HICON CONSTRUCTION , Mumbai V. DCIT, CENTRAL CIRCLE-5(1), Mumbai

ITA 637/MUM/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 5812 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 06-02-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Bogus purchase; Search and seizure; Document seized; Principle of natural justice; Additional evidence; Accommodation entries; Documents seized; Reassessment proceedings
• Section: 69C; 143(3); 133(6); 153C; 147; 132; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC, BENCH M UMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBE R ITA NO.637/MUM/2019 ( ASSESSMENT YEAR: 2007-08 ) HICON CONSTRUCTIONS B-201, LEO APARTMENT 24 TH ROAD KHAR(W) MUMBAI-400 052 VS. DCIT,CENTRAL CIRCLE-5(1) AIR INDIA BUILDING 19 TH FLOOR NARIMAN POINT MUMBAI-400 021 PAN/GIR NO. A AEFH3281J ( APPELLANT ) .. ( RESPONDENT ) REVENUE BY SHRI ASHISH KUMAR, DR ASSESSEE BY NONE DATE OF HEARING 29/01/2020 DATE OF PRONOUNCEME NT 10 /02/2020 / O R D E R PER G.MANJUNATHA (A.M) : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST, THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)53, MUMBAI, DATED 28/11/2018 AND IT PERTAINS TO ASSESSMENT YEAR 2007-08 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE COMMISSIONER OF INCOME TAX (APPEALS) - 53, MUMBAI [HEREINAFTER REFERRED TO AS THE LD. CIT(A)'] ERRED IN UPHOLDING THE REASSESSMENT PROCEEDINGS UNDER SECTION 147 OF THE A CT WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CAS E. 2. THE LD. CIT(A) ERRED IN UPHOLDING THE DISA LLOWANCE OF RS,2,80,195/- BEING 25% OF THE ALLEGED BOGUS PURCHA SES UNDER SECTION 69C OF THE ACT WITHOUT APPRECIATING THE FACTS AND C IRCUMSTANCES OF THE CASE. ITA NO.637/MUM/2019 HICON CONSTRUCTION 2 3. THE LD. CIT(A) FAILED TO APPRECIATE THAT T HE ABOVE ADDITION IS MERELY BASED OF THE INFORMATION RECEIVED FROM THE S ALES TAX DEPARTMENT AND STATEMENT OF THIRD PARTLY WITHOUT PROVIDING THE APPELLANT AN OPPORTUNITY TO CROSS EXAMINE THE SAME. THUS, THE DI SALLOWANCE OF RS.2,80,195/- UNDER SECTION 69C OF THE ACT IS AGAIN ST THE PRINCIPLE OF NATURAL JUSTICE AND THE SAME MAY BE DELETED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM WHICH IS ENGAGED IN THE BUSINESS O F BUILDER AND DEVELOPER, FILED ITS RETURN OF INCOME FOR AY 2007-0 8 ON 1/10/2009. A SEARCH AND SEIZURE ACTION U/S 132 OF THE ACT WAS CA RRIED OUT ON THE GROUP COMPANIES OF HICON GROUP ON 24/02/2009. THE A SSESSMENT HAS BEEN COMPLETED U/S 143(3) R.W.S. 153C ON 30/12/ 2010 ASSESSING THE TOTAL INCOME OF RS. 26,61,580/-. SUB SEQUENTLY, THE CASE HAS BEEN REOPENED U/S 147 OF THE ACT, ON THE B ASIS OF INFORMATION RECEIVED FROM DGIT, INVESTIGATION, MUMB AI, AS PER WHICH, SALES TAX AUTHORITIES OF GOVERNMENT OF MAHAR ASHTRA HAD TAKEN ACTIONS AGAINST NUMBER OF HAWALA DEALERS, WH O HAD ISSUED BOGUS PURCHASE BILLS TO VARIOUS PARTIES IN MUMBAI A ND OTHER PLACES. AS PER LIST OF BENEFICIARIES, THE ASSESSEE IS ONE O F THE BENEFICIARY, WHO HAD TAKEN ACCOMMODATION BILLS OF BOGUS PURCHASE S FROM VARIOUS PARTIES AS LISTED BY THE AO IN PARA 3 OF H IS ASSESSMENT ORDER AMOUNTING TO RS. 11,20,777/-. THE CASE WAS SE LECTED FOR SCRUTINY AND THE ASSESSMENT HAS BEEN COMPLETED U/S. 144 R.W.S. 147 OF THE I.T.ACT, 1961 ON 19/02/2015 AND DETERMINED T OTAL INCOME OF RS. 37,82,360/-, AFTER MAKING 100% ADDITIONS TOWARD S ALLEGED BOGUS PURCHASE FROM THOSE PARTIES AND MADE ADDITIONS OF R S. 11,20,777/-. 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESEE P REFERRED AN APPEAL BEFORE THE LD.CIT(A). BEFORE THE LD.CIT(A), THE ASSESSE HAS CHALLENGED REOPENING OF ASSESSMENT ON THE GROUND TH AT THERE IS NO NEXUS BETWEEN REASONS AND ESCAPEMENT OF INCOME. THE ASSESSEE ITA NO.637/MUM/2019 HICON CONSTRUCTION 3 HAD ALSO CHALLENGED ADDITION TOWARDS BOGUS PURCHASE S WITH CERTAIN ADDITIONAL EVIDENCE. THE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE HAS BEEN FORWARDED TO AO FOR HIS COMMENTS AND THE A O VIDE HIS REMAND REPORT DATED 13.01.2017, COMMENTED AS TO WHY ADDITIONAL EVIDENCE FILED BY THE ASSESSEE CANNOT BE ACCEPTED. THE SUM AND SUBSTANCE OF ARGUMENTS OF THE ASSESSEE BEFORE THE L D.CIT(A) ARE THAT PURCHASE FROM THE ABOVE PARTY IS GENUINE, WHIC H IS SUPPORTED BY NECESSARY EVIDENCES. THEREFORE, NO ADDITIONS COU LD BE MADE ON THE BASIS OF INFORMATION RECEIVED FROM THIRD PARTY. THE LD.CIT(A), AFTER CONSIDERING RELEVANT SUBMISSION OF THE ASSESS EE AND ALSO, BY FOLLOWING VARIOUS DECISIONS, SCALED DOWN ADDITION TOWARDS BOGUS PURCHASES TO 25% PROFIT ON SUCH ALLEGED BOGUS PURCH ASES. THE RELEVANT FINDINGS OF THE LD.CIT(A) ARE AS UNDER:- 6.3 ON MERITS IT IS NOTED THAT THE TAX AUDIT REPO RT STATES THAT QUANTITATIVE ACCOUNTS ARE NOT MAINTAINED. THE INCOM E AND PROFITS REFLECTED IN AUDITED ACCOUNTS AND RETURNS OF INCOME FILED ARE AS TABULATED BELOW. AY 2007-08 AY 2008-09 AY 2009-10 AY 2010-11 PROJECT INCOME 17,96,996 25,44,757 33,86,92,450 - OTHER INCOME 51,049 - - 20,45,457 TOTAL INCOME 18,48,045 25,44,757 33,86,92,450 20,45,457 PROFIT BEFORE 12,65,6 18 19,44,836 9,95,4 1,860 152,170 APPROPRIATION SALARY TO 5,58,748 8,00,000 10,00,000 1,13,368 ITA NO.637/MUM/2019 HICON CONSTRUCTION 4 PARTNERS NET PROFIT 7,06,870 11,44,836 9,85,41,860 38,802 NP AS % OF 38.20% 44.96% 29.09% 1.89% INCOME ADDITION TO 4,49,43,797 636,18,918 6,32,12,585 3-21,82,195 CONSTRUCTION (2,83,6 1,309) (3,86,00 ,898) (57,29,669) COST (INCLUDING PURCHASES] DURING THE YEAR DISALLOWANCE 11,20,777 2,88,45,497 - 1,94,04,551 6.4. PERUSAL OF DETAILS CALLED ALSO SHOWS THAT IN A Y 2009-10, THE AUDITED ACCOUNTS SHOWED ON MONEY RECEIVED AS RS.4,86 CRORES AGAINST WHICH EXPENDITURE AS PER SEIZED DOCUMENTS WAS CLAIMED AS RS. 4.87 CRORES. IF THE ON-MONEY IS INCLUDED IN PROJECT SALES, THE PROF IT DISCLOSED ON THE PROJECT COMES DOWN TO 25.6%, HOWEVER, THE DISALLOWA NCE MADE BY THE ASSESSING OFFICER RESULTS IN NET PROFIT ON PROJECT AT 38.22%. THIS CERTAINLY IS QUITE HIGH AND OUT OF INDUSTRY NORMS. THIS, IN M Y VIEW, SUGGESTS THAT THE PURCHASES ARE MADE, BUT FROM ELSEWHERE. 6.5. EVEN IF MATERIALS HAVE BEEN PURCHASED,, THEY A RE NOT PURCHASED FORM THESE PARTIES AND MAY BE IN CASH FROM UN-DISCLOSED PARTIES. BY PURCHASING FROM THE GREY MARKET, THE APPELLANT WOUL D HAVE BENEFITTED BY THE SAVINGS OF TAXES. DIRECT STATEMENT OF SHRI GUPT A APPLIES TO PURCHASES FROM ONLY TWO ENTITIES VIA. MUNI TRADE P, LTD AND Y ASHOBHUMI TRADERS P. LTD. FROM WHOM PURCHASES CLAIMED ARE RS 2.88 CRORES . THE BALANCE PURCHASES OF RS 1.94 CRORES ARE DISALLOWED BASED ON PATTERN NOTED ON BILLS AND RECEIPT 1 AM GUIDED BY THE RATIO OF DECIS ION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS SIMIT P. S HETH PRONOUNCED ON 16.1.2013 IN TAX APPEAL NO.5531 OF 2012 WHEREIN THE HONBLE COURT HAVE HELD THAT WHEN THE TOTAL SALE IS ACCEPTED BY THE AO , THEN THE ENTIRE PURCHASES CANNOT BE ADDED TO THE INCOME OF THE APPELLANT. THE HONBLE ITA NO.637/MUM/2019 HICON CONSTRUCTION 5 COURT HAVE, THEREFORE, HELD THAT FAIR PROFIT RATIO WOULD BE NEEDED TO BE ADDED BACK TO THE INCOME OF THE ASSESSEE. 6.6. THUS IN THE FACTS OF THE CASE, CONSIDERING THE HIGH LEVEL OF NET PROFIT DISCLOSED, IT IS DEEMED PROPER TO RESTRICT THE DISA LLOWANCES AT 25%. THE DISALLOWANCES ARE THEREFORE RESTRICTED TO RS.2,80,1 95/- IN AY 2007-08, RS. 72,11,374/- IN AY 2008-09 AND RS.48,51,140/- IN AY 2010-11, GROUNDS OF APPEAL NO 2 ON MERITS ARE PARTLY ALLOWED AS ABOVE. 5. NONE APPEARED FOR THE ASSESSEE. WE HAVE HEARD TH E LD. DR, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE T HROUGH ORDERS OF THE AUTHORITIES BELOW. IN SO FAR AS LEGAL GROUND TA KEN BY THE ASSESSEE CHALLENGING REOPENING OF ASSESSMENT, WE FI ND THAT THERE IS SUFFICIENT MATERAILS IN THE POSSESSION OF THE AO TO FORM REASONABLE BELIEF OF ESCAPEMENT OF INCOME IN FORM OF INFORMATI ON FROM DGIT(INV), WHICH WAS FURTHER SUPPORTED BY SALES TAX REPORT ON SUSPICIOUS DEALERS, WHICH IS SUFFICIENT TO REOPEN A SSESSMENT AND HENCE, WE REJECT LEGAL GROUND TAKEN BY THE ASSESSEE . 6. IN SOFAR AS ADDITION TOWARDS ALLEGED BOGUS PURCH ASES, WE FIND THAT THE LD. AO HAS MADE 100% ADDITIONS TOWARDS ALL EGED BOGUS PURCHASES, ON THE GROUND THAT THE ASSESSEE IS ONE O F THE BENEFICIARY OF ACCOMMODATION ENTRIES OF BOGUS PURCHASE BILLS IS SUED BY HAWALA DEALERS. ACCORDING TO THE LD. AO, ALTHOUGH ASSESEE HAS FILED CERTAIN BASIC EVIDENCES, BUT FAILED TO FILE FURTHER EVIDENC E IN THE BACKDROP OF CLEAR FINDING BY THE SALES TAX DEPARTMENT, MAHARASH TRA THAT THOSE PARTIES ARE INVOLVED IN PROVIDING ACCOMMODATION ENT RIES WITHOUT ACTUAL DELIVERY OF GOODS. THE LD. AO HAD ALSO TAKEN SUPPORT FROM THE INVESTIGATION CONDUCTED DURING THE COURSE OF AS SESSMENT PROCEEDINGS, AS PER WHICH NOTICE ISSUED U/S 133(6) TO THE PARTY WERE RETURNED UN-SERVED BY THE POSTAL AUTHORITIES. THERE FORE, HE CAME TO THE CONCLUSION THAT PURCHASE FROM THE SAID PARTY IS BOGUS IN NATURE. ITA NO.637/MUM/2019 HICON CONSTRUCTION 6 IT IS THE CONTENTIONS OF THE ASSESSEE BEFORE THE LO WER AUTHORITIES THAT PURCHASE FROM THE ABOVE PARTY ARE SUPPORTED BY NECE SSARY EVIDENCES. IT HAS FURNISHED ALL POSSIBLE EVIDENCES, INCLUDING BOOKS OF ACCOUNTS; STOCK DETAILS AND BANK STATEMENT TO PROVE THAT PAYMENT AGAINST SAID PURCHASES HAVE BEEN MADE THROUGH PROPE R BANKING CHANNELS. 7 HAVING CONSIDERED ARGUMENTS OF THE LD. DR AND ALS O, MATERIAL AVAILABLE ON RECORD, WE FIND THAT BOTH THE SIDES FA ILED TO PROVE THE CASE IN THEIR FAVOUR WITH NECESSARY EVIDENCES. ALTH OUGH, ASSESSEE HAS FILED CERTAIN BASIC EVIDENCES, BUT FAILED TO FI LE FURTHER EVIDENCES TO CONCLUSIVELY PROVE PURCHASES TO SATISFACTIONS OF THE LD.AO. AT THE SAME TIME, THE LD. AO HAD ALSO FAILED TO TAKE THE I NVESTIGATION TO A LOGICAL CONCLUSION BY CARRYING OUT NECESSARY ENQUIR ES, BUT HE SOLELY RELIED UPON INFORMATION RECEIVED FROM INVESTIGATIO N WING, WHICH WAS FURTHER SUPPORTED BY INFORMATION RECEIVED FROM MAHA RASHTRA SALES TAX DEPARTMENT. UNDER THESE CIRCUMSTANCES, IT IS D IFFICULT TO ACCEPT ARGUMENTS OF BOTH THE SIDES. FURTHER, IN A SITUATIO N WHERE PURCHASE IS MADE FROM ALLEGED HAWALA DEALERS, VARIOUS HIGH C OURTS AND TRIBUNALS HAD CONSIDERED AN IDENTICAL ISSUE IN LIGH T OF INVESTIGATION CARRIED OUT BY THE SALES TAX DEPARTMENT AND HELD TH AT IN CASE PURCHASES CLAIMS TO HAVE MADE FROM ALLEGED HAWALA D EALERS, ONLY PROFIT ELEMENT EMBEDDED IN THOSE PURCHASES NEEDS TO BE TAXED, BUT NOT TOTAL PURCHASE FROM THOSE PARTIES. THE HONBLE GUJARAT HIGH COURT, IN THE CASE OF CIT VS SIMITH P.SHETH 356 ITR 451 HAD CONSIDERED A SIMILAR ISSUE AND HELD THAT AT THE TIM E OF ESTIMATION OF PROFIT FROM ALLEGED BOGUS PURCHASES NO UNIFORM YARD STICKS COULD BE ADOPTED, BUT IT DEPENDS UPON FACTS OF EACH CASE. TH E ITAT, MUMBAI, IN NUMBER OF CASES HAD CONSIDERED AN IDENTICAL ISSU E AND DEPENDING ITA NO.637/MUM/2019 HICON CONSTRUCTION 7 UPON FACTS OF EACH CASE, DIRECTED THE LD.AO TO ESTI MATE PROFIT OF 10 TO 15% ON TOTAL ALLEGED BOGUS PURCHASES. IN THIS CA SE, CONSIDERING THE NATURE OF BUSINESS OF THE ASSESSEE THE LD. AO H AS ESTIMATED 100% PROFIT, WHEREAS THE LD. CIT(A) HAS RESTRICTED ADDITION TO 25% PROFIT ON ALLEGED BOGUS PURCHASES. ALTHOUGH, BOTH A UTHORITIES HAVE CONSIDERED DIFFERENT RATE OF PROFIT FOR ADDITION TO WARDS ALLEGED BOGUS PURCHASE, BUT NO ONE COULD SUPPORT SAID ADDITION WI TH NECESSARY EVIDENCES OR ANY COMPARABLE CASES. THEREFORE, CONSI DERING FACTS AND CIRCUMSTANCES OF THIS CASE AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE, WE DIRECT THE LD. AO TO ESTIMATE 12.50 % PROFIT ON ALLEGED BOGUS PURCHASES. 8. IN THE RESULT, APPEAL FILED BY THE ASSESSE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 /02/ 2020 SD/- (SAKTIJIT DEY) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 10 /02/2020 THIRUMALESH SR.PS COPY OF THE ORDER 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//