INCOME TAX OFFICER-11(2)(2), MUMBAI V. SHREE GAJANANA INDUSTRIES (INDIA) PRIVATE LIMITED , MUMBAI

ITA 6242/MUM/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 8566 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 13-10-2017
• Court: TRIBUNAL

Judgement Text

1 ITA NO.6242/MUM/2017 SHREE GAJANANA INDUSTRIES (INDIA) PRIVATE LIMITED ASSESSMENT YEAR-2011-12 IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI , , BEFORE HONBLE SHRI SANDEEP GOSAIN, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO. 6242/MUM/2017 ( / ASSESSMENT YEAR: 2011-12) INCOME TAX OFFICER - 11(2)(2) ROOM NO. 349, AAYKAR BHAVAN M.K.MARG MUMBAI-400 020. / VS. M/S. SHREE GAJANANA IND . (I) PVT. LTD. C-7, GROUND FLOOR, HIND SURASHTRA INDL. ESTATE ANDHERI KURLA ROAD, ANDHERI(E) MUMBAI-400 069. ./ ./PAN/GIR NO.AAKCS 3108 E ( /APPELLANT ) : ( ! / RESPONDENT ) REVENUE BY : CHAUDHARY ARUN KUMAR- LD. DR ASSESSEE BY : SHRI M. SUBRAMANIAN- LD. AR ' #$% / DATE OF HEARING : 09/07/2019 &#$% / DATE OF PRONOUNCEMENT : 15/07/2019 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER): - 1. AFORESAID APPEAL BY REVENUE FOR ASSESSMENT YEAR [IN SHORT REFERRED TO AS AY] 2011-12 CONTEST THE ORDER OF LD. COMMIS SIONER OF INCOME-TAX (APPEALS)-18, MUMBAI, [IN SHORT REFERRED TO AS CIT (A)], APPEAL NO.CIT(A)- 2 ITA NO.6242/MUM/2017 SHREE GAJANANA INDUSTRIES (INDIA) PRIVATE LIMITED ASSESSMENT YEAR-2011-12 36/IT-39/ITO-11(2)(2)/16-17 DATED 05/06/17 ON FOLLOWING GROUNDS OF APPEAL: - A) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE OF THE PURCHA SES OF RS. 81,76,272/- SHOWN FROM TWO ACCOMMODATION ENTRY PROVIDER CONCERN, TO 12% BY SIM PLY IGNORING THE FACT THAT IN THIS CASE THE AO HAD HELD ENTIRE PURCHASES TO THE TUNE O F RS. 81,76,272/- THEMSELVES AS BOGUS AND AS SUCH THE INSTANT CASE WAS NOT MERELY A CASE WHERE THE PARTY FROM WHOM SUCH PURCHASES WERE ALLEGEDLY MADE WAS ACTING AS CO NDUIT BETWEEN THE ASSESSEE AND THE ACTUAL SELLERS OF THE MATERIAL. B) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE THEN AO CALLED UPON THE ASSESSEE TO PROVE THE GENUINENESS OF THE PURCHASES TO THE TUNE OF RS. 81,76,272/- AND ONLY AFTER CONSIDERING THE SUBMISSION FILED BY THE ASSESSEE, T HE AO HELD THAT THE IMPUGNED PURCHASES WERE WHOLLY BOGUS AND AS SUCH, THERE IS N O FINDING OF THE FACT IN THE ASSESSMENT ORDER IF ANY SUCH PURCHASES WERE MADE BY THE ASSESSEE AT ALL. C) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE APPAREN T SELLER WHO HAD ISSUED SALES BILLS WAS NOT TRACEABLE AND THE ASSESSEE HAD FAILED TO ESTABL ISH IF SUCH GOODS WERE RECEIVED FROM THE PARTIES OTHER THAN THE PERSON WHO HAD ISSUED BI LLS FOR SUCH GOODS. D) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE OF THE PURCHA SES TO THE EXTENT OF 12% WITHOUT ANY COGENT FINDING OR EVIDENCE ON RECORD IF THE APPAREN T SELLER WAS NOT MERELY ACCOMMODATION ENTRY PROVIDER BUT WAS ACTING AS COND UIT BETWEEN THE ASSESSEE AND THE ACTUAL SELLERS OF THE MATERIAL. E) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE HON'BLE APEX COURT IN THE CASE OF M/S NK PROTEINS LTD. VS. DCIT (2017-TIOL-23-SC-IT) HAS H ELD THAT THE ENTIRE UNDISCLOSED INCOME GENERATED OUT OF BOGUS PURCHASE TRANSACTIONS DESERVES TO BE ADDED TO TOTAL INCOME. F) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO REWORK THE DEPRECIATIO N AFTER ESTIMATING PROFIT ONLY @12% OF RS.51,18,7507- ON THE ALLEGED PURCHASE OF PLANT & M ACHINERY WITHOUT APPRECIATING THE FACT THAT THE PURCHASE OF PLANT & MACHINERY IS THRO UGH BOGUS PURCHASE THAT HAS BEEN DISALLOWED BY THE AO IN A.Y.2009-10 WHICH WAS NOT C APITALIZED TO QUALIFY FOR CLAIMING DEPRECIATION. FURTHER, THE ENTIRE BOGUS PURCHASES O F A.Y.2009-10 HAS BEEN DISMISSED BY THE CIT(A) IN LIMINE. 2.1 FACTS IN BRIEF ARE THAT THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE STATED TO BE ENGAGED IN MANUFACTURING OF ENGINEERIN G GOODS, MOLDS AND DYES WAS SUBJECTED TO RE-ASSESSMENT PROCEEDINGS FOR IMPUGNED AY. THE 3 ITA NO.6242/MUM/2017 SHREE GAJANANA INDUSTRIES (INDIA) PRIVATE LIMITED ASSESSMENT YEAR-2011-12 ASSESSMENT WAS FRAMED U/S 143(3) R.W.S. 147 ON 11/0 3/2016 WHEREIN INCOME OF THE ASSESSEE WAS DETERMINED AT RS.101.68 LACS AFTER CERTAIN ADDITIONS AS AGAINST RETURNED INCOME OF RS.13.39 LA CS E-FILED BY THE ASSESSEE ON 30/09/2011 WHICH WAS PROCESSED U/S.143( 1). 2.2 PURSUANT TO RECEIPT TO CERTAIN INFORMATION FROM DGIT(INVESTIGATION) / SALES TAX DEPARTMENT, GOVT. OF MAHARASHTRA, IT TRAN SPIRED THAT THE ASSESSEE OBTAINED BOGUS HAWALA PURCHASE BILLS / ENTRIES AGGREGATING TO RS.81.76 LACS FROM 14 PARTIES, THE DETAILS OF WHICH HAVE ALREADY BEEN EXTRACTED IN PARA-4.1 OF THE QUANTUM ASSESSMENT ORD ER. ACCORDINGLY, THE CASE WAS RE-OPENED BY ISSUANCE OF NOTICE U/S.148 ON 25/02/2015 WHICH WAS FOLLOWED BY STATUTORY NOTICES U/S.142(1) / 143( 2) WHEREIN THE ASSESSEE WAS DIRECTED TO SUBSTANTIATE THE PURCHASE TRANSACTI ONS. 2.3 TO CONFIRM THE STATED TRANSACTIONS, NOTICES U/S .133(6) WERE ISSUED TO ALL PARTIES BUT THE SAME WERE RETURNED BACK UNSERVE D BY POSTAL AUTHORITIES. THE ASSESSEE WAS CONFRONTED WITH THE SAME AND DIREC TED TO FILE EVIDENCES TO SUBSTANTIATE THE PURCHASES. IN DEFENSE, THE ASSE SSEE SUBMITTED LEDGER EXTRACTS, PHOTO COPIES OF PURCHASE BILLS ETC. HOWEV ER, THE ASSESSEE FAILED TO PRODUCE ANY OF THE SUPPLIERS TO CONFIRM THE TRANSAC TIONS AND ALSO COULD NOT PROVE DELIVERY OF MATERIAL BY FURNISHING PROOF OF T RANSPORTATION OF GOODS / WEIGH SLIPS ETC. CONSEQUENTLY, LD. AO FORMED A BELI EF THAT THE ASSESSEE FAILED TO DISCHARGE THE ONUS CASTED UPON HIM TO SUB STANTIATE THE PURCHASES. ACCORDINGLY, TREATING THE SAME AS NON-GENUINE PURCHASES, THE AMOUNT OF RS.81.76 LACS WAS ADDED TO THE INCOME OF THE ASSESS EE. 4 ITA NO.6242/MUM/2017 SHREE GAJANANA INDUSTRIES (INDIA) PRIVATE LIMITED ASSESSMENT YEAR-2011-12 2.4 THE LD. AO MADE ANOTHER CONSEQUENTIAL DISALLOWA NCE ON ACCOUNT OF DEPRECIATION FOR RS.6,52,641/- WHICH WAS CLAIMED @1 5% ON WRITTEN DOWN VALUE OF CERTAIN PLANT & MACHINERY SINCE THE CAPITA L EXPENDITURE OF RS.51.18 LACS ON ACCOUNT OF PLANT & MACHINERY WAS D ISALLOWED IN AY 2009- 10. 3. AGGRIEVED, THE ASSESSEE CONTESTED THE STAND OF T HE LD. AO ON LEGAL GROUNDS AS WELL AS ON MERITS. THE LD. CIT(A), AFTER CONSIDERING THE FACTUAL MATRIX AND RELYING UPON VARIOUS JUDICIAL DECISIONS INCLUDING THE DECISION OF HONBLE GUJARAT HIGH COURT RENDERED IN CIT VS. SIMIT P. SHETH [356 ITR 451] & CIT VS. BHOLANATH POLY FAB. P. LTD. [355 ITR 290 , RESTRICTED THE ADDITIONS TO 12% OF ALLEGED BOGUS PURCHASES. THE DISALLOWANCE OF DEPRECIATION WAS ALSO DIRECTED TO BE RECOMPUTED AFT ER CONSIDERING THE PROFIT ON ALLEGED BOGUS PURCHASES @12%. AGGRIEVED, THE REV ENUE IS IN FURTHER APPEAL BEFORE US. 4. THE ASSESSEE HAS FILED AN APPLICATION U/R 27 TO SUBMIT THAT THE REASONS FOR REOPENING WERE NOT RECORDED BY THE REVE NUE AND THEREFORE, THE REASSESSMENT PROCEEDINGS WERE BAD IN LAW. HOWEVER, IN REBUTTAL, THE LD. DR HAS PLACED ON RECORD A COPY OF THE REASONS AS RE CORDED BY LD. AO TO INITIATE REASSESSMENT PROCEEDINGS AGAINST THE ASSES SEE. WE ARE CONVINCED WITH THE REVENUES SUBMISSIONS AND THEREFORE, REJEC T THE ASSESSEES PLEA, IN THIS REGARD AND PROCEED TO ADJUDICATE THE ISSUE ON MERITS. 5. WE HAVE CAREFULLY HEARD THE RIVAL SUBMISSIONS AN D PERUSED RELEVANT MATERIAL ON RECORD AND DELIBERATED ON JUDICIAL ANNO UNCEMENTS CITED BEFORE US. WE FIND THAT ASSESSEE WAS IN POSSESSION OF PRIM ARY PURCHASE 5 ITA NO.6242/MUM/2017 SHREE GAJANANA INDUSTRIES (INDIA) PRIVATE LIMITED ASSESSMENT YEAR-2011-12 DOCUMENTS AND THE PAYMENTS TO THE SUPPLIERS WAS THR OUGH BANKING CHANNELS. WE ARE OF THE CONSIDERED OPINION THAT THE RE COULD BE NO SALE WITHOUT ACTUAL PURCHASE OF MATERIAL KEEPING IN VIEW THE ASSESSEES NATURE OF BUSINESS ACTIVITIES. AT THE SAME TIME, NOTICES U /S 