RAJENDRA B. JAIN, THANE V. ITO WARD 3(2), THANE

CO 186/MUM/2016

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 2835 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 03-02-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 03-11-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: M C OMI NINGSHEN
• Keywords: Bogus purchase; Peak credit; Question of law; Corroborative evidences; Reassessment proceedings

Judgement Text

INCOME TAX APPELLATE TRIBUNAL,MUMBAI - H BENCH BEFORE S/SH RI . D.T. GARASIA, JUDICIAL MEMBER & ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO. 2932/MUM/2016 ASSESSMENT YEAR 2009 1 0 INCOME TAX OFFICER W ARD 3(2), THANE ROOM NO.04J, 6 TH FLOOR, ASHAR IT PARK MIDC, WAGLE INDL. ESTATE THANE (W) 400 604 V. RAJENDRA B JAIN PROP. RAINBOW WROGHT IRON FURNITURE, 16, LILY APARTMENT AGHAYARI LANE, TEMBHI NAKA THANE (W) - 400 601 PAN NO.AA PPJ3404J (APPELLA NT ) (RESPONDENT) APPELLANT BY SHRI M.C. OMI NINGSHEN RESPONDENT BY SHRI N.A. KULKARNI C.O NO. 186/MUM/2016 (ARISING OUT OF ITA NO. 2932/MUM/2016) RAJENDRA B JAIN PROP. RAINBOW WROGHT IRON FURNITUR E, 16, LILY APARTMENT AGHAYARI LANE, TEMBHI NAKA THANE (W) - 400 601 PAN NO.AA PPJ3404J V. INCOME TAX OFFICER WARD 3(2), THANE ROOM NO.04J, 6 TH FLOOR, ASHAR IT PARK MIDC, WAGLE INDL. ESTATE THANE (W) 400 604 (APPELLANT ) (RESPONDENT) APPELLANT BY SHRI N.A. KULKARNI RESPONDENT BY SHRI M.C. OMI NINGSHEN DATE OF HEARING : 2 5 .01.2017 DATE OF PRONOUNCEMENT : 03.02. 2017 O R D E R PER D.T.GARASIA, JUDICIAL MEMBER 1. THIS APPEAL FILED BY THE DEPARTMENT AGAINST THE CIT(A) ORDER DATED 09.02.2016 FOR THE ASSESSMENT YEAR 2009 - 10. 2. FOLLOWING GROUNDS ARE RAISED IN THE APPEAL WHICH READ AS UNDER: - ITA.NO. 2932/MUM/16 & C.O.NO.186/MUM/16 RA JEN DRA B. JAIN 2 I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) HAS ERRED IN GIVING RELIEF TO THE ASSESSEE OUT OF TOTAL BOGUS PURCHASES EVEN THOUGHT: - A. THE ASSESSEE COULD NOT PRODUCE PRIMARY EVIDENCES LIKE OCTROI RECEIPTS, DELIVERY CHALLAN ETC., EVIDENCE TO PROVE THE GENUINENESS OF THE PURCHASES BEFORE THE ASSESSING OFFICER AND BEFORE CIT(A) B. THE A FFIDAVITS FILED BY THE ENTRY PROVIDERS BEFORE SALES TAX AUTHORITIES CANNOT BE IGNORED HAVING EVIDENTIARY VALUE. II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE HON' BLE CIT(A) ERRED IN NOT FOLLOWING THE ORDER OF ITAT, PUNE IN ITA.NO.14 11 - 1415 DATED 20.02.2015 IN THE CASE OF M/S. KOLTE PATIL DEVELOPERS LTD., WHEREIN 100% ADDITION OF BOGUS PURCHASES WAS CONFIRMED. 3. THE ASSESSEE HAS FILED THE RETURN OF INCOME ON 30 .09.2009 DECLARING THE INCOME OF RS.1,46, 880/ - . THE A.O HAS RECEIVED THE I NF ORMATIO N FROM THE SALES TAX DEPARTMENT , GOVERNMENT OF MAHARASHTRA WHEREIN THE SALES TAX DEPARTMENT INFORMED THAT CERTAIN PARTIES HAVE ONLY ISSUED BOGUS BILLS AND NO ACTUAL TRANSACTION TAKE PLACE. THE ASSESSEE FOUND TO BE ONE OF THE BENEFICIARY OF SUCH B OGUS BILLS. 6. IT IS OBSERVED BY THE ASSESSING OFFICER: - DURING THE COURSE OF ASSESSMENT PROCEEDINGS, BASED ON THE SALES TAX DEPARTMENT INFORMATION, IT WAS BROUGHT TO THE NOTICE OF THE AR OF THE ASSESSEE THAT THE ASSESSEE HAS OBTAINED BOGUS BILLS TOTAL ING TO RS.41,87,814/ - DETAILS OF WHICH IS AS FOLLOWS: - SR. N O. VA T NO. NAME OF THE ENTRY PROVIDER AMOUNT IN RS. 1. 27470563502V NAVODAY TRADE IMPEX PVT. LTD., 15,50,000/ - 2. 27480388751V RAJESHWARI TRADING PVT. LTD 1,00,000/ - 3. 27690557658V ELECON IMPEX PVT. LTD. 25,37,814/ - TOTAL 41,87,814/ - AN EXPLANATION WAS CALLED FOR FROM THE AR OF THE ASSESSEE DURING THE HEARING PROCEEDINGS. THE ASSESSEE HAS FAILED TO SUBMIT ANY DETAILS THAT CAN PROVE THAT ITA.NO. 2932/MUM/16 & C.O.NO.186/MUM/16 RA JEN DRA B. JAIN 3 PURCHASES ARE GENUINE. THE R E ARE CERTAIN OTHER RE QUIREMENT WHICH HAVE TO BE FULFILLED TO PROVE TRANSACTION GENUINE VIZ ., IDENTITY OF THE SELLER, ENTRY IN STOCK REGISTER AND RECONCILIATION THEREOF OTHER SUPPORTING EVIDENCE OF TRANSPORTATIONS, ETC., HOWEVER, THE ASSESSEE HAS NOT ONLY FAILED TO PROVE THE IDENTITY OF THE SELLER BUT ALSO FAILED TO SUBMIT OTHER EVIDENCES THAT COULD PROVE THE GENUINENESS OF TRANSACTION. ACCORDINGLY, THE PURCHASES CLAIMED FROM THE PARTIES MENTIONED ABOVE IS TREATED AS BOGUS AND ACCORDINGLY AN AMOUNT OF RS.41,87,814/ - IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 4. MATTER CARRIED TO CIT(A) AND CIT(A) HAS DELETED THE ADDITION BY OBSERVING AS UNDER. 8. FROM THE VARIOUS JUDGMENTS OF SUPREME COURT, VARIOUS HIGH COURTS AND DIFFERENT BENCHES OF ITAT AS ABOVE, IT EMERGES THAT I N A CASE WHERE THE SUPPLIER IS NOT FOUND AT THE ADDRESS FURNISHED, THE DISALLOWANCE OF WHOLE OF SUCH PURCHASE CAN BE MADE ONLY IF THE FACTS IN THE CASE ARE SIMILAR TO THE FACTS IN CASE OF LA MEDICA, SRI GANESH RICE MILLS, VICKY FOODS (P.) LTD, INDIAN CARP ET MANUFACTURING COMPANY, KHANDELWAL TRADING COMPANY, D. D. KOCHHAR AND SONS, KACHWALA GEMS ETC. IN ALL THESE CASES, IN ADDITION TO VARIOUS OTHER EVIDENCES AVAILABLE IN EACH SUCH CASE, RELIABLE QUANTITATIVE DETAILS WERE NOT AVAILABLE AND ALSO THE GENUINEN ESS OF PAYMENTS FOR PURCHASES WAS NOT SHOWN RATHER THE PAYMENT WAS NOT ESTABLISHED AND EVIDENCE PRODUCED IN SUPPORT OF PAYMENTS FAILED THE TESTS OF ENQUIRY. 8.1 IN OTHER CASES, WHERE THE FULL QUANTITATIVE DETAILS ARE NOT AVAILABLE OR THAT SUCH DETAILS ARE NOT FULLY RELIABLE AND CONSUMPTION OF MATERIAL IS SHOWN BUTYIELD IS TOO LOW AND PAYMENTS ARE ALSO DOUBTFUL, AS IN CASE OF VIJAY PROTEINS LTD., BHOLANATH POLY FAB PVT. LTD., SIMIT P. SHETH, SANKET STEEL TRADERS, SATHYANARAYAN P. RATHI, ETC., PURCHASES MAXIMUM TO THE EXTENT 25% AS IN VIJAY PROTEINS CASE AND UP 12.5% AS IN OTHER CASES HAS BEEN HELD DISALLOWABLE. 8.2 HOWEVER, IN CASE OF SUNSTEEL, ADDITION OF ONLY ABOUT 2% HAS BEEN SUSTAINED WHEREAS IN THE CASE OF CHAMPALAL CHOUDHARY ADDITION OF 5% HAS BE EN SUSTAINED. THE ESTIMATED DISALLOWANCE HAS BEEN UPHELD TO AUGMENT THE POSSIBLE SUPPRESSION IN GP APPLYING REAL INCOME THEORY DEPENDING ON THE ITA.NO. 2932/MUM/16 & C.O.NO.186/MUM/16 RA JEN DRA B. JAIN 4 FACTS OF THE CASE. NO BASIS OF SUCH ESTIMATION HAS BEEN GIVEN IN THESE DECISIONS. ADDITIONS MADE U/S.69C IN THE CASE OF SHUBH LAXMI EXPORTS AND SUNSTEEL HAVE BEEN DELETED. 8.3 IN OTHER CASES, WHERE RELIABLE QUANTITATIVE DETAILS ARE AVAILABLE AND PAYMENTS ARE MADE BY ACCOUNT PAYEE CHEQUES, DISALLOWANCE MADE ON ACCOUNT OF PURCHASES, IN CASES LIKE NIKUNJ EXIMP ENTER PRISES (P.) LTD (HIGH COURT AS WELL AS ITAT), BABULAL C. BORANA, M. K. BROTHERS, NANGALIA FABRICS PVT. LTD., RAJIV G. KALATHIL, SAGAR BOSE, RAJESH P. SONI, PERMANAND, DIAGNOSTICS ETC. HAS BEEN DELETED. 8.4 HOWEVER, ALL SUCH CASES ARE HELD TO BE A CASE OF FACTS AND NO QUESTION OF LAW IS INVOLVED IN SUCH CASES. ON BASIS OF THE ABOVE DECISIONS, THE LAW THAT EMERGES IS THAT RELIABLE QUANTITATIVE DETAILS AND PAYMENTS BY ACCOUNT PAYEE CHEQUES ARE PRIMARY TESTS, ON WHICH THE GENUINENESS OF PURCHASES, WHERE SUPPL IER ARE NOT AVAILABLE, IS REQUIRED TO BE TESTED. 8.5 OTHER EVIDENCE SUCH AS STATEMENTS AS TO PROVIDING 'HAWALA' RECORDED BY SALES TAX AUTHORITIES OR THE AFFIDAVITS FILED BY SUCH SUPPLIERS BEFORE SALES TAX AUTHORITIES OR THE DENIAL BY THE SUPPLIERS EVE N BEFORE THE AO, ABSENCE OF EVIDENCE IN SUPPORT OF TRANSPORTATION / DELIVERY OF MATERIAL ETC. ARE NEITHER THAT RELEVANT NOR OVER RIDING AS EMERGING FROM CASES LIKE NIKUNJ EXIMP ENTERPRISES (P.) LTD (HIGH COURT AS WELL AS ITAT), M. K. BROTHERS, NANGALIA FAB RICS PVT. LTD., RAJIV G. KALATHIL, PERMANAND, SAGAR BOSE, DIAGNOSTICS ETC. TO DECIDE THE GENUINENESS OF THE PURCHASES. THESE EVIDENCE ARE MERE INDICATORS AND NOT CONCLUSIVE. 8.6 FURTHER, THE PEAK ADDITION ON THE BASIS OF UNEXPLAINED / BOGUS CREDITS HAS BEEN HELD APPLICABLE ONLY IN CASE OF VIJAY PROTEINS AND ON PECULIAR FACTS OF THAT CASE. IN OTHER CASES, SUCH PEAK CREDIT ISSUE WAS GENERALLY NOT CONSIDERED AT ALL. RATHER PEAK CREDIT ADDITION MADE BY THE AO IN CASES OF SHUBH LAXMI EXPORTS AND SUNSTEEL HAS BEEN DELETED. THEREFORE, PEAK THEORY CANNOT BE APPLIED IN A CASE UNLESS ALL THE RELEVANT FACTS ARE CLOSELY SIMILAR TO THOSE IN VIJAY PROTEINS CASE INCLUDING STRONG AND UN - REBUTTED EVIDENCE THAT THE ITA.NO. 2932/MUM/16 & C.O.NO.186/MUM/16 RA JEN DRA B. JAIN 5 PAYMENT MADE FOR SUSPICIOUS PURCHASES HAS BEEN RETURNED BA CK TO THE ASSESSEE IN CASH. 8.7 ADVERTING TO THE FACT IN THE INSTANT CASE, IT IS OBSERVED FROM THE ASSESSMENT ORDER THAT THE ASSESSEE HAS ALSO NOT PRODUCED THE CONSUMPTION DETAILS NOR IT HAS CO - RELATED THE PURCHASES AND SALES. THE PARTIES ARE NEITHER PR ODUCED BEFORE ASSESSING OFFICER NOR BEFORE ME. THE MOVEMENT OF MATERIAL CANNOT BE VERIFIED IN ABSENCE OF OCTROI RECEIPT AND TRANSPORT CHALLAN. HOWEVER, THERE IS NO FINDING ON RECORD WHICH CAN SAY THAT SALE IS BOGUS. THUS, IN MY OPINION THE FACTS ON RECOR D DEMONSTRATE THAT THIS NOT A CASE OF BOGUS PURCHASE BUT A CASE OF INFLATED PURCHASE. THE AO IS DIRECTED TO RESTRICT THE DISALLOWANCE TO 25% OF RS. 41,87,814/ - (I.E. RS.10,46,954). 5. THE LD.D.R SUBMITTED THAT THE ASSESSEE HAS CARRIED OUT TRANSACTION WITH T HREE PARTIES. THE SALES TAX DEPARTMENT INFORMED THAT ASSESSEE IS HAWALA ENTRY PROVIDER AND NO ACTUAL SALE HAS BEEN MADE AND ASSESSEE HAS NOT PURCHASED FROM THE ABOVE PARTIES AND IT WAS BOGUS. THEREFORE ASSESSEE WAS ASKED TO PROVE THE PURCHASES ARE GENUIN E. ASSESSEE WAS REQUIRED TO PROVE THE TRANSACTION GENUINE IDENTITY OF S ELLER, ENTRY IN STOCK REGISTER AND RECONCILIATION THEREOF OTHER SUPPORTING EVIDENCES BUT ASSESSEE DID NOT PRODUCE ANY EVIDENCE. THEREFORE WHOLE AMOUNT WAS TREATED AS ASSESSEES INCOME . THE CIT(A) WITHOUT CONSIDERING THE DECISION O F THE PUNE BENCH H AS ALLOWED THE APPEAL OF THE ASSESSEE. ON THE OTHER HAND LD.A.R SUBMITTED THAT THE ISSUE IN CONTROVERSY IS COVERED BY THE DECISION OF HONBLE GUJARAT HIGH COURT AND BOMBAY HIGH COURT IN CASE OF NI KUNJ EXIMP ENTERPRISES PVT. LTD. . MOREOVER HONBLE GUJARAT HIGH COURT IN M. K BROTHERS 163 ITR 249 AND HE HAS RELIED UPON THE DECISION OF SANJAY OILCAKE INDUSTRY 316 ITR 274 DECISION OF GUJARAJ HIGH COURT AND GUJARAT HIGH COURT IN CASE OF S IMIT P S HETH IN 356 ITR 451 THEREFORE HE SUPPORTS THE ACTION OF THE CIT(A). 6. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES. LOOKING A T FAC T S AND CIRCUMSTANCES OF THE CASE WE FOUND THAT CIT(A) HS CONSIDERED THE VARIOUS DECISION S OF GUJARAT HIGH COURT AN D SANJAY OILCAKE INDUSTRY A ND HELD THAT ENTIRE ON ACCOUNT OF UNV ERIFIABLE PURCHASE S AND WHEN ON ACCOUNT OF PURCHASE WERE HELD IN THE CLOSING STOC K AND CORRESPONDING SA LES WERE EFFECT IN SUBSEQUENT YEAR . T HE ONLY APPROACH WILL BE ONLY PROFIT ELEMENT MUST BE ADDED NOT THE WHOLE OF THE PURCHASE CAN BE ADDED. THEREFORE WE ITA.NO. 2932/MUM/16 & C.O.NO.186/MUM/16 RA JEN DRA B. JAIN 6 RESPECTFULLY FOLLOWING THE DECISION OF GUJARAT HIGH COURT IN CASE OF SIMIT P SHETH 356 ITR 451 WHICH READS AS UNDER: - THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING IN STEEL ON WHO LESALE BASIS. DURING THE COURSE OF