DCIT 10(3), MUMBAI V. JK SURFACE COATING P.TLD, NAVI MUMBAI

ITA 6848/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1863 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Assessment Year: 2009-2010
• Appeal Filed On: 10-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C S SHARMA
• Assessee Lawyers: JIGNA PAREKH
• Keywords: Bogus purchase; Opportunity of being heard; Corroborative evidences; Accommodation entries
• Section: 143(3); 133(6); 147; 148

Judgement Text

IN T HE INC OME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI , , BEFORE SHRI SAKTIJIT DEY , JM AND SHRI MANOJ KUMAR AGGARWAL , AM ./ I.T.A. NO. 6769/MUM/2014 ( / ASSESSMENT YEAR: 2009 - 2010 ) JK SURFACE COATINGS PVT. LTD. NEEL SIDDHI ENCLAVE - COMMERCIAL COMPLEX, PLOT - 48/9, SECTOR - 14, VASHI, NAVI MUMBAI 400 703 / VS. THE DY. COMMISSIONER OF INCOME TAX (DCIT) 10(3) MUMBAI ./ ./ PAN/GIR NO. AA ACJ8308H ( / APPELLANT ) : ( / RESPONDENT ) ./ I.T.A. NO. 6848 /MUM/2014 ( / ASSESSMENT YEAR: 2009 - 2010) THE DY. COMMISSIONER OF INCOME TAX (DCIT) 10(3) MUMBAI / VS. JK SURFACE COATINGS PVT. LTD. NEEL SIDDHI ENCLAVE - COMMERCIAL COMPLEX, PLOT - 48/9, SECTOR - 14, VASHI, NAVI MUMBAI 400 703 ./ ./ PAN/GIR NO. AAACJ8308H ( / APPELLANT ) : ( / RESPONDENT ) / ASSESSEE BY : MS. JIGNA PAREKH, AR / REVENUE BY : SHRI C. S. SHARMA, DR / DATE OF HEARING : 15 /11/2016 / DATE OF PRONOUNCEMENT : 18 /11/2016 / O R D E R P ER MANOJ KUMAR AGGARWAL (ACCO UNTANT MEMBER) : 1. THE AFORESAID CROSS APPEALS FOR AS SESSMENT Y EAR 2009 - 1 0 ASSAIL S THE ORDER OF THE COMMISSIONER OF INCOME T AX (APPEALS) - 22 [CIT(A)], MUMBAI DATED 20 /08/2014 . FIRST, ITA NO. 6769 /MUM/20 1 4 ITA NO.6848/MUM/2014 M/S. JK SURFACE COATINGS PVT. LTD ASSESSMENT YEAR: 2009 - 10 2 WE TAKE UP THE ASSESSEES APPEAL IN ITA NO.6769/MUM/2014 WHEREIN THE ASSES SEE IS PRIMARILY AGGRIEVED BY CONFIRMATION OF ADDITION WITH RESPECT TO BOGUS PURCHASES . 2. FACTS QUA THE DISPUTE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF INDUSTRIAL ANTI/CORROSIVE/PROTECTIVE COATING APPLICATORS, WHO FI LED ITS RETURN OF INCOME FOR IMPUGNED AY DECLARING TOTAL INCOME OF RS.1,97,39,943/ - WHICH WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 [THE ACT]. THE ASSESSEES CASE WAS SOUGHT TO BE REOPENED BY THE ASSESSING OFFICER [ AO ] U/S 148 OF THE ACT ON THE BASIS OF INFORMATION RECEIVED FROM THE INVESTIGATION WING OF THE INCOME TAX DEPARTMENT THAT THE ASSESSEE HAD OBTAINED BOGUS PURCHASE BILLS FROM 14 PARTIES TOTALING RS.2,47,15,690/ - WHICH WERE STATED TO BE HAWALA OPERATORS. THE ASSESSEE CONTENDED THAT HE WA S ENGAGED IN EXTENSIVE PROJECTS AND IN NEED OF HUGE QUANTITY OF MATERIALS TO SPEED UP THE WORK OF THE PROJECTS TOWARDS COMPLETION WHICH MADE THE ASSESSEE TO MAKE PURCHASES FROM DEALERS WHO OFFERED FINE QUALITY OF MATERIAL AT RATIONAL RATES ALONG WITH EARLY DELIVERY OF THE GOODS AND THUS THE ASSESSEE, IN HASTEN, DID NOT INQUIRE MUCH ABOUT THE GENUINENESS OF THE DEALERS AND THEIR BACKGROUND IN RESPECT OF DEFAULT WITH THE SALES TAX / VAT DEPARTMENT. AO REJECTED THE SAME AND CONCLUDED THAT ASSESSEE FAILED TO PR OVE ACTUAL DELIVERY OF GOODS WITH SUPPORTING EVIDENCES AND JUSTIFY CONSUMPTION OF MATERIAL. ASSESSMENT WAS FRAMED U/S 143(3) READ WITH SECTION 147 OF THE ACT DETERMINING TOTAL INCOME AT RS.4,44,55,630/ - AFTER ADDING THE ENTIRE AMOUNT OF BOGUS PURCHASES TO THE INCOME OF THE ASSESSEE . AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY BUT GOT PARTIAL RELIEF VIDE ORDER DATED 20 /08/2014. THE CIT(A) PERUSED THE LEDGER ACCOUNT S OF THE ALLEGED BOGUS SUPPLIERS FOR SEVERAL YEARS AND THE NA TURE OF PROJECTS UNDERTAKEN BY THE ASSESSEE. HE OBSERVED THE PATTERN OF PURCHASES MADE FROM ALLEGED BOGUS PARTIES VIS - - VIS TIME GAP BETWEEN PAYMENTS MADE TO THEM. FURTHER, HE NOTICED VARIOUS DISCREPANCIES IN DELIVERY CHALLANS / INVOICES / STOCK REGISTER / TRANSPORT VEHICLE NUMBER / MATERIAL CONSUMPTION PATTERN WITH RESPECT TO ALLEGED BOGUS PURCHASES . FURTHER, HE COMPARED SUPPLY & PAYMENT PATTERN OF REGULAR SUPPLIER VIS - - VIS ALLEGED BOGUS SUPPLIER AND ULTIMATELY CONCLUDED THE IMPUGNED PURCHASES TO BE BOGUS IN NATURE . GOING FURTHER, CIT(A) OBSERVED SIMILAR SUPPLY - PAYMENT PATTERN WITH RESPECT TO THREE ADDITIONAL PARTIES AND APPLYING THE SAME ANALOGY, FURTHER ENHANCED THE AMOUNT OF BOGUS PURCHASES TO THE FOLLOWING EXTENT: - NO. NAME OF THE PARTY AMOUNT OF PURCH ASES (RS.) ITA NO. 6769 /MUM/20 1 4 ITA NO.6848/MUM/2014 M/S. JK SURFACE COATINGS PVT. LTD ASSESSMENT YEAR: 2009 - 10 3 1. RAMEX TRADE I MPEX PVT.LTD. 69,90,308/ - 2. HERMITAGE TRADING CO. PVT. LTD. 53,76,208/ - 3. URVIN GENERAL TRADING PVT. LTD. 34,34,471/ - TOTAL 1,58,00,987 / - CIT(A) FURTHER NOTED THAT AO DID NOT MADE INDEPENDENT INVESTIGATION TO ASCERTAIN TH E TRUE NATURE OF PURCHASES AND EXISTENCE OF SUPPLIERS BY ISSUING NOTICES U/S 133(6) OR SECTION 131. THE WORK CONTRACT RECEIPTS WERE NOT DOUBTED BY AO AND THEREFORE, IN THE ABSENCE OF PURCHASES, IT WAS NOT POSSIBLE FOR ASSESSEE TO CARRY OUT THE CONTRACT WOR K OF THIS MAGNITUDE. THEREFORE, PURCHASE OF MATERIAL IN CASH FROM OPEN MARKET COULD NOT BE RULED OUT AGAINST WHICH SUCH BOGUS BILLS HAVE BEEN PROCURED BY THE ASSESSEE. FURTHER, THE MATERIAL CONSUMPTION RATIO DID NOT SHOW ABNORMAL VARIATION AND FOUND TO BE WITHIN A NARROW RANGE. OBSERVING ALL THESE FACTORS AND RELYING UPON VARIOUS JUDICIAL PRONOUNCEMENTS, THE LD. CIT(A) CONCLUDED THAT ONLY PROFIT ELEMENT EMBEDDED IN THE BOGUS PURCHASES WAS REQUIRED TO BE ADDED TO THE INCOME OF THE ASSESSEE. ULTIMATELY, HE UP HELD DISALLOWANCE TO THE EXTENT OF 15% OF BOGUS PURCHASE S WITH RESPECT TO 17 PARTIES AMOUNTING IN ALL TO RS.3,70,82,206/ - . AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US AND ASSAILED HIGH ADDITION SUSTAINED BY CIT(A). THE LD. COUNSEL FOR ASSESSEE [AR] FAIR LY STATED THAT ADDITION, IF ANY, I S TO BE SUSTAINED THEN IT SHOULD BE RESTRICTED WITHIN THE RANGE OF 5% TO 7.5% OF BOGUS PURCHASES , WHICH IS GENERAL PROFIT MARGIN IN SUCH CONTRACTS. THE REVENUE IN CROSS APPEAL IS AGGRIEVED BY THE SUBSTANTIA L RELIEF PROVIDE D BY CIT(A) AS AGAINST FULL ADDITION MADE BY AO . THE LD. DR CONTENDED THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE THE PURCHASES AT ALL AND ALL THE PURCHASES ARE MERE ACCOMMODATION ENTRIES WHICH DEMAND FULL DISALLOWANCE. 3. WE HAVE HEARD THE RIVAL CONTEN TIONS AND PERUSED THE MATERIAL ON RECORD. THE FACTUAL MATRIX IS NOT IN DISPUTE. THE ONLY GRIEVANCE IS WITH RESPECT TO EXTENT OF ADHOC DISALLOWANCE TO BE SUSTAINED WITH RESPECT TO BOGUS PURCHASE S . THE TRIBUNAL, IN ALL SUCH CASES, HAS INVARIABLY TAKEN A STAN D THAT WHEN GP/NP RATES ARE COMPARABLE AND SALES FIGURES ARE NOT DISPUTED BY THE REVENUE THEN ENTIRE PURCHASES DO NOT DESERVE DISALLOWANCE RATHER SOME ADHOC DISALLOWANCE RANGING FROM 5% TO 12.5% HAS BEEN FOUND TO BE A REASONABLE ESTIMATION OF PROFIT ELEMEN T EMBEDDED IN THE BOGUS PURCHASES PARTICULARLY WHEN MATERIAL CONSUMPTION FACTOR DO NOT SHOW ABNORMAL DEVIATIONS. WE ALSO OBSERVE THAT CIT(A) HAS ENHANCED THE AMOUNT OF BOGUS PURCHASES WITH RESPECT TO THREE MORE PARTIES AGGREGATING TO ITA NO. 6769 /MUM/20 1 4 ITA NO.6848/MUM/2014 M/S. JK SURFACE COATINGS PVT. LTD ASSESSMENT YEAR: 2009 - 10 4 RS.1,58,00,987/ - WITHO UT CONFRONTING THE SAME TO THE ASSESSEE. THE ADDITION SUSTAINED BY AO AMOUNTED TO RS.2,47,15,690/ - AND AFTER ADDING ENHANCEMENT OF 3 PARTIES MADE BY CIT(A) AS ABOVE AGGREGATING RS.1,58,00,987/ - , THE TOTAL AMOUNT OF BOGUS PURCHASES COMES TO RS.4,05,16,677/ - WHEREAS THE FIGURES OF BOGUS PURCHASE HAS BEEN TAKEN AS RS.3,70,82,206/ - IN THE CIT(A) ORDER WHICH LEADS TO THE DIFFERENCE OF RS.34,34,471/ - . THE SAME IS REPRESENTED BY PARTY AT SERIAL NO. 3 IN THE ABOVE TABLE VIZ. M/S URVIN GENERAL TRADING CO. PVT. LTD . W E FURTHER NOTE THAT PARTY NO. 2 & 3 IN THE ABOVE TABLE ALSO FIGURES IN THE L IST OF 14 DEALERS SELECTED BY THE AO. THEREFORE, TO SUM UP, WE DIRECT THAT ASSESSEE SHALL SUFFER DISALLOWANCE WITH RESPECT TO BOGUS PURCHASE S TO THE EXTENT OF 10% OF RS.2,47,15, 690/ - AS AGAINST FULL DISALLOWANCE MADE BY AO. THE SAME COMES TO RS. 24,71,569/ - . CIT(A) HAS ENHANCED BOGUS PURCHASES WITH RESPECT TO THREE PARTIES, TWO OF WHICH ALREADY FIGURE IN THE LIST OF AO. THEREFORE, NO FURTHER ADDITIONS SHALL BE MADE AGAINST PARTY A T SERIAL NO. 2&3 OF THE ABOVE TABLE. QUA FIRS T PARTY NAMELY M/S RAMEX TRADING IMPEX PVT. LTD. FOR RS.69,90,308/ - , THE MATTER IS REMI TTED BACK TO THE FILE OF CIT(A) F OR FRESH ADJUDICATION AFTER PROVIDING SUITABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . THE ASSESSEE IS DIRECTED TO SUBSTANTIATE ITS CLAIM BEFORE CIT(A) FORTHWITH, F AILING WHI C H CIT(A) SHALL BE AT LIBERTY TO DECIDED THE ISSUE ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. THE APPEAL OF THE ASSESSEE IS THUS PARTLY ALLOWED AND THAT OF REVENUE IN ITA NO.6848 IS DISMISSED . 4. IN NUTSHELL, THE APPEAL OF TH E AS SESSEE IS PARTLY ALLOWE D . THE APPEAL OF THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH NOVEMBER, 2016 SD/ - SD/ - (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 18 .11 .201 6 LAKSHMIKANTA DEKA /SR.PS ITA NO. 6769 /MUM/20 1 4 ITA NO.6848/MUM/2014 M/S. JK SURFACE COATINGS PVT. LTD ASSESSMENT YEAR: 2009 - 10 5 / 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 SR. NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATION SHEETS ARE ATTACHED 15.11.16 SR.PS/PS 2 DRAFT DICTATED ON 16.11.16 SR.PS/PS 3 DRAFT PLACED BEFORE AUTHOR 16.11.16 SR.PS/PS 4 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER - JM/AM 5 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 6 APPROVED DRAFT COMES TO THE SR.PS/PS 17.11.16 SR.PS/PS 7 ORDER PRONOUNCEMENT ON 18.11.16 SR.PS/PS 8 FILE SENT TO THE BENCH CLERK 18.11.16 SR.PS/PS 9 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 10 DATE ON WHICH FILE GOES TO THE AR 11 DATE OF DISPATCH OF ORDER