POWERFLEX INDUSTRIES, MUMBAI V. ASST CIT 31(2), MUMBAI

ITA 7380/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6048 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 14-12-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHISH K V
• Assessee Lawyers: ROHAN DESHPANDE
• Keywords: Bogus purchase; Tangible material
• Section: 147; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI , JM ITA NO. 7380 / MUM/20 16 ( ASSESSMENT YEAR : 2009 - 10 ) M/S. POWERFLEX INDUSTRIES PLOT NO.500, POWERFLEX HOUSE, SONAWALA X ROAD NO.2, GOREGAON (E) MUMBAI 400 063 VS. ASST. CIT 31(2) 1 ST FLOOR, C - 13 PRATYAKSHAKAR BHAVAN BKC, BANDRA MUMBAI PAN/GIR NO. AAAFP0309B APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI ROHAN DESHPANDE REVENUE BY SHRI ASHISH K V DATE OF HEARING 11/06 /201 8 DATE OF PRONOUNCEMENT 02 / 07 /201 8 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 42, MUMBAI DATED 25/08/2016 FOR A.Y.2009 - 10 IN THE MATTER OF ORDER PASSED U/S.143(3) R.W. S. 147 OF THE IT ACT. 2. IN THIS APPEAL, ASSESSEE IS AGGRIEVED FOR ADDITION OF RS.1,31,07,620/ - ON ACCOUNT OF BOGUS PURCHASES. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS O F MANUFACTURING OF ENGINEERING GOODS. THE ASSESSEE HAD FILED ITS RETURN OF ITA NO. 7380/MUM/2016 M/S. POWERFLEX INDUSTRIES 2 INCOME ON 25.09.2009 DECLARING TOTAL INCOME OF RS. 46,56,460/ - . THIS RETURN OF INCOME WAS ONLY PROCESSED U/S 143(1) OF THE ACT. SUBSEQUENTLY THE AO RECEIVED INFORMATION FROM THE OFFICE OF THE DGIT (LNV.) THAT THE ASSESSEE IS A BENEFICIARY OF BOGUS PURCHASE BILLINGS IN F.Y. 2008 - 09 AMOUNTING TO RS. 1,31,07,620/ - . THE AO RE - OPENED THE ASSESSMENT PROCEEDINGS U/S 147 OF THE ACT ON THE BASIS OF THE ABOVE INFORMATION. IN THE RE - AS SESSMENT PROCEEDINGS THE AO DIRECTED THE ASSESSEE TO PRODUCE THE NECESSARY EVIDENCES TO SUBSTANTIATE THE PURCHASES FROM THESE 12 PARTIES. IN THE RE - ASSESSMENT PROCEEDINGS THE ASSESSEE SUBMITTED THE DETAILS OF THE PURCHASES FROM THE 12 ALLEGED SUPPLI ERS INCLUDING COPIES OF BILLS, PROOF OF PAYMENT BY CHEQUES, LEDGER CONFIRMATION ETC. THE AO ALSO MADE ENQUIRIES FROM THE ASSESSEE CONCERNING THE INPUT - OUTPUT RATIO OF THE MANUFACTURING PROCESSES (PARA 4.1 (IV) OF THE ASSESSMENT ORDER) AND THE ASSESSEE WAS ASKED TO PROVIDE DETAILED JUSTIFICATION OF THE CONSUMPTION OF MATERIALS. THE ASSESSEE FURNISHED NECESSARY DETAILS. HOWEVER, NOT CONVINCED WITH THE ASSESSEES REPLY, THE AO ADDED ENTIRE AMOUNT OF SUCH ALLEGED BOGUS PURCHASES IN ASSESSEES INCOME. 4. BY THE IMPUGNED ORDER, CIT(A) CONFIRMED THE ACTION OF THE AO AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. 