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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
Before: Shri Shamim Yahya & Shri Ravish Sood
O R D E R
PER RAVISH SOOD, JM
1. The present appeals filed by the assessee are directed against the respective orders of the CIT(A)-56, Mumbai, for A.Y. 2009-10, 2010- 11 and 2011-12, dated 19.03.2018, which in turn arises from the respective assessment orders passed under Sec.143(3) r.w.s Sec.147 of the I.T Act for the said respective years. As a common issued is involved in the aforementioned appeals, therefore, the same are being taken up and disposed off by way of a consolidated order. We shall first advert to the appeal of the assessee for A.Y. 2009-10. The assessee assailing the order of the CIT(A) has raised before us the following grounds of appeal :
“The following ground or grounds of appeal are without prejudice to one another:-
1. On the f acts and circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in confirming the initiation of reopening of the assessment u/s.147 of the Act and assessment order passed u/s.143(3) r.w.s. 147 as legal and valid. The said reopening is illegal, without application of mind and mechanical and the assessment order passed is bad- in-law and against the principles of natural justice; Without prejudice to above, 2.1 The learned Commissioner of Income Tax (Appeals) erred in arbitrarily confirming the disallowance of Rs.5,60,878/- being 12.5% of the purchases of Rs.44,87,020/- from suspicious hawala parties; P a g e | 2 to 4157/Mum/2018 A.Ys. 2009-10 to 2011-12 M/s Fine Metal (India) Vs. The Income Tax Officer, Ward-17(1)(4) The learned Commissioner of Income Tax (Appeals) erred in presuming that for A.Y. 2010-11 the appellant has requested to the assessing officer to fix disallowance at 12.5% and hence retained the addition @ 12.5% for the Assessment Year 2009-10; The assessment for A. Y. 2009-10 was completed on 26.02.2015 whereas the assessment proceedings for A. Y. 2010 -11 commenced in June, 2015 as the first notice u/s 143(2) was issued on 16.06.2015 for fixing appointment on 29.06.2015. Without Prejudice to above, the learned Commissioner of Income Tax (Appeals) failed to appreciate that each assessment year is a separate year. 2.2 The learned Commissioner of Income Tax (Appeals) failed to appreciate that the learned Assessing Officer failed to convey/confront to the appellant firm, the materials received by the learned Assessing Officer from Sales Tax Authorities which are relied upon and without affording an opportunity to cross examination the alleged suspicious parties before making disallowance;
3. Without prejudice to above, The Gross Profit percentage estimated by the Learned CIT(Appeals) is higher than the rate of gross profit prevailing as a trader in the industry; 4.1 The learned Commissioner of Income Tax (Appeals) erred in confirming the excess interest levied u/s.234B of the Income-tax Act, 1961; 4.2 The learned Commissioner of Income Tax (Appeals) failed to appreciate or consider that the interest u/s.234B is not calculated in accordance with subsection (1) and (3) of section 234B of the Income-tax Act, 1961;”
Briefly stated, the assessee firm which is engaged in the business of trading in ferrous and non-ferrous metals had filed its return of income for A.Y. 2009-10 on 28.09.2009, declaring total income at Rs. 13,564/-. The return of income filed by the assessee firm was processed as such under Sec. 143(1) of the I-T Act. Subsequently, on the basis of information received by the A.O from the DGIT (Inv.), Mumbai, that the name of the assessee had figured in the list of the beneficiaries who had obtained bogus purchase bills from certain hawala parties, its case was reopened under Sec.147 of the I.T Act.
During the course of the assessment proceedings, it was observed by the A.O that the assessee had claimed to have made purchases aggregating to Rs.44,87,020/- from the following 13 tainted parties:
Sr. No. Name of the hawala parties Amount in Rs.
N.B. Enterprises 1,98,479/- 2. Navjyoti Metal Industries 3,41,782/- 3. Shri Nath Trading Company 2,15,305/- 4. Shree Yamuna Impex 2,10,132/- 5. Rishab Metal (India) 2,51,270/- 6. Jinkushal Exports Pvt. ltd. 7,85,201/- 7. Rana Kapor Sales Corporation 1,50,000/- 8. Rajgal Traders Pvt. ltd. 1,86,171/- 9. Ambeshwer Trading Pvt. Ltd. 2,10,858/- 10. Vandana Metal Syndicate 2,36,192/- 11. Lekha Trading Pvt. Ltd. 4,99,460/- 12. Chandranand Trading Pvt. Ltd. 9,70,960/- 13. Rajratan Metal Industries. 2,30,664/- P a g e | 3 to 4157/Mum/2018 A.Ys. 2009-10 to 2011-12 M/s Fine Metal (India) Vs. The Income Tax Officer, Ward-17(1)(4) Total 44,87,020/- In order to verify the genuineness and veracity of the aforesaid purchase transactions, the A.O called upon the assessee to place on record supporting documentary evidence. However, it was noticed by the A.O that the assessee failed to place on record clinching documentary evidence to prove the authenticity of the purchases claimed to have been made from the aforementioned parties. In fact, it was observed by the A.O that the assessee had failed to place on record documentary evidence viz. stock register, journal, delivery challans, lorry receipts, octroi payments receipts, quantitative tally, confirmations from transport operators, godown records, bank accounts clearance certificates, third party assessment orders etc., to substantiate its claim of having made genuine purchases from the aforementioned parties. Rather, the assessee in order to impress upon the A.O that genuine purchases were made from the aforementioned parties, relied on certain documentary evidence which did not inspire much of confidence as regards the authenticity of the purchase transactions viz. (i) copies of ledger accounts of the aforementioned parties; (ii) copies of the purchase bills; (iii) bank statements; and (iv) copy of his purchase register. Further, it was also observed by the A.O that the copies of the purchase bills furnished by the assessee were shorn of the requisite details viz. delivery challan details, lorry numbers, lorry receipts number, goods receipt number etc. In sum and substance, it was observed by the A.O that no contemporaneous record establishing the receipts of goods purported to have been purchased from the aforementioned parties was produced by the assessee. The A.O in order to verify the genuineness of the purchase transactions issued notices under Sec.133(6), dated 25.07.2014 to the aforementioned parties, which however, were returned by the postal authorities with the remarks “not claimed” or “not found” etc. In the backdrop of the aforesaid facts, the A.O directed the assessee to produce P a g e | 4 to 4157/Mum/2018 A.Ys. 2009-10 to 2011-12 M/s Fine Metal (India) Vs. The Income Tax Officer, Ward-17(1)(4) the aforesaid parties for necessary examination. However, the assessee failed to produce the abovementioned parties, as a result whereof the purchases claimed by him to have been made from them could not be verified. In fact, it was the claim of the partners of the assessee firm that as they were not in contact with the said parties for the last more than 5 years, therefore, they were not aware of their whereabouts and the present addresses. Further, the assessee in order to substantiate the authenticity of the purchases under consideration, submitted with the A.O, the extracts of the stock register wherein the purchases claimed to have been made from the aforementioned parties were correlated with their corresponding sales. However, the A.O not being persuaded to subscribe to the claim of the assessee that it had made genuine purchases from the aforementioned parties, declined to accept the same. On the basis of his aforesaid observations, the A.O was of the view that the assessee had purchased the goods from the open/grey market and not from the aforementioned parties. Accordingly, considering the aforesaid facts and circumstances, the A.O made an addition of Rs.5,60,878/- i.e @12.5% of the aggregate value of purchases of Rs. 44,87,020/- which were claimed by the assessee to have been made from the aforementioned parties.
Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions advanced by the assessee did not find favour with the same and upheld the aforesaid addition/disallowance made by the A.O.
The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short „A.R‟) for the assessee, at the very outset of the hearing of the appeal submitted that the lower authorities had erred in characterising the purchases made by the assessee from the aforementioned parties as P a g e | 5 to 4157/Mum/2018 A.Ys. 2009-10 to 2011-12 M/s Fine Metal (India) Vs. The Income Tax Officer, Ward-17(1)(4) bogus purchases. It was submitted by him that the assessee had substantiated the genuineness of the purchase transactions before the lower authorities. It was averred by the ld. A.R that the copies of the invoices issued by the aforementioned parties were produced in the course of the assessment proceedings. Further, support was drawn by him from the fact that the payments to the aforementioned parties towards purchase consideration was made vide account payee cheques. Alternatively, it was submitted by the ld. A.R that the lower authorities had erred in making/sustaining an exorbitant addition @12.5% of the aggregate value of the purchases under consideration. It was submitted by the ld. A.R that in case of unproved/unsubstantiated purchases the addition was to be worked out by bringing the G.P rate of such bogus purchases to the level of the G.P rate of other genuine purchases. In support of his aforesaid contention, the ld. A.R relied on the judgment of the Hon’ble High Court of Bombay in the case of Pr. CIT -17 Vs. M/s Mohhamad Haji Adam & Co. (ITA No.1004/of 2016, dated 11.02.2019). Further, it was submitted by the ld. A.R that the A.O had erred in charging interest under Sec. 234B from the 1st day of April of the assessment year till the date of framing of assessment u/s 143(3) r.w.s 147. It was submitted by him that in case of an assessment framed under Sec.143(3) r.w.s 147, interest under Sec.234B was to be charged from the date of determination of tax under Sec.143(1)(a) till the date of framing of the regular assessment. In support of his contention reliance was placed on the judgment of the Hon‟ble High Court of Karnatka in the case of Vijay Kumar Saboo & Anr. Vs. ACIT (2012) 340 ITR 382 (Kar) and the judgment of the Hon‟ble High Court of Kerala in CIT Vs. B. Lakshmikanthan (2011) 198 taxman.com 485 (Ker).
Per contra, the ld. Departmental Representative relied on the orders of the lower authorities. It was submitted by the ld. D.R that as P a g e | 6 to 4157/Mum/2018 A.Ys. 2009-10 to 2011-12 M/s Fine Metal (India) Vs. The Income Tax Officer, Ward-17(1)(4) the appeal of the assessee was devoid of any merit, hence the same was liable to be dismissed.
We have heard the authorised representatives for both the parties, perused the orders of the lower authorities, material available on record and the judicial pronouncements relied upon by them. Admittedly, the assessee in the case before us had failed to substantiate the genuineness and veracity of the purchase transactions under consideration. As is discernible from the orders of the lower authorities, the assessee had failed to place on record irrefutable documentary evidence which would have substantiated the authenticity of the purchases claimed to have been made from the aforementioned parties. Insofar, the documents which were produced by the assessee before the A.O to impress upon him as regards the genuineness of the purchase transactions under consideration are concerned viz. (i) copies of the ledger accounts of the aforesaid parties; (ii) copies of bills; (iii) bank statements; and (iv) copies of purchase register are concerned, we concur with the view taken by the lower authorities that the same did not conclusively proved the genuineness of the transactions under consideration. Apart there from, we find that the notices issued by the A.O under Sec. 133(6) to the aforementioned parties were also returned by the postal authorities with the remarks “not claimed” or “not found” etc. In the totality of the aforesaid facts, we are of the considered view that the lower authorities had rightly observed that the assessee had not purchased the goods from the aforementioned parties, and had rather procured the same from the open/grey market.
As regards the quantification of the profit involved in making of such bogus purchase by the assessee from the unorganised sector operating in the open/grey market, we find that the Hon’ble High Court of Bombay had recently in its judgement in the case of Pr.
P a g e | 7 to 4157/Mum/2018 A.Ys. 2009-10 to 2011-12 M/s Fine Metal (India) Vs. The Income Tax Officer, Ward-17(1)(4) Commissioner of Income Tax-17 Vs. Mohhamad Haji Adam & Co. (ITA No. 1004 of 2016, dated 11.02.2019), while upholding the order of the Tribunal, had observed, that the addition in the hands of the assessee as regards bogus/unproved purchases was to be made to the extent of bringing the G.P rate of such purchases at the same rate of other genuine purchases. The Hon‟ble High Court while concluding as hereinabove has observed, as under:
8. In the present case, as noted above, the assessee was a t r a d e r o f f a b r i c s . T h e A O f o u n d t h r e e e n t i t i e s w h o w e r e indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sale declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trade. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case of N.K. Industries Ltd. (supra) cannot be applied without reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and observed as under- “So far as the question regarding addition of Rs.3,70,78,125/- as gross profit on sales of Rs.37.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6 % gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66% Therefore, considering 5.66 % of Rs.3,70,78,125/- which comes to Rs.20,98,62 1.88 we think it fit to direct the revenue to add Rs.20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue.
In these circumstances, no question of law, therefore, arises. All 9. Income Tax Appeals are dismissed, accordingly. No order at costs.” As such, the Hon‟ble jurisdictional High Court, had observed, that the addition in respect of purchases which were found to be bogus in the case of the assessee before them, who was a trader, was to be worked out by bringing the G.P. rate of such „bogus purchases‟ at the same rate as that of the other genuine purchases. We thus respectfully following the aforesaid judgment of the Hon‟ble High Court, restore the matter to the file of the A.O, with a direction to restrict the addition as regards the P a g e | 8 to 4157/Mum/2018 A.Ys. 2009-10 to 2011-12 M/s Fine Metal (India) Vs. The Income Tax Officer, Ward-17(1)(4) bogus/unproved purchases aggregating to Rs.44,87,020/-, by bringing the G.P rate on the amount of such „bogus purchases‟, at the same rate as that of other genuine purchases. Needless to say, the assessee in the course of the set aside proceedings shall furnish requisite details before the A.O, who shall after making necessary verifications restrict the addition in terms of our aforesaid observations. The Grounds of appeal
No(s) 1 to 3 are allowed for statistical purposes in terms of our aforesaid observations.
9. We shall now advert to the claim of the ld. A.R that the A.O while framing the assessment u/s 143(3) r.w.s 147, had erred in charging excess interest u/s 234B by computing the same from the 1st day of April of the assessment year till the date of such assessment. It is the claim of the ld. A.R that as per sub-section (3) of Sec. 234B, where as a result of an order of reassessment or recomputation the amount on which interest was payable under sub-section (1) of Sec. 234B is increased, the assessee shall be liable to pay interest for every month or part of a month comprised in the period commencing on the day following the date of determination of total income under sub-section (1) of Sec. 143 and ending on the date of the reassessment u/s 143(3) r.w.s 147, on the amount by which the tax on the total income determined on the basis of such reassessment exceeds the tax on total income determined under sub-section (1) of Sec.
In support of his contention support has been drawn by the ld. A.R from the judgment of the Hon’ble High Court of Karnatka in the case of Vijay Kumar Saboo & Anr. Vs. ACIT (2012) 340 ITR 382 (Kar) and the judgment of the Hon’ble High Court of Kerala in CIT Vs. B. Lakshmikanthan (2011) 198 taxman.com 485 (Ker). As we have restored the substantive issue for readjudication in terms of our aforesaid observations to thefile of the A.O, therefore, we also restore the matter as regards quantification of the interest liability of the assessee u/s 234B to the file of the A.O.
P a g e | 9 to 4157/Mum/2018 A.Ys. 2009-10 to 2011-12 M/s Fine Metal (India) Vs. The Income Tax Officer, Ward-17(1)(4) The A.O shall in the course of the set aside proceedings quantify the liability of the assessee u/s 234B, as per the law as was applicable during the year under consideration, keeping in view the aforesaid judicial pronouncements relied upon by the assessee viz. (i). Vijay Kumar Saboo & Anr. Vs. ACIT (2012) 340 ITR 382 (Kar); and CIT Vs. B. Lakshmikanthan (2011) 198 taxman.com 485 (Ker). The Ground of appeal no. 3 is allowed for statistical purposes.
10. The appeal of the assessee is allowed for statistical purposes, in terms of our aforesaid observations. ITA No.4156/Mum/2018 A.Y. 2010-11
11. We shall now advert to the appeal of the assessee for A.Y. 2010-11. Briefly stated, the assessee firm had e-filed its return of income for A.Y. 2010-11 on 01.10.2010, declaring total income of Rs. 14,070/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the I-T Act. Subsequently, on the basis of information received by the A.O from the DGIT(Inv.), Mumbai, that the assessee had obtained bogus purchase bills aggregating to Rs.55,30,240/- from 18 tainted parties, its case was reopened under Sec.147 of the I.T Act.
12. The A.O while framing the assessment observed that the assessee could not substantiate the authenticity of the purchases aggregating to Rs.55,30,246/- which were claimed by it to have been made from 18 tainted parties. On the basis of his aforesaid observations, the A.O being of the view that the assessee had purchased the goods under consideration from the open/grey market and not from the aforementioned parties, thus made an addition of Rs.6,91,281/- i.e @ 12.5% of the aggregate value of purchase of Rs.55,30,246/- under consideration.
P a g e | 10 to 4157/Mum/2018 A.Ys. 2009-10 to 2011-12 M/s Fine Metal (India) Vs. The Income Tax Officer, Ward-17(1)(4) 13. Aggrieved, the assessee carried the matter in appeal before the CIT(A). However, the CIT(A) not finding favour with the contentions advanced by the assessee upheld the additions/disallowance made by the A.O.
The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. We find that as the facts and the issues involved in the present case remains the same as were there before us in the appeal of the assessee for the immediately preceding year i.e A.Y. 2009-10 in , therefore, our order passed while disposing off the appeal for the said year shall apply mutatis mutandis for the disposal of the present appeal. The appeal of the assessee for the year under consideration i.e A.Y. 2010-11 in ITA No. 4156/Mum/2018 is allowed for statistical purposes in the same terms. ITA No.4157/Mum/2018 A.Y. 2011-12 15. We shall now take up the appeal of the assessee for A.Y. 2011-12. Briefly stated, the assessee firm had filed its return of income for A.Y. 2011-12 on 31.03.2015, declaring total income of Rs.14,423/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the I.T Act. Subsequently, on the basis of information received by the A.O from the DGIT (Inv.), Mumbai that the assessee had obtained bogus purchase bills aggregating to Rs. 36,49,687/- from 15 hawala parties, its case was reopened under Sec. 147 of the I.T Act.
During the course of the assessment proceedings, the A.O observed that the assessee could not substantiate the genuineness and veracity of the purchases aggregating to Rs. 36,49,687/- which were claimed to have been made from the 15 tainted parties. The A.O being of the view that the assessee had purchased the goods under consideration not from the aforementioned tainted parties, but from the open/grey market, thus