DCIT 20(2), MUMBAI V. PARUL L. SHAH, MUMBAI

ITA 7359/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1834 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 10-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Proportionate interest
• Section: 69C; 133(6); 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH C, MU MBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.7359/MUM/2014 FOR A Y : 2010-11) DCIT, 20(2), ROOM NO. 217, SECOND FLOOR, PIRAMAL CHAMBERS, LALBAUG, PAREL, MUMBAI-400012 VS. SH. PARUL L. SHAH B- 15, ROYAL INDUSTRIAL ESTATE, NAIGAUM X ROAD , WADALA, MUMBAI -400031 PAN AAFPS3767D (APPELLANT) (RESPONDENT) ITA NO.7520/MUM/2014 FOR A Y : 2010-11 SH. PARUL L. SHAH B- 15, ROYAL INDUSTRIAL ESTATE, NAIGAUM X ROAD , WADALA, MUMBAI -400031 PAN AAFPS3767D VS. DCIT, 20(2), ROOM NO. 217, SECOND FLOOR, PIRAMAL CHAMBERS, LALBAUG, PAREL, MUMBAI-400012 (APPELLANT) (RESPONDENT) REVENUE BY MS. BEENA SANTOSH -DR ASSESSEE BY SH. JETENDRA SINGH & MS NEHA PARANJPE - AR DATE OF HEARING 16.11.2016 DATE OF PRONOUNCEMENT 18.11.2016 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH JUDICIAL MEMBER : 1. THESE TWO CROSS APPEALS UNDER SECTION 253 OF INCOME TAX ACT (ACT) BY REVENUE AND THE ASSESSEE ARE DIRECTED AGAINST THE O RDER OF COMMISSIONER (APPEALS) 29, MUMBAI, DATED 30 SEPT 2014 FOR ASSE SSMENT YEAR 2010-11. AS BOTH THE APPEALS ARE FILED AGAINST THE SAME ORDER B Y THE PARTIES, THUS CLUBBED, HEARD TOGETHER AND ARE DECIDED BY COMMON ORDER, TO AVOID THE CONFLICTING DECISIONS. ITA NO.7359 &7520/M/2014 AY 2010-11, PARUL L SHAH 2 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE FILED RET URN OF INCOME DECLARING TOTAL INCOME AT RS. 8 9,71,270/-. THE ASSESSMENT WAS COMP LETED UNDER SECTION 143( 3) ON 26, MARCH 2013. WHILE FRAMING ASSESSMENT THE AO, BESIDES OTHER ADDITION AND DISALLOWANCE MADE THE ADDITION OF RS. 52, 12,50 2/- ON ACCOUNT OF BOGUS PURCHASES AND ADDITION OF RS. 2,82,837/- ON ACCOUNT OF ON ACCOUNT OF LOWER RATE OF INTEREST. ON APPEAL BEFORE COMMISSIONER (APPEALS ) BY ASSESSEE AND THE ADDITION ON ACCOUNT OF BOGUS PURCHASES WAS RESTRIC TED TO 23% OF THE TOTAL COST OF BOGUS PURCHASES OF RS.52,12,502/- AND THE ADDI TION ON ACCOUNT OF LOWER RATE OF INTEREST WAS DELETED. THUS, AGGRIEVED BY THE ORD ER OF COMMISSIONER (APPEALS) THE REVENUE HAS FILED APPEAL AGAINST RESTRICTING TH E ADDITION @ 23% OF THE TOTAL BOGUS PURCHASES AND DELETING THE ADDITION ON ACCOUN T OF LOWER RATE OF INTEREST. AND THE ASSESSEE HAS FILED CROSS APPEAL AGAINST SUS TAINING OF ADDITIONS @ 23% OF TOTAL ALLEGED BOGUS PURCHASES. 