KUSUM ELECTRICAL INDUSTRIES LTD, MUMBAI V. ITO 6(3)(4), MUMBAI

ITA 7056/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0771 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2017
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 02-12-2016
• Court: TRIBUNAL
• Department Lawyers: A K KARDA M
• Keywords: Bogus purchase; Principle of natural justice; Accommodation entries; Reason to believe
• Section: 69C; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM ITA NO. 7056 / MUM/20 1 6 & 7057/MUM/2016 ( ASSESSMENT YEAR : 2009 - 10 & 2010 - 11 ) M/S. KUSAM ELECTRICAL INDUSTRIES LTD., G - 17, BHARAT INDUSTRIAL ESTATE, T.J.ROAD, SEWREE(W) , MUMBAI 400 015 VS. ITO 6 (3)(4), MUMBAI PAN/GIR NO. AABCK3644E APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI PIYUSH CHHAJED REVENUE BY SHRI A.K. KARDAM DATE OF HEARING 09 / 05 /201 7 DATE OF PRONOUNCEME NT 15 / 05 /2 01 7 / O R D E R PER R.C.SHARMA (A.M) : THESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 12, MUMBAI DATED 12/08/2016 FOR THE A.Y.2009 - 10 & 2010 - 11 IN THE MATTER OF ORDER PASSED U/S.143(3) R.W.S.147 OF THE IT ACT. 2. RIVAL C ONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 3. IN BOTH THE YEARS UNDER CONSIDERATION AO MADE ADDITION ON THE BASIS OF INFORMATION FROM THE SALES TAX DEPARTMENT THAT ASSESSEE HAS PURCHASED GOODS FROM THE DEALER WHO WERE FOUND TO BE BOGUS. ACCORDINGLY , TH E ENTIRE PURCHASES WERE ADDED BY THE AO U/S.69C OF THE IT ACT BY REOPENING THE ASSESSMENT. 4. BY THE IMPUGNED ORDER CIT(A) CONFIRMED THE ACTION OF THE AO AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. ITA NO. 7056 & 7057/MUM/2016 M/S. KUSAM ELECTRICAL INDUSTRIES LTD., 2 5. ASSESSEE HAS CHALLENGED VALIDITY OF REOPENIN G AS WELL AS MERIT OF THE ADDITION MADE ON ACCOUNT OF ALLEGED BOGUS PURCHASES. I HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT AS PER REASONS RECORDED FOR REOPENING, AO WAS HAVING SUFFICIENT REASON TO BELIEVE THAT INCOME OF ASSESSEE HAS ESCAPED ASSESSME NT, ACCORDINGLY REOPENING WAS JUSTIFIED . 6. WITH REGARD TO THE MERIT OF ADDITION, I FOUND THAT ASSESSEE COMPANY IS IMPORTER AND DISTRIBUTOR OF ELECTRICAL & ELECTRONIC MEASURING INSTRUMENTS. THE COMPANY IMPORTS MEASURING METERS I.E. ELECTRICAL AND ELECTRON IC MEASURING INSTRUMENTS FROM CHINA, TAIWAN & HONGKONG. IN INDIA, THE COMPANY SELLS ITS METERS THROUGH ITS DEALER NETWORK, SPREAD THROUGHOUT INDIA. IN CASE OF DIRECT ENQUIRIES THE ASSESSEE COMPANY ALSO SUPPLIES METERS DIRECTLY TO MANUFACTURING UNITS. THE A SSESSEE COMPANY IMPORTS THESE METERS BASED ON THE ORDERS AND SPECIFICATIONS GIVEN TO THE MANUFACTURER UNDER ITS OWN BRAND NAME I.E. 'KUSAM - MECO'. THESE METERS ARE IMPORTED GENERALLY THROUGH SHIP AND AFTER CLEARANCE AT PORT I.E. AFTER PAYING CUSTOM DUTY, CL EARING AND FORWARDING CHARGES ETC, THE ASSESSEE COMPANY RECEIVES THE ABOVE METERS IN ITS GODOWN. ON THE BASIS OF INFORMATION RECEIVED FROM THE DY. COMMISSIONER OF SALES TAX; INVESTIGATION DIVISION, NOTICE HAS BEEN ISSUED U/S.148. 7 . IT WAS CONTENTION OF L EARNED AR THAT THE SALES TAX DEPARTMENT HAS INCLUDED CERTAIN PARTIES IN THE LIST ONLY BECAUSE THE SAID PARTIES HAVE NOT RESPONDED TO THEIR NOTICES; IT IS QUITE OBVIOUS THAT IN CASE THE BUSINESS HAS CLOSED THAN THERE WOULD BE NOBODY TO RECEIVE THE NOTICE S. AS PER LEARNED AR IT IS ALSO NOT KNOWN AS TO WHAT ARE THE EVIDENCES IN ITA NO. 7056 & 7057/MUM/2016 M/S. KUSAM ELECTRICAL INDUSTRIES LTD., 3 POSSESSION WITH THE SALES TAX DEPARTMENT FOR CLASSIFYING THE SAME. THE INCOME TAX DEPARTMENT IS ALSO NOT AWARE AS TO HOW 'THE SALES TAX DEPARTMENT HAS COME TO A CONCLUSION THAT THOSE DE ALERS ARE ONLY PROVIDING ACCOMMODATION ENTRIES. IN FACT, IT WILL BE APPRECIATED THAT THE DEALERS WHO HAVE SUPPLIED THE MATERIAL BUT DUE TO FINANCIAL CRUNCH HAVE NOT BEEN ABLE TO PAY SALES TAX HAVE BEEN ALSO CLASSIFIED AS NON GENUINE DEALERS. THUS IN ABSENC E OF ANY SPECIFIC INFORMATION OR EVIDENCE WITH THE INCOME TAX DEPARTMENT THAT THOSE PURCHASES WERE NEVER MADE BY THE ASSESSEE COMPANY, THE SAME CANNOT BE CONSIDERED AS NON - GENUINE. 8 . MY ATTENTION WAS ALSO INVITED TO THE NOTICE ISSUED BY THE SALES TAX DEPA RTMENT WHEREIN SALES TAX DEPARTMENT HAS ONLY DISALLOWED VAT SET OFF CLAIMED BY THE A SSESSEE COMPANY AND HAS NOT DISALLOWED THE PURCHASES IN ITS ASSESSMENT ORDER, THEREBY THE PURCHASES HAVE BEEN ACCEPTED BY THE SALES TAX DEPARTMENT AND D UE TO NON - PAYMENT OF VAT BY THE SELLER, THE VAT SET OFF CLAIMED BY THE A SSESSEE COMPANY HAS BEEN DISALLO WED. 9 . MY ATTENTION WAS ALSO INVITED TO ASSESSEES LETTER DATED 20 TH NOVEMBER 2014, WHEREIN THE ASSESSEE HAD REQUESTED THE LEARNED A.O. TO PROVIDE THE FOLLOWING DOCUMENTS/ INFORMATION TO THE A SSESSEE IN CASE THE LEARNED A.O. PROPOSES TO USE ANY MATERIAL AGAINST A SSESSEE : 1. COPY OF STATEMENT OF THIRD PARTY RECORDED BY THE SALES TAX DEPARTMENT. ITA NO. 7056 & 7057/MUM/2016 M/S. KUSAM ELECTRICAL INDUSTRIES LTD., 4 2. OPPORTUNITY TO CROSS - EXAMINE THOSE PARTIES. 3. COPIES OF ANY OTHER DOCUMENT ARY EVIDENCE AVAILABLE WITH THE ASSESSING OFFICER IN RESPECT OF ABOVE STATED PARTIES. 4. COPY OF STATEMENT RECORDED BY THE SELLER IN CASE OF THE ABOVE STATED FOUR PARTIES STATING THAT THE ASSESSEE COMPANY WAS ISSUED THE BOGUS BILLS AS ALLEGED/ STATED BY L EARNED A.O. IN THE REASONS U/S 148 ISSUED BY HIM. HOWEVER THE LEARNED AO FAILED TO PROVIDE ABOVE INFORMATION TO THE A SSESSEE COMPANY AND THEREBY THE PROCESS OF NATURAL JUSTICE IS DENIED 10 . FROM THE RECORD I FOUND THAT IN A.Y. 2009 - 10, THE ASSESSEE COMPAN Y HAD PURCHASED PACKING MATERIAL AND CONSUMABLES TO T HE EXTENT OF RS.9 ,26,5 99 - FROM THE SAID PARTIES . T HE A SSESSEE HAD DURING THE COURSE OF ASSESSMENT PROCEEDINGS SUBMITTED THE COPIES OF LEDGER ACCOUNTS, PURCHASE BILLS, DELIVERY CHALLANS AND BANK STATEMENT S CONFIRMING THAT THE ABOVE PURCHASES HAD BEEN ACCOUNTED IN THE BOOKS OF ACC OUNT AND THE PAYMENT FOR THE SA ME HAVE BEEN MADE THROUGH BANK ACCOUNT APPEARING IN A SSESSEE COMPANY'S BOOKS OF ACCOUNTS . I ALSO FOUND THAT WHILE MAKING THE ADDITION, THE LEARNED A. O. ALSO FAILED TO APPRECIATE THAT THE TOTAL PURCHASES DEBITED TO PROFIT& LOSS ACCOUNT FROM THE FOUR PARTIES WAS NOT RS.9,26,599/ - SINCE THE SAME WAS INCLUSIVE OF VAT AND THEREFORE NET PURCHASES THAT WERE DEBITED TO PROFIT & LOSS ACCOUNT WAS ONLY RS.8,61,2 53 / - . THE SOURCE OF THE FUNDS FOR MAKING THE PAYMENT TO SO - CA LLED BOGUS HAVE BEEN MADE THROUG H BANK ACCOUNT REFLECTED IN THE AUDITED BOOKS OF ACCOUNTS AND ADEQUATE SUPPORTING ALONG WITH BANK STATEMENT FOR THE PAYMENTS OF THE SAME HAVE BEEN SUBMITTED. SECTI ON ITA NO. 7056 & 7057/MUM/2016 M/S. KUSAM ELECTRICAL INDUSTRIES LTD., 5 69C DEALS WITH THE EXPENDITURE INCURRED OUT OF THE UNDISCLOSED INCOME SOURCE OF WHICH IS NOT EXPLAINED. IT DOES NOT DEAL WITH THE EXPENDITURE THAT IS INCURRED AND RECORDED IN THE REGULAR BOOKS OF ACCOUNTS. IN CASE, EVEN IF IT IS PRESUMED THAT THE ASSESS EE HAD MADE THE PURCHASES FROM THESE SUPPLIERS TO SUPPRESS THE PROFIT THEN ALSO THE DISALLOWANCE OF THE EXPENDITURE COULD HAVE BEEN MADE ONLY U/S.37 (1) OF THE I.T. ACT I.E., INCOME FROM BUSINESS AND PROFESSION. 1 1 . KEEPING IN VIEW THE VARIOUS JUDICIAL PR ONOUNCEMENTS PLACED ON RECORD AND K EEPING IN VIEW THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, I DIRECT THE AO TO MAKE ADDITION OF 5% OF SUCH PURCHASES TO COVER - UP LEAKAGE OF REVENUE IF ANY . 1 2 . FACTS AND CIRCUMSTANCES IN THE A.Y.2010 - 11 ARE SAME, THEREFORE, FOLLOWING THE REASONING GIVEN HEREINABOVE, I DIRECT THE AO TO RESTRICT THE ADDITION TO THE EXTENT OF 5% OF SUCH PURCHASES. 13 . IN THE RESULT, BOTH THE APPEALS ARE ALLOWED IN PART. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 15 / 05 /2017 S D/ - ( R.C.SHARMA ) ACCOUNTANT MEMBER MUMBAI ; DATED 15 / 05 /201 7 KARUNA SR. PS ITA NO. 7056 & 7057/MUM/2016 M/S. KUSAM ELECTRICAL INDUSTRIES LTD., 6 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//