ESVEE STEEL ENTERPRISES, MUMBAI V. ACIT CIR 13(2), MUMBAI

ITSSA 28/MUM/2011

• Counselvise Citation: [2012] 121 COUNSELVISE.COM (IT) 8506 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 29-08-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 21-08-2012
• Assessment Year: misc
• Appeal Filed On: 15-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAYA KUMAR
• Assessee Lawyers: M SUBRAMANIAN
• Keywords: Bogus purchase; Opportunity of being heard; Accommodation entries
• Section: 132

Judgement Text

PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI R. S. SYAL, ACCOUNTANT MEMBER, & SHRI VIVEK VARMA, JUDICIAL MEMBER IT(SS) NO. 28/MUM/2011 BLOCK PERIOD : 01.04.1987 TO 23.10.1997 M/S. ESVEE STEEL ENTERPRISES 11-AHMEDABAD STREET, CARNAC BUNDER, MUMBAI-400 003 PAN NO: AAAFE 0397 E VS. ACIT - 13 ( 2 ), IT OFFICES, AAYKAR BHAVAN, M. K. ROAD, MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M. SUBRAMANIAN RESPONDENT BY : SHRI JAYA KU MAR DATE OF HEARING: 21.08.2012 DATE OF PRONOUNCEMENT: 29.08.2012 O R D E R PER VIVEK VARMA, J.M. : THE INSTANT APPEAL IS DIRECTED AGAINST THE ORDER OF CIT(A)-24, MUMBAI DATED 31.01.2011. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE VALIDITY OF T HE PROCEEDINGS INITIATED U/S.158BD OF THE I.T. ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE VALIDITY OF T HE ORDER PASSED U/S.158BD OF THE I.T. ACT AND THAT TOO WITHOUT GIVING FULL AND P ROPER OPPORTUNITY OF BEING HEARD IN THE MATTER. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE VALIDITY OF T HE ORDER PASSED U/S.158BD OF THE I.T. ACT AND THAT TOO WITHOUT EVEN APPRECIATING FULLY AND PROPERLY THE FACTS OF THE CASE. M/S. ESVEE STEEL ENTERPRISES I.T.A. NO. 28/MUM/2011 PAGE 2 OF 6 3. AT THE TIME OF HEARING, THE AR APPEARING ON BEHA LF OF THE ASSESSEE COMPANY CONCEDED GROUNDS NO. 1 TO 3 AS NOT PRESSED. SINCE THE GROUNDS ARE NOT PRESSED, THE SAME ARE DISMISSED. 4. GROUNDS NO. 4 & 5 ARE INTERLINKED, IN A WAY THAT THE AO HAD ESTIMATED THE UNDISCLOSED INVESTMENT AT RS. 10,44,491 IN THE PROCEEDINGS U/S.158BD, ON THE ASSESSEE. THE CIT(A) ACCEPTING THE FACT THAT SI NCE THE SALES HAD NOT BEEN SUSPECTED, CORRESPONDING PURCHASES HAD IN FACT BEEN ENTERED IN THE BOOKS, THOUGH, MAYBE, NOT IN THE NAME OF THE VENDOR, AS IN THE BOOKS. THE CIT(A), THEREFORE, HELD THAT THE ELEMENT OF THE INVESTMENT IN PURCHASE BEING BOGUS COULD NOT BE RULED OUT, HE, THEREFORE, ESTIMATED TH E UNDISCLOSED INVESTMENTS AT RS. 2,61,627, BEING 25% OF RS. 10,46,491 (HELD AS U NDISCLOSED BY THE AO). HE FURTHER ADDED 5% OF GP ON RS. 10,46,491. 5. THE AR SUBMITTED THAT THE CASE BEFORE THE ITAT W AS UNDER CHAPTER XIVB AND THE ADDITION MADE BY THE REVENUE AUTHORITY CANN OT BE SUSTAINED BECAUSE THE ADDITIONS PERTAINED TO TRANSACTIONS RECORDED IN THE REGULAR BOOKS OF ACCOUNT. THE AR PLACED RELIANCE ON VARIOUS JUDGMENTS ON THE ISSUE, WHICH WE HAVE CONSIDERED. 6. ON THE OTHER HAND, THE DR SUPPORTED THE ORDER OF THE REVENUE AUTHORITY AND SUBMITTED THAT IN SEARCH U/S 132(1) ON NISHACHA NDRA SALES AND MARKETING (P) LTD. (NSMPL), NISHACHANDRA STEELS & CHEMICALS P VT. LTD. (NSCPL) AND CHAWGULE LOHA & RASAYAN PVT. LTD. (CLRPL), IT WAS F OUND, THAT THOSE COMPANIES WERE INDULGING IN HAWALA ENTRIES AND ASSE SSEE WAS ONE OF THE BENEFICIARIES OF SUCH TRANSACTIONS. ACCORDING TO TH E REPORTS AND INFORMATION M/S. ESVEE STEEL ENTERPRISES I.T.A. NO. 28/MUM/2011 PAGE 3 OF 6 GATHERED, THE ASSESSEE BEING THE BENEFICIARY OF THE SE TYPE OF TRANSACTION TO RS. 10,46,490, PROCEEDINGS U/S 158BD WERE INITIATED AND THE AO ADDED BACK THE AGGREGATE OF SUCH ENTRIES AS BOGUS INVESTMENTS, ON ACCOUNT OF HAWALA ACCOMMODATION. THE DR SUBMITTED THAT IN FACT, THE C IT(A) HAS FAVOURED THE ASSESSEE BY REDUCING THE DISALLOWANCE FROM RS. 10,4 6,490 TO RS. 2,61,627 ONLY, BESIDES ADDING THE GP AT 5% ON RS. 10,46,490. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE ALS O PERUSED THE ORDERS OF THE REVENUE AUTHORITY AND THE MATERIAL PLACED BEFOR E US. THIS IS A CASE OF ASSESSMENT OF A CONNECTED PERSON , WHOSE RECORDS HAD BEEN FOUND IN THE COURCE OF SEARCH PROCEEDINGS OF ANOTHER PERSON. BECAUSE OF THIS REASON, SPECIAL PROVISIONS UNDER CHAPTER XIVB HAS TO BE APPLIED ON SUCH CONNECTED PERSON. THE FACT THAT NSMPL, NSCPL AND CLRPL WERE SUBJECTED TO SEARCH U/S 132 AND CHAPTER XIVB WAS APPLIED THEREON. IN THE INVESTIGAT ION CONDUCTED ON THE MATERIAL FOUND, IT WAS SEEN THAT THESE THREE COMPAN Y WERE INDULGING IN PROVIDING HAWALA ENTRIES/ACCOMMODATION ENTRIES AND THE NAME OF THE ASSESSEE FIGURED IN THE PARTIES, WHO WERE BENEFICIARIES OF T HOSE PARTIES. THE FACT THAT THE NAME OF THE ASSESSEE APPEARING IN THE DOCUMENTS FOU ND FROM THOSE THREE PARTIES, AN APPARENT CONCLUSION CAN BE DRAWN THAT T HE ASSESSEES TRANSACTIONS AGGREGATING TO RS. 10,46,491 WERE BOGUS. 8. HOWEVER, IT NEEDS TO BE NOTED THAT THE ASS ESSEE EFFECTED SALES WHICH HAVE NOT BEEN DOUBTED BY THE ASSESSING OFFICER. THI S SHOWS THAT SOME M/S. ESVEE STEEL ENTERPRISES I.T.A. NO. 28/MUM/2011 PAGE 4 OF 6 CORRESPONDING PURCHASES WERE MADE TO EFFECT THE SAL ES. THE CIT(A) HAS SUSTAINED TWO ADDITIONS, FIRSTLY, TOWARDS INITIAL I NVESTMENT AND SECONDLY TOWARDS ADDITIONAL GROSS PROFIT. IN SO FAR AS THE FIRST ADD ITION AT THE RATE OF 25% OF THE AMOUNT OF BOGUS PURCHASES TOWARDS INVESTMENT IS CON CERNED, WE FIND THAT THE SAME IS NOT CAPABLE OF SUSTENANCE. THE OBVIOUS REAS ON IS THAT IT IS NOT A CASE IN WHICH CERTAIN UNRECORDED PURCHASES WERE FOUND TO HA VE BEEN MADE BY THE ASSESSEE. RATHER, THE ASSESSEE DID MAKE PURCHASES B UT AT A LOWER PRICE SO AS TO REDUCE ITS OVERALL PROFIT. BY RECORDING THE BOGUS P URCHASES AT A HIGHER LEVEL, THE ASSESSEE MANAGED TO SIPHON OFF THE PROFIT TO THE EX TENT OF DIFFERENCE BETWEEN THE ACTUAL PURCHASES AND BOGUS PURCHASES. SINCE THE BOGUS PURCHASES, NATURALLY AT A HIGHER LEVEL, HAVE BEEN RECORDED IN THE BOOKS OF ACCOUNT, IT SHOWS THAT THERE CAN BE NO QUESTION OF MAKING ANY ADDITION ON ACCOUNT OF INITIAL INVESTMENT AT THE RATE OF 25% OF THE PURCHASES. THIS ADDITION WOULD HAVE BEEN VALID IF THE ASSESSEE HAD NOT RECORDED ANY PURCHASES IN THE BOOK S OF ACCOUNT AND HAD EFFECTED SALES OUTSIDE THE BOOKS. WE, THEREFORE, OR DER FOR THE DELETION OF ADDITION OF RS. 2,61,627, BEING INVESTMENT AT THE RATE OF 25% OF TOTAL PURCHASES. 9. INSOFAR AS THE APPLICATION OF ADDITIONAL GROSS P ROFIT RATE OF 5% IS CONCERNED, WE ARE FULLY WITH THE REVENUE BECAUSE TH ERE COULD HAVE BEEN NO OTHER POSSIBLE REASON TO INCORPORATE BOGUS PURCHASE S IN THE BOOKS OF ACCOUNT EXCEPT FOR MAKING CHEAP PURCHASES FROM THE MARKET A ND RECORDING BOGUS PURCHASES AT HIGHER LEVEL. SINCE THE REVENUE IS NOT IN APPEAL AGAINST THE ORDER PASSED BY THE LEARNED CIT(A), IT SHOWS THAT THE DEP ARTMENT HAS ACCEPTED THAT M/S. ESVEE STEEL ENTERPRISES I.T.A. NO. 28/MUM/2011 PAGE 5 OF 6 SUCH ACTUAL PURCHASES WERE AT 5% LESS THAN THE DECL ARED BOGUS PURCHASES. WE, THEREFORE, SUSTAIN THE ADDITION TO THE TUNE OF RS. 52,325. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 9 TH AUGUST, 2012. SD/- SD/- ( R. S. SYAL ) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI: 29.08.2012 ROSHANI COPY TO- 1) APPELLANT 2) RESPONDENT 3) CITA MUMBAI. 4) CIT CITY MUMBAI 5) DR BENCH MUMBAI TRUE COPY BY ORDER DY/ ASST.REGISTRAR,ITAT MUMBAI.