Income Tax Appellate Tribunal - Mumbai
Intergrated Engineers And Consultants ... vs Acit 15(2(1), Mumbai on 29 August, 2017
आयकर अपील
य अ धकरण "K" यायपीठ मंब
ु ई म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "K" BENCH, MUMBAI
BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER
AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A. No. 976 /Mum/2017
( नधा रण वष / Assessment Year : 2010-11)
M/s Integrated Engineers बनाम/ ACIT 15(2)(1),
and Consu ltants Pvt. Ltd. 4 t h floor,
v.
R-534, TTC Industrial Aayakar Bhavan,
Estate , MIDC, Rabale, Mumbai - 400 020.
Navi Mumbai - 400 701.
थायी ले खा सं . /P AN : AAAC17974C
(अपीलाथ /Appellant) .. ( यथ / Respondent)
Assessee by : Shri Subhash S. Shetty
Revenue by : Shri V. Jenardhanan
ु वाई क तार ख / Date of Hearing
सन : 22.08.2017
घोषणा क तार ख /Date of Pronouncement : 29.08.2017
आदे श / O R D E R
PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the assessee, being ITA No. 976/Mum/2017, is directed against the appellate order dated 30.11.2016 passed by the learned Commissioner of Income Tax (Appeals)- 24, Mumbai (hereinafter called "the CIT(A)"), for assessment year 2010-11, appellate proceedings before learned CIT(A) has arisen before learned CIT(A) from the assessment order dated 9th January, 2016 passed by the learned Assessing Officer(hereinafter called "the 2 ITA 976/Mum/2017 AO") u/s 143(3) r.w.s. 147 of the Income-tax Act, 1961 (hereinafter called "the Act") .
2. The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the Tribunal") read as under:-
"I. The Learned CIT (A) has erred in passing the order dated 09/01/2016, disposing of assessee's objections against notice u/s 148 of the I.T Act, 1961 without any basis or justification.
2. The Learned CIT (A) has erred in upholding the AO's action of rejecting the Books of Accounts of the Appellant u/s 145 of the Income tax Act, 1961 without appreciating the fact that the books of accounts were maintained during the course of the business, were audited under the Companies Act as well as Income tax Act.
3. The Learned CIT (A) has erred in concluding that the Appellant's purchases are questionable and are accounted to bring down the profitability there by avoiding the payment of taxes when the Appellant's GP and NP ratios have gone up as compared to the previous years.
4. The Learned CIT (A) has erred in accepting the AO's conclusion that the purchases made from the two parties i.e. Rajeshwari Metal Industries and Amar Trading Corporation are fictitious without verifying the consumption statement filed and without appreciating the fact that the Appellant could not have executed the orders from Tata Power Ltd and BARC, Trombay.
5. The Learned CIT (A) has erred in upholding the addition of Rs 15,08,045/- (24.71% of Rs 61,02,974/-) on account of bogus purchases without any basis or justification when the net profit of the Appellant has more than doubled from Rs26.32 Lakhs to Rs 60.77 Lakhs on an increase in turnover of only about 10% and GP/NP ratios have gone up from 22.47% to 22.71 % and 7.24% to 15.4% in A/Y 2009-2010 to A/Y 2010-2011 respectively.
6. The Learned CIT (A) has erred in dismissing the ground regarding initiation of penalty proceedings under section 271(1)(c)
3 ITA 976/Mum/2017 without appreciating the fact the Appellant has neither concealed any income nor furnished any inaccurate particulars of income.
7. The Appellant prays that:
a. The Appellate order dated 30/11/2016 passed by the CIT(A)24 confirming the Assessment Order dated 09/01/20 16 passed by the ACIT 15(2)(1) making addition of Rs.
15,08,045/- to the Appellant income be deleted, annulled, squashed and set aside.
8. The aforesaid Grounds of Appeal are independent, alternative and without prejudice to one another."
3. The brief facts of the case are that the assessee company is engaged in the business of sale of engineering goods, labour charges, erection and commissioning and fabrication. The assessee filed its return of income u/s 139(1) on 12.10.2010 which was processed by Revenue u/s 143(1) of the Act. Thus, no scrutiny assessment u/s 143(3) r.w.s. 143(2) was originally framed by Revenue . Subsequently information was received by AO that the assessee has inflated purchases through hawala parties. The assessment was reopened u/s 147 by issuance of notice dated 20-03-2015 u/s 148, which was within four years from the end of assessment year. The assessee filed letter dated 24-03-2015 requesting the AO to accept original return of income filed u/s 139(1) to be return of income in pursuance to notice u/s 148. The assessee asked for reasons for reopening of the assessment u/s 147 which were provided by the AO to the assessee. Notices u/s 142(1) and 143(2) were issued and the assessee submitted another return of income on 18-11-2015 declaring the same income.
The genesis of reopening is the letter dated 04-02-2014 received by the AO from DGIT (Inv.),Mumbai that the assessee had entered into hawala 4 ITA 976/Mum/2017 transactions for purchases , amounting to Rs. 61,02,974/- from the following parties:-
Sr NAME OF THE SUPPLIER TIN AMOUNT
No.
1 Rajeshwari Metal Industries 27140353242V 20,83,200
2 Amar Trading Corporation 27790199673V 40,19,774
Total 61,02,974
The A.O. observed that the TIN status with MVAT authorities of the above parties was found to be cancelled and these parties were engaged in the practice of only giving accommodation entries on fixed commission income basis and no real transactions were involved as no material/goods were supplied by these parties against the billing done by these bogus dealers, which conclusions were the result of investigations carried out by both MVAT authorities and Income-tax Department . The AO also observed that the Maharashtra VAT Authorities have also recorded the statement of these parties u/s 14 of the Maharashtra Value Added Tax Act, 2002 , whereby these parties have confessed that they were only issuing bogus bills without supplying any material. In order to verify genuineness of these purchases, notices u/s 133(6) of the Act were issued by the A.O. to all these parties . However, these notices u/s 133(6) were returned un-served. The assessee was show caused as to why the alleged purchases made from the hawala parties should not be disallowed and added to the income of the assessee. In response, the assessee had shown its inability to furnish the explanation and the assessee agreed for the addition. The A.O. observed that the burden lies on the assessee to prove that the purchases made were genuine which has not been discharged by the assessee. Enquiries were also made through Inspectors of the Income Tax Department which revealed that the claim of expenses on account of purchases from various parties as was set out by the assessee was not a genuine transactions. The assessee also failed to produce 5 ITA 976/Mum/2017 these parties before the A.O. despite being asked by the AO. The assessee was asked to produce the payment proof(bank statement, payment vouchers) , proof of delivery etc. , which assessee submitted before the AO. The A.O. relied upon the decision in the case of CIT v. Precision Finance Pvt. Ltd., 208 ITR 465 to observe that payment by cheque is not sufficient to conclude that purchases are genuine . The AO also relied upon decision of Hon'ble Gujarat High Court in the case of Simit P. Sheth, 356 ITR 451 and observed that the books of account maintained by the assessee do not reflect true and genuine picture of the financial status of the assessee . It was observed by the AO that books of accounts do not exhibit correct or complete financial status of the assessee , which were rejected by the AO u/s 145 of the Act and it was concluded by the AO that these purchases were made to reduce profits and consequently taxes. The assessee was asked to show cause as to why addition of 24.71% of bogus purchase amount should not be added to the income of the assessee but the assessee could not furnish any satisfactory reply. Thus, the A.O. came to the conclusion that the amount of Rs. 61,02,974/- was accounted in the books of accounts of the assessee as fictitious invoices in the name of above bogus parties and accordingly the AO disallowed an amount of Rs. 15,08,045/- being 24.71% of Rs. 61,02,974/- and added the same to the income of the assessee, vide assessment order dated 09-01-2016 passed by the AO u/s 143(3) r.w.s. 147 of the 1961 Act.
4. Aggrieved by the assessment order dated 09-01-2016 passed by the A.O. u/s 143(3) r.w.s. 147 , the assessee carried the matter in appeal before the ld. CIT(A) who confirmed the additions made by the AO in the assessment order dated 09-01-2016 , vide appellate order dated 30-11-2016. The assessee submitted before the learned CIT(A) that the purchases which were made from the aforesaid parties were S S Plates and sheets which were consumed in fabrication at the assessee's factory located at R-534, TTC , Industrial Estate , MIDC , Rabale, Thane-400701. The assessee submitted before 6 ITA 976/Mum/2017 learned CIT(A) that details of raw material consumed and closing stock were duly filed before AO. The assessee also submitted that copies of invoice, delivery challans, ledger accounts confirmation from parties, copies of PAN status of these parties from website of I T Department, copies of bank statements with payment proof and delivery proof were all submitted before the AO. It was submitted that payments were made through crossed account payee cheques, proof of delivery by tempo/lorry with delivery challans were submitted and the material was consumed in the manufacture of goods during the course of business of the assessee. It was submitted that the parties were existing at the time when the purchases were made and the assessee did not had any doubt that these parties TIN were cancelled. It was submitted that fabrication and supplies to Tata Power could not have been made without the material purchased from the parties referred to above. It was submitted that parties were put on the list of hawala dealers by MVAT authorities merely because they did not deposit VAT with Sales Tax authorities for which the assessee cannot be penalized. It was submitted that the books of accounts of the assessee are duly audited u/s 44AB as well under the Companies Act, 1956. It was also submitted that the GP ratio for the subject assessment year 2010-11 improved to 24.71% as against GP ratio of 22.47% in the immediately preceding assessment year 2009-10. Similarly, it was submitted that Net Profit ratio also improved during this period from 7.24% to 15.40%. It was also submitted that statement recorded of the party at the back of the assessee cannot be used against the assessee without allowing cross examination of the said party. Thus it was prayed that the additions made by the AO be deleted. The ld. CIT(A) observed that the assessee had not made any effort to discharge the onus and it has failed to produce any of the aforesaid parties before the AO . The learned CIT(A) observed that the assessee could not satisfactorily substantiate and establish that these were genuine purchases made from these parties, hence the 7 ITA 976/Mum/2017 learned CIT(A) confirmed the additions as were made in the assessment order passed by the AO , vide appellate orders dated 30-11-2016.
5. Aggrieved by the appellate order dated 30-11-2016 passed by the ld. CIT(A), the assessee is in appeal before the tribunal.
6. The ld. counsel for the assessee submitted that the assessee is not challenging the reopening of the assessment by Revenue and the ground no 1 challenging the legality and validity of reopening u/s 147/148 is not pressed and the same may be dismissed. However, it was pleaded that excessive additions to the tune of 24.71% of alleged bogus purchases have been made by the authorities below and submitted that a fair estimation of profits embedded in the said alleged bogus purchases should be made. It is submitted that the assessee is engaged in the business of erection, commissioning and fabrication and mainly supplying material to Government Agencies , BARC and Tata Power and the material was consumed for manufacturing of goods produced by the assessee.
7. The ld. D.R., on the other hand, relied upon the appellate order of the ld. CIT(A) and submitted that the additions as were made/upheld by lower authorities be confirmed/upheld. The learned DR did not object to the dismissal of ground no 1 raised by the assessee challenging legality and validity of reopening of assessment u/s 147/148 of the 1961 Act as not being pressed.
8. We have considered rival contentions and also perused the material available on record. We have observed that the assessee company is engaged in the business of sale of engineering goods, labour charges, erection and commissioning and fabrication. The assessee had filed its return of income u/s 139(1) of 12-10-2010 , which was processed u/s 143(1) of the Act.
8 ITA 976/Mum/2017 Subsequently, information was received by the AO from DGIT(Inv) that the assessee had made purchases from the alleged hawala dealers whereby these hawala parties were only engaged in issuing bogus bills without supplying any material. The details of the parties are as under:-
Sr NAME OF THE SUPPLIER TIN AMOUNT
No.
1 Rajeshwari Metal Industries 27140353242V 20,83,200
2 Amar Trading Corporation 27790199673V 40,19,774
Total 61,02,974
Notices u/s 133(6) of the Act were issued by the AO to all the aforesaid parties who have allegedly issued bogus purchase bills to the assessee , but the said notices u/s 133(6) were returned un-served. The assessee also could not produce these parties before the authorities below and had expressed inability to produce these parties. These parties had confessed before the MVAT authorities that they were not supplying any material but were issuing only bogus bills in lieu of commission income . The statements recorded by MVAT authorities of these alleged bogus dealers which were recorded by MVAT authorities at the back of the assessee were not provided to the assessee by Revenue and cross examination of said parties were also not allowed to the assessee. Sales were not doubted by the A.O. . The Item-wise details of raw material purchased and its consumption/utilization for manufacturing of finished goods dealt within by the assessee were furnished by the assessee before the authorities below along with copies of invoices, PAN , delivery notes, details of lorry receipts, bank statements etc. were also produced by the assessee before the authorities below. It was demonstrated that the payments for the said alleged bogus purchases were made through account payee cheques. The assessee also demonstrated that there has been an increase of GP and NP ratio during the subject assessment vis-à-vis 9 ITA 976/Mum/2017 preceding year. The authorities below have concluded that there was a suppression of profit to the tune of 24.71% of the alleged bogus purchases with the contention and keeping in view current GP ratio of the assessee , that the assessee had alleged to have bought material from else where and invoices at an inflated price has been obtained from these alleged bogus dealers. The assessee on its part has also expressed its inability to produce the said parties . The purchases are appearing in the books of the assessee which are claimed as an expenditure, the primary onus which stood on the assessee's shoulder , thus, did not stood discharged as no effective enquiry by Revenue could take place in the absence of availability of these parties. Further, these parties have also stated before MVAT authorities that they have issued bogus bills without supplying any material. The assessee also agreed for additions as is emanating from the orders of authorities below. Even before us, the assessee agreed for addition but requested for a fair and reasonable estimate of profits embedded in these purchases which can meet the end of justice to both the parties keeping in view entire factual matrix of the case. The question boils down to the fair and reasonable estimate of additions which could serve and meet the end of justice to both the parties. Reference is drawn to decision of Hon'ble Supreme Court in the case of Kachwala Gems v. Jt. CIT [2007] 288 ITR 10/158 Taxman 71 (SC), wherein Hon'ble Lordships held as under :
"4. The facts of the case are in a short compass. The appellant-assessee deals in precious and semi-precious stones. In the course of assessment, the Assessing Officer noticed the following defects in the books of account of the assessee :
'1. The assessee has not maintained and kept any quantitative details/stock register for the goods traded in by the assessee.
2. There is no evidence on record or document to verify the basis of the valuation of the closing stock shown by the assessee. The assessee is not able to prepare such details even with the help of books of account maintained, purchase bills & Sale Invoices.
10 ITA 976/Mum/2017
3. Provisions of section 145(3) are clearly attracted in this case.
4. The genuineness of purchases to the extent of Rs. 42 lakhs (approx.) is not proved without any doubt.
5. The GP rate declared by the assessee at 13.49 per cent during the assessment year is not a match to the result declared by the itself in the previous assessment years.
6. M/s. Gem Plaza, engaged in local sales of similar goods declared voluntarily rate of 35 per cent in its assessment for the assessment year 1997-98.
7. M/s. Dhadda Exports, another assessee dealing in same items, but doing export business declared GP rate of 43.8 per cent (even without considering the value of export incentives) in assessment year 1997-98.'
5. Thereafter, the books of account of the assessee were rejected by the Assessing Officer and he resorted to best judgment assessment under section 144 of the Income-tax Act. The Assessing Officer in the assessment order mentioned some comparable cases and was of the view that the case of the assessee is more or less having similar facts as that of M/s. Gem Plaza where the Gross Profit has been taken as 35.48 per cent. The Assessing Officer estimated the Gross Profit of the assessee as 40 per cent.
6. The Assessing Officer further held that the assessee has shown bogus purchases in order to reduce the Gross Profits.
7. In appeal, the Commissioner of Income-tax (Appeals) upheld most of the findings of the Assessing Officer, but reduced the Gross Profit from 40 per cent to 35 per cent.
8. In further appeal, the Tribunal had given further relief to the assessee and reduced the Gross Profit rate to 30 per cent.
9. The counsel for the assessee has submitted before us that the income- tax authorities wrongly held that appellant has shown bogus purchases, and the books of account were wrongly rejected.
10. In our opinion, whether there were bogus purchases or not, is a finding of fact, and we cannot interfere with the same in this appeal. As regards the rejection of the books of account, cogent reasons have been given by the income-tax authorities for doing so, and we see no reason to take a different view.
11. It is well-settled that in a best judgment assessment, there is always a certain degree of guess work. No doubt the authorities concerned should try to 11 ITA 976/Mum/2017 make an honest and fair estimate of the income even in a best judgment assessment, and should not act totally arbitrarily, but there is necessarily some amount of guess work involved in a best judgment assessment, and it is the assessee himself who is to blame as he did not submit proper accounts. In our opinion, there was no arbitrariness in the present case on the part of the income-tax authorities. Thus, there is no force in this appeal, and it is dismissed accordingly. No costs."
In our considered view keeping in view factual matrix of the case and in the interest of justice and fair play, it will be quite reasonable and fair if addition to the tune of 12.5% of the alleged purchases are upheld towards profit embedded in these purchases wherein material was procured from grey market at lower price while invoices at inflated price was obtained from these alleged bogus dealers, instead of 24.71% as was upheld/sustained by lower authorities. In any case , GP of 24.71% is already declared by the assessee which also included purchases from these alleged parties, which already suffered additions. This further addition of 12.5% on alleged bogus purchases over and above declared GP, as upheld/sustained by us in this order is towards the savings made by the assessee in procuring material from grey market towards VAT, other taxes etc. . We direct the A.O. to work out the additions to the income of the assessee at the rate of 12.5% of the alleged bogus purchases over and above declared income , which in our considered view is quite fair and reasonable and will meet the end of justice. The assessee has specifically stated that it does not want to challenge the legality and validity of reopening of assessment u/s 147/148 of the 1961 Act and hence ground no. 1 stood dismissed as not being pressed. On merits , we have already adjudicated the issue as detailed above. The assessee gets part relief as detailed above. We order accordingly.
9. In the result, appeal of the assessee in ITA No. 976/Mum/2017 for assessment year 2010-11 is partly allowed as indicated above.
12 ITA 976/Mum/2017 Order pronounced in the open court on 29th August 2017. आदे श क घोषणा खुले #यायालय म% &दनांकः 29.08.2017 को क गई ।
Sd/- sd/-
(C.N. PRASAD) (RAMIT KOCHAR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
मुंबई Mumbai; &दनांक Dated 29.08.2017
[
व.9न.स./ R.K., Ex. Sr. PS
आदे श क! " त$ल%प अ&े%षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आयु:त(अपील) / The CIT(A)- concerned, Mumbai
4. आयकर आय:
ु त / CIT- Concerned, Mumbai
5. =वभागीय 9त9न?ध, आयकर अपील य अ?धकरण, मुंबई / DR, ITAT, Mumbai "K" Bench
6. गाडC फाईल / Guard file.
आदे शानुसार/ BY ORDER, स या=पत 9त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai