FOR KHAMKAR TRANSPOWER (INDIA) PRIVATE LIMITED, MUMBAI V. INCOME TAX OFFICER-10(1)(4), MUMBAI

ITA 6160/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0685 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2010-2011
• Appeal Filed On: 09-10-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: DR P DANIEL
• Keywords: Reopening of assessment; Bogus purchase; Accommodation entries
• Section: 69C; 143(3); 142(1); 133(6); 147; 148

Judgement Text

1 ITA 6160/MUM/2017 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) ITA NO.6160/MUM/2017 (ASSESSMENT YEAR : 2010-11) M/S KHAMKAR TRANSPOWER (INDIA) PVT LTD, 1/305, ANANDDHAM, AMBOLI LEVEL CROSSING, ANDHERI (E), MUMBAI-69. PAN: AADCK0739Q VS ITO-10(1)(4), MUMBAI APPELLANT RESPONDEDNT APPELLANT BY DR. P DANIEL RESPONDENT BY SHRI MANOJ KUMAR SINGH DATE OF HEARING 18-03-2019 DATE OF PRONOUNCEMENT 27-03-2019 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST ORDER OF THE CIT(A)- 17, MUMBAI DATED 06-06-2017 AND IT PERTAINS TO AY 2 010-11. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- GROUND NO. 1: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN JAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF AO IN PASS ING THE ORDER U/S 143(3) R.W.S 347 OF THE ACT IN ASSESSING TOTAL INCOME OF R S.1,01,71,420/- AS AGAINST RETURNED INCOME OF RS. 1,27,8207-. 2 ITA 6160/MUM/2017 GROUND NO. 2: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF AO IN REOP ENING THE ASSESSMENT U/S 147 OF THE ACT AND ISSUING NOTICE U/S 148 OF THE AC T. GROUND NO. 3: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF AO BY NOT DISPOSING OFF OBJECTION AS RAISED BY APPELLANT AGAINST THE REASON OF REOPENING WITHOUT APPRECIATING THE FACT IN TERMS OF THE HON. SUPREME COURT DECISION IN THE CASE OF GKN DRIVESHAFTS (INDIA) LTD. V. ITO AND ORS REPORTED IN 259 ITR 19 (SC). THE APPELLANT COMPANY PRAYS THAT THE SAID RE-OPENING . MA Y PLEASE BE TREATED AS BAD IN LAW. GROUND NO. 4 : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN JAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF AO IN REJE CTING THE BOOKS OF ACCOUNT BY INVOKING PROVISION OF SECTION 145(3) OF THE ACT WITHOUT APPRECIATING THE FACT THAT BOOKS OF ACCOUNT HAS BEEN AUDITED BY A CH ARTERED ACCOUNTANT AS PER PROVISION OF THE ACT. THE APPELLANT COMPANY PRAYS T HAT THE SAID REJECTION OF BOOKS OF MAY PLEASE BE TREATED AS INVALID. GROUND NO. 5: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED C1T (A) GROSSLY ERRED IN UPHOLDING THE ADDITION OF RS. 1,00,43,6017- ON ACCOUNT OF ALLEGED PURCHASES WITHOUT APPRECIATING THE FACT THA T THESE PURCHASES FROM VARIOUS PARTIES WERE GENUINE. THE APPELLANT PRAYS T HAT THE SAID DISALLOWANCE MAY PLEASE BE DELETED. GROUND NO. 6: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT (A) GROSSLY ERRED IN TAKING ADDITION ON ACCOUNT OF BOGUS PURCHASES U/S 69C OF THE ACT WITHOUT ANY VALID REASONS AND WHICH WAS NOT RAISED WHILING FILING APPEAL BEFORE LD. CIT(A). THE APPELLANT PRAYS THAT THE SAID ADDITION U/S 69C OF THE ACT MAY PLEASE BE DELETED AS IT WAS MADE BY LD. CIT(A) BY CONSIDERATION OWN ASSUMPTION AND WITHOUT ANY VALID REASONS. GROUND NO. 7: ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEAR NED AO ERRED IN INITIATING PENALTY PROCEEDINGS U/S 271(1) (C) OF THE INCOME TA X ACT, 1961. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF TRANSF ORMER PARTS, FILED ITS RETURN OF INCOME FOR AY 2010-11 ON 11-10-2010 DECLARING TO TAL INCOME AT RS.1,27,820. SUBSEQUENTLY, THE CASE HAS BEEN REOPENED U/S 147 OF THE INCOME-TAX ACT, 1961 FOR THE REASONS RECORDED, AS PER WHICH, INCOME CHAR GEABLE TO TAX HAD BEEN 3 ITA 6160/MUM/2017 ESCAPED ASSESSMENT ON ACCOUNT OF OBTAINING ACCOMMOD ATION ENTRIES IN THE FORM OF BOGUS PURCHASES FROM HAWALA DEALERS, AS PER THE INFORMATION RECEIVED FROM DGIT(INV), MUMBAI. THEREFORE, A NOTICE U/S 14 8 DATED 10-04-2014 WAS ISSUED. IN RESPONSE TO NOTICE, THE ASSESSEE HAS FI LED A LETTER DATED 02-04-2014 AND STATED THAT RETURN FILED U/S 139(1) ON 11-10-20 10 MAY BE TREATED AS RETURN FILED IN RESPONSE TO NOTICE ISSUED U/S 148 OF THE I NCOME-TAX ACT, 1961. THEREAFTER, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES U/S 143(2) AND 142(1) OF THE ACT, ALONGWITH QUESTIONNAIRE WERE ISSUED. I N RESPONSE TO NOTICES, THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FILED VARIOUS DETAILS, AS CALLED FOR. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE WAS THE BENEFICIARY OF ACCOMMODATION ENTRIES PROVIDED BY HAWALA DEALERS. THEREFORE, HE CALLED U PON THE ASSESSEE TO FURNISH COMPLETE DETAILS OF PURCHASES ALONGWITH CONFIRMATIO NS FROM THE PARTIES. IN RESPONSE, THE ASSESSEE HAS FILED COPIES OF PURCHASE BILLS ALONGWITH PROOF OF PAYMENT AGAINST SUCH PURCHASES BY CHEQUES; HOWEVER, NO CONFIRMATION FROM THE PARTIES HAS BEEN FILED. THE AO, IN ORDER TO VE RIFY GENUINENESS OF TRANSACTIONS, ISSUED NOTICES U/S 133(6) TO ALL PART IES. EXCEPT IN ONE CASE, NOTICES WERE RETURNED BY THE POSTAL AUTHORITIES WIT H A REMARK NOT KNOWN. THEREFORE, BASED ON THE INFORMATION RECEIVED FROM T HE DGIT(INV) COUPLED WITH THE FACT THAT NOTICES U/S 133(6) WERE RETURNED BY T HE POSTAL AUTHORITIES, THE AO 4 ITA 6160/MUM/2017 CAME TO THE CONCLUSION THAT PURCHASES FROM CERTAIN PARTIES WERE BOGUS IN NATURE AND ACCORDINGLY MADE ADDITION OF RS.1,00,43, 601 U/S 69C OF THE ACT. 3. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREF ERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE SUBMIT TED THAT PURCHASES FROM THE ALLEGED HAWALA DEALERS ARE SUPPORTED BY PROPER TAX INVOICES AND PAYMENTS OF SUCH PURCHASES HAVE BEEN MADE THROUGH PROPER BANKIN G CHANNELS. THE AO HAS MADE ADDITIONS ONLY ON THE BASIS OF REPORT OF DGIT( INV) IGNORING THE FACT THAT THE ASSESSEE HAS FILED COMPLETE SET OF DOCUMENTS IN ORDER TO PROVE PURCHASES FROM THOSE PARTIES. THE LD.CIT(A), AFTER CONSIDERI NG SUBMISSIONS OF THE ASSESSEE AND ALSO RELYING UPON CERTAIN JUDICIAL PRE CEDENTS, CAME TO THE CONCLUSION THAT ALTHOUGH THE ASSESSEE HAS FILED CER TAIN BASIC DETAILS LIKE PURCHASE BILLS AND PAYMENT PROOF, BUT FAILED TO FIL E FURTHER EVIDENCES IN THE BACKDROP OF CLEAR FINDINGS FROM THE DGIT(INV) WHICH WAS SUPPORTED BY THE REPORT OF SALES-TAX DEPARTMENT WHERE IT WAS CATEGOR ICALLY STATED THAT THE PARTIES WERE INVOLVED IN PROVIDING ACCOMMODATION EN TRIES OF PURCHASE BILLS WITHOUT THERE BEING ANY ACTUAL BUSINESS ACTIVITY. THEREFORE, HE CAME TO THE CONCLUSION THAT PURCHASES FROM THOSE PARTIES WERE B OGUS IN NATURE AND ACCORDINGLY THERE WAS NO REASON TO INTERFERE WITH T HE FINDING OF FACTS RECORDED BY THE AO. ACCORDINGLY, HE CONFIRMED ADDITION MADE BY THE AO TOWARDS DISALLOWANCE OF BOGUS PURCHASES U/S 69C OF THE ACT. 5 ITA 6160/MUM/2017 4. THE LD.AR FOR THE ASSESSEE, AT THE TIME OF HEARI NG, SUBMITTED THAT THE LD.CIT(A) WAS ERRED IN CONFIRMING ADDITION MADE BY THE AO TOWARDS ALLEGED BOGUS PURCHASES U/S 69C OF THE ACT WITHOUT ANY VALI D REASONS. THE LD.AR FURTHER SUBMITTED THAT THE ASSESSEE HAS FILED COMPL ETE DETAILS OF PURCHASES FROM THE SO-CALLED HAWALA DEALERS INCLUDING PURCHAS E BILLS AND PAYMENTS FOR SUCH PURCHASES HAVE BEEN MADE THROUGH PROPER BANKIN G CHANNELS. THE AO, NEITHER POINTED OUT ANY DISCREPANCY IN BOOKS OF ACC OUNT NOR MADE OUT A CASE OF SALES OUTSIDE BOOKS OF ACCOUNT. IN ABSENCE OF ANY FINDING AS TO INCORRECTNESS IN BOOKS OF ACCOUNT, NO ADVERSE INFERENCE CAN BE DRAWN AGAINST THE ASSESSEE ONLY ON THE BASIS OF THIRD PARTY INFORMATION, MORE SO, W HEN ASSESSEE HAS FILED COMPLETE DETAILS OF PURCHASES. 5. THE LD.DR, ON THE OTHER HAND, STRONGLY SUPPORTIN G THE ORDER OF THE LD.CIT(A) SUBMITTED THAT THE AO HAS BROUGHT OUT CLE AR FACTS TO THE EFFECT THAT PURCHASES FROM THOSE PARTIES WERE BOGUS IN NATURE W HICH IS FURTHER SUPPORTED BY THE REPORT OF MVAT DEPARTMENT, WHERE THE PARTIES HAVE ADMITTED THAT THEY WERE INVOLVED IN PROVIDING ACCOMMODATION ENTRIES. THE LD.DR FURTHER SUBMITTED THAT IN THIS CASE, IN ADDITION TO ISSUE O F NOTICES U/S 133(6), THE AO HAS BROUGHT OUT FURTHER CLINCHING EVIDENCE IN THE F ORM OF ANALYSIS OF BANK STATEMENTS, WHERE THE ASSESSEE CLAIMS TO HAVE ISSUE D CHEQUES TO X PARTY, BUT THE BANK STATEMENT SHOWS CHEQUES WERE ISSUED TO Y P ARTY. THE ASSESSEE HAS 6 ITA 6160/MUM/2017 FAILED TO CONTRADICT ANY OF THE FINDINGS OF FACT RE CORDED BY THE AO IN ORDER TO CLAIM THAT PURCHASES FROM THOSE PARTIES ARE GENUINE , WHICH ARE SUPPORTED BY EVIDENCE. THEREFORE, THE LD.CIT(A) WAS RIGHT IN CO NFIRMING ADDITION MADE BY THE AO AND HIS ORDER SHOULD BE UPHELD. 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. THE AO HAS MADE ADDITION TOWARDS ALLEGED BOGUS PURCHASES ON THE BAS IS OF INFORMATION RECEIVED FROM DGIT(INV), MUMBAI, WHICH WAS FURTHER SUPPORTED BY REPORT OF MVAT WHICH ESTABLISHED THE MODUS OPERANDI OF CERTAIN DEA LERS, WHO WERE INVOLVED IN PROVIDING ACCOMMODATION ENTRIES. THE AO, ON THE BA SIS OF INFORMATION RECEIVED FROM DGIT(INV) COUPLED WITH FURTHER ENQUIR IES CONDUCTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, CAME TO THE CONCL USION THAT PURCHASES FROM THE ABOVE PARTIES WERE BOGUS IN NATURE. ACCORDING TO THE AO, MERE FILING PURCHASE BILL AND PAYMENT BY CHEQUE AGAINST SUCH PU RCHASES ARE NOT SUFFICIENT TO PROVE GENUINENESS OF TRANSACTION, WHEN THE EVIDE NCES COLLECTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS PROVED OTHERWISE. IT IS THE CLAIM OF THE ASSESSEE THAT MERELY FOR THE REASON THAT PARTIES WE RE NOT RESPONDED TO NOTICE U/S 133(6), NO ADVERSE INFERENCE COULD BE DRAWN AGA INST THE ASSESSEE WHEN ASSESSEE HAS DISCHARGED ITS INITIAL BURDEN BY FILIN G PURCHASE BILLS AND PAYMENT PROOF. 