ITO 5(2)(2), MUMBAI V. KANAK ALLOYS STEEL LTD, MUMBAI

ITA 6778/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8287 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 18-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M V RAJGURU
• Assessee Lawyers: MATHARIA
• Keywords: Bogus purchase; Cost of acquisition; Accommodation entries
• Section: 143(3); 133(6); 69; 145; 148; 144

Judgement Text

1 ITA NO.6778/MUM/2016 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L, MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.6778/MUM/2016 (ASSESSMENT YEAR: 2009-10) ITO, 5(2)(2), MUMBAI VS M/S KANAK ALLOYS STEEL LTD 32/40, KRISHNA BAUG,SHOP NO.6, 2 ND PARSWHIWADA, MUMBAI-4 PAN : AACCK9797M APPELLANT RESPONDEDNT APPELLANT BY SHRI M.V. RAJGURU RESPONDENT BY SHRI M.S. MATHARIA DATE OF HEARING 13-11 -2017 DATE OF PRONOUNCEMENT 22-11-2017 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER OF THE CIT(A)-10, MUMBAI DATED 29-08-2016 AND IT PERTAINS TO AY 2009-10. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY ENGAGED IN THE BUSINESS OF TRADING IN IRON AND STEEL FILED ITS RET URN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 ON 12-09-2009 DECLARING TOT AL INCOME OF RS.3,02,860. THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 13-12-20 11 DETERMINING THE TOTAL INCOME AT RS.3,39,770. SUBSEQUENTLY THE CASE HAS BEEN REOPENED U/S 2 ITA NO.6778/MUM/2016 147, ON THE BASIS OF INFORMATION RECEIVED FROM THE DGIT (INV), MUMBAI / SALES- TAX DEPARTMENT REGARDING BOGUS PURCHASES MADE FROM HAWALA DEALERS. THE ASSESSMENT WAS COMPLETED U/S 143(3) R.W.S. 147 ON 1 9-03-2015 DETERMINING THE TOTAL INCOME AT RS.20,16,57,783 BY MAKING ADDIT IONS TOWARDS ALLEGED BOGUS PURCHASES FROM 8 PARTIES AS LISTED BY THE AO IN HIS ORDER AT PARAGRAPH 5 FOR THE REASON THAT THE PARTIES WERE INDULGING IN PROVIDING ACCOMMODATION ENTRIES AND THE ASSESSEE FAILED TO JUSTIFY PURCHASES WITH ANY E VIDENCE. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A), FOR THE DETAILED DISCUSSION IN HIS ORDER DATED 29-08-2016, BY FOLLOWING THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SIMIT P S HETH 356 ITR 451 (GUJ) DIRECTED THE AO TO ESTIMATE NET PROFIT OF 12.5% OF THE ALLEGED BOGUS PURCHASES. THE RELEVANT OBSERVATIONS OF THE CIT(A) ARE EXTRACT ED BELOW:- 5.2. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE ID.AR. I HAVE ALSO GONE THROUGH THE DECISIONS RELIED ON BY THE AO AND THE LD.AR. AS SEEN FROM THE FACTS OF THE CASE THE AO HAS REOPENED THE ASSESSMEN T BASED ON THE INFORMATION RECEIVED FROM SALES TAX DEPARTIIENT THR OUGH DGIT(INV.), MUMBAI WITH REGARD TO NON-PAYMENT OF VA T BY SOME OF THE SELLERS WHOSE REGISTRATION WAS CANCELLED LAT ER, HAVING OBSERVED THAT THOSE ARE THE NON-EXISTANT SELLERS AN D THEY HAVE NOT MADE ANY SALES EXCEPT THE BOGUS INVOICES ISSUED IN THEIR NAME. WHEN THE SALES TAX DEPARTMENT HAS MADE ENQUIRIES SO ME OF THE SELLERS, INCLUDING THE PARTIES APPEARING IN THE BOO KS OF THE APPELLANT COMPANY, HAVE ADMITTED BEFORE THEM THAT THEY HAVE N OT MADE ANY SALES BUT GIVEN THE INVOICES FOR CERTAIN COMMIS SION. HOWEVER, THE ASSESSEES HAVE ARGUED BEFORE THE INCOM E TAX AUTHORITIES THAT THEY HAVE MADE THE PAYMENTS THROUG H BANK 3 ITA NO.6778/MUM/2016 CHEQUES TO THE SELLERS AND RECEIVED THE MATERIAL. T HEIR ARGUMENT WAS THAT UNLESS THE AO PROVES POSITIVELY THAT THE M ATERIAL WAS NOT DELIVERED TO THE ASSESSEE AND THE PAYMENT MADE THRO UGH THE BANK CHANNELS HAVE BEEN BOGUS OR THE AMOUNTS PAID I N THE NAMES OF THE SUPPLIERS HAVE COME BACK TO THE PURCHASER-AS SESSEE, THE AO CANNOT MAKE ANY ADDITION. FURTHER, AS THE AO HAS NOT DOUBTED THE SALES DISCLOSED BY THE APPELLANT HE HAS TO ALLOW TH E PURCHASES SINCE THERE CANNOT BE ANY SALES WITHOUT THE PURCHASE OF T HE MATERIAL. THE ONLY POSSIBILITY IS THAT THE APPELLANT MIGHT HAVE I NFLATED ITS PURCHASES BY TAKING INTO COUNT THE INVOICES IN THE NAMES OF T HE BOGUS SUPPLIERS. THE PRESUMPTION IS THAT THE MATERIAL MIG HT HAVE BEEN PURCHASED FROM GREY MARKET AT A LOWER RATE AND MADE GOOD THE ENTRIES WITH BOGUS BILLS TO REDUCE THE PROFITS. UND ER SIMILAR CIRCUMSTANCES THE HON'BLE HIGH COURT OF GUJRAT IN T HE CASE OF SIMIT P SETH, 2013 (356 ITR 451) HAD AN OCCASION TO DELIV ER ITS JUDGMENT BY CONFIRMING THE DECISION OF THE ITAT WHICH HAS ESTIM ATED THE DISALLOWANCE AT 12.5% OF THE DISPUTED BOGUS PURCHAS ES TO MEET THE ENDS OF JUSTICE. THE HEAD-NOTE OF THE DECISION IS REPRODUCED AS UNDER- SECTION 145 OF THE INCOME-TAX ACT, 1961 - METHOD OF ACCOUNTING - ESTIMATION OF PROFITS [BOGUS PURCHASES] - ASSESSM ENT YEAR 2006-07 - ASSESSEE WAS ENGAGED IN BUSINESS OF TRADI NG IN STEEL ON WHOLESALE BASIS - ASSESSING OFFICER HAVING FOUND THAT SOME OF ALLEGED SUPPLIERS OF STEEL TO ASSESSEE HAD NOT SUPP LIED STEEL TO ASSESSEE BUT HAD ONLY PROVIDED SALE BILLS, HELD THA T PURCHASES MADE FROM SAID PARTIES WERE BOGUS - HE, ACCORDINGLY , ADDED ENTIRE AMOUNT OF PURCHASES TO GROSS PROFIT OF ASSESSEE - C OMMISSIONER (APPEALS) HAVING FOUND THAT ASSESSEE HAD INDEED MAD E PURCHASES, THOUGH NOT FROM NAMED PARTIES BUT OTHER PARTIES FRO M GREY MARKET, SUSTAINED ADDITION TO EXTENT OF 30 PER CENT OF PURCHASE COST AS PROBABLE PROFIT OF ASSESSEE - TRIBUNAL HOWE VER, SUSTAINED ADDITION TO EXTENT OF 12.5 PER CENT - WHETHER SINCE PURCHASES WERE NOT BOGUS BUT WERE MADE FROM PARTIES OTHER THA N THOSE MENTIONED IN BOOKS OF ACCOUNT, ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES COULD BE ADDED TO ASSESSEE'S INCOME - HELD, Y ES - WHETHER HENCE, ORDER OF TRIBUNAL NEEDED NO INTERFER ENCE - HELD, YES [PARAS 6, 7 & 9] [IN FAVOUR OF ASSESSEE]'. (EMP HASIS SUPPLIED). 5.2.1. BASED ON THE EVIDENCE ON HAND IN THE FORM OF A REPORT FROM DIT(LNV), MUMBAI AND AS NO NOTICE UNDER SECTION 148 WAS 4 ITA NO.6778/MUM/2016 SERVED ON THE APPELLANT, THE AO HAS INITIATED INDEP ENDENT ENQUIRY BY ISSUE OF NOTICES U/S 133(6) BUT HAVE COM E BACK UNSERVED. DURING THE COURSE OF APPELLATE PROCEEDING S THE LD.AR HAS FILED THE DETAILS LIKE LIST OF SUNDRY CREDITORS AND SUNDRY DEBTORS, AUDITED ACCOUNTS OF THE APPELLANT COMPANY, QUANTITA TIVE STOCK DETAILS SHOWING ITEM WISE PURCHASE AND SALE, VAT RE TURN, AUDIT REPORT FOR THE PURPOSE OF SALES TAX WHICH WERE TAKE N ON RECORD. AS THE AO HAS MADE ALL-OUT EFFORTS TO SERVE THE NOTICE S AND AS THERE WAS A REPORT FROM THE DIT (LNV) STATING THAT ALL TH E SELLER PARTIES AS PER THE LIST SUPPLIED BY THEM ARE BOGUS PARTIES, IN CLUDING THE PARTIES APPEARING IN THE BOOKS OF THE APPELLANT COM PANY, AND THERE WAS NO COUNTER SUBMISSION BY THE ASSESSEE, TH E AO HAS NO OTHER ALTERNATIVE BUT TO CONCLUDE THE ASSESSMENT UN DER SECTION 144 R.W.S 147 BY BRINGING TO TAX THE ENTIRE REPORTE D BOGUS PURCHASES TO TAX U/S 69 OF THE ACT. THE AO CANNOT B E FOUND FAULT ON THIS COUNT. EVEN THOUGH THE AO COULD NOT PROVE SUBSTANTIVELY THAT THE AMOUNTS GIVEN TO THE SELLERS IN CHEQUE FORM HAVE COME BACK TO THE APPELLANT, THE ACTIVITIE S OF ACCOMMODATION ENTRIES IN THE TRADING COMMUNITY IS N OT UNHEARD OF. FURTHER, THE INVESTIGATIONS CARRIED OUT BY THE SALE S TAX DEPARTMENT, ANOTHER GOVERNMENT AGENCY, WITH REGARD TO VAT VIOLATION CANNOT BE LOST SIGHT OF. FURTHER, AS SOME OF THE NAMES OF THE SO-CALLED BOGUS SELLERS OUT OF THE LIST SUPPLIED BY THE SALES TAX DEPARTMENT ARE APPEARING IN THE BOOKS OF THE APPELL ANT COMPANY, THE LINK OF INVOLVEMENT OF APPELLANT COMPA NY IN GETTING BOGUS BILLS IS ESTABLISHED. EVEN THOUGH THERE ARE C ATENA OF CASES DECIDED BY THE JURISDICTIONAL ITAT WHICH HAVE DECID ED THE ISSUE IN FAVOUR OF THE ASSESSEE, THEY ARE NOT UNIFORM IN ALL THE CASES AS THEY WERE DECIDED AS PER THE FACTS AND CIRCUMSTANCE S OF THAT PARTICULAR CASE BEFORE THEM. I AM OF THE OPINION TH AT THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE ARE MORE AKIN TO THE CASE DECIDED BY THE HON'BLE GUJRAT HIGH COURT IN THE CA SE OF SIMIT P SETH (SUPRA.). RESPECTFULLY FOLLOWING THIS DECISION , I HEREBY DIRECT THE AO TO WORK OUT 12.5% OF THE SO-CALLED BOGUS PUR CHASES, AND ADD BACK THE SAME TO THE TAXABLE INCOME IN PLACE OF THE ADDITION MADE ON THE ENTIRE PURCHASES FROM THE REPORTED BOGU S SELLERS. THE GROUND IS PARTLY ALLOWED. 3. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE AS WELL AS THE REVENUE 5 ITA NO.6778/MUM/2016 FILED APPEAL BEFORE THE TRIBUNAL. THE APPEAL FILED BY THE ASSESSEE HAS BEEN DISPOSED OF BY ITAT, MUMBAI BENCH B IN ITA N O.7151/MUM/2016 DATED 31-08-2017 WHEREIN THE ITAT DISMISSED THE APP EAL FILED BY THE ASSESSEE AND UPHELD ESTIMATION OF NET PROFIT AT 12. 5% MADE BY THE CIT(A). THE RELEVANT PORTION OF THE ORDER OF ITAT IS EXTRACTED BELOW:- 4. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LD. D.R. RELIED UPON THE DECISION OF THE TRIBUNAL, AHME DABAD BENCH IN THE CASES OF SHWETAMBAR STEELS VS. ITO AHMEDABAD AND GA NESH RICE MILLS VS. CIT (294 ITR 316). THE FACTS IN THE PRES ENT CASE SHOW THAT ASSESSEE COULD NOT PRODUCE THE PARTIES FROM WHOM GO ODS ARE STATED TO HAVE BEEN PURCHASED. THE SUPPLIERS WERE FOUND TO BE ENGAGED IN PROVIDING BOGUS BILL WITHOUT ACTUAL DEALING OF GOOD S. IN THIS REGARD, THE ASSESSEE HAS STATED THAT THEY HAD SUBMITTED QUA NTITATIVE DETAILS OF STOCK WITH RESPECT OF THE SALES WITH PURCHASES F ROM THE PARTIES DURING THE ASSESSMENT PROCEEDINGS. THE ASSESSEE HAS SUBMITTED THE DETAIL OF CORRESPONDING SALES IN RESPECT OF THE PUR CHASE FROM THE SAID PARTIES. AS MENTIONED ABOVE THE AO HAS NEVER DISPUT ED OR EXAMINED THE ASPECT OF SALES RECEIPTS. SINCE THE SALES MADE BY THE ASSESSEE WAS NOT DOUBTED OR DISPUTED BY THE AO AND HE HAS ACCEPT ED THE SALES RECEIPTS OF THE ASSESSEE AS IT IS, THEREFORE, THE A O CANNOT DENY THAT PURCHASES WERE NOT MADE BY THE ASSESSEE AND THE MAT ERIAL WAS NOT USED FOR ITS SALES. WHAT IS UNDER DISPUTE IS THE PU RCHASES FROM THE PARTIES FROM WHOM BILLS HAVE BEEN TAKEN AND CHEQUES HAVE BEEN ISSUED TO THEM. PURCHASES ARE NOT IN DISPUTE BUT TH E PARTIES FROM WHOM PURCHASE ARE SHOWN TO HAVE BEEN MADE ARE DISPU TED AND SUSPICIOUS. THE AO HAD MADE THE ADDITION AS SOME O F THE SUPPLIERS WERE DECLARED HAWALA DEALERS BY THE VAT DEPARTMENT. THIS MAY BE A GOOD REASON FOR MAKING FURTHER INVESTIGATION BUT TH E AO DID NOT MAKE ANY FURTHER INVESTIGATION AND MERELY COMPLETED THE ASSESSMENT ON SUSPICION. ONCE THE ASSESSEE HAS BROUGHT ON RECORD THE DETAILS OF PAYMENTS BY ACCOUNT PAYEE CHEQUE, IT WAS INCUMBENT ON THE AO TO HAVE VERIFIED THE PAYMENT DETAILS FROM THE BANK OF THE ASSESSEE AND ALSO FROM THE BANK OF THE SUPPLIERS TO VERIFY WHETH ER THERE WAS ANY IMMEDIATE CASH WITHDRAWAL FROM THEIR ACCOUNT. NO SU CH EXERCISE HAS BEEN DONE OR FINDINGS RECORDED, THERE WAS NO DETAIL ED INVESTIGATION MADE BY THE AO HIMSELF. IT IS ALSO FOUND THAT THE P AYMENTS HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUE WHICH ARE DULY REFLECT ED IN THE BANK 6 ITA NO.6778/MUM/2016 STATEMENT OF THE ASSESSEE. THERE IS NO EVIDENCE TO SHOW THAT THE ASSESSEE HAS RECEIVED CASH BACK FROM THE SUPPLIERS. MERELY BECAUSE THE SUPPLIERS DID NOT APPEAR BEFORE THE AO OR SOME CONFIRMATION LETTERS WERE NOT FURNISHED, ONE CANNOT CONCLUDE THA T THE PURCHASES WERE NOT MADE BY THE ASSESSEE. THIS VIEW IS SUPPORT ED BY THE DECISION OF NIKUNJ EXIMP ENTERPRISES VS. CIT 216 TAXMAN 171 (BOM). TO THIS EXTENT, WE ARE OF THE VIEW THAT IF THE ASSESSEE HAS FULFILLED ITS ONUS OF MAKING THE PAYMENT BY CHEQUE AND HAS SUPPLIED THE A DDRESSES OF THE SELLERS THEN IT CANNOT BE PRESUMED THAT SUPPLIER WE RE BOGUS SIMPLY BECAUSE THE SELLERS WERE NOT FOUND AT THE GIVEN ADD RESS. THERE IS A CONSIDERABLE TIME GAP BETWEEN THE PERIOD OF PURCHAS E TRANSACTION AND PERIOD OF SCRUTINY PROCEEDINGS. THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THERE IS SUPPRESSIO N OF SALES. IT IS BASIC RULE OF ACCOUNTANCY AS WELL AS OF TAXATION LA WS THAT PROFIT FROM BUSINESS CANNOT BE ASCERTAINED WITHOUT DEDUCTING CO ST OF PURCHASE FROM SALES. ESTIMATION OF PROFIT RANGING FROM 12.5% TO 15% HAS BEEN UPHELD BY THE HON'BLE GUJARAT HIGH COURT IN THE CAS E OF CIT VS SIMIT P SHETH 356 ITR 451 (GUJ.). RESPECTFULLY FOLLOWING T HE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. S IMIT P. SHETH 38 TAXMAN 385 (GUJ), WE DISMISS THE APPEAL OF THE ASSE SSEE. 4. AT THE TIME OF HEARING, BOTH THE COUNSELS SUBMITTED THAT THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2009- 10 AGAINST THE ORDER OF THE CIT(A) ESTIMATING NET PROFIT OF 12.5% ON TOT AL ALLEGED PURCHASES HAS BEEN DISMISSED BY THE ITAT. THE LD.AR FURTHER SUBMITTED THAT THE APPEAL FILED BY THE REVENUE IS ALSO AGAINST THE VER Y SAME ORDER OF THE CIT(A) DIRECTING THE AO TO ESTIMATE NET PROFIT OF 1 2.5% ON TOTAL ALLEGED BOGUS PURCHASES. SINCE THE ITAT HAS ALREADY GIVEN ITS FINDING ON THE DIRECTIONS OF THE CIT(A) ESTIMATING NET PROFIT AT 1 2.%, THE APPEAL FILED BY THE REVENUE MAY BE DISMISSED. 5. THE LD.DR ON THE OTHER HAND, FAIRLY ACCEPTED THAT T HE ITAT HAS UPHELD THE FINDINGS OF THE CIT(A) IN ASSESSEES APP EAL IN ITA NO.7151/MUM/2016. 7 ITA NO.6778/MUM/2016 6. HAVING HEARD BOTH THE SIDES, WE FIND THAT THE ITAT, MUMBAI BENCH B IN ITA NO.7151/MUM/2016 HAS ALREADY CONSIDERED THE ISSUE OF ESTIMATION OF NET PROFIT OF 12.5% ON ALLEGED BOGUS PURCHASES. SINCE THE ITAT HAS UPHELD THE ORDER OF CIT(A), THE FINDING GI VEN BY THE ITAT, IN ITS ORDER DATED 31-08-2017 SHALL APPLY MUTATIS MUTANDIS TO THE APPEAL FILED BY THE REVENUE. THEREFORE, FOR THE SAME REASONS, W E DIRECT THE AO TO ESTIMATE PROFIT AT 12.5% ON THE ALLEGED BOGUS PURCH ASES AND DISMISS THE APPEAL FILED BY THE REVENUE. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND NOVEMBER, 2017. SD/- SD/- (MAHAVIR SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 22 ND NOVEMBER, 2017 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI