REMI EDELSTAHL TUBULARS LTD, MUMBAI V. DCIT CIR 13(3)(1), MUMBAI

ITA 5767/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9386 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2007-2008
• Appeal Filed On: 23-12-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bogus purchase; Onus to prove; Revised return
• Section: 143(3); 115JB; 133(6); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH D,MUM BAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.5767/MUM/2015 (ASSESSMENT YEAR- 2007-08) REMI EDELSTAHL TUBULARS LIMITED (FORMERLY RAJENDRA MECHANICAL INDUSTRIES LTD.), PLOT NO. 11, CAME INDUSTRIAL ESTATE, WALBHAT ROAD, GOREGAON (E), MUMBAI-400063 PAN: AAACR0408G VS. DCIT, CIRCLE-13(3)(1) , 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 . (APPELLANT) (RESPONDENT) ITA NO.5841/MUM/2015 (ASSESSMENT YEAR- 2007-08) DCIT, CIRCLE-13(3)(1) , 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 . VS. REMI EDELSTAHL TUBULARS LIMITED (FORMERLY RAJENDRA MECHANICAL INDUSTRIES LTD.), PLOT NO. 11, CAME INDUSTRIAL ESTATE, WALBHAT ROAD, GOREGAON (E), MUMBAI-400063 PAN: AAACR0408G (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : SHRI PURUSHOTTAM KUMAR (DR) DATE OF HEARING : 05.10.2017 DATE OF PRONOUNCEMENT : 05.10.2017 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER : 1. THESE CROSS APPEAL UNDER SECTION 253 OF INCOME TAX ACT (THE ACT) ARE DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF I NCOME-TAX-21, 2 ITA NO. 5767 & 5841/M/2016 - REMI EDELSTAHL TUBULAR S LIMITED MUMBAI [HEREINAFTER REFERRED AS LD. CIT(A)] DATED 1 2.10.2015 FOR ASSESSMENT YEARS (AY) 2007-08. THE ASSESSEE HAS RAI SED THE FOLLOWING GROUNDS OF APPEAL: I. ADDITION ON ACCOUNT OF PURCHASE OF RS.1 0,00,000 /-. 1 ) BECAUSE, THE LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING DISALLOWANCE TO THE EXTENT OF RS.1 0,00, 000/-. 2) BECAUSE, THE LD. CIT(A) ERRED IN CONSIDERING TRA NSACTION OF RS.9,70,615/- OF A.Y. 2009-10 IN CURRENT YEAR WITHO UT ANY BASIS. 3) BECAUSE, THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THAT THE APPELLANT HAD SUBMITTED COPIES OF ALL RELEVANT DOCUMENTS I.E; INVOICES, PURCHASE REGISTER COPY, DELIVERY CHALLANS, GOODS RECEIVED NO TES, PURCHASE ORDERS, INSPECTION & TEST REPORTS, WEIGHT BRIDGE SLIP, VEHI CLE NUMBERS, STOCK RECORDS SHOWING CLOSING STOCK OF THE PURCHASE AND B ANK STATEMENTS SHOWING PAYMENTS MADE AND ACCOUNT CONFIRMATION BY T HE PARTY, ETC. 4) BECAUSE, THE LD. CIT(A) FURTHER FAILED TO APPREC IATE THE FACT THAT THE APPELLANT HAD SHOWN CLOSING STOCK OF UNUSED MATERIA L AT THE YEAR END OUT OF THE SAID PURCHASES. 5) BECAUSE, THE LD. CIT(A) FURTHER FAILED TO APPREC IATE THE FACT THAT THE SAID PARTIES WERE NOT DECLARED 'HAWALA DEALERS' BY SALES TAX DEPARTMENT AND THEIR 'TIN' WERE STILL VALID. 2. THE REVENUE IN ITS CROSS APPEAL HAS RAISED THE FOLL OWING GROUNDS OF APPEAL: 1 . WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE ADDITION OF RS. 51,27 ,238/- OUT OF TOTAL ADDITION OF RS.61,27,238/- MADE ON ACCOUNT OF BOGUS PURCHASES. 2. WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD.CIT(A) WAS RIGHT IN DELETING THE ADDITION WITHOU T APPRECIATING THE 3 ITA NO. 5767 & 5841/M/2016 - REMI EDELSTAHL TUBULAR S LIMITED FACT THAT THE SAID PURCHASES COULD NOT BE PROVED GE NUINE BY THE ASSESSEE EVEN AFTER GIVING SUFFICIENT OPPORTUNITY. 3. WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD.CIT(A) WAS RIGHT IN DELETING THE ADDITION WITHOU T APPRECIATING THE FACT THAT THE ASSESSEE IS END USER/CONSUMER OF THE SAID ITEMS AND THERE IS NO CLEAR MAPPING OF PURCHASES AND UTILIZATION. IN T HAT SITUATION THIS LOGIC IS NOT CORRECT THAT SINCE THE SALES ARE THERE PURCH ASES CAN NOT BE DENIED. 4. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE R ESTORED. 3. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A COM PANY WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF STAINLESS TUBES AN D PIPES, TRADING IN STEEL AND OTHER GOODS. THE ASSESSEE FILED RETURN OF INCOME FOR RELEVANT AY ON 30.10.2007 DECLARING TOTAL INCOME OF RS. NIL UND ER THE NORMAL PROVISION AND BOOK PROFIT OF RS. 5,44,06,979/- UNDE R SECTION 115JB OF THE ACT. THEREAFTER, THE ASSESSEE FILED REVISED RETURN OF INCOME DECLARING TOTAL INCOME AND CLAIMED BROUGHT FORWARD LOSS OF RS. 3,55 ,00,440/-. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF TH E ACT ON 28.08.2009 ASSESSING TOTAL INCOME OF ASSESSEE AT RS. NIL. UNDE R THE NORMAL PROVISION AND BOOK PROFIT AT RS. 5,54,33,187/- UNDER MINIMUM ALTERNATE TAX (MAT). SUBSEQUENTLY, THE ASSESSMENT WAS RE-OPENED O N THE BASIS OF INFORMATION RECEIVED FROM THE OFFICE OF DGIT (INV.) , MUMBAI. IT WAS INFORMED TO THE ASSESSING OFFICER BY CIT-3, MUMBAI THAT DETAILS INFORMATION WAS RECEIVED FROM SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA THAT SOME HAWALA TRADERS ARE ENGAGED I N PROVIDING 4 ITA NO. 5767 & 5841/M/2016 - REMI EDELSTAHL TUBULAR S LIMITED ACCOMMODATION/BOGUS BILLS WITHOUT DELIVERY OF MATER IAL AND THAT THE ASSESSEE IS ONE OF THE BENEFICIARY FROM SUCH DEALER S. ON THE BASIS OF INFORMATION, THE ASSESSMENT WAS RE-OPENED UNDER SEC TION 147 OF THE ACT. NOTICE UNDER SECTION 148 DATED 25.03.2014 WAS ISSUE D TO THE ASSESSEE. THE ASSESSEE FILED OBJECTION AGAINST THE RE-OPENING. TH E OBJECTION OF THE ASSESSEE WAS REJECTED VIDE ORDER DATED 18.09.2014. THE ASSESSING OFFICER (AO) COMPLETED THE ASSESSMENT UNDER SECTION 143(3) R.W.S. 147 OF THE ACT ON 20.02.2015. DURING THE RE-ASSESSMENT PROCEEDING, THE AO NOTED THAT THE ASSESSEE CLAIMED EXPENSES OF RS. 61,27,238/- ON ACCOUNT OF PURCHASES SHOWN FROM SHREE SUNDHA STEELS PVT. LTD. FOR RS. 10 ,24,166/- AND METALEX TUBE INDUSTRIES RS. 51,03,072/- TOTAL OF RS. 61,27, 238/-. BOTH THE PARTIES WERE INDULGED IN HAWALA TRANSACTION AS PER THE INFO RMATION RECEIVED BY THE AO. THE AO ISSUED NOTICE UNDER SECTION 133(6) D ATED 06.02.2015 TO BOTH THE PARTIES. NO REPLY WAS RECEIVED FROM THE SA ID PARTIES. DURING THE ASSESSMENT PROCEEDING, THE ASSESSEE WAS ASKED TO RE CONCILE THE PURCHASES FROM THESE TWO PARTIES. THE ASSESSEE WAS ALSO ASKED TO PRODUCE THE PARTIES. HOWEVER, THE ASSESSEE COULD NOT PRODUCE THE PARTIES . IN ORDER TO VERIFY THE GENUINENESS OF PURCHASES. THE ASSESSEE FILED HIS DE TAILED REPLY AND CONTENDED THAT THE ASSESSEE HAS PURCHASES STEEL GOO DS FROM SHREE SUNDHA STEELS PVT. LTD. AND METALEX TUBE INDUSTRIES OF RS. 24.47 CRORE AND RS. 8.32 CRORE. THE ASSESSEE FILED LEDGER ACCOUNT OF TH E PARTIES AND CONTENDED 5 ITA NO. 5767 & 5841/M/2016 - REMI EDELSTAHL TUBULAR S LIMITED THAT ALL TRANSACTION WITH THE SAID PARTIES IS GENUI NE. THE ASSESSEE FURTHER FILED A COPY OF INVOICES, DELIVERY CHALLAN, RECEIPT OF GOOD RECEIVED AND THE COPY OF STATEMENT OF ACCOUNT REFLECTING THE PAYMENT S MADE FOR THE PURCHASES. THE CONTENTION OF THE ASSESSEE WAS NOT A CCEPTED BY THE AO HOLDING THAT THE PARTIES WERE DECLARED AS HAWALA PA RTIES AND THE TRANSACTION MADE WITH THESE PARTIES ARE HAWALA TRANSACTION. THE BURDEN OF PROOF LIES UPON THE ASSESSEE TO PROVE THE GENUINENESS OF TRANS ACTION AND THAT ASSESSEE FAILED TO DISCHARGE THE ONUS FOR PROVING THE GENUIN ENESS OF TRANSACTION. THE AO MADE THE ADDITION OF AGGREGATE OF THE PURCHA SES OF BOTH THE PARTIES FOR RS. 61,27,238/-. ON APPEAL BEFORE THE LD. CIT(A ), THE DISALLOWANCE WAS RESTRICTED TO RS. 10,00,000/- WAS MADE THEREBY DELETED THE REMAINING ADDITION OF RS. 51,27,238/-. THE LD CIT(A) RESTRICT ED THE DISALLOWANCE ON ADHOC BASIS. HENCE, FURTHER AGGRIEVED BY THE ORDE R OF LD. CIT(A), BOTH THE PARTIES HAS FILED THEIR CROSS APPEAL. THE ASSESSEE HAVE CHALLENGED THE ACTION OF LD. CIT(A) IN CONFIRMING THE DISALLOWANCE TO THE EXTENT OF RS.10,00,000/-. THE REVENUE IN ITS APPEAL HAVE CHAL LENGED THE ACTION OF LD. CIT(A) IN DELETING THE ADDITION OF RS. 51,27,238/-. 4. THE APPEAL CAME UP HEARING ON 05.10.2017. NONE APPE ARED ON BEHALF OF ASSESSEE DESPITE WAITING FOR SUFFICIENT TIME. WHEN NONE APPEARED ON BEHALF OF ASSESSEE, WE LEFT NO OPTION EXCEPT TO HEAR THE L D. DR FOR THE REVENUE AND TO PROCEED ON THE BASIS OF MATERIAL AVAILABLE O N RECORD. THE LD. DR FOR 6 ITA NO. 5767 & 5841/M/2016 - REMI EDELSTAHL TUBULAR S LIMITED THE REVENUE ARGUED THAT INVESTIGATION WING OF INCOM E-TAX DEPARTMENT MADE FULL-FLEDGED INVESTIGATION ABOUT THE RACKET OF HAWALA DEALERS, WHO WERE ENGAGED IN PROVIDING BOGUS ACCOMMODATION ENTRI ES WITHOUT DELIVERY OF ANY GOODS OR MATERIAL. THE ASSESSEE OBTAINED ONL Y BILLS IN ORDER TO INFLATE THE EXPENSES AND BRING DOWN THE PROFITABILI TY IN ORDER TO AVOID THE TAX. IT WAS ARGUED THAT THE AO MADE THE ADDITION OF 100% AS THE ASSESSEE FAILED TO SUBSTANTIATE THE EXPENSES. THE LD. CIT(A) DELETED THE ADDITION OF RS. 51,27,238/- AND RESTRICTED THE ADDITION OF RS. 10,00,000/- ON ADHOC ESTIMATION OF DISALLOWANCE. THE LD. DR FOR THE REVE NUE PRAYED FOR DISMISSAL OF ASSESSEES APPEAL AND TO RESTORE THE A CTION OF AO. 5. WE HAVE CONSIDERED THE SUBMISSION OF LD. DR FOR THE REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE NOTED THA T ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ON 28.08.2009. THE A O RE-OPENED THE ASSESSMENT ON THE BASIS OF INFORMATION RECEIVED FRO M THE DGIT(INV.) WHEREIN IT WAS DISCLOSED THAT INFORMATION WAS RECEI VED FROM SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA REGARDING THE RACKETS OF HAWALA DEALERS. DURING THE RE-ASSESSMENT PROCEEDING, THE A O ASKED THE ASSESSEE TO SUBSTANTIATE THE EXPENSES OF RS. 61,27,238/-. TH E ASSESSEE FILED ITS REPLY DATED 11.02.2015. IN THE REPLY, THE ASSESSEE CONTEN DED THAT THE EXPENSES MADE BY THE ASSESSEE ARE GENUINE. IT WAS FURTHER CO NTENDED THAT THE INFORMATION, STATEMENT OR THE AFFIDAVIT ALLEGEDLY G IVEN BY THE PARTIES TO THE 7 ITA NO. 5767 & 5841/M/2016 - REMI EDELSTAHL TUBULAR S LIMITED SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA CAN NOT BE RELIED AS AN EVIDENCE AGAINST THE ASSESSEE. THE ASSESSEE FURNISH ED COPY OF INVOICES, DELIVERY CHALLAN, RECEIPTS OF GOODS AND PAYMENT OF GOODS/MATERIAL. THE CONTENTION OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO. THE NOTICE UNDER SECTION 133(6) DATED 06.02.2015 WAS ISSUED BY THE A O TO THE SAID PARTIES. HOWEVER, NO REPLY WAS RECEIVED FROM THOSE PARTIES. THE AO ON THE BASIS OF INFORMATION OF SALES TAX DEPARTMENT MADE THE ADD ITION OF EXPENSES OF RS. 61,27,238/-. THE AO FURTHER CONCLUDED THAT MERE MAKING OF PAYMENT THROUGH CHEQUES OR RTGS DOES NOT SUBSTANTIATE THE C LAIM OF PURCHASES. THE MODUS OPERENDI OF SUCH ACCOMMODATION BILL PROVI DER IS TO PROVIDE BILLS, RECEIVED PAYMENT THROUGH BANKING CHANNEL AND TO RETURN OF CONSIDERATION IN CASH. IF THE ASSESSEE HAS CLAIMED HUGE PURCHASES, THE PARTY MAY BE WELL-KNOWN TO THE ASSESSEE AND THE ASSESSEE SHOULD HAVE NO DIFFICULTY AND PRODUCED THE SAID PARTIES FOR CROSS- EXAMINATION. 6. WE HAVE NOTED THAT THE AO HAS RELIED UPON THE THIRD PARTY INFORMATION. THERE WAS NO INDEPENDENT AND INCRIMINATING MATERIAL BEFORE THE AO EXCEPT THE INFORMATION OF SALES TAX DEPARTMENT RECE IVED THROUGH DGIT (INV.). THE AO HAS NOT BROUGHT ANY MATERIAL TO ESTA BLISH THAT THE ASSESSEE RECEIVED BACK THE ALLEGED CONSIDERATION. THE AO HAS NOT EXAMINED THE GROSS PROFIT/NET PROFIT RATIO OF THE EARLIER OR SUB SEQUENT YEAR. THE STATEMENT OF ACCOUNT OF ASSESSEE WAS NOT REJECTED. THE AO HAS NOT REJECTED 8 ITA NO. 5767 & 5841/M/2016 - REMI EDELSTAHL TUBULAR S LIMITED THE CONSUMPTION OR SALE OF THE ALLEGED MATERIAL. TH E LD. CIT(A) MADE THE ADHOC DISALLOWANCE DESPITE MAKING RELIANCE ON THE D ECISION OF HONBLE GUJARAT HIGH COURT IN CIT VS. SMITH P. SETH IN ITA NO. 5531 OF 2012 DATED 16.01.2013. WE HAVE NOTED THAT THE LD. CIT(A) EXAMINED THE CONSUMPTION OF RAW-MATERIAL AND THE GROSS PROFIT/NE T PROFIT. THE LD. CIT(A) FURTHER OBSERVED THAT AO JUST PICKED UP CERT AIN BILLS FOR DISALLOWANCE BASED ON INFORMATION. THE ASSESSEE IS A MANUFACTURER AND UNLIKE TRADING CONCERNED, IT CANNOT BE SAID THAT NO SALE CAN TAKE PLACE WITH THE PURCHASE. THE ASSESSEE WAS ASKED TO ESTABLISH T HE CONSUMPTION. THE ASSESSEE FILED THE CONFIRMATION OF BOTH THE PARTIES . THE LD. CIT(A) ON THE BASIS OF DECISION OF CIT VS. SMITH P. SETH (SUPRA) THAT ENTIRE PURCHASE CANNOT BE ADDED TO THE INCOME OF THE ASSESSEE AND F AIR PROFIT RATIO WOULD BE SUFFICIENT TO ADD BACK IN THE INCOME OF ASSESSEE AND THUS, MADE THE ADHOC DISALLOWANCE OF RS. 10,00,000/-. WE HAVE NOT ED THAT THE DISALLOWANCE RESTRICTED BY LD CIT(A) IS ABOUT 16.32 % OF THE ALLEGED BOGUS PURCHASES. AFTER CONSIDERING THE FACT AND THE MATER IAL AVAILABLE ON RECORD, WE FIND THAT THE DISALLOWANCES RESTRICTED BY LD CIT (A) IS ON LITTLE HIGHER SIDE. 7. WE ARE OF THE VIEW THAT UNDER THE INCOME-TAX ACT O NLY REAL INCOME CAN BE TAXED BY THE REVENUE. WE MAY FURTHER NOTE THAT EVEN IN CASE WHERE THE 9 ITA NO. 5767 & 5841/M/2016 - REMI EDELSTAHL TUBULAR S LIMITED WHOLE TRANSACTION IS NOT VERIFIABLE DUE TO VARIOUS REASONS, THE ONLY TAXABLE IS THE TAXABLE INCOME COMPONENT AND NOT THE ENTIRE TRANSACTION. THE HONBLE BOMBAY HIGH COURT IN CASE OF HARIRAM BH AMBHANI IN ITA NO. 313 OF 2013 DECIDED ON 04.02.2015 ALSO HELD THA T REVENUE IS NOT ENTITLED TO BRING THE ENTIRE SALE CONSIDERATION TO TAX, BUT ONLY THE PROFIT ATTRIBUTABLE ON THE TOTAL UNRECORDED SALE CONSIDERA TION ALONE CAN BE SUBJECT TO INCOME TAX AFTER CONSIDERING THE SUBMISSION OF L D. DR FOR THE REVENUE, WE ARE OF THE OPINION THAT IN ORDER TO FULFIL THE G AP OF REVENUE LEAKAGE, THE DISALLOWANCE OF REASONABLE PERCENTAGE OF DISPUTED P URCHASE WOULD MEET THE END OF JUSTICE. CONSIDERING THE FACT, THE ASSES SEE HAS SHOWN THE PROFIT @ 3.97 % BEFORE TAXATION AT RS.5.44 CRORE. IN OUR V IEW THE DISALLOWANCE @ 12.5% ON ACCOUNT OF IMPUGNED/BOGUS PURCHASES WOUL D MEET THE END OF JUSTICE. THUS, THE AO IS DIRECTED TO RESTRICT THE D ISALLOWANCE OF THE DISPUTED PURCHASES TO 12.5% (RS. 61,27,238/-) OF THE DISPUTE D / BOGUS PURCHASED IDENTIFIED BY HIM, THUS, GROUNDS OF APPEAL RAISED B Y ASSESSEE ARE PARTLY ALLOWED. 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 5841/MUM/2016 9. CONSIDERING THE FACT THAT WE HAVE RESTRICTED THE DI SALLOWANCE OF IMPUGNED/BOGUS PURCHASE @ 12.5% (TOTAL OF RS. 61,27 ,238/-) ON THE 1 0 ITA NO. 5767 & 5841/M/2016 - REMI EDELSTAHL TUBULAR S LIMITED SIMILAR GROUND OF APPEAL IN THE APPEAL OF THE ASSES SEE. HENCE, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 10. IN THE RESULT, APPEAL FILED BY ASSESSEE IS PARTL Y ALLOWED AND THE APPEAL FILED BY REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 5 TH OCTOBER, 2017. 11. SD/-/ SD/- (SHAMIM YAHYA) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 05/10/2017 S.K.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT.REGISTRAR) I TAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY/