ITO 5(2)1, MUMBAI V. NEO INFRACOM LTD, MUMBAI

ITA 568/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8152 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 05-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Retrospective amendment
• Section: 69C; 5(2); 147; 145; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA , AM AND SHRI AMARJIT SINGH, JM / I .T.A. NO. 568 / MUM/ 201 6 ( / ASSESSMENT YEAR: 20 11 - 1 2 ) ITO 5(2) - 1 R.NO. 525, 5 TH FLOOR, AAYAK AR BHAVAN, M.K. ROAD, MUMBAI. PIN:400020 / VS. NEO INFRACON LTD. 52/52A, NANUBHAI DESAI ROAD, 9, MULJI THAKERSI BUILDING, SINDHI LANE, MUMBAI. 400004 ./ ./ PAN/GIR NO. : AABCA 3175 C ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING : 28.09 .2017 / DATE OF PRONOUNCEMENT : 21 . 12 .2017 / O R D E R PER AMARJIT SINGH, J M: THE REVENUE HAS FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 23 . 10 .201 5 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 10 , MUMBAI [HEREINAFTE R REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y. 20 1 1 - 1 2 . 2 . THE REVENUE HAS RAISED THE FOLLOWING GROUN DS: - 1 A . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO WORK OUT 12.50% OF THE SO CALLED BOGUS PURCHASES FROM THREE PARTIES AND ADD THE SAME TO THE TAXABLE INCOME IN PLACE OF THE ADDITION OF RS.68,97,426/ - MADE BY THE ASSESSING OFFICER U/S 69C OF THE I.T. ACT, 1961. REVENUE BY : SHRI PURUSHOTTAM KUMAR ASSESSEE BY: NONE ITA. NO. 568/M/2016 A.Y. 2011 - 12 2 1B . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE COULD NOT PRODUCE THE PARTIES FROM WHOM THE PURCHASES AMOUNTING TO RS.68,97,426/ - WAS MADE AND THEREBY FAILED TO ESTABLISH THE GENUINENESS OF THE SAID PURCHASES AND, HENCE, THE ADDITION MADE BY THE ASSESSING OFFICER U/S 69C OUGHT TO HAVE BEEN CONFIRMED BY HIM 1C . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) FAILED TO AP PRECIATE THAT THE DEALER REGISTRATION OF THE THREE PARTIES FROM WHOM PURCHASES OF RS. 68,97,426/ - WAS PURPORTED TO HAVE3 BEEN MADE BY THE ASSESSEE WAS WITHDRAWN BY THE SALES TAX DEPARTMENT WITH RETROSPECTIVE EFFECT AND, HENCE THE ADDITION MADE BY THE ASSES SING OFFICER U/S 69C OUGHT TO HAVE BEEN CONFIRMED BY HIM. 1D. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE AO HAD MADE ALL POSSIBLE EFFORTS TO EXAMINE THE THREE PARTIES AND DUE OPPORTUNITY WAS ALSO ALLOWED TO THE ASSESSEE BUT THE GENUINENESS OF THE PURCHASE OF RS.68,97,426/ - WAS NOT ESTABLISHED BY THE ASSESSEE AND HENCE THE PURCHASES OF RS. 68,97,426/ - WAS CORRECTLY DEEMED TO BE THE INCOME OF THE ASSESSEE U/S 69C AND THE RELIEF ALLOWED BY THE LD. CIT(A) BY TAXING ONLY 12.5% OF THE SAID PURCHASE WAS NOT IN ACCORDANCE WITH THE PROVISION OF LAW. 