ACIT , CIRCLE- 4(2)(2), MUMBAI V. MAZDA HI-TECH ELECTRICALS PVT. LTD., MUMBAI

ITA 6038/MUM/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7494 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 23-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Earning of tax free income; Rule 8D
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D , MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO. 603 8 /M UM /20 18 ASSESSMENT YEAR: 2009 - 10 ACIT , CIRCLE - 4(2)(2), MUMBAI VS. M / S. MAZDA HI - TECH ELE CTRICALS PVT. LTD. 56, GROUND FLOOR, SHOP NO.2A, BOTAWALA BUILDING, BOMANJI MASTER LANE, DHOBI TALAO, MUMBAI, PIN - 400002. PAN: AADCM9047M (APPELLANT) (RESPONDENT) PRESENT FOR: APPELLANT BY : SMT JOTHILAKSHMI NA YAK, SR. DR RESPONDENT BY : SHRI V. J. ASRANI DATE OF HEARING : 09 .01.2020 DATE OF PRONOUNCEMENT : 29 .01 . 20 20 O R D E R PER RAJESH KUMAR , ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASS ESSEE AGAINST THE ORDER DATED 21.08 .2018 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT YEAR 2009 - 10 . 2. THE FIRST ISSUE RAISED BY THE REVENUE IN GROUND 1 AND 2 OF APPEAL IS AGAINST THE ORDER OF CIT(A) RESTRICTING THE DISALLOWANCE MADE ITA NO.6038/MUM/2018 M/S. MAZDA HI - TECH ELECTRICALS PVT. LTD . 2 BY THE AO ON ACCOUNT OF BOGUS PURCHASES AT 12.5% AGAINST THE 100% ADDITION MADE BY THE AO . 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE FILED HIS RETURN OF INCOME ON 24.09.2009 DECLARING TOTAL INCOME OF RS.9 , 31,30, 430/ - WHICH WAS PROCESSED U/S 143(1 ) OF THE ACT. THEREAFTER THE AO RECEIVED INFORMATION FROM DGIT (INV.), MUMBAI THAT THE ASSESSEE IS BENEFICIARY OF HAWALA PURCHASE ENTRIES TO THE TUNE OF RS.1 0,98,959 / - AND ACCORDINGLY REASONS WERE RECORDED BY ISSUING A NOTICE U/S 148. THE AO ISSUED SHOW - CA USE NOTICE TO THE ASSESSEE TO PROVE THE GENUINENESS OF THE PURCHASE S BY FURNISHING BILLS , VOUCHERS AND OTHER EVIDENCES FAILING WHICH WHY THE SAME SHOULD NOT BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE. ACCORDINGLY THE ASSESSEE FILED A COP IES OF BILLS, V OUCHERS AND OTHER EVIDENCES TO PROVE THE GENUINENESS OF THE PURCHASES. HOWEVER THE REPLY OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE AO. ULTIMATELY, THE AO OBSERVED THAT THE ASSESSEE HAS MADE CORRESPONDING SALES RELATING TO BOGUS PURCHASES AND THEREFORE THE ONLY PRESUMPTION WAS THAT THE ASSESSEE HAS MADE PURCHASE S FROM OPEN MARKET AT LOWER RATES . FINALLY THE AO TREATED THE ENTIRE PURCHASES AS NON GENUINE AND ADDED THE SAID BOGUS PURCHASES OF RS. 10,98,959 / - TO THE INCOME OF THE ASSESSEE BY FRAMING ASSE SSMENT U/S 143(3) R.W.S. 147 OF THE ACT . 4. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) RESTRICTED THE DISALLOWANCE TO 12.50 OF THE ALLEGED BOGUS PURCHASES AND THUS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE AFTER TAKING INTO ACCOUNT THE CONTENTIONS AND S UBMISSIONS MADE BY THE ASSESSEE DURING THE COURSE OF APPELLATE PROCEEDINGS AND BY FOLLOWING THE DECISIONS OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT P. SHETH REPORTED IN 356 ITR 451 AND IN THE CASE OF M/S BHOLANATH POLY FAB. P. LTD. REPORTE D IN 355 ITR 290. ITA NO.6038/MUM/2018 M/S. MAZDA HI - TECH ELECTRICALS PVT. LTD . 3 5. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT IN THIS CASE THE UNDISPUTED FACTS ARE THAT THE ASSESSEE W AS BENEFICIARY OF HAWALA PURCHASE ENTRIES TO THE TUNE OF RS. 10,98,959 / - . THOUGH THE ASSESSEE H AS TRIED TO SUBSTANTIATE AND PROVE THE GENUINENESS OF THE PURCHASES BUT THE AO ADDED THE ENTIRE AMOUNT OF BOGUS PURCHASES TO THE INCOME OF THE ASSESSEE BY TREATING THE SAME AS NON GENUINE AS THE SAME WERE MADE FROM HAWALA DEALER WHO ARE ENGAGED IN ISSUIN G BOGUS PURCHASE BILLS . THE AO HOWEVER DID NOT DISPUTE THE SALES OF THE ASSESSEE. THE LD. CIT(A) REDUCED THE SAID ADDITION BY APPLYING 12.5% BOGUS PURCHASES BOGUS PURCHASES BY FOLLOWING THE DECISION OF CIT VS. SIMIT P. SHETH AND M/S BHOLANATH POLY FAB. P. LTD. WE FIND NO REASONS TO INTEREFERE IN THE ORDER OF CIT(A) AS THE APPELLATE AUTHORITY HAS PASSED A REASONABLE ORDER BY FOLLOWING THE RATIO LAID IN THE ABOVE DECISIONS. WE ARE THEREFORE INCLINED TO UPHOLD THE ORDER OF THE LD. CIT(A) ON THIS ISSUE WHIC H IS PURSUANT TO THE DECISION OF THE VARIOUS HIGH COURTS AND TRIBUNALS BY DISMISSING THE APPEAL OF THE REVENUE. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. 7. THE SECOND ISSUE RAISED IN THE GROUND NO.3 IS AGAINST THE DELETION OF DISALLOWANC E BY LD. CIT(A) AS MADE BY THE AO U/S 14A R.W.R 8D BY NOT APPRECIATING THE FACT THAT THE DISALLOWANCE U/S 14A R.W.R 8D CAN BE MADE IN RESPECT OF EXEMPT INCOME BEING DIVIDEND RECEIVED FROM SHARES HELD AS STOCK - IN - TRADE. 8. THE FACTS IN BRIEF ARE THAT THE AS SESSEE HAS CLAIMED EXEMPT INCOME OF RS.82,90,278/ - . THE ASSESSEE SUBMITTED BEFORE THE AO THAT NO EXPENSES WERE INCURRED TO EARN THE SAID EXEMPT INCOME HOWEVER IN THE COMPUTATION OF INCOME THE ASSESSEE HAS SUO MOTO DISALLOWED AN AMOUNT OF RS.13,16,000/ - U/S 14A OF THE ACT. THE AO REJECTED THE COMPUTATION OF THE ASSESSEE AND APPLIED SECTION 14A R.W.R 8D AND ITA NO.6038/MUM/2018 M/S. MAZDA HI - TECH ELECTRICALS PVT. LTD . 4 COMPUTED THE DISALLOWED OF RS.18 , 15 , 095/ - COMPRISING RS.1316000/ - UNDER RULE 8D 2(II) AND RS. 4,45,300/ - UNDER RULE 87D(2)(III) AND AFTER ALLOWING THE CRED IT OF SUO MOTO DISALLOWANCE AN ADDITION OF RS.4 , 99 , 095/ - WAS MADE U/S 14A R.W.R 8D TO THE INCOME OF THE ASSESSEE. 9. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE BY RECORDING FINDING THAT THE CALCULATION WAS WRONGLY MA DE BY THE AO WHERE THE AVERAGE VALUE OF TOTAL ASSETS WAS TAKEN RS.33 , 85 , 19 , 870/ - INSTEAD OF RS.53 , 29 , 07 , 797/ - AND IF THE SAME IS TAKEN CORRECTLY , THE SUO MOT T O DISALLOWANCE U/S 14A WILL BE RS.13 , 15 , 437/ - AND THUS THE DISALLOWANCE OF RS.1316000/ - MADE BY TH E ASSESSEE IS SUFFICIENT . 10. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT THE REVENUE HAS RAISED A GROUND THAT THE APPLICATION OF 14A DISALLOWANCE WOULD BE APPLICABLE WHEN THE SHARES ARE HELD IN STOCK - IN - TRADE. BU T THIS WAS NOT THE ISSUE EITHER BEFORE AO OR CIT(A) AND THEREFORE THE GROUND NO. 3 HAS WRONGLY BEEN TAKEN. WHEN THE LD DR IS CONFRONTED WITH THIS FACT , SHE FAIRLY AGREED TO THIS. ACCORDINGLY THE GROUND IS DISMISSED. 11. IN THE RESULT, THE APPEAL OF THE RE VENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29.01 . 20 20 . SD/ - SD/ - ( SAKTIJIT DEY ) ( RAJESH KUMAR ) JUDICIAL MEMBER ACCO UNTANT MEMBER MUMBAI, DATED: 29 .01 . 2020 . RS , SR. P.S. ITA NO.6038/MUM/2018 M/S. MAZDA HI - TECH ELECTRICALS PVT. LTD . 5 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI. DATE INITIAL WHETHER DICTATION PAD ENCLOSED WITH THE FILE : YES/NO (AS THE ORDER HAS BEEN TYPED WITH THE HELP OF MANUSCRIPT) 1. DRAFT DICTATED ON SR.PS 2. DRAFT PLACED BEFORE AUTHOR SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. DATE OF PRONOUNCEMENT SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER