Income Tax Appellate Tribunal - Mumbai
Dcit Cen Cir 2(3), Mumbai vs Sanjay Chemical India P. Ltd, Mumbai on 15 September, 2017
Page |1
ITA Nos. 3721 & 3722/Mum/2017
DCIT Vs. M/s Sanjay Chemical India
IN THE INCOME TAX APPELLATE TRIBUNAL 'L' BENCH, MUMBAI
BEFORE SHRI RAJENDRA, AM AND SHRI RAVISH SOOD, JM
आयकर अपील सं ./ I.T.A. No. 3721 & 3722/Mum/2017
(निर्धारण वर्ा / Assessment Year: 2009 -10 & 2010-11)
DCIT Central Circle-2(3), M/s Sanjay Chemical India
R. No. 804, 8th Floor, 5th Floor, Kanmoor, House
Old CGO Building, M.K. बिधम/
Condominium, 281/287
Road, Mumbai-400 020 Vs.
Narsi Natha Street
Mumbai-400009
स्थायीलेखासं./जीआइआरसं ./ PAN/GIR No. AAFCS2929E
(अपीलाथी/Revenue) : (प्रत्यथी / Assessee)
अपीलाथी की ओर से /Revenue by : Shri M.V. Rajguru, D.R
प्रत्यथी की ओर से / Assessee by : None
सुनवाई की तारीख/
: 07/09/2017
Date of Hearing
घोषणा की तारीख /
: 15/09/2017
Date of Pronouncement
आदे श / O R D E R
PER RAVISH SOOD, JUDICIAL MEMBER
The present appeals filed by the revenue for AY: 2009-10 and 2010-11 are directed against the consolidate order passed by CIT(A)- 48, Mumbai, dated 09.03.2017, which in itself arises from the respective orders passed by the A.O u/s 143(3) and u/s 143(3) r.w.s.
Page |2 ITA Nos. 3721 & 3722/Mum/2017 DCIT Vs. M/s Sanjay Chemical India 147 of the Income Tax Act, 1961 (for short 'Act'), dated 27.03.2015, both dated 27.03.2015. That as certain common issues are involved, therefore, these appeals are taken up and disposed of by way of a common order. We first take up the appeal for AY: 2009-10, wherein the revenue assailing the order of the CIT(A) had raised before us the following grounds of appeal:-
"i. On the facts and circumstances of the case and in law the CIT(A) erred in restricting the addition on account of p e a k c r e d i t o f b o g u s p u r c h a s e s to 1 2 . 5 % of th e b o g u s p u r c h a s e s a n d thereby deletin g the addition of Rs 2,69,30,806/- wi th ou t ap prec ia tin g the f ac t th at the assessee could n o t p r o d u c e a n y e v i d e n c e i n s u p p o r t o f purchases during the course of either survey conducted at its premises or assessment proceedings.
ii. O n th e f a c ts a n d c ir c u ms t a n c e s of th e c a s e a n d in l a w t h e CIT (A) e rre d in restr ic ting the addition on account of pe ak credit of bogus purchases to 12.5% of the bogus purchases without appreciating that method of peak credit adopted by the Assessing Of f icer was the mos t appropr iate me tho d to avoid double addition and to bring the actual income of the assessee where there are large number of unexplained credit and debit entries.
2. The appellant craves to add, to amend and/ or alter any grounds of appeal, if need to be.
3. The Appellant, therefore, prays that on the grounds stated above, the order of the CIT(A)-48, Mumbai may be set aside and that of the Assessing Officer restored."
2. Briefly stated, the facts of the case are that the assessee company which is engaged in the business of trading in chemicals, solvent, and bulk drugs had filed its return of income on 29.09.2009, declaring total income of Rs.1,88,08,230/-. That survey proceedings u/s. 133A of the 'Act' were conducted on the assessee on 18.01.2013 by the DDIT (Inv.) Unit-IV (4), Mumbai. That during the course of the survey proceedings it was observed by the DDIT (Inv.) that the assessee had made certain purchases and sales of certain traded goods from/to certain parties, which had been declared as hawala/suspicious dealers by the Maharashtra Sales Tax Department.
Page |3 ITA Nos. 3721 & 3722/Mum/2017 DCIT Vs. M/s Sanjay Chemical India That on the basis of the aforesaid information the A.O reopened the case of the assessee u/s 147 of the Act. On the basis of the survey proceedings the A.O was in receipt of the survey report from the DDIT (Inv.), Mumbai, wherein it was observed as under:-
(a) Though the company had a clearly def ined internal procedure for purchases, but the same was violated in case of purchase made from several parties. The to tal p ur ch a ses mad e f ro m th ese p ar tie s was c o mp u te d at R s . 1 9, 2 4, 3 8, 2 31 / -. The assessee has admitted that he had made circular transaction to the tune of Rs.6.97 crores and the balance bills of Rs.12.27 crores were admitted to have been obtained in order to inflate the expenses.
(b) T he pu rc h as e de bite d ag ain s t th e par tie s me n tio ne d in th e s ta te me n t of Shr i Dilip Vijayraj Parmar were without Gate Pass, MRN/GRN (Material/Goods receipt Note), Lorry receipt, Weighment Bridge Slip, Toll Receipts, Octroi Receipt, de1ivery challans. The standard operating procedures for purchases made from the bogus parties were not being followed, whereas it was religious followed in other cases.
(c) A number of concerns from list are also found to be accommodation entry providers in the list of Hawala/Suspicious dealers as enlisted in the website Maharashtra Sales Tax Department.
(d) Relevant statements given by the persons to the Sales Tax Department and the Income Tax Department connected to the entities was also confronted to Shri Dilip Vijayraj Parmar, Director of M/s Sanjay Chemicals India Pvt.
Ltd. and he accepted that he has obtained bogus purchases to inflate the expenses."
3. That during the course of the survey proceedings the statement of Shri Dilip Vijayraj Parmar, director of the assessee company was recorded under oath on 27.11.2012. The A.O while framing the assessment observed that the director of the assessee company had accepted in his aforesaid statement that the purchases of the assessee company for AY: 2009-10 to AY: 2011-12 were inflated by an amount aggregating to Rs.12,77,22,576/- in the 'books of account', and had offered the same for tax. That during the course of the assessment proceedings the A.O called upon the assessee to place on record the documentary evidence in the form of purchase order, gate pass, MRN/GRN, weighment bridge slips, lorry receipts, goods receipt notes, delivery challans, octroi receipts, transportation invoices, stock Page |4 ITA Nos. 3721 & 3722/Mum/2017 DCIT Vs. M/s Sanjay Chemical India register etc, and also to produce the respective parties from whom the purchases were made, viz. (i) M/s Manav Impex; (ii) M/s Navpad exports Pvt. Ltd.; and M/s Saileela Trading Pvt. Ltd., so that the genuineness and veracity of the purchase transactions may be proved beyond any scope of doubt. The assessee in reply to the aforesaid directions of the A.O though placed on record certain documentary evidence, but however, the A.O after deliberating on the same concluded that the assessee had failed to produce the requisite documents to establish the genuineness and veracity of the purchase transactions.
4. The A.O being of the considered view that in the backdrop of the details gathered during the course of the survey proceedings from the investigation wing of the department and the declarations filed by the aforesaid suppliers under consideration with the Sales tax department, Mumbai, wherein the said respective parties had categorically admitted that they had not supplied any goods to the assessee and the bills issued by them were not genuine, it could safely be concluded that the assessee had not carried out any genuine purchases from the aforesaid parties, viz. (i) M/s Manav Impex; (ii) M/s Navpad Export Pvt. Ltd., and (iii) M/s Saileela Trading Pvt. Ltd. The A.O while arriving at the aforesaid conclusion deliberated on the modus operandi that was adopted by the assessee to decrease its true profits by booking bogus purchases.
5. The A.O in the backdrop of his aforesaid observations concluded that as the assessee had not made any genuine purchases from the aforementioned parties, therefore, the addition of the amount of peak credit made in respect of the transactions under consideration would be justified in the hands of the assessee, thus computed the peak Page |5 ITA Nos. 3721 & 3722/Mum/2017 DCIT Vs. M/s Sanjay Chemical India credit in the hands of the assessee and made an addition of Rs.3,15,07,341/- to the income of the assessee. The assessee being aggrieved with the order of the A.O. carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions of the assessee in the backdrop of the facts of the case, therein observed that the assessee during the course of the survey proceedings conducted u/s 133A had accepted the fact that the supplier parties were not genuine. It was further observed by the CIT(A) that the assessee had failed to produce the respective supplier parties, as well as place on record the supporting documentary evidence to substantiate the genuineness and veracity of the purchase which were claimed to have been made from them. The CIT(A) referring to the statement of the director of the assessee company recorded u/s. 131 of the 'Act', therein observed that he had categorically stated that the purchases and also the sales made with such parties were not genuine. The statement of the supplier parties were confronted to the director of the assessee company for rebuttal, however, no comments were advanced by him in respect of the same. The CIT(A) observed that the assessee had during the course of the assessment proceedings claimed that its purchases and sales were genuine transactions and were duly accounted for in the books of accounts. It however came to the notice of the CIT(A) that the director of the assessee company had during the course of the survey proceedings filed an affidavit dated 11.03.2015, retracting his earlier statement on the ground that at the time of recording of the statement he was in stress and confused state of mind. It was claimed by the assessee that the goods purchased from the aforementioned supplier parties under consideration were sold to genuine customers, and in a similar manner the sales made to the aforementioned parties were sourced from genuine suppliers. It was thus the contention of the assessee before the CIT(A) that while for the Page |6 ITA Nos. 3721 & 3722/Mum/2017 DCIT Vs. M/s Sanjay Chemical India sales of the goods purchased from the aforementioned parties stood duly recorded in the books of account, on the other hand the sales to the aforesaid parties under consideration were from the purchases made by the assessee from genuine suppliers. It was submitted by the director of the assessee company that during the course of the survey proceedings he had not offered the entire disputed transactions of purchase and sales for tax, but rather had agreed to pay the tax on the suppressed profits pertaining to the disputed turnover. It was thus in the backdrop of the aforesaid contention submitted by the assessee that the addition of unexplained expenditure u/s 69C by following peak credit method could not be sustained and was liable to be vacated.
6. The CIT(A) observed that during the course of the assessment as well as the appellate proceedings before him, the assessee had not disputed the fact that the parties under consideration with whom the purchase and sales were made were not genuine. The CIT(A) deliberating on the contentions of the assessee in the backdrop of the facts of the case, therein concluded that as no conclusive evidence was brought on record by the A.O which could go to prove that the assessee had incurred any unexplained expenditure, therefore, there was no justification for making of the addition u/s 69C in the hands of the assessee. It was observed by the CIT(A) that the assessee had made the entire payments to the disputed suppliers through the banking channels and nothing was brought on record by the A.O, either in assessment or the remand proceedings to prove any unexplained payments made by the assessee in respect of the said purchase transactions. The CIT(A) further observed that in a similar manner the entire sale consideration was received from the disputed customers through banking channels. The CIT(A) on the basis of the Page |7 ITA Nos. 3721 & 3722/Mum/2017 DCIT Vs. M/s Sanjay Chemical India aforesaid facts held that the A.O had at no stage, either during the course of the survey proceedings or the assessment proceedings brought any evidence on record which could go to prove that the assessee had paid or received any unaccounted cash payments. That in the backdrop of the aforesaid observations, the CIT(A) concluded that the addition u/s 69C could not be sustained. Thus, the CIT(A) deliberating on the contentions of the assessee in the backdrop of the facts of the case, therefore, rejected the theory of peak credit adopted by the A.O while framing the assessment, and directed him to delete the additions made in the hands of the assessee on the said basis. The CIT(A) after deliberating on the case records held a strong conviction that it remained as a matter of fact that the assessee had not made any genuine transactions with the aforementioned parties which had been declared as hawala dealers by the Sales tax department. The CIT(A) observed that the A.O in his remand report dated 27.02.2012 had stated that following the judgment of the Hon'ble High Court of Gujarat in the case of Simit P. Sheth (supra), the suppressed profit of the assessee on the bogus purchases may be estimated at the rate of 12.50%. The CIT(A) thereafter arrived at a material observation that the finding of the A.O in the assessment order and also in the remand report clearly established that there was no dispute with regard to purchase and sales of goods made by the assessee, however, the only dispute was with regard to the fact that such purchase and sale of goods had not been made from the parties declared as hawala parties by the sales tax department. The CIT(A) thus restricting the issue to the estimation of the profit element embedded in making of such bogus purchases by the assessee from the open/grey market, therein relying on the judgment of the Hon'ble High Court of Gujarat in the case of Simit P. Sheth (supra) estimated the same at the rate of 12.5% of the aggregate of the value of bogus purchases , viz.
Page |8 ITA Nos. 3721 & 3722/Mum/2017 DCIT Vs. M/s Sanjay Chemical India purchases claimed by the assessee to have been made from the hawala parties. That on the basis of his aforesaid observations the CIT(A) restricted the addition in the hands of the assessee for the year under consideration, viz. AY: 2009-10 to Rs. 45,76,535/- (i.e 12.5% of Rs. 3,66,12,285/-).
7. The revenue being aggrieved with the order of the CIT(A) had carried the matter in appeal before us. That the assessee respondent despite being intimated of the date of hearing of the appeal, had however neither put up any appearance before us, nor any application seeking any adjournment was filed by him. We thus being left with no other alternative, thus proceed with as per Rule 25 of the Appellate Tribunal Rules, 1963 and dispose of the appeal after hearing the appellant revenue and perusing the orders of the lower authorities. The ld. Departmental Representative (for short 'D.R') relied on the order of the A.O and submitted that the CIT(A) failing to appreciate the facts of the case in the right perspective had thus erred in restricting the addition to 12.5% of the aggregate value of the bogus purchases. It was thus submitted by the ld. D.R that the order of the CIT(A) may be set aside and that of the A.O be restored.
8. We have heard the ld. Departmental Representative, perused the orders of the lower authorities and the material available on record. We have deliberated on the facts of the case and are of the considered view that there remains no scope of doubt that the parties under consideration from/whom purchase/sale transactions were claimed to have been carried out by the assessee, had as a matter of fact not carried any genuine transactions with the assessee. We find that the A.O both in the assessment order as well as in the 'remand report', as observed by the CIT(A), had therein held that there is no dispute with Page |9 ITA Nos. 3721 & 3722/Mum/2017 DCIT Vs. M/s Sanjay Chemical India regard to purchase and sale of the goods made by the assessee, however, the only dispute was with regard to the fact that such purchase and sales of goods had not been made from/to the parties which had been held as hawala parties by the Sales Tax Department. We further find that the A.O in his 'remand report' which was called for by the CIT(A), had categorically placed reliance on the judgment of the Hon'ble High Court of Gujarat in the case of CIT Vs. Simit P. Sheth (2013) 356 ITR 451 (Guj) and submitted that in the backdrop of the aforesaid judgment the income of the assessee may be estimated at the rate of 12.5% of the aggregate of the bogus purchases, viz. purchases claimed by the assessee to have been made from the hawala parties. We find that though the assessee had submitted before the CIT(A) that the estimation of profit in the hands of the assessee in light of the lower VAT rate of 4% applicable in its trade line may be adopted, but however, the CIT(A) observed that the Hon'ble High Court of Gujarat had made an adhoc disallowance in respect of bogus purchases at the rate of 12.5% without referring to the Sales Tax rate applicable in respect of trade line of the assessee before them. The CIT(A) thus on the basis of his aforesaid observations restricted the addition in the hands of the assessee to 12.5%, as was suggested by the A.O in his 'remand report'.
9. We have given a thoughtful consideration to the facts of the case and are of the considered view that now when the A.O himself had agreed that the addition in the hands of the assessee be restricted to 12.5% of the aggregate value of the bogus purchase, therefore, no dispute survives as regards the estimation of such profit/margin element involved in making of such bogus purchases. We are of the considered view that even otherwise in the backdrop of our aforesaid observations, it remains as a matter of fact that there is no dispute as P a g e | 10 ITA Nos. 3721 & 3722/Mum/2017 DCIT Vs. M/s Sanjay Chemical India regards the fact that the assessee had made purchases and carried out sales of the goods under consideration, however, the dispute remained only on the issue that no such purchase/sale transactions were made from/to the abovementioned parties. We are of the considered view that in the backdrop of the aforesaid facts, the issue involved in the present case boils down to the estimation of the profit element involved in the purchases claimed by the assessee to have been made from the aforesaid parties. We have given a thoughtful consideration to the order passed by the CIT(A), and find that he had by way of a very well reasoned order restricted the addition in the hands of the assessee to the extent of 12.5% of the aggregate of the suspected bogus purchases. We find no reason to take a different view, thus uphold the same. The Ground of appeal no. 1(i) &1(ii) are dismissed. The Grounds of appeal no. 2 & 3 being general in nature are dismissed as not pressed.
10. The appeal of the revenue is dismissed.
ITA No. 3722/Mum/2017AY: 2010-11
11. We now take up the appeal for AY: 2010-11, marked as ITA No. 3722/Mum/2017. The revenue assailing the order of the CIT(A) had raised before us the following grounds of appeal:-
"1. On the f acts and circumstances of the case and in law the CIT(A) erred in restricting the addition on account of peak credit of bogus purchases to 12.5% of the bogus p u r c h a s e s a n d the r e by d e le ting the ad d itio n of Rs 61,81,150/- without a p p r e c i a t i n g t h e f a c t t h a t t h e assessee could not produce any evidence in support of purchases during the course of either survey conducted at its premises or assessment proceedings.
2. On the f acts and circums tances of the case and in law the CIT(A) erred in restricting the addition on account of peak P a g e | 11 ITA Nos. 3721 & 3722/Mum/2017 DCIT Vs. M/s Sanjay Chemical India credit of bogus purchases to 12.5% of the bogus p u r ch as e s wi th o u t ap p r e c ia tin g th a t me th o d of p e ak cre d it ado p te d b y th e A s s e s s in g Of f ice r was th e mo s t a p p r o p r ia te me th o d to a v o id d o u b l e a d d it i o n a n d to bring the actual income of the assessee where there are large number of unexplained credit and debit entries.
3. The appellant craves to add, to amend and/or alter any grounds of appeal, if need to be.
4. The Appellant, therefore, prays that on the groun ds stated above, the order of the CIT(A) -48, Mumbai may be set aside and that of the Assessing Officer restored.
12. We find that as the issue as well as the facts involved in the present appeal of the revenue are the same as were involved in the appeal of the revenue for A.Y. 2009-10, marked as ITA No. 3721/Mum/2017, therefore, the order passed by us while disposing of the said appeal shall apply mutatis mutandis in the present appeal of the revenue. The Grounds of appeal No. 1 to 3 are thus dismissed in terms of our observations recorded in ITA No. 3721/Mum/2017 in the appeal of e revenue for A.Y. 2009-10.
13. The appeal of the revenue is dismissed.
14. That both the appeals of the revenue for A.Y. 2009-10 and AY:
2010-11, marked as ITA No. 3721/Mum/2017 and ITA No. 3722/Mum/2017 are dismissed.
Order pronounced in the open court on 15.09.2017
Sd/- Sd/-
(Rajendra) (Ravish Sood)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated 15.09.2017
Ps. Rohit Kumar
P a g e | 12
ITA Nos. 3721 & 3722/Mum/2017
DCIT Vs. M/s Sanjay Chemical India
Copy of the Order forwarded to :
1. The Appellant ,
2. The Respondent.
3. The CIT(A)-52
4. CIT
5. DR, ITAT, Mumbai
6. Guard file.
BY ORDER,
//True Copy//
(Dy./Asstt. Registrar)
ITAT, Mumbai