DCIT CIR 29(3), MUMBAI V. SHARAD V. SHAH, MUMBAI

ITA 746/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3077 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2006-2007
• Appeal Filed On: 03-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K KARDA M
• Assessee Lawyers: DR K SHIVARAM; SHEETAL JADHAV
• Keywords: Bogus purchase; Source of fund; Deemed to accrue or arise in india
• Section: 69C; 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I , MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH , JUDICIAL MEMBER ITA NO. 746 /MUM/20 15 : (A.Y : 2006 - 07 ) DY. COMMISSIONER OF INCOME TAX, CIRCLE - 29(3), MUMBAI ( APPELLANT ) VS. SHRI SHARAD V. SHAH PROP. PARAS ENGG. CO., 1301 - A, KALINGA (NIRMAL NAGAR), MULUND LINK ROAD, MULUND (W), MUMBAI 400 080 (RESPONDENT) PAN : ALBPS0548P ASSESSEE BY : DR. K. SHIVARAM & SHEETAL JADHAV REVENUE BY : SHRI A.K. KARDAM DATE OF HEARING : 21 / 07 /2016 DATE OF PRONOUNCEMENT : 21 / 09 /2016 O R D E R PER G.S. PANNU , AM : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT(A) - 33 , MUMBAI DATED 14.11.2014 , PERTAINING TO THE ASSESSMENT YEAR 2006 - 07 , WHICH IN TURN HAS ARISEN FROM THE ORDER PASSED BY THE ASSESSING OFFICER, MUMBAI UNDER SECTION 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. IN THIS APPEAL, REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - 2 SHRI SHARAD V. SHAH ITA NO. 746/MUM/2015 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.1,50,56,316/ - MADE BY THE AO U/S 69C OF THE ACT AND IN RESTRICTING THE ADDITION TO RS.15,05,631/ - BEING 10% OF THE BOGUS PURCHASES WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS FAILED TO PROVE THE GENUINENESS OF THE PURCHASES BY NOT PRODUCING PURCHASE PARTIES FOR VERIFICATION. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN RESTRICTING THE ADDITION TO RS.15,05,631/ - BEING 10% OF THE BOGUS PURCHASES WITHOUT APPRECIATING THE FACT THAT THE PARTIES HAVE BEEN DECLARED AS BOGUS HAWALA PROVIDERS BY THE SALES TAX DEPARTMENT ON THE BASIS OF CORROBORATIVE EVIDENCE AVAILABLE WITH THEM AND INFERENCE BASED ON THE FINDINGS OF SUCH AGENCIES CANNOT BE CONSTITUTED AS SUSPICIOUS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN RESTRICTING THE ADDITION TO RS.15,05,631/ - BEING 10% OF THE BOGUS PURCHASES WITHOUT APPRECIATING THE FACT THAT THE PROPRIETOR OF M/S. JANTA TRANSPO RT SERVICE AND M/S. DMET LABORATORY HAS DENIED OF PROVIDING ANY SERVICES TO THE ASSESSEE. 3. IN BRIEF, THE RELEVANT FACTS CAN BE SUMMARIZED AS FOLLOWS. THE RESPONDENT - ASSESSEE IS AN INDIVIDUAL WHO IS ENGAGED IN THE BUSINESS OF MANUFACTURE/FABRICATION A ND JOB WORK OF ALL KINDS OF MACHINE PARTS. IN THIS CASE, ASSESSMENT U/S 143(3) OF THE ACT WAS FINALISED ON 19.11.2008 WHEREBY THE TOTAL INCOME WAS ASSESSED AT RS.77,29,800/ - . SUBSEQUENTLY, ASSESSING OFFICER REOPENED THE ASSESSMENT BY ISSUANCE OF NOTICE U /S 148 OF THE ACT ON 20.3.2013 ON THE GROUND THAT CERTAIN INCOME HAD ESCAPED ASSESSMENT. AS PER THE ASSESSING OFFICER , BASED ON THE INFORMATION RECEIVED FROM THE MAHARASHTRA SALES TAX AUTHORITIES AND I NVESTIGATION W ING, ASSESSEE HAD MADE PURCHASES FROM TW O CONCERNS, NAMELY, M/S. MANOJ TRADING COMPANY RS.89,19,089/ - AND M/S. SAMPA K STEELS RS.61,37,227/ - WHICH WERE NON - GENUINE. AS PER 3 SHRI SHARAD V. SHAH ITA NO. 746/MUM/2015 THE INFORMATION RECEIVED, THE SAID CONCERNS WERE A PART OF THE LIST OF SUSPICIOUS DEALERS COMPILED BY THE SALES TAX DEPA RTMENT OF MAHARASHTRA. IN THE ENSUING ASSESSMENT, ASSESSING OFFICER CONSIDERED THE PURCHASES MADE FROM THE AFORESAID TWO PARTIES AS BOGUS, NON - GENUINE AND UNPROVED AND, THEREFORE, HELD THAT THE CLAIM OF EXPENDITURE OF RS.1,50,56,316/ - ON PURCHASES WAS NOT ACCEPTABLE. ACCORDING TO ASSESSING OFFICER THESE FACTS SQUARELY FALL WITHIN THE PARAMETERS PRESCRIBED IN SEC. 69C OF THE INCOME TAX ACT, 1961 AND ACCORDINGLY ADDED THE SUM OF RS.1,50,56,316/ - TO THE TOTAL INCOME. 4. IN THIS BACKGROUND , ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE CIT(A) AND MADE VARIED SUBMISSIONS. BEFORE THE CIT(A), ASSESSEE POINTED OUT THAT PURCHASES WERE MADE FROM THE TWO PARTIES AND THE MATERIAL HAS BEEN FULLY CONSUMED IN MANUFACTURING OF FINISHED PRODUCTS, WHICH W ERE SUBSEQUENTLY SOLD. IT WAS ALSO POINTED OUT THAT MANUFACTURING ACTIVITY REQUIRED VARIOUS PARTS AND IF THE PURCHASES FROM THESE TWO PARTIES ARE TREATED AS BOGUS, THE MATERIAL CONSUMPTION RATIO WOULD FALL SO DRASTICALLY THAT IT WOULD NOT BE POSSIBLE TO E NVISAGE MANUFACTURING OF PRODUCTS IN THE ABSENCE OF SUCH CONSUMPTION. IT WAS ALSO POINTED OUT THAT IF THE DISPUTED PURCHASES ARE REMOVED, THEN THE GROSS - PROFIT RATIO WOULD INCREASE FROM 11.5% TO 23.43% DURING THE YEAR AND THE NET PROFIT RATIO WILL INCREAS E FROM 4.82% TO 16.68%, WHICH IS UNREALISTIC AND IMPOSSIBLE TO EARN IN SUCH LINE OF BUSINESS. IT WAS, THEREFORE , CONTENDED THAT ASSESSING OFFICER HAD MADE THE ADDITION MERELY ON BASIS OF ASSUMPTION S AND PRESUMPTION S . THE CIT(A) CALLED FOR REMAND REPORT F ROM ASSESSING OFFICER AND AFTER CONSIDERING SUCH REPORT OF ASSESSING OFFICER AND THE FURTHER SUBMISSIONS OF THE ASSESSEE, HE HAS 4 SHRI SHARAD V. SHAH ITA NO. 746/MUM/2015 FOUND IT FIT TO SCALE DOWN THE ADDITION TO RS.15,05,631/ - . AS PER THE CIT(A), IT WOULD BE FAIR IF THE DISALLOWANCE FOR ALLEGED BOGUS PURCHASES IS RESTRICTED TO 10% OF THE ALLEGED BOGUS PURCHASES. THE CIT(A) HAS JUSTIFIED HIS DECISION BY RELYING ON THE JUDGMENT S OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF SATHYANARAYAN P. RATHI, 351 ITR 150 AND IN THE CASE OF CIT VS. BHOLANATH P OLY FAB (P) LTD., ITA NO. 63 OF 2012 DATED 23.10.2012 HOLDING THAT THE ENTIRE AMOUNT COVERED BY UNPROVED PURCHASES COULD NOT BE TAXED, BUT ONLY THE PROFIT EMBEDDED THEREIN C OULD BE SUBJECT TO TAX. AS A CONSEQUENCE, CIT(A) HAS RETAINED THE ADDITION TO THE EXTENT OF RS.15,05,631/ - AND DELETED THE BALANCE. AGAINST SUCH A DECISION OF CIT(A), REVENUE IS IN APPEAL BEFORE US. 5 . BEFORE US, THE STAND OF LD. DR IS THAT THE ASSESSING OFFICER MADE NO MISTAKE IN DISALLOWING THE ENTIRE AMOUNT OF UNPROVED PURCHASES BE CAUSE THE ASSESSEE COULD NOT PRODUCE THE PARTIES FOR APPROPRIATE VERIFICATION. IT WAS ALSO POINTED OUT THAT THE VERIFICATION EXERCISE CARRIED OUT BY ASSESSING OFFICER REVEALED THAT THE SO - CALLED PARTIES FROM WHOM PURCHASES HAVE BEEN EFFECTED WERE NOT GENU INE, BASED ON THE INFORMATION RECEIVED FROM SALES TAX DEPARTMENT OF MAHARASHTRA. 6 . ON THE OTHER HAND, THE LEARNED REPRESENTATIVE FOR THE RESPONDENT - ASSESSEE HAS POINTED OUT THAT THE CIT(A) MADE NO MISTAKE IN DISAGREEING WITH THE STAND OF ASSESSING OFFICE R. IN PARTICULAR, OUR ATTENTION HAS BEEN INVITED TO PARA 2.5 OF THE ORDER OF CIT(A) WHEREIN A CATEGORICAL FINDING HAS BEEN ARRIVED AT THAT THE MATERIAL IN QUESTION WAS INDEED USED FOR THE PURPOSE OF MANUFACTURING BECAUSE OTHERWISE THE SALE OF MACHINERIES COULD NOT HAVE BEEN EFFECTED. I N THIS CONT EXT, IT WAS 5 SHRI SHARAD V. SHAH ITA NO. 746/MUM/2015 POINTED OUT THAT CIT(A) JUSTIFIABLY RELIED ON THE JUDGMENT S OF HONBLE GUJARAT HIGH COURT IN ORDER TO SUSTAIN THE ADDITION ONLY WITH RESPECT TO THE PROFIT ELEMENT EMBEDDED IN THE ALLEGED UNPROVED PURCHASES AND NOT THE ENTIRE AMOUNT OF PURCHASES. 7 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. IN THE PRESENT CASE, THE SUM AND SUBSTANCE OF THE CHARGE MADE BY THE ASSESSING OFFICER AGAINST THE ASSESSEE IS THAT THE PURCHASES EFFECTED FROM THE T WO CONCERNS ARE BOGUS. IN THE ABOVE BACKGROUND, ASSESSING OFFICER HAS ASSERTED THAT SEC. 69C OF THE ACT IS ATTRACTED AND ACCO RDINGLY MADE AN ADDITION OF RS.1,50,56,316/ - REPRESENTING THE VALUE OF SUCH PURCHASES. THE MOOT QUESTION IS, IS THE ASSESSING OFF ICER JUSTIFIED IN INVOKING SEC. 69C OF THE ACT QUA HIS FINDING THAT THE PURCHASES ARE BOGUS OR UNPROVED ? SEC.69C OF THE ACT DEALS WITH SITUATION WHERE AN ASSESSEE IS FOUND TO HAVE INCURRED AN EXPENDITURE FOR WHICH HE DOES NOT OFFER ANY EXPLANATION ABOUT T HE SOURCE OF SUCH EXPENDITURE OR THE EXPLANATION OFFERED IS NOT FOUND TO BE SATISFACTORY BY THE ASSESSING OFFICER. IT EMPOWERS THE ASSESSING OFFICER TO TREAT THE AMOUNT COVERED BY SUCH EXPENDITURE AS DEEMED INCOME OF THE ASSESSEE. THE SIGNIFICANT POINT I S THAT THE DEEMING CHARACTER OF SEC. 69C OF THE ACT IS TRIGGERED WHERE THE EXPLANATION ABOUT THE SOURCE OF SUCH EXPENDITURE IS NOT FOUND TO BE SATISFACTORY. IN THE PRESENT CASE, THERE IS NO DISPUTE SO FAR AS THE SOURCE OF FUNDS USED FOR MAKING PAYMENT OF THE INSTANT PURCHASES IS CONCERNED . IN FACT, CLAIM OF THE ASSESSEE HAS BEEN THAT THE PAYMENTS TO THE TWO SUPPLIERS HAVE BEEN MADE THROUGH ACCOUNT PAYEE CHEQUES OR BANK RTGS, AN ASPECT WHICH IS NOT IN DISPUTE. THEREFORE, IN OUR CONSIDERED OPINION, INVOKIN G OF SEC. 69C OF THE ACT IN THE 6 SHRI SHARAD V. SHAH ITA NO. 746/MUM/2015 BACKGROUND OF THE FACT - POSITION SOUGHT TO BE MADE BY THE ASSESSING OFFICER IS QUITE SUSPECT IN THE EYES OF LAW. IN ANY CASE, WE ALSO FIND NO ERROR ON THE PART OF CIT(A) IN APPLYING JUDGEMENTS OF HON'BLE GUJARAT HIGH COURT I N THE CASE OF CIT VS. BHOLANATH POLY FAB (P) LTD., ITA NO. 63 OF 2012 DATED 23.10.2012 ( SUPRA ) AND SATHYANARAYAN P. RATHI (SUPRA) WHEREBY ONLY THE PROFIT ELEMENT EMBEDDED IN THE INSTANT PURCHASES IS SOUGHT TO BE TAXED. THE CIT(A) RECORDED A FINDING THAT T HE MATERIAL WAS INDEED USED IN THE PROCESS OF MANUFACTURE AND THAT IN SUCH A SITUATION, THE DECISIONS OF HONBLE HIGH COURT OF GUJARAT ARE FULLY ATTRACTED. BEFORE US, THE LD. DR APART FROM REITERATING THE STAND OF ASSESSING OFFICER HAS NOT RAISED ANY CRED IBLE POINT SO AS TO ASSAIL THE DECISION OF CIT(A) AS ERRONEOUS OR INFIRM IN LAW. THEREFORE, IN VIEW OF OUR AFORESAID DISCUSSION , WE HEREBY AFFIRM THE ORDER OF CIT(A) AND, ACCORDINGLY REVENUE FAILS IN ITS APPEAL. 8. RESULTANTLY, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 1 S T SEPTEMBER, 2016. SD/ - SD/ - ( AMARJIT SINGH ) JUDICIAL MEMBER ( G.S. PANNU ) ACCOUNTANT MEMBER MUMBAI, DATE : 2 1 S T SEPTEMBER , 2016 * SSL * COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 7 SHRI SHARAD V. SHAH ITA NO. 746/MUM/2015 4) THE CIT CONCERNED 5) THE D.R, I BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI