M/S. FERRO METAL SALES, Indore V. THE DCIT -5(1), Indore

ITA 604/IND/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4312 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 05-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHD JAVED
• Keywords: Bogus purchase; Difference of opinion
• Section: 40A(3); 147; 132

Judgement Text

M/S FERRO METAL SALES ITA NOS.603,604 & 605/IND/2016 1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, JM & SHRI O.P. MEENA, AM ITA NOS. 603, 604 & 605 /IND/2015 A.YS.2004-05 TO 2006-07 M/S FERRO METAL SALES INDORE PAN AAAFF 3351M ::: APPELLANT VS DY. CIT 5(1) INDORE ::: RESPONDENT APPELLANT BY SHRI AJAY TULSIYAN RESPONDENT BY SHRI MOHD. JAVED DATE OF HEARING 28.7.2016 DATE OF PRONOUNCEMENT 1 6 .8.2016 O R D E R THESE ARE THE APPEALS PREFERRED BY THE ASSESSEE AGAINST DIFFERENT ORDERS OF LEARNED CIT(A)-II, INDORE , ALL DATED 30.4.2015. M/S FERRO METAL SALES ITA NOS.603,604 & 605/IND/2016 2 2. IN THESE APPEALS, THE ASSESSEE HAS RAISED THE FOLLOWI NG GROUNDS :- ITA NO.603/IND/2015 (I) THAT THE LEARNED CIT(A) ERRED IN UPHOLDING THE PENALTY LEVIED BY THE ASSESSING OFFICER U/S 271(1)(C) OF RS.2,00,000/-. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND AS PER LAW THE PENALTY LEVIED AND UPHELD IS WRONG AND UNCALLED FOR. IT IS PRAYED THAT THE SAME MAY VERY KINDLY BE DELETED. (II) THAT THE LEARNED CIT(A) ERRED IN UPHOLDING THE LEVY OF PENALTY ON THE ADDITION OF PROFIT OF RS.3,72,272/- ESTIMATED @ 6% ON SALE OF RS.62,04,534/-AND ON ACCOUNT OF INVESTMENT IN PURCHASE FROM UNDISCLOSED SOURCES OF RS.4,12,589/-. THAT ON THE FACTS AND IN THE M/S FERRO METAL SALES ITA NOS.603,604 & 605/IND/2016 3 CIRCUMSTANCES OF THE CASE THE VERY BASIS OF LEVY OF PENALTY IS WRONG. (III) THAT THE LEARNED CIT(A) ERRED IN UPHOLDING THE ACTION OF THE A.O. IN CALCULATING PENALTY ON THE ADDITION OF RS.7,84,560/- WITHOUT CONSIDERING THE RELIEF ALLOWED BY THE APPELLATE AUTHORITIES. THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE QUANTUM OF PENALTY AND THE AMOUNT ON WHICH IT IS LEVIED IS WRONG AND NOT IN ACCORDANCE WITH LAW. ITA NO.604/IND/2015 (I) THAT THE LEARNED CIT(A) ERRED IN UPHOLDING THE PENALTY LEVIED BY THE ASSESSING OFFICER U/S 271(1)(C) OF RS.2,00,000/-. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND AS PER LAW THE PENALTY LEVIED AND UPHELD IS WRONG AND M/S FERRO METAL SALES ITA NOS.603,604 & 605/IND/2016 4 UNCALLED FOR. IT IS PRAYED THAT THE SAME MAY VERY KINDLY BE DELETED. (II) THAT THE LEARNED CIT(A) ERRED IN UPHOLDING THE LEVY OF PENALTY ON THE ADDITION OF PROFIT OFRS.3,59,642/- ESTIMATED @ 6% ON SALE OF RS.59,94,046/-. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE VERY BASIS OF LEVY OF PENALTY IS WRONG. ITA NO. 605/IND/2015 (I) THAT THE LEARNED CIT(A) ERRED IN UPHOLDING THE PENALTY LEVIED BY THE ASSESSING OFFICER U/S 271(1)(C) OF RS.2,00,000/-. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND AS PER LAW THE PENALTY LEVIED AND UPHELD IS WRONG AND UNCALLED FOR. IT IS PRAYED THAT THE SAME MAY VERY KINDLY BE DELETED. M/S FERRO METAL SALES ITA NOS.603,604 & 605/IND/2016 5 (II) THAT THE LEARNED CIT(A) ERRED IN UPHOLDING THE LEVY OF PENALTY ON THE ADDITION OF PROFIT OF RS.3,59,506/- ESTIMATED @ 6% ON SALE OF RS.58,25,106/-AND ON ACCOUNT OF INVESTMENT IN PURCHASE FROM UNDISCLOSED SOURCES OF RS.1,67,642/-. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE VERY BASIS OF LEVY OF PENALTY IS WRONG. (III) THAT THE LEARNED CIT(A) ERRED IN UPHOLDING THE ACTION OF THE A.O. IN CALCULATING PENALTY ON THE ADDITION OF RS.5,27,148/- WITHOUT CONSIDERING THE RELIEF ALLOWED BY THE APPELLATE AUTHORITIES. THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE QUANTUM OF PENALTY AND THE AMOUNT ON WHICH IT IS LEVIED IS WRONG AND NOT IN ACCORDANCE WITH LAW. M/S FERRO METAL SALES ITA NOS.603,604 & 605/IND/2016 6 3. SINCE THE FACTS AND CIRCUMSTANCES INVOLVED IN ALL T HESE APPEALS ARE IDENTICAL, WE WOULD LIKE TO DISCUSS THE FACT S OBTAINING IN ITA NO. 603/IND/2015. 4. THE ASSESSEE IS A FIRM DERIVING INCOME FROM TRADING IN IRON AND STEEL GOODS IN THE NAME OF M/S FERRO METAL S ALES. SEARCH U/S 132 OF THE ACT WAS CARRIED OUT IN BHARAT KOTHARI GROUP OF CASES ON 30.9.2008. DURING THE COURS E OF THESE PROCEEDINGS, STATEMENTS U/S 132(4) OF THE ACT WERE RECORDED OF THE PROPRIETORS OF M/S NIKITA STEELS AND M/S PRATIK ENTERPRISES (BILL PROVIDERS). IN THE STATEMENT S RECORDED THEY HAD ADMITTED THAT THEY WERE INDULGED IN THE ACTIVITY OF ISSUING BOGUS BILLS WITHOUT MAKING ACTUAL DELIVERY OF IRON AND STEEL. THEY HAVE CONFIRMED THIS FACT BY DULY SWORN IN AFFIDAVITS. THEY ALSO ADMITTED THAT THEY HAD RECEIVED CHEQUES FOR THE AMOUNT OF BILLS AND RETURNED THE ENTIRE AMOUNT TO THE PARTIES BY MAKING CASH WITHDRAWALS FROM THE BANKS BY DEDUCTING NOMINAL COMMISSION RANGING M/S FERRO METAL SALES ITA NOS.603,604 & 605/IND/2016 7 FROM RS.10/- TO RS.40/- PER TON IRON. DURING POST S EARCH INQUIRIES IT WAS FOUND THAT THE ASSESSEE HAD DECLARED PURCHASE FROM THE ABOVE PARTIES FOR RS.62,04,534/-. TH E ASSESSING OFFICER, THEREFORE, MAINLY MADE THE FOLLOWI NG ADDITIONS :- ADDITION FOR PROFIT 6% ON SALE 3,72,272/- ADDITION U/S 50(A)(3) OF THE ACT (20% OF CASH PURCHASES) 12,40,907 ADDITION ON ACCOUNT OF INVESTMENT IN PURCHASE FROM UNDISCLOSED SOURCES 4,12,589/- TOTAL ADDITION 20,25,768/- THE MATTER REACHED UPTO THE LEVEL OF THE TRIBUNAL AND THE TRIBUNAL CONFIRMED THE ADDITION FOR PROFIT ON SALE OF RS.3,72,272/- AND ADDITION ON ACCOUNT OF INVESTMENT I N PURCHASE FROM UNDISCLOSED SOURCES OF RS.4,12,589/-. AS SUCH TOTAL ADDITION OF RS.7,84,560/- WAS MADE AND ACCORDINGLY PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT WERE INITIATED AND A PENALTY OF RS.2,81,570/- WAS IMPOSE D. M/S FERRO METAL SALES ITA NOS.603,604 & 605/IND/2016 8 5. BEING AGGRIEVED WITH THE PENALTY IMPOSED, THE ASSESSEE FILED APPEAL BEFORE THE LEARNED CIT(A) BUT CO ULD NOT SUCCEED. NOW THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT AN IDENTICAL ISSUE HAD COME UP BEFORE TH E ITAT, INDORE, IN THE CASE OF SHRI PANKAJ KANWAR VS. ACI T; ITA NOS. 692 AND 693/IND/2015 WHEREIN VIDE ORDER DAT ED 5.4.2016 THE TRIBUNAL HAS ALLOWED THE APPEALS OF THE ASSESSEE. ON THE OTHER HAND, THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 7. HAVING HEARD BOTH THE SIDES, WE FIND THAT AN IDENTIC AL ISSUE HAD COME UP BEFORE THE ITAT, INDORE, IN THE CAS E OF SHRI PANKAJ KANWAR VS. ACIT; ITA NOS. 692 AND 693/IND/2015 WHEREIN VIDE ORDER DATED 5.4.2016 THE TRIBUNAL HAS ALLOWED THE APPEALS OF THE ASSESSEE BY OBSERVING AS UNDER :- M/S FERRO METAL SALES ITA NOS.603,604 & 605/IND/2016 9 2. THE ASSESSEE IS INDIVIDUAL ENGAGED IN THE BUSI NESS OF IRON AND STEEL. A SEARCH U/S 132 WAS CONDUCTED A T THE PREMISES OF BHARAT KOTHARI GROUP AND DURING THE COU RSE OF STATEMENT OF SHRI MAYUR KOTHARI, HE STATED THAT THE Y ARE ISSUING THE BILLS WITHOUT MAKING ANY DELIVERY OF IR ON AND STEEL. THEY FURTHER STATED THAT THEY HAVE RECEIVED THE CONSIDERATION OF SUCH SALE BY AN ACCOUNT PAYEE CHEQ UE AND AFTER KEEPING THE COMMISSION, THE AMOUNTS ARE RETUR NED. SHRI MAYUR KOTHARI IN HIS STATEMENT HAS STATED THAT THEY ARE ENGAGED IN ISSUING THE BILLS AND THEY HAVE ALSO SUB MITTED THAT THEY HAVE RECEIVED THE CONSIDERATION ON SUCH S ALE BY ACCOUNT PAYEE CHEQUES AND AFTER KEEPING THE COMMISS ION, THE REMAINING AMOUNTS ARE RETURNED BACK TO THE RESP ECTIVE PARTIES. ON THE BASIS OF THE STATEMENT, THE CASE OF THE ASSESSEE WAS REOPENED U/S 147. THE AO HAS MADE THE ADDITION ON PROFIT OF BOGUS PURCHASE @ 6% AND DISAL LOWED THE AMOUNT OF PURCHASE U/S 40A(3) BEING CASH PURCHA SE AND FURTHER MADE THE ADDITION ON ACCOUNT OF CASH PURCHA SE AND FURTHER MADE THE ADDITIONS ON ACCOUNT OF INVESTMENT IN PURCHASES IN VARIOUS ASSESSMENT YEARS. M/S FERRO METAL SALES ITA NOS.603,604 & 605/IND/2016 10 3. THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD. CIT(A) HAS DELETED THE ADDITION U/S 40A(3) AND ESTIMATED THE N ET PROFIT IN THESE PURCHASES. THE AO HAS GIVEN SHOW CAUSE NOT ICE AND AFTER GIVING SHOW CAUSE NOTICE, THE AO WAS OF THE V IEW THAT THE ASSESSEE HAS CONCEALED 6% PROFIT ON THE ABOVE PURCHASES. THEREFORE, THE PENALTY WAS IMPOSED ON SU CH PURCHASES. 4. THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD . CIT(A) HAS CONFIRMED THE PENALTY IN BOTH THE APPEAL S. 5. IN SIMILAR GROUP CASES, WE HAVE DEALT IN WITH TH E IDENTICAL FACTS AND THE SAME ISSUE WAS INVOLVED IN THE CASES OF M/S.PRIYA STEELS AND OTHERS IN I.T.A.NOS. 481/IN D/2014 ETC. WHEREIN WE HAVE DELETED THE PENALTY IN THE GRO UP CASES BY OUR FINDING GIVEN IN THOSE CASES, WHICH ARE AS U NDER :- 13. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ASSESSEE IS A PARTNERSHIP FIRM DO ING THE BUSINESS OF TRADING OF STEELS. THE BOOKS OF ACCOUNT S ARE AUDITED U/S 44AB AND QUANTITATIVE DETAILS HAVE BEEN MAINTAINED BY THE ASSESSEE. A SEARCH U/S 132 WAS M/S FERRO METAL SALES ITA NOS.603,604 & 605/IND/2016 11 CONDUCTED AT THE PREMISES OF BHARAT KOTHARI GROUP A ND DURING THE COURSE OF STATEMENT SHRI MAYUR KOTHARI T HAT THEY ARE ISSUING THE BILLS WITHOUT MAKING ANY DELIV ERY OF IRON AND STEEL. THEY FURTHER STATED THAT THEY HAVE RECEIVED THE CONSIDERATION OF SUCH SHARE BY ACCOUNT PAYEE CH EQUES AND AFTER KEEPING THE COMMISSION, AMOUNTS ARE RETUR NED. ON THE BASIS OF THIS STATEMENT, THE CASE OF THE ASS ESSEE WAS REOPENED UNDER SECTION 147 AND THE AO HAS MADE THE ADDITION OF PROFIT ON SUCH BOGUS PURCHASE @ 6%. THE TRIBUNAL HAS UPHELD THE ACTION OF AO AND THE LD. CI T(A) FOR DISALLOWANCE OF 6% OF PURCHASE PRICE IN RESPECT OF ACCOMMODATION BILLS OF KOTHARI GROUPS. THE 6% PROFI T WAS ESTIMATED ON ESTIMATE BASIS. THE PROFIT FOR SUCH TRANSACTIONS HAVE ALREADY BEEN DISCLOSED BY THE ASS ESSEE. THE ADDITIONS HAVE BEEN SUSTAINED BY THE LD. CIT(A) AND TRIBUNAL BY ESTIMATING THE GROSS PROFIT AT 6% ON TH ESE PURCHASES AND DISALLOWANCE OF EXPENDITURE OF 6% ON THESE PURCHASES. THE ASSESSEE HAS PURCHASED THE GOODS WHI CH IS UNDISPUTED FACT. THE KOTHARI GROUP MIGHT HAVE AR RANGED THE BILLS BUT PURCHASE CANNOT BE TREATED AS NON-GEN UINE, M/S FERRO METAL SALES ITA NOS.603,604 & 605/IND/2016 12 SINCE THE SAME QUANTITY OF GOODS HAVE BEEN SOLD BY THE ASSESSEE. WE FIND THAT IN THE ASSESSMENT ORDER, THE AO HAS ESTIMATED THE PROFIT OF THE ASSESSEE ON THE GRO UND THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEE HAS PRODUCED THE QUANTITATIVE TALLY, WHICH SHOWS TH AT THE ASSESSEE HAS SOLD THE GOODS TO OTHER PARTIES AND IS SUED THE BILLS AND AMOUNTS RECEIVED FROM THEM THROUGH CH EQUES. AS SUCH, IT APPEARS THAT THE SALES WERE ACTUALLY MA DE. AS PURCHASES WERE NOT MADE FROM THE BILLS PROVIDERS AS IT IS AND EVIDENT THAT THE PURCHASES WERE MADE FROM THE T HIRD PARTY. IT IS WELL KNOWN FACT THAT THERE WAS LEVY OF COMMERCIAL TAX @ 4% ON BILLING PRICE, WHICH WAS ONE TIME LEVY AT THE TIME OF IMPORT FROM OUT OF M.P. OR AT T HE TIME OF FIRST SALE AFTER PRODUCTION WITHIN THE STATE. THE A SSESSEE HAS SAVED THE AMOUNT EQUIVALENT TO COMMERCIAL TAX BY PURCHASING THE GOODS WITHOUT BILLS AND OBTAINING TH E BILLS FROM BILL PROVIDERS SHOWING M.A.C.T. PAID GOODS PUR CHASES. THE SAME MODUS OPERANDI WAS ADOPTED BY SHRI PIYUSH GUPTA AND IN THAT CASE, IT WAS FOUND THAT THERE WER E SOME BILLS, WHICH WERE NOT ENTERED IN THE BOOKS, BUT THE BILLS M/S FERRO METAL SALES ITA NOS.603,604 & 605/IND/2016 13 FROM THE BILLS PROVIDE FOR THE SAME ADDED AND QUANT ITIES WERE ENTERED INTO BOOKS AND IT WAS FOUND THAT AMOUN T OF BILLS OF ENTRY PROVIDER WAS HIGHER THAN THAT OF BIL LS FROM WHICH THE GOODS WERE ACTUALLY PURCHASED. THE PURCHA SE AMOUNT WAS MENTIONED AS PER SWEET WILL OF THE ASSES SEE AND THE SAME ARE NOT VERIFIABLE AND AS SUCH 6% PROF IT RATE ON SALE WAS APPLIED. FROM THE ORDER OF THE AO, WE F OUND THAT THE AO HAS ESTIMATED THE INCOME ON THE BILLS I SSUED BY THE ASSESSEE AND THE AO WAS OF THE VIEW THAT THE AS SESSEE HAS SAVED 4% COMMERCIAL TAXES. THE KOTHARI GROUPS M IGHT HAVE ARRANGED THE BILLS, THE ASSESSEE HAS MADE PURC HASES AND SAME QUANTITATIVE DETAILS HAVE BEEN SHOWN. THER EFORE, THE AO HAS ESTIMATED THE INCOME ON PURE GUESS WORK. THE SIMILAR ISSUE HAD COME BEFORE THE HON'BLE M.P. HIGH COURT IN THE CASE OF CIT VS. SHIVNARAYAN JAMNALAL, (1998) 232 ITR 311 ( MP), WHEREIN THE HON'BLE HIGH COURT HAS H ELD THAT THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESS EE WERE NOT PROPERLY MAINTAINED AND IF ASSESSEE HAS NO T CONCEALED ANY MATERIAL AND NOT TRIED TO DEFRAUD THE AUTHORITIES, THE PENALTY CANNOT BE LEVIED, BECAUSE THE M/S FERRO METAL SALES ITA NOS.603,604 & 605/IND/2016 14 INCOME WAS ASSESSED ON ESTIMATE BASIS. WE FOUND THA T SIMILAR CASE HAS COME UP BEFORE THE HON'BLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF HARIGOPAL SINGH V S. CIT, 258 ITR 85 (P&H), WHEREIN IT IS HELD THAT IT WAS A DIFFERENCE OF OPINION AS REGARDS THE ESTIMATE OF IN COME OF THE ASSESSEE, IT COULD NOT BE SAID THAT THE ASSESSE E HAS CONCEALED THE INCOME SO AS TO ATTRACT THE PROVISION S OF SECTION 271(1)(C). IN THE INSTANT CASE, THE ASSESSE E HAS FILED THE RETURN OF INCOME AND WHICH WAS REOPENED ON THE BASIS OF THE STATEMENT OF SHRI MAYUR KOTHARI AND ON THE B ASIS OF THE STATEMENT, THE ASSESSEES INCOME WAS ESTIMATED ON THE GROUND THAT THE ASSESSEE HAS SAVED THE COMMERCIAL T AX @4% AND HIS INCOME WAS ESTIMATED. IN ORDER TO PROTE CT THE CLAUSE (C) OF SECTION 271(1) OF THE ACT, IT IS NECE SSARY THAT THERE MUST BE CONCEALMENT BY THE ASSESSEE OF PARTIC ULARS OF HIS INCOME OR IF HE FURNISHES THE INACCURATE PAR TICULARS OF INCOME. THE ASSESSEE HAS MAINTAINED BOOKS OF ACCOUN TS AND HE HAS FILED THE RETURN OF INCOME AND DURING TH E COURSE OF SEARCH, THE AO HAS ESTIMATED 6% PROFIT ON THE GR OUND THAT THE ASSESSEE MIGHT HAVE SAVED 4% OF COMMERCIAL TAX M/S FERRO METAL SALES ITA NOS.603,604 & 605/IND/2016 15 BY OBTAINING BOGUS BILLS. THE ASSESSEE MIGHT HAVE M ADE PURCHASES WITHOUT BILLS. THEREFORE, THE ADDITION WA S MADE AND INCOME WAS ESTIMATED. THEREFORE, THE ADDITION W AS MADE ON ESTIMATED BASIS. THEREFORE, WE ARE OF THE V IEW THAT THE PENALTY CANNOT BE LEVIED. 6. SINCE THE FACTS AND CIRCUMSTANCES BEING SIMILAR, WE , FOLLOWING OUR DECISION GIVEN IN THE CASE OF M/S. PR IYA STEELS & OTHERS (SUPRA), DELETE THE PENALTY IN BOTH THE AP PEALS. 2. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. 8. SINCE THE FACTS AND CIRCUMSTANCES OF THE PRESENT C ASE ARE IDENTICAL IN THESE APPEALS, WE, FOLLOWING THE AFORES AID DECISION OF THE TRIBUNAL, HOLD THAT THE PENALTY IS NOT EXIGIBLE IN THE PRESENT APPEALS. WE, THEREFORE, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE PENALTY IN THESE APPEALS. 9. IN THE RESULT, THE APPEALS OF THE ASSESSEE STAND ALLOWED. M/S FERRO METAL SALES ITA NOS.603,604 & 605/IND/2016 16 PRONOUNCED IN OPEN COURT ON 16 TH AUGUST, 2016 SD/- SD/- (O.P. MEENA) (D.T. G ARASIA) ACCOUNTANTMEMBER JUDICIAL MEMBER 16 TH AUGUST, 2016 DN/- M/S FERRO METAL SALES ITA NOS.603,604 & 605/IND/2016 17