JMD Corporation of India Limited Vs ITO (ITAT Mumbai)
In a recent decision by the Income Tax Appellate Tribunal (ITAT) Mumbai, the case of JMD Corporation of India Limited vs Income Tax Officer (ITO) for the assessment year 2011-12 has drawn attention. The appeal focused on the disallowance of purchases amounting to Rs. 173,86,509, with the ITAT Mumbai ultimately restricting the profit element of these purchases to 4%. Here’s a comprehensive overview of the case.
Background
The dispute originated from the Income Tax Department’s suspicion of bogus purchases made by JMD Corporation of India Limited from Akash Steel Traders. The Sales Tax Department flagged these transactions, leading to the initiation of the reassessment proceedings by the assessing officer. The department alleged that the assessee obtained bills of bogus purchases, prompting a notice under section 148 of the Income Tax Act in May 2013.
During the reassessment proceedings, the assessing officer issued various notices and show cause notices. However, the assessee failed to comply, resulting in the assessment being finalized ex-parte under section 144 read with section 147 of the Act. The assessing officer contended that the assessee made no actual purchases from the specified party and treated 100% of the purchases as bogus.
Appeal to CIT(A)
Subsequently, the assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)]. In the appellate proceedings, the assessee submitted a range of documents, including the letter of authority, appeal form, purchase register, sales register, ledger, purchase invoices, and payment details of Akash Steel Traders, among others.
The CIT(A) called for a remand report from the assessing officer and, after considering the submissions and documents, restricted the disallowance to 25% of the alleged bogus purchases. Consequently, a disallowance of Rs. 43,46,627 was confirmed, while the balance amount of Rs. 130,39,882 was deleted.
ITAT Pune and Subsequent Developments
Unsatisfied with the CIT(A)’s order, the revenue filed an appeal before the ITAT Pune. However, the ITAT Pune dismissed the appeal citing low tax effect as per CBDT circulars.
During the course of proceedings before the ITAT Mumbai, the assessee highlighted that it was not served with the CIT(A) order until March 14, 2023, due to the shutdown of its business amidst lockdown restrictions. The director of the company only became aware of the order after receiving a notice from the Assistant Commissioner of Income Tax on March 14, 2023.
ITAT Mumbai Decision
The ITAT Mumbai took into account the contentions of both parties. The assessing officer’s addition of 100% of the purchases based on information from the Sales Tax Department was examined. The CIT(A) had restricted the addition to 25% of the alleged bogus purchases, following the decision of the Hon’ble Gujarat High Court in the case of Vijay Protein Ltd.
The ITAT Mumbai noted that the assessing officer did not doubt the corresponding sales made by the assessee. Considering that the purchases were made from the grey market, with bills obtained from a third party, the ITAT held that only the profit margin embedded in such transactions could be taxed.
After analyzing the facts and findings, the ITAT Mumbai deemed it fair and reasonable to restrict the disallowance to 4% of the impugned purchases made by the assessee from the specified party.
Conclusion
In conclusion, the ITAT Mumbai’s decision in the case of JMD Corporation of India Limited vs ITO sheds light on the meticulous examination required in cases of alleged bogus purchases. The tribunal emphasized the importance of considering the profit margin embedded in such transactions rather than outright disallowance. This case sets a precedent for similar disputes and underscores the significance of thorough inquiry and adherence to natural justice principles in income tax assessments.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal filed by the assesse is directed against the order passed by the ld. CIT(A)-2, Thane, dated 03.08.2020 for A.Y. 2011-12. The assessee has raised the following grounds before us:
“a. The Appellant states and submits that, the Assessing Officer and the Appellate Authority erred in creating and upholding addition alleging bogus purchases solely based on the investigation of third party investigating agency (Sales Tax Department) and without making any further inquiries to substantiate such additions.
b. The Appellant states and submits that, the Assessing Officer and the Appellate Authority erred in ignoring the fact that the Appellant had already paid MVAT to the Sales Tax Department on the impugned transactions and erred in not reducing the said amount from the additions.
c. The Appellant states and submits that, the Assessing Officer and the Appellate Authority erred in creating and upholding addition alleging bogus purchases solely on the basis of third party statement, i.e, statement recorded by the Proprietor of M/s Akash Steel Traders.
d. The Appellant states and submits that, the Assessing Officer and the Appellate Authority erred in creating and upholding addition alleging bogus purchases without providing a cross- examination opportunity and without providing a copy of such third-party statement relied upon by it leading to the violation of principles of natural justice.
e. The Appellant states and submits that, the Appellate Authority erred in upholding the additions at 25% ignoring the fact that the sales of the Appellant have not been doubted and that the very goods purchased by the Appellant have been further sold to other parties.
f. The Appellant states and submits that, the Appellate Authority erred in upholding the additions at 25% ignoring the judgments of Hon’ble Supreme Court of India, jurisdictional Hon’ble Bombay High Court and this Hon’ble Tribunal.
g. The Appellant craves leave to add, alter, amend, vary or delete any of the aforesaid grounds.”
2. There was a delay in filing this appeal by the assessee by 10 days. The assessee has requested condonation of delay vide letter dated 20.09.2023 due to ill health of the father of the director of the assessee company who was involved in the regular business activity. The assessee has also filed copy of medical certificate. Considering the material placed on record it appears that there is bonafide cause for marginal delay in filing the appeal, therefore, the delay in filing the appeal is condoned.
3. Fact in brief is that return of income declaring total income of Rs.8,07,850/- was filed on 30.09.2011. The case of the assessee was reopened by issuing of notice u/s 148 of the Act on 10.05.2013 on the basis of information received from the Sale Tax Department that assessee had obtained bills of bogus purchases from the following parties:
