2019-VIL-985-ITAT-MUM

Income Tax Appellate Tribunal MUMBAI

C.O. No. 238/MUM/2018, 239/MUM/2018 And ITA No. 2143/MUM/2017, 2144/MUM/2017 (Assessment Year: 2009-10, 2010-11)

Date: 30.12.2019

DY. COMMISSIONER OF INCOME TAX-12 (2) (1) , MUMBAI

Vs

M/s DR COATS INK AND RESINS PVT. LTD. (VICE-VERSA)

BENCH

SHRI AMARJIT SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER)

JUDGMENT

PER N.K. PRADHAN, A.M.

The captioned appeals by the Revenue and the cross objections by the assessee are directed against the order of the Commissioner of Income Tax (Appeals)-20, Mumbai [ in short ‘CIT(A)’] and arise out of the order passed by the Assessing Officer (AO) u/s 143(3) r.w.s. 147of the Income Tax Act 1961, (the ‘Act’). As common issues are involved, we are proceeding to dispose them off by a consolidated order for the sake of convenience.

ITA No. 2143/MUM/2017 (A.Y. 2009-10)

2. The grounds of appeal filed by the Revenue read as under:

1. Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing the relief to the assessee merely on the basis that the payments against alleged purchase has been made through banking channel and hence holding that purchases are genuine despite the fact that the alleged parties are non-existent?

2. Whether in the facts find in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the addition @ 2% of alleged bogus purchase without appreciating the facts the AO after elaborately considering and discussing all relevant facts made addition @ 12.5% which is evident from the assessment order u/s. 143(3) r.w.s. 147 of the Act.

3. Briefly stated, the facts of the case are that the assessee, a manufacturer of resins adhesives filed its return of income for the assessment year (AY) 2009-10 on 19.09.2009 declaring total income at Rs. 32,58,979/-. The return was processed u/s 143(1) of the Act. On receipt of information from the Sales Tax Department, Government of Maharashtra that the assessee has obtained bogus purchase bills of Rs. 8,16,358/- from Emkey Engineers and Rs. 2,78,42,777/- from SB Industries during the financial year 2008-09, the AO re-opened the assessment by issuing notice u/s 148 dated 22.03.2014. In response to it, the assessee stated that the return filed on 19.09.2009 be treated as return filed in response to notice u/s 148.

During the course of reassessment proceedings, the AO asked the assessee to produce the parties so that the genuineness of purchases could be verified. However, the assessee failed to produce the parties before the AO. In order to verify the transactions, the AO deputed the Inspector of Income Tax to make an inquiry and submit a report. The Inspector filed a report dated 23.03.2015 stating that the above two concerns could not be located at their given address.

During the course of assessment proceedings, the assessee filed before the AO the purchase bills of the above parties. The AO held that as per the inquiry conducted by the Sales Tax Department and the subsequent inquiry done through the Inspector of Income Tax, the genuineness of purchases is not established. Therefore, he made an addition of Rs. 2,86,59,135/-.

3.1 Further, the AO noted that a search and seizure action was carried out by the Department one Shri Pravin Kumar Jain and related persons on 01.10.2013 and it was found that Shri Jain was engaged in providing accommodation entries like loans, bogus share application and bogus sale etc. As per the findings in the above search action, the assessee had entered into transactions with one such concern namely Ankush Merchandise Pvt. Ltd. (New Planet Trading Co. Pvt. Ltd.) during the year under consideration. The assessee submitted before the AO a purchase bill of Rs. 15,99,052/- in respect of transactions with New Planet Trading Co. Pvt. Ltd.; ledger account and a confirmation from the latter. The said confirmation states that excise invoices were raised by one Ankush Enterprises. In response to a query raised by the AO to explain it, the assessee failed to file any explanation.

Observing that the assessee failed to discharge its onus to prove the genuineness of the transactions, the AO made a further addition of Rs. 50,04,407/-.

4. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). We find that vide order dated 22.12.2016 the Ld. CIT(A) held in respect of purchases of Rs. 8,16,358/- from Emkay Engineers that the assessee had purchased the material for use in plant and machinery ; the payment was made through banking channel ; depreciation was claimed on the plant and machinery. Therefore, he deleted the addition of Rs. 8,16,358/- made by the AO.

4.1 In respect of purchases of Rs. 2,78,42,277/- made from SB Industries, the Ld. CIT(A) observed that as per the stock statement that assessee has entered into trading activity and purchases from SB Industries were sold ; the payment for the same was made through banking channels ; it is not brought on record whether the payment made through banking channels is not genuine.

Observing that since the GP margin of the assessee in trading activities low, he restricted the disallowance to 2% of the purchases of Rs. 2,78,42,777/- which comes to Rs. 5,54,420/-.

4.2 Regarding the purchases of Rs. 50,04,407/- from New Planet Trading Co. Ltd., the Ld. CIT(A) observed that disallowance is made upon the general statement of Shri Pravin Kumar Jain, wherein it is stated that accommodation entries were provided; there is no specific statement wherein Shri Jain has mentioned that the transaction of the assessee is bogus. Therefore, he deleted the addition of Rs. 50,04,407/- made by the AO.

5. Before us, the Ld. Departmental Representative (DR) submits that in the instant case, information was received by the AO from the Sales Tax Department, Government of Maharashtra that the assessee had obtained bogus purchase bills from Emkey Engineers of Rs. 8,16,358/- and from SB Industries of Rs. 2,78,42,777/-. Further, it is stated that the assessee failed to produce before the AO the parties for verification, though requested for. It is again stated that as per the report of the Inspector dated 23.03.2015, the said parties could not be located at their given addresses.

It is further submitted by the Ld. DR that as per the findings of the search and seizure action in the case of Shri Pravin Kumar Jain, the assessee had entered into transactions with one such concern namely Ankush Merchandise Pvt. Ltd. (New Planet Trading Co. Pvt. Ltd.), which was involved in giving accommodation entries. Referring to the confirmation filed by the assessee that excise invoices were raised by one Ankush Enterprises, the Ld. DR submits that the same was not filed before the AO.

Referring to the Paper Book (P/B) filed by the assessee, the Ld. DR submits that at page 115 the withdrawal on 22.05.2008 of Rs. 90,000/- is in respect of Shreeji ; Rs. 2,00,000/- on 16.08.2008 (at page 116) is in case of Shreeji Corporation. Further referring to page 133 of the P/B, it is stated that the same is not a stock statement.

6. On the other hand, the Ld. counsel for the submits that the order passed by the Ld. CIT(A) be affirmed. Further reliance is placed by him on the decision of the Hon’ble Bombay High Court in CIT v. Nikunj Eximp Enterprises Pvt. Ltd. (2015) 372 ITR 619; Pr. CIT v. M/s Mohommad Haji Adam & Co. (ITA No. 1004 of 2006) and the order of the Tribunal in Shri Ramesh Kumar Daulatraj Mehta v. ITO (ITA No. 4192/Mum/2018).

7. We have heard the rival submissions and perused the relevant materials on record. We agree with the reasons given by the Ld. CIT(A) in respect of purchases from Ankush Mercantile Pvt. Ltd. (New Planet Trading Co. Pvt. Ltd.) in deleting the addition of Rs. 50, 04, 407/-. We affirm it.

However, as mentioned earlier, in the instant case, the assessee failed to produce before the AO Emkey Engineers, SB Industries for examination so that the genuineness of the transactions could have been proved. The inquiry conducted by the Inspector further established that the genuineness of the transactions is in doubt. However, the assessee filed before the AO the purchase bills and also stated that the payments have been made through account payee cheques.

Having examined the facts of the case, we are of the considered view that the decision in the case of M/s Mohommad Haji Adam & Co. (supra) relied on by the Ld. counsel, has relevance here. In that case, during the course of survey operations in the case of entities from whom the assessee had claimed to have made purchases, the Department collected information suggesting that such purchases were not genuine. The AO noticed that the assessee had shown purchases of fabrics worth Rs. 29.41 lakhs from three group concerns, namely M/s Manoj Mills, M/s Astha Silk Industries and M/s Shri Ram Sales and Synthetics. On the basis of statement recorded during such survey operations, the AO concluded that the selling parties were engaged only in supplying the bogus bills, that the goods in question were never supplied to the assessee, and therefore, the purchases were bogus. He, therefore, added the entire sum in the hands of the assessee as its additional income. The assessee carried the matter in appeal before the CIT(A), who accepted the factum of purchases being bogus. However, he compared the purchases and sales statements of the assessee and observed that the Department had accepted the sale, and therefore, there was no reason to reject the purchases, because without purchases there cannot be sales. He, therefore, held that under these circumstances the AO was not correct in adding the entire amount of purchases as the assessee’s income. He, therefore, deleted the addition refreshing it to 10% of the purchase amount. He also directed the AO to make addition to the extent of difference between the gross profit rate as per the books of accounts on undisputed purchases and gross profit on sales relating to the purchases made from the said three parties. The assessee carried the matter before the Tribunal. The Revenue also carried the issue before the Tribunal. The Tribunal allowed the appeal of the assessee partly and dismissed that of the Revenue. The Tribunal noted that the CIT(A) had not given any reasons for retaining 10% of the purchases by way of ad-hoc additions. The Tribunal, therefore, deleted such additions, but retained the portion of the order of the CIT(A) to that extent he permitted the AO to tax the assessee on the basis of difference in the GP rates. In further appeal before the Hon’ble Bombay High Court, the Revenue referred to the decision of the Division Bench of the Hon’ble Gujarat High Court in the case of N.K. Industries Ltd. v. DCIT in Tax Appeal No. 240 of 2003 and connected appeals decided on 20.06.2016 and also pointed out that the SLP against such decision was dismissed by the Hon’ble Supreme Court. The Hon’ble Bombay High Court held :

“8. In the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities who were 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 sales 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 trader. 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 (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. 20,98,621.88 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.”

We find that the facts in the instant case are similar to the above decision. Following the same, we set aside the order of the Ld. CIT(A) and direct the AO to restrict the additions in respect of purchases from Emkey Engineers and S.B.Industries, limited to the extent of bringing the G.P. rate on disputed purchases at the same rate of other genuine purchases. We direct the assessee to file the relevant documents/evidence before the AO. Needless to say, the AO would give reasonable opportunity of being heard to the assessee before finalizing the order.

8. In the result, the appeal filed by the Revenue is partly allowed for statistical purposes.

C.O. No. 238/MUM/2018 [Arising out of ITA No. 2143/MUM/2017]

9. The cross-objection filed by the assessee read as under:

1. 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 Ld. CIT(A) erred in upholding the same as valid.

2. On facts and in the circumstances of the case and in law, the order passed u/s 143(3) r.w.s.147 is invalid and bad in law.

3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in retaining addition to the extent of Rs. 5,54,420/- out of addition made as bogus purchases and that too without any proper reason.

4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the interest charged u/s 234B of the Act.

10. As mentioned earlier, the AO has reopened the assessment which was originally processed u/s. 143(1) of the Act. On receipt of information from the Sales Tax Department, Government of Maharashtra that the assessee has indulged in procuring bogus purchase bills, the AO recorded the following reasons and reopened the assessment. The reasons recorded by the AO are as under: -

“Sub: Reassessment proceeding in the case of M/s. D.R. Coats Ink & Resins (P) Ltd, PAN: AABCD8645A, for A.Y. 2009-10 - reg.

Please refer to the above.

1. Reassessment proceeding in your case has been initiated vide notice u/s 148 dated 22.03.2014.In reply vide your letter dated 29.03.2014 has stated to consider the return of income for A.Y. 2009-10, filed on 19.09.2009 to be considered as return in response to the notice u/s 148.

2. Further vide your letter received in this office on 29.03.2014 you have brought the reasons recorded for reopening. In this regard, reasons recorded prior to issuance of notice u/s.148 are as under:

‘In this case, a letter was received from office of DGIT(Investigation), Mumbai alongwith the details of information received in respect of bogus purchases made by various companies. On a perusal of the details, it is found that M/s.D.R.Coats Ink & Resins Pvt Ltd has made bogus purchases of Rs. 2,86,59,135/-for F. Y.2008-09 (A. Y.2009-10)from the following party:

Name of the company	PAN	F.Y.	Amount
EMKEY ENGINEERS	AABPD9450A	2008-09	816358
S.B. INDUSTRIES	ACMPN8397D	2008-09	27842777
Total			2,86,59,135

In the case of M/s. D.R. Coats Ink & Resins Pvt Ltd, Assessment proceedings for A.Y. 200-10 were completed u/s 143(1) on 02.11.2010 at total income of Rs. 32,58,980/-. Since the information regarding bogus purchases was received after the completion of processing u/s 143(1), the issue of bogus purchases remained to be verified

In view of the above, I have reason to believe that the income of Rs. 2,86,59,135/- being bogus purchases has escaped, assessment in the hands of M/s.D.R.Coats Ink & Resins Pvt Ltd in A. Y.2009-10.

3. The reasons for reopening have been provided, to you in the lines of principle enumerated by the Hon'ble SC in the case of GKN Driveshaft (I) Ltd.

4. You are requested to file your objection, if any, within 15 days of receipt of this communication.”

10.1 The Hon’ble Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Brokers P. Ltd. (2007) 291 ITR 500 (SC) analyzed the distinction between the acceptance of a return u/s 143(1) and an assessment which is framed u/s 143(3) of the Act. In the former case, the AO would have much wider latitude to reopen the assessment. In the case of Avirat Star Homes Venture P. Ltd. v. ITO (2019) 411 ITR 321 (Bom), the Hon’ble Bombay High Court referring to the above decision has held :

“that the return had been accepted without scrutiny. The income-tax investigation had subsequently provided information about certain companies having bank accounts with a bank in Kolkata and who were involved in giving accommodation entries of various nature to several beneficiaries including the assessee. The information supplied by the Investigation Wing to the Assessing Officer formed a prima facie basis to enable the Assessing Officer to form a belief of income chargeable to tax having escaped assessment. The Assessing Officer perused the information supplied by the Investigation Wing and having formed the belief that income chargeable to tax had escaped assessment, could not be stated to have acted mechanically. Further, the mere fact that the assessee had asked for certain information from the Assessing Officer, which at this stage was not supplied, would not invalidate the reasons recorded by the Assessing Officer in issuing the notice. The notice was valid.”

Thus in the instant case, the AO has rightly issued notice u/s 148 for reopening the return of income processed u/s 143(1) of the Act. Accordingly, the cross objection filed by the assessee (1st and 2nd ground) is dismissed. The 3rd ground has been addressed at para 7 hereinbefore. The 4th ground is consequential.

11. Facts being identical our decision for the A.Y. 2009-10 applies mutatis mutandis to A.Y. 2010-11.

12. In the result, the appeals filed by the Revenue and the cross objections filed by the assessee are partly allowed for statistical purposes.

Order pronounced in the open Court on 30/12/2019.

 

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