ITO 27(2)(2), NAVI MUMBAI V. MANOJ SHANITLAL MEHTA, MUMBAI

ITA 1227/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6854 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 09-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR
• Assessee Lawyers: KETAN N GADA
• Keywords: Bogus purchase; Unexplained expenditure; Peak credit
• Section: 69C; 143(3); 133A; 133(6); 147; 131; 148

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL B BENCH MUMB AI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.1227/MUM/2016 (ASSESSMENT YEAR 200 9-10 ) ITO-27(2)(2) ROOM NO. 414, 4 TH FLOOR, TOWER NO.6, VASHI RAILWAY STATION COMPLEX, VASHI, NAVI MUMBAI-400703. VS. MANOJ SHANTILAL MEHTA C/O. DEVANKUR STEEL, 31, AHMEDABAD STREET, CARNAC BUNDER, MUMBAI -400009. PAN: ACJPM8523H APPELLANT RESPONDENT CROSS OBJECTION NO.267/MUM/2017 (ASSESSMENT YEAR 20 09-10 ) MANOJ SHANTILAL MEHTA C/O. DEVANKUR STEEL, 31, AHMEDABAD STREET, CARNAC BUNDER, MUMBAI -400009. PAN: ACJPM8523H VS. ITO-27(2)(2) ROOM NO. 414, 4 TH FLOOR, TOWER NO.6, VASHI RAILWAY STATION COMPLEX, VASHI, NAVI MUMBAI-400703. APPELLANT RESPONDENT APPELLANT BY : SHRI SUMAN KUMAR (DR) RESPONDENT BY : SHRI KETAN N. GADA (AR) DATE OF HEARING : 29.05.2018 DATE OF PRONOUNCEMEN T : 29 .05.2018 ORDER UNDER SECTION 254(1) OF INCOMETAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY REVENUE AND CROSS OBJECTION BY ASSES SEE ARE DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-25, [LD. CIT(APPEALS)], MUMBAI DATED 29.12.2015 FOR ASSESSME NT YEAR 2009-10, WHICH IN TURN ARISES FROM THE ASSESSMENT ORDER PASS ED UNDER SECTION 143(3) R.W. SECTION 147 DATED 25.03.2014. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: ITA NO. 1227/MUM/2016 & C.O. 267/M/2017 MANOJ SH ANTILAL MEHTA 2 1. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN DELETING THE PEAK CREDIT DISALLOWANCE OF RS.1,65,65 , 711/ - ON ACCOUNT OF BOGUS PURCHASES AND ACCEPTING THE GP OF THE ASSESSE E FOR ESTIMATING THE PROFIT MARGIN ON BOGUS PURCHASES OF RS.3,85,50,436/ -, WHE N THE GP OF THE ASSESSEE WAS NO LONGER RELIABLE IN VIEW OF THE HIGH AMOUNT O F BOGUS PURCHASES, AND IN VIEW OF THE HON'BLE HIGH COURT JUDGMENT IN THE CASE OF CIT VS. SMIT P SHETH RELIED UPON BY THE LD.CIT(A), WHERE THE HON'BLE HIG H COURT RESTRICTED THE DISALLOWANCE TO 12.5% OF THE BOGUS PURCHASES'. 2. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS.1,58,44,820/- MADE U/S. 69C OF T HE ACT ON ACCOUNT OF HAWALA PURCHASES, WITHOUT APPRECIATING THE FACT, TH AT THE ASSESSEE HAD FAILED TO PRODUCE BILLS, VOUCHERS AND OTHER DOCUMENTARY EV IDENCES IN SUPPORT OF HIS CLAIM. THE LD. CIT(A) ERRED IN ESTIMATING THE PROFI T FROM HAWALA PURCHASES ON THE BASIS OF G.P. OF THE ASSESSEE INSTEAD OF PEAK C REDIT DISALLOWANCE MADE BY THE ASSESSING OFFICER, AS EVEN THE BASIC ONUS OF PR ODUCING BILLS OF PURCHASES, LEDGER ACCOUNTS, TRANSPORT BILLS, DELIVERY CHALLANS WAS NOT FULFILLED BY THE ASSESSEE'. 3. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN REDUCING THE ADDITION BY APPLYING THE DISCLOSED GP. RATE OF 1.87% WHILE THE HIGHER GP. RATE OUGHT TO HAVE BEEN APPLIED AS THE P URCHASES WERE BOGUS. 4. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A ) ON THE ABOVE GROUNDS BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTO RED'. 2. IN CROSS OBJECTION, THE ASSESSEE HAS RAISED THE FOL LOWING GROUNDS OF APPEAL: 1. THE LD. ASSESSING OFFICER ERRED IN OBJECTING THE ORDER OF LD. CIT (A) CONTENTION OF DELETING THE DISALLOWANCE OF RS.1,65, 65,711/- ON ACCOUNT OF BOGUS PURCHASES AND ACCEPTING THE G.P. OF THE ASSES SEE FOR ESTIMATING THE PROFIT MARGIN. 2. WITHOUT PREJUDICE TO THE ABOVE THE LD. ASSESSING OFFICER'S ERRED IN STATING THAT BILLS OF PURCHASES, LEDGER ACCOUNTS, TRANSPORT BILLS, DELIVERY CHALLAN WERE NOT FULFILLED BY ASSESSEE. HOWEVER, ALL THE DOCUMEN TS WERE SUBMITTED VIDE LETTER DATE 28.01.2014, 04.02.2014 AND ON 14.02.201 4 DURING THE ASSESSMENT PROCEEDINGS AND ALSO TO LD. CIT (A) AT THE TIME OF APPEAL SUBMISSIONS. 3. THE HON'BLE HIGH COURT JUDGEMENT IN THE CASE IN CIT VS. SMITH P. SETH RELIED UPON BY THE LD. CIT (A) TO INFER THAT, NOT T HE ENTIRE PURCHASE PRICE BUT ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES CAN BE ADDED TO THE INCOME OF THE ASSESSEE AND NOT THE QUANTUM OF THE ESTIMATE D GROSS PROFIT. ITA NO. 1227/MUM/2016 & C.O. 267/M/2017 MANOJ SH ANTILAL MEHTA 3 4. THE RESPONDENT PRAY THAT THE ORDER OF THE LD. CI T (A) ON THE ABOVE GROUNDS BE RESTORED AND THAT OF THE ASSESSING OFFIC ER BE RESERVED. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PROPRIETOR OF M/S DIVANKUR STEELS, ENGAGED IN THE BUSINESS OF TRADING IN IRON & STEEL. THE ASSESSEE FILED HIS RETURN OF INCOME FOR ASSESSMENT YEAR 2009 -10 ON 30.09.2009 DECLARING TOTAL INCOME OF RS. 3,64,544/-. A SURVEY UNDER SECTION 133A WAS CONDUCTED ON 22.01.2013. DURING THE SURVEY, IT WAS FOUND THAT ASSESSEE MADE PURCHASES FROM PARTIES WHO HAVE DECLARED AS A BOGUS PARTY BY SALES TAX AUTHORITY OF STATE GOVERNMENT. THE ASSESSEE, WH EN CONFRONTED WITH THE INFORMATION GATHERED IN SURVEY STATED THAT HE W OULD NOT BE ABLE TO PRODUCE THE PARTIES AS PURCHASES WERE MADE THROUGH BROKERS AND THE CHEQUES WERE HANDED OVER TO THE BROKERS. ON THE BAS IS OF INFORMATION GATHERED IN THE SURVEY, THE ASSESSMENT WAS RE-OPENE D UNDER SECTION 147. NOTICE UNDER SECTION 148 WAS SERVED ON THE ASSESSEE . IN RESPONSE TO THE NOTICE, THE ASSESSEE CONTENDED THAT RETURN ALREADY FILED ON 30.09.2010 BE TREATED AS RETURN IN RESPONSE TO THE NOTICE UNDER S ECTION 148. THE ASSESSING OFFICER PROCEEDED TO MAKE THE REASSESSMEN T PROCEEDING. DURING THE ASSESSMENT, NOTICE UNDER SECTION 133(6) WAS ISS UED TO THE PARTIES IN ORDER TO VERIFY THE GENUINENESS OF PURCