VARDHMAN REMEDIES P.LTD, MUMBAI V. ITO 13(3)(3), MUMBAI

ITA 6772/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9465 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 18-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIDHYADHAR
• Keywords: Bogus purchase; Rejection of books of accounts; Income from undisclosed sources; Source of fund; Reasonable cause; Non compliance
• Section: 69C; 143(3); 115JB; 133(6); 145; 148

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JM AND SHRI RAJESH KUMAR , AM ITA NO. 6772/MUM/2016 ( ASSESSMENT YEAR: 2009-10) M/S. VARDHMAN REMEDIES PVT LTD., H - 40 5, GOKUL RESIDENCY, NEAR SAMTA NAGAR, KANDIVALI (E), MUMBAI - 400101 / VS. INCOME TAX OFFICER 13(3)(3), R.NO.227, AAYAKAR BHAVAN M.K. ROAD MUMBAI 400020 ( / APPELLANT ) .. ( / RESPONDENT ) ITA NO. 1004/MUM/2016 ( ASSESSMENT YE AR: 20 10 - 11 ) INCOME TAX OFFICER 13(3)(3), R.NO.227, AAYAKAR BHAVAN M.K. ROAD MUMBAI 400020 / VS. M/S. VARDHMAN REMEDIES PVT LTD., H - 405, GOKUL RESIDENCY, NEAR SAMTA NAGAR, KANDIVALI (E), MUMBAI - 400101 ( / APPELLANT ) .. ( / RE SPONDENT ) CROSS - OBJECTION NO.142/MUM/2017 ARISING OUT OF ITA NO. 1004/MUM/2016 ( ASSESSMENT YEAR: 20 10 - 11 ) M /S. VARDHMAN REMEDIES PVT LTD., H - 405, GOKUL RESIDENCY, NEAR SAMTA NAGAR, KANDIVALI (E), MUMBAI - 400101 / VS. INCOME TAX OFFICER 13(3)(3), R.NO.227, AAYAKAR BHAVAN M.K. ROAD MUMBAI 400020 ( / APPELLANT ) .. ( / RESPONDENT ) ITA NO. 6773/MUM/2016 ( ASSESSMENT YEAR: 20 11 - 12 ) M/S. VARDHMAN REMEDIES PVT LTD., H - 405, GOKUL RESIDENCY, / DY.COMMISSIONER OF INCOME TAX 13(3)(2), AAYAKAR BHAVAN ITA NO. 1494 , 1004 , 149 5 6772 AND 6773/M/2016 AND CO. 142 /MU/2017 2 NEAR SAMTA NAGAR, KANDIVALI (E), MU MBAI - 400101 VS. M.K. ROAD MUMBAI 400020 ( / APPELLANT ) .. ( / RESPONDENT ) ITA NO. 1494 AND 1495 /MUM/2016 ( ASSESSMENT YEAR: 20 1 0 - 11 ) M/S. VARDHMAN REMEDIES PVT LTD., H - 405, GOKUL RESIDENCY, NEAR SAMTA NAGAR, KANDIVALI (E), MUMBAI - 400101 / VS. INCOME TAX OFFICER - 9(3)(3), AAYAKAR BHAVAN M.K. ROAD MUMBAI 400020 ./ PAN : AABCV2431L ( / APPELLANT ) .. ( / RESPONDENT ) / A SSESSEE BY : SHRI BHUPENDRA SHAH / RESPONDENT BY : SHRI VIDHYADHAR / DATE OF HEARING : 1 3 . 9 .2017 / DATE OF PRONOUNCEMENT : 29. 9. 2017 / O R D E R PER BENCH : THE ASSESSEE HAS FILED FOUR APPEALS. OUT OF WHICH ITA NO.6772/MUM/2016 FILED AGAINST THE ORDER DATED 1.9.2016 PASSED BY THE LD.CIT(A) FOR THE ASSESSMENT YEAR 2009 - 10. ITA NO.1495 AND 1495/M/2016 IS FILED AGAINST THE ORDER OF CIT( A) DATED 16.12.2015 FOR THE ASSESSMENT YEAR 2010 - 11 AND ITA NO.6773/M/2016 FILED AGAINST THE ORDER OF CIT(A) DATED 1.9.2016. THE REVENUE HAS ALSO FILED APPEAL NO.1004/MUM/2016 AGAINST THE ORDER OF LD.CIT(A) DATED 16.12.2015 WHEREIN THE ASSESSEE HAS ITA NO. 1494 , 1004 , 149 5 6772 AND 6773/M/2016 AND CO. 142 /MU/2017 3 ALSO FILED CO NO.142/MUM/2017. ALL THESE APPEALS , CROSS - APPEAL S AND CROSS - OBJECTION WERE CLUBBED TOGETHER, HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. ITA NO. 1495/MUM/2016 ASSESSMENT YEAR 2010 - 11 2. AT THE OU T SET, THE LD.AR SUBMITTED THAT THOUGH IN THE GROUNDS OF APPEAL THE ASSESSEE HAS TAKEN THE ISSUE OF RE - OPENING OF THE ASSESSMENT BUT NOW HE DO NOT WANTS TO PRESS THE SAME. ACCORDINGLY, WE DISMISS THIS GROUND. 3 . THE SOLE ISSUE RAISED BY THE ASSESSEE IS AGAINST THE CONFIRMATION OF RS.6,01,430/ - BEING 10% OF BOGUS PURCHASES OF RS.60,14,350/ - BY LD. CIT(A) AS AGAINST THE 100% ADDITION MADE BY THE AO U/S 69C OF THE INCOME TAX ACT, 1961. 4 . FACTS OF THE CASE ARE THE ASSESSEE FILED RETURN OF INCOME ON 26.9. 201 0 DECLARING TOTAL INCOME OF RS. 29,15,432 UNDER THE NORMAL PROVISIONS OF ACT AND RS.25,65,442/ - UNDER THE PROVISIONS OF SECTION 115JB OF THE ACT. THE CASE WAS SCRUTINIZED AND THE ASSESSMENT WAS FRAMED VIDE ORDER DATED 27.12.2012 ASSESSING THE TOT AL INCOME AT RS.29,65,430/ - U/S 143(3) OF THE ACT . THEREAFTER ,T HE ASSESSMENT WAS REOPENED AND THE AO ISSUED NOTICE U/S 148 ON 26.3.2013 A FTER RECEIV ING INFORMATION FROM THE DGIT(INV) WHO IN TURN WAS INFORMED BY SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA THAT THE ASSESSEE HAS MADE BOGUS PURCHASE S TO THE TUNE OF RS.60,14,350/ - FROM HAWALA PARTIES WITHOUT ITA NO. 1494 , 1004 , 149 5 6772 AND 6773/M/2016 AND CO. 142 /MU/2017 4 ACTUAL DELIVERY OF GOODS . DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS CALLED UPON TO PROVE THE GENUINENESS OF PURCHASES FROM M/S DARSH AN ENTERPRISES AMOUNTING TO RS.2,87,406/ - AND M/S CHEMI - AGE - ENTERPRISE AMOUNTING TO RS.57,26,944/ - . THE AO ALSO CONDU CTED INDEPENDENT INQUIR IES BY ISSU ING NOTICES U/S 133(6) OF THE ACT TO THESE PARTIES WHICH WERE RETURNED UNSERVED. THE ASSESSEE DU RING THE COURSE OF ASSESSMENT PROCEEDINGS SUBMITTED BEFORE THE AO THAT THE PURCHASE S WE RE DULY SUPPORTED WITH BILLS AND VOUCHERS AND PAYMENT WERE MADE BY ACCOUNT PAYEE CHEQUES. IT WAS ALSO SUBMITTED THAT THE STOCK REGISTER WAS DULY MAINTAINED RECORDING AL L THE PURCHASES AND SALES . THE AO WAS NOT SATISFIED WITH THE SUBMISSIONS OF THE ASSESSEE , THE BOOKS OF ACCOUNT AND THE RECORD PRODUCED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND CAME TO THE CONCLUSION THAT THE PURCHASES MADE FROM HAW ALA DEALERS WERE NOT GENUINE AND ACCORDINGLY ADDED THE AMOUNT OF RS.60,14,350/ - TO THE TOTAL INCOME OF THE ASSESSEE BY FRAMING THE ASSESSMENT U/S 143(3) VIDE ASSESSMENT ORDER DATED 28.3.2014 ASSESSING THE TOTAL INCOME OF THE ASSESSEE AT RS.1,00,16,980/ - . IN THE APPELLATE PROCEEDINGS, THE CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE BY SUSTAINING THE ADDITION TO THE EXTENT OF 10% OF THE BOGUS PURCHASES AFTER CONSIDERING THE VARIOUS SUBMISSIONS AND CONTENTIONS AS RAISED BY THE ASSESSEE DURING THE HEARING BEFORE HIM VIDE PARA 5.22 OF THE APPELLATE ORDER WHICH IS REPRODUCED BELOW: ITA NO. 1494 , 1004 , 149 5 6772 AND 6773/M/2016 AND CO. 142 /MU/2017 5 5.22. THE REJECTION OF BOOK RESULTS IS AFFIRMED SINCE THE IMPUGNED PURCHASES COULD NOT BE PROVED TO BE GENUINE. THE CROSS EXAMINATION CANNOT BE PROVIDED SINCE THE IMPUGNED PART IES ARE NOT PRODUCED BY THE APPELLANT. IN FACT THEAPPELLANT HAS CONFIRMED IN THE APPELLATE PROCEEDINGS THAT THERE ARE NO PURCHASES FROM THESE PARTIES IN THE SUBSEQUENT YEARS. THE DISALLOWANCE HAS NOT BEEN MADE ONLY ON THE BASIS OF INFORMATION ON THE MAHAVA T WEBSITE. IT IS CLEAR THAT THE AO HAS HELD THE CLAIM OF EXPENSES AS BOGUS AND THEREFORE NOT ALLOWABLE U/S 37(1). HE HAS ALSO CONSIDERED THAT PURCHASES MAY HAVE BEEN MADE FROM UNDISCLOSED SOURCES OF INCOME BUT NOT FROM THE IMPUGNED PARTIES TO WHOM PAYMENT S HAVE BEEN MADE FROM ACCOUNTED SOURCES OF INCOME. THEREFORE. IN FACT AND CIRCUMSTANCES OF THE CASE. IN THIS PARTICULAR CASE, IT IS CONSIDERED MOST APPROPRIATE TO ADOPT 10% PROFIT WHICH CAN TAKE CARE OF THE ROTATION OF CAPITAL UTILISED F OR SUCH TRANSACT - E N. HENCE IN THE LIGHT OF FINDING OF THE HON'BLE GUIARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT P. SHETH. 10.0% PROFIT IS FOUND TO BE APPROPRIATE FOR ASCERTAINMENT OF TAXABLE INCOME RELATED TO SUCH TRANSACTION. THUS, ACCORDINGLY RS. 6.01,430/ - (10.0% OF RS. 60,14,350/ - ) IS SUSTAINED AND REST OF ADDITION OF RS.54,12,920/ - IS DELETED 5 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE CASE LAW RELIED UPON BY THE ASSESSEE. WE FIND THAT IN THIS CASE, THE ASSESSEE W AS FOUND TO BE A BENEFICIARY OF HAWALA TRANSACTIONS TO THE TUNE OF RS.60,14,350/ - FROM TWO PARTIES MENTIONED ABOVE, T HE AO ADDED THE ENTIRE AMOUNT OF BOGUS PURCHASES TO THE TOTAL INCOME OF THE ASSESSEE AND THE ASSESSEE COULD NOT PROVE THE GENUINENESS OF T HE PURCHASES FROM THE CONCERNED PARTIES BY PRODUCING THE NECESSARY DOCUMENTARY EVIDENCE S . THE NOTICES ISSUED TO THE PARTIES U/S 133(6) WERE RETURNED UNSERVED. THE LD. CIT(A) DELE T ED THE ADDITION TO THE EXTENT OF 90% OF THE BOGUS PURCHA SES. WE FURTHER NOTICED THAT THE AO DURIN G THE ASSESSMENT PROCEEDINGS ACCEPTED THE SALES WHICH WERE MADE OUT OF THE ITA NO. 1494 , 1004 , 149 5 6772 AND 6773/M/2016 AND CO. 142 /MU/2017 6 HAWALA PURCHASE S . IN A CASE WHERE THE ASSESSEE OBTAINS BOGUS BILLS, THE PURCHASE ARE GENERALLY MADE FROM GR EY MARKET AND THE ASSESSEE SAVES IN THE FORM OF NON PAYMENT OF VAT AND OT HER INCIDENTAL LEVIES . I N OUR OPINION, THE ADDITION HAS BE MADE ON PERCENTAGE BASIS IN ORDER TO COVER THE LEAKAGES OF REVENUE IN SUCH CASES WHICH THE LD. CIT(A) HAS RIGHTLY DONE. THEREFORE, WE ARE OF THE CONSIDERED OPINION THE ORDER PASSED BY THE LD.CIT (A) SUSTAINING THE ADDITION TO THE EXTENT OF 10% OF BOGUS PUR C HA SES TO R COVER THE REVENUE LEAKAGES IS CORRECT AND NEEDED TO BE UPHELD . WE, THEREFORE, INCLINED TO CONFIRM THE ORDER OF CIT(A) BY DISMISSING THE APPEAL OF THE ASSESSEE. ITA NO.1004/MUM/2016 6 . SINCE WE HAVE ALREADY DECIDED THE ISSUE IN ITA NO 1495/MUM/2016 AGAINST THE ASSESSEE BY UPHOLDING DECISI ON OF THE FAA , THE APPEAL BY THE REVENUE BECOMES INFRUCTUOUS AND HENCE DISMISSED. CO IN ITA NO.1004/MUM/2016 7 . SINCE WE HAVE DISMISSED THE REVE NUES APPEAL IN ITA NO. 1004?MUM/2016 , THE CROSS - OBJECTION FILED BY THE ASSESSEE THERETO BECOMES INFRUCTUOUS AND HENCE DISMISSED. ITA NO. 1494 , 1004 , 149 5 6772 AND 6773/M/2016 AND CO. 142 /MU/2017 7 ITA NO.1494/MUM/2016 8 . THE ISSUE RAISED BY THE ASSESSEE IN THIS APPEAL IS AGAINST THE CONFIRMATION OF THE LEVY OF PEN ALTY OF RS.25000/ - U/S 271A OF THE ACT BY CIT(A) AS IMPOSED BY THE AO IN RESPECT OF DEFAULT COMMITTED U/S 44A OF THE ACT BY THE ASSESSEE . 9 . FACTS BEING THE SAME AS IN ITA NO.1495/MUM/2016 SO WE ARE NOT REPEATING THE SAME HERE. THE AO ISSUED NOTICE U /S 274 R.W.S 271A OF THE ACT ON 28.3.2014 TO THE ASSESSEE CALLING UPON THE ASSESSEE AS TO WHY THE PENALTY SHOULD NOT BE IMPOSED FOR NON COMPLIANCE OF PROVISIONS OF SECTION 44AA OF THE ACT. T HEREAFTER ANOTHER NOTICE WAS ISSUED ON 28.3.2014. THE ASSESSEE RE PLIED THE SAID NOTICE VIDE LETTER DATED 3.5.2014 BY SUBMITTING THAT THE PROCEEDINGS U/S 271A OF THE ACT WERE WRONGLY INITIATED AS THERE HAS BEEN NO DEFAULT ON THE PART OF THE ASSESSEE UNDER THE PROVISIONS OF SECTION 145 OF THE ACT. T HEREFORE THE PROVIS IONS OF SECTION 271A WERE NOT APPLICABLE TO THE ASSESSEE AS THE ASSESSEE WAS MAINTAINING THE REGULAR BOOKS OF ACCOUNTS WHICH W ERE DULY AUDITED BY THE AUDITOR S OF THE COMPANY. HOWEVER, THE REPLY OF THE ASSESSEE DID NOT FIND FAVOUR WITH T HE AO AND HE LEVIED PENAL T Y BY HOLDING THAT THE ASSESSEE HAS COMMITTED DEFAULT WITHOUT REASONABLE CAUSE VIDE ORDER DATED 29.9.2014 PASSED U/S 271A OF THE ACT . IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) UPHELD THE ORDER OF AO BY OBSERVING AND HOLDING AS UNDER : ITA NO. 1494 , 1004 , 149 5 6772 AND 6773/M/2016 AND CO. 142 /MU/2017 8 5. THE A O HAS REJECTED THE BOOKS OF ACCOUNTS. THE PENALTY IS LEVIABLE FOR THE FAILURE OF ASSESS TO KEEP, MAINTAIN OR RETAIN BOOKS OF ACCOUNTS, DOCUMENTS ETC WHICH ENABLE THE ASSESSING OFFICER TO COMPUTE THE INCOME IN ACCORDANCE WITH T H E PROVISIONS OF T HE IT ACT ( S.44A). THIS HAS NOT BEEN MAINTAINED CONSTRAINING HE AO TO REJECT BOOKS OF ACCOUNTS . THE PENALTY LEVIED IS THEREFORE UPHELD AND APPEAL IS DISMISSED. 10 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE CASE LA W RELIED UPON BY THE ASSESSEE. WE FIND THAT IN THIS CASE, THE ASSESSEE HAS MAINTAINED REGULAR BOOKS OF ACCOUNTS WHICH WERE AUDITED BY THE AUDITOR S OF THE COMPANY AND AUDIT REPORT HAS ALSO BEEN FILED BEFORE THE AUTHORITIES BELOW. THE PROVISIONS OF SE CTION 271A OF THE ACT DEALS WITH THE CASE WHERE THE BOOKS OF ACCOUNT ARE NOT MAINTAINED OR A PERSON FAILED TO MAINTAIN THE BOOKS OF ACCOUNT AND RECORDS AS REQUIRED BY THE PROVISIONS OF SECTION 145A OF THE ACT OR RULES THERE UNDER . HOWEVER, IN THE PRESEN T CASE, THE ASSESSEE HAS MAINTAINED THE BOOKS OF ACCOUNTS WHICH WERE ALSO SUBJECTED TO AUDIT AND THE AUDIT REPORT WAS ALSO FILED BEFORE THE LOWER AUTHORITIES. THE BOOKS OF ACCOUNTS WERE REJECTED DURING THE ASSESSMENT PROCEEDINGS ONLY BECAUSE OF BOGU S PURCHASES OF RS.60 , 14 , 350/ - BY THE ASSESSEE UNDISCLOSED PROFIT IN BOGUS PURCHASES OF RS.7 , 51 , 794/ - . THE LD. AR ALSO SUBMITTED BEFORE US THAT THE CONCLUSION AND FINDINGS OF THE FAA THAT THE ASSESSEE HAS FAILED TO MAINTAIN THE BOOKS OF ACCOUNT IN ACCORD ANCE WITH THE PROVISIONS OF SECTION 44A A WERE INCORRECT AND CONTRARY TO THE FAC T S ON RECORDS. IN THE PRESENT ITA NO. 1494 , 1004 , 149 5 6772 AND 6773/M/2016 AND CO. 142 /MU/2017 9 CASE, WE FIND THAT THE AUDITOR OF THE COMPANY HAVE NOT MADE ANY ADVERSE COMMENTS ON THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE AND DULY CE RTIFIED THE BOOKS OF THE ASSESSEE . UNDER THESE CIRCUMSTANCES, WE ARE NOT IN AGREEMENT WITH THE CONCLUSION DRAWN BY THE LD.CIT(A) THAT THE PENALTY U/S 271A IS RIGHTLY IMPOSED BY THE AO. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE HOLD THAT THE LD.CIT(A) HAS WRONGLY UPHELD THE ORDER OF THE AO. THEREFORE, WE SET ASIDE THE SAME AND DIRECT THE AO TO DELETE THE PENALTY . RESULTANTLY THE APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO.6772 AND 6773 /MUM/2016 11 . THE ISSUE RAISED IN THESE APPEALS ARE IDENTI CAL TO THAT OF ITA NO.1495/MUM/2016 EXCEPT FIGURES. IN THE SAID APPEAL THE CIT(A) HAS SUSTAINED THE ADDITION TO THE EXTENT OF 10% OF THE BOGUS PURCHASES AND WE HAVE DISMISSED THE APPEAL OF THE ASSESSEE CHALLENGING THE ORDER OF CIT(A) IN ITA NO 1495/MUM/20 16. SINCE WE HAVE DISMISSED THE APPEAL OF THE ASSESSEE BY UPHOLDING THE ORDER OF CIT(A) , THE DECISION TAKEN THEREIN WOULD , MUTATIS MUTANDI , APPLY TO TH ESE APPEAL S AS WELL. RESULTANTLY THE ADDITIONS IN THESE APPEALS ARE DELETED TO THE EXTENT OF 90% OF THE BOGUS PURCHASES. RESULTANTLY, THE APPEAL S BY THE ASSESSEE ARE PARTLY ALLOWED. 12 . RESULTANTLY, THE APPEAL NO.1495/MUM/2016 OF THE ASSESSEE IS DISMISSED. APPEAL NO.1004/MU M/2016 OF REVENUE AND CO OF ASSESSEE ITA NO. 1494 , 1004 , 149 5 6772 AND 6773/M/2016 AND CO. 142 /MU/2017 10 STAND DISMISSED. APPEAL OF THE ASSESSING BEARING NO.1494/MUM/2016 IS ALLOWED AND THE APPEALS BEARING NO.6772 AND 6773/MUM/ 2016 ARE PARTLY ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 29. 9. 2017 . 29. 9.2 017 S D SD ( SAKTIJIT DEY ) ( RAJESH KUMAR ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 29TH SEPT , 2017 . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, T RUE COPY / (DY./ASSTT. R EGISTRAR) , / ITAT, MUMBAI