7 ITA 6160/MUM/2017 7. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATER IAL ON RECORD, WE FIND THAT THE AO HAS NOT CONCLUDED HIS INVESTIGATION BY REACHING TO A CONCLUSION BY CARRYING OUT REQUIRED ENQUIRES TO ASCERTAIN THE TRU E NATURE OF TRANSACTIONS BETWEEN THE ASSESSEE IN LIGHT OF REPORT OF MVAT. O N THE OTHER HAND, THE ASSESSEE ALSO FAILED TO FILE FURTHER EVIDENCES EXCE PT PURCHASE BILLS AND BANK STATEMENT TO PROVE THE GENUINENESS OF TRANSACTIONS BETWEEN PARTIES IN THE BACKDROP OF CLEAR FINDINGS FROM MVAT COUPLED WITH E NQUIRIES CONDUCTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, WHERE NONE OF THE PARTIES WERE FOUND. UNDER THESE FACTS, IT IS DIFFICULT TO ACCEPT THE AR GUMENTS OF THE ASSESSEE THAT PURCHASES FROM THE ALLEGED HAWALA DEALERS WERE GENU INE WHICH WERE SUPPORTED BY NECESSARY EVIDENCE. AT THE SAME TIME, IT IS DIFFICULT TO ACCEPT THE FINDINGS OF THE AO IN TOTO ONLY ON THE BASIS OF ISS UE OF NOTICE U/S 133(6) TO THE ALLEGED HAWALA DEALERS. UNDER THESE FACTS, THE ONL Y WAY OUT IS TO SETTLE THE DISPUTE BY ESTIMATING CERTAIN PERCENTAGE OF INCOME OUT OF ALLEGED BOGUS PURCHASES. THE CO-ORDINATE BENCHES OF ITAT, MUMBAI IN A NUMBER OF CASES, BY FOLLOWING THE DECISION OF HONBLE GUJARAT HIGH COUR T IN THE CASE OF CIT VS SIMIT P SHETH (2013) 356 ITR 451 (GUJ) HAS DIRECTED THE AO TO ESTIMATE NET PROFIT OF 12% TO 15% DEPENDING UPON FACTS OF EACH CASE. IN T HIS CASE, THE ASSESSEE IS INTO THE BUSINESS OF MANUFACTURING AND TRADING OF T RANSFORMER SPARE PARTS. THEREFORE, CONSIDERING THE NATURE OF BUSINESS OF TH E ASSESSEE AND ALSO THE FACT 8 ITA 6160/MUM/2017 THAT NEITHER OF THE PARTIES HAS CONCLUSIVELY PROVED THE FACT IN THEIR FAVOUR, TO RESOLVE THE DISPUTE, WE ARE OF THE CONSIDERED VIEW THAT A REASONABLE AMOUNT OF PROFIT ON ALLEGED BOGUS PURCHASES NEEDS TO BE ESTIM ATED. HENCE, WE DIRECT THE AO TO ESTIMATE 12.5% NET PROFIT ON ALLEGED BOGUS PU RCHASES. 8. THE ASSESSEE HAS RAISED A LEGAL GROUND CHALLENGI NG VALIDITY OF REOPENING OF ASSESSMENT IN LIGHT OF DECISION OF HONBLE SUPRE ME COURT IN THE CASE OF GKN DRIVESHAFTS INDIA LTD VS ITO AND ORS 259 ITR 19 (SC ). THE LD.AR FOR THE ASSESSEE, AT THE TIME OF HEARING SUBMITTED THAT IF THE BENCH HAS CONSIDERED ESTIMATION OF REASONABLE PROFIT ON ALLEGED BOGUS PU RCHASES, HE WOULD NOT PRESS THE LEGAL GROUND TAKEN CHALLENGING VALIDITY OF REOP ENING OF ASSESSMENT. SINCE WE HAVE ALREADY DIRECTED THE AO TO ADOPT 12.5% PROF IT ON ALLEGED BOGUS PURCHASES, THE LEGAL GROUND TAKEN BY THE ASSESSEE C HALLENGING VALIDITY OF REOPENING OF ASSESSMENT IS DISMISSED, AS WITHDRAWN. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27-03-2019. (C.N. PRASAD) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : MARCH, 2019 PK/- 9 ITA 6160/MUM/2017 COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI