ITO 9(1)(4), MUMBAI V. AUTOMATIC TILES & MARBLES INDUSTRIES P.LTD, MUMBAI

ITA 928/MUM/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0148 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 09-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V JENARDHANAN
• Keywords: Bogus purchase; Accommodation entries; Assessment record
• Section: 143(3); 142(1); 133(6); 148; 144; 139

Judgement Text

K IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 928/ MUM/2017 ( / ASSESSMENT YEAR : 2009-10) INCOME TAX OFFICER 9(1)(4), ROOM NO. 260A, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. / V. M/S AUTOMATIC TILES & MARBLES INDUSTRIES PVT. LIMITED, PLOT NO. 13-14, SURVEY NO., 79, MITTAL INDUSTRIAL ESTATE, OPP J.B. NAGAR, ANDHERI-KURLA ROAD, ANDHERI (EAST), MUMBAI 400 059. ./ PAN : AAACA4551H ( / APPELLANT ) .. ( / RESPONDENT ) REVENUE BY : SHRI V. JENARDHANAN ASSESSEE BY : SHRI KIRAN MEHTA / DATE OF HEARING : 22.08.2017 / DATE OF PRONOUNCEMENT : 29.08.2017 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE REVENUE, BEING ITA NO. 9 28/MUM/2017, IS DIRECTED AGAINST THE APPELLATE ORDER DATED 30.11.20 16 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 16, MUMBAI (H EREINAFTER CALLED THE CIT(A)), FOR ASSESSMENT YEAR 2009-10, APPELLATE PR OCEEDINGS BEFORE LEARNED CIT(A) HAD ARISEN FROM THE ASSESSMENT ORDER DATED 2 6 TH MARCH, 2015 PASSED BY LEARNED ASSESSING OFFICER (HEREINAFTER CALLED T HE AO) U/S 143(3) R.W.S. 147 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED THE ACT). ITA 928/MUM/2017 2 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN T HE MEMO OF APPEAL FILED WITH THE INCOME-TAX APPELLATE TRIBUNAL, MUMBA I (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. CIT(A) IS ERRED IN HOLDING THAT THE SUPPRESSED PROFIT ON ACCOUNT OF BOGUS TRANSACTION WAS TO BE ES TIMATED AT 12.5% OF THE NET PURCHASES IGNORING THE FACT THAT T HE ASSESSEE WAS A MANUFACTURE WHO CONSUMES THE PURCHASES MADE B Y IT IN THE COURSE OF ITS BUSINESS; THAT ONE TO ONE CO-RELA TION BETWEEN ITEM OF PURCHASE AND SALE CANNOT BE ESTABLISHED IN SUCH CASE; AND THEREFORE, THE TOTAL INCOME ARRIVED ON THE BASI S OF ESTIMATION OF PROFIT ATTRIBUTABLE TO SUCH BOGUS PURCHASE IS NO T VALID IN SUCH CASES. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ITO-9(1 )(4) BE RESTORED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING OF PAVAR BLOCKS AND TILES. THE RETURN OF INCOME WAS E-FILED BY THE ASSESSEE U/S 13 9 ON 23.11.2010 DECLARING TOTAL INCOME AT RS.24,60,664/- , WHICH WAS PROCESSE D BY REVENUE U/S 143(1) OF THE ACT . SUBSEQUENTLY THE CASE OF THE ASSESSEE WAS SELECTED FOR FRAMING SCRUTINY ASSESSMENT BY ISSUE OF NOTICE U/S 143(2) O F THE ACT DATED 25.08.2011 BY THE AO AND ASSESSMENT WAS FRAMED BY THE AO U/S 1 43(3) , VIDE ASSESSMENT ORDER DATED 25-11-2011 , WHEREIN THE RET URNED INCOME WAS ACCEPTED BY THE AO. SUBSEQUENTLY, INFORMATION WAS R ECEIVED BY THE REVENUE THAT THE ASSESSEE HAD OBTAINED BOGUS PURCHASE BILLS FROM CERTAIN PARTIES, WHICH ARE HAWALA DEALERS AS PER LIST OF SUSPICIOUS DEALERS ISSUED BY THE MAHARASHTRA SALES TAX (VAT) DEPARTMENT. AS PER THE SAID LIST, THE ASSESSEE HAD MADE BOGUS PURCHASES FROM THE FOLLOWING FOUR PA RTIES LISTED AS HAWALA DEALERS BY MAHARASHTRA VAT AUTHORITIES, TOTALING T O RS. 47,17,888/- DURING THE SUBJECT ASSESSMENT YEAR:- ITA 928/MUM/2017 3 NAME TIN PAN AMOUNT TIN CANCELLED NAMAN ENTERPRISES 27450524228V AQEPK5024G 10,816 01.04.2007 NAVDEEP TRADING CORPN. 27540616280V AAAPV4487A 2,752,535 26.06.2007 MANISHI TRADERS 27260523120V AAIHP5622D 14,000 13,04,2006 GREAT INTERNATIONAL 27680504653V 1,940,537 23.12.2005 TOTAL 47,17,888 INFORMATION WAS ALSO RECEIVED BY THE AO FROM THE OF FICE OF DGIT(INV.), MUMBAI WITH RESPECT TO BOGUS/ACCOMMODATION ENTRIES PROVIDE D BY THE AFORESAID PARTIES. THE ASSESSMENT WAS REOPENED BY THE AO U/S 147 AND NOTICE U/S.148 OF THE ACT WAS ISSUED BY THE AO TO THE ASSESSEE COM PANY ON 3 RD MARCH, 2014 WHICH WAS DULY SERVED ON THE ASSESSEE, THE SAID REO PENING WAS WITHIN FOUR YEARS FROM THE END OF ASSESSMENT YEAR. THE ASSESSEE VIDE LETTER DATED 02-09- 2014( SUBMITTED/FILED BEFORE AO ON 22-01-2015) STAT ED THAT RETURN OF INCOME FILED ON 23-11-2010 BE TREATED AS RETURN OF INCOME IN RESPONSE TO NOTICE U/S 148.THE REASONS RECORDED FOR REOPENING OF THE ASSES SMENT WAS PROVIDED TO THE ASSESSEE BY THE AO DURING REASSESSMENT PROCEEDI NGS , WHICH ARE AS UNDER: SUBSEQUENTLY, IT HAS COME TO THE KNOWLEDGE THAT TH E ASSESSEE WAS INVOLVED IN BOGUS PURCHASE/ HAWALA TRANSACTIONS DURING THE F.Y. 2008-09 RELEVANT TO A.Y. 2009-10. THE ASSESSEE WAS INVOLVED IN BOGUS PURCHASES TRANSACTION AMOUNTING TO RS. 47, 17,888/- DURING THE FINANCIAL YEAR 2008-09 RELEVANT TO THE A SSESSMENT YEAR 2009-10. THE ASSESSEE HAD MADE THESE BOGUS PUR CHASES THROUGH FOLLOWING PARTIES:- NAME TIN PAN AMOUNT TIN CANCELLED NAMAN ENTERPRISES 27450524228V AQEPK5024G 10,816 01.04.2007 NAVDEEP TRADING CORPN. 27540616280V AAAPV4487A 2,752,535 26.06.2007 MANISHI TRADERS 27260523120V AAIHP5622D 14,000 13,04,2006 GREAT INTERNATIONAL 27680504653V 1,940,537 23.12.2005 TOTAL 47,17,888 ITA 928/MUM/2017 4 3. IT IS FURTHER, NOTICED THAT THE MAHARASHTRA SALE S TAX DEPARTMENT HAS ALSO DECLARED ABOVE PARTIES AS HAWAL A TRADERS. THE TINS ALLOTTED TO THESE PARTIES HAVE ALSO BEEN C ANCELLED BY THE SALES TAX DEPARTMENT. 4. FURTHER, AN INFORMATION HAS BEEN RECEIVED FROM T HE OFFICE OF THE DGIT VIDE LETTER DATED NO. CORR. FIELD/DGIT (IN V) DT. 26.12.2013 STATING THAT M/S AUTOMATIC TILES AND MAR BLE INDUSTRIES PVT LTD HAS MADE BOGUS PURCHASE THROUGH ABOVE PARTIES. IT IS FURTHER INTIMATED THAT SHRI TEJAS SH AH OF M/S RELCON INFRA PROJECT LTD HAS ADMITTED IN THE STATEMENT REC ORDED BY DDIT TO HAVE ENTERED INTO BOGUS TRANSACTION WITH ABOVE C ONCERNS. THE PARTIES ALSO FAILED TO PRODUCE ANY SUPPORTING EVIDE NCE TO PROVE THE PURCHASE TRANSACTIONS. 5. FROM THE ABOVE FACTS, IT IS CLEAR THAT THE ASSES SEE HAS BOOKED BOGUS PURCHASES IN ITS BOOKS OF ACCOUNT TO THE TUNE OF RS.47,17,888/- AND HAS FAILED TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS IN RESPECT OF THESE PURCHASES NECESS ARY FOR ITS ASSESSMENT FOR THE A. Y. 2009-10. IN VIEW OF THE AB OVE, I HAVE REASONS TO BELIEVE THAT AN INCOME OF RS. 47,17,888/ - HAS ESCAPED ASSESSMENT FOR THE ASSESSMENT YEAR 2009-10. NOTICE U/ S. 148 ISSUED AFTER OBTAINING APPROVAL OF ADDL.CIT, RG-8(L ), MUMBAI ON 03.03.2014 VIDE INWARD NO.1105. DURING THE COURSE OF RE-ASSESSMENT PROCEEDINGS U/S 147/148, THE ASSESSEE WAS ASKED BY THE AO TO SUBMIT THE FOLLOWING DETAILS : NOTICE U/S. 142(1) OF THE ACT DATED 09.02.2015 WAS ISSUED TO THE ASSESSEE INTER ALIA CALLING FOR DETAILS OF INCOME & EXPENDITURE, SALE & PURCHASES AND OTHER BALANCE SHEET ITEMS. THE ASSESSEE, WITH RESPECT TO AFORESAID ALLEGED PURCHASES FROM HA WALA PARTIES, WAS REQUESTED TO FURNISH FOLLOWING DETAILS: (I) COPY OF PURCHASE ORDER, ORIGINAL STAMPED TAX IN VOICE, DELIVERY CHALLANS, LORRY RECEIPTS, GATE PASS, RECEI PT NOTE, TRANSPORTATION DETAILS; (II) DESCRIPTION OF MATERIAL PURCHASED; ITA 928/MUM/2017 5 (III) DAILY STOCK REGISTER; (IV) QUANTITATIVE DISPOSAL OF THESE PURCHASES SHOWI NG CORRESPONDING SALE/YIELD OF FINISHED PRODUCT; , (V) CHEQUE ENCASHMENT CERTIFICATE FROM BANK/COPIES OF ACCOUNT PAYEE CHEQUES WITH RECIPIENT BANKS STAMP. (VI) TAX AUDIT REPORT (WITH ALL ATTACHMENTS) FOR A. Y. 2008-09 & A.Y. 2010-11; (VII) COMPARISON OF FOLLOWING ACCOUNTING RATIO FOR LAST THREE ASSESSMENT YEARS; GROSS PROFIT RATIO, NET PROFIT/TU