133(6) DID NO ELICIT ANY SATISFACTORY RESPONSE FROM ANY OF THE SUPPLIERS AND THE ASSESSEE FAILED TO PRODUCE EVEN A SINGLE SUPPLIER TO CONFIRM THE PURCH ASE TRANSACTIONS. THE DELIVERY OF MATERIAL REMAINED UNSUBSTANTIATED. THER EFORE, IN SUCH A SITUATION, THE ADDITION, WHICH COULD BE MADE, WAS T O ACCOUNT FOR PROFIT ELEMENT EMBEDDED IN THESE PURCHASE TRANSACTIONS TO FACTORIZE FOR PROFIT EARNED BY ASSESSEE AGAINST POSSIBLE PURCHASE OF MAT ERIAL IN THE GREY MARKET AND UNDUE BENEFIT OF VAT AGAINST SUCH BOGUS PURCHASES, WHICH LD. FIRST APPELLATE AUTHORITY HAS RIGHTLY DONE. THEREFO RE, WE DO NOT FIND ANY INFIRMITY IN THE SAME. 6. OUR AFORESAID VIEW IS IN LINE WITH THE RECENT DE CISION OF HONBLE BOMBAY HIGH COURT RENDERED IN BUNCH OF APPEALS TITL ED AS PR.CIT VS. M/S MOHOMMAD HAJI ADAM & CO. [ITA NO.1004 & OTHERS OF 2 016, DATED 11/02/2019] WHEREIN HONBLE COURT DISTINGUISHING THE CITED CASE LAW OF HONBLE GUJARAT HIGH COURT RENDERED IN N.K. INDUSTRIES LTD. VS DY. C.I.T. IN TAX APPEAL NO. 240 OF 2003 AND CONNECTED APPEALS DECIDED ON 20TH JUNE, 2016 OBSERVED AS UNDER: - 8. IN THE PRESENT CASE, AS NOTED ABOVE, THE ASSESSE E WAS A TRADER OF FABRICS. THE A.O. FOUND THREE ENTITIES WHO WERE INDULGING IN BOGUS BI LLING ACTIVITIES. A.O. FOUND THAT THE PURCHASES MADE BY THE ASSESSEE FROM THESE ENTITIES WERE BOGUS. THIS BEING A FINDING OF FACT, WE HAVE PROCEEDED ON SUCH BASIS. DESPITE THIS, THE QUESTION ARISES WHETHER THE REVENUE IS CORRECT IN CONTENDING THAT THE ENTIRE PU RCHASE AMOUNT SHOULD BE ADDED BY WAY OF ASSESSEE'S ADDITIONAL INCOME OR THE ASSESSEE IS CORRECT IN CONTENDING THAT SUCH LOGIC CANNOT BE APPLIED. THE FINDING OF THE CIT(A) AND THE TRIBUNAL WOULD SUGGEST THAT 6 ITA NO.6242/MUM/2017 SHREE GAJANANA INDUSTRIES (INDIA) PRIVATE LIMITED ASSESSMENT YEAR-2011-12 THE DEPARTMENT HAD NOT DISPUTED THE ASSESSEE'S SALE S. THERE WAS NO DISCREPANCY BETWEEN THE PURCHASES SHOWN BY THE ASSESSEE AND THE SALES DECLARED. THAT BEING THE POSITION, THE TRIBUNAL WAS CORRECT IN COMING TO THE CONCLUSION THAT THE PURCHASES CANNOT BE REJECTED WITHOUT DISTURBING THE SALES IN CASE OF A TRADER. THE TRIBUNAL, THEREFORE, CORRECTLY RESTRICTED THE ADDITIONS LIMITED TO THE E XTENT OF BRINGING THE G.P. RATE ON PURCHASES AT THE SAME RATE OF OTHER GENUINE PURCHAS ES. THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF N.K. INDUSTRIES LTD. (SUPRA) CANNOT BE APPLIED WITHOUT REFERENCE TO THE FACTS. IN FACT IN PARAGRAPH 8 OF THE SAME JUDGMENT THE COURT HELD AND OBSERVED AS UNDER- SO FAR AS THE QUESTION REGARDING ADDITION OF RS.3 ,70,78,125/- AS GROSS PROFIT ON SALES OF RS.37.08 CRORES MADE BY THE ASSESSING OFFICER DESPI TE THE FACT THAT THE SAID SALES HAD ADMITTEDLY BEEN RECORDED IN THE REGULAR BOOKS DURIN G FINANCIAL YEAR 1997-98 IS CONCERNED, WE ARE OF THE VIEW THAT THE ASSESSEE CANNOT BE PUNISHE D SINCE SALE PRICE IS ACCEPTED BY THE REVENUE. THEREFORE, EVEN IF 6 % GROSS PROFIT IS TAK EN INTO ACCOUNT, THE CORRESPONDING COST PRICE IS REQUIRED TO BE DEDUCTED AND TAX CANNOT BE LEVIED ON THE SAME PRICE. WE HAVE TO REDUCE THE SELLING PRICE ACCORDINGLY AS A RESULT OF WHICH PROF IT COMES TO 5.66%. THEREFORE, CONSIDERING 5.66% OF RS.3,70,78,125/- WHICH COMES TO RS.20,98,621.88 WE THINK IT FIT TO DIRECT THE REVENUE TO ADD RS.20,98,621.88 AS GROSS PROFIT AND MAKE NECESSARY DEDUCTIONS ACCORDINGLY. ACCORDINGLY, THE SAID QUESTION IS ANSWERED PARTIALLY IN FAVOR OF THE ASSESSEE AND PARTIALLY IN FAVOR OF THE REVENUE. 9 IN THESE CIRCUMSTANCES, NO QUESTION OF LAW, THERE FORE, ARISES. ALL INCOME TAX APPEALS ARE DISMISSED, ACCORDINGLY. NO ORDER AS TO COSTS. DRAWING STRENGTH FROM THE SAME, WE HOLD THAT NO FAU LT COULD BE FIND WITH THE ESTIMATION MADE BY LD. CIT(A), IN THIS REGARD. GROU ND NOS. (A) TO (E) STAND DISMISSED. 7. SO FAR AS THE DISALLOWANCE OF DEPRECIATION IS CO NCERNED, WE FIND THAT LD. FIRST APPELLATE AUTHORITY HAS ERRED IN NOTING T HE FACTUAL MATRIX. THE DEPRECIATION WAS DISALLOWED AS A MATTER OF CONSEQUE NCE SINCE CERTAIN CAPITAL EXPENDITURE INCURRED BY ASSESSEE IN EARLIER AY 2009-10 WAS DISALLOWED AND DEPRECIATION WAS DISALLOWED TO THE A SSESSEE IN THAT YEAR. CONSEQUENTIALLY, DEPRECIATION WAS DISALLOWED IN THI S YEAR ALSO ON THE WRITTEN DOWN VALUE AS CLAIMED BY THE ASSESSEE. THER EFORE, THIS ISSUE WAS PERCOLATING FROM AY 2009-10. THEREFORE, BY SETTING ASIDE THE DIRECTIONS OF FIRST APPELLATE AUTHORITY IN THIS REGARD, WE DIRECT LD. AO TO COMPUTE THE 7 ITA NO.6242/MUM/2017 SHREE GAJANANA INDUSTRIES (INDIA) PRIVATE LIMITED ASSESSMENT YEAR-2011-12 DISALLOWANCE AS PER THE FINAL OUTCOME OF DISALLOWAN CE OF CAPITAL EXPENDITURE IN AY 2009-10. THE ASSESSEE IS DIRECTED TO PROVIDE REQUISITE INFORMATION, IN THIS REGARD. GROUND (F) STAND ALLOWED FOR STATISTIC AL PURPOSES. 8. THE APPEAL STANDS PARTLY ALLOWED FOR STATISTICA L PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH JULY, 2019. SD/- SD/- (SANDEEP GOSAIN) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 15/07/2019 SR.PS:-JAISY VARGHESE / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT 3. # ( ) / THE CIT(A) 4. # / CIT CONCERNED 5. $%!& ' , ' , / DR, ITAT, MUMBAI 6. %)*+ / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.