ACIT 24 (2), Mumbai V. M/S KING METAL WORKS , Mumbai

ITA 894/MUM/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8375 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2010-2011
• Appeal Filed On: 15-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R BHOOPATHI
• Keywords: Bogus purchase; Question of law; Accommodation entries; Tax effect; Set aside
• Section: 133(6); 143(1); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H, BENCH MUM BAI BEFORE SHRI G. MANJUNATHA, ACCOUNTANT MEMBER & SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO.894/MUM/2019 ( ASSESSMENT YEAR: 2010-11 ) ACIT-24(2) ROOM NO.613, 6 TH FLOOR PIRAMAL CHAMBERS, LALBAUG, PAREL, MUMBAI-400 012 VS. KING METAL WORKS A-6, NANDDHAM INDUL.ESTATE, MAROL MAROSHI ROAD, ANDHERI(E) MUMBAI-400 059 PAN/GIR NO. AAAFK4021F APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI RAHUL HAKANI, AR REVENUE BY SHRI R.BHOOPATHI, DR DATE OF HEARING 27/02/2020 DATE OF PRONOUNCEME NT 20/05 /2020 / O R D E R PER G.MANJUNATHA (A.M) : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)36, MU MBAI, DATED 31/10/2018 AND IT PERTAINS TO ASSESSMENT YEAR 2010- 11. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE ADDITIONS AT 12% MADE BY T HE AO PERTAINING TO HAWALA PURCHASES, NOTWITHSTANDING THAT THE ASSESSEE NAME WAS LISTED BY THE SALES TAX DEPARTMENT AS A BENEFICIARY OF ACC OMMODATION ENTRIES PROVIDED BY BOGUS DEALERS/SELLERS AND THAT, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS UNABLE TO PRODUCE THE IMPUGNED PARTIES OR TO FURNISH THE SUBSTANTIATING E VIDENCE IN THE FORM OF WEIGHMENT SLIPS, DELIVERY CHALLANS, ETC TO PROVE TH E GENUINENESS OF THE PURCHASES'. ( TAX EFFECT RS.6,89,997/-) ITA NO.894/MUM/2019 KING METAL WORKS 2 2. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE ADDITION 12% MADE B Y THE AO, PERTAINING TO HAWALA PURCHASES, WITHOUT APPRECIATING THE FACT THA T PAYMENTS MADE THROUGH CHEQUE WOULD NOT PROVE THE GENUINENESS OF T RANSACTION AND THE SAME PRINCIPAL IS UPHELD BY THE HON'BLE APEX COURT IN THE CASE OF CIT VS P MOHAN KALA (291 ITR 278(SC). 3. 'ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING HE ADDITION AT 12% MADE BY THE AO, WITHOUT CONSIDERING THE DECISION OF HON'BLE APEX COURT ON T HE ISSUE OF BOGUS PURCHASES DATED 16.01.2017 IN THE CASE OF N K PROTE INS VS DCIT (2017) (84 TAXMANN.COM 195)(SC).' 4. 'ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE ADDITION AT 12% MADE BY TH E AO, WITHOUT CONSIDERING THE DECISION OF HON'BLE BOMBAY HIGH COU RT IN THE CASE OF SHORELINE HOTEL (P) LTD. VS CIT, CENTRAL 1 (98 TAXM ANN.COM 234).' 5. 'THE APPELLANT PRAYS THAT THE ORDER OF THE CI T (APPEALS) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO BE RE STORED'. 6. 'THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR TO SUBMIT ADDITIONAL NEW GROUND WHICH MAY BE NECESSARY '. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF GENERATION OF ELECTRICITY AND MANU FACTURING OF STAINLESS/ALUMINUM UTENSILS, FILED ITS RETURN OF IN COME FOR AY 2010- 11 ON 28/09/2010, DECLARING TOTAL INCOME OF RS.6,38 ,16,997/-. THE ASSESSMENT HAS BEEN COMPLETED U/S 143(1) OF THE I.T .ACT, 1961 ON 8/3/2011 AND DETERMINED TOTAL INCOME AT RS. 9,48,98 ,440/-. THE CASE HAS BEEN, SUBSEQUENTLY REOPENED U/S 147 OF THE ACT, ON THE BASIS OF INFORMATION RECEIVED FROM DGIT, INVESTIGAT ION, MUMBAI, AS PER WHICH, SALES TAX AUTHORITIES OF GOVERNMENT OF M AHARASHTRA HAD TAKEN ACTIONS AGAINST NUMBER OF HAWALA DEALERS, WH O HAD ISSUED BOGUS PURCHASE BILLS TO VARIOUS PARTIES IN MUMBAI A ND OTHER PLACES. AS PER LIST OF BENEFICIARIES, THE ASSESSEE IS ONE O F THE BENEFICIARY, WHO HAD TAKEN ACCOMMODATION BILLS OF BOGUS PURCHASE S FROM VARIOUS PARTIES AS LISTED BY THE LD. AO IN ASSESSME NT ORDER PARA 4 AMOUNTING TO RS. 3,63,78,412/-. THE CASE WAS SELECT ED FOR SCRUTINY ITA NO.894/MUM/2019 KING METAL WORKS 3 AND THE ASSESSMENT HAS BEEN COMPLETED U/S. 143(3).R .W.S. 147 OF THE I.T.ACT, 1961 ON 29/03/2016 AND DETERMINED TOTA L INCOME OF RS. 9,74,35,942/-, AFTER MAKING ADDITION OF RS. 25,37,5 01 TOWARDS ALLEGED BOGUS PURCHASES FROM 3 PARTIES. 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESEE H AS PREFERRED AN APPEAL BEFORE THE LD.CIT(A). BEFORE THE LD.CIT(A ), THE ASSESSE HAS FILED ELABORATE WRITTEN SUBMISSIONS, ON THE IS SUE, WHICH HAS BEEN REPRODUCED AT PARA 3 ON PAGES 3 TO 5 OF LD.CIT (A) ORDER. THE SUM AND SUBSTANCE OF ARGUMENTS OF THE ASSESSEE BEFO RE THE LD.CIT(A) ARE THAT PURCHASE FROM THE ABOVE PARTY IS GENUINE, WHICH IS SUPPORTED BY NECESSARY EVIDENCES. THEREFORE, NO ADDITIONS COULD BE MADE ON THE BASIS OF INFORMATION RECEIVED FROM T HIRD PARTY. THE LD.CIT(A), AFTER CONSIDERING RELEVANT SUBMISSION OF THE ASSESSEE AND ALSO, BY FOLLOWING THE DECISION OF HONBLE GUJA RAT HIGH COURT, IN THE CASE OF CIT VS. SIMITH P. SHETH (356 ITR 451) H AS SCALED DOWN ADDITION MADE BY THE AO TOWARDS ALLEGED BOGUS PURCH ASES TO 12% GROSS PROFIT ON TOTAL PURCHASES FROM THREE PARTIES. THE RELEVANT FINDINGS OF THE LD.CIT(A) ARE AS UNDER:- 4.2.6 THUS, A STUDY OF DIFFERENT CASES, WHEREIN AD DITION ON ACCOUNT OF BOGUS PURCHASES HAS BEEN DEALT WITH BY VARIOUS COUR TS AND TRIBUNALS SHOWS THAT SUCH ADDITIONS HAVE BEEN UPHELD IN THEIR ENTIRETY ONLY IN A FEW CASES INCLUDING DECISIONS RENDERED IN THE CASES OF LA MEDICA. SRI GANESH RICE MILLS, VICKY FOODS (P.) LTD. ETC. WHERE APART FROM VARIOUS OTHER FACTORS THERE WAS LACK OF RELIABLE RECORD WIT H REFERENCE TO QUANTITATIVE DETAILS ETC. AND WHERE EVIDENCE PRODUC ED FOR PAYMENT WAS FOUND LACKING. IN OTHER CASES, WHERE THE LULL QUANT ITATIVE DETAILS ARE NOT AVAILABLE OR DETAILS PRODUCED WERE NOT FULLY RELIAB LE INASMUCH AS CONSUMPTION OF MATERIAL WAS SHOWN BUT YIELD WAS TOO LOW AND PAYMENTS WERE ALSO DOUBTFUL (INCLUDING THE CASES OF VIJAY PR OTEINS LTD., BHOLANATH POLY FAB PVT. LTD., SIMIT P.. SHETH, SANKET STEEL T RADERS, SALHYANARAYAN P. RATHIETC.) ADDITION WAS UPHELD IN THE RANGE OF 2 5% (AS IN VIJAY PROTEINS CASE) TO 12.5 % TO AUGMENT THE POSSIBLE SU PPRESSION IN GP APPLYING REAL INCOME THEORY DEPENDING ON THE FACTS OF THE CASE. HOWEVER, PERUSAL OF DECISIONS OF TRIBUNALS AND HIGH COURTS O N THIS ISSUE SHOWS ITA NO.894/MUM/2019 KING METAL WORKS 4 THAT ALL SUCH CASES ARE DECIDED ON THE BASIS OF FAC TS AND INVOLVE NO UNIFORM QUESTION OF LAW. FROM THE ABOVE DECISIONS, THE GROUND-RULE THAT EMERGES IS THAT WHERE SUPPLIERS ARE NOT AVAILABLE, THE PRESENCE OF REASONABLE QUANTITATIVE DETAILS AND PAYMENTS BY ACC OUNT PAYEE CHEQUES ARE PRIMARY TESTS ON WHEN THE GENUINENESS OF PURCHA SES IS REQUIRED TO BE TESTED. IN ADDITION, FROM CASES LIKE NIKUNJEXIMP E NTERPRISES (P.) LTD (HIGH COURT AS WELL AS IT AT). M. K. BROTHERS, NANG ALIA FABRICS PVT. LTD., RAJIV G. KALATHIL, PERMANAND, SAGAR BOSE, DIAGNOSTI CS ETC.. IT EMERGES THAT OTHER ASPECTS SUCH AS STATEMENTS OF HAWALA PRO VIDERS RECORDED BY SALES TAX AUTHORITIES; AFFIDAVITS FILED BY SUCH S UPPLIERS BEFORE SALES TAX AUTHORITIES; ABSENCE OF EVIDENCE IN SUPPORT OF TRAN SPORTATION/DELIVERY OF MATERIAL ETC.. HAVE BEEN HELD LESS RELEVANT AS MERE INDICATORS AND NOT DECISIVE FACTORS, TO DRAW A CONCLUSION REGARDING GE NUINENESS OF PURCHASES. THUS, IN ESSENCE, THE BENEFIT DERIVED BY THE ASSESSEE BY SHOWING PURCHASES FROM SUCH BOGUS PARTIES IS THE LO WERING OF GP THAT WOULD HAVE BEEN EARNED BY THE ASSESSEE HAD SUCH PUR CHASES AND CORRESPONDING SALES BEEN REMOVED FROM THE ACCOUNTS. IN OTHER WORDS, THE EFFECTIVE LOWERING OF THE GP IS THE REAL ADDITI ONAL INCOME OF THE ASSESSEE BY SHOWING SUCH PURCHASES AND ONLY SUCH CO MPONENT WOULD THEREFORE BE TAXABLE. 4.2.7. KEEPING IN MIND THE TOTALITY OF THE FACTS AN D CIRCUMSTANCES AND THE GUIDELINES LAID DOWN IN JUDICIAL DECISIONS DISCUSSE D ABOVE, IT WOULD BE ADEQUATE TO MEET THE ENDS OF JUSTICE, IF THE DISALL OWANCE IS TO BE RESTRICTED TO 12 PERCENT OF THE BOGUS PURCHASES OF US. RS.25,37,501/- WHICH AMOUNTS TO RS. 3,04,500/-. THE AO IS, THEREFORE, DIRECTED TO RESTRICT THE DISALLOWANCE AS ABOVE. AO IS DIRECTED TO GIVE APPEAL EFFECT KEEPING IN MIN D APPELLANT'S OBJECTION AFTER EXAMINATION OF RECORD AND LAW. THE GROUNDS OF APPEAL ARE TREATED AS DISPOSED. 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT THE LD. AO HAS MADE 100% ADDITION TOWARDS ALLE GED BOGUS PURCHASES ON THE GROUND THAT THE ASSESSEE IS ONE OF THE BENEFICIARY OF ACCOMMODATION ENTRIES OF BOGUS PURCHASE BILLS IS SUED BY HAWALA DEALERS. ACCORDING TO THE LD. AO, ALTHOUGH ASSESEE HAS FILED CERTAIN BASIC EVIDENCES, BUT FAILED TO FILE FURTHER EVIDENC E IN THE BACKDROP OF CLEAR FINDING BY THE SALES TAX DEPARTMENT, MAHARASH TRA THAT THOSE PARTIES ARE INVOLVED IN PROVIDING ACCOMMODATION ENT RIES WITHOUT ACTUAL DELIVERY OF GOODS. THE LD. AO HAD ALSO TAKEN SUPPORT FROM THE INVESTIGATION CONDUCTED DURING THE COURSE OF AS SESSMENT ITA NO.894/MUM/2019 KING METAL WORKS 5 PROCEEDINGS, AS PER WHICH NOTICE ISSUED U/S 133(6) TO THE PARTIES WERE RETURNED UN-SERVED BY THE POSTAL AUTHORITIES. THEREFORE, HE CAME TO THE CONCLUSION THAT PURCHASES FROM THE SAID PARTIES ARE BOGUS IN NATURE. IT IS THE CONTENTIONS OF THE ASSES SEE BEFORE THE LOWER AUTHORITIES THAT PURCHASES FROM THE ABOVE PAR TY ARE SUPPORTED BY NECESSARY EVIDENCES. IT HAS FURNISHED ALL POSSIB LE EVIDENCES, INCLUDING BOOKS OF ACCOUNTS; STOCK DETAILS AND BANK STATEMENT TO PROVE THAT PAYMENT AGAINST SAID PURCHASES HAVE BEEN MADE THROUGH PROPER BANKING CHANNELS. 6 HAVING CONSIDERED ARGUMENTS OF BOTH THE PARTIES A ND ALSO, MATERIAL AVAILABLE ON RECORD, WE FIND THAT BOTH THE SIDES HAVE FAILED TO PROVE THE CASE IN THEIR FAVOUR WITH NECESSARY EV IDENCES. ALTHOUGH, ASSESSEE HAS FILED CERTAIN BASIC EVIDENCES, BUT FAI LED TO FILE FURTHER EVIDENCES TO CONCLUSIVELY PROVE PURCHASES TO THE SA TISFACTIONS OF THE LD.AO. AT THE SAME TIME, THE LD. AO HAD ALSO FAILE D TO TAKE THE INVESTIGATION TO A LOGICAL CONCLUSION BY CARRYING O UT NECESSARY ENQUIRES, BUT HE SOLELY RELIED UPON INFORMATION RE CEIVED FROM INVESTIGATION WING, WHICH WAS FURTHER SUPPORTED BY INFORMATION RECEIVED FROM MAHARASHTRA SALES TAX DEPARTMENT. UN DER THESE CIRCUMSTANCES, IT IS DIFFICULT TO ACCEPT ARGUMENTS OF BOTH THE SIDES. FURTHER, IN A CASE WHERE PURCHASES ARE CONSIDERED T O BE PURCHASED FROM SUSPICIOUS/HAWALA DEALERS, VARIOUS HIGH COURTS AND TRIBUNALS HAD CONSIDERED AN IDENTICAL ISSUE IN LIGHT OF INVES TIGATION CARRIED OUT BY THE SALES TAX DEPARTMENT AND HELD THAT IN CASE O F PURCHASES CLAIMS TO HAVE MADE FROM ALLEGED HAWALA DEALERS, ON LY PROFIT ELEMENT EMBEDDED IN THOSE PURCHASES NEEDS TO BE TAX ED, BUT NOT TOTAL PURCHASE FROM THOSE PARTIES. THE HONBLE GUJA RAT HIGH COURT, IN THE CASE OF CIT VS SIMITH P.SHETH 356 ITR 451 HAD C ONSIDERED A ITA NO.894/MUM/2019 KING METAL WORKS 6 SIMILAR ISSUE AND HELD THAT AT THE TIME OF ESTIMATI ON OF PROFIT FROM ALLEGED BOGUS PURCHASES NO UNIFORM YARDSTICKS COULD BE ADOPTED, BUT IT DEPENDS UPON FACTS OF EACH CASE. THE ITAT, M UMBAI, IN NUMBER OF CASES HAD CONSIDERED AN IDENTICAL ISSUE A ND DEPENDING UPON FACTS OF EACH CASE, DIRECTED THE LD.AO TO ESTI MATE GROSS PROFIT OF 10% TO 15% ON TOTAL ALLEGED BOGUS PURCHASES. IN THIS CASE, CONSIDERING THE NATURE OF BUSINESS OF THE ASSESSEE THE LD. AO HAS MADE 100% ADDITIONS, WHEREAS THE LD.CIT(A) HAS SCAL ED DOWN ADDITION TO 12% GROSS PROFIT ON TOTAL ALLEGED BOGUS PURCHASE. ALTHOUGH, BOTH AUTHORITIES HAVE TAKEN DIFFERENT RAT E OF PROFIT FOR ESTIMATION OF INCOME FROM ALLEGED BOGUS PURCHASE, B UT NO ONE COULD SUPPORT SAID RATE OF GROSS PROFIT WITH NECESSARY EV IDENCES OR ANY COMPARABLE CASES. THEREFORE, CONSIDERING FACTS AND CIRCUMSTANCES OF THIS CASE AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH IN NUMBER OF CASES, WE ARE OF THE CONSIDERED VIEW T HAT THE LD. CIT(A) HAS TAKEN A FAIR VIEW AND ESTIMATED 12% GROSS PROFI T ON ALLEGED BOGUS PURCHASES TO SETTLE DISPUTE BETWEEN THE PARTI ES AND HENCE, WE ARE INCLINED TO UPHOLD ORDER OF THE LD. CIT(A) A ND DISMISS APPEAL FILED BY THE REVENUE.. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 20/05/ 2020 SD/- ( RAVISH SOOD ) SD/- ( G. MANJUNATHA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 20/05/2020 THIRUMALESH SR.PS ITA NO.894/MUM/2019 KING METAL WORKS 7 COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//