ETCO PROFILESLTD, MUMBAI V. DCIT CEN CIR 39, MUMBAI

ITA 744/MUM/2011

• Counselvise Citation: 74419914 RSA 2011
• Duration Of Justice: 2 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 26-08-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 25-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K C P PATNAIK
• Keywords: Bogus purchase; Search and seizure
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND DR. S.T.M PAVALAN, JUDICIAL MEMBER ITA NO. 744/MUM/2011 ASSESSMENT YEAR : 2005-06 M/S. ETCO PROFILES LTD. C-701, SUKHADA SIR, POCHKHANWALA MARG WORLI SEA FACE MUMBAI-400 025. PAN NO.AAACE 8210 H VS. D Y. CIT, CC - 39 MUMBAI. (APPELLANT) (RESPONDENT) ITA NO. 839/MUM/2011 ASSESSMENT YEAR : 2005-06 DY.CIT, CC - 39 ROOM NO.32(1) GROUND FLOOR, AAYAKAR BHAVAN M.K. ROAD MUMBAI-20. VS. M/S. ETCO PROFILES LTD. MUMBAI-400 025. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VIJAY MEHTA REVENUE BY : SHRI K.C.P. PATNAIK DATE OF HEARING : 26/08/2013 DATE OF PRONOUNCEMENT : 30 / 0 8 /2013 O R D E R PER B. RAMAKOTAIAH, AM: THESE ARE CROSS APPEALS BY ASSESSEE AND REVENUE AG AINST THE ORDERS OF THE CIT(A)-41, MUMBAI DATED 16.11.2010. W E HAVE HEARD THE ITA NOS.744 & 839/M/11 A.Y.05-06 2 LD. COUNSEL AND THE LD. DR AND PERUSED THE PAPER BO OK ON RECORD FILED BY ASSESSEE. 2. BRIEFLY STATED THE ASSESSEE COMPANY BELONGS TO THE ETCO GROUP WHEREIN SEARCH AND SEIZURE OPERATIONS HAVE BEEN UND ERTAKEN ON 11.04.2007 AND THE GROUP DECLARED THE AMOUNT OF RS. 7,08,69,757/- AS UNDISCLOSED INCOME IN THE HANDS OF DIFFERENT CONCER NS/PERSONS OF THE GROUP. ACCORDINGLY FOR THE ASSESSMENT YEAR UNDER C ONSIDERATION THE ASSESSEE COMPANY DECLARED INCOME AT 1% OF SALES AT RS.3,46,906 /-. IN THE COURSE OF ASSESSMENT, THE AO NOTICED THAT THE A SSESSEE PURCHASED GOODS FROM M/S. TRITON INFOTECH PVT. LTD. AND DURIN G THE COURSE OF SEARCH, THE DIRECTOR OF THE COMPANY ADMITTED THAT T HESE ARE ACCOMMODATION BILLS PROVIDED. ON THE BASIS OF THE S AME AO CAME TO THE CONCLUSION THAT THE ASSESSEE COULD HAVE PURCHASED F ROM GREY MARKET BY SAVING ON LOCAL TAXES LIKE SALES TAX AND VAT ETC. A S SALES ARE DECLARED BY THE ASSESSEE, HE WAS OF THE OPINION THAT THE GOODS COULD HAVE BEEN PURCHASED AT 20% LESS THAN THE PRICE SHOWN AND THER EFORE, REDUCED THE PRICE OF PURCHASES BY AN AMOUNT OF RS.68,68,737/-. SINCE THE ASSESSEE ALREADY OFFERED 1% SALES IN THE RETURN OF THE CORRE SPONDING AMOUNT WAS REDUCED THEREBY MAKING THE DISALLOWANCE AT RS.65,21 ,831/- . 2.1 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE LD. CIT(A) DELETED RESTRICTED THE DISALLOWANCE OF PURCHASES TO AN AMOU NT OF 18,51,034. THEREFORE, THE ASSESSEE AND THE REVENUE ARE IN APPE AL. ITA NO.744/M/2011 (ASSESSEES APPEAL):- 3. IN THIS APPEAL, THE ASSESSEE RAISED ONLY ONE GRO UND PERTAINING TO UPHOLDING THE DISALLOWANCE OF RS.18,51,034/- OUT OF PURCHASES MADE FROM M/S. TRITON INFOTECH PVT. LTD. IT WAS THE SUBM ISSION OF THE LD. COUNSEL THAT THE REVENUE DID NOT PROVE THE BOGUSNES S OF THE PURCHASES, THEREFORE, CIT(A) IS NOT CORRECT IN RESTRICTING THE AMOUNT ON THE BASIS OF ITA NOS.744 & 839/M/11 A.Y.05-06 3 ALTERNATE SUBMISSION MADE BY THE ASSESSEE BEFORE HI M. IT WAS ALSO SUBMITTED THAT AO WHILE WORKING OUT THE DISALLOWANC E GAVE BENEFIT OF 1% OF SALES OFFERED AS INCOME. THEREFORE, THE ADDITION TO THAT EXTENT SHOULD BE RESTRICTED. 3.1 THE LD. DR HOWEVER, REITERATED THE FACTS AS STA TED IN THE ORDER OF ASSESSING OFFICER AND ALSO SUBMITTED THAT THE REVEN UE IS IN CROSS APPEAL ON THE SAME ISSUE. 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND EXA MINED THE RECORD. EVEN THOUGH THERE IS NO DETAILED DISCUSSION BY AO I N THE ASSESSMENT ORDER, IT SEEMS THE INVESTIGATION UNIT MADE ENQUIRI ES AND TOOK STATEMENT FROM DIRECTOR OF M/S. TRITON INFOTECH PVT. LTD. TH AT THE SAID COMPANY WAS ONLY GIVING ACCOMMODATION BILLS. THIS ASPECT WA S NOT FULLY OBJECTED TO BY THE ASSESSEE IN THE COURSE OF THE ASSESSMENT PROCEEDINGS OR BEFORE CIT(A). THEREFORE, THE FINDINGS OF AO TO THAT EXTEN T ARE NOT REBUTTED. FURTHER AS SEEN FROM THE ASSESSMENT ORDER AO DID GI VE CREDIT TO THE PURCHASES BY NOT DISALLOWING THE ENTIRE AMOUNT. ON PERUSING THE ORDER OF CIT(A), WE DO NOT SEE ANY REASON TO DIFFER FROM THE SAME AS LD. CIT(A) RESTRICTED THE AMOUNT OF ADDITION FROM ADHOC 20% DO NE BY AO WITHOUT ANY BASIS, TO A REASONABLE AMOUNT ON THE BASIS OF S O CALLED SAVING OF THE LOCAL TAX. HIS ORDER IS AS UNDER :- 3.4.I HAVE CONSIDERED THE SUBMISSION OF THE APPELLA NT, ORDER OF THE AO AND FACTS OF THE CASE IN BRIEF ARE THAT THE AO H AS OBSERVED THAT THE APPELLANT COMPANY HAS SHOWN PURCHASES FROM M/S. TRITON INFOTECH PVT. LTD. AMOUNTING TO RS.3,43,43,687/- DU RING THE YEAR UNDER CONSIDERATION. DURING THE COURSE OF SEARCH ST ATEMENT OF SHRI KRISHNAKUMAR GUPTA, DIRECTOR OF M/S. TRITON INFOTEC H PVT. LTD. WAS RECORDED WHO HAS STATED THAT GOODS WERE NOT SOLD TO THE APPELLANT COMPANY AND ONLY BILLNG WAS MADE BY THE COMPANY. DU RING THE ASSESSMENT PROCEEDINGS, THE AO HAS HELD THAT ALTHOU GH THE PURCHASES ARE NOT PROVED FROM M/S. TRITON INFOTECH PVT. LTD. BUT SALES SHOWN BY THE APPELLANT COMPANY WERE CONFIRMED BY THE RESPECTIVE PARTIES. THEREFORE, THE AO HAS CONCLUDED THAT PURCHASES WERE NOT MADE FRO M/S. TRITON INFOTECH PVT. LTD. BU T PURCHASED FROM ITA NOS.744 & 839/M/11 A.Y.05-06 4 GREY MARKET TO AVOID THE SALES TAX, VAT AND OTHER L OCAL TAXES. THUS, THE INCOME OF THE APPELLANT HAS INCREASED AND THE A O HAS ADOPTED AN ESTIMATE @ 20% OF THE PURCHASES OF RS. 3,43,43,6 87/- AND PROPOSED ADDITION OF RS.68,68,737/-. AFTER ALLOWING THE RELIEF OF 1% DECLARED DURING THE COURSE OF SEARCH AN ADDITION OF RS.65,21,831/- WAS MADE. ON THE OTHER HAND, THE APPELLANT HAS SUBM ITTED THAT SINCE THE SALE HAVE BEEN CONFIRMED BY THE AO, THERE FORE PURCHASES CANNOT BE REJECTED. THE APPELLANT HAS ALSO GIVEN A REASONABLE VIEW TO ESTIMATE THAT ON IRON & STEEL ITEMS, SALES TAX 4 % IS APPLICABLE AND ON PLANT AND MACHINERY, SALES TAX @ 13% IS APPLICAB LE. THEREFORE, THE AMOUNT OF SALES TAX ON IRON & STEEL ITEMS TO TH E VALUE OF RS.2,95,41,593/- @ 4% WILL BE AT RS.11,81,664/- AND THE VALUE OF PLANT & MACHINERY OF RS.51,41,000/- THE SALES TAX @ 13% WILL COMES TO 6,69,370/- THEREFORE THE AGGREGATE OF BOTH THE I TEMS COMES TO RS.18,15,034/-. THE APPELLANT HAS FURTHER DEDUCTED 1% OF SALES ALREADY OFFERED FOR TAX BUT THE AO HAS ALLOWED THIS RELIEF IN THE ASSESSMENT ORDER ITSELF WHICH IS NOT ACCEPTED. THE ARGUMENTS OF THE AR IS SEEMS TO BE GENUINE BECAUSE THE AO HAS ALLEGE D THAT THE PURCHASE HAVE BEEN MADE FROM THE GREY MARKET TO AVO ID SALES TAX AND TO INCREASE PROFIT TO THIS EXTENT. HOWEVER, THE AO HAS ESTIMATED ADOPTED BY THE AO IS WITHOUT ANY EVIDENCE AND SUBST ANCE. ON THE OTHER HAND THE A.R. HAS ADOPTED THE ACTUAL SALES TA X RATE APPLICABLE @ 4% AND 13% RESPECTIVELY. THEREFORE, IT HAS TO BE ACCEPTED. KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES THAT TH E ESTIMATE SHOULD BE BASED ON FACTS AND SUBSTANCES, THEREFORE, I AM OF THE VIEW THAT DISALLOWANCE ON ACCOUNT OF SALES TAX IS R ESTRICTED TO RS.18,51,034/- IN PLACE OF RS.65,21,831/- DISALLOWE D BY THE A.O. THUS THE GROUND OF APPEAL IS PARTLY ALLOWED. 4.1 TO THE EXTENT OF CIT(A)S ORDER IN RESTRICTING THE AMOUNT TO RS. RS.18,51,034/- IS CONFIRMED. HOWEVER, WHILE RESTR ICTING THE SAME LD.CIT(A) SHOULD HAVE GIVEN CREDIT OF 1% OF SALES O FFERED BY THE ASSESSEE TO THE EXTENT OF RS.3,46,906/-. THIS BENEFIT ALSO I S TO BE GIVEN TO THE ASSESSEE AS WAS DONE BY AO. AO IS DIRECTED TO GIVE FURTHER BENEFIT OF 1% OF THE SALES OFFERED BY THE ASSESSEE. ACCORDINGLY, ASSESSEES GROUND IS PARTLY ALLOWED. ITA NO.839/MUM/2011 (REVENUES APPEAL) :- 5. THE REVENUE HAS RAISED THREE GROUNDS ON THE ABOV E ISSUE. ITA NOS.744 & 839/M/11 A.Y.05-06 5 6. GROUND NO.1 PERTAINS TO THE DISALLOWANCE OF THE AMOUNT OF BOGUS PURCHASES WHICH WAS RESTRICTED TO RS.18,51,034/- BY THE LD. CIT(A) AS AGAINST DISALLOWANCE OF RS.65,21,831/-. THIS ISSUE WAS ALREADY DISCUSSED IN DETAIL IN ASSESSEES APPEAL. FOR THE R EASONS STATED THEREIN WE DO NOT FIND ANY REASON TO CONSIDER THE REVENUE G ROUND AS AO WITHOUT ESTABLISHING SIMPLY DISALLOWED 20% OF THE PURCHASES . WE DO NOT SEE ANY REASON TO CONSIDER THE GROUND. THEREFORE, THE SAME IS REJECTED. 7. GROUND NO.2 PERTAINS TO ALTERNATE CONTENTION OF THE REVENUE STATING THAT THE DISALLOWANCE IS AS PER PROVISIONS OF SECTION 40A(3). THIS GROUND IS RAISED FOR THE FIRST TIME BEFORE ITAT AS NEITHER AO NOR CIT(A) CONSIDERED THE PURCHASES ARE MADE IN CASH AND HENCE , PROVISIONS OF SECTION 40A(3) ARE CALLED FOR. SINCE, THE FACT THAT PURCHASES ARE MADE IN CASH WAS NOT ON RECORD THIS GROUND CAN NOT BE CONSI DERED AT ALL AS AO ALSO HAD NOT INVOKED THE SAID PROVISIONS WHILE MAKI NG DISALLOWANCE. THEREFORE, THE GROUND IS REJECTED. 8. THE GROUND NO.3 ALSO DOES NOT ARISE IN THE FACTS OF THE CASE. IT WAS THE CONTENTION THAT ENTIRE BOGUS PURCHASES SHOULD B E DISALLOWED AS PER THE DECISION OF ITAT MUMBAI BENCH IN THE CASE OF LI FE LINE DRUG AND INTERMEDIATE LIMITED IN ITA NO.5535/MUM/2007. WE WE RE NOT INFORMED ABOUT THE FACTS IN THE ABOVE CASE AND HOW SAME IS A PPLICABLE. BE THAT AS IT MAY, WE WERE SURPRISED AT THE GROUND RAISED BY T HE REVENUE THAT ENTIRE AMOUNT IS DISALLOWABLE. THERE IS A FINDING BY AO TH AT THE SALES ARE GENUINE. THERE IS ALSO A FINDING THAT THE ASSESSEE DID TRADE IN GOODS STATED TO HAVE BEEN SOLD. AO GAVE A FINDING THAT EV EN THOUGH THE PURCHASES FROM M/S TRITON INFOTECH LTD. ARE BY WAY OF ACCOMMODATION BILLS IT CAN NOT BE RULED OUT THAT ASSESSEE DID PUR CHASE FROM GREY MARKET. AO ONLY DISALLOWED 20% OF THE SO CALLED PURCHASES A S INITIATED WHICH WAS RESTRICTED TO THE POSSIBLE SAVINGS AND TAX AT 4%. I N VIEW OF THE FACTUAL POSITION IN THIS CASE AND FACT THAT AO ONLY RESTRIC TED TO 20% OF PURCHASES ITA NOS.744 & 839/M/11 A.Y.05-06 6 CLAIMED IT IS SURPRISING THAT THE REVENUE NOW CONTE NDS THAT THE ENTIRE AMOUNT IS DISALLOWABLE. WHEN ASSESSING OFFICER DID NOT MAKE DISALLOWANCE OF ENTIRE AMOUNT, ITAT CAN NOT IMPROVE UPON THE ORDER OF ASSESSING OFFICER. THEREFORE, THE GROUND CAN NOT BE ENTERTAINED AND ACCORDINGLY REJECTED. 10. IN THE RESULT ASSESSEES APPEAL IS PARTLY ALLOW ED AND REVENUES APPEAL IS DISMISSED. . ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH AUGUST, 2013. SD/- SD/- (DR. S.T.M PAVALAN ) JUDICIAL MEMBER (B. RAMAKOTAIAH ) ACCOUNTANT MEMBER MUMBAI, DATED: 30/08/2013. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.