ITO 33(1)(4), MUMBAI V. DE & NEPHEW, MUMBAI

ITA 7422/MUM/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2794 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 26-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHAMMED RIZWAN
• Assessee Lawyers: KIRAN MODY
• Keywords: Bogus purchase
• Section: 133(6); 143(2); 147; 148

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL SMC BENCH MU MBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH JUDICIAL MEMBER ITA NO. 7422/MUM/2018 (ASSESSMENT YEAR 2009-10 ) ITA NO. 7423/MUM/2018 (ASSESSMENT YEAR 2010-11 ) ITO 33(1)(4 ) C-12, 7 TH FLOOR, ROOM NO. 707, PRATYAKSHKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI-400051. VS. M/S DE & NEPHEW 41, MANTRI HOUSE, HANDRIX LANE, M.G. ROAD, KANDIVALI (WEST), MUMBAI-400067 PAN: AAAFD1844R APPELLANT RESPONDE NT APPELLANT BY : MOHAMMED RIZWAN (SR. DR) RESPONDENT BY : SHRI KIRAN MODY (AR) DATE OF HEARING : 03.03.2020 DATE OF PRONOUNCEMEN T : 03.03.2020 ORDERUNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THESE TWO APPEALS BY REVENUE ARE DIRECTED AGAINST T HE ORDER OF LD. CIT(A)-45, MUMBAI DATED 10.09.2018 & 11.09.2018 FOR ASSESSMENT YEAR 2009-10 & 2010-11 RESPECTIVELY. IN BOTH THE AP PEALS, THE REVENUE HAS RAISED THE IDENTICAL GROUNDS OF APPEAL EXCEPT V ARIATION OF FIGURES DELETING THE ADDITION ON ACCOUNT OF BOGUS PURCHASES . THE REVENUE HAS RAISED THE IDENTICAL GROUNDS OF APPEAL ON BOTH THE APPEALS, THEREFORE, BOTH THE APPEALS WERE CLUBBED, HEARD AND ARE DECIDE D BY COMMON ORDER. THE REVENUE HAS RAISED THE FOLLOWING GROUND S OF APPEAL: ITA NO. 7422 & 7423 MUM 2018-M/S DE & NEPHEW 2 (1) 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN RESTRICTING GP PERCENTAGE TO 12 .5% OF THE BOGUS PURCHASES WITHOUT APPRECIATING THE FACT THAT THE AO HAS HELD IT TO BE NON- GENUINE AFTER CARRYING OUT PROPER INDEPENDENT INVES TIGATION IN THE CASE. (2) 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN IGNORING THE FACT THAT INVESTIG ATION WERE CARRIED OUT BY THE AO AND IT WAS THE FINDING OF INDEPENDENT INV ESTIGATION WHICH PROVED THAT THE PURCHASES WERE BOGUS. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS EN GAGED IN THE BUSINESS OF MANUFACTURING OF RUBBER PRODUCT FOR INDUSTRIAL USE, FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2009-10 ON 25.09.2009 DE CLARING TOTAL INCOME OF RS. 4,28,041/-. THE RETURN OF INCOME WAS PROCESSED UNDER SECTION 143(1). THE ASSESSMENT WAS RE-OPENED UNDER SECTION 147 ON THE BASIS OF INFORMATION RECEIVED FROM SALE TAX DEPARTM ENT, GOVERNMENT OF MAHARASHTRA THAT CERTAIN HAWALA OPERATORS ARE IN DULGING IN PROVIDING ACCOMMODATION BILLS WITHOUT ACTUAL DELIVERY OF GOOD S. THE SALE TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA REFERRED THE LIST OF SUCH HAWALA DEALERS AND THE BENEFICIARY TO THE DGIT (INV ESTIGATION), MUMBAI. THE NAME OF ASSESSEE APPEARED IN THE LIST O F BENEFICIARY. ON THE BASIS OF INFORMATION, THE ASSESSING OFFICER MAD E A BELIEF THAT THE INCOME OF THE ASSESSEE ESCAPED ASSESSMENT, THEREFOR E, RE-OPENED THE ASSESSMENT UNDER SECTION 147. THE NOTICE UNDER SECT ION 148 DATED 14.03.2014 WAS SERVED UPON THE ASSESSEE. THE ASSES SEE IN RESPONSE TO THE NOTICE UNDER SECTION 148 FILED ITS REPLY DATED 16.04.2014 AND STATED ITA NO. 7422 & 7423 MUM 2018-M/S DE & NEPHEW 3 THAT RETURN FILED ORIGINALLY BE TREATED AS RETURN I N RESPONSE TO THE NOTICE. THE ASSESSING OFFICER AFTER SERVING NOTICE UNDER SE CTION 143(2) PROCEEDED FOR RE-ASSESSMENT. DURING THE ASSESSMENT, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS SHOWN PURCHASES OF RS. 15,55,398/- FROM THE FOLLOWING EIGHT PARTIES, WHICH WERE DECLAR ED AS HAWALA DEALERS BY THE SALE TAX DEPARTMENT, GOVERNMENT OF MAHARASHT RA. NAME OF THE PARTY BILL AMOUNT (RS.) 1 RAJ TRADERS 1,35,460 2 NISHA ENTERPRISE 1,49,750 3 SHUBHAM ENTERPRISES 4,80,610 4 REAL TRADERS 79,076 5 DEEP ENTERPRISES 2,45,924 6 HI-TECH INDUSTRIES EAST INDIA CO. 57,251 7 RIDDHI DYECHEM CORPORATION INTERNATIONAL CHEMICALS 1,47,669 8 ARIHANT CORPORATION 2,59,658 TOTAL 15,55,398 3. THE ASSESSING OFFICER IN ORDER TO VERIFY THE TRANSA CTION ISSUED NOTICE UNDER SECTION 133(6) TO ALL THE PARTIES. THE NOTICE SENT THROUGH REGISTERED POST WAS RETURNED BACK. THE ASSESSEE WAS ASKED TO SHOW- CAUSE AS TO WHY THE PURCHASES SHOWN FROM ALL THE PA RTIES SHOULD NOT BE TREATED AS NON-GENUINE. IN RESPONSE TO THE SHOW-CAU SE NOTICE, THE ASSESSEE FILED REPLY DATED 13.03.2015 WHEREIN THE A SSESSEE STATED THAT HE IS READY TO ACCEPT THE ADDITION OF INCOME AS DEE MED INCOME FROM ALL SUSPICIOUS PURCHASE AT 5 TO 6% AND UNDERTAKE TO PAY THE DUE TAX. THE ITA NO. 7422 & 7423 MUM 2018-M/S DE & NEPHEW 4 CONTENTION OF ASSESSEE WAS NOT ACCEPTED BY ASSESSIN G OFFICER BY TAKING VIEW THAT FROM THE RECORDS FURNISHED BY ASSESSEE TH AT ASSESSEE HAS FURNISHED ONLY LEDGER ACCOUNT, CHEQUE PAYMENTS, SAL ES INVOICES AND NO PROOF OF DELIVERY CHALLAN, PURCHASE PARTY, LORRY RE CEIPT OR PROOF OF TRANSPORTATION NOT FURNISHED. ON THIS OBSERVATION, THE AO TOOK HIS VIEW THAT PURCHASES SHOWN BY ASSESSEE FROM THESE FIRMS A RE BOGUS. THE AO REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE AO ESTIMATED 33% OF BOGUS PURCHASES FOR DISALLOWANCE OF PURCHASES FR OM SAID HAWALA DEALERS. ON APPEAL BEFORE THE LD. CIT(A), THE ADDIT ION WAS RESTRICTED TO 12.5% OF THE IMPUGNED/HAWALA PURCHASES. THE LD. CIT (A) WHILE RESTRICTING THE ADDITION RELIED UPON THE DECISION O F HONBLE GUJARAT HIGH COURT IN CIT VS. SIMITH P. SHETH (356 ITR 451) . THUS, AGGRIEVED BY THE ORDER OF LD. CIT(A), THE REVENUE HAS FILED T HE PRESENT APPEAL BEFORE US. 4. WE HAVE HEARD THE SUBMISSION OF LD. DEPARTMENTAL RE PRESENTATIVE (DR) FOR THE REVENUE AND LD. AUTHORIZED REPRESENTAT IVE (AR) OF THE ASSESSEE AND PERUSED THE MATERIAL AVAILABLE ON RECO RD. THE LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF ASSESSING OFFICE R. THE LD. DR FURTHER SUBMITS THAT INVESTIGATION WING OF INCOME-T AX DEPARTMENT HAS MADE FULL-FLEDGED INVESTIGATION IN RESPECT OF HAWAL A TRADERS. THE HAWALA TRADERS WERE/ARE ENGAGED IN PROVIDING BOGUS BILL WITHOUT ACTUAL DELIVERY OF GOODS. THE ASSESSEE HAS SHOWN BOGUS PUR CHASES ONLY TO ITA NO. 7422 & 7423 MUM 2018-M/S DE & NEPHEW 5 INFLATE THE PROFIT. THE LD. DR FOR THE REVENUE SUBM ITS THAT THE ASSESSING OFFICER HAS BROUGHT SUFFICIENT MATERIAL ON RECORD T O PROVE THAT THE PURCHASES SHOWN BY ASSESSEE WERE BOGUS. THE ASSESSE E IS NOT ENTITLED FOR ANY RELIEF. THE LD. DR FOR THE REVENUE PRAYED F OR SETTING-ASIDE THE ORDER OF LD. CIT(A) AND TO RESTORE THE ORDER OF ASS ESSING OFFICER. 5. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SUBMI TS THAT THE ASSESSEE FURNISHED ALL DETAILS OF PURCHASES AND THE CORRESPO NDING SALES MADE AGAINST THE PURCHASES. THE ASSESSING OFFICER HAS NO T DISPUTED THE CONSUMPTION OF MATERIAL AND FURTHER SALE OF THE FIN ISHED GOODS. THE ASSESSING OFFICER MADE THE DISALLOWANCE OF 33% OF T HE ALLEGED BOGUS PURCHASES. THE ASSESSING OFFICER HAS NOT CONSIDERED THE GROSS PROFIT RATIO FOR EARLIER YEARS AS WELL AS FOR THE YEAR UND ER CONSIDERATION. THE ADDITIONS MADE ON ACCOUNT OF ALLEGED BOGUS PURCHASE S BY ASSESSING OFFICER WAS UNREASONABLE. THE LD. CIT(A) AFTER CONS IDERING THE GROSS PROFIT DECLARED IN THREE EARLIER CONSECUTIVE YEARS RESTRICTED THE DISALLOWANCE TO 12.5%. THOUGH, THE PURCHASES OF ASS ESSEE ARE GENUINE, HOWEVER, THE ASSESSEE OFFERED REASONABLE DISALLOWAN CE BEFORE AO, ONLY TO BUY PEACE. THE LD. AR PRAYED FOR DISMISSAL OF PR ESENT APPEAL. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE REPR ESENTATIVES AND PERUSED THE RECORD. THE ASSESSING OFFICER MADE THE DISALLOWANCE OF 33% OF THE ALLEGED BOGUS PURCHASES. THE ASSESSING O FFICER HAS NOT DISPUTED THE SALES OF THE ASSESSEE. THE ASSESSING O FFICER SOLELY RELIED ITA NO. 7422 & 7423 MUM 2018-M/S DE & NEPHEW 6 UPON THE REPORT OF INVESTIGATION WING OF SALE TAX D EPARTMENT. THE ASSESSING OFFICER HAS NOT REJECTED THE BOOKS OF ACC OUNT OF THE ASSESSEE. BEFORE THE LD. CIT(A), THE ASSESSEE URGED THAT THE PURCHASES SHOWN BY ASSESSEE ARE GENUINE. THE PAYMENTS OF PURCHASES WER E MADE THROUGH ACCOUNT PAYEE CHEQUES. BEFORE THE LD. CIT(A), THE A SSESSEE MADE THE SIMILAR SUBMISSION AS MADE BEFORE US. THE LD. CIT(A ) AFTER CONSIDERING THE DECISION OF HONBLE GUJARAT HIGH COURT IN SIMIT H P. SETH (SUPRA) HELD THAT THE ADDITION MADE BY AO ON ESTIMATED PROF IT IS ON HIGHER SIDE AND RESTRICTED THE SAME TO 12.5%. WE ARE ALSO OF T HE VIEW THAT UNDER INCOME TAX ACT, THE REVENUE IS ENTITLED TO TAX THE PROFIT ELEMENT ONLY AND NOT THE TRANSACTION, THEREFORE, WE AFFIRM THE O RDER OF LD. CIT(A). 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ITA NO. 7423/MUM/2018 FOR A.Y. 2010-11 8. AS WE HAVE NOTED ABOVE THAT THE ASSESSEE HAS RAISED THE IDENTICAL GROUNDS OF APPEAL AS RAISED IN APPEAL FOR A.Y. 2009 -10, THE FACTS FOR THE YEAR UNDER CONSIDERATION IS ALSO IDENTICAL. CONSIDE RING THE FACT THAT WE HAVE DISMISSED THE APPEAL FOR A.Y. 2009-10, THEREFO RE, THE APPEAL FOR A.Y. 2010-11 IS ALSO DISMISSED WITH SIMILAR DIRECTI ONS. 9. IN THE RESULT, APPEAL OF THE REVENUE FOR THIS A.Y. IS ALSO DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 03/03/2019. SD/- SD/- R.C. SHARMA PAWAN SINGH ACCOUNTANT MEMBER J UDICIAL MEMBER ITA NO. 7422 & 7423 MUM 2018-M/S DE & NEPHEW 7 MUMBAI, DATE: 03.03.2020 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR SMC BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI