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Income Tax Appellate Tribunal, DELHI BENCH ‘C’, NEW DELHI
Before: Ms. Sushma ChowlaDr. B. R. R. Kumar
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeals have been filed by the revenue against the orders of the ld. CIT(A)-4, New Delhi dated 24.12.2014.
ITA No. 1523/Del/2015 2. The following grounds have been raised by the revenue: “1. Whether on the facts and circumstances of case & in law, the ld. CIT (A) has erred in holding that AO has charged his opinion and impugned order is beyond the scope of section 154.
Whether on the facts and circumstances of the case & in law, the ld. CIT (A) has erred in ignoring the fact that 20% of Rs.4,39,75,256/- was wrongly disallowed in the order & it was an typographical error while the disallowance was correctly made in the computation of income.”
2 ITA Nos. 1523 & 1524/Del/2015 Gulshan Chemicals Ltd. 3. During the assessment proceedings, the notices issued by the AO u/s 133(6) of the Income Tax Act, 1961 have been returned back with the remarks that no such entity exists. Based on the revisit of the notices, the Assessing Officer made addition of Rs.87,95,000/- being 20% of the purchases of Rs. 4,39,75,000/- from one entity namely, M/s Vaibhav Coal Movers owing to non-substantiation of the purchases made. After passing of the assessment order, the Assessing Officer received information regarding the said purchases along with bank statements based on which the Assessing Officer passed an order of rectification u/s 154. Vide rectification order u/s 154, dated 19.05.2014, the AO has brought to tax the entire amount of purchases of Rs.4,39,75,000/- made from M/s Vaibhav Coal Movers.
Aggrieved, the assessee field appeal before the ld. CIT (A) on the grounds that the action of the Assessing Officer is beyond the scope of powers for rectification u/s 154.
The ld. CIT (A) deleted the addition made u/s 154 on the grounds that the Assessing Officer has failed to accord an opportunity while enhancing the assessed income and the order suffers from severe infirmity of denial of natural justice.
Aggrieved, the revenue filed appeal before the Tribunal.
The original assessment order is as under:
“During the course of assessment proceedings, the purchases of the assessee company were looked into for verification and as evident in the above paras the purchases to the extent of Rs.3,24,54,139/- were found bogus and unverifiable in the case of M/s Vaibhav Coal Movers. However, the remaining purchases made by the assessee company also can’t be relied upon as despite of the notices u/s 133(6) sent to various
3 ITA Nos. 1523 & 1524/Del/2015 Gulshan Chemicals Ltd. parties and of the view that these have been returned back with the remarks that no such parties exists; therefore the genuineness of the purchases as a whole cannot be accepted. Further the assessee company also not cooperated while the assessment proceedings at it has not provided the correct addresses of the purchases and did not produce Principle Officer of M/s Vaibhav Coal Movers despite of specific queries, notices and summons issued in this regard. Therefore, in view of this Rs.87,95,051/- i.e. 20% of Rs.4,39,75,256/- remaining quantum of alleged purchases from retail dealers is hereby disallowed and added back to the total income of the assessee company. Since, the assessee has filed incorrect particulars of its income, penalty proceedings under section 271(1)(c) have been initiated separately.”
The rectification order u/s 154 is as under:
“The plea of the assessee regarding figure taken in computation of total income at Rs. 4,39,75,256/- as against addition of Rs. 87,95,051/- has been examined and found that while calculating 20% of this amount the correct figure comes at Rs.87,95,051/- but in the instant case various details and copies of bank accounts were called for from various parties but no details were received well in time. Now the details has been received from PNB Mugal Sara, in the name of Vijeta Cold Traders and Ganpat Rai Keval Ram Trading Company Ltd respectively, and perusal thereof reveals that the assessee company received whole amount of payment made through cheque in cash as evident from the copy of bank accounts wherein the amount credited in the above noted parties through M/s. Vaibhal Coal Traders was withdrawn in cash on same day or next day which clearly means that the assessee company claimed expehditure on account of purchases of coal through M/s. Vaibhal Coal Traders and this amount withdrawn from bank and was returned to the assessee company. The relevant details of bank account in both the companies are reproduced hereunder:
4 ITA Nos. 1523 & 1524/Del/2015 Gulshan Chemicals Ltd. Sl. No. Date Name Deposit (Amount in Cash withdrawal Rs.) from bank Vijeta Coal Traders 1. 21.07.2010 Vaibhal Coal 6,00,000 6,00,000 2. 21.07.2010 Vaibhal Coal 5,64,863 5,64,863 3. 28.07.2010 Vaibhal Coal 7,00,000 4. 28.07.2010 Vaibhal Coal 6,00,000 5. 29.07.2010 Vaibhal Coal 7,00,000 29.07.2010 Vaibhal Coal 6. 6,00,000 7. 07.08.2010 Vaibhal Coal 5,57,242 8. 09.08.2010 Vaibhal Coal 5,57,200 9. 14.08.2010 Vaibhal Coal 8,00,000 10. 20.10.2010 Vaibhal Coal 9,50,000 11. 20.10.2010 Vaibhal Coal 9,50,000 12. 21.10.2010 Mughal sarai 7,00,000 13. 21.10.2010 Mughal sarai 6,43,270 14 30.10.2010 Vaibhal Coal 8,52,381 15. 01.11.2010 Mughal Sarai 8,52,381 16 18.11.2010 Vaibhal Coal 10,11,640 17 23.11.2010 Mughal Sarai 2,50,000 Ganpat Rai Kewal Ram Trading 1. 14.08.2010 Vaibhal Coal 8,00,000 2. 14.08.210 Moghal Sarai 6,00,000 3. 14.08.2010 Moghal Sarai 5,07,600 4. 16.08.2010 Moghal Sarai 1,40,000 5. 16.08.2010 Moghal Sarai 1,50,000 6. 18.08.2010 Self 1,22,350 7. 28.08.2010 Vaibhal coal 14,29,628 8. 28.08.2010 Vaibhal Coal 14,50,000 9. 28.08.2010 Mughal Sarai 75,000 7,79,620 Mughal 10. 28.08.2010 Sarai 11. 28.08.2010 Mughal Sarai 7,00,000 12. 28.08.2010 Mughal Sarai 74,900 13. 30.08.2010 Mughal Sarai 7,00,000 14. 30.08.2010 Mughal 7,00,000 Sarai 15. Vaibhal Coal 13,89,408 01.12.2010 16. 02.12.2010 Mughal Sarai 4,50,000 17. Mughal 02.12.2010 6,00,000 Sarai Mughal 5,78,000 18. 02.12.2010 Sarai 19. 04.01.2011 Vaibhav coal 5,78,775 20. 18.01.2011 Vaibhav coal 6,86,790
5 ITA Nos. 1523 & 1524/Del/2015 Gulshan Chemicals Ltd. The bank details in respect of Aditi Enterprises and Raghav Sales are still pending.
From the facts noted above it is clear that the assessee company has claimed excessive expenses on account of purchase of coal by claiming payment to M/s. Vijeta Cold Traders and Ganpat Rai Keval Ram Trading Company Ltd, of Aditi Enterprises and Raghav Sales to the extent of Rs. 4,39,75,256/-. At the time of assessment the information from the banks were not received therefore theses facts cannot be incorporated in the assessment order and accordingly the 20% disallowance was calculated on estimated basis. Now the actual transaction has been proved bogus therefore the entire amount at Rs. 4,39,75,256/- has added in the assessment order was correctly added. Further, the findings as above also find support from the judicial decisions which are quite relevant are briefly mentioned as under:
(i) The Hon'ble Bombay High Court held in the case of Nayan Tara G. Agrawal vs. CIT, 207 ITR 639, that what is to be considered is to whether the transactions is a device to avoid tax and that the Court cap remove the veil to find out the real nature of the transaction.
(ii) The Hon'ble ITAT, Delhi has held in the case of Harsh V. Cbaddha legal heir of Late W.N. Chaddha Vs. DDIT (Intl. Tax), 135 TTJ 513, that the tax liability in the case of suspicious transactions is to be assessed on the basis of tire material available on record, surrounding circumstances, human conduct, preponderance of probability and nature of incriminating information / evidence.
(iii) The Hon'ble Supreme Court held in the case of Sutlej Cotton Mills Ltd. Vs. CIT, 116 ITR 1, that the way in which the entries are made by an assessee in his books of accounts is not determinative of the question whether the assessee has earned any profit or suffered any loss, but what is necessary to be considered is the true nature of the transactions.
Perusal of above and other judicial decision so that the assessee has been avoiding to reveal true nature of its transactions and transactions were definitely in the nature of suspicious transactions. The material available on records, human conduct preponderance of probability clearly prove that
6 ITA Nos. 1523 & 1524/Del/2015 Gulshan Chemicals Ltd. the assessee company has claimed excessive/bogus expenses on account of purchase of coal and by making payment through bank account received the same from the concerned parties in cash. The purchases of coal as noted above has been proved bogus therefore the purchases of Rs.4,39,75,256/- in the case of remaining parties was rightly added in tire assessment order as unverifiable /bogus purchases. The mistake being apparent from record within the meaning of section 154 therefore the same is hereby rectified and added back to the total income of the assessee company. Since the assessee has filed incorrect particulars of its income, penalty proceedings under section 271(1)(c) have been initiated separately.”
Heard the arguments of both the parties and perused the material available on record. The moot issue pertains to scope of Section 154.
In the context of mistake apparent from record with relevance to the provisions of Section 154 are being examined in the instant case. The provisions of Section 154 read as under: “Section 154. [(1) With a view to rectifying any mistake apparent from the record an income-tax authority referred to in section 116 may,—
(a) amend any order passed by it under the provisions of this Act ; [(b) amend any intimation or deemed intimation under sub- section (1) of section 143;]] [(c) amend any intimation under sub-section (1) of section 200A;]
[(d) amend any intimation under sub-section (1) of section 206CB.]
[(1A) Where any matter61 has been considered and decided in any proceeding by way of appeal or revision relating to an order referred to in sub-section (1), the authority passing such order may, notwithstanding anything contained in any law for the time being in force, amend the order under that sub- section in relation to any matter other than the matter which has been so considered and decided.]
7 ITA Nos. 1523 & 1524/Del/2015 Gulshan Chemicals Ltd. (2) Subject to the other provisions of this section, the authority concerned—
(a) may make an amendment under sub-section (1) of its own motion, and
(b) shall make such amendment for rectifying any such mistake which has been brought to its notice by the assessee [or by the deductor] [or by the collector], and where the authority concerned is the [***] [Commissioner (Appeals)], by the [Assessing] Officer also. [* * *]
(3) An amendment, which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee [or the deductor] [or the collector], shall not be made under this section unless the authority concerned has given notice to the assessee [or the deductor] [or the collector] of its intention so to do and has allowed the assessee [or the deductor] [or the collector] a reasonable opportunity of being heard.
(4) Where an amendment is made under this section, an order shall be passed in writing by the income-tax authority concerned.
71[(5) Where any such amendment has the effect of reducing the assessment or otherwise reducing the liability of the assessee or the deductor 72[or the collector], the Assessing Officer shall make any refund which may be due to such assessee or the deductor 72[or the collector].]
(6) Where any such amendment has the effect of enhancing the assessment73 or reducing a refund 74[already made or otherwise increasing the liability of the assessee or the deductor 75[or the collector], the Assessing Officer shall serve on the assessee or the deductor 75[or the collector], as the case may be] a notice of demand in the prescribed form specifying the sum payable76, and such notice of demand shall be deemed to be issued under section 156 and the provisions of this Act shall apply accordingly.
8 ITA Nos. 1523 & 1524/Del/2015 Gulshan Chemicals Ltd. (7) Save as otherwise provided in section 155 or sub-section (4) of section 18677 no amendment under this section shall be made after the expiry of four years 78[from the end of the financial year in which the order79 sought to be amended was passed.]
[(8) Without prejudice to the provisions of sub-section (7), where an application for amendment under this section is made by the assessee [or by the deductor] [or by the collector] on or after the 1st day of June, 2001 to an income- tax authority referred to in sub-section (1), the authority shall pass an order, within a period of six months from the end of the month in which the application is received by it,—
(a) making the amendment; or (b) refusing to allow the claim.]”
Section 154 (1) of the Income Tax Act, 1961 provides that with a view to rectifying any mistake apparent from the record an income-tax authority referred to in section 116 may (a) amend any order passed by it under the provisions of this Act; (b) amend any intimation or deemed intimation under sub-section (1) of section 143. Thus, the essential ingredients of section 154 (1) are as follows: (i) The mistake must emanate from record in the context of Income tax proceedings; and (ii) The mistake should be apparent from record.
What is a mistake? Mistake connotes incorrect idea or opinion, thing incorrectly done or thought, error of judgment, misunderstand the meaning of. It doesn’t mean only the computational mistake but also mistakes of understanding and interpretation of an established, undisputed judgment. It could be an error of law or an error of fact with the exclusion of any debatable issue of law. Overlooking of ignoring of a mandatory provision of the Income Tax Act can also be considered as a mistake. Thus, the following can be considered as a mistake for the purpose of Section 154 of income tax Act.
9 ITA Nos. 1523 & 1524/Del/2015 Gulshan Chemicals Ltd. • Misreading a clear provision • Application of wrong provision • Erroneous application of the provision • Applying an inapplicable provision • Overlooking mandatory provision • Contravening the ratio decidendi or stare decisis
Record denotes information or evidence collected, available, preserved before captivating a decision. It is the sum of the whole evidence that has gone into the mind of the Assessing Officer to take a decision. The record for income tax purpose is the record of the assessee only but not the record of any other entity unless it is made a part of the record of the assessee in the proceedings relevant to which such record of the other persons has been obtained. The record for the income tax proceedings and for the purpose of Section 154 is the entire proceedings, order sheets, notices, documents, materials collected by the revenue, replies produced by the parties, result of the direct and collateral enquiries conducted by the authorities which are available at the time of passing of the order which is the subject matter proceeding for rectification.
Apparent from record signifies, a mistake which is obvious, patent and discernable from the record available which is a subject matter of rectification. Any debatable point cannot be considered as a mistake apparent from record. The word “apparent mistake” denotes an obvious, plain, evident, noticeable or visible error. An apparent mistake is glaring, obvious, self-evident and should be free from debate.
From the above facts and provisions of the Act, we find that the Assessing Officer has taken into consideration the material and the outcome of the enquiries received subsequent to conclusion of the assessment proceedings. Hence, it cannot be held that the action of the
10 ITA Nos. 1523 & 1524/Del/2015 Gulshan Chemicals Ltd. Assessing Officer of rectifying the mistake do not emanate from the record of the Assessing Officer available at the time of assessment. Ergo, it cannot be held to be a mistake apparent from the record rectifiable u/s 154. There are other provisions enshrined in the Act to bring the amounts to the tax fold which are based on the replies received for the queries raised during the assessment proceedings but such action cannot be resorted to under the provisions of Section 154. Hence, the action of the revenue is held to be legally void. As a result, the appeal of the revenue is dismissed.
ITA No. 1524/Del/2015 16. The following grounds have been raised by the revenue: “1. Whether on the facts and circumstances of case & in law, the ld. CIT (A) erred in deleting the addition of Rs.7,54,584/- made on account of capitalization of repair and maintenance expense.
Whether on the facts and circumstances of the case & in law, the ld. CIT (A) erred in deleting the addition of Rs.3,24,54,139/- made on account of inflated/Non-verifiable coal purchases u/s 69C of the I.T. Act, 1961.
Whether on the facts and circumstances of the case & in law, the ld. CIT (A) erred in deleting the addition of Rs.4,39,75,256/- made on account of unverifiable purchases.”
Capitalization of Repair & Maintenance:
Brief facts of the case are that the assessee company is a manufacturing unit for production of Sodium Hydro sulphite and Sodium sulphite. During the assessment proceeding, the AO observed that the assessee had incurred expenses amounting to Rs.43,86,498/- towards repairs & maintenance of plant & machinery. The AO identified certain bills in respect of which he was of the view that the same were capital in nature.
11 ITA Nos. 1523 & 1524/Del/2015 Gulshan Chemicals Ltd. Accordingly, an amount of Rs.7,54,584/- was held as capital in nature and disallowed which deleted by the Ld.CIT (A).against which the revenue is in appeal before us.
Heard the arguments of both the parties and perused the material available on record.
One of the expenditure pertains to painting of old machines used in the factory premises and plaster and repair of flooring. The other expenditure involves purchase of Fuji filter, which is an imported filter membrane and is frequently required to be replaced in the chamber during the production process. It was also informed that in the earlier assessment years 2006-07 also, this particular part was considered by the AO as a capital expenditure, however, on appeal, the ITAT considered the same as a consumable item and additions on this account were deleted. It was submitted that though the AO had allowed the cost of the material purchased (Fuji Filter) of Rs. 1,98,795/- but has disallowed the custom duty paid of Rs. 52,909/- on the import of (fuji filter). Further, the additions of Rs.2,14,720/- was made on ad-hoc basis which was infact replacement of parts of the existing machinery and allowable as repairs to machinery. On perusal of assessment order, we also find that the Assessing Officer has given no reason for disallowance of Rs.2,14,720/-. The bills have been short listed only an amount of Rs.5,18,000/-. The short listed bills also consist of bills for repairs, replacement of parts, custom duty, flooring and plaster. Keeping in view the nature of the expenditure, it cannot be treated as capital expenditure. The repairs to machinery and replacement of membrane filters or expenses which are
12 ITA Nos. 1523 & 1524/Del/2015 Gulshan Chemicals Ltd. regularly incurred in the manufacturing process and cannot be treated as capital expenditure in nature. Hence, we decline to interfere with the order of the ld. CIT (A) on this issue.
Regarding the disallowance of Rs.2,14,720/- which are related to these revenue expenditure which were disallowed by the Assessing Officer without brining anything on record is also hence liable to be deleted.
Disallowance on account of Coal purchases:
Brief facts of the case are that the Assessing Officer observed that the assessee company was using steam coal as main fuel and had made purchases thereof of Rs.10,61,00,200/- during the year. It was also observed that the main suppliers of steam coal are • M/s Vaibhav Coal Movers and • M/s Aggarwal Coal Corporation Pvt. Ltd.
The AO observed that the assessee was making payment to M/s Vaibhav Coal Movers @ Rs.7600/- per Metric Ton, whereas the said party had purchased from the concerned retail supplier @ 4000 per metric ton. The Assessing Officer observed that the said M/s Vaibhav Coal Movers supplies coal from its suppliers to the factory of the assessee, for which the assessee makes payment to M/s Vaibhav Coal Movers. The AO, based on the above facts, enquired the assessee to explain as to why payment was made to M/s Vaibhav Coal Movers @ Rs.7650 per metric ton, while that party pays purchase price @ Rs.4000 per metric ton for which the assessee explained that it had a written contract with M/s Vaibhav Coal Movers for supply of
13 ITA Nos. 1523 & 1524/Del/2015 Gulshan Chemicals Ltd. steam coal @ Rs 7650 per metric ton, under which such payment was made, and such payments were made by cheque and supported by evidence of actual delivery of coal, was not found accepted by the AO. The AO thereafter, carried out enquiry from M/s Vaibhav Coal Movers, however, in response to summons u/s 131 issued by the AO, that party did not make compliance before the AO.
The AO took cognizance of the plea of the assessee that such payment was made through the account payee cheque but however, was not satisfied as to why the assessee would be paying almost double the amount at which it was supplied by the wholesale dealer. In view of this, the AO held that the assessee had failed to discharge the onus in this regard, and accordingly held that the assessee had used this modus operandii for reducing its profits. Accordingly, applying the decision of Hon'ble Supreme Court in the case of CIT vs. Smt. Sumati Dayal, 214 ITR 801 (SC), the AO disallowed the excess payment of Rs.2650 PMT (Rs.7650-4000 PMT) paid in respect of purchases made from M/s Vaibhav Coal Movers and accordingly, made an addition in respect of purchases amounting to Rs.3,24,54,139/- u/s 69C.
Heard the arguments of both the parties and perused the material available on record.
The reason for the disallowance is that the assessee is paying higher amount for purchase of coal from M/s Vaibhav Coal Movers (VCM) of Rs.7,600/- per metric ton (PMT) whereas the VCM in turn procuring the coal from Aditi Enterprises and Other affiliated dealers @ Rs. 4,000 PMT. The supply of the coal
14 ITA Nos. 1523 & 1524/Del/2015 Gulshan Chemicals Ltd. per se has not been in dispute. The assessee has entered into an agreement with VCM for supply of coal at Rs.7,650 PMT. The agreement is inclusive of all indirect expenses, labour cost, loading unloading cost, transportation from mining area to the factory premises. The sales tax and the octrai payments are to be borne by VCM as per the agreement. Thus, the amount of Rs.7,600/- paid by the assessee to VCM includes the bare cost of the coal and the other allied expenses such as transportation and labour. The payments have not been disputed and there was no record of any amounts or kick back received from VCM to the assessee. Since, VCM and the assessee were not related concern as per the provisions of Income Tax Act, no passing of the profits could also be attributable.
In nutshell, in the absence of any evidence as to non- supply of the material (coal) and in the absence of any evidence that the purported excess money paid has been received back by the assessee, the amount of addition made on the difference of the amount paid by the assessee to VCM and VCM to its suppliers cannot be brought to tax treated as unexplained expenditure as per the provisions of Section 69C. The appeal of the revenue on this ground is dismissed.
Addition on account of Unverifiable purchases:
The assessee purchased coal of an amounts of Rs.10,61,00,200/- from VCM and M/s Aggarwal Coal Corporations Pvt. Ltd. in respect of VCM, the AO at page no. 4 of assessment order made addition of Rs.3,24,54,139/- on account of inflated purchases/excess amount paid by the assessee to VCM. Further, the AO has disallowed 20% on the
15 ITA Nos. 1523 & 1524/Del/2015 Gulshan Chemicals Ltd. amounts of Rs.4,39,75,252/- amounting to Rs.87,95,051/- as these purchases are said to be unverifiable, owing to non- compliance to the notices issued to various parties u/s 133(6). Subsequently, owing to the receipt of replies, the addition of 20% made by the AO was enhanced to the absolute purchase of Rs. 4,39,75,252/-. This action of making addition of the entire purchases u/s 154 has been a subject matter of separate appeal before the ld. CIT (A) and as well as before the Tribunal wherein it was held that the action of the Assessing Officer is beyond the scope of Section 154. This leaves us with the issue to be adjudicated, “whether the 20% disallowance made by the Assessing Officer on the amount of purchases made by the assessee is legally correct or not”.
Restricting ourselves to the issue of 20% disallowance made by the AO, we find that the assessee has submitted the entire bills and the transport vouchers before the Assessing Officer alongwith the details of the trucks. The bills of various companies from which the VCM procured the coal has also been submitted before the AO alongwith the weighment slips. In the context of disallowance of 20% of purchases, we do not find any evidence gathered by the AO to resort to such action. As per the record, there is no reason to disallow mere 20% of the purchases, if the Assessing Officer believes that the purchases were bogus. The action of the Assessing Officer without any evidences collected either by the way of enquiry of the movement of trucks or by brining on record any evidence regarding the non-purchase/receipt of the coal cannot be held to be valid. On the other hand, the assessee has furnished all the evidences regarding the placement of purchase order,
16 ITA Nos. 1523 & 1524/Del/2015 Gulshan Chemicals Ltd. contracts, purchases, transport and delivery of the coal from Mughalsarai (UP) to Bhiwadi (Raj.). Hence, the 20% disallowance on the said purchases made by the AO in the absence of any evidences contra brought on record cannot be upheld. The order of the ld. CIT (A) on this ground is hereby confirmed.
In the result, the appeals of the revenue are dismissed. Order Pronounced in the Open Court on 21/05/2020.
Sd/- Sd/- (Sushma Chowla) (Dr. B. R. R. Kumar) Vice President Accountant Member Dated: 21/05/2020 *Subodh* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR