DCIT 1(3)(1), MUMBAI V. RUSHAIL PHARMADIAN P. LTD, MUMBAI

ITA 6252/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3623 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 13-10-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Bogus purchase; Additional evidence

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D , BENCH MUMBAI BEFORE SHRI M. BALAGANESH , AM & SHRI AMARJIT SINGH , JM ITA NO. 6252/ MUM/20 1 7 ( ASSESSMENT YEAR : 2013 - 14 ) DEPUTY COMMISSIONER OF INCOME - TAX 1(3)(1) ROOM NO.540, 5 TH FLOOR AAYAKAR BHAVAN M.K.ROA D, MUMBAI 400 020 VS. M/S. RUSHAIL PHARMADIN PVT. LTD., 105,SHARDA CHAMBERS 15, MARINE LINES MUMBAI 400 020 PAN/GIR NO. AABCR8353D ( APPELLANT ) .. ( RESPONDENT ) REVENUE BY MS. RIDDHI MISHRA ASSESSEE BY SHRI SATISH MODI DATE OF HEARING 24 / 01 /201 9 DATE OF PRONOUNCEMENT 20 / 02 /201 9 / O R D E R PER M. BALAGANESH (A.M) : THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 3, MUMBAI [HEREINAFTER REFERRED TO AS THE LD CITA ] DATED 31/07/2017 FOR A.Y.2013 - 14 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE INCOME TAX ACT, 1961. 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.2,51,96,820/ - MADE ON ITA NO. 6252/MUM/20 17 M/S. RUSHAIL PHARMADIN P. LTD., 2 ACCO UNT OF EXTINCTION OF TRADING LIABILITIES IN THE FACTS AND CIRCUMSTANCE O F THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE A.Y.2013 - 14 ON 30/09/2013 DECLARING TOTAL INCOME OF RS. 36,67,751/ - . THE ASSESSEE IS ENGAGED IN THE BUSINESS OF IMPORT AND MARKETING OF CHEMICALS. 3.1. THE LD. AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED FROM THE EVIDENCES AND SUBMISSIONS MADE BY THE ASSESSEE THAT SUNDRY CREDITORS OF THE ASSESSEE HAD INCREASED FORM RS.4.7 2 CRORES TO RS.6.47 CRORES. THE ASSESSEE WAS ASKED TO SUBMIT THE DETAILS OF SUNDRY CREDITORS APPEARING IN THE BALANCE SHEET WHICH ARE OUTSTANDING FOR MORE THAN LAST THREE YEARS. THE SAID DETAILS WERE DULY SUBMITTED BY THE ASSESSEE BEFORE THE LD. AO. THE LD . AO SOUGHT TO TREAT THE SAID SUNDRY CREDITORS OUTSTANDING FOR MORE THAN LAST THREE YEARS AS CESSATION OF TRADING LIABILITY AND SOUGHT TO TAX THE SAME U/S.41(1) OF THE ACT. THE ASSESSEE VIDE ITS SUBMISSION DATED 21/03/2016 STATED THAT MOST OF THESE PARTIE S ARE OLD PARTIES AND THAT THE PURCHASES MADE FROM THEM WERE TREATED AS BOGUS PURCHASES BY THE INCOME TAX DEPARTMENT IN THE EARLIER YEARS AND THAT THE SAID ORDERS ARE ALREADY CONTESTED BY THE ASSESSEE AT VARIOUS LEVELS EITHER BEFORE THE LD. CIT(A) OR BEFOR E THIS TRIBUNAL. ACCORDINGLY, THE ASSESSEE OBJECTED TO TAX THE SAME U/S.41(1) OF THE ACT. THE LD. AO DID NOT HEED TO ITA NO. 6252/MUM/20 17 M/S. RUSHAIL PHARMADIN P. LTD., 3 THESE CONTENTIONS OF THE ASSESSEE AND PROCEEDED TO TAX THE SUM OF RS.2,51,96,820/ - U/S.41(1) OF THE ACT ON THE GROUND THAT THOSE LIABILITIE S HAVE CEASED TO EXIST. 3.2. BEFORE THE LD. CIT(A) , THE ASSESSEE STATED THAT THESE LIABILITIES ARE GENUINE IN NATURE, IN VIEW OF THE FACT THAT ASSESSEE HAD GENUINELY MADE PURCHASES FROM THEM IN THE EARLIER YEARS AND THOSE PARTIES HAD ALSO FILED CONFIRMA TIONS BEFORE THE LD. AO THAT THEY HAD SUPPLIED GOODS OF THE ASSESSEE. THE ASSESSEE FURTHER PLEADED THAT THESE LIABILITIES CONTINUED TO REMAIN AS LIABILITY IN THE BOOKS OF THE ASSESSEE AND THE ASSESSEE HAD NOT WRITTEN BACK THE SAME AS NO LONGER PAYABLE. IN EFFECT, THE ASSESSEE HAD INDEED NOT TAKEN THE CALL / DECISION AS ON THE BALANCE SHEET DATE THAT THESE LIABILITIES HAD CEASED TO EXIST. HENCE, THE PROVISIONS OF SECTION 41(1) OF THE ACT COULD NOT BE INVOKED. THE ASSESSEE ALTERNATIVELY PLEADED THAT THE DEPAR TMENT HAD ALREADY TAXED THE PURCHASES MADE FROM THESE PARTIES AS BOGUS PURCHASES IN THE EARLIER YEARS. THE ASSESSEE ARGUED THAT H OW CAN CREDIT ARISING OUT OF SUCH PURCHASES BE TAXED IN THIS YEAR ON THE GROUND THAT THE LIABILITIES HAD CEASED TO EXIST. THIS WOULD AMOUNT TO DOUBLE TAXATION OF THE SINGLE TRANSACTION. 3.3. THE ASSESSEE ALSO STATED THAT FOR THE A.Y.2009 - 10, 2011 - 12 AND 2012 - 13 ADDITION OF GP @12.5% AND FOR A.Y.2010 - 11 ADDITION OF GP ITA NO. 6252/MUM/20 17 M/S. RUSHAIL PHARMADIN P. LTD., 4 @20% WAS MADE BY THE INCOME TAX DEPARTMENT AND THE MATTER HAD REACHED FINALITY BY THE ORDER OF THIS TRIBUNAL THEREON. THE LD. CIT(A) APPRECIATED THE VARIOUS CONTENTIONS OF THE ASSESSEE AND DELETED THE ADDITION MADE U/S.41(1) OF THE ACT BY OBSERVING AS UNDER: - 7.7 I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND FACTS OF THE CASE. THE DETAILS FILED FOR THE LAST FIVE YEARS RELATING TO THESE PARTIES TERMED AS TRADE CREDITORS INDICATE THAT PURCHASE AND SALES WERE MADE IN THE FY 2008 - 09 TO 2011 - 12. THE APPELLANT HAS NOT MADE ANY PURCHASES FROM THESE PARTIES FOR THE F Y 2012 - 13, THEREFORE, IT IS WRONG TO SUGGEST THAT THE APPELLANT HAS NOT MADE ANY PAYMENT OR PURCHASES IN THE LAST THREE YEARS. AS REGARDS, PURCHASES AND PAYMENTS OF THESE PARTIES FOR THE FY 2012 - 13 IS CONCERNED, IT WAS ARGUED THAT THERE WERE NO PURCHASES F ROM THESE PARTIES AS THEIR RATE AND TERMS AND CONDITIONS FOR SUPPLY TRADING THEIR PRODUCTS/PURCHASES FOR THE APPELLANT WERE NOT 'AT ALL FAVORABLE TO THE APPELLANT AND FARTHER THE APPELLANT WAS FACING FINANCIAL DIFFICULTY AS WELL AS INCOME TAX LITIGATION FO R AY 2009 - 10 AND 2010 - 11, SO IT COULD NOT MAKE PAYMENTS TO THE ABOVE PARTIES OF THEIR OUTSTANDING CREDIT BALANCES. 7.8 AS REGARDS, THE APPLICABILITY OF SECTION 41(1) OF THE IT ACT IS CONCERNED, IT' APPLIES IN CASE WHERE THERE HAS BEEN REMISSION AND CESSAT ION OF LIABILITY DURING THE YEAR UNDER CONSIDERATION SUBJECT TO THE CONDITIONS CONTAINED IN THE STATUTE BEING FULFILLED, THAT SUCH CESSATION OR REMISSION HAS TO BE DURING THE PREVIOUS YEAR TO THE ASSESSMENT YEAR UNDER CONSIDERATION. IN THE PRESENT CASE BOT H THE ELEMENTS ARE MISSING. THERE IS NO CESSATION OR REMISSION OF LIABILITY DURING THE YEAR. 7.9 THE ADDITION MADE IN THE EARLIER AYS ARE ON ACCOUNT OF BOGUS TRADE CREDITOR ARE CONCERNED IT IS MAINLY DUE TO FACT THAT SOME OF THE PARTIES HAVE NOT CAME FORW ARD IN PERSON BEFORE THE ASSESSING OFFICER TO CONFIRM THE FINANCIAL/TRADE TRANSACTIONS. THE ASSESSING OFFICER HAD NOT BROUGHT ANY EVIDENCE ON RECORD THAT THESE PARTIES HAVE NOT DONE ANY TRANSACTION WITH THE APPELLANT. THE APPELLANT HAS NEVER ADMITTED THAT THESE CREDITORS ARE BOGUS AND NOT MADE ANY TRANSACTION WITH THESE CREDITORS. I AGREE WITH ARGUMENT OF THE APPELLANT THAT ADDITION MADE IN EARLIER YEARS ON ESTIMATED 12.50% AND 20.00% OF PURCHASES TREATED AS ADDITIONAL G P PERTAINING TO THESE CREDITORS AND NOW MADE THE ADDITION OF THE OUTSTANDING BALANCE IN THE NAME OF THESE CREDITORS, WHICH ARE PAYABLE LIABILITIES IN THE BOOKS OF THE ACCOUNT OF THE - APPELLANT ASSESSEE - FOR THE FY - 2O12 - 13 OF RS. 2,51,96,820/ - U/S 41(1) OF THE IT ACT, 1961, WILL TANTAMOUNT TO D OUBLE ADDITION. 7.10 THE AO'S APPREHENSION THAT THERE IS NO CERTAINTY THAT THE APPELLANT IS EVER GOING TO PAY TO NON - EXISTENT PARTIES IS INCORRECT AS PERUSAL OF THE ITA NO. 6252/MUM/20 17 M/S. RUSHAIL PHARMADIN P. LTD., 5 DETAILS FILED FOR THE LAST FIVE YEARS RELATING TO THESE PARTIES INDICATE THAT PURCHASE AND SALES WERE MADE IN THE FY 2008 - 09 TO 2011 - 12. FURTHER, THERE IS NO REMISSION OR CESSATION OF LIABILITY DURING THE YEAR UNDER CONSIDERATION AND HENCE THERE IS NO JUSTIFICATION TO CONSIDER THESE TRADE ACTIVITIES AS INCOME OF THE APPELLANT AS THERE IS NO REM ISSION OR CESSATION OF LIABILITY. MERE PUTTING SUSPICION ON THE OUTSTANDING TRADE CREDITORS HAS NOT HELPED IN TREATING THESE LIABILITIES AS INCOME. THE AO HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO SUPPORT HIS CONTENTION TO INVOKE SECTION 41(1) OF THE IT AC T AND TO TAX THE SAID LIABILITY AS INCOME DURING THE PREVIOUS YEAR. FURTHER, THE AO HAS NOT INVOKED SECTION 41(1) FOR THE AY 2012 - 13, IN WHICH THE SAME TRADE CREDITORS WERE OUTSTANDING IN THAT FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR. IN VIEW OF THE SAME, I DID NOT FIND ANY REASON TO ACCEPT THE VIEW OF THE AO THAT TRADE LIABILITIES ARE OUTSTANDING FOR THREE YEARS AND IT SHOULD BE TAXED AS CESSATION/REMISSION OF THE LIABILITY. IN VIEW OF THE SAME, GROUND NO. 2 (PART 1 TO 6) IS ALLOWED. 4. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD RIVAL SUBMISSIONS. AT THE OUTSET, WE FIND THAT THE CREDITORS OUTSTANDING AS ON THE BALANCE SHEET DATE FOR MORE THAN THREE YEARS TO THE TUNE TO RS.2,51,96,820/ - ARE TRADE CREDITORS OF THE ASSESSEE. THIS FACT IS NOT IN DISPUTE. IT IS NOT IN DISPUTE THAT ASSESSEE HAD MADE PURCHASES FROM THESE PARTIES IN THE EARLIER YEARS. IT IS NOT IN DISPUTE THAT THE REVENUE HAD ALREADY TREATED THOSE PURCHASES AS BOGUS AND HAD ULTIMATELY TAXED THE GROSS PROFIT THEREON IN EARLIER YEARS @12.5% OR 20% , AS THE CASE MAY BE. THIS GOES TO PROVE THAT THE DEBIT SIDE OF THE TRANSACTION VIZ. PURCHASES IS ALREADY TAXED AT SOME PERCENTAGE. NOW, TAXING THE CREDIT SIDE OF THE VERY SAME TRANSACTION U/S.41(1) OF THE ACT WOULD OBVIOUSLY AMO UNT TO DOUBLE ADDITION. ITA NO. 6252/MUM/20 17 M/S. RUSHAIL PHARMADIN P. LTD., 6 5.1. THE LD. DR IN THIS REGARD STATED THAT ONLY 12.5% OR 20% HAS BEEN TAXED IN THE DEBIT SIDE OF THE TRANSACTION. THOSE PURCHASES WERE TAXED IN THE EARLIER YEARS AND THAT THE DEPARTMENT IS TRYING TO TAX 100% OF THE CREDIT SIDE OF THE TRANSACTIONS VIZ., SUNDRY CREDITORS OUTSTANDING BALANCE U/S.41(1) OF THE ACT DURING THIS YEAR AND HENCE , IT WOULD NOT AMOUNT TO DOUBLE ADDITION. THE LD. DR ALSO STATED THAT THE APPEAL AGAINST THE ORDER OF THIS TRIBUNAL HAD BEEN PREFERRED BY THE REVENUE BEFORE THE HONBLE HIGH COURT AND THAT THE SAME ARE ADMITTED FOR THE EARLIER YEARS BY THE HONBLE HIGH COURT. 5.2. THE LEARNED AR ON THE CONTRARY FILED DETAILS IN THE FORM OF ADDITIONAL EVIDENCES STATING THAT THESE SUNDRY CREDITORS WERE PAID IN PART IN SUBSEQUENT YEARS AND ALSO FILED A TABULATION THEREON WITH REGARD TO THE STATUS OF THESE SUNDRY CREDITORS UPTO 31/03/2018. WE FIND THAT THESE ADDITIONAL EVIDENCES GO TO THE ROOT OF THE MATTER AND REQUIRE FACTUAL VERIFICATION OF THE LD. AO. HENCE, THESE ADDI TIONAL EVIDENCES ARE HEREBY ADMITTED AND THE LD. AO IS DIRECTED TO VERIFY THE FACT OF SUBSEQUENT PAYMENTS BEING MADE, IF ANY , TO THESE CREDITORS. LD. AO IS FURTHER DIRECTED TO DECIDE THE ISSUE UNDER DISPUTE BASED ON THE FINAL OUTCOME OF THE REVENUE APPEALS PENDING BEFORE THE HONBLE HIGH COURT IN ORDER TO MEET THE ENDS OF THE JUSTICE ON THE IMPUGNED PURCHASE TRANSACTIONS. WE DEEM IT FIT AND APPROPRIATE IN THE INTEREST OF JUSTICE AND FAIR PLAY TO REMA ND THIS ISSUE TO THE FILE OF THE LD. AO TO DECIDE THE ISSU E IN ITA NO. 6252/MUM/20 17 M/S. RUSHAIL PHARMADIN P. LTD., 7 ACCORDANCE WITH LAW IN LIGHT OF THE ABOVE MENTIONED DIRECTIONS. ACCORDINGLY, GROUND RAISED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 6. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 20 / 02 /201 9 SD/ - ( AMARJIT SINGH ) SD/ - ( M. BALAGANESH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 20 / 02 /201 9 KARUNA SR. PS COPY OF THE ORD ER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//