THE REASSESSMENT PROCEEDINGS FOR THE YEAR 2006 - 07, THE ASSESSING OFFICER NOTICED THAT SOME OF THE SUPPLIERS OF STEEL TO THE ASSESSEE HAD MADE THEIR STATEMENTS ON OATH TO THE EFFECT THAT THEY HAD NOT SUPPLIED THE STEEL TO THE ASSESSEE BUT HAD ONLY PROVI DED SALE BILLS. IN TURN, THEY WERE RECEIVING A SMALL COMMISSION. THE ASSESSING OFFICER CONCLUDED THAT THE TOTAL PURCHASE OF RS.41,04,903 CUMULATIVELY MADE FROM THE THREE PARTIES WERE BOGUS. HE THUS TREATED SUCH PURCHASES AS BOGUS PURCHASES AS BOGUS PURCHASES AND ADDED THE ENTIRE AMOUNT OF RS.41,04,903 TO THE GROSS PROFIT OF THE ASSESSEE. HE ALSO REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE ASSESSEES BUSINESS PROFIT AT RS. 5 LAKHS. THE COMMISSIONER (APPEALS) HELD THAT THE ASSESSEE HAD MADE PURCHASES FROM OTHER PARTIES IN THE OPEN MARKET. THER EFORE, HE RETAINED 30 PER CENT OF THE PURCHASES COST AS THE PROBABLE PROFIT OF THE ASSESSEE. HE REDUCED THE ADDITIONS FROM RS.41,04,903 TO RS.12,31,471 AND DELETED THE BALANCE OF RS.28,73,432. WHILE DOING SO, HE DELETED THE ADDITION OF RS. 5 LAKHS AS MADE BY THE ASSESSING OFFICER ON THE GROUND THAT THE ADDITION ON ACCOUNT OF BO GUS PURCHASES HAD ALREADY BEEN MADE. THE TRIBUNAL WAS OF THE OPINION THAT TWELVE AND HALF PER CENT OF T HE DISPUTED PURCHASES SHOULD BE RETAINED IN THE H A NDS OF THE ASSESSEE AS BUSINESS PROFITS. ON APPEAL TO THE HIGH COURT: HELD, DISMISSING THE APPEAL, THAT THE COMMISSIONER (APPEALS) BELIEVED THAT THE PURCHASES WERE NOT BOGUS BUT WERE MADE FROM THE PART IES OTHER THAN THOSE MENTIONED IN THE BOOKS OF ACCOUNT. THAT BEING THE POSITION, NOT THE ENTIRE PURCHASE PRICE BUT ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES COULD BE ADDED TO THE INCOME OF THE ASSESSEE. I N ESSENCE, THE TRIBUNAL ONLY ESTIMATED TH E POSSIBLE PROFIT OUT OF PURCHASES MADE TH ROUGH NON - GENUINE PARTIES. THE ESTIMATION OF RATE OF PROFIT RETURN MUST NECESSARILY VARY WITH THE NATURE OF BUSINESS AND NO UNIFORM YARDSTICK COULD BE ADOPTED. 7. WE RESPECTFULLY FOLLOWING THE JUDGMENT OF HONBLE GU JARAT HIGH COURT, WE ARE OF THE VIEW THAT CIT(A) IS JUSTIFIED HIS ACTION AND OUR INTERFERENCE IS NOT REQUIRED . IN THE RESULT THE ITA.NO. 2932/MUM/16 & C.O.NO.186/MUM/16 RA JEN DRA B. JAIN 7 DEPARTMENTAL APPEAL IS DISMISSED. DURING THE HEARING LEARNED A.R HAS NOT PRESSED FOR C.O HENCE IT IS DISMISSED. THEREFORE WE DISMISS THE DEPARTMENTS APPEAL . 8. IN THE RESULT THE APPEAL OF THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 03 RD FEBRUARY, 2017 SD/ - SD/ - ( ASHWANI TANEJA ) ( D.T. GARASIA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI , DATED 0 3. 02 .2017 . VSSGB, SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// SD/ - (DY./ASSTT. REGISTRAR) ITAT, MUMBAI