M/S.VALSONS METAL, MUMBAI V. ITO WARD 19(3)(5), MUMBAI

ITA 5831/MUM/2018

• Counselvise Citation: [2019] 111 COUNSELVISE.COM (IT) 9623 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 09-10-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C S SHARMA
• Keywords: Reopening of assessment; Bogus purchase; Principle of natural justice; Reason to believe; Set aside
• Section: 142(1); 234B; 133(6); 201; 148; 6; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC , MUMBAI BEFORE S HRI S. RIFAUR RAHMAN (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 5831 /MUM/2018 ASSESSMENT Y EAR: 2010 - 2011 & ITA NO. 5832 /MUM/2018 ASSESSMENT Y EAR: 2011 - 2012 M/S VALSONS METAL, 110, GU LAL WADI, 1/19, BHARJA BHAVAN, KIKA STREET, MUMBAI - 400004 PAN: AAAFV3006B VS. THE ITO 19(3)(5 ), ROOM NO. 201, MATRU MANDIR, TARDEO ROAD, MUMBAI - 400007 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VIMAL PUNMIYA (CA ) REVENUE BY : SHRI C.S. SHARMA (D R ) DATE OF HEARING: 25/09 /201 9 DATE OF PRONOUNCEMENT: 30 / 10 /201 9 O R D E R PER RAM LAL NEGI, JM THESE APPEAL S HAVE BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 01.08.2018 P ASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 29 (FOR SHORT THE CIT(A) , MUMBAI, FOR THE ASSESSMENT YEAR S 2010 - 11 AND 2011 - 12 RESPECTIVELY , WHEREBY THE LD. CIT(A) HAS PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE AGAINST THE ASSESSMENT ORDER PASSED U /S 143 (3) R.W.S 147 OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). SINCE, THESE APPEALS PERTAIN TO THE SAME ASSESSEE, THESE WERE CLUBBED, HEARD TOGETHER AND ARE BEING DISPOSED OF THIS COMMON AND CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. IT A NO . 5 831 /MUM/2018 (ASSESSMENT YEAR: 2010 - 2011 ) BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE ENGAGED IN T RADING OF NON - FERROUS METAL, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING THE TOTAL INCOME OF RS. 2 ,84,210/ - . THE RE TURN WAS 2 ITA NO S . 5831 & 5832 / MUM/2018 ASSESSMENT YEAR S : 2010 - 11 AND 2011 - 1 2 PROCESSED U/S 143 (1) OF THE ACT. SUBSEQUENTLY, THE AO RECEIVED INFORMATION FROM SALES TAX DEPARTMENT MAHARASHTRA THROUGH DGIT (INVESTIGATION) TO THE EFFECT THAT THE ASSESSEE DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION OBT AINED BOGUS PURCHASE BILLS AMOUNTING TO RS. 17,07,818 / - FROM FIFTEEN PARTIES MENTIONED IN THE ASSESSMENT ORDER , WHOSE NAME WERE MENTIONED IN THE LIST OF HAWALA PARTIES PREPARED BY THE MAHARASHTRA SALES TAX DEPARTMENT. ON THE BASIS OF THE SAID INFORMATION , THE AO REOPENED THE ASSESSMENT U/S 147 OF THE ACT AFTER ISSUING NOTICE U/S 148 OF THE ACT. THEREAFTER, THE AO ISSUED NOTICES U/S 143 (2) AND 142(1) OF THE ACT. IN RESPONSE THEREOF THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED BEFORE THE AO , SUBM ITTED THE DETAILS CALLED FOR AND CONTENDED THAT THE ASSESSEE HAD MADE GENUINE PURCHASES FROM THE SAID PARTIES. IN ORDER TO VERIFY THE GENUINENESS OF TRANSACTIONS, AO ISSUED NOTICE TO THE PARTIES CONCERNED U/S 133(6) OF THE ACT. HOWEVER, THE NOTICES WERE RE CEIVED BACK UN - SERVED. THE AO REJECTED THE CLAIM OF THE ASSESSEE AND TREATING THE PURCHASES AS BOGUS MADE ADDITION OF 25% OF THE TOTAL AMOUNT OF AMOUNT OF BOGUS PURCHASES AND AFTER MAKING ADDITION OF THE SAID AMOUNT DETERMINED THE TOTAL INCOME OF THE ASSE SSEE AT RS. 7,11,160 / - . IN THE FIRST APPEAL, THE LD. CIT(A) RESTRICTED THE ADDITION TO 12.5% OF THE TOTAL AMOUNT OF THE QUESTIONED PURCHASES . AGAINST THE SAID FINDINGS, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 2. THE ASSESSEE HAS CHALLENGED THE IMPUGN ED ORDER PASSED BY THE LD. CIT (A) ON THE FOLLOWING EFFECTIVE GROUNDS : - 1 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) ERRED IN CONFIRMING THE INITIATION OF THE REASSESSMENT PROCEEDING UNDER SECTION 147. 2. ON THE FACTS AND CIR CUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) FAILED TO CONSIDER THAT REASSESSMENT PROCEEDING CANNOT BE INITIATED. A) NO REASSESSMENT CAN BE MADE JUST TO MAKE AN ENQUIRY OR VERIFICATION. B) REASSESSMENT PROCEEDING CANNOT BE INITIATE MERELY ON THE INF ORMATION RECEIVED FROM INVESTIGATION WING. 3 ITA NO S . 5831 & 5832 / MUM/2018 ASSESSMENT YEAR S : 2010 - 11 AND 2011 - 1 2 C) REASSESSMENT PROCEEDING CANNOT BE INITIATED WHEN THE LD. CIT (A) HAVE REASON TO SUSPECT AND NOT REASON TO BELIEVE. 3. ON THE FACTS AND CIRCUMSTANCES OF CASE AND LAW THE LD. CIT (A) ERRED IN CONFIRMING THE ASS ESSMENT ORDER UNDER SECTION 143 SUB SECTION 3 R W S 147 OF INCOME TAX ACT WHICH IS PASSED AGAINST THE PRINCIPAL OF NATURAL JUSTICE. 4. THE LD. CIT (A) ERRED IN CONFIRMING THE TREATING RS. 2,13,477/ - BEING 12.5 PER CENT OF THE TOTAL PURCHASES OF RS. 10,07, 818/ - AS BOGUS NON - GENUINE EXPENDITURE AND THEREBY ERRED IN ADDING THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 5. THE LD. CIT (A) ERRED IN CONFIRMING THE CHARGING OF INTEREST UNDER SECTION 234A, 234B 234C AND 234D OF THE INCOME TAX ACT, 1961. 6. THE LD. CIT (A) ERRED IN CONFIRMING THE INITIATION OF THE PENALTY PROCEEDING UNDER SECTION 271 (1) (C) OF THE INCOME TAX ACT, 1961. ANOTHER. 3. THE ASSESSEE HAS CHALLENGED THE IMPUGNED ORDER ON LEGAL ISSUE AS WELL AS ON MERITS. SO FAR AS THE LEGAL ISSUE IS CONCERNED, THE LD. COUNSEL SUBMITTED THAT THE INITIATION OF RE ASSESSMENT PROCEEDINGS BY THE AO IS BAD IN LAW AS THE SAME WAS BASED ON INFORMATION RECEIVED FROM INVESTIGATION WING OF THE DEPARTMENT THAT TOO WITHOUT ANY REASON TO BELIEVE THAT THE INCOME OF T HE ASSESSEE HAS ESCAPED ASSESSMENT. SINCE, THE ACTION OF THE AO WAS BAD IN LAW, THE LD. CIT(A) OUGHT TO HAVE SET ASIDE THE ASSESSMENT ORDER. ON MERITS T HE LD. COUNSEL SUBMITTED THAT SINCE THE AO HAD MADE ADDITION OF THE TOTAL AMOUNT OF ALLEGED BOGUS PURCHA SES WITHOUT TAKING INTO CONSIDERATION THE SUBMISSIONS MADE BY THE ASSESSEE IN THE LIGHT OF THE DOCUMENTARY EVIDENCE PRODUCED BY THE ASSESSEE TO PROVE THE GENUINENESS OF THE PURCHASES IN QUESTION, THE LD. CIT(A) OUGHT TO HAVE DELETED THE ADDITION. THE LD. C OUNSEL FURTHER POINTED OUT THAT AO HAS NOT REJECTED THE SALES MADE BY THE ASSESSEE BUT, REJECTED THE PURCHASES IGNORING THAT THERE CANNOT BE ANY SALE WITHOUT PURCHASES. THE ASSESSEE APART FROM THE DETAILS OF THE WHEREABOUTS OF THE PARTIES, HAS FURNISHED TH E COPIES OF INVOICES, PAYMENT DETAILS AND STATEMENT OF BANK ACCOUNT BEFORE THE AUTHORITIES BELOW IN ORDER TO ESTABLISH THE GENUINENESS OF TRANSACTION OF PURCHASES. THE LD. COUNSEL FURTHER SUBMITTED THAT IN VIEW OF THE AFORESAID FACTS, THE ADDITION OF 4 ITA NO S . 5831 & 5832 / MUM/2018 ASSESSMENT YEAR S : 2010 - 11 AND 2011 - 1 2 12.5% SUSTAINED BY THE AO MAY BE DELETED OR IN ALTERNATIVE A REASONABLE PERCENTAGE OF ADDITION MAY BE MADE IN THE LIGHT OF THE GP SHOWN BY THE ASSESSEE. 4. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) RELYING ON THE CONCURRENT FINDINGS OF THE AUT HORITIES BELOW SUBMITTED THAT SINCE THE ASSESSEE HAS FAILED TO DISCHARGE THE ONUS OF PROVING GENUINENESS OF THE TRANSACTION, THE LD. CIT(A) HAS RIGHTLY SUSTAINED THE ADDITION OF 12.5% OF THE TOTAL AMOUNT OF BOGUS PURCHASES DETERMINED BY THE AO. THE LD DR F URTHER SUBMITTED THAT THE FINDINGS OF THE LD. DR ARE BASED ON THE EVIDENCE ON RECORD AND IN ACCORDANCE WITH THE SETTLED PRINCIPLES OF LAW, HENCE THE APPEAL OF THE ASSESSEE DESERVES DISMISSAL BEING DEVOID OF ANY MERIT. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND CAREFULLY GONE THROUGH THE RELEVANT MATERIAL ON RECORD IN THE LIGHT OF THE CONTENTIONS OF THE PARTIES. SO FAR AS THE LEGAL GROUND IS CONCERNED WE DO NOT FIND ANY ILLEGALITY IN INITIATING PROCEEDINGS U/S 147 OF THE ACT ON THE BASIS OF IN FORMATION RECEIVED FROM THE MAHARASHTRA SALES TAX DEPARTMENT THROUGH DGIT (INVESTIGATION) AS THE ONLY REQUIREMENT FOR REOPENING OF ASSESSMENT IS THAT THE AO MUST HAVE REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THEREFORE, TH E SOURCE OF INFORMATION IS IMMATERIAL. WE FURTHER NOTICE THAT THE AO HAS AFFORDED A REASONABLE OPPORTUNITY TO THE ASSESSEE TO ESTABLISH THE GENUINENESS OF THE QUESTION TRANSACTIONS. WE ARE CONVINCED FROM THE MATERIAL ON RECORD THAT THE ASSESSEE HAS FAILED TO ESTABLISH THE GENUINENESS OF THE PURCHASES IN QUESTION BY ADDUCING COGENT AND CONVINCING EVIDENCE. THE NOTICES ISSUED BY THE AO WERE RECEIVED BACK UN - SERVED. THE ASSESSEE ALSO FAILED TO PRODUCE THE PARTIES BEFORE THE AO FOR VERIFICATION. THE DOCUMENTS P RODUCED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS DO NOT ESTABLISH THE GENUINENESS OF THE TRANSACTION. HENCE, IN OUR CONSIDERED VIEW, THE AO HAS RIGHTLY CONCLUDED THAT THE ASSESSEE HAS NOT MADE THE QUESTIONED PURCHASES FROM THE PARTIES MENTIONED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. HOWEVER, THE AO HAS NOT REJECTED THE SALE OF THE GOODS SO PURCHASED. THE ABOVE - MENTIONED FACTS GIVE RISE TO THE CONCLUSION THAT THE ASSESSEE HAD PURCHASED 5 ITA NO S . 5831 & 5832 / MUM/2018 ASSESSMENT YEAR S : 2010 - 11 AND 2011 - 1 2 THE GOODS IN QUESTION FROM GREY MARKET AND EVADED THE TAX APPL ICABLE DURING THE RELEVANT PERIOD. UNDER THESE CIRCUMSTANCES, THE AO HAD NO OPTION BUT TO MAKE AN ADDITION ON ESTIMATION BASIS CONSIDERING THE APPLICABLE RATE OF VAT OR OTHER TAXES AND THE PROFIT EMBEDDED IN THE SAID TRANSACTION. BUT, HE INSTEAD OF DOING S O, MADE ADDITION OF 25% OF THE ENTIRE AMOUNT IN QUESTION TO THE INCOME OF THE ASSESSEE. IN THE FIRST APPEAL, THE LD. CIT(A) RESTRICTED THE ADDITION TO 12.5% OF THE TOTAL AMOUNT OF BOGUS PURCHASES. 6. THE LD CIT(A) HAS RESTRICTED THE ADDITION TO 12.5% MAIN LY ON THE GROUND THAT THE ASSESSEE HAS FAILED TO DISCHARGE HIS ONUS OF PROVING THE GENUINENESS OF THE PURCHASES MADE FROM THE FIFTEEN HAWALA PARTIES . THE HONBLE GUJARAT HIGH COURT IN THE CASE CIT VS. SIMIT P. SETH 356 ITR 451(GUJ) , WHILE DEALING WITH TH E SIMILAR ISSUE, HAS UPHELD THE DECISION OF THE TRIBUNAL AND SUSTAINED THE ADDITION 12.5% OF THE TOTAL AMOUNT OF BOGUS PURCHASES DETERMINED BY THE TRIBUNAL, HOLDING THAT ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES CAN BE ADDED TO INCOME OF THE ASSESSEE. THE TRIBUNAL ESTIMATED THE ADDITION KEEPING IN VIEW THE EXISTING RATE OF VAT WHICH WAS 10% AN D THE ESTIMATED PROFIT OF 2.5% FROM THE QUESTIONED TRANSACTION. AS POINTED OUT BY THE LD. COUNSEL, THE APPLICABLE RATE OF VAT IN THE PRESENT CASE WAS 4% AND THE R EVENUE HAS NOT DISPUTED THIS FACT. HENCE, WE FIND MERIT IN THE CONTENTION OF THE LD. COUNSEL THAT THE ADDITION SUSTAINED BY THE LD. CIT (A) IS ON HIGHER SIDE. ACCORDINGLY, FOLLOWING THE PRINCIPLES OF LAW LAID DOWN BY THE HONBLE GUJARAT HIGH COURT IN THE SAID CASE , WE ESTIMATE THE ADDITION AT 6.5% I.E. 4% VAT PLUS 2.5% PROFIT FROM THE TRANSACTIONS IN QUESTION. WE THEREFORE, MODIFY THE IMPUGNED ORDER PASSED BY THE LD. CIT (A) AND RESTRICT THE ADDITION TO 6.5% OF THE TOTAL AMOUNT OF BOGUS PURCHASES DETERMINE D BY THE AO. ITA NO. 5832 /MUM/2018 (ASSESSMENT YEAR: 2011 - 2012 ) THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THE FACTS OF THE ASSESSEES CASE PERTAINING TO THE ASSESSMENT YEAR 2010 - 11 AND THE ISSUE INVOLVED IN BOTH THE CASES ARE IDENTICAL EXCEPT THE AMO UNT OF BOGUS PURCHASES DETERMINED BY THE AO. IN THE ASSESSMENT YEAR UNDER CONSIDERATION, THE AO MAKE ADDITION OF 6 ITA NO S . 5831 & 5832 / MUM/2018 ASSESSMENT YEAR S : 2010 - 11 AND 2011 - 1 2 RS. 11,45,628/ - I.E. 25% OF THE TOTAL AMOUNT OF BOGUS PURCHASES. IN THE FIRST APPEAL T HE LD. CIT (A) RESTRICTED THE ADDITION TO 12.5% . THE ASSE SSEE IS IN APPEAL AGAINST THE FINDINGS OF THE LD. CIT(A). 2 . THE ASSESSEE HAS CHALLENGED THE IMPUGNED ORDER PASSED BY THE LD. CIT (A) ON THE FOLLOWING EFFECTIVE GROUNDS : - 1 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) ERRED IN C ONFIRMING THE INITIATION OF THE REASSESSMENT PROCEEDING UNDER SECTION 147. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) FAILED TO CONSIDER THAT REASSESSMENT PROCEEDING CANNOT BE INITIATED. A) NO REASSESSMENT CAN BE MADE JUST T O MAKE AN ENQUIRY OR VERIFICATION. B) REASSESSMENT PROCEEDING CANNOT BE INITIATE MERELY ON THE INFORMATION RECEIVED FROM INVESTIGATION WING. C) REASSESSMENT PROCEEDING CANNOT BE INITIATED WHEN THE LD. CIT (A) HAVE REASON TO SUSPECT AND NOT REASON TO BELI EVE. 3. ON THE FACTS AND CIRCUMSTANCES OF CASE AND LAW THE LD. CIT (A) ERRED IN CONFIRMING THE ASSESSMENT ORDER UNDER SECTION 143 SUB SECTION 3 R W S 147 OF INCOME TAX ACT WHICH IS PASSED AGAINST THE PRINCIPAL OF NATURAL JUSTICE. 4. THE LD. CIT (A) ERRED IN CONFIRMING THE TREATING RS. 5,72,914/ - BEING 12.5 PER CENT OF THE TOTAL PURCHASES OF RS. 45,82,512/ - AS BOGUS NON - GENUINE EXPENDITURE AND THEREBY ERRED IN ADDING THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 5. THE LD. CIT (A) ERRED IN CONFIRMING THE CHARGING OF INTEREST UNDER SECTION 234A, 234B 234C AND 234D OF THE INCOME TAX ACT, 1961. 6. THE LD. CIT (A) ERRED IN CONFIRMING THE INITIATION OF THE PENALTY PROCEEDING UNDER SECTION 271 (1) (C) OF THE INCOME TAX ACT, 1961. ANOTHER. 3. SINCE, THE FAC TS AND ISSUE INVOLVED IN THE PRESENT CASE ARE IDENTICAL TO THE FACTS AND ISSUE INVOLVED IN THE ASSESSEES OWN APPEAL PERTAINING TO THE ASSESSMENT YEAR 2010 - 11DECIDED BY US AND SINCE WE HAVE RESTRICTED THE ADDITION TO 6.5% OF THE TOTAL AMOUNT OF BOGUS PURCH ASES DETERMINED BY THE AO, OUR FINDINGS IN ASSESSEES CASE FOR THE ASSESSMENT YEAR 2010 - 11 SHALL MUTATIS MUTANDIS APPLY FOR THE APPEAL PERTAINING TO THE ASSESSMENT YEAR 2011 - 12. 7 ITA NO S . 5831 & 5832 / MUM/2018 ASSESSMENT YEAR S : 2010 - 11 AND 2011 - 1 2 ACCORDINGLY, WE MODIFY THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) AND RESTRIC T THE ADDITION TO 6.5% OF THE TOTAL AMOUNT OF BOGUS PURCHASES DETERMINED BY THE AO. IN THE RESULT, APPEAL S FILED BY THE ASSESSEE FOR ASSESSMENT YEAR S 2010 - 11 AND 2011 - 12 ARE PARTLY ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH OCTOBER , 20 19 . SD/ - SD. - ( S. RIFAUR RAHMAN ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 30 / 10 / 201 9 ALINDRA, PS / 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 COP Y// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI