DCIT CEN CIR 1(2), MUMBAI V. SEARS CONSTRUCTION P.LTD, MUMBAI

ITA 6976/MUM/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9784 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 29-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUNIL K JHA
• Assessee Lawyers: SWATI PATRAWALA
• Keywords: Bogus purchase; Business income; Search and seizure; Tax effect
• Section: 133A; 132

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) I.T.A. NO. 6976 /MUM/ 2 016 (ASSESSMENT YEAR 20 11 - 12 ) DCIT, CENTRAL CIRCLE - 1(2) ROOM NO. 906 PRATISHTHA BHAVAN 10 TH FLOOR, OLD CGO BLDG ANNEXE, MUMBAI - 400 020. VS. M/S. SEARS CONSTRUCTIONS PVT. LTD. 514, DALAMAL TOWERS 211, NRIMAN POINT MUMBAI - 400 021. PAN : AAACS5289E ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY MISS. SWATI PATRAWALA DEPARTMENT BY SHRI SUNIL K. JHA DATE OF HEARING 3 . 5 . 201 7 DATE OF PRONOUNCEME NT 25 .7 . 201 7 O R D E R THE REVENUE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 26.9.2016 PASSED BY THE LEARNED CIT(A) - 47, MUMBAI AND IT RELATES TO A.Y. 2011 - 12. THE REVENUE IS CHALLENGING THE DECISION RENDERED BY LD CIT(A) ON THE FOLLOWING I SSUES: - (A) NATURE OF INTEREST INCOME RECEIVED BY THE ASSESSEE . (B) ADDITION RELATING TO NON - GENUINE PURCHASES. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT OF PROPERTIES. THE COMPANY PURCHASED LAND AT SAHAR, ANDHERI, MUMBAI AND STARTED CONSTRUCTION OF COMMERCIAL BUILDING THEREON. SEARCH AND SEIZURE ACTION U/S. 132 OF THE ACT AND SURVEY ACTION U/S. 133A OF THE ACT WERE INITIATED IN THE CASE OF HIRANANDANI GROUP ON 11.3.2014. THE ASSESSEE IS ONE OF THE COMPANIES BELONGING TO H IRANANDANI GROUP. DURING THE COURSE OF SEARCH PROCEEDINGS, CERTAIN INCRIMINATING DOCUMENTS BELONGING TO ASSESSEE - COMPANY WERE ALSO SEIZED. CONSEQUENTLY, PRESENT ASSESSMENT WAS COMPLETED BY THE ASSESSING OFFICER U/S. 153C READ WITH SECTION 143 (3) OF THE ACT . M/S. SEARS CONSTRUCTIONS PVT. LTD. 2 3. THE ASSESSEE HAD RECEIVED INTEREST INCOME OF ` 3,44,411/ - FROM FIXED DEPOSITS HELD IN BANKS. THE ASSESSEE OFFERED THE SAME AS BUSINESS INCOME. HOWEVER, THE AO ASSESSED THE SAME UNDER THE HEAD INCOME FROM OTHER SOURCES . 4. DURING THE COU RSE OF SEARCH PROCEEDINGS , A STATEMENT OF SENIOR PROJECT MANAGER (PURCHASE) NAMED SHRI DEEPAK TUKARAM VIBHUTE WAS RECORDED WHO ADMITTED THAT THE ASSESSEE GROUP HAS INDULGED IN CLAIMING DEDUCTION BY WAY OF BOGUS PURCHASES. THE S TATEMENT OF SHRI DEEPAK VIBH UTE WAS ALSO CONFIRMED BY THE DIRECTOR SHRI NIRANJAN HIRANANDANI. NON - GENUINE PURCHASE S ACCOUNTED IN THE ASSESSEES HANDS FOR THE YEAR UNDER C ONSIDERATION WAS WORKED OUT AT ` 98,28,878/ - . SINCE THE ASSESSEE WAS EXECUTING THE PROJECT DURING THE YEAR UNDE R CONSIDERATION, ALL THE EXPENSES WERE ACCOUNTED AS WORK IN PROGRESS. ACCORDINGLY, THE ASSESSING OFFICER REDUCED THE ABOVE SAID SUM OF ` 98,28,878/ - FROM VALUE OF WIP. THUS INCOME OF THE ASSESSEE WAS ACCORDINGLY COMPUTED AT ` 3,44,410/ - , BEING INTEREST INCOME RECEIVED FROM FIXED DEPOSITS ASSESSED AS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES . 5 . THE ASSESSEE CONTENDED BOTH ISSUES BEFORE THE LEARNED CIT(A). THE FIRST APPELLATE AUTHORITY HELD THAT INTEREST INCOME FROM BANK HAS TO BE ASSESSED AS BUS INESS INCOME AND IN THIS REGARD, HE TOOK SUPPORT FROM THE DECISION DATED 5.8.2015 RENDER ED BY THE TRIBUNAL IN ITA NO. 6173/MUM/2014 IN ASSESSEES OWN CASE. THE REVENUE IS AGGRIEVED BY THE SAID DECISION OF LD CIT(A). 6. I HAVE HEARD THE PARTIES ON THIS ISSUE AND I NOTICE THAT THE TRIBUNAL HAS EXAMINED AN IDENTICAL ISSUE IN THE ASSESSEES OWN CASE REFERRED ABOVE. THE TRIBUNAL HAS NOTED THE FACT THAT THE ASSESSEE HAD AVAILED LOAN FROM BANKS AND THE FUNDS WHICH ARE NOT IMMEDIATELY REQUIRED WERE DEPOSITED B Y WAY OF SHORT TERM DEPOSITS IN ORDER TO EARN INTEREST. THE TRIBUNAL NOTED THAT THE PURPOSE OF PARKING OF FUNDS WITH BANKS IN DEPOSITS WAS TO REDUCE THE BURDEN OF INTEREST EXPENDITURE. ACC ORDINGLY, BY FOLLOWING DECISION RENDERED BY SMC BENCH OF M/S. SEARS CONSTRUCTIONS PVT. LTD. 3 TRIBUNAL I N THE CASE OF M/S GAMMA CONSTRUCT IONS P LTD (ITA NO.530/MUM/2012 DATED 25.5.2012), THE TRIBUNAL HELD THAT THE INTEREST INCOME IS ASSESSABLE UNDER THE HEAD BUSINESS. SINCE THE LD CIT(A) HAS FOLLOWED THE DECISION RENDERED BY THE TRIBUNAL, I DO NOT FIND ANY REASON TO INTERFERE WITH THE DECISION RENDERED BY HIM ON THIS ISSUE. 7. WITH REGARD TO THE SECOND ISSUE RELATING TO NON - GENUINE PURCHASES, THE ASSESSEE CONTENDED BEFORE LD CIT(A), THE IMPUGNED ADDITIONS RELATE TO GENUINE PURCHASES. IN THIS REGARD, THE ASSESSEE PLACED RELIANCE ON THE PETITION FILED BEFORE HONBLE SETTLEMENT COMMISSION AND ALSO TO THE ACCOUNTING CODES. THE LD CIT(A) WAS SATISFIED WITH THE SUBMISSIONS OF THE ASSESSEE AND ACCORDINGLY DELETED THE ADDITION OF ` 98,28,878/ - WITH THE FOLLOWI NG OBSERVATIONS: - 6.3.5. IN THE APPEAL, THE APPELLANT HAS SUBMITTED THAT IN POST SEARCH INVESTIGATION, STATEMENT OF SHRI NIRANJAN HIRANANDANI WAS RECORDED ON 12.05.2014, THE TOTAL NON - GENUINE PURCHASES QUANTIFIED DURING POST SEARCH PROCEEDINGS AGGREGATIN G TO ` 60,28,51,896.50. THE SAID AMOUNT WAS DETERMINED BY AGGREGATING PURCHASES FROM PARTIES LISTED BY MAHARASHTRA VAT AUTHORITIES AS SUSPICIOUS DEALERS IN CASE OF VARIOUS ENTITIES OF THE GROUP. GROUP HAS FILED APPLICATION FOR SETTLEMENT IN THE ELEVEN GROU P CASES WHERE AMOUNT OF PURCHASES INVOLVED IS ` 58,47,66,021/ - . THE SAID AMOUNT OF ` 60,28,51,896.50 INCLUDED BOTH GENUINE AND NON - GENUINE PURCHASES, WHICH HAVE NOT BEEN SEGREGATED. PURCHASES FROM KRISHNA STRUCTURE STEEL INDIA OF ` 97,36 1 329/ - AND TOP BRIC KS SAND AND SUPPLIERS OF ` 92,549/ WHICH ARE INCLUDED IN ARE GENUINE PURCHASES. THE APPELLANT FURTHER SUBMITTED THAT DURING THE COURSE OF SEARCH, IT WAS FOUND THAT ENTRIES FOR PURCHASES WERE MADE FROM PARTIES, WHO WERE DECLARED AS BOGUS HAWALA DEALERS BY S ALES TAX DEPARTMENT, BY THE USER ID 'CLA0016' AND THUS THESE ENTRIES OF PURCHASES ARE BOGUS. HOWEVER, IN THE PRESENT CASE, ENTRIES IN RESPECT OF PURCHASES MADE FROM KRISHNA STRICTURE STEEL INDIA OF ` 97,36,329/ - AND TOP BRICKS SAND AND SUPPLIERS OF ` 92,54 9/ - ARE PASSED BY USER ID CLA0062. THUS THE ABOVE PURCHASES ARE GENUINE AND FULLY 'ALLOWABLE. 6 .3.6. I HAVE CONSIDERED THE FACTS ON HAND. THE AO HAS DISALLOWED THE APPELLANT'S CLAIM OF PURCHASES CONSIDERING THE FACT WITH RESPECT TO M/S. SEARS CONSTRUCTIONS PVT. LTD. 4 EVIDENCES UNEARTHED AN D GATHERED AND THE MODUS OPERANDI DETECTED DURING THE COURSE OF SEARCH AND IN VIEW OF THE ADMISSION MADE BY SHRI NIRANJAN HIRANANDANI, MANAGING DIRECTOR, AFTER HAVING CONFRONTATION OF THE EVIDENCES GATHERED AND ALSO APPLICATION U/S . 245C MADE BY THE GROUP CONCERN OF THE APPELLANT COMPANY BEFORE THE SETTLEMENT COMMISSION FOR ADMITTING TO INFLATION OF PURCHASES THROUGH BOGUS PURCHASES. THE AO HAS, HOWEVER, NOT VERIFIED THE FACT THAT IN THE APPELLANT'S CASE THE TRANSACTIONS OF PURCHASES WERE MADE BY THE USER I D CLA0062, WHICH WAS FOUND TO BE RELATED TO THE GENUINE PURCHASES, AND NOT BY THE USER ID CLA0016, WHICH WAS FOUND AS BOGUS ENTRY PROVIDER OF PURCHASE DURING THE COURSE OF SEARCH. IT MAY BE RELEVANT TO MENTION HERE THAT THE APPELLANT HAD APPROACHED THE SET TLEMENT COMMISSION IN RESPECT OF THE BOGUS PURCHASES WHICH WERE MADE THROUGH ENTRY PROVIDER USING ID CLA0016 AND NOT THROUGH ID CLA0062, WHICH WAS USED FOR GENUINE PURCHASES. HENCE, I AGREE WITH THE CONTENTION OF THE APPELLANT THAT THE PURCHASES MADE FROM KRISHNA STRUCTURE STEEL INDIA OF ` 97,36,329/ - AND TOP BRICKS SAND AND SUPPLIERS OF ` 92,549/ - ARE GENUINE, AND THUS, FULLY ALLOWABLE. THIS GROUND RAISED BY THE APPELLANT IS ALSO ALLOWED. 8. IT IS THE CONTENTION OF THE LD D.R THAT THE LD CIT(A) HA S GRANTED RELIEF TO THE ASSESSEE BY CONSIDERING NEW EXPLANATIONS AND MATERIALS. ACCORDINGLY THE LD D.R SUBMITTED THAT THE LD CIT(A) HAS VIOLATED THE PROVISIONS OF RULE 46A OF THE I.T RULES. 9. ON THE CONTRARY, THE LD A.R SUBMITTED THAT THE LD CIT(A) H AS DECIDED THE ISSUE AFTER PROPERLY APPRECIATING FACTUAL ASPECTS OF THE MATTER AND ACCORDINGLY CONTENDED THAT THE ORDER OF LD CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. 10. HOWEVER I NOTICE FROM THE ASSESSMENT ORDER THAT THE DIRECTOR SHRI NIRANJAN HIRA NANDANI HAS FURNISHED COMPANY - WISE BREAK UP DETAILS OF NON - GENUINE PURCHASES AND THE IMPUGNED ADDITION HAS BEEN MADE BY THE AO ON THE BASIS OF THAT STATEMENT ONLY. THE AO HAS ALSO NOTED THE FACT THAT THE ASSESSEE HAS ADMITTED BOGUS PURCHASES IN THE PETITI ON FILED BEFORE THE SETTLEMENT COMMISSION. HENCE, I AM OF THE VIEW THAT THE ASSESSEE HAS FURNISHED CERTAIN NEW EXPLANATIONS AND FACTS BEFORE THE LD CIT(A). I NOTICE THAT THE LD CIT(A) HAS ADMITTED THE SAME WITHOUT CONFRONTING IT BEFORE THE AO, WHICH IS I N VIOLATION OF RULE 46A OF THE I.T RULES. ACCORDINGLY I SET ASIDE THE M/S. SEARS CONSTRUCTIONS PVT. LTD. 5 ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THE CLAIM OF THE ASSESSEE AFRESH AND TAKE APPROPRIATE DECISION IN ACCORD ANCE WITH THE LAW. 11. THE ASSESSEE HAS ALSO TAKEN A PLEA THAT THE TAX EFFECT INVOLVED IN THIS APPEAL OF REVENUE IS LESS THAN RS.10.00 LAKHS AND HENCE THIS APPEAL IS LIABLE TO BE DISMISSED AS PER THE CIRCULAR NO.21/2015 DATED 10 - 12 - 2015. HOWEVER, I NO TICE THAT THE REVENUE IS ALSO CONTESTING THE RELIEF OF ` 98.28 LAKHS , BESIDES THE RELIEF GRANTED IN RESPECT OF INTEREST INCOME . EVEN THOUGH TH E ABOVE SAID AMOUNT HAS BEEN REDUCED FROM THE WORK IN PROGRESS AND DOES NOT HAVE IMMEDIATE TAX EFFECT DURING TH E INSTANT YEAR, THE SAME WOULD HAVE TAX EFFECT EXCEEDING RS.10.00 LAKHS, WHEN THE ASSESSEE OFFERS INCOME AS PER HIS METHOD OF ACCOUNTING. THE CBDT HAS CLARIFIED IN PARAGRAPH 4 OF THE CIRCULAR, REFERRED SUPRA, THAT THE TAX EFFECT WOULD INCLUDE NOTIONAL TA X ON DISPUTED ADDITIONS. HENCE I AM OF THE VIEW THAT THE NOTIONAL TAX EFFECT ON THE DISPUTED ADDITION S IS MORE THAN RS.10.00 LAKHS AND HENCE THIS APPEAL OF THE REVENUE IS MAINTAINABLE. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS TREATED AS PARTL Y ALLOWED FOR STATISTICAL PURPOSES. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 25 .7 . 201 7. SD/ - (B.R.BASKARAN) ACCOUNTANT MEMBER MUMBAI ; DATED : 25 / 7 / 20 1 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI M/S. SEARS CONSTRUCTIONS PVT. LTD. 6 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) PS ITAT, MUMBAI