ACIT-20(1), MUMBAI, MUMBAI V. JOITKUMAR B JAIN, MUMBAI

ITA 3326/MUM/2024

AI Insights

The case revolves around an appeal by the revenue against the order of the CIT(A) which had deleted an addition of Rs. 13,83,36,069 made by the Assessing Officer on account of alleged undeclared sales by the assessee, Joitkumar B Jain. The revenue contended that the assessee had manipulated sales through a front entity, Hi Tech Sales Corporation, to suppress profits. However, the CIT(A) found no basis for these allegations, noting that the Assessing Officer had not conducted independent inquiries and had relied on assumptions and conjectures. The Tribunal, after reviewing the material and arguments presented, concurred with the CIT(A) and dismissed the revenue's appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 34424 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2014-2015
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEELKANTH KHANDELWAL
• Assessee Lawyers: AJAY MODI
• Section: 143(3); 250

Judgement Text

"P a g e | 1 ITA No.3326/M/2024 Joitkumar B Jain IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI BEFORE SHRI AMARJIT SINGH, ACCOUNTANT MEMBER & SHRI SUNIL KUMAR SINGH, JUDICIAL MEMBER ITA No. 3326/Mum/2024 (A.Y.2014-15) ACIT-20(1) Room No.615,6th Floor, Piramal Chamber, Lalbaug, Maharasthra – 400012 Vs. Joitkumar B Jain Room No.12, New Municipal Building, R.S. Nimkar Road, Maharashtra – 400008 \u0001थायी लेखा सं./जीआइआर सं./PAN/GIR No. AABPJ9794M Appellant .. Respondent Appellant by : Shri Neelkanth Khandelwal Respondent by : Shri Ajay Modi, (CIT DR) Date of Hearing 12.12.2024 Date of Pronouncement 09.01.2025 आदेश / O R D E R Per Amarjit Singh (AM): The present appeal filed by the revenue is directed against the order u/s 250 of the Act passed by the NFAC, Delhi, dated 29.04.2024 for A.Y. 2014-15. The grounds of appeal filed by the Revenue are as follows: “1. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 13,83,36,069/- made on account of undeclared sales. 2. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary. P a g e | 2 ITA No.3326/M/2024 Joitkumar B Jain 3. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) has not appreciated the facts of the case that information was received from ITO 33(3)(2) Mumbai vide letter dated 29.12.2016, that M/s. Hi-tech Sales Corporation has made sale of micro SD cards to various parties entirely in cash. 4. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) has not considered the statement of Shri. Rohit Bhandariis taken on oath by the ITO 33(3)(2) Mumbai.Shri. Rohit Bhandari failed to provide any details of the quantity of micro cards sold, to whom the same are sold and rate of each card. 5. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) has erred in getting the facts that manipulation of cash sales by creating a front entity M/s. Hi Tech Sales Corporation to suppress the profit element.” 2. Fact in brief is that return of income declaring total loss of Rs.89,55,786/- was filed on 08.11.2014. The case was subject to scrutiny assessment under Section 143(3) of the Act. The assessment u/s 143(3) of the Act was completed on 30.12.2016 at total income of Rs.12,97,69,480/-. The assessee is in the business of manufacturing micro SD memory cards, Printed Circuit Boards and CFL lights. During the course of assessment the Assessing Officer noticed that assessee has made major sale of micro SD cards to the following two parties: Sr. No. Name Oty Rate Amount (in Rs.) 1. Hi Tech Sales Corporation 67,89,512 179.63 per card 1,21,95,66,331/- 2. Samay Time Syndicate 2,11,000 200 per card 4,22,00,000/- 3. The assessing officer received information from the AO of M/s. HI Tech Sales Corporation that M/s. Hi Tech Sales Corporation had made sale of micro SD cards of Rs.122,00,79,741/- to various parties entirely in cash. It was also informed that Shri Rohit Bhandari who was the proprietor of the Hi Tech Sales Corporation failed to provide P a g e | 3 ITA No.3326/M/2024 Joitkumar B Jain details of the quantity of micro SD card sold and the details of person to whom such cards were sold etc. The AO observed on the basis of the information provided by the AO of Hi Tech Sales Corporation that same was the front entity of the assessee. The AO also observed that assessee had sold micro SD cards at an average price of Rs.200/- to M/s Samay Time Syndicate, however, it had sold micro SD card at an average of price of Rs.179/- to M/s Hi Tech Sales Corporation proprietor of Shri Rohit Bhandari. On query the assessee explained that Hi Tech Sales Corporation was his regular buyers therefore Rs. 179 was the average rate for the entire year whereas sale to Samay Time syndicate was only made in the month of January, 2014 at the price of Rs. 200 per units. The assessee submitted that sales made to the regular party in the high volume is not comparable with the small quantity of sale made at one time during the year to the other party. However, the AO was not agreed with the submission of the assessee and he was of the view that assessee had suppressed the profit by making sale to M/s Hi Tech Sales Corporation at a price lower than the sale made to M/s Samay Time Syndicate. Therefore, after applying the average sale rate of micro SD card @ Rs.200/- per card as against the average rate of Rs.179/- charged from M/s Hi Tech Sales Corporation the difference of Rs.13,83,36,069/- was added to the total income of the assessee. 4. The assessee filed the appeal before the ld. CIT(A), however, the Ld. CIT(A) has allowed the appeal of the assessee. The relevant extract of the decision of ld. CIT(A) is reproduced as under: “7.2 have carefully considered various submissions made by the appellant during the course of assessment proceedings as well as present appellate proceedings. On overall analysis of material available on record, the following facts emerges: P a g e | 4 ITA No.3326/M/2024 Joitkumar B Jain “1. The AO in the Assessment order vide Para 5 has stated that Shri Rohit Bhandari is proprietor of Hi Tech Sales Corporation and is assessed with ITO, Ward 33(3)(2), Mumbai. That information is received from such ITO vide letter dated 29.12.2016, that Hi Tech Sales Corporation has made sale of Micro SD Memory cards for Rs.122,00,79,741/- to various parties entirely in cash. 2. Statement of Shri Rohit Bhandari was recorded on oath by ITO, Ward 33(3)(2), Mumbai and it was revealed during statement that Hi Tech Sales Corporation is the only front entity of the appellant. However, on perusal of the assessment order of Shri Rohit Bhandari, as uploaded during appellate proceedings, wherein vide Para.12 of such order, the entire statement of Shri Rohit Bhandari recorded as on 20.12.2016 and 22.12.2016 are reproduced in verbatim and it is observed that at no place, the ITO, Ward 33(3)(2), Mumbai has asked any question related to Mr.Rohit Bhandari, being front entity of the appellant and there is no such admission, as shown to have been made by Mr.Rohit Bhandari, that he is front entity of the appellant. 3. The ITO, Ward 33(3)(2), Mumbai, in Para. 15 of his Assessment order passed in the case of Shri Rohit Bhandari has observed that, \"On careful reading of the above statements and submissions filed by the assessee clearly brings out the fact, that the assessee, though, claims to have traded in memory cards in business established by him in name & style of Hi Tech Sales Corporation during the year under consideration\". Thereafter, the AO has drawn following inferences as regards to the business of Hi Tech Sales Corporation. 1. There is no basic technical knowledge for the product. 2. Entire purchases are made from the appellant. 3. No negotiations have been made for the price. 4.He simply sells the product to the purchaser coming to him from all over India, after cash being deposited in his account. 1. On the above basis, the Assessing Officer of Hi Tech Sales Corporation has held that this entity i.e. Rohit Bhandari, has acted as a front entity of the appellant. He has further relied upon that there was no agreement of sole selling agent between Hi Tech Sales Corporation and the appellant, the premises are closely situated. Shri Bhandari has incurred a loss of Rs.1,88,731/- in turnover of Rs. 122 crores, etc. 5. In view of the above, it is very clear that the statement of Shri Rohit Bhandari, being taken as base for treating him as front entity, was not containing any such admission by Shri Rohit Bhandari. It was purely inference of the AO of Rohit Bhandari, which was communicated to the AO of the appellant. 6. Under the circumstances, the AO of the appellant ought to have made independent inquiries and ought to have bring such P a g e | 5 ITA No.3326/M/2024 Joitkumar B Jain material on record, which can substantiate the allegation of front entity created by the appellant. In absence of any such exercise being made by the AO, the findings in the Assessment order are nothing but assumption, conjecture and surmise. Therefore, the findings of creation of a front entity by the appellant in the form of Hi Tech Sales Corporation, is without any basis and therefore, cannot be sustained. 7. The appellant has challenged the basis of comparison of sale prices with Samay Time Syndicate and Hi-Tech Sales Corporation. The findings of the AO are that appellant has sold 67,89,512 Micro SD Memory cards at an average price of Rs.179/- per card to Hi Tech Sales Corporation whereas appellant has sold 2,11,000 cards to Samay Time Syndicate at Rs.200/- per card. This factor and basis of comparison was considered during appellate proceedings. First of all, the facts as are available on record clearly and unequivocally shows that in the case of prices applicable to Hi Tech Sales Corporation, average price of total quantity sold throughout the year was adopted. On the other hand, there was one time sale in the month of January, 2014 to Samay Time Syndicate of 2,11,000 cards at average price of Rs 200/- per card. Therefore, as a natural corollary, the basis of comparison ought to have been the sale price of such cards in the month of January, 2014. Undisputedly, in January, 2014, the sale price of cards to Samay Times Syndicate was Rs.200/- per card and at the same 'ime, the appellant has sold such cards to Hi Tech Sales Corporation at a price ranging between Rs.200/- to Rs.210/- and average comes to Rs.204/- per card. Therefore, the appellant's contention of charging market price prevailing at relevant point of time is correct. The AO has not adopted a scientific basis in comparing the sale price on average basis in one case and then applying them to one time sale made in a particular month, to some other party. Therefore, there is an element of approbating and reprobating approach recourse to by the AO. 8. Further, the contention of the appellant that the appellant has incorporated sale consideration for 67,89,512 cards in his books of account at Rs.121,95,66,331/-. The AO has observed that such cards were sold by Hi Tech Sales Corporation at Rs.122,00,79,741/-. Thus, the profit in the hands of Hi Tech Sales Corporation was just Rs.5,13,410/-. On such an amount, there are no basis for the allegation of creating any front entity to manipulate profit. This contention appears logical because as discussed above, the estimation of profit has not been done scientifically. 9. In view of the above, the findings of the AO to the effect that cards were sold at price of Rs.179/- to Hi Tech Sales Corporation and cards were sold to Samay Time Syndicate at Rs.200/- are not having scientific basis or cannot be said to be logical conclusion. In fact, the sale prices of the cards in January, 2014 were almost equal in both the cases. Accordingly, findings P a g e | 6 ITA No.3326/M/2024 Joitkumar B Jain related to suppression of sale of Rs.13,83,36,069/- is not sustainable and cannot be said to be correctly worked out. Further, the AO has not carried out any independent inquiry in this regard and has relied upon inference of some other AO. Furthermore, nowhere in the statement of Shri Rohit Bhandari, such admission of him being front entity, has come to fore. Finally, the AO has not brought any material or evidence on record to show that extra consideration of Rs. 13,83,36,069/- was received by the appellant. On the other hand, the appellant has furnished his Sale register, both on the record of the AO and appellate level. Comparable instances in terms of sale to Hi Tech Sales Corporation and other outside parties are also incorporated in the submission of the appellant. It ! is also undisputed fact placed on record by the appellant that VAT was charged for the entire sale and was paid to the Government accordingly. The books of account of appellant as well as Rohit Bhandari are subject to Tax Audit and in no Audit report there is mention of both being related parties. A 7.3 Considering the totality of the submissions and evidence / material placed on record, the findings of the AO to the effect that Hi Tech Sales Corporation was a front entity remains unsubstantiated or unproven. Basis of comparison of sale prices, as discussed above, are unscientific and having different parameters. Therefore, assumption of suppression of sale and thereby addition of Rs.13,83,36,069/- is not correct or maintainable, and therefore, directed to be deleted. Accordingly, grounds no.1,2(a),2(b) and additional grounds no.1, 2 are Allowed.” 5. During the course of appellate proceedings the ld. DR relied upon the order of the assessing officer. On the other hand, the ld. AR submitted that the Hi Tech Sales Corporation was the regular buyer, whereas sale to Samay Time Syndicate was made in small quantity in the month of January, 2014. He further submitted that sale volume at large scale made to the regular buyer M/s. Hi Tech Sales Corporation is not comparable with small quantity of sale made to the other buyer Samay Time Syndicate only in the month of January. The ld. Counsel supported the order of the ld. CIT(A). 6. Heard both the sides and perused the material on record. Without reiterating the facts as elaborately discussed above the assessee has made major part of sale of memory cards to M/s Hi Tech Sales Corporation which account for 90% of the entire sales of P a g e | 7 ITA No.3326/M/2024 Joitkumar B Jain memory card made by the assessee during the year under consideration. The assessee also demonstrated from the relevant material placed in the paper book filed before the lower authorities that Rs.179 was the average rate for entire year of sales made to M/s Hi Tech Sales Corporation who was regular customer whereas sale to M/s. Samay Time Sundicate was only made in the month of January 2014 for small quantity of material at the rate of Rs. 200 per unit. The selling price of the sales made to one time party and average selling price of sales made to regular party is not comparable as M/s. Hi Tech Corporation was the regular buyer throughout the year compared to Samay Time Syndicate to whom sale was only made in the month of January. Considering the above facts and circumstances, we are inclined with the findings of the First Appellate Authority that selling of 90% of the product about 63,39,512 micro SD cards to M/s Hi Tech Sales Corporation at the rate of 200 per unit cannot be compared against selling small part of micro SD cards of 2,11,000 only to M/s Samay Time Syndicate at Rs. 179 per unit. The AO had simply relied upon the inference drawn by the AO of Hi Tech Corporation without bringing any relevant material on record to prove that M/s. Hi Tech Sales Corporation was the front of the assessee. It is evident that small difference in the average rate of selling price was attributed because of providing discount to M/s Hi Tech Sales Corporation for purchasing goods in high volume in the whole year compared to one time small quantity of sale made to M/s Samay Time Syndicate. During the course of appellate proceeding before us, the assessee has also filed paper book comprising detail of month wise sale made to M/s Hi Tech Sales Corporation which demonstrate that M/s Hi Tech Sales Corporation was the main party through whom the assessee has sold most of the goods during the P a g e | 8 ITA No.3326/M/2024 Joitkumar B Jain year. The AO has not brought any material on record by conducting independent inquiry/investigation to prove that there was any manipulation made by the assessee in selling the goods through M/s Hi Tech Sales Corporation, therefore, we don’t find any reason to interfere in the decision of Ld. CIT(A). Therefore, ground nos. 1 to 5 of the appeal of revenue are dismissed. 7. In the result, the appeal of the revenue is dismissed. Order pronounced in the open court on 09.01.2025 Sd/- Sd/- (Sunil Kumar Singh) (Amarjit Singh) Judicial Member Accountant Member Place: Mumbai Date 09.01.2025 Rohit: PS आदेश की \bितिलिप अ\u000eेिषत/Copy of the Order forwarded to : 1. अपीलाथ\u0014 / The Appellant 2. \u0016\u0017थ\u0014 / The Respondent. 3. आयकर आयु\u001a / CIT 4. िवभागीय \u0016ितिनिध, आयकर अपीलीय अिधकरण DR, ITAT, Mumbai 5. गाड$ फाईल / Guard file. स\u0017ािपत \u0016ित //True Copy// आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण/ ITAT, Bench, Mumbai. "