SURESH MEHTA HUF, MUMBAI V. ITO 19(3)(4), MUMBAI

ITA 1066/MUM/2020

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 2808 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 11-02-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: JAIN DIXIT
• Keywords: Bogus purchase; Opportunity of being heard; Set aside

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI SHRI SHAMIM YAHYA (AM) I.T.A. NO. 1066/MUM/2020 (ASSESSMENT YEAR 2007-08) SURESH MEHTA HUF C/O. MANISH METALS 1002, TARDEO TOWER 75-B, TARDEO ROAD MUMBAI-400 004. PAN : AAAHM6719E VS. ITO-19(3)(4) 2 ND FLOOR MATRU MANDIR GRANT ROAD MUMBAI-400007. (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI JAIN DIXIT DEPARTMENT BY SHRI PRAKASH MANE DATE OF HEARING 21.10 .2021 DATE OF PRONOUNCEMENT 21.10.2021 O R D E R THIS IS AN APPEAL BY THE REVENUE WHEREIN THE ASSESS EE IS AGGRIEVED THAT THE LEARNED CIT-A HAS ERRED IN SUSTAINING 12.5% DIS ALLOWANCE ON ACCOUNT OF BOGUS PURCHASES VIDE ORDER DATED 17.12.2019 PERTAIN ING TO ASSESSMENT YEAR 2007-08. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IN THIS CASE IS ENGAGED INTO BUSINESS OF FERROUS AND NON-FERROUS METAL TRADING. THE ASSESSMENT IN THIS CASE WAS REOPENED UPON RECEIPT OF INFORMATION FROM SALES TAX DEPARTMENT THAT ASSESSEE HAS MADE BOGUS PURCHASES. THE INCOME TAX O FFICER IN THIS CASE HAS MADE 100% ADDITION ON ACCOUNT OF BOGUS PURCHASES RE SULTING IN DISALLOWANCE OF RS. 11,87,978/-. 3. UPON ASSESSEE'S APPEAL LEARNED CIT-A HAS RESTRIC TED THE SAME TO 12.5% BY HOLDING AS UNDER :- 4.2.5. IN VIEW OF THE ABOVE, IT IS AN ADMITTED FACT THAT SALES TAX DEPARTMENT HAS ESTABLISHED LARGE NUMBER OF COMPANIES/FIRMS/PARTN ERSHIP CONCERNS AS HAWALA DEALERS WHO ARE ENGAGED IN ACCOMMODATION ENTR IES WITHOUT ACTUALLY SUPPLYING THE GOODS. THE APPELLANT IS ONE OF THE BENEF ICIARY AND HAS RECEIVED SUCH ACCOMMODATION BILLS FROM THE PARTY NAMED SUNIL METAL (INDIA) TOTALING SURESH MEHTA HUF 2 TO RS. 11,87,978/-. THE APPELLANT FAILED TO SUBSTANTIAT E THE PURCHASES MADE FROM THE HAWALA DEALERS. THE APPELLANT COULD NOT FILE ANY OF VITAL DOCUMENTS. THE SPECIFIC DETAILS REQUIRED TO ESTABLISH THE GENUINEN ESS OF PURCHASES COULD NOT BE SUBMITTED BEFORE THE A.O. FROM THE ABOVE IT IS CL EAR THAT THE ADDITION IS NOT ONLY BASED ON REPORT OF SALES TAX DEPARTMENT. T HE APPELLANT HAS FAILED TO ESTABLISH THE CLAIM OF PURCHASE. HOWEVER, IT IS AL SO A FACT THAT THE REVENUE HAS NOT QUESTIONED THE SALES SHOWN BY THE APPELLANT. IF THERE IS A SALE THERE HAS TO BE A CORRESPONDING PURCHASES OF INPUTS/RAW MAT ERIALS/GOODS. IT IS A CASE WHERE THE APPELLANT HAS NOT PURCHASED THE RELEVANT GOODS FROM THE PARTIES WHOSE BILLS HAVE BEEN UTILIZED. IN OTHER WOR DS, THE GOODS HAVE NOT BEEN PURCHASED FROM THE PARTIES WHICH HAVE BEEN EXAM INED BY THE SALES TAX DEPARTMENT. ONLY THE BILLS OF SUSPICIOUS HAWALA DEALE RS HAVE BEEN USED AND GOODS HAVE ACTUALLY BEEN PURCHASED FROM GREY MARKET S. THE VARIOUS JUDICIAL DECISION IN SUCH SITUATION HAVE LAID DOWN A PRINCIPLE THAT ADDITIONS SHOULD BE RESTRICTED TO THE BENEFITS OBTAINED BY USING SUCH AC COMMODATION ENTRY. THUS THE AO IS NOT JUSTIFIED TO DISALLOW ENTIRE PURCHASE S WITHOUT QUESTIONING THE SALE. FOLLOWING THE RATIO OF COMMISSIONER OF INCO ME-TAX V. SIMIT P. SHETH [2013] 356 ITR 451 (GUJARAT) DISALLOWANCE OF 12.5% O F PURCHASE WILL BE JUSTIFIED. THUS DISALLOWANCE IS UPHELD HOWEVER IT IS RESTRICTED TO 12.5% OF THE PURCHASES FROM SUSPICIOUS HAWALA DEALERS. THE GROUN DS OF APPEAL ARE THEREFORE PARTLY ALLOWED. 4. AGAINST ABOVE ORDER ASSESSEE IS IN APPEAL BEFORE THE ITAT. 5. I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RE CORD. UPON CAREFUL CONSIDERATION I FIND THAT ADVERSE INFERENCE HAVE BE EN DRAWN DUE TO THE INABILITY OF THE ASSESSEE TO PRODUCE THE SUPPLIERS. I FIND THAT IN THIS CASE THE SALES HAVE NOT BEEN DOUBTED. IT IS SETTLED LAW THAT WHEN SALES ARE NOT DOUBTED, HUNDRED PERCENT DISALLOWANCE FOR BOGUS PURCHASE CAN NOT BE DONE. THE RATIONALE BEING NO SALES IS POSSIBLE WITHOUT ACTUAL PURCHASES. THIS PROPOSITION IS SUPPORTED FROM HONOURABLE JURISDICTIONAL HIGH CO URT DECISION IN THE CASE OF NIKUNJ EXIMP ENTERPRISES (IN WRIT PETITION NO 2860, ORDER DATED 18.6.2014). IN THIS CASE THE HONOURABLE HIGH COURT HAS UPHELD HUND RED PERCENT ALLOWANCE FOR THE PURCHASES SAID TO BE BOGUS WHEN SALES ARE N OT DOUBTED. HOWEVER IN THAT CASE ALL THE SUPPLIES WERE TO GOVERNMENT AGENC Y. 6. IN THE PRESENT CASE THE FACTS OF THE CASE INDICA TE THAT ASSESSEE HAS MADE PURCHASE FROM THE GREY MARKET. MAKING PURCHASES THR OUGH THE GREY MARKET GIVES THE ASSESSEE SAVINGS ON ACCOUNT OF NON-PAYMEN T OF TAX AND OTHERS AT THE EXPENSE OF THE EXCHEQUER. AS REGARDS THE QUANTIFICA TION OF THE PROFIT ELEMENT SURESH MEHTA HUF 3 EMBEDDED IN MAKING OF SUCH BOGUS/UNSUBSTANTIATED PU RCHASES BY THE ASSESSEE, I FIND THAT AS HELD BY HON'BLE HIGH COURT OF BOMBAY IN ITS RECENT JUDGEMENT IN THE CASE OF M. HAZI ADAM & CO. (ITA NO . 1004 OF 2006 DATED 11.2.2019 IN PARAGRAPH 8 THEREOF), THE ADDITION IN RESPECT OF BOGUS PURCHASES IS TO BE LIMITED TO THE EXTENT OF BRINGING THE GROS S PROFIT RATE ON SUCH PURCHASES AT THE SAME RATE AS OF OTHER GENUINE PURC HASES. 7. I RESPECTFULLY FOLLOWING THE AFORESAID JUDGEMEN T OF HON'BLE HIGH COURT, SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING O FFICER WITH THE DIRECTION TO RESTRICT THE ADDITION AS REGARDS THE BOGUS PURCHASE S BY BRINGING THE GROSS PROFIT RATE ON SUCH BOGUS PURCHASES AT THE SAME RAT E AS THAT OF THE OTHER GENUINE PURCHASES. NEEDLESS TO ADD THE ASSESSEE SHO ULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEARD. LEARNED COUNSEL OF THE ASSESSEE FAIRLY AGREED TO THE SAME. 8. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 21.10.2021. SD/- (SHAMIM YAHYA) ACCOUNTANT MEMBE R MUMBAI; DATED : 21/10/2021 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// ( ASSISTANT REGISTRAR) PS ITAT, MUMBAI