Allied Engineers and Elastomers Vs ITO (ITAT Mumbai)
In the case of Allied Engineers and Elastomers Vs ITO-18(1)(1) (ITAT Mumbai), the Income Tax Appellate Tribunal (ITAT) ruled against the Income Tax Officer’s (ITO) decision to reopen the assessment for AY 2009-10. The reopening was challenged by the assessee on the grounds of being invalid and based on insufficient evidence. The ITO had reopened the assessment based on information alleging bogus purchases from M/s Giriraj Enterprises, which were contested by the assessee. The appeal included objections regarding the validity of the reopening and the addition of Rs. 15,32,997/- as profit from these purchases. The Tribunal found the reopening unjustified, as it was based solely on reports from the investigation wing without independent verification. The Tribunal also noted that the evidence provided by the assessee was not adequately considered. Consequently, the addition made by the ITO was deemed unsustainable, and the appeal was allowed, invalidating the reopening and the associated tax addition. The ruling underscored the need for concrete evidence and proper procedural adherence in tax assessments.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal by the assessee is against the order of the Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre, Delhi [for short ‘the CIT(A)’] dated 14.02.2024 for Assessment Year (AY) 2009-10. The assessee raised the following grounds of appeals:
“Ground No.1: Invalid Reopening of Completed Assessment U/Sec 147:
1.1 The Ld. Commissioner of Income Tax -(Appeals)-NFAC, erred in upholding the validity of Reopening of Assessment U/Sec 147. It is further submitted that considering the facts and circumstances of our case, the re-opening is unjust, unfair and bad-in-law. The re-opening should be deleted.
1.2 The Income Tax Officer 18(1)(1) Mumbai has re-opened the assessment on the basis of information received from the Investigation department of the Income Tax based on the Statement recorded of Mr Harish Chandak Proprietor of M/s Giriraj Enterprises. He grossly erred in relying on this Statement as it nowhere indicates that M/s Giriraj Enterprises had provided accommodation bills to the appellant and also inspite of the specific written request of the appellant did not provide an adequate opportunity to cross examine Mr Harish Chandak. Mr Harish Chandak Proprietor of M/s Giriraj Enterprises has not been declared a Hawala Dealer by the Sales Tax Department. The assessment is thus bad-in-law and hence should be set aside.
Ground No. 2: Addition of Rs. 15,32,997/- being estimated profit element embedded in purchase
2.1 The said CIT (A) erred in confirming the addition of Rs.15.32,997/- made by the AO on presumption and surmise that the appellant would have made an additional net profit of 12.5% on the said alleged purchases of Rs.1,22.63,975/-and has completely ignored the facts that
i. the margin of the appellant is limited having regard to the commoditized trading business of rubber & rubber chemicals;
ii. the appellant has already shown gross margin of 7.17% on the purchases and therefore any further addition of 5% of purchases over and above the actual margin earned is unjustified, without any basis and not possible to earn in such business.
iii. various documentary evidences were submitted in support of the disputed purchase transactions such as purchase invoices, payment entries in bank statement, corresponding sales, stock register, etc.
iv. Sales Tax Department has not declared M/s Giriraj Enterprises (Prop Harish Chandak) as a Hawala Dealer
v. On receipt of 133(6) notice for Asst Yr 2010-11 in the assessee’s own case Mr Harish Chandak had appeared before the Learned A.O ward 18(1)(1) on 11.12.2017 and stated in his Cross Examination that he had supplied goods to the assessee from his Bhivandi Godown and had received payments thru cheque and had never given any cash to the assessee.
Ground No.3: Misinterpretation of ITAT Order:
Income Tax Officer 18(1)(1) Mumbai has erroneously taken business income as Rs 11,35,912 & adding Rs 15,32,997 misinterpreting the benefit provided by Honorable ITAT in order No ITA No. 3456/Mum/2016 dt 01.09.2016 as amended by order No. MA No. 402/Mum/2016 in the appelant’s case for the year under consideration.
Ground No.4: Erroneous levy of Interest:
The Income Tax Officer 18(1)(1) Mumbai has erroneously calculated interest u/s.234A, 2348, 234C, 234D& 244A and it is prayed that the same should be rectified accordingly.”
2. The assessee is a partnership firm engaged in the trading business of various types of synthetic rubber, rubber compounds and rubber chemicals. The assessee filed the return of income for AY 2009-10 on 29.09.2010 declaring a total income of Rs. 5,81,910/-. The return was processed under section 143(1) of the Income Tax Act, 1961 (the Act). Subsequently, based on information received from Sales Tax Department regarding alleged bogus purchases, the assessment was re-opened and a notice under section 148 of the Act was issued. The assessee made various submissions before the AO with regard to party-wise purchases and sales to various parties from whom it was alleged that the assessee has entered into bogus transactions. The assessment under section 143(3) r.w.s. section 147 was completed wherein the AO made addition of Rs. 9,35,988/- under section 69C of the Act towards bogus purchase from three parties made on peak credit basis. On further appeal, the CIT(A) restricted the addition to 12.5% of the alleged bogus purchases. The Co-ordinate Bench of the Tribunal further restricted the addition to 3.1% vide order dated 01.09.2016 along with MA dated 06.03.2018.
