THE CIT (A) IN NOT FOLLOWING THE PRINCIPLE OF CONSISTENCY. I ALSO DISMISS THE ARGUMENT OF THE LD COUNSEL FOR THE ASSESSEE RELATING TO AFFECTING THE ENTIRE SALES TO THE GOVER NMENT BODIES AND THEREFORE NO ADDITION IS WARRANTED TO PURCHASES ACCOUNT. THE AREA OF ADDITION IN THIS CASE REVOLV ES AROUND THE PURCHASES ACCOUNT ON ACCOUNT OF BOGUS PURCHASES FROM THE VENDORS, WHOSE NAMES ARE FOUND IN THE LIST MAINTAINED BY THE SALES T AX DEPARTMENT. ON CONSIDERING THE FACTS OF THE CASE, I AM OF THE VIEW THAT THE ASSESSING OFFICER SHOULD RESTRICT THE ADDITION, IF ANY, TO THE 6% , WHICH IS ALREADY RULED BY THE TRIBUNAL FOR THE AY 2010 - 11 IN THE ASSESSEES OWN CASE IN THE ABOVE PARAS OF TH IS ORDER. AO IS DIRECTED TO RE - COMPUTE THE ADDITION AFTER GRANTING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AS PER THE PRINCIPLES OF NATURAL JUSTICE IN ACCORDANCE WITH THE PRINCIPLES OF NATURAL JUSTICE. THUS, BOTH THE GROUNDS RAISED BY THE ASSESSEE IN THIS APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 16. CONCLUSIVELY, APPEAL FOR THE AY 2010 - 11 IS DISMISSED AND THE APPEAL FOR THE AY 20111 - 12 IS ALLOWED FOR STATIST ICAL PURPOSES. ORDER PRONOUNCE D IN THE OPEN COURT ON 21 ST FEBRUARY, 2017. SD/ - (D. KARUNAKARA RAO) ACCOUNTANT MEMBER MUMBAI ; 21.02.2017 . . ./ OKK , SR. PS 5 / 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 . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI