Maharashtra Engineering , Kolhapur V. Pr. Commissioner of Income-tax -1, Kolhapur

ITA 859/PUN/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 4768 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 02-11-2018
• Assessment Year: 2010-2011
• Appeal Filed On: 11-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Revision of order; Opportunity of being heard; Principle of natural justice; Difference of opinion; Change of opinion; Set aside
• Section: 143(3); 72; 13; 147; 68; 148; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER I.T.A. NO. 859/PUN/2018 ASSESSMENT YEAR: 2010-11 MAHARASHTRA ENGINEERING, 334 ADAMPUR, POST: MUDAL, TAL. BHUDARGAD, DIST. KOLHAPUR 416 209 PAN; AACFM 4101 G APPELLANT VS. PR. C.I.T., I, KOLHAPUR RESPONDENT APPELLANT BY : SHRI RAJESH SHAH RESPONDENT BY : SHRI DEEPAK GARG DATE OF HEARING: 18-02-2020 DATE OF PRONOUNCEMENT: 20-02-2020 ORDER PER GEORGE MATHAN, JUDICIAL MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LEARNED PR. CIT-I, KOLHAPUR, IN APPEAL NO. KOP/PCIT-1/263/HAWAL A/A.Y-10-11/ MAHARASHTRA ENGG/2017-18 DATED 28-3-2018 FOR A.Y. 2 010-11 PASSED U/S 263 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED A S THE ACT). 2. SHRI RAJESH SHAH IS REPRESENTED FOR THE ASSESSEE AND SHRI DEEPAK GARG IS REPRESENTED FOR THE REVENUE. ITA NO.859/PUN/2018 MAH. ENGG. KOLHAPUR A.Y. 2010-11 2 3. IT WAS SUBMITTED BY THE LEARNED A.R. THAT THE AS SESSEE IS A PARTNERSHIP FIRM WHICH IS IN THE BUSINESS OF MANUFACTURING OF T RACTOR & PRECISION SHEET METAL WORK. IT WAS HIS SUBMISSION THAT THE ASSESSE E HAD, DURING THE RELEVANT ASSESSMENT YEAR, DONE PURCHASE OF H.R. AND C.R. SHE ETS WHICH ARE BASICALLY M.S. SHEETS FROM ONE M/S. C.R. ENTERPRISES FOR A TO TAL CONSIDERATION OF RS. 1,70,55,525/- THE ASSESSEE HAD SOLD THE SAME AND H E HAD ALSO DISCLOSED PROFIT ON THE SALES IN HIS P & L A/C. THE RETURN O F INCOME HAD BEEN FILED FOR THE RELEVANT ASSESSMENT YEAR ON 31-10-2009 DISCLOSING T OTAL INCOME OF RS. 6,80,159/-. CERTAIN INFORMATION HAD COME TO THE PO SSESSION OF THE A.O FROM THE DY. CIT (INV) PUNE THAT ASSESSEE WAS BENEFICIARY FR OM BOGUS HAWALA PURCHASES DONE WITH RAJU BHANUBHAI DOSHI (C.R. ENTE RPRISES), MUMBAI, TO THE EXTENT OF RS. 1,70,55,525/- DURING THE YEAR. CONSE QUENTLY, THE CASE OF THE ASSESSEE WAS RE-OPENED BY ISSUING NOTICE U/S 148 OF THE ACT AND THE ACCOUNTS OF THE ASSESSEE WAS EXAMINED. DETAILS WERE CALLED FOR AND THE ASSESSMENT WAS COMPLETED ON 11-3-2016 U/S 143(3) READ WITH SEC . 147 OF THE ACT WHEREIN TRANSACTIONS WITH M/S, C.R. ENTERPRISES WERE VERIFI ED. IN THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS VERIFIED BY THE A.O WITH REGARD TO THE DOCUMENTARY PROOF FOR PURCHASES FROM SAID HAWALA DE ALER AND ITS SUBSEQUENT SALES THEREOF. IT WAS UNDERSTOOD THAT ALL THE TRANS ACTIONS WERE DULY RECORDED IN THE BOOKS. THE ASSESSEE HAD ALSO ADMITTED THAT THE TRANSACTIONS WERE IN THE NATURE OF CIRCULAR TRANSACTIONS IN ORDER TO ENHANCE THE TURNOVER. IT WAS ADMITTED BY THE ASSESSEE THAT THE PURCHASES AND SALES WERE N OT BOGUS BUT WERE GENUINE AND SUBSEQUENTLY HAD AGREED TO ADDITION OF 5% OF PURCHASES MADE FROM THE ALLEGED HAWALA DEALERS IN ADDITION TO ITS TRADING RESULTS. THE A.O HAD VERIFIED THE TRANSACTIONS AND RECORDED IN THE ASSES SMENT ORDER THAT THE CHEQUES HAD BEEN ISSUED IN REGARDS TO THE PURCHASES AND THE CHEQUES WERE ALSO RECEIVED FROM THE PARTIES TO WHOM THE SALES HA D BEEN MADE. THE ITA NO.859/PUN/2018 MAH. ENGG. KOLHAPUR A.Y. 2010-11 3 ASSESSEE WAS UNABLE TO PRODUCE ALLEGED HAWALA PARTI ES FROM WHOM THE ASSESSEE HAD MADE PURCHASES. CONSEQUENTLY, THE A.O ASSESSED 5% OF THE PURCHASES AS INCOME ON THE TRANSACTIONS. IT WAS SU BMITTED THAT SUBSEQUENTLY A SHOW CAUSE NOTICE WAS ISSUED BY THE LEARNED PR. CIT ON 22-2-2018 ASKING THE ASSESSEE TO SUBMIT A REPLY BY 27-3-2018. IT WAS HI S SUBMISSION THAT IN THE SHOW CAUSE NOTICE, THE LEARNED PR. CIT HAS TAKEN A STAND THAT HE PROPOSES TO APPLY THE DECISION OF THE HONBLE GUJARAT HIGH COUR T IN THE CASE OF N.K. PROTEINS LTD. VS. DCIT (2016) 72 TAXMAN.COM 289 (GU JARAT) TO SAY THAT WHEN THE ENTIRE PURCHASES WERE FOUND TO BE BOGUS THEN CO NFIRMING THE DISALLOWANCE OF 5% OF THE BOGUS PURCHASES GOES AGAINST THE PRINC IPLES OF SECTION 68 OF THE ACT. IT WAS THE SUBMISSION THAT SINCE THE ASSESSEE DID NOT GET ADEQUATE TIME, HE WAS UNABLE TO RESPOND TO THE SHOW CAUSE NOTICE BY 27-3-2018 BUT THE ASSESSEE HAD RESPONDED ON 30-3-2018 WITH ALL THE DE TAILS AS CALLED FOR BY THE LEARNED PR. CIT. IT WAS HIS SUBMISSION THAT HOWEVER, THE PR. CIT PASSED AN ORDER U/S 263 ON 28-3-2018 SETTING ASIDE THE ASSESS MENT ORDER PASSED US 143(3) READ WITH SEC. 147 OF THE ACT ON 11-3-2016 F OR A.Y. 20-10-11 FOR FRESH DETERMINATION OF INCOME AFTER PROPER EXAMINATION OF THE FACTS AND LAW . IT WAS HIS SUBMISSION THAT ALL THE ISSUES HAVING BEEN CONS IDERED BY THE A.O IN THE COURSE OF RE-OPENED ASSESSMENT AND RE-OPENING OF T HE ASSESSMENT HAS BEEN EXCLUSIVELY FOR THE PURPOSES OF EXAMINING THE SAID ALLEGED HAWALA PURCHASES AND THE A.O HAVING FORMED HIS OPINION AND HAVING AC CEPTED THE PURCHASES AND SALES, THE REVISION AS PROPOSED BY THE LEARNED PR. CIT IS UNSUSTAINABLE AS IT AMOUNTS TO CHANGE OF OPINION. 4. THE LEARNED CIT D.R VEHEMENTLY SUPPORTED THE ORD ER OF THE PR. CIT. AT THIS POINT, IT WAS PUT TO THE LEARNED CIT D.R AS TO HOW THE ORDER PASSED U/S 263 COULD BE SUSTAINED ESPECIALLY IN VIEW OF THE FACT THAT THE SAID ORDER HAS BEEN ITA NO.859/PUN/2018 MAH. ENGG. KOLHAPUR A.Y. 2010-11 4 PASSED IN TOTAL VIOLATION OF PRINCIPLES OF NATURAL JUSTICE INSOFAR AS THE ISSUES THAT AROSE IN THE ASSESSMENT YEAR 2010-11 WHICH HAD BEEN CONSIDERED AND ASSESSMENT PASSED IN 2016 IS BEING PROPOSED FOR REV ISION BY SHOW CAUSE NOTICE DATED 22-2-2018 AND THE ASSESSEE WAS GRANTED ONLY FIVE DAYS TIME TO RESPOND I.E. BY 27-3-2018. 27 TH MARCH, 2018 IS TUESDAY AND 29 TH MARCH 2018 IS THURSDAY. IT WAS FURTHER PUT TO THE LEARNED CIT D.R. FOR THE REVENUE AS TO HOW IT CAN BE SAID THAT AN EFFECTIVE OPPORTUNITY H AS BEEN GRANTED TO THE ASSESSEE IN THE FORM OF SUCH ISSUE OF NOTICE. IN R EPLY, THE LEARNED CIT D.R. SUBMITTED THAT THE ISSUE COULD BE RESTORED TO THE F ILE OF THE LEARNED CIT FOR FRESH ADJUDICATION. HOWEVER, HE FAILED TO EXPLAIN AS TO HOW SUCH AN OPPORTUNITY CAN BE GIVEN WHICH WOULD IN EFFECT BE EXTENDING THE TIM E LIMIT PROVIDED U/S 263 OF THE ACT. THE LEARNED CIT D.R. WAS FURTHER REQUESTE D TO EXPLAIN AS TO HOW THE PROVISIONS OF SEC. 263 CAN BE APPLIED WHEN THE PROV ISION OF SEC. 263(1) SPECIFICALLY PROVIDES FOR AFTER MAKING OR CAUSING TO BE MADE SUCH INQUIRY AS HE DEEMS NECESSARY BEFORE THE LEARNED CIT PASSED AN O RDER ON 28-3-2018. THE LEARNED CIT D.R. WAS REQUESTED TO SHOW AS TO HOW A ND WHAT WAS THE INQUIRY WHICH HAS BEEN DONE BY THE LEARNED PR. CIT OR THE I NQUIRY WHICH HE HAS CAUSED TO BE MADE BEFORE HE PASSED AN ORDER U/S 263 OF THE ACT ON 28-3-2018. TO THIS, THE LEARNED CIT D.R WAS UNABLE TO POINT OUT A NY OF THE INQUIRIES. IT WAS HOWEVER, HIS SUBMISSION THAT THIS WAS A CASE OF HA WALA TRANSACTION AND THE PURCHASES WERE BOGUS AND THAT THE ENTIRE PURCHASES WERE LIABLE TO BE ASSESSED AS AGAINST WHICH THE A.O HAD MADE THE ADDI TION OF ONLY 5% OF THE ALLEGED HAWALA PURCHASES. THE LEARNED CIT D.R. VE HEMENTLY SUPPORTED THE ORDER OF THE LEARNED PR. CIT KOLHAPUR. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. IT IS NOTICED THAT THE REOPENING OF THE ASSESSMENT HAS BEEN DONE FOR THE ITA NO.859/PUN/2018 MAH. ENGG. KOLHAPUR A.Y. 2010-11 5 SPECIFIC PURPOSE OF EXAMINING THE SAID PURCHASES FR OM C.R. ENTERPRISES. THE A.O AFTER CONSIDERING THE EVIDENCES PRODUCED CAME T O THE CONCLUSION THAT THE ADDITION REPRESENTING DISALLOWANCE OF 5% OF THE TOT AL PURCHASES WOULD MEET THE ENDS OF JUSTICE. THUS, THE REASONS HAVE BEEN RECOR DED FOR THE PURPOSES OF REOPENING OF THE ASSESSMENT. THE ISSUE ON THE BASI S WHICH REOPENING HAS BEEN DONE, HAS BEEN EXAMINED BY THE A.O AND AFTER V ERIFYING THE EVIDENCES, A CONSCIOUS DECISION HAS BEEN TAKEN BY THE A.O WHEN P ASSING THE ASSESSMENT ORDER ON 11-3-2016. A PERUSAL OF THE ORDER U/S 263 PASSED BY THE LEARNED CIT SHOWS THAT IN THE SHOW CAUSE NOTICE, THE LEARNED PR . CIT HAS MENTIONED THAT THE DISALLOWANCE OF 5% OF THE TOTAL OF SUCH PURCHAS ES IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE WITHIN THE M EANING OF SEC. 263 OF THE ACT. HOWEVER, WHEN IT CAME TO THE ORDER PASSED U/S 263 H E DOES NOT SAY AS TO HOW THE SAID ASSESSMENT ORDER PASSED U/S 143(3) READ WI TH SEC. 147 FOR THE A.Y. 2010-11 DATED 11-2-2016 IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. FOR BREVITY, THE FINDING OF THE LEARNE D CIT IN PARAS 9 TO 13 IS EXTRACTED HEREIN BELOW. 9. I HAVE GONE THROUGH ASSESSMENT ORDER. ON THE B ASIS OF INFORMATION RECEIVED FROM MAHARASHTRA SALES TAX DEP ARTMENT, IT IS FOUND THAT THE AFORESAID TRANSACTIONS ARE BOGUS WITHOUT A CTUAL SALE/DELIVERY OF GOODS. FURTHER, ON ENQUIRIES BY THE A.O THE SELLER S ARE FOUND TO BE NON- EXISTENT AT THE GIVEN ADDRESSES. THE ASSESSEE HAS ALSO FAILED TO FILE CONFIRMATIONS, FAILED TO PRODUCE THE SUPPLIERS. TH E LETTERS ISSUED HAVE COME BACK UN-SERVED, WHICH PROVED THAT THE WHOLE PU RCHASES WERE NOT GENUINE. AS STATED ABOVE, THE HONBLE SUPREME COUR T VIDE ITS JUDGMENT IN SLP IN CC NO. 769/2017 HAS DISMISSED THE SLP FIL ED BY THE ASSESSEE THEREBY CONFIRMING THE JUDGMENT OF THE HONBLE GUJA RAT HIGH COURT IN THE CASE OF N.K. PROTEINS LTD VS. DCIT (2016) 72 TAXMAN .COM 289 (GUJARAT) WHICH HAS HELD THAT ADDITION ON PERCENTAGE BASIS ON BOGUS OR HAWALA PURCHASES IS AGAINST THE SPIRIT OF I.T. ACT. CONSI DERING ALL THESE FACTS AND LEGAL POSITION, THE ASSESSMENT ORDER IS REQUIRED TO BE SET ASIDE. 10. HOWEVER, ON THIS ISSUE, IT MAY BE NOTED THAT TH E ITAT MUMBAI BENCH F MUMBAI, VIDE ITS ORDER UNDER ITA NO. 4557 AND 4558/MUM/2015 DATED 28-7-2017 IN THE CASE OF DY. CI T 14(1)(2) MUMBAI VS. FAGIOL INDIA PVT. LTD., HAS DISTINGUISHED THE J UDGMENT OF SUPREME COURT IN THE CASE OF N.K. PROTEINS. THE ITAT HAS H ELD THAT CONSIDERING FACTUAL MATRIX, WHAT NEEDS TO BE TAXED IS PROFIT EL EMENT EMBEDDED IN ITA NO.859/PUN/2018 MAH. ENGG. KOLHAPUR A.Y. 2010-11 6 SUCH PURCHASES BUT NOT THE ENTIRE PURCHASES. THERE FORE, IN THE LIGHT OF THE ABOVE JUDGMENT, THE A.O IS REQUIRED TO RE-EXAMI NE THE FACTUAL MATRIX AND THEN TO DECIDE WHETHER ADDITION OF ENTIRE PURCH ASES OR ONLY PROFIT ELEMENT IS WARRANTED IN THIS CASE. 11. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES AN D LEGALITY OF THE CASE, THE ORDER PASSED U/S 143(3) R.W.S. 147 FOR A. Y. 2010-11 DT. 11-3- 2016 IS HEREBY SET ASIDE FOR FRESH DETERMINATION OF INCOME AFTER PROPER EXAMINATION OF THE FACTS AND LAW. 12. HOWEVER, BEFORE ARRIVING AT ANY CONCLUSION, THE A.O SHALL GIVE AN OPPORTUNITY TO THE ASSESSEE TO ADDUCE EVIDENCE IN S UPPORT OF ITS CLAIM OF PURCHASES, VERIFY ITS ALLOWABILITY IN THE LIGHT OF THE PREVAILING POSITION OF LAW. HENCE, TO ENSURE THAT THE ASSESSEE IS GIVEN P ROPER OPPORTUNITY OF BEING HEARD AND FOR SUBSTANTIATING ITS CLAIM, IT WO ULD BE JUST AND PROPER TO SET ASIDE THE ASSESSMENT COMPLETED ON 11-3-2016 FOR THE A.Y. 2010- 11 FOR DE-NOVO EXAMINATION OF FACTS. THIS BEING DO NE IN SPIRIT OF THE HONBLE SUPREME COURTS DECISION IN THE CASE OF RAM PYARI DEVI SARAOGI VS. CIT (1969) 67 ITR 84 (SC) WHEREIN IT IS HELD TH AT SINCE THE ASSESSEE IS GETTING AN OPPORTUNITY OF BEING HEARD, NO PREJUD ICE IS CAUSED TO THE ASSESSEE IF THE ORDER IS SET ASIDE. 13. IN THE RESULT THE ASSESSMENT ORDER AS REFERRED ABOVE IS SET ASIDE. 6. THE LEARNED PR. CIT ALSO FAILS TO ANSWER THE VER Y PRIMARY QUESTION THAT IF THE PURCHASES ARE GOING TO BE TREATED AS BOGUS AND THE ADDITION IS GOING TO BE MADE OF THE ENTIRETY OF THE PURCHASES WHAT HAPPENS TO THE SALES THAT HAVE BEEN DISCLOSED, AS ALSO THE STOCKS BY TREATING THE SAID PURCHASES AS BOGUS. SALES WHICH HAVE BEEN DISCLOSED CANNOT BE TOUCHED. THE STOCK STATEMENT OF THE ASSESSEE WOULD ALSO STANDS DISTURBED. A PERUSA L OF THE ASSESSMENT ORDER HOWEVER, SHOWS THAT THESE HAVE BEEN EXAMINED BY THE A.O AND AFTER CONSIDERING THE FACTS THE ESTIMATED ADDITION OF 5% OF PURCHASES HAVE BEEN MADE BY THE A.O. THUS, THE ISSUES HAVE BEEN EXAMIN ED BY THE A.O AND JUST BECAUSE THE OPINION AS ARRIVED BY THE A.O IS AT A V ARIATION OF THE OPINION OF THE LEARNED PR. CIT, WOULD NOT GRANT THE LEARNED PR. C IT THE POWERS OF REVISION U/S 263 OF THE ACT. THUS, ON MERITS, THE ORDER PASSED U/S 263 STANDS SET ASIDE. WE ARE NOT GOING INTO THE TECHNICAL ISSUES AS HAS B EEN DISCUSSED IN THIS ORDER ITA NO.859/PUN/2018 MAH. ENGG. KOLHAPUR A.Y. 2010-11 7 ABOVE AS WE HAVE, ON MERITS, SET ASIDE THE REVISION AL ORDER PASSED U/S 263 OF THE ACT. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 20 TH DAY OF FEBRUARY 2020. SD/- SD/- (ANIL CHATURVEDI) (GEORGE MATHAN) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE ; DATED : 20 TH FEBRUARY 2020 . ANKAM COPY OF THE ORDER IS FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE PR. CCIT PUNE 4. THE PR. CIT 3 PUNE 5. THE ADDL. CIT RANGE 6, PUNE 6. THE ASSESSING OFFICER 7. THE D.R. ITAT PUNE BENCH B 8. GUARD FILE TRUE COPY BY ORDER SR. PRIVATE SECRETARY ITAT PUNE BENCH, PUNE ITA NO.859/PUN/2018 MAH. ENGG. KOLHAPUR A.Y. 2010-11 8 1 DRAFT DICTATED ON 18.02.2020 SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 20.02.2020 SR. PS/PS 3 DRAFT PROPOSED AND PLACED BEFORE THE SECOND MEMBER 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 5 APPROVED DRAFT COMES TO THE SR. PS/PS 20-02-2020 SR. PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR. PS/PS 7 DATE OF UPLOADING OF ORDER SR. PS/PS 8 FILE SENT TO BENCH CLERK 20-02-2020 SR. PS/PS 9 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 10 DATE ON WHICH FILE GOES TO THE A.R 11 DATE OF DISPATCH OF ORDER