BAKSHISH M. MALHOTRA, KALYAN V. ITO 3(1), KALYAN

CO 198/MUM/2016

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 2989 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 28 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 26-05-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 28-11-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: POOJA SWAROOP; BEENA SANTOSH
• Assessee Lawyers: AJAY R SINGH
• Keywords: Accommodation entries
• Section: 69C; 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F , MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN , JUDICIAL MEMBER ITA NO. 2126 /MUM/ 2016 : (A.Y : 2009 - 10 ) ITO, WARD - 3(1), KALYAN (APPELLANT) VS. SHRI BAKSHISH M. MALHOTRA PROP. M/S. SAR STEEL TRADERS, RANJOLI VILLAGE, KALYAN BHIWANDI ROAD, KALYAN (W) 421 301 PAN : ABRPM9913G (RESPONDENT) CO NO. 198 /MUM/ 2016 : (A.Y : 2009 - 10 ) SHRI BAKSHISH M. MALHOTRA PROP. M/S. SAR STEEL TRADERS, RANJOLI VILLAGE, KALYAN BHIWANDI ROAD, KALYAN (W) 421 301 PAN : ABRPM9913G ( CROSS OBJECTOR ) VS. ITO, WARD - 3(1), KALYAN ( RESPONDENT ) ASSESSEE BY : SHRI AJAY R. SINGH REVENUE BY : MS. BEENA SANTOSH & MS. POOJA SWAROOP DATE OF HEARING : 1 9 / 0 5 /201 7 DATE OF PRONOUNCEMENT : 26 /0 5 /201 7 O R D E R PER G.S. PANNU , AM : THE CAPTIONED APPEAL BY THE REVENUE AND CROSS - OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF CIT(A) - 3 , NASIK DATED 2 SHRI BAKSHISH M. MALHOTRA ITA NO. 2126/MUM/2016 & CO 198/MUM/2016 12.1.2016 , PERTAINING TO THE ASSESSMENT YEAR 2009 - 10 , WHICH IN TURN HAS ARISEN FROM THE ORDER DATED 12.1.2015 PASSED BY THE ASSESSING OFFICER, KALYAN UNDER SECTION 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. IN THE CAPTIONED APPEAL AND CROSS - OBJECTION, THE ISSUE INVOLVED IS SIMIL AR AS CAN BE UNDERSTOOD FROM THE FOLLOWING DISCUSSION. THE ASSESSEE BEFORE US IS AN INDIVIDUAL WHO IS, INTER - ALIA , ENGAGED IN THE BUSINESS OF TRADING IN IRON & STEEL. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, ASSESSEE FILED A RETURN OF INCOME DECLARIN G A TOTAL INCOME OF RS.4,44,220/ - . THE ASSESSMENT ORDER REVEALS THAT CERTAIN INFORMATION WAS RECEIVED BY THE ASSESSING OFFICER FROM THE INVESTIGATION WING TO THE EFFECT THAT THE SALES TAX DEPARTMENT, MUMBAI HAD UNEARTHED A RACKET INVOLVING CERTAIN DEALERS WHO WERE ISSUING BOGUS SALE INVOICES TO VARIOUS TRADERS , AND SUCH INFORMATION REVEALED THAT ASSESSEE HAD ALSO EFFECTED PURCHASES FROM FOUR HAWALA PARTIES IDENTIFIED BY THE SALES TAX DEPARTMENT. THE DETAILS OF SUCH PARTIES HAVE BEEN NOTED BY THE ASSESSING OFFICER IN PARA 4.2 OF HIS ORDER AND THE TOTAL PURCHASES AMOUNTED TO RS.50,77,857/ - . IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER CARRIED OUT A VERIFICATION EXERCISE BY ISSUING NOTICES U/S 133(6) OF THE ACT, WHICH CAME BACK UNSERVED. A SSESSEE WAS ALSO REQUIRED TO PRODUCE THE FOUR PARTIES BUT THE PARTIES COULD NOT BE PRODUCED BY THE ASSESSEE. FOR ALL THE SAID REASONS, THE ASSESSING OFFICER TREATED THE PURCHASES OF RS.50,77,857/ - MADE FROM THE FOUR PARTIES AS UNPROVED PURCHASES AND ADDED THE SAID AMOUNT TO THE TOTAL INCOME U/S 69C OF THE ACT. 3 SHRI BAKSHISH M. MALHOTRA ITA NO. 2126/MUM/2016 & CO 198/MUM/2016 3. IN APPEAL BEFORE THE CIT(A), APART FROM OTHER ARGUMENTS, ASSESSEE POINTED OUT THAT THE CORRESPONDING SALES MADE BY THE ASSESSEE TO VARIOUS PARTIES HAVE NOT BEEN DOUBTED AND, THEREFORE, MAKING OF THE IMPUGNED PURCHASES COULD NOT BE DOUBTED. THE ASSESSEE AL SO POINTED OUT THAT THE QUANTITATIVE STATEMENT OF PURCHASES AND SALES SHOWED THAT IT IS ONLY AFTER MAKING THE PURCHASES THAT THE SALES HAVE BEEN EFFECTED . THE CIT(A) CONCLUDED THAT ONCE THE SALES ARE NOT IN DOUBT, THE ONLY LOGICAL INFERENCE IS THAT THE AS SESSEE WOULD HAVE MADE THE PURCHASES , BUT FROM THE OPEN MARKET AND OBTAINED THE IMPUGNED INVOICES FROM HAWALA PARTIES AS MERE ACCOMMODATION ENTRIES. THE CIT(A) FURTHER HELD THAT UNDER SUCH CIRCUMSTANCES, THE ACTUAL PRICE AT WHICH ASSESSEE EFFECTED SUCH PU RCHASES FROM THIRD PARTIES WAS NOT FORTHCOMING AND THERE WAS A LIKELIHOOD THAT THE VALUE OF PURCHASES IS INFLATED, AS ASSESSEE WOULD HAVE SAVED ON SALES TAX/VAT, ETC. THE CIT(A), THEREFORE, HELD THAT THE ENTIRE AMOUNT OF PURCHASES COULD NOT BE ADDED TO TH E TOTAL INCOME, BUT ONLY THE PROFIT ELEMENT RELATABLE TO SUCH UNPROVED PURCHASES. FOR THIS REASON, THE CIT(A) TOOK INTO CONSIDERATION THE GROSS PROFIT AND THE NET PROFIT DECLARED BY THE ASSESSEE DURING THE YEAR, WHICH STOOD AT 6.07% AND 3.36% RESPECTIVELY , AND ALSO THE JUDGMENT OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF SIMIT P. SHETH, 356 ITR 451 (GUJARAT) AND PROCEEDED TO ESTIMATE THE PROFIT ON SUCH UNPROVED PURCHASES AT 12.5%. THUS, THE CIT(A) RETAINED AN ADDITION OF RS.6,34,732/ - AND DELETED THE BALANCE. AGAINST SUCH A DECISION, REVENUE IS IN APPEAL CONTENDING THAT THE ENTIRE AMOUNT OF PURCHASES OUGHT TO HAVE BEEN ADDED TO THE TOTAL INCOME BECAUSE IT WAS UNPROVED. THE ASSESSEE, ON THE OTHER HAND, HAS FILED A CROSS - OBJECTION, WHICH IS PRIMARILY IN SUPPORT OF THE DECISION OF THE CIT(A). IN THIS 4 SHRI BAKSHISH M. MALHOTRA ITA NO. 2126/MUM/2016 & CO 198/MUM/2016 BACKGROUND, WE HAVE HEARD THE RIVAL COUNSELS AND THE RELEVANT MATERIAL HAS BEEN PERUSED. 4. THE STAND OF THE LD. DR IS THAT THE CIT(A) SHOULD HAVE CONFIRMED THE ADDITION OF THE ENTIRE AMOUNT OF UNPROVED P URCHASES OF RS.50,77,857/ - AND NOT MERELY THE PROFIT ELEMENT ON SUCH PURCHASES ESTIMATED @ 12.5%. THE LD. DR ALSO MADE AN ALTERNATE PLEA THAT EVEN THE ESTIMATION OF ADDITION @ 12.5% OF THE UNPROVED PURCHASES IS ON THE LOWER SIDE INASMUCH AS EVEN AFTER SUC H AN ADDITION, THE RESULTANT GROSS PROFIT RATIO IS LOWER THAN WHAT THE ASSESSEE HAD HIMSELF OFFERED FOR OTHER ASSESSMENT YEARS. 5. ON THE OTHER HAND, THE LEARNED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT NO FAULT CAN BE FOUND WITH THE DECISION OF THE CIT(A) NOT TO ADD THE ENTIRE AMOUNT OF UNPROVED PURCHASES BECAUSE THE CORRESPONDING SALES MADE TO VARIOUS PARTIES BY THE ASSESSEE HAS NOT BEEN DOUBTED BY THE ASSESSING OFFICER. IN THIS CONTEXT, HE HAS REFERRED TO THE SPECIFIC FINDING ARRIVED BY THE CIT(A) IN PARA 12 OF HIS ORDER. THE LEARNED REPRESENTATIVE ALSO EMPHASISED THAT DETERMINATION OF PROFIT ELEMENT OF UNPROVED PURCHASES @ 12.% WAS QUITE JUSTIFIED IN COMPARISON TO THE GROSS PROFIT RATE DECLARED BY THE ASSESSEE FOR THE INSTANT YEAR. IN THIS CONTEXT, THE LEARNED REPRESENTATIVE RELIED UPON THE DECISION OF THE COORDINATE BENCH OF TRIBUNAL IN THE CASE OF SHRI ASHWIN PURSHOTAM BAJAJ, ITA NOS. 4736 & 5207/MUM/2014 DATED 14.12.2016 WHEREIN ADOPTION OF THE PROFIT ELEMENT @ 12.5% BASED ON THE 5 SHRI BAKSHISH M. MALHOTRA ITA NO. 2126/MUM/2016 & CO 198/MUM/2016 JUDGMENT OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF SIMIT P. SHETH (SUPRA) HAS BEEN UPHELD. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL S UBMISSIONS. IN THE INSTANT CASE, THE ENTIRE CONTROVERSY ARISES FROM THE INFORMATION RECEIVED BY THE ASSESSING OFFICER FROM THE SALES TAX AUTHORITIES OF THE GOVERNMENT OF MAHARASHTRA WHICH REVEALED THAT THE ASSESSEE HAD EFFECTED PURCHASE S OF RS.50,77,857/ - FROM FOUR PARTIES , WHO HAVE BEEN FOUND TO BE INDULGING IN PROVIDING HAWALA/ ACCOMMODATION SALE BILLS. THE ASSESSING OFFICER ADDED THE ENTIRE AMOUNT OF PURCHASES TO THE RETURNED INCOME WHEREAS THE CIT(A), WHILE UPHOLDING THE PURCHASES AS UNPROVED, RESTRICT ED THE ADDITION TO THE PROFIT ELEMENT ON SUCH PURCHASES, WHICH HE ESTIMATED AT 12.5%. THE DECISION OF THE CIT(A) IS BASED ON THE FACT THAT THE ASSESSEE PROVIDED THE QUANTITATIVE DETAILS OF EACH TRANSACTION OF PURCHASE AND SALE. THE CIT(A) ALSO NOTED THAT THE SALES RECORDED BY THE ASSESSEE IN THE ACCOUNT BOOKS HA VE NOT BEEN DOUBTED BY THE ASSESSING OFFICER AND THAT THE ONLY GREY AREA WAS CORRESPONDING PURCHASES TO THE EXTENT OF RS.50,77,857/ - WHICH HAVE BEEN FOUND TO BE UNPROVED. IN THIS BACKGROUND, THE C IT(A) CONCLUDED THAT IF THE SALES WERE ACCEPTED, THE CORRESPONDING PURCHASES OUGHT TO HAVE BEEN MADE BY THE ASSESSEE , ALBEIT FROM DIFFERENT PARTIES AND NOT FROM THE FOUR PARTIES STATED IN THE ACCOUNT BOOKS. UNDER THESE CIRCUMSTANCES, THE CIT(A) HELD THAT THE ONLY LIKELIHOOD WAS THAT THE VALUE OF PURCHASE RECORDED IN THE ACCOUNT BOOKS WAS INFLATED INASMUCH AS THE ASSESSEE MAY HA VE PROCURED THE GOODS FROM OPEN MARKET WITHOUT BILLS AT A LOWER PRICE. I N OUR CONSIDERED OPINION, THE INFERENCE DRAWN BY THE CIT(A) CANNOT BE FAULTED INASMUCH AS THE SALES DECLARED 6 SHRI BAKSHISH M. MALHOTRA ITA NO. 2126/MUM/2016 & CO 198/MUM/2016 BY THE ASSESSEE HAVE NOT BEEN DOUBTED BY THE ASSESSING OFFICER. IT IS ALS O CORRECT ON THE PART OF THE CIT(A) TO OBSERVE THAT UNDER THE CIRCUMSTANCES, THE VERIFIABILITY OF THE ACTUAL PURCHASES EFFECTED BY THE ASSESSEE IS NOT POSSIBLE . THEREFORE, RESORT TO ESTIMATION IN SUCH A SITUATION CANNOT BE SAID TO BE ERRONEOUS. IN FACT, THE CIT(A) HAS BASED HIS APPROACH ON THE JUDGMENT OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF SIMIT P. SHETH (SUPRA) WHEREIN IN A SIMILAR SITUATION, THE ADDITION HAS BEEN RESTRICTED TO THE PROFIT ELEMENT ON THE UNPROVED PURCHASES. IN THE CASE BEFORE THE HON'BLE GUJARAT HIGH COURT, THE PROFIT WAS ESTIMATED @ 12.5% OF THE UNPROVED PURCHASES. IN THIS VIEW OF THE MATTER, IN OUR OPINION , THE CIT(A) MADE NO MISTAKE IN RESTRICTING THE ADDITION TO 12.5% OF THE UNPROVED PURCHASES INSTEAD OF THE ENTIRE AMOUNT OF PURCHASES. WITH REGARD TO THE ARGUMENT OF THE LD. DR ABOUT THE REASONABLENESS OF ESTIMATION, IN OUR VIEW, THE ESTIMATION OF PROFIT @ 12.5% OF THE PURCHASES COMPARES FAVOURABLY EVEN WITH THE GROSS PROFIT DECLARED BY THE ASSESSEE FOR OTHER ASSESSMENT YEA RS, WHICH IS BELOW THE RATE OF 12.5% ADOPTED BY THE CIT(A). IN OUR VIEW, THE ESTIMATION MADE BY THE CIT(A) IS QUITE REASONABLE AND DESERVES TO BE CONFIRMED AND WE HOLD SO. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. 8. INSOFAR AS THE CROSS OBJ ECTION FILED BY THE ASSESSEE IS CONCERNED, IT IS MERELY IN SUPPORT OF THE ORDER OF CIT(A), WHICH WE HAVE ALREADY CONFIRMED IN THE EARLIER PARAS AND THUS, THE CROSS OBJECTION IS DISMISSED AS INFRUCTUOUS. 7 SHRI BAKSHISH M. MALHOTRA ITA NO. 2126/MUM/2016 & CO 198/MUM/2016 9. RESULTANTLY, THE APPEAL FILED BY THE REVENUE AS W ELL AS THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 6 T H MAY, 2017. SD/ - SD/ - ( SANDEEP GOSAIN ) JUDICIAL MEMBER ( G.S. PANNU ) ACCOUNTANT MEMBER MUMBAI, DATE : 2 6 T H MAY , 201 7 * SSL * COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, F BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI