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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: SHRI P.K. BANSAL (VP) & SHRI RAM LAL NEGI (JM)
O R D E R PER RAM LAL NEGI, JM These are the appeal and cross objection filed by the revenue and the assessee respectively, against order dated 20/10/2015 passed by the Ld. Commissioner of Income Tax (Appeals)-21, Mumbai pertaining to the Assessment Years 2009-10, whereby the Ld. CIT (A) has partly allowed the CO No. 177/Mum/2015 Assessment Year: 2009-10 appeal filed by the appellant/assessee against assessment order passed by the AO u/s 143 (3) read with section 147 of the Income Tax Act, 1961 (for short ‘the Act’). Brief facts of the case are that the assessee M/s Rizvi Land Development Pvt. Ltd. filed its return of income for the assessment year 2009-10 declaring the total income of Rs. 9,28,09,526/-. The return was assessed u/s 143 (3) of the Act.
2. Subsequently, on the basis of information received from the Sales Tax Department Maharashtra, through Directorate General of Income Tax (Inv.), Mumbai regarding bogus purchases made by various companies including the present assessee, the assessment was re-opened u/s 147 of the Act. The assessee was one of the companies, which had made bogus purchases from the said entities. As per the information, the assessee company during the year relevant to the assessment year under consideration made bogus purchases to the tune of Rs. 1,04,30,084/- from the bogus entities i.e. Vardhman International and Maharaja Impex.
3. The assessee objected the re-opening, however, the assessee’s objection was rejected. During the re-assessment proceedings, the assessee could not establish the genuineness of the transaction. Accordingly, show cause notice was issued as to why the amount of bogus purchases should not be added to the income of the assessee. The assessee submitted that the purchases were genuinely made and the payments were made to the parties through banking channels and the materials purchased were utilized. To substantiate its claim, the assessee submitted the bills, delivery challans, bank statements, utilization certificate from the site engineer. In order to further verify the genuineness of transaction notice u/s 133 (6) of the Act was issued and the parties were asked to submit the relevant details. However, the notices were received back un- CO No. 177/Mum/2015 Assessment Year: 2009-10 served as the Postal Department could not locate the parties at the given addresses. The assessee also failed to produce the parties of its own despite availing sufficient opportunity. Since, the assessee could not satisfy the AO by producing sufficient evidence to prove the genuineness of the transaction, the AO made addition of Rs. 1,04,30,084/- to the income of the assessee and determined the total income of the assessee at Rs. 10,33,71,250/-.
4. Feeling aggrieved, the assessee challenged the assessment order before the Ld. CIT (A). The Ld. CIT (A) after hearing the assessee partly allowed the appeal keeping in view the profit ratio in the business of the assessee and restricted the addition to 10% of the total addition by following the decision of the Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth 356 ITR 451(Guj). Aggrieved by the said order, the revenue is in appeal before the Tribunal.
5. The revenue has raised the following effective grounds of appeal against the impugned order passed by the Ld. CIT (A):-
1. “Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the addition of Rs. 93,87,074/- out of the total addition of Rs. 1,04,30,084/- made on account of bogus purchases.
2. Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) was right in deleting the addition without appreciating the fact that the said purchases could not be proved genuine by the assessee even after giving sufficient opportunity.
3. Whether on the facts and the circumstances of the case and in law, the Ld. CUIT (A) was right in deleting the addition without appreciating the fact that eh assessee is end user/consumer of the said items and there is no clear CO No. 177/Mum/2015 Assessment Year: 2009-10 mapping of purchases and utilization. In that situation this logic is not correct that since the sales are there purchases can not be denied.”
6. Before us, the Ld. Departmental Representative (DR) submitted that the Ld.CIT (A) has wrongly restricted the addition to 10% of the total bogus purchases made by the assessee during the relevant year. Since, the assessee has failed to prove genuineness of the transaction, the Ld. CIT(A) ought to have confirmed the addition made by the AO.
7. On the other hand, the Ld. counsel for the assessee submitted that since the assessee has submitted the copies of bills, delivery challans, bank statements, utilization certificate from the site engineer, the Ld. CIT (A) has wrongly sustained the addition to 10% of the total alleged bogus purchases. The Ld. counsel further submitted that the action of AO of re-opening of assessment order itself is invalid and bad in law and the Ld. CIT (A) has wrongly upheld the re-opening of the assessment. The Ld. counsel further submitted that the assessee has also filed cross objection challenging the validity of proceedings initiated u/s 147 of the Act. . Placing reliance on the decision of Hon’ble Supreme Court rendered in CIT Vs. Orissa Corporation Pvt. Ltd. 159 ITR 78 (SC) Hon’ble Bombay High Court in CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. 372 ITR 619 (Bom) and CIT Vs. U M Shah 90 ITR 396 (Bomb.) and Jodhpur Bench of the Tribunal in Jagdamba Trading Company Vs. ITO (2007) 16 SOT 66 Jodhpur, the assessee submitted that as per the ratio laid down in the aforesaid cases, if sales bills are accepted then the total purchases amount should be accepted as for every sale there has to be corresponding purchases.
8. We have heard the rival submissions and perused the entire record and also gone through the cases relied upon by the parties. The only grievance of CO No. 177/Mum/2015 Assessment Year: 2009-10 the revenue is that the Ld. CIT (A) has wrongly restricted the addition to 10% of the total amount of bogus purchases made by the assessee. We notice that the AO has not rejected the books of account and accepted the sales shown by the assessee. Since, the AO has not rejected the sales during the relevant year, the entire amount of purchases cannot be added to the income of the assessee as there cannot be sale without purchase. If the assessee did not purchase the goods in question from the parties concerned, it implies that purchases were made from the parties other than those mentioned in the books of account. Hence, there is no justification in making addition of the entire amount of bogus purchases determined by the AO. Under these circumstances, the AO ought to have made addition keeping in view the profit element embedded in the purchases in question.
The Hon’ble Bombay High Court In CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. (supra), while upholding the decision of Mumbai Tribunal, has observed that merely because the suppliers had not appeared before the Assessing Officer or the CIT (A) one could not conclude that the purchases were not made by the respondent/assessee. The Hon’ble Gujrat High Court in CIT vs. Simit P. Seth 356 ITR 451(Guj) upheld the decision of the Tribunal and sustained the addition 12.5% of the total bogus purchases holding that only profit element embedded in such purchases can be added to income of the assessee. Hence, following the principles law laid down by the Hon’ble High Courts of Bombay and Gujarat, discussed above, we modify the order of the Ld. CIT(A) and sustain the addition of 12.5% of the total amount of bogus purchases determined by the AO. We therefore, partly allow the appeal of the revenue and direct the AO to compute the addition @ 12.5% of the total amount of bogus purchases.
CO No. 177/Mum/2015 Assessment Year: 2009-10 CO No. 177/MUM/2017 (Assessment Year: 2009-10)
The assessee has filed the cross objection against the impugned order on the following effective ground:
On the facts and in the circumstances of the case and in law, the proceeding initiated u/s 147 is invalid and bad in law and the learned C.I.T. (A) erred in upholding the re-opening of assessment and the validity of the assessment order passed u/s 143 (3) r.w.s. 147 of the act.
2. Since, there is a delay of 13 days in filing the present cross objection, the Ld. counsel for the assessee submitted that the application for condonation of delay filed by the assessee may be allowed and the delay may be condoned. The Ld. counsel further submitted that the delay has been caused due to the circumstances beyond control of the assessee therefore, there was sufficient cause for not presenting the cross objection within the limitation period.
On the other hand, the Ld. departmental representative (DR) opposed the application and submitted that the reason mentioned in the application is not sufficient to condone the delay, hence, the cross objection is not maintainable being barred by law of limitation.
We have heard the rival submissions. The assessee has mentioned in the application that the cross objection could not be presented as the Director of the company had to go out of India several times during the relevant period in connection with the sudden and untimely death of his son on 1st January, 2017 at Istanbul, Turkey in a terrorist attack. The Director has sworn an affidavit dated 16/08/2017 to this effect.
CO No. 177/Mum/2015 Assessment Year: 2009-10
Sub-section 5 of section 253 of the Income Tax Act provides that the Tribunal may admit appeal or permit filing of memorandum of cross- objection of respondent after expiry of relevant period of limitation referred to in sub- section 3 and 4 section 253, if it is satisfied that there was sufficient cause for not presenting it within that period. Expression “sufficient cause” employed in this section has also been used in section 5 of Indian Limitation Act, 1961. This expression has come for consideration before the Hon’ble High Courts as well as before the Hon’ble Supreme Court, and the Hon’ble Courts are unanimous in observing that “sufficient cause” is to be considered with justice oriented approach. We deem it appropriate to make reference to the decision of Hon’ble Supreme Court in the case of Collector Land Acquisition Vs. Mst. Katiji & Others, 1987 AIR 1353. The relevant part of the judgment reads as under:
“1. Ordinarily a litigant does not stand to benefit by lodging an appeal late.
Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this when delay is condoned the highest that can happen is that a cause would be decided on merits after hearing the parties. 3. "Every day's delay must be explained" does not mean that a pedantic approach should be made. Why not every hour's delay, every second's delay? The doctrine must be applied in a rational common sense pragmatic manner.
4. When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay.
5. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact he runs a serious risk.
6. It must be grasped that judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so.”
CO No. 177/Mum/2015 Assessment Year: 2009-10
In view of the law laid down by the Hon’ble Supreme Court in the aforesaid case, we allowed the application of the assessee for condonation of delay and allowed the counsel for the assessee to argue the case on merit.
The Ld. counsel submitted that reopening of assessment is bad in law as the same has been done on the basis of information received from Sales Tax Department through the Directorate General of Income Tax (Inv.), Mumbai. The Ld. counsel relying on the decision of the Hon’ble Gujarat High Court rendered in CIT vs. M.K. Brothers (163 ITR 249) (Guj) and decisions of Mumbai Tribunal in Balaji Textiles Industries Ltd. Vs. ITO (49 ITD 177) (Mum), DCIT vs. Rajeev G Kalathil (ITA NO. 6727/Mum/2012), Ramesh Kumar & Co. Vs. ACIT (ITA No. 2959/Mum/2014) submitted that since the action of AO is bad in law, the Ld. CIT(A) ought to have set aside the action of the AO and deleted the addition.
On the other hand, the Ld. DR submitted that under section 147 of the Act, the AO has power to reassess the income which has escaped assessment if, he has reason to believe that any income chargeable to tax has escaped assessment. In the present case, since the income of Rs. 10,33,71,250/- had escaped assessment, the AO has rightly initiated proceedings under the said section. 9. We have heard the rival submissions and carefully perused the material on record. Under Section 147 the AO has jurisdiction to reassess the income if he has reason to believe that any income chargeable to tax has escaped assessment. So, for taking action under the provisions of the said section the AO must have reason to believe that income chargeable to tax has escaped assessment. We further notice that AO has recorded the reasons for reopening and issued notice u/s 148 of the Act. From the contents of the notice it can be concluded that the AO had prima facie reason to believe that income of Rs. 10430084/-chargeable to tax has escaped assessment by reason of the failure CO No. 177/Mum/2015 Assessment Year: 2009-10 on the part of the assessee to disclose fully and truly all material facts necessary within the meaning of section 147 of the Act.
The second limb of the argument of the Ld. Counsel is that the AO has issued the notice on the basis of information received from the Sales Tax Department Maharashtra, through investigation wing of the Income Tax Department, which is not permissible under the law. In our considered opinion, in the present case, AO has issued notice after forming a belief that certain portion of income of the assessee chargeable to tax has evaded assessment. Therefore, the action of Ld. CIT(A) cannot be treated as illegal and bad in law. Moreover, during the re-assessment proceedings the assessee has failed to establish the genuineness of purchases in question, this fact further fortifies the action of the authorities below.
In Income Tax Officer Vs. Purushottam Das Bangur and another 224 ITR 362, the Hon’ble Supreme Court has held that ITO was justified in reopening the assessment u/s 147(b) on the basis of letter written by Dy. Director of Inspection (Investigation) to jurisdictional IAC containing relevant facts and information. In the said case, notice was issued by the ITO on the basis of letter/information received from DDI (Inv.) without conducting any further investigation. The facts of the present case are identical to the facts of the case referred above. Since, the Hon’ble Supreme Court has decided the identical issue against the assessee and the findings of the Ld. CIT(A) is in accordance with the ratio laid down by the Hon’ble Supreme Court, there is no reason to interfere with the findings of the Ld. CIT(A) on this issue. Moreover, we have partly allowed the appeal of the assessee and sustained the addition @ 12.5% of the total bogus purchases in question. Hence, we uphold the findings of the Ld CIT(A) on this issue and dismiss the Cross Objection filed by the assessee.
CO No. 177/Mum/2015 Assessment Year: 2009-10 In the result, appeal filed by the revenue for assessment year 2009-10 is partly allowed for statistical purposes and cross objection filed by the assessee is dismissed.
Order pronounced in the open court on 23rd October, 2017. (P.K. BANSAL) (RAM LAL NEGI) VICE-PRESIDENT JUDICIAL MEMBER म ुंबई Mumbai; दिन ुंक Dated: 23/10/2017