BHARAT COPY CENTRE P.LTD, MUMBAI V. DCIT 2(1), MUMBAI

ITA 798/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9628 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 16-02-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGSHEN
• Keywords: Reopening of assessment; Bogus purchase; Opportunity of cross examination
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI PAWAN SINGH (JM) I.T.A. NO. 798/MUM/2016 (ASSESSMENT YEAR 2009 - 10) I.T.A. NO. 799/MUM/2016 (ASSESSMENT YEAR 2010 - 11) I.T.A. NO. 800 /MUM/20 16 (ASSESSMENT YEAR 20 1 1 - 12 ) M/S. BHARAT COPY CENTRE PVT. LTD. 18/20, GOTHIS HOUSE PLICE COURT LANE NEAR HANDLOOM HOUSE FORT, MUMBAI - 400 001. VS. DCIT - 2(1)(1) ROOM NO. 561 5 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. ( APPELLANT ) ( RESPONDENT ) I.T.A. NO. 793/MUM/2016 (ASSESSMENT YEAR 2009 - 10) I.T.A. NO. 794/MUM/2016 (ASSESSMENT YEAR 2010 - 11) I.T.A. NO. 792/MUM/2016 (ASSESSMENT YEAR 2011 - 12) DCIT - 2(1)(1) ROOM NO. 561 5 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. VS. M/S. BHARAT COPY CENTRE PVT. LTD. 18/20, GO THIS HOUSE PLICE COURT LANE NEAR HANDLOOM HOUSE FORT, MUMBAI - 400 001. ( APPELLANT ) ( RESPONDENT ) PAN NO . AACCB6298C ASSESSEE BY SHRI BHUPENDRA SHAH DEPARTMENT BY S HRI M.C. OMI NINGSHEN DATE OF HEARING 14 . 8 . 201 7 DATE OF PRONOUNCEMENT 22 .9 . 201 7 O R D E R PER BENCH: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDERS PASSED BY LD CIT(A) - 4, MUMBAI AND THEY RELATE TO THE ASSESSMENT YEARS 2009 - 10 TO 2011 - 12. THE ADDITION RELATING TO BOGUS PURCHASES, HAVING BEEN CONFIRMED BY LD CIT(A) PAR TIALLY, BOTH THE PARTIES HAVE FILED THESE APPEALS. WHILE THE REVENUE IS M/S. BHARAT COPY CENTRE PVT. LTD. 2 CHALLENGING THE RELIEF GRANTED BY LD CIT(A) IN ALL THE THREE YEARS, THE ASSESSEE IS ASSAILING HIS DECISION IN PARTIALLY SUSTAINING THE ADDITION. THE ASSESSEE HAS ALSO RAISED A LEGAL GROUND CHALLENGING THE VALIDITY OF REOPENING OF ASSESSMENT. ALL THE APPEALS WERE HEARD TOGETHER AND HENCE THEY ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. THE FACTS RELATING TO THE CASE ARE DISCUSSED IN BRIEF. THE ASSE SSEE IS ENGAGED IN THE BUSINESS OF UNDERTAKING LABOUR WORKS IN OFFSET PRINTING AND PHOTO COPYING. CONSEQUENT TO THE INFORMATION RECEIVED FROM THE SALES TAX DEPARTMENT THAT CERTAIN PARTIES ARE ENGAGED IN THE BUSINESS OF PROVIDING ACCOMMODATION BILLS WITHOU T ACTUALLY SUPPLYING THE MATERIALS AND UPON NOTICING THAT THE ASSESSEE HAS PURCHASED GOODS FROM SOME OF SUCH PARTIES IN THE THREE YEARS UNDER CONSIDERATION, THE AO REOPENED THE ASSESSMENTS OF THESE THREE YEARS. THE ASSESSING OFFICER DISALLOWED THE ENTIRE AMOUNT OF PURCHASES MADE FROM THE SUSPICIOUS DEALERS IN ALL THE THREE YEARS BY TREATING THEM AS BOGUS PURCHASES. THE LD CIT(A), HOWEVER, TOOK THE VIEW THAT THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES ALONE SHOULD BE ASSESSED TO TAX AND ACCORDINGLY SUSTAI NED THE ADDITION TO THE EXTENT OF 8% OF THE VALUE OF BOGUS PURCHASES. AGGRIEVED BY THE ORDERS PASSED BY LD CIT(A), BOTH THE PARTIES HAVE FILED THESE APPEALS BEFORE US. 3. THE ASSESSEE HAS CHALLENGED THE VALIDITY OF REOPENING OF ASSESSMENTS. WE NOTIC E THAT THE ASSESSING OFFICER HAS RECEIVED INFORMATION FROM THE SALES TAX DEPARTMENT ABOUT THE SUSPICIOUS/HAWALA DEALERS AND FURTHER NOTICED THAT THE ASSESSEE HAS PURCHASED GOODS FROM SUCH PARTIES IN ALL THE THREE YEARS UNDER CONSIDERATION. IN OUR VIEW, TH E SAME CONSTITUTES SUFFICIENT INFORMATION FOR FORMING BELIEF THAT THE INCOME HAS ESCAPED ASSESSMENT. ACCORDINGLY WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN UPHOLDING THE VALIDITY OF REOPENING OF ASSESSMENT. M/S. BHARAT COPY CENTRE PVT. LTD. 3 4. THE ASSESSEE HAS ALSO TAKEN A GROUND THAT THE ASSESSING OFFICER HAS FAILED TO ALLOW THE OPPORTUNITY OF CROSS EXAMINATION TO THE ASSESSEE AND ACCORDINGLY CONTENDED THAT THE ADDITION MADE IS NOT VALID. WE NOTICE THAT THE ASSESSING OFFICER HAS REOPENED THE ASSESSMENT ON THE BASIS OF IN FORMATION RECEIVED FROM THE SALES TAX DEPARTMENT THAT THE SUSPICIOUS/HAWALA DEALERS HAVE NOT ACTUALLY SUPPLIED GOODS AND THE SALES TAX DEPARTMENT HAS GIVEN THE SAID INFORMATION ON THE BASIS OF STATEMENT GIVEN BY THOSE PARTIES BEFORE THEM. ON THE BASIS OF SUCH INFORMATION, THE ASSESSEE WAS ASKED TO PROVE THE GENUINENESS OF PURCHASES, SINCE THE ASSESSEE HAS PURCHASED MATERIALS FROM SOME OF SUCH SUSPICIOUS DEALERS. THERE SHOULD NOT BE ANY DOUBT THAT THE RESPONSIBILITY TO PROVE THE CLAIM FOR DEDUCTION IS PLAC ED UPON THE ASSESSEE. THE AO NOTICED THAT THE ASSESSEE DID NOT HAVE EVIDENCE FOR TRANSPORTATION OF MATERIALS, RECEIPT AND CONSUMPTION OF MATERIALS. THE ASSESSEE COULD PRODUCE ONLY BILLS AND PAYMENT DETAILS. IT COULD NOT OBTAIN CONFIRMATION LETTERS FROM THE SUPPLIERS TO PROVE THE GENUINENESS OF PURCHASES NOR COULD IT PRODUCE THOSE PARTIES BEFORE THE AO. THUS, WE ARE OF THE VIEW THAT THE ASSESSEE HAS FAILED TO DISCHARGE THE RESPONSIBILITY TO PROVE THE GENUINENESS OF PURCHASES, WHEN THE GENUINENESS WAS DOU BTED BY THE AO ON THE BASIS OF INFORMATION AVAILABLE WITH HIM. THUS WE ARE OF THE VIEW THAT IT CANNOT BE SAID THAT THE AO HAS MERELY RELIED UPON THE STATEMENT GIVEN BY THE PARTIES BEFORE THE SALES TAX AUTHORITIES, BUT WAS CONSTRAINED TO MAKE THE ADDITION DUE TO THE FAILURE OF THE ASSESSEE TO CONCLUSIVELY PROVE THE GENUINENESS OF PURCHASES. HAD THE AO MERELY PLACED RELIANCE ON THE SWORN STATEMENTS ALONE WITHOUT CALLING FOR ANY DETAILS FROM THE ASSESSEE, THE NECESSITY OF AFFORDING OPPORTUNITY OF CROSS EXAMIN ATION MAY HAVE ARISEN. IN VIEW OF THE ABOVE, WE ARE UNABLE TO ACCEPT THE CONTENTIONS OF THE ASSESSEE AND ACCORDINGLY REJECT THE SAME. M/S. BHARAT COPY CENTRE PVT. LTD. 4 5. THE COMMON ISSUE RELATES TO THE ADDITION MADE TOWARDS BOGUS PURCHASES. THE ASSESSEE HAD PURCHASED PAPERS, FL EX ROLL, INK, TONER, CARD BOARD AND VARIOUS OTHER MATERIALS REQUIRED FOR PRINTING, PUBLISHING AND PHOTO COPYING. THE ASSESSEE DID NOT HAVE EVIDENCE FOR TRANSPORTATION OF MATERIALS AND FURTHER THE ASSESSEE HAS NOT MAINTAINED STOCK REGISTER. IT WAS SUBMITT ED THAT IT WOULD BE DIFFICULT TO MAINTAIN STOCK REGISTER, SINCE THE MATERIALS PURCHASED BY THE ASSESSEE ARE NUMEROUS AND THEY ARE CONSUMED IN EXECUTION OF JOB WORKS. WHEN THE AO ASKED THE ASSESSEE TO PRODUCE THE SUPPLIERS, THE ASSESSEE HAS SOUGHT TIME TO PRODUCE THEM ON THE REASONING THAT IT HAS STOPPED BUSINESS DEALING FOR THE PAST FEW YEARS. HOWEVER, THE ASSESSEE COULD FURNISH ONLY THEIR ADDRESS, PAN NO., SALES TAX NUMBER ONLY BEFORE THE AO. IT WAS SUBMITTED THAT THE ADDITION COULD NOT BE MERELY FOR TH E REASON THAT THE ASSESSEE COULD NOT PRODUCE PARTIES. 6. THE AO OBSERVED THAT THE PURCHASE INVOICES DID NOT HAVE CHALLAN NUMBER, ORDER NUMBER OR DETAILS OF DISPATCH. THOUGH IT WAS STAMPED AS PAID, IT DID NOT CONTAIN CHEQUE DETAILS. THE BANK STATEMENT DID NOT CONTAIN THE NAME OF PAYEES. SINCE THE ASSESSEE DID NOT HAVE PROOF FOR TRANSPORTATION OF MATERIALS AND SINCE THE SUPPLIERS WERE NOT PRODUCED AND SINCE THE SUPPLIERS HAVE BEEN STAMPED AS SUSPICIOUS DEALERS BY THE SALES TAX DEPARTMENT, THE AO TOOK T HE VIEW THAT THE STATEMENT GIVEN BY THEM BEFORE THE SALES TAX AUTHORITIES HAS BEEN CORROBORATED. THE AO PLACED RELIANCE ON THE DECISION RENDERED BY GUJARAT HIGH COURT IN THE CASE OF CIT VS. CHANDRAVILAS HOTEL (164 ITR 102) AND DELHI HIGH COURT IN THE CASE OF CIT VS.MODI STONE LTD (203 TAXMANN 123) TO TAKE THE VIEW THAT MERE PRODUCTION OF VOUCHERS IN SUPPORT OF CLAIM FOR DEDUCTION OF EXPENDITURE WOULD NOT PROVE THE CLAIM OF THE ASSESSEE. IT IS THE DUTY OF THE ASSESSEE TO PROVE PAYMENT ESPECIALLY WHEN THE G ENUINENESS IS DOUBTED. ACCORDINGLY HE DISALLOWED THE PURCHASES MADE FROM THE SUSPICIOUS DEALERS IN ALL THE THREE YEARS AS DETAILED BELOW: - M/S. BHARAT COPY CENTRE PVT. LTD. 5 ASSESSMENT YEAR 2009 - 10 - RS.89,13,044/ - ASSESSMENT YEAR 2010 - 11 - RS.84,01,498/ - ASSESSMENT YEAR 2011 - 12 - R S.66,04,861/ - IN THE ALTERNATIVE, THE AO TOOK THE VIEW THAT THE ASSESSEE MIGHT HAVE PURCHASED THE GOODS BY PAYING CASH, SINCE THEY HAVE BEEN INCLUDED IN THE STOCK. ACCORDINGLY HE TOOK THE VIEW THAT THE PAYMENTS MADE BY WAY OF CASH WOULD ATTRACT DISALLOWA NCE U/S 40A(3) OF THE ACT. 7. THE LD CIT(A) REJECTED THE ALTERNATIVE VIEW TAKEN BY THE AO, BY TAKING SUPPORT OF THE DECISION RENDERED BY MUMBAI BENCH OF ITAT IN THE CASE OF SHRI GANPATRAI A SANGHVI VS. ACIT (ITA NO.2826/MUM/2013 DATED 05 - 11 - 2014), W HEREIN IT WAS HELD THAT THE PROVISIONS OF SEC. 40A(3) CANNOT BE APPLIED UNLESS IT IS PROVED BEYOND DOUBT THAT ACTUAL CASH PURCHASES HAS BEEN MADE. 8. THE LD CIT(A) DID NOT AGREE WITH THE DISALLOWANCE OF ENTIRE PURCHASES, SINCE HE OBSERVED THAT THE A SSESSEE HAS USED THOSE MATERIALS IN ITS JOB WORKS AND HENCE THE PROFIT ELEMENT EMBEDDED THEREIN SHOULD ALONE BE BROUGHT TO TAX. IN SUPPORT OF THIS PROPOSITION, THE LD CIT(A) PLACED RELIANCE ON CERTAIN CASE LAWS. THE LD CIT(A) NOTICED THAT THE ASSESSEE HA S SHOWN NET PROFIT RATE RANGING FROM 5.56% TO 7.41%. HE ALSO NOTICED THAT THE DISALLOWANCE OF ENTIRE AMOUNT OF PURCHASES WOULD GIVE RISE TO INCREASE OF G.P RATE AT HIGHER FIGURE. ACCORDINGLY HE TOOK THE VIEW THAT IT WOULD BE APPROPRIATE TO TAKE NET PROFI T RATE OF 8% TO SUSTAIN ADDITION AND ACCORDINGLY SUSTAINED ADDITION TO THE EXTENT OF 8% OF THE PURCHASES MADE FROM SUSPICIOUS DEALERS. 9. THE LD A.R REITERATED THE CONTENTIONS MADE BEFORE THE TAX AUTHORITIES AND CONTENDED THAT THE PURCHASES WERE GE NUINE. ON THE CONTRARY, THE LD D.R PLACED M/S. BHARAT COPY CENTRE PVT. LTD. 6 STRONG RELIANCE ON THE ASSESSMENT ORDERS AND CONTENDED THAT THE ENTIRE ADDITION MADE BY THE AO SHOULD BE SUSTAINED. 10. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. WE HAVE NOTICED THAT THE ASSES SEE WAS HAVING ONLY PURCHASE BILLS AND PAYMENT DETAILS. IT COULD NOT FURNISH EVIDENCES FOR TRANSPORTATION OF GOODS AND FOR RECEIPT OF GOODS. THE ASSESSEE DID NOT MAINTAIN STOCK REGISTER ALSO AND IT WAS MERELY SUBMITTED THAT THE MATERIALS WERE CONSUMED IN DIFFERENT ORDERS. WE NOTICE THAT THE LD CIT(A) HAS OBSERVED THAT THE ASSESSEE HAS PROVED CONSUMPTION OF MATERIALS, BUT WE ARE UNABLE TO UNDERSTAND AS TO HOW THE ASSESSEE COULD PROVE THE SAME WITHOUT MAINTAINING STOCK REGISTER. THOUGH THE ASSESSEE SOUGHT TIME BEFORE THE AO TO PRODUCE THE SUPPLIERS, YET IT COULD NOT PRODUCE THEM DURING THE COURSE OF ASSESSMENT PROCEEDINGS. HENCE WE ARE OF THE VIEW THAT THE ASSESSEE CANNOT BE SAID TO HAVE PROVED THE GENUINENESS OF PURCHASES BEYOND DOUBT. THE DETAILS OF NA ME, ADDRESS, PAN NUMBER, SALES TAX NUMBER ONLY GIVE THE PARTICULARS ABOUT THE SUPPLIERS. IT IS NOT THE CASE OF THE AO OR THE SALES TAX DEPARTMENT THAT THE SUPPLIERS DID NOT EXIST. HERE THE DISPUTE IS ABOUT THE GENUINENESS OF PURCHASES AND HENCE THE DETAI LS SO FURNISHED BY THE ASSESSEE WOULD NOT BE OF ANY HELP TO IT. 11. HOWEVER, WE AGREE WITH THE DECISION OF LD CIT(A) IN HOLDING THAT THE PROVISIONS OF SEC. 40A(3) CANNOT BE APPLIED ON INFERENCE BASIS, SINCE THE LD CIT(A) HAS FOLLOWED THE DECISION REND ERED BY CO - ORDINATE BENCH IN THIS REGARD. 12. WE NOTICE THAT THE ASSESSEE HAS PURCHASED VARIOUS ITEMS FROM THE SUSPICIOUS DEALERS AND THE SAME WAS CONSUMED IN VARIOUS ORDERS. ACCORDINGLY IT WAS SUBMITTED THAT THE ASSESSEE COULD NOT MAINTAIN STOCK RE GISTER. WE HAVE ALREADY OBSERVED THAT, IN THE ABSENCE OF STOCK REGISTER, IT WOULD BE DIFFICULT TO PROVE THE CONSUMPTION OF MATERIALS. HENCE WE ARE UNABLE TO UNDERSTAND AS TO M/S. BHARAT COPY CENTRE PVT. LTD. 7 HOW THE LD CIT(A) HAS HELD THAT THE ASSESSEE HAS PROVED THE CONSUMPTION. HOWEVE R, IN OUR VIEW, THE SUBMISSION OF THE ASSESSEE THAT IT WOULD BE DIFFICULT TO MAINTAIN STOCK REGISTER IN THIS KIND OF TRADE CANNOT BE REJECTED ALTOGETHER. HENCE THERE IS MERIT IN THE VIEW TAKEN BY LD CIT(A) THAT THE PROFIT ELEMENT EMBEDDED IN THE IMPUGNED PURCHASES ALONE SHOULD BE ASSESSED TO TAX. 13. SINCE THE SUPPLIERS HAVE ACCEPTED THAT THEY HAVE NOT ACTUALLY SUPPLIED GOODS, THE NATURAL COROLLARY IS THAT THE ASSESSEE MIGHT HAVE PURCHASED GOODS FROM SOME OTHER SOURCE. IN THAT CASE THE INFERENCE IS T HAT THE ASSESSEE MIGHT HAVE MADE PROFIT IN SUCH PURCHASES BY INFLATING THE PURCHASE BILLS. IN FACT, IT IS THE CASE OF THE SALES TAX DEPARTMENT THAT THE SUSPICIOUS DEALERS HAVE NOT PAID VAT TAX. HENCE THERE IS A POSSIBILITY THAT THE ASSESSEE MIGHT HAVE SA VED VAT TAX AND ALSO OBTAINED SOME DISCOUNT IN PURCHASE PRICE. THE VAT RATES APPLICABLE TO THE PURCHASES MADE BY THE ASSESSEE ARE 5% AND 12.5% DEPENDING UPON THE PRODUCT. WE NOTICE THAT THE G.P RATE OF THE ASSESSEE HAS ALSO FALLEN DOWN, I.E., IN AY 2008 - 09, THE G.P RATE WAS SHOWN AT 24.94% AND THE SAME HAS FALLEN DOWN TO 23.76% IN AY 2009 - 10, TO 17.24% IN AY 2010 - 11 AND TO 21.66% IN AY 2011 - 12. IN AY 2012 - 13, THE G.P RATE HAS AGAIN RISEN TO 27.73%. THE REDUCTION IN G.P RATES, INTER ALIA, SUPPORTS THE CA SE OF THE REVENUE THAT THERE MIGHT BE INFLATION OF PURCHASE RATES. 14. IN THESE KIND OF SITUATION, THE PROFIT IS GENERALLY MADE AT GROSS PROFIT LEVEL AND HENCE THE LD CIT(A) WAS NOT JUSTIFIED IN ADOPTING N.P RATE FOR SUSTAINING THE ADDITION. CONSIDERIN G ALL THESE FACTORS, WE ARE OF THE VIEW THAT THE ADDITION MAY BE SUSTAINED AT 12.50%. ACCORDINGLY, WE MODIFY THE ORDERS PASSED BY LD CIT(A) AND DIRECT THE AO TO SUSTAIN ADDITION TO THE EXTENT OF 12.50% OF THE VALUE OF ALLEGED BOGUS PURCHASES IN ALL THE TH REE YEARS UNDER CONSIDERATION. M/S. BHARAT COPY CENTRE PVT. LTD. 8 15. THE ASSESSEE HAS PLACED RELIANCE ON HOST OF CASE LAWS, BUT SINCE THE ISSUE BEFORE US IS FACTUAL IN NATURE, THEY MAY NOT COME TO THE HELP OF THE ASSESSEE. 16. IN THE RESULT, THE APPEALS OF THE REVENUE ARE PARTLY ALLOWED AND THE APPEALS OF THE ASSESSEE ARE DISMISSED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 22 . 9 .201 7. SD/ - SD/ - (PAWAN SINGH ) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 22 / 9 / 20 1 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) PS ITAT, MUMBAI