JIVANLAL CORPORATION,MUMBAI vs. ITO -17(2)(1), MUMBAI, MUMBAI

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ITA 857/MUM/2020Status: DisposedITAT Mumbai09 November 2021AY 2010-114 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the AO and CIT(A) erred in rejecting the assessee's application for rectification. Since one of the suppliers, Nina Enterprises, was not on the list of bogus parties, the very basis of the addition failed.

What were the facts?

The Assessing Officer (AO) reopened the assessment based on information from the sales tax department that the assessee had purchased from bogus parties. The AO made a 5% disallowance on alleged non-genuine purchases, citing the parties' inclusion in the sales tax department's list of hawala operators.

What were the issues?

Whether the AO erred in reopening the assessment based on borrowed satisfaction and disallowing purchases without proper inquiry. Whether the CIT(A) erred in dismissing the appeal without appreciating the merits, particularly regarding the rectification application.

Which sections of the Income-tax Act were involved?

Section 154,Section 145(3),Section 271(1)(c)

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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai

For Appellant: Shri Bhupendra Shah
For Respondent: Ms. Smita Verma
Hearing: 12.10.2021Pronounced: 09.11.2021

This appeal by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals) [in short learned CIT(A)] 14.11.2019 pertaining to assessment year 2010-11.

2. The grounds of appeal read as under :- “1) In the facts and the circumstances of the case and in law, the learned Assessing Officer erred in reopening the assessment merely on the basis of borrowed satisfaction, presumption and surmises. 2) In the facts and the circumstances of the case and in law, the learned Assessing Officer erred in disallowing Rs 6,49,534/-(5% of Rs. 1,30,03,560/-) as alleged non-genuine purchases: a) By disregarding rectification u/s 154 submitted by the Appellant vide letter dt. 03.06.2015. b) By not issuing notices u/s 131 and 133(6) c) By not affording the appellant an opportunity lo cross examine the parties based on which the additions were made. d) By ignoring the fact that no additions can be made if suppliers are not traceable e) Without rejecting books of accounts u/s 145(3)

2 M/s. Jivanlal Corporation f) Without appreciating the fact that payment was made vide account payee cheques to the alleged non-genuine dealers g) By disregarding the fact that suspicion however strong cannot form the basis of reassessment

3) In the facts and the circumstances of the case and in law, the learned Commissioner of Income Tax (A) erred in dismissing the grounds of appeal without appreciating the merits of the case

4) The AO wrongly charged interest u/s 234A, B & C and also initiated penalty u/s 271(l)(c). |B| Relief Prayed: The appellant therefore prays Your Honor;

1) To quash the reopening made by the Assessing Officer.

2) To delete the disallowance of Rs 6,49,534/-(5% of Rs. l,30,03,560/-) made as alleged non-genuine purchases.

3) To delete interest charged u/s 234A, B & C and also initiated penalty u/s 271(1) (c).

4) To quash the order passed by the Commissioner of Income Tax (A) without appreciating the merits of the case.

3.

Brief facts are that the assessee is a trader in chemical and solvent. Pursuant to information from sales tax department that the assessee has purchased from following bogus parties, the Assessing Officer reopened the assessment.

SN Name PAN Amount (Rs.) 1. M/s DRSHAN SALES CORP. AAGPG7681P 925749

2.

M/S P. S. SHAH & SONS AAEPS9167L 390362

3 M/s Chetan Chemical Corp. AAAPV5986C 303 7041

4 M/s Nina Enterprises AAEPS8840E 3306469

5 M/s ASHAPUFM AKIPR2119P 4705939 ENTERPRISES/AKSHAD ENTERPRISES Total 1,30,03,560

4.

The assessee produced the invoice and payments were through banking channel. The Assessing Officer proceeded to make 5% disallowance out of the bogus purchases on the ground that the parties were not produced by the assessee and he inter alia took following reasoning :-

3 M/s. Jivanlal Corporation • The Sales Tax Department, being a statutory authority, has certified that the aforesaid parties are Hawala Operators after conducting independent enquiries. • The purchases from hawala operator falls within the ambit of the term 'colourable devices' and the Hon'ble Supreme Court observed in the case of McDowell and Co. Ltd. Vs. CTO 154 ITR 148 that “Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious method. It is obligation of every citizen to pay the taxes honestly without resorting to subterfuges.” • The Sales Tax Department made a finding and uploaded on its website the name of entities which are involved in giving bogus bills only after carrying out a detailed enquiry & investigation.

• As far as the independent enquiries in the above mentioned case conducted by the Sales Tax Department are concerned, the reports of the Sales Tax Department, which were given after conducting enquiries, indicates that the aforesaid party was not available at the given premises. It was also reported that the hawala parties, in their statement recorded in front of sales tax authorities.

5.

Assessee filed application under section 154 of the Act to the Assessing Officer informing that the name of M/s. Nina Enterprises does not appeared in the list of bogus parties of sales tax department and pleaded that 5% disallowance out of purchases of Rs. 39,06,496/- i.e. Rs. 1,95,523/- should be deleted. The Assessing Officer rejected the plea.

6.

Upon assessee’s appeal learned CIT(A) held that this issue cannot be a subject matter of 154 application and he confirmed the Assessing Officer’s action.

7.

Against the above order assessee is in appeal before the ITAT.

8.

I have heard both the parties and perused the records. I note that the assessee has raised various grounds. However, the only ground emanating out of the learned CIT(A)’s order is relating to the rejection of 154 application regarding purchase from Nina Enterprises.

4 M/s. Jivanlal Corporation

9.

Upon careful consideration, I note that the addition was primarily made on the basis that the said party was on the list of hawala/bogus dealers of sales tax department. The Assessing Officer’s emphasis on this aspect is apparent in the assessment order. The portion of the assessment order giving much emphasis upon sales tax department list and finding are already reproduced above. When it is found that these aspects are not at all applicable in case of this party, this mistake by the Assessing Officer is quite apparent. Once it is found that the said party is not in such a list the very basis of addition fails. Hence in my considered opinion the mistake is apparent and ought to have been corrected. The Assessing Officer and learned CIT(A) have erred in this regard. Hence, I direct that disallowance of 5% in purchase from Nina Enterprises is to be deleted.

10.

In the result, assessee’s appeal is partly allowed.

Pronounced in the open court on 9.11.2021.

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