3. WE HAVE HEARD LD DR FOR THE REVENUE AND LD AR OF TH E ASSESSEE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FIRST GROUND OF REVE NUES APPEALS RELATES TO DELETION OF DISALLOWANCE OF INTEREST OF RS. 2,82,83 7/-. NEITHER THE LD DR FOR REVENUE NOR THE AR FOR ASSESSEE ARGUED ANYTHING AGA INST THIS GROUND. WE HAVE PERUSED THE ORDER OF THE AUTHORITIES BELOW. WE HAVE SEEN THAT DURING THE ASSESSMENT AO NOTICED THAT ASSESSEE RECEIVED INTERE ST OF RS. 15,54,503/- FROM THE ITS SISTER CONCERN. THE ASSESSEE WAS ASKED TO SUBMIT DETAILS OF THE INTEREST RECEIVED AND PAID. THE ASSESSEE FURNISHED THE REPLY AND CONTENDED THAT THAT ASSESSEE BORROWED THE MONEY FOR THE PURPOSE OF BUSI NESS ONLY. THE RATE OF INTEREST AT WHICH INTEREST IS PAID RANGES FROM 6% T O 15% OF WHICH RELATE PRESENT SISTER CONCERN ARE PAID BETWEEN 6% TO 15% AND THE REST BETWEEN 12% TO 15%. THE CONTENTION OF THE ASSESSEE WAS NOT ACCEPTED BY AO HOLDING THAT M/S GANESH PAPER CORPORATION AND SHREE VINAYAK PAPERS ARE RELATED PARTIES TO THE ASSESSEE AND THE LOANS HAVE BEEN GIVEN TO THEM AT A LOWER RATE AS COMPARED TO THE MARKET RATE AS WELL AS COMPARED TO THE RATE AT WHICH FUNDS HAVE BEEN LENT BY THE ASSESSEE HIMSELF TO NON RELATED THIRD PARTIES. THE AO CALCULATED THE DIFFERENCE BETWEEN AVERAGE RATE OF INTEREST AT WHIC H LOAN WAS GIVEN TO SISTER ITA NO.7359 &7520/M/2014 AY 2010-11, PARUL L SHAH 3 CONCERN AND THE AVERAGE RATE OF INTEREST AT WHICH I NTEREST IS PAID TO NONRELATED PARTIES AND DISALLOWED PROPORTIONATE INTEREST EXPEN SES ATTRIBUTABLE TO THE DIFFERENCE BETWEEN LENDING TO THE RELATED PARTIES A ND NONRELATED PARTIES AT RS.2,82,837 /-. THE LEARNED CIT(A) WHILE CONSIDERIN G THIS GROUND OF APPEAL OBSERVED THAT THE ASSESSEE HAS SUFFICIENT CAPITAL B ALANCE AVAILABLE WITH THEM, WHICH IT CAN LEND TO THE CISTERN CONCERNED IN THE T IME OF NEED. THE CAPITAL OF THE FIRM/ ASSESSEE AS ON 31 MARCH 2009 IS AT RS. 39,53 ,704/- AND RS. 92,56,447/- AS ON 31 MARCH 2010, WHICH CLEARLY INDICATE THAT ASSES SEE HAD SUFFICIENT INTEREST- BEARING FUNDS AVAILABLE AT THEIR DISPOSAL TO ADVAN CE MONEY AT LOWER RATE OF INTEREST @ 6% AS COMPARED TO THE INTEREST PAID OR C HARGED FROM OTHER PARTIES. THE LD CIT(A) RELIED UPON THE DECISION OF HONBLE B OMBAY HIGH COURT IN CIT VERSUS RELIANCE UTILITIES AND POWER LTD (313 ITR 34 0) AND DELETED THE DISALLOWANCE. CONSIDERING THE PECULIARITY OF THE FA CTS OF THE PRESENT CASE WHEN THE ASSESSEE HAS SUFFICIENT SURPLUS FUND AVAILABL E WITH THEM AT THEIR DISPOSAL TO LEND TO ITS SISTER CONCERN AT LOWER RATE OF INTERES T COMPARED TO THE OTHER NONRELATED PARTIES NO DISALLOWANCE WAS WARRANTED. H ENCE, WE DO NOT FIND ANY INFIRMITY OR ILLEGALITY IN THE ORDER PASSED BY COMM ISSIONER (APPEALS) WHICH REQUIRE OUR INTERFERENCE. THUS THIS GROUND OF APPEA L RAISED BY THE REVENUE IS DISMISSED. 4. THE SECOND GROUND (GROUND NO. 2 TO 5) RAISED BY REV ENUE RELATES TO SUSTAINING THE DISALLOWANCE OF BOGUS PURCHASES @ 23% OF THE TO TAL PURCHASES. THE LEARNED DR OF THE REVENUE STRONGLY RELIED UPON THE ORDER OF AO AND FURTHER ARGUED THAT ASSESSEE FAILED TO PROVE THE GENUINENESS OF PURCHAS ES. IT WAS ARGUED THAT DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE WAS ASKED T O PROVE RECEIPT OF GOODS AND PROOF OF DELIVERY OF MATERIAL, CHALLANS INCLUDING T HE LORRY RECEIPT. THE ASSESSEE FAILED TO PRODUCE ANY DOCUMENTARY EVIDENCE ABOUT TH E DELIVERY OF THE GOODS. THE ONUS WAS UPON THE ASSESSEE TO PROVE THE GENUINENESS OF TRANSACTION AND THE ASSESSEE FAILED TO DISCHARGE HIS ONUS. THE LD COMMI SSIONER (APPEALS) SUSTAINED THE ADDITION @ 23% ON THE BASIS OF GP RATE DESPITE THE FACT THAT ASSESSEE HAS FAILED TO PROVE THE GENUINENESS OF TRANSACTION. THE LD DR FOR THE REVENUE ARGUED ITA NO.7359 &7520/M/2014 AY 2010-11, PARUL L SHAH 4 THAT THE ORDER OF COMMISSIONER (APPEALS) MAY BE SET ASIDE AND THAT ORDER OF AO MAY BE RESTORED. ON THE OTHER HAND LD AR OF THE ASS ESSEE ARGUED THAT THAT DURING THE ASSESSMENT PROCEEDING THE AO DID NOT FURNISHED THE ASSESSEE THE INFORMATION RECEIVED FROM THE SALE TAX DEPARTMENT. NO STATEMENT OF THE PERSONS WHICH WERE ALLEGEDLY RECORDED BY THE SALES TAX DEPARTMENT WAS SUPPLIED TO THE ASSESSEE. THE AO HAS NOT MADE ANY INDEPENDENT INQUIRY AND REL IED ON THE INFORMATION OF THE THIRD-PARTY WHILE MAKING ADDITION AGAINST THE A SSESSEE. THE ASSESSEES PROVE THE GENUINENESS OF TRANSACTION BEFORE THE ASSESSING OFFICER. THE ASSESSEE PURCHASED THE MATERIAL OF RS.52,12,502/- FROM FIVE PARTIES AND PAYMENTS WERE MADE THROUGH ACCOUNT PAYEE CHEQUES. THE SUPPLIER FR OM WHOM THE ASSESSEE PURCHASED THE MATERIAL WAS DULY REGISTERED WITH THE SALE TAX AUTHORITIES. THE MATERIALS PURCHASED FROM THE SAID PARTIES HAVE BEEN SOLD TO VARIOUS PARTIES IN THE MARKET. THE AO NOT DOUBTED THE SALE OF THE ASSESSEE . DURING THE ASSESSMENT PRECEDING ASSESSEE PRODUCE THE BILLS OF MATERIAL PU RCHASED FROM THE PARTIES. THE NAME AND ADDRESS OF THE PARTIES WERE MENTIONED ON T HE BILL ITSELF, NONE OF THE PARTY IS FOUND TO BE NON-EXISTENT. THE AO NOT ISSU ED THE NOTICE UNDER SECTION 133(6) NOR SUMMONED ANYONE OF THEM BY INVOKING POW ER UNDER SECTION 131 OF THE ACT. THE LD AR OF THE ASSESSEE ARGUED THAT THE ADDITION ON ACCOUNT OF BOGUS PURCHASES SUSTAINED BY LD COMMISSIONER (APPEALS) @ 23% IS AT HIGHER SIDE WHEN THE GP RATE WAS LOWER. IT WAS ARGUED BY LD AR OF THE ASSESSEE THAT THE ASSESSEE PURCHASED THE MATERIAL BY WAY OF GENUINE TRANSACTION AND PRAYED THAT A LENIENT VIEW MAY BE TAKEN WHILE CONSIDERING THIS GR OUND OF APPEAL. 5. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE SEEN THAT DURI NG THE ASSESSMENT PROCEEDINGS THE AO RELIED UPON THE INFORMATION RECE IVED FROM DDIT (INVESTIGATION) THAT THE ASSESSEE DURING THE RELEVA NT FINANCIAL YEAR HAS MADE CERTAIN PURCHASES FROM FIVE PARTIES WHOSE NAMES APP EARED IN THE LIST OF BOGUS BILLERS. SUCH INFORMATION WAS RECEIVED FROM SALE TA X DEPARTMENT GOVERNMENT OF MAHARASHTRA CLEARING THE BOGUS BILLERS HAVE ACCE PTED THAT THEY HAVE ONLY ISSUED BILLS TO THE ASSESSEE WITHOUT ACTUALLY DELIV ERING THE GOODS. THE AO NOTED ITA NO.7359 &7520/M/2014 AY 2010-11, PARUL L SHAH 5 THAT PURCHASES HAVE BEEN SHOWN WITHOUT RECEIPT OF A NY ACTUAL DELIVERY OF GOODS. THE AO IDENTIFIED THE FOLLOWING FIVE PARTIES. SL. NO NAME OF THE PARTIES AMOUNT (RS.) 1 MOTION TRADERS PRIVATE LIMITED 24,99,764/- 2 EVEREADY MARKETING PRIVATE LIMITED 1,26,319/- 3 SEVA ENTERPRISES 7,44,806/- 4 ABHILASHA SALES PRIVATE LIMITED 7,71,623/- 5 LAXMAN SALES PRIVATE LIMITED 10,69,990/- TOTAL 5 2, 12,502/- 6. THE AO ASKED THE ASSESSEE TO PRODUCE THE EVIDENCE I N RESPECT OF THE RIVER OF GOODS INCLUDING DELIVERY CHALLANS, RECORD RELATING TO RECEIVED AND DISPATCH OF GOODS PURCHASED FROM THE ABOVE PARTIES AND TO SHOW THE DOCUMENT RELATED WITH PACKAGING. THE ASSESSEE FILED HIS REPLY VIDE REPLY DATED 8 MARCH 2013 AND SUBMITTED THAT IN RESPECT OF PURCHASES THE INVOICES WERE RECEIVED AND MAINTAINED, SO FAR CHALLANS ARE CONCERNED THE ASSE SSEE SUBMITTED THAT HE DOES NOT KEEP CHALLANS FOR PURCHASES SINCE PAYMENT ARE M ADE AFTER DUE VERIFICATION. THE CONTENTION OF ASSESSEE WAS NOT ACCEPTED BY AO H OLDING THAT NO PROOF OF SUCH DELIVERY OF GOODS LIKE CHALLANS LORRY RECEIPT WAS SUBMITTED BY THE ASSESSEE AND THE AO MADE THE ADDITION OF ENTIRE COST OF PURC HASES HOLDING IT AS BOGUS PURCHASES AND MADE THE ADDITION UNDER SECTION 69C O F THE ACT. THE LD COMMISSIONER (APPEALS) WHILE CONSIDERING THIS GROUN D OF APPEAL OBSERVED THAT NO INDEPENDENT INVESTIGATION WAS CARRIED OUT BY AO TO PROVE THAT PURCHASES ARE BOGUS EXCEPT RELYING UPON THE CONCLUSION DRAWN BY T HE SALE TAX AUTHORITIES/INVESTIGATION WING IN RESPECT OF SUCH P ARTIES. THE INFORMATION RECEIVED FROM THE SALE TAX AUTHORITIES IS NOT SUPPO RTED WITH ANY OTHER EVIDENCE TO INITIATE INVESTIGATION ON THE ISSUE, THUS THE AO ME RELY SHOULD NOT TAKE THE INFORMATION AS BASIS FOR MAKING ADDITION WITHOUT VE RIFYING REALITY BEHIND SUCH TRANSACTION. NO NOTICE UNDER SECTION 133(6) WAS ISS UED TO ASCERTAIN THE CURRENT STATUS OF THESE BOGUS PARTIES WAS ISSUED. THE LD CI T(A) CONCLUDED THAT AO HAS NOT APPLIED HIS MIND ON PIECE OF INFORMATION RECEI VED FROM AN EXTERNAL SOURCE AND SIMPLY PROCEEDED TO TREAT THE INFORMATION AS GO SPEL TRUTH TO MAKE THE ADDITION OF BOGUS PURCHASES IN THE HANDS OF ASSESSE E. IT WAS FURTHER CONCLUDED ITA NO.7359 &7520/M/2014 AY 2010-11, PARUL L SHAH 6 THAT THE AO NOWHERE DOUBTED THE CORRESPONDING SALES MADE BY ASSESSEE AGAINST THE ALLEGED BOGUS PURCHASES DURING THE YEAR UNDER C ONSIDERATION. THE LD CIT(A) FURTHER CONCLUDED THAT CONSUMPTION OF GOODS PURCHAS ED IS RECONCILED WITH THE SALES RECORDED IN THE STOCK INVENTORY OF THE GOODS PURCHASED /SOLD AND THE PURCHASES OF MATERIAL CANNOT BE HELD AS BOGUS OR NO T GENUINE. FROM THE DETAILS SUBMITTED BY THE ASSESSEE IT CAN BE OBSERVED THAT T HE ASSESSEE HAD MADE THE PURCHASES OF VARIOUS TYPES OF ART PAPER FROM THE PA RTIES IN QUESTION AND AFTER MAKING SINCE AGAINST SUCH PURCHASES AND OFFERED THE PROFIT THERE FROM FOR TAXING IN THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDER ATION. HOWEVER, WHILE CONCLUDING THAT THE GENUINENESS OF THE PURCHASES MA DE BY ASSESSEE IS NOT IN DOUBT, WHAT IS DOUBT AT THIS ESTATE IS THE CORRECTN ESS OF THE PURCHASE PRICE SHOWN ON THE INVOICES ISSUED BY THE IMPUGNED PARTIES. AS THE PARTIES WHO HAD ISSUED THE BILLS ARE NOT AVAILABLE FOR VERIFICATION, THE P URCHASE PRICE SHOWN ON THE INVOICES ISSUED BY THOSE PARTIES IN QUESTION CANNOT BE ACCEPTED IN ABSENCE OF PROPER VERIFICATION AND THUS IN SUCH CIRCUMSTANCES, IT CAN BE HELD THAT SUCH PURCHASES ARE OVER- INVOICED RESULTING IN LOWERING DOWN THE GROSS PROFIT. COMMISSIONER FURTHER CONCLUDED THAT ASSESSEE HAS SH OWN GROSS PROFIT OF 20.16% DURING THE YEAR UNDER CONSIDERATION. AFTER CONSIDER ING THE GP RATIO RENDERED CIT (APPEALS) HELD THAT IF GROSS PROFIT @ 23% IS APPLIE D ON THE TOTAL COST OF IMPUGNED BOGUS PURCHASES THE GROSS PROFIT ON THE SA ME WOULD COME TO RS.11,98,875/-. AND THE LD COMMISSIONER (APPEALS) R ESTRICTED THE DISALLOWANCE AT RS 11,98,875/- AND GRANTED THE RELIEF OF RS. 40, 13,627/-TO THE ASSESSEE. CONSIDERING THE FACTS THAT THE GENUINENESS OF THE P URCHASES MADE BY THE ASSESSEE WAS NOT DOUBTED BY LD COMMISSIONER (APPEALS) THE DI SALLOWANCE RESTRICTED @23% TO OUR OPINION IS AT HIGHER SIDE. THUS AS PER OUR CONSIDERED OPINION THE DISALLOWANCE @ 15% OF TOTAL IMPUGNED PURCHASES WOUL D BE SUFFICIENT TO MEET THE END OF JUSTICE. WE ACCORDINGLY DIRECT THE AO TO CALCULATE THE DISALLOWANCE IS OF IMPUGNED BOGUS PURCHASES @15% OF TOTAL COST OF I MPUGNED PURCHASES. WITH THIS OBSERVATION THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED. ITA NO.7359 &7520/M/2014 AY 2010-11, PARUL L SHAH 7 7. AS WE HAVE PARTLY ALLOWED THE APPEAL OF THE ASSESSE E IN THE RESULT THE APPEAL FILED BY REVENUE IS DISMISSED WITH THE OBSERVATION MADE HEREINABOVE. 8. IN THE RESULT APPEAL FILED BY THE REVENUE IS DISMIS SED AND APPEAL FILED BY ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18 TH NOVEMBER, 2016. SD/- SD/- (B.R.BASKARAN) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 18/11/2016 S.K.PS 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/