5. IT WAS ARGUED BY LEARNED AR THAT THE LIST PUBLISHED BY THE VAT AUTHORITIES IS NOT A CONCLUSIVE LIST. IT IS FOR THIS REASON THAT THE SALES TAX D EPARTMENT IS USING THE WORD 'SUSPICIOUS', WHICH MEANS THAT IT IS A ITA NO. 7380/MUM/2016 M/S. POWERFLEX INDUSTRIES 3 TENTATIVE LIST AND NOT A CONCLUSIVE LIST. THERE IS A POSSIBILITY OF NAMES BEING DELETED ON PAYMENT OF VAT AND IN FACT THIS HAS BEEN DONE BY THE VAT DEPARTMENT, WHEREBY THE NAMES IN LIST ARE ADDED AS ALSO DELETED. THUS, THE DEALERS WHOSE NAME IS DELETED FROM THE LIST BECOMES AUTOMATICALLY GENUINE PARTY, WHICH OTHERWISE EARLIER WAS HELD TO BE 'HAWALA' DEALER. THEREFORE, MERELY BECAUSE THE DEALERS MIGHT HAVE NOT PAID VAT OR MIGHT HAVE NOT BEEN ALLOWED CREDIT OF SET OFF AS CLAIMED BY THEM IN THEIR VAT RETURNS AND PERHAPS DUE TO THIS REASON THE LIABILITY AROSE, WHICH MAY NOT HAVE BEEN DISCHARGED AND HENCE, THE SAID PARTY DUE TO NON - PAYMENT OF VAT TAX IS BROUGHT IN THE LIST OF SUSPICIOUS DEALERS B Y VAT DEPARTMENT. HOWEVER, MERELY ON THIS BASIS, IT CANNOT BE SAID THAT THE PARTIES ARE HAWALA DEALERS AND THEREBY TREAT THE TRANSACTIONS WITH SUCH PARTIES AS BOGUS TRANSACTIONS. THE VAT AUTHORITIES HAVE COME OUT WITH A LIST MAINLY ON ACCOUNT OF NON - PAYME NT OF VAT BY THE SAID PARTIES. U/S SECTION 48(5) OF THE MVAT ACT, EVEN IF THE ASSESSEE HEREIN DOES NOT PAY VAT TAX FOR ANY REASON, NAME OF ASSESSEE WILL ALSO APPEAR IN THE LIST DUE TO WHICH THE ASSESSEE WOULD BE ASSUMED TO BE HAWALA DEALER AND IF THE PAYME NT IS MADE, THE NAME WOULD BE DELETED. THE PROVISION OF SECTION 48(5) OF MVAT ACT IS REPRODUCED HEREUNDER FOR YOUR PERUSAL: - 'FOR THE REMOVAL OF DOUBT IT IS HEREBY DECLARED THAT, IN NO CASE THE AMOUNT OF SET - OFF OR REFUND ON ANY PURCHASE OF GOODS SHALL EX CEED THE AMOUNT OF TAX IN RESPECT OF THE SAME GOODS, ACTUALLY PAID, IF ANY, UNDER THIS ACT OR ANY EARLIER LAW, INTO THE GOVERNMENT TREASURY EXCEPT TO THE EXTENT WHERE PURCHASE TAX IS PAYABLE BY THE CLAIMANT DEALER ON THE PURCHASE OF THE SAID GOODS EFFECTED BY HIM: ITA NO. 7380/MUM/2016 M/S. POWERFLEX INDUSTRIES 4 PROVIDED THAT, WHERE TAX LEVIED OR LEVIABLE UNDER THIS ACT OR ANY EARLIER LAW IS DEFERRED OR IS DEFERRABLE UNDER ANY PACKAGE SCHEME OF INCENTIVES IMPLEMENTED BY THE STATE GOVERNMENT, THEN THE TAX SHALL BE DEEMED TO HAVE BEEN RECEIVED IN THE GOVERNMENT TREASURY FOR THE PURPOSES OF THIS SUB SECTION. ' 6 . IT WAS FURTHER CONTENDED THAT THE PRECISE INFORMATION RECEIVED FROM THE DGIT (INV.) [BASED ON SALES TAX DEPARTMENT] AGAINST THE ESCAPEMENT OF INCOME OF THE ASSESSEE IS NOT FURNISHED AND WI THOUT KNOWING THE EXACT INFORMATION, IT CANNOT BE SAID THAT ANY INCOME HAS ESCAPED ASSESSMENT. THERE IS NO NEW TANGIBLE MATERIAL COMING INTO EXISTENCE FOR VALID REOPENING OF THE ASSESSMENT AND NO SUCH VALID TANGIBLE MATERIAL IS RELIED AND OR REFERRED TO IN THE REASONS RECORDED FOR REOPENING OF THE ASSESSMENT AND NEITHER RELIED UPON IN THE REASSESSMENT ORDER, AND NO SUCH MATERIAL IS FURNISHED TO THE ASSESSEE AND HENCE, IN THE ABSENCE OF THE SAME, IT CAN BE CONCLUDED THAT NO SUCH MATERIAL EXISTS. AS PER LEARN ED AR, ALL THE PAYMENTS MADE TOWARDS THE PURCHASES MADE FROM THESE PARTIES ARE DULY RECORDED IN THE REGULAR BOOKS OF ACCOUNT AND THE PAYMENTS ARE MADE FROM REGULAR BANK ACCOUNT OF THE ASSESSEE AND THUS, THE SOURCE OF PAYMENT MADE TO THESE PARTIES IS DULY P ROVED BEYOND DOUBT AND THE SAME ARE FROM UNEXPLAINED SOURCES. THE PAYMENTS BEING MADE FROM REGULAR HAS NOT BEEN DISPUTED BY THE AO IN THE REASSESSMENT ORDER EXCEPT FOR PRESUMING THAT PARTIES MIGHT HAVE RETURNED PAYMENT TO ASSESSEE AFTER DEDUCTING SMALL COM MISSION. IN THE PRESENT CASE OF THE ASSESSEE , IT IS UNDISPUTED FACT THAT THE ASSESSEE HAS PAID FOR THE ITA NO. 7380/MUM/2016 M/S. POWERFLEX INDUSTRIES 5 PURCHASES MADE FROM THE ABOVE PARTIES BY ACCOUNT PAYEE CHEQUE DULY REFLECTED IN THE REGULAR BOOKS OF ACCOUNT OF THE ASSESSEE AND FROM THE OF REGULAR BAN K ACCOUNT OF THE ASSESSEE . THUS, THE SOURCE OF PAYMENTS MADE TO THESE PARTIES IS DULY ESTABLISHED. THE ASSESSEE WAS NOT PROVIDED ANY OPPORTUNITY TO CROSS EXAMINE THOSE PARTIES WHO HAVE SUBMITTED AFFIDAVITS ADMITTING THAT THEY HAVE ISSUED ONLY THE SALES BILLS WITHOUT MAKING ANY ACTUAL DELIVERY. 7 . OUR ATTENTION WAS ALSO INVITED TO THE FOLLOWING DOCUMENTS AND EVIDENCES FILED IN SUPPORT OF GENUINENESS OF SAID PURCHASES, BEFORE THE AO. A. COPIES OF PURCHASE BILLS OF THESE PARTIES B. COPIES OF LEDG ER ACCOUNTS AND C. COPIES OF BANK STATEMENTS DULY REFLECTING THE PAYMENTS MADE TO THESE PARTIES. D . THE ASSESSEE ALSO EXPLAINED TO THE AO THAT THE GOODS PURCHASED FROM THESE PARTIES WERE DELIVERED BY THE VENDOR THEMSELVES TO THE FACTORY PREMISES O F THE ASSESSEE AND THEREFORE THERE WAS NO OTHER PROOF OF DELIVERY IN THE FORM OF TRANSPORT RECEIPTS, ETC. 8 . THE PAN NUMBERS OF ALL THESE PARTIES WERE ON RECORD OF 'THE AO, HOWEVER, THE AO DID NOT VERIFY EVEN FROM THEIR OWN INCOME TAX RECORDS AS TO THE WH EREABOUTS OF THESE PARTIES AND HENCE, THE AO HAS MADE ADDITION MERELY ON PRESUMPTIONS WITHOUT MAKING ANY SORT OF VERIFICATION. 9 . OUR ATTENTION WAS ALSO INVITED BY LEARNED AR TO THE DOCUMENTS EVIDENCING THAT THE GOODS SO PURCHASED HAVE BEEN EITHER DIRECTL Y SOLD OR CONSUMED IN MANUFACTURING OF HOSES AND FITTINGS OF VARIOUS DIAMETERS, SIZES AND LENGTH. FURTHER, THESE ENGINEERING ITEMS CANNOT BE ITA NO. 7380/MUM/2016 M/S. POWERFLEX INDUSTRIES 6 MANUFACTURED WITHOUT CONSUMPTIONS OF METALS, BARS, MATERIALS, TOOLS, WHICH IS PURCHASED FROM THESE PARTIES. THE SAL ES REVENUE IN RESPECT OF THE GOODS SOLD IS ALREADY INCLUDED IN THE SALES FIGURES AND IS CONSIDERED IN CALCULATING TAXABLE INCOME OF THE YEAR IN WHICH THE SALE HAS TAKEN PLACE. THE AVERAGE GP ON SALES FOR LAST FEW YEARS IS ABOUT 13%. THEREFORE, IT IS BEYOND ANY DOUBT THAT IN ORDER TO MANUFACTURE GOODS, THE MATERIALS PURCHASED FROM ALL THE PARTIES HAVE BEEN CONSUMED DURING THE YEAR. 10 . ON THE OTHER HAND, IT WAS CONTENDED BY LEARNED DR THAT AO HAD MADE FULL ENQUIRY AND FOUND THAT SUPPLIERS WERE NOT EXISTING AT THE ADDRESSES GIVEN BY THE ASSESSEE AND EVEN ASSESSEE FAILED TO PRODUCE THESE SUPPLIERS BEFORE THE AO FOR VERIFICATION, THEREFORE, AO WAS JUSTIFIED IN MAKING ADDITION OF 100% OF SUCH BOGUS PURCHASES. 11 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULL Y GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE HAD ALSO DELIBERATED ON THE JUDICIAL PRONOUNCEMENTS REFERRED BY LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS AS WELL AS CITED BY LEARNED AR AND DR DURING THE COURSE OF HEARING BEFORE US IN THE CONTEXT OF FACTUAL MATRIX OF THE CASE. FROM THE RECORD WE FOUND THAT T HE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING & ASSEMBLING OF PLASTIC OR RUBBER HOSES USED IN THE MANUFACTURING INDUSTRY AND AGRICULTURAL APPLICATIONS WITH MS, SS AN D BRASS FITTINGS. THESE HOSES ARE BASICALLY USED IN CONNECTING VARIOUS PIPES MEANT FOR SUPPLY OF WATER, CHEMICALS , LIQUID GASES AND OTHER FLOWING ITA NO. 7380/MUM/2016 M/S. POWERFLEX INDUSTRIES 7 COMMODITIES. HOSE TUBES ARE DIRECTLY BOUGHT FROM LEADING MANUFACTURERS SUCH AS PARKER, DIXON, GATES. THE HOS ES ARE CUT INTO VARIOUS LENGTHS AND DESIGNS AS PER THE REQUIREMENT OF CUSTOMERS. FURTHER, STEEL AND BRASS FITTINGS LIKE NIPPLES, NUTS, BOLTS, SHAFTS, CHAINS, CLAMPS, ETC ARE MANUFACTURED FROM THE VARIOUS KINDS OF STEEL AND BRASS PLATES, RODS, ETC. AND AFFI XED TO BOTH THE ENDS OF THE HOSES. THE ASSEMBLY ACTIVITY IS PARTLY CARRIED OUT IN THE FACTORY OF ASSESSEE AND PARTLY OUT - SOURCED ON LABOUR JOB BASIS. THE ALLEGED PURCHASES INCLUDES VARIOUS TYPE OF STEELS USED IN THE MANUFACTURE OF NUMEROUS FITTINGS FOR THE HOSES. THE HOSES CANNOT BE SOLD TO THEIR CLIENTS WITHOUT STEEL AND BRASS FITTINGS. THESE HOSES ARE OF DIFFERENT DIAMETER AND LENGTHS. BASED ON THE SHAPES AND DIAMETER, THE FITTINGS ARE MANUFACTURED FROM MS, SS AND/OR BRASS METAL SHEETS AND RODS. THE GOODS SO PURCHASED WERE DELIVERED BY THE RESPECTIVE VENDOR PARTIES AT THE BUSINESS PREMISES. THE ALLEGED PARTIES HAD BEEN PAID BY AN ACCOUNT PAYEE CROSSED CHEQUES. THE GOODS SO PURCHASED HAD BEEN UTILISED IN THE PROCESS OF MANUFACTURING & ASSEMBLING OF FINISHED GOODS AND UNUSED MATERIAL REMAINED IN THE STOCK. THE SALES OF FINISHED GOODS NAMELY INDUSTRIAL HOSES ARE ALREADY INCLUDED IN THE SALES FIGURES AND ARE CONSIDERED IN CALCULATING TAXABLE INCOME OF THE RESPECTIVE YEAR IN WHICH THE SALE HAS TAKEN PLACE. THE M ANUFACTURING FLOW CHART DESCRIBING THE MANUFACTURING ACTIVITY WAS ALSO SUBMITTED IN THE COURSE OF HEARING. FURTHER, THE FOLLOWING DOCUMENTS IN SUPPORT OF THE ABOVE FACTS WERE SUBMITTED TO THE LEARNED AO . ITA NO. 7380/MUM/2016 M/S. POWERFLEX INDUSTRIES 8 A. COPY OF INVOICES RAISED BY THE SAID VENDOR PARTIE S. B. COPY OF THE LEDGER ACCOUNT REFLECTING THE PURCHASE ENTRIES AND PAYMENT AGAINST THE SAME MADE TO THEM. C. COPY OF BANK STATEMENTS REFLECTING THE CHEQUE PAYMENTS MADE TO THE SAID VENDOR PARTIES. 12. THE LEARNED AO DID NOT ACCEPT THE ABOVE EVIDENCES A ND AFFIRMATIONS OF THE ASSESSEE WHILE DECIDING THE ASSESSMENT AND DISALLOWED THE ENTIRE PURCHASES OF RS.1,31,07,620/ - FROM ALL THE ALLEGED 12 PARTIES TREATING IT AS BOGUS / NON - GENUINE. MERELY BECAUSE A DEALER DOES NOT PAY VAT AFTER COLLECTING TAX THAT DOE S NOT MEAN THAT IT WAS NOT IN EXISTENCE OR IT HAS NOT AFFECTED THE SALE OR WAS NOT CARRYING ON THE BUSINESS ACTIVITIES. FROM THE RECORD WE ALSO OBSERVED THAT THE ALLEGED PARTIES WERE GRANTED REGISTRATION BY VAT AUTHORITIES WHO GRANT THE SAME AFTER VISITING THE DEALER AND AFTER VERIFYING HIS ADDRESS, CREDENTIALS, ETC. HENCE UNDER NO CIRCUMSTANCES, MERELY BECAUSE THE PARTIES DEFAULTED IN THE PAYMENT OF VAT, IT CANNOT BE SAID THAT THE ASSESSEE HAS ACCOMMODATION BILLS OF PURCHASE. 13 . FROM THE RECORD WE ALSO FO UND THAT THE GOODS SO PURCHASED WERE USED FOR MANUFACTURING FITTINGS FOR THE RUBBER HOSES SOLD TO THE CUSTOMERS. PART OF THE FITTINGS MANUFACTURED WAS LYING IN THE STOCK AND HENCE THE ENTIRE PURCHASE FROM THE SUSPECTED DEALERS IS NOT DEBITED TO THE EXPENSE ACCOUNT IN T RADING ACCOUNT FOR THE YEAR ENDED 31 - 3 - 09. 1 4 . THE BREAK UP OF PURCHASES DURING THE YEAR AND IN PREVIOUS TWO YEARS IS AS UNDER: ITA NO. 7380/MUM/2016 M/S. POWERFLEX INDUSTRIES 9 PRODUCT DESCRIPTION FY 08 - 09