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.09.2011 DECLARING TOTAL INCOME TO THE TUNE OF RS.9 , 76 , 426/ - . THE RETURN WAS PROC ESSED U /S 14 3(1) OF THE ACT DATED 28.12.2011. THE CASE WAS REOPENED U/S 147 OF THE I.T. ACT, 1961 AFTER RECORDING THE REASONS AND NOTICE U/S 148 OF THE ACT WAS ISSUED ON 12.03.2014 WHICH WAS SERVED UPON THE ASSESSEE ON DATED 12.03.2014. A NOTICE U/S 143(2) OF THE I.T. ACT, 1961 DATED 04.05.2014 WAS ISSUED AND SERVED UPON THE ASSESSEE. THIS CASE WAS REOPENED ON THE BASIS OF INFORMATION RECEIVED FROM VAT DEPARTMENT, MUMBAI I N WHICH IT WAS CONVEYED THAT THE ASSESSEE AVAILED THE BENEFIT OF BOGUS BILLING THROUG H HAWALA ENTRIES AMOUNTING TO RS.68,97,426/ - . DURING THE YEAR UNDER CONSIDERATION THE FOLLOWING PARTIES WERE INVOLVED IN ISSUED BOGUS BILL .: - 1. STEELCO STEEL INDUSTRIES RS. 14,87,200/ - ITA. NO. 568/M/2016 A.Y. 2011 - 12 3 2. APEX FERROMATE P. LTD. RS. 19,75,886/ - 3. SHREE SUNDHA STEEL LTD. RS. 34,34,340/ - TOTAL RS.68,97,426/ - A FTER ISSUANCE OF NOTICE , THE ASSESSEE FAILED TO PROVE THE GENUINENESS OF THE PURCHASE OF THE SAID PARTIES , T HEREFORE, THE SAID PURCHASE WAS ADDED TO THE INCOME OF THE ASSESSEE. FEELING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) WHO RESTRICTED THE ADDITION TO THE EXTENT OF 12.5% OF THE BOG US PURCHASE. FEELING AGGRIEVED, THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. ISSUE NO.1 A TO 1D : - 4 . IN ALL THESE ISSUES , THE REVENUE HAS CHALLENGED THE DELETION OF THE ADDITION TO THE TUNE OF RS.68,97,426/ - WHICH WAS RESTRICTED TO THE EXTENT OF 12.5 % OF THE BOGUS PURCHASE . THE LD. REPRESENTATIVE OF THE REVENUE HAS ARGUED THAT THE CIT(A) HAS PASSED THE ORDER WRONGLY AND ILLEGALLY BY RESTRICTING THE ADDITION TO THE EXTENT OF 12.5% OF THE BOGUS PURCHASE WHEREAS WHOLE AMOUNT OF BOGUS PURCHASE IS REQUIRED TO BE ADDED TO THE INCOME OF THE ASSESSEE. BEFORE GOING FURTHER WE DEEMED IT NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD.: - 4.2 1 HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF THE ID - AR. $ HAVE ALSO GONE THROUGH THE DECISI ONS RELIED ON BY THE LD.AR. AS SEEN FROM 'THE FACTS OF THE CASE THE AU HAS REOPENED THE ASSESSMENT BASED ON THE INFORMATION RECEIVED FROM THE SALES TAX DEPARTMENT THROUGH DIT(LNV.), MUMBAI WITH REGARD TO NON - PAYMENT OF VAT BY SOME OF THE SELLERS WHOSE REGI STRATION WAS CANCELLED LATER, HAVING OBSERVED THAT THOSE ARE THE NON - EXISTANT SELLERS AND THEY HAVE NOT MADE ANY SALES EXCEPT THE BOGUS INVOICES ISSUED IN THEIR NAME: WHEN THE SALES TAX DEPARTMENT HAS MADE ENQUIRIES SOME OF THE SELLERS HAVE ADMITTED ITA. NO. 568/M/2016 A.Y. 2011 - 12 4 BEFORE THEM THAT THEY HAVE NOT MADE ANY SALES BUT GIVEN THE INVOICES. HOWEVER, THE ASSESSEES HAVE ARGUED BEFORE THE INCOME TAX AUTHORITIES THAT THEY HAVE MADE THE PAYMENTS THROUGH BANK CHEQUES TO THE SELLERS AND RECEIVED THE MATERIAL. THEIR ARGUMENT WAS THAT UNL ESS THE AU PROVES POSITIVELY THAT THE MATERIAL WAS NOT DELIVERED TO THE ASSESSEE AND THE PAYMENT MADE THROUGH THE SANK CHANNELS HAVE BEEN BOGUS OR THE AMOUNTS PAID IN THE NAMES OF THE SUPPLIERS HAVE COME BACK TO THE PURCHASE ASSESSEE, THE AU CANNOT MAKE AN Y ADDITION U/S.69C. IT IS SEEN IN THE INSTANT CASE THAT EVEN THOUGH THE AO HAS MADE EFFORTS TO REACH THE SUPPLIERS BY ISSUING NOTICES U/S.133(6) WHICH HAVE COME BACK UNSERVED DUE TO NON - AVAILABILITY OF THE SO - CALLED SUPPLIERS AT THE GIVEN ADDRESS, OR SERVE D BUT NOT RESPONDED IN SOME CASES, HE HAS NOT CONCLUSIVELY PROVED THAT THE APPELLANT HAS NOT RECEIVED THE MATERIAL .AND THE AMOUNTS PAID THROUGH CHQUES HAVE COME BACK TO THE APPELLANT FURTHER, AS THE AO HAS NOT DOUBTED THE SALES DISCLOSED BY THE APPELLANT HE HAS TO ALLOW THE PURCHASES SINCE THERE CANNOT BE ANY SALES WITHOUT THE PURCHASE OF THE MATERIAL. THE ONLY POSSIBILITY IS THAT THE APPELLANT MIGHT HAVE INFLATED ITS PURCHASES BY TAKING INTO ACCOUNT THE INVOICES IN THE NAMES OF THE BOGUS SUPPLIERS. THE PR ESUMPTION IS THAT THE MATERIAL MIGHT HAVE BEEN PURCHASED FROM GREY MARKET AT A LOWER RATE AND MADE GOOD THE ENTRIES WITH BOGUS BILLS TO REDUCE THE PROFITS. UNDER SIMILAR CIRCUMSTANCES THE HONBLE HIGH COURT OF GUJRAT IN THE CASE OF SIMIT P. SETH 2013 356 I TR 451 HAD AN OCCASION TO DELIVER ITS JUDGMENT BY CONFIRMING THE DECISION OF THE ITAT WHICH HAS ESTIMATED THE DISALLOWANCE AT 12.5% OF THE DISPUTED BOGUS PURCHASE TO MEET THE ENDS OF JUSTICE. THE HEAD - NOTE OF THE DECISION IS REPRODUCED AS UNDER: - SECTIO N 145 OF THE INCOME TAX ACT, 1961 - METHOD OF ACCOUNTING - ESTIMATION OF PROFITS BOGUS PURCHASES. ASESSMENT YEAR 2006 - 07 ASSESSEE WAS ENGAGED IN BUSINESS OF TRADING IN STEEL ON WHOLESALE BASIS ASSESSING OFFICER HAVING FOUND THAT SOME OF ALLEGED SUPPLIERS OF STEEL TO ASSESSEE HAD NOT SUPPLIED STEEL TO ASSESSEE BUT HAD ONLY PROVIDED SALE BILLS, HELD THAT PURCHASES MADE FROM SAID PARTIES WERE BOGUS HE, ACCORDINGLY, ADDED ENTIRE AMOUNT OF PURCHASES TO GROSS PROFIT OF ASSESSEE COMMISSIONER (APPEALS) HAVING FOUND ITA. NO. 568/M/2016 A.Y. 2011 - 12 5 THAT ASSESSEE TRIBUNAL, HOWEVER, SUSTAINED ADDITION TO EXTENT OF 12.5% WHETHER SINCE PURCHASES WERE NOT BOGUS BUT WERE MADE FROM PARTIES OTHER THAN THOSE MENTIONED IN BOOKS OF ACCOUNT, ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES COULD BE ADDED TO ASSESS EES INCOME HELD, YEAS WHETHER HENCE, ORDER OF TRIBUNAL NEEDED NO INTERFERENCE HELD, YES (PARAS 6,7, &9) IN FAVOUR OF THE ASSESSEE. 5 . ON APPRAISAL OF THE ABOVE SAID FINDING, WE NOTICED THAT THE CIT(A) HAS DECIDED THE MATTER OF CONTROVERSY ON THE BASIS O F THE FINDING OF HON BLE GUJARAT HIGH COURT IN THE CASE OF SIMIT P SETH, 2013, (356 ITR 451) WHEREIN THE ADDITION WAS RESTRICTED TO THE EXTENT OF PROFIT EMBEDDED IN THE BOGUS PURCHASE . T HE FACTS ARE NOT DISTINGUISHABLE AT THIS STAGE. THE CASE WAS REOPENED ON ACCOUNT OF THE BASIS OF THE INFORMATION RECEIVED FROM SALES TAX DEPARTMENT THROUGH DIT(INV.), MUMBAI. THE SALE IS NOT DISPUTED AND THE BOOKS OF ACCOUNT HAS NOT BEEN REJECTED. THEREFORE, IN THE SAID CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CIT(A) HAS D ECIDED THE MATTER OF CONTROVERSY JUDICIOUSLY AND CORRECTLY WHICH IS NOT LIABLE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ACCORDINGLY, THESE ISSUES ARE DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. 6 . IN THE RESULT, THE APPEAL FILED BY THE REV ENUE IS HEREBY ORDERED TO BE D ISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 21. 12. 2017 . SD/ - SD/ - ( SHAMIM YAHYA ) (AM ARJIT SINGH) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED : 21. 12 . 2017 ITA. NO. 568/M/2016 A.Y. 2011 - 12 6 VIJAY / 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