RNOVER, STOCK-IN-TRADE/TURNOVER, MATERIAL CONSUMED/FINISHED GOODS PRODUCED RATIO. (VIII) DETAILS OF SET OFF OF VAT CLAIMED IN RESPECT OF AFORESAID PURCHASE. NOTICES U/S.133(6) OF THE ACT DATED 15 TH JANUARY, 2015 WERE ISSUED BY THE AO TO THE AFORESAID FOUR PARTIES ALLEGEDLY INVOLVED IN PROVIDING BOGUS ACCOMMODATION ENTRIES BY ISSUING BOGUS BILLS WITHOU T SUPPLYING ANY MATERIAL, AT THEIR RESPECTIVE REGISTERED ADDRESSES, HOWEVER, THESE NOTICES U/S 133(6) RETURNED UN-SERVED FROM THE POSTAL AUTHORITIES WITH THE FOLLOWING POSTAL REMARKS: NAMAN ENTERPRISES UNCLAIMED NAVDEEP TRADING CORPN. NOT KNOWN MANISHI TRADERS REFUSED GREAT INTERNATIONAL LEFT ENQUIRIES WERE ALSO MADE BY THE AO FROM THE BANKS O F AFORESAID HAWALA DEALERS WHEREIN NOTICES U/S 133(6) WERE ISSUED BY T HE AO TO THE BANKERS OF THE SAID HAWALA DEALERS. THE ASSESSEE WAS INFORMED BY THE AO ABOUT THESE BANK ENQUIRIES AND RESPONSES RECEIVED FROM BANKERS OF THE SAID ALLEGED HAWALA DEALERS. THE ASSESSEE WAS PROVIDED WITH COP IES OF AFFIDAVIT CUM DECLARATION AND STATEMENTS FILED BY THESE HAWALA DE ALERS BEFORE MVAT ITA 928/MUM/2017 6 AUTHORITIES , WHEREIN THESE ALLEGED HAWALA DEALERS HAVE CONFESSED THAT THEY HAVE ONLY ISSUES BOGUS BILLS WITHOUT SUPPLYING ANY MATERIAL/GOODS. THE ASSESSEE WAS ALSO ASKED TO RESPOND TO THE SAME. HOWEVER, THE ASSESSEE DID NOT FURNISH ANY DETAILS/ CONFIRMATIONS OR WHEREABOUTS OF THE AFORESAID PARTIES. THE ASSESSEE ALTHOUGH SUBMITTED ITS BANK STATEMENT AND SUBMITTED THAT THE PAYMENTS HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUES AGAINST PURCHASES MADE FROM T HESE PARTIES. THE DETAILS OF PURCHASES MADE FROM THESE PARTIES WERE S UBMITTED BY THE ASSESSEE BEFORE THE AO. THE ENQUIRIES WITH BANKS REVEALED TH AT THERE WERE DEALING OF THESE HAWALA DEALERS WITH OTHER BOGUS HAWALA DEALER S AND CHEQUES DEPOSITED WERE ENCASHED REGULARLY IN CASH IMMEDIATELY AFTER E NCASHMENTS. THE ASSESSEE WAS CONFRONTED WITH THE SAME. THE ASSESSEE SUBMITTED COPIES OF PURCHASE BILLS, DELIVERY CHALLANS AND COPY OF STOCK REGISTER BEFORE THE A.O. AND COMPLETE STATEMENT OF STOCK SUMMARY WITH RESPEC T TO THE PARTIES FROM WHOM THESE PURCHASES WERE MADE. THE ASSESSEE ALSO SUBMITTED QUANTITATIVE STOCK STATEMENT OF THE ITEMS DEALT WITH THESE FOUR PARTIES NAMELY SAND, POWDER AND METAL, WERE ALSO SUBMITTED WHICH CONTAIN ED DETAILS OF NAME OF PARTY, ITEM AND QUANTITY ETC. . FROM THE QUANTITATI VE STOCK STATEMENTS , SOME QUANTITATIVE DIFFERENCES WERE NOTICED BY THE A.O. . THE AO ALSO OBSERVED THAT LORRY RECEIPTS WERE NOT PRODUCED. THE AO OBSERVED T HAT DELIVERY CHALLANS DID NOT CONTAINED THE DETAILS OF PLACE OF DISPATCH OF T HE MATERIAL. THE AO ALSO NOTICED SOME OTHER DISCREPANCIES W.R.T. THESE PURCH ASES AND STOCKS INCLUDING NON SUBMISSION OF PROCESS CHART AND DETAILS OF CONS UMPTION/UTILIZATION /YIELD OF THESE MATERIAL FOR PRODUCTION OF FINISHED GOODS. THE ASSESSEE SUBMITTED THE COMPARATIVE GROSS PROFIT AND NET PROFIT RATIO FOR A .Y. 2008-09 TO A.Y. 2012-13, WHICH IS REPRODUCED BELOW:- STATEMENT OF COMPARATIVE G.P.& N.P. ASST. YEAR SALES COGS MANUF.EXP INC/DEC GROSS GP % NP % ITA 928/MUM/2017 7 STOCK PROFIT A.Y. 08-09 66,971,752 39,030,013 9,634,377 74,157 1 8,381,519 27% 3% A.Y. 09-10 115,367,929 79,204,441 13,099,889 3,507, 617 26,571,216 23% 1% A.Y.10-11 85,596,159 51,993,477 10,230,217 (868,781 ) 22,503,634 26% 2% A.Y. 11 - 12 74,909,679 44,604,456 7,373,261 (2,700,046) 20,231,926 27% 1% A.Y. 12-13 74,494,552 45,750,350 7,165,773 (163,304 ) 21,415,125 29% 1% THE A.O. OBSERVED THAT THERE WAS A FALL IN GP RATIO FOR THE YEAR UNDER CONSIDERATION I.E. A.Y. 2009-10. IT WAS OBSERVED BY THE A.O. THAT IF THE GP RATIO IS COMPUTED EXCLUDING THE ALLEGED HAWALA PURC HASES, IT FETCHED SIMILAR GP RATIO AS COMPARED TO OTHER YEARS I.E. GP OF 27%. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE PURCHASES FROM HAWALA DEAL ERS AMOUNTING TO RS. 47,17,888/- SHOULD NOT BE TREATED AS NON-GENUINE/BO GUS AND SHOULD NOT BE ADDED AS INCOME OF THE ASSESSEE. THE ASSESSEE, IN REPLY, PRODUCED COPIES OF BILLS, INVOICES, DELIVERY CHALLANS, GOODS INWARD NO TE , LEDGER ACCOUNT OF THESE PARTIES, BANK STATEMENT ETC. . IT WAS EXPLAINED BY THE ASSESSEE BEFORE THE AO THAT THE PURCHASES WERE MADE FOR PRODUCTION/TRADING AND THE SALES ARE GENUINE AND HENCE NO DISALLOWANCE OF PURCHASES ARE WARRANTED. IT WAS EXPLAINED THAT THE PURCHASES WERE MADE FROM LOCAL M ARKET HENCE THERE WAS NO NEED TO ENGAGE LORRY. IT WAS SUBMITTED BY THE A SSESSEE THAT THE GP AND NP RATIO FOR THE YEAR WERE FAIRLY COMPARABLE. IT WAS S UBMITTED THAT THE PARTIES WERE NOT BOGUS. THE PARTIES HAD ADDRESSES WHICH WA S DULY VERIFIED BY THE VAT DEPARTMENT WHILE ISSUING REGISTRATION TO THESE PARTIES UNDER VAT. THE ASSESSEE SUBMITTED THAT PARTIES HAD GIVEN AFFIDAVIT /STATEMENT BEFORE THE VAT DEPARTMENT WHICH CLEARLY SHOWS THAT THE PARTIES WER E VERY MUCH AVAILABLE AND IN EXISTENCE, HENCE, THE PARTIES WERE NOT BOGUS . THE A.O. REJECTED THE CONTENTION OF THE ASSESSEE AND HELD THAT THE ASSESS EE COULD NOT SUBSTANTIATE ITS CLAIM OF PURCHASES FROM THE AFORESAID PARTIES W ITH THE HELP OF BOOKS OF ACCOUNTS, THE STOCK STATEMENTS ARE NOT TALLYING, TH E BILLS ISSUED BY THESE PARTIES ARE NOT PROPER, THE ASSESSEE COULD NOT SUBS TANTIATE DETAILS OF USE AND YIELD OF SUCH MATERIAL , THERE IS NO MENTIONING OF MAINTENANCE OF STOCK RECORDS AS PER TAX AUDIT REPORT , GP RATIO HAS FALL EN FROM 27% TO 23%, NP RATIO HAS FALLEN FROM 3% TO 1% AND THE ASSESSEE COU LD NOT CONTROVERT THE ITA 928/MUM/2017 8 STATEMENTS MADE BY THESE PARTIES BEFORE MVAT AUTHOR ITIES AND ALSO COULD NOT PRODUCE THE PARTIES BEFORE THE AO, AND ACCORDINGLY THE A.O. MADE THE ADDITION OF RS. 47,17,888/- AS THE PURCHASES WERE F OUND TO BE NOT GENUINE, VIDE ASSESSMENT ORDER DATED 26-03-2015 PASSED BY TH E AO U/S 143(3) R.W.S. 147 OF THE 1961 ACT. 4. AGGRIEVED BY THE ASSESSMENT ORDER DATED 26-3-201 5 PASSED BY THE A.O. U/S 143(3) R.W.S. 147 OF THE 1961 ACT, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). 5. BEFORE THE LD. CIT(A) , THE ASSESSEE SUBMITTED T HAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING SOLID CEMENT CONCRETE BLO CKS OF VARIOUS SHAPES AND THICKNESS AND RAW MATERIAL WERE PURCHASED FROM THESE FOUR ALLEGED HAWALA DEALERS NAMELY SAND , METAL AND STONE POWDER , WHICH IS REQUIRED FOR MANUFACTURING THE PRODUCTS MANUFACTURED BY THE ASSE SSEE. THE ASSESSEE SUBMITTED THAT GP RATIO CANNOT BE COMPARED WITH PRE CEDING YEAR AS THIS YEAR THE TURNOVER INCREASED WHICH INCLUDED OUTSOURCED TU RNOVER WHEREIN SOME OF THE WORK WAS OUTSOURCED WHICH LED TO FALL IN GP AND NP RATIO. THE ASSESSEE ALSO SUBMITTED CORRECTED STOCK STATEMENTS WHEREIN T HE STOCK TALLIED AND IT WAS BROUGHT TO THE NOTICE OF LEARNED CIT(A) THAT TH E DIFFERENCE IN STOCK STATEMENT WAS DUE TO CLERICAL ERROR DUE TO CUT AND PASTE ERRORS. THE ASSESSEE SUBMITTED THAT ONE TO ONE CORRELATION OF UTILIZATIO N OF THESE RAW MATERIAL WITH PRODUCTION OF FINISHED GOODS IS PROVED. THE DETAILS OF INPUT/ OUTPUT RATIO WERE GIVEN FOR THREE YEARS AND IT WAS SUBMITTED THAT THE SE RAW MATERIALS WERE CONSUMED EARLIER ALSO AND REVENUE ACCEPTED THE SAME . IT WAS SUBMITTED THAT THE COMPLETE QUANTITY RECORDS AND REGISTERS WERE MA INTAINED FOR EXCISABLE AND NON EXCISABLE GOODS PURCHASED AND SOLD BY THE ASSES SEE. IT WAS EXPLAINED THAT ALL PAYMENTS WERE MADE BY CROSSED ACCOUNT PAYE E CHEQUES. IT WAS SUBMITTED THAT ALL DETAILS WERE SUBMITTED BEFORE TH E AO. THE ASSESSEE IS SUBJECTED TO EXCISE DUTY AND HAD MAINTAINED COMPLET E QUANTITY RECORD OF ITA 928/MUM/2017 9 PURCHASES AND SALES AND ALSO STOCK RECORDS AS MANDA TED UNDER EXCISE LAWS. IT WAS SUBMITTED THAT THESE RAW MATERIALS WERE USED FOR MANUFACTURE OF FINISHED GOODS AND ONCE SALES ARE HELD TO BE GENUIN E, THE PURCHASES CANNOT BE DISALLOWED. IT WAS SUBMITTED THAT STATEMENT/AFFI DAVITS GIVEN BY THESE PARTIES BEFORE MVAT AUTHORITIES WERE NOT FURNISHED BY THE AO TO THE ASSESSEE FOR REBUTTAL. THE LD. CIT(A) OBSERVED THAT IN NUTSHELL THE ASSESS EE HAS DULY EXPLAINED THE CONSUMPTION/SALE OF THE MATERIAL FOR PRODUCTION OF FINISHED GOODS. IT WAS OBSERVED BY LEARNED CIT(A) THAT THE TRANSPORTATION OF THE MATERIAL ALSO STOOD PROVED. THE LD. CIT(A) OBSERVED THAT THE PARTIES C OULD NOT BE LOCATED BY THE ASSESSEE AND IT IS ADMITTED BY THE ASSESSEE THAT TH ESE PARTIES COULD NOT BE PRODUCED BEFORE THE REVENUE. THE LEARNED CIT(A) OBS ERVED THAT NOTICES U/S 133(6) OF THE ACT WERE ISSUED BY THE AO TO ALL THE AFORE-SAID PARTIES BUT THE SAME WERE RETURNED UN-SERVED. THUS, THE LEARNED C IT(A) OBSERVED THAT THE ONUS CAST ON THE ASSESSEE DID NOT STAND DISCHARGED AS THESE PURCHASES ARE APPEARING IN THE BOOKS OF THE ASSESSEE AND THESE DE ALERS HAVE CONFESSED BEFORE MVAT AUTHORITIES THAT THEY WERE ENGAGED IN I SSUING BOGUS BILLS WITHOUT SUPPLYING MATERIAL PHYSICALLY, AND THE ASSESSEE COU LD NOT PRODUCE THESE PARTIES BEFORE REVENUE. THE LEARNED CIT(A) OBSERVED THAT THE A.O. HAS NOT DOUBTED THE GENUINENESS OF THE SALES AS WELL CONSUM PTION/SALES, THE MOTIVE BEHIND OBTAINING BILLS FROM THESE PARTIES APPEARS T O BE INFLATION OF PURCHASE PRICES SO AS TO SUPPRESS TRUE PROFITS. THE LD. CIT (A) OBSERVED THAT THE SUPPRESSED PROFIT EMBEDDED IN PURCHASES WHICH THE A SSESSEE WOULD HAVE MADE FROM THESE BOGUS DEALERS NEED TO BE BROUGHT T O TAX. THE LD. CIT(A) AFTER CONSIDERING THE FACTS OF THE CASE, ESTIMATED THE SUPPRESSED PROFIT TO THE EXTENT OF 12.5% OF THE PURCHASES MADE FROM THESE BO GUS PARTIES, VIDE APPELLATE ORDER DATED 30-11-2016. ITA 928/MUM/2017 10 6. AGGRIEVED BY THE APPELLATE ORDER DATED 30-11-201 6 PASSED BY THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 7.THE LD. D.R. SUBMITTED THAT THIS IS REVENUES APP EAL. THE A.O. HAS MADE 100% DISALLOWANCE OF THE PURCHASES MADE FROM BOGUS PARTIES WHILE THE LD. CIT(A) REDUCED THE SAME TO 12.5% OF ALLEGED BOGUS P URCHASES ON ACCOUNT OF SUPPRESSED PROFITS DUE TO THESE INFLATED PURCHASES. FURTHER, THE LD. D.R. RELIED ON THE ASSESSMENT ORDER OF THE A.O. AND PRAY ED THAT THE ASSESSMENT ORDER PASSED BY LEARNED AO BE CONFIRMED AND THE APP ELLATE ORDER OF LEARNED CIT(A) BE SET ASIDE. 8. THE LD. COUNSEL FOR THE ASSESSEE, AT THE OUTSET, SUBMITTED THAT THE ASSESSEE HAS ACCEPTED THE APPELLATE ORDER PASSED BY THE LD. CIT(A) WHEREIN ADDITIONS WERE UPHELD/SUSTAINED BY LEARNED CIT(A) TO THE TUNE OF 12.5% OF THE ALLEGED BOGUS PURCHASES AND NO APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE SAID APPELLATE ORDER DATED 30-11-2016 PASSED BY TH E LD. CIT(A).IT WAS SUBMITTED THAT THE ASSESSEE IS SUBJECT TO EXCISE DU TY, ALL STOCK, CONSUMPTIONS/ UTILIZATION RECORDS FOR CONSUMING/UTI LIZING RAW MATERIAL ARE MAINTAINED AND PRODUCED BEFORE THE AUTHORITIES BELO W. THE MATERIAL SO PURCHASED FROM THESE ALLEGED FOUR HAWALA DEALERS WE RE UTILIZED FOR PRODUCTION OF FINISHED GOODS DEALT IN BY THE ASSESSEE AND THE SAID MATERIAL WAS ALSO PURCHASED IN PRECEDING YEARS AND UTILIZED/CONSUMED FOR PRODUCTION OF FINISHED GOODS DEALT IN BY THE ASSESSEE WHICH WAS A CCEPTED BY REVENUE. IT WAS SUBMITTED THAT THE AO MADE ADDITIONS TO THE TUN E OF 100% OF ALLEGED BOGUS PURCHASES TO THE TUNE OF RS. 47,17,888/- FROM THESE FOUR ALLEGED HAWALA DEALERS WHICH WAS REDUCED TO 12.5% OF ALLEGE D BOGUS PURCHASES BY LEARNED CIT(A), THUS, PRAYER WAS MADE BY LEARNED CO UNSEL FOR THE ASSESSEE FOR UPHOLDING OF APPELLATE ORDER OF LEARNED CIT(A). ITA 928/MUM/2017 11 9.WE HAVE CONSIDERED RIVAL CONTENTIONS AND ALSO PE RUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT THE ASS ESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF SOLID CEMENT CO NCRETE BLOCKS OF VARIOUS SHAPES AND THICKNESS. THE ASSESSEE FILED ITS RETURN OF INCOME U/S 139 ON 23- 11-2010 WHICH WAS PROCESSED BY REVENUE U/S 143(1) O F THE ACT AND THEREAFTER THE ASSESSMENT WAS ORIGINALLY FRAMED U/S 143(3) ON 25-11-2011 ACCEPTING THE RETURNED INCOME. SUBSEQUENTLY, INFORM ATION WAS RECEIVED BY THE REVENUE THAT THE ASSESSEE HAD OBTAINED BOGUS PU RCHASE BILLS FROM CERTAIN PARTIES, WHICH ARE HAWALA DEALERS AS PER THE LIST O F SUSPICIOUS DEALERS PREPARED BY THE MAHARASHTRA SALES TAX (VAT) DEPARTM ENT. THE ASSESSEE HAD ALLEGEDLY MADE BOGUS PURCHASES FROM THE FOLLOWING F OUR PARTIES , AMOUNTING TO RS. 47,17,888/-. NAME TIN PAN AMOUNT TIN CANCELLED NAMAN ENTERPRISES 27450524228V AQEPK5024G 10,816 01.04.2007 NAVDEEP TRADING CORPN. 27540616280V AAAPV4487A 2,752,535 26.06.2007 MANISHI TRADERS 27260523120V AAIHP5622D 14,000 13,04,2006 GREAT INTERNATIONAL 27680504653V 1,940,537 23.12.2005 TOTAL 47,17,888 THE SAID HAWALA DEALERS WERE ENGAGED IN ISSUE OF B OGUS BILLS WITHOUT ANY SUPPLY OF MATERIAL AS PER THEIR STATEMENTS/AFFIDAVI TS FILED BY THESE BOGUS DEALERS BEFORE MVAT AUTHORITIES. THE ASSESSEES CA SE WAS REOPENED BY THE A.O. U/S 147 AND NOTICES U/S 148 OF THE ACT WAS ISS UED ON 3 RD MARCH, 2014 , WHICH WAS DULY SERVED UPON THE ASSESSEE , AND THE S AID REOPENING U/S 147 WAS WITHIN FOUR YEARS FROM THE END OF THE ASSESSMEN T YEAR. THE REASONS RECORDED WERE DULY FURNISHED TO THE ASSESSEE BY THE AO. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND APPELLATE PROCEEDINGS, T HE ASSESSEE EXPLAINED THE CONSUMPTION/UTILIZATION OF THE RAW MATERIALS SO PURCHASED FROM THESE ALLEGED BOGUS DEALERS FOR PRODUCTION OF FINISHED GO ODS. THE ASSESSEE HAD PRODUCED THE PURCHASE BILLS AND OTHER RELEVANT DOCU MENTS . IT WAS ALSO ITA 928/MUM/2017 12 EXPLAINED THAT THE ASSESSEE HAD MADE THE PAYMENTS T HOUGH BANKING CHANNEL BY ISSUE OF ACCOUNT PAYEE CHEQUES. THE ASSESSEE AL SO EXPLAINED GP RATIO FOR A.Y. 2008-09 TO A.Y. 2012-13 WHICH IS REPRODUCED BE LOW:- STATEMENT OF COMPARATIVE G.P.& N.P. ASST. YEAR SALES COGS MANUF.EXP INC/DEC STOCK GROSS PROFIT GP % NP% A.Y. 08-09 66,971,752 39,030,013 9,634,377 74,157 1 8,381,519 27% 3% A.Y. 09-10 115,367,929 79,204,441 13,099,889 3,507, 617 26,571,216 23% 1% A.Y.10-11 85,596,159 51,993,477 10,230,217 (868,781 ) 22,503,634 26% 2% A.Y. 11 - 12 74,909,679 44,604,456 7,373,261 (2,700,046) 20,231,926 27% 1% A.Y. 12-13 74,494,552 45,750,350 7,165,773 (163,304 ) 21,415,125 29% 1% THE ASSESSEE SUBMITTED THAT THE GP AND NP FOR THE Y EAR WERE FAIRLY COMPARABLE. IT IS SUBMITTED THE PURCHASES MADE WERE GENUINE PURCHASES. NOTICE U/S 133(6) OF THE ACT WERE ISSUED BY THE AO TO ALL THE HAWALA PARTIES BUT THE NOTICES RETURNED UN-SERVED. THE ASSESSEE HAS EXPRESSED ITS INABILITY TO PRODUCE THE PARTIES BEFORE THE A.O./CIT(A) AS TH ESE PARTIES WERE NOT TRACEABLE. THE AO ALSO MADE ENQUIRIES WITH THE BANK ERS OF THESE ALLEGED HAWALA DEALERS WHICH REVEALED THAT THESE PARTIES WE RE DEALING WITH OTHER HAWALA PARTIES AS ALSO CASH IS WITHDRAWN IMMEDIATEL Y AFTER DEPOSIT/ENCASHMENT OF CHEQUES. THE AO OBSERVED THA T THE GP AND NP RATIO OF THE ASSESSEE HAS FALLEN IN THIS YEAR VIS--VIS P RECEDING YEAR AND IF THE ENTIRE PURCHASES ARE ADDED THEN THE GP AND NP RATIO WILL B E COMPARABLE. THE ASSESSEE HAS EXPLAINED THAT ITS TURNOVER INCREASED SUBSTANTIALLY DURING THE YEAR WHICH MADE ASSESSEE TO OUTSOURCE SOME WORK WHI CH LED TO FALL IN PROFITS, WHICH WAS NOT CONTROVERTED BY THE AO. THE A.O. MADE 100% DISALLOWANCE OF THESE ALLEGED BOGUS PURCHASES ON THE GROUND THAT TH ESE ARE BOGUS PURCHASES WHEREIN NO MATERIAL WAS SUPPLIED BY THESE PARTIES A ND THESE BOGUS BILLS WERE OBTAINED MERELY TO REDUCE PROFITS, WHICH DISALLOWAN CE HAS BEEN RESTRICTED TO 12.5% OF THE ALLEGED BOGUS PURCHASES BY THE LD. CIT (A) ON THE GROUNDS THAT UTILIZATION/MATERIAL CONSUMPTION STOOD PROVED, SALE S ARE NOT DOUBTED BUT THE ASSESSEE COULD NOT DISCHARGE ITS BURDEN OF PRODUCIN G THE PARTIES IN THE MIDST ITA 928/MUM/2017 13 OF STATEMENTS/AFFIDAVITS BY THESE ALLEGED HAWALA DE ALERS THAT THEY HAVE ONLY ISSUED BOGUS BILLS WITHOUT SUPPLYING ANY MATERIAL P HYSICALLY WHICH LED CIT(A) TO CONCLUDE THAT THE ASSESSEE HAS OBTAINED MATERIAL FROM SOME OTHER PARTIES AND BILLS WERE OBTAINED FROM THESE PARTIES AT INFLA TED PRICES TO SUPPRESS PROFITS. WE HAVE OBSERVED THAT THE ASSESSEE HAS DU LY EXPLAINED THE CONSUMPTION/UTILIZATION OF MATERIAL AND THE ASSESSE E IS ALSO MAINTAINING EXCISE RECORD AND IS SUBJECT TO EXCISE SCRUTINY/AUD IT. THERE WAS MINOR DIFFERENCE IN THE STOCK RECONCILIATION SUBMITTED BY THE ASSESSEE BEFORE THE AO WHICH THE ASSESSEE RECTIFIED BEFORE CIT(A) AND EXPL AINED THE SAME DUE TO CLERICAL ERROR/CUT AND PASTE ERRORS. THE LD. CIT(A ) HAS ALSO GONE THROUGH THE CONSUMPTION PATTERNS AND NO ADVERSE COMMENTS HAVE B EEN MADE. IT IS ALSO A FACT THAT THE ASSESSEE COULD NOT PRODUCE THE PARTIE S BEFORE THE AUTHORITIES BELOW AS THESE PARTIES ARE NOT TRACEABLE. THE ATTEM PT MADE BY THE AO TO TRACE THESE PARTIES ALSO DID NOT YIELD RESULTS. THE CONTE NT OF THE STATEMENTS/AFFIDAVITS WERE BROUGHT TO THE NOTICE OF THE ASSESSEE BY THE AO AS IS EMERGING FROM THE ASSESSMENT RECORD AND THE CONT ENTION OF THE ASSESSEE THAT IT DID NOT GET CHANCE TO REBUT THE SAID STATEM ENT CANNOT BE ACCEPTED. THE PURCHASES ARE APPEARING IN THE BOOKS OF THE ASSESSE E AND PRIMARY ONUS IS ON THE ASSESSEE TO PROVE THAT THE PURCHASES ARE GENUIN E. THE ASSESSEE HAS BROUGHT ON RECORD SUFFICIENT MATERIAL TO PROVE CONS UMPTION/UTILIZATION OF THE SAID MATERIAL WHICH IS NOT DOUBTED BY THE LEARNED C IT(A). THE ASSESSEES SALE ARE NOT DOUBTED BY THE AO. THE ASSESSEE IS SUBJECT TO EXCISE DUTY AND ALL STOCK RECORDS ARE CLAIMED TO BE KEPT BY THE ASSESSE E. REFERENCE IS DRAWN TO DECISION OF HON'BLE SUPREME C OURT IN THE CASE OF KACHWALA GEMS V. JT. CIT [2007] 288 ITR 10/158 TAXMAN 71 (SC) , WHEREIN HON'BLE LORDSHIPS HELD AS UNDER : '4. THE FACTS OF THE CASE ARE IN A SHORT COMPASS. T HE APPELLANT- ASSESSEE DEALS IN PRECIOUS AND SEMI- PRECIOUS STONES. IN THE COURSE OF ASSESSMENT, THE A SSESSING OFFICER NOTICED THE FOLLOWING DEFECTS IN THE BOOKS OF ACCOUNT OF THE AS SESSEE : ITA 928/MUM/2017 14 '1. THE ASSESSEE HAS NOT MAINTAINED AND KEPT ANY QUANTITATIVE DETAIL S/STOCK REGISTER FOR THE GOODS TRADED IN BY THE ASSESSEE. 2. THERE IS NO EVIDENCE ON RECORD OR DOCUMENT TO VE RIFY THE BASIS OF THE VALUATION OF THE CLOSING STOCK SHOWN BY THE ASSESSEE. THE ASSESSEE I S NOT ABLE TO PREPARE SUCH DETAILS EVEN WITH THE HELP OF BOOKS OF ACCOUNT MAINTAINED, PURCH ASE BILLS & SALE INVOICES. 3. PROVISIONS OF SECTION 145(3) ARE CLEARLY ATTRACT ED IN THIS CASE. 4. THE GENUINENESS OF PURCHASES TO THE EXTENT OF RS . 42 LAKHS (APPROX.) IS NOT PROVED WITHOUT ANY DOUBT. 5. THE GP RATE DECLARED BY THE ASSESSEE AT 13.49 PE R CENT DURING THE ASSESSMENT YEAR IS NOT A MATCH TO THE RESULT DECLARED BY THE ITSELF IN THE P REVIOUS ASSESSMENT YEARS. 6. M/S. GEM PLAZA, ENGAGED IN LOCAL SALES OF SIMILAR GOODS DECLARED VOLUNTARILY R ATE OF 35 PER CENT IN ITS ASSESSMENT FOR THE ASSESSMENT YEAR 1997-98. 7. M/S. DHADDA EXPORTS, ANOTHER ASSESSEE DEALING IN SAME ITEMS, BUT DOING EXPORT BUSINESS DECLARED GP RATE OF 43.8 PER CENT (EVEN W ITHOUT CONSIDERING THE VALUE OF EXPORT INCENTIVES) IN ASSESSMENT YEAR 1997-98.' 5. THEREAFTER, THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE REJECTED BY THE ASSESSING OFFICER AND HE RESORTED TO BEST JUDGMENT ASSESSMENT UNDER S ECTION 144 OF THE INCOME- TAX ACT. THE ASSESSING OFFICER IN THE ASSESSMENT ORDER MENTIONED SOME COMPARABLE CASES AND WAS OF THE VIEW THAT THE CASE OF THE ASSESSEE IS MORE OR LESS HAVING SIMILAR FACTS AS THAT OF M/S. G EM PLAZA WHERE THE GROSS PROFIT HAS BEEN TAKEN AS 35.4 8 PER CENT. THE ASSESSING OFFICER ESTIMATED THE GROSS PROFIT OF THE ASSESSEE AS 40 PE R CENT. 6. THE ASSESSING OFFICER FURTHER HELD THAT THE ASSE SSE E HAS SHOWN BOGUS PURCHASES IN ORDER TO REDUCE THE GROSS PROFITS. 7. IN APPEAL, THE COMMISSIONER OF INCOME- TAX (APPEALS) UPHELD MOST OF THE FINDINGS OF THE ASSESSING OFFICER, BUT REDUCED THE GROSS PROFIT FRO M 40 PER CENT TO 35 PER CENT. 8. IN FURTH ER APPEAL, THE TRIBUNAL HAD GIVEN FURTHER RELIEF TO THE ASSESSEE AND REDUCED THE GROSS PROFIT RATE TO 30 PER CENT. 9. THE COUNSEL FOR THE ASSESSEE HAS SUBMITTED BEFOR E US THAT THE INCOME- TAX AUTHORITIES WRONGLY HELD THAT APPELLANT HAS SHOWN BOGUS PURCHAS ES, AND THE BOOKS OF ACCOUNT WERE WRONGLY REJECTED. 10. IN OUR OPINION, WHETHER THERE WERE BOGUS PURCHA SES OR NOT, IS A FINDING OF FACT, AND WE CANNOT INTERFERE WITH THE SAME IN THIS APPEAL. AS R EGARDS THE REJECTION OF THE BOOKS OF ACCOUNT, COGENT REASONS HAVE BEEN GIVEN BY THE INCO ME- TAX AUTHORITIES FOR DOING SO, AND WE SEE NO REASON TO TAKE A DIFFERENT VIEW. 11. IT IS WELL-SETTLED THAT IN A BEST JUDGMENT ASSESSMENT, THERE IS ALWAYS A CERTAIN DEGREE OF GUESS WORK. NO DOUBT THE AUTHORITIES CONCERNED SHOU LD TRY TO MAKE AN HONEST AND FAIR ITA 928/MUM/2017 15 ESTIMATE OF THE INCOME EVEN IN A BEST JUDGMENT ASSE SSMENT, AND SHOULD NOT ACT TOTALLY ARBITRARILY, BUT THERE IS NECESSARILY SOME AMOUNT OF GUESS WORK INVOLVED I N A BEST JUDGMENT ASSESSMENT, AND IT IS THE ASSESSEE HIMSELF WHO IS T O BLAME AS HE DID NOT SUBMIT PROPER ACCOUNTS. IN OUR OPINION, THERE WAS NO ARBITRARINES S IN THE PRESENT CASE ON THE PART OF THE INCOME- TAX AUTHORITIES. THUS, THERE IS NO FORCE IN THIS AP PEAL, AND IT IS DISMISSED ACCORDINGLY. NO COSTS.' KEEPING IN VIEW THE ENTIRE FACTUAL MATRIX OF THE C ASE, IN OUR CONSIDERED VIEW, THE RESTRICTION OF DISALLOWANCE TO 12.5% OF THE BOG US PURCHASES AS WAS DONE BY LEARNED CIT(A) TOWARDS EMBEDDED PROFITS IN OBTAI NING INFLATED BILLS FROM THESE ALLEGED BOGUS DEALERS WHILE ACTUAL MATERIAL W AS SOURCED FROM SOME OTHER SOURCES IS A FAIR AND REASONABLE ESTIMATE WHI CH IS A PLAUSIBLE VIEW TAKEN BY LEARNED CIT(A) AND WE ARE NOT INCLINED TO INTERFERE WITH THE SAME. UNDER THESE CIRCUMSTANCES, SOME ESTIMATES HAS TO BE MADE BUT THE SAME HAS TO BE FAIR AND HONEST, IN OUR VIEW, THE VIEW TAKEN BY LEARNED CIT(A) IN ITS APPELLATE ORDER IS A PLAUSIBLE VIEW AND ESTIMATES MADE BY THE LEARNED CIT(A) COULD NOT BE SAID TO BE NOT AN HONEST OR FAIR ESTIM ATE. THE ASSESSEE HAS ALSO NOT FILED ANY APPEAL AGAINST THE APPELLATE ORDER OF THE LD. CIT(A) WHICH IS ACCEPTED BY THE ASSESSEE AND THE SAME HAS ATTAINED FINALITY SO FAR AS THE ASSESSEE IS CONCERNED . BASED ON OUR ABOVE DISCUSSI ONS AND REASONING, WE ARE NOT INCLINED TO INTERFERE WITH THE APPELLATE OR DER OF LEARNED CIT(A) WHICH WE CONFIRM/AFFIRM. REVENUE FAILS IN THIS APPEAL. WE ORDER ACCORDINGLY. 9. IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO. 928/MUM/2017 FOR ASSESSMENT YEAR 2009-10 IS DISMISSED. ITA 928/MUM/2017 16 ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH AUGUST 2017. # $% &' 29.08.2017 ( ) SD/- SD/- (C.N. PRASAD) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 29.08.2017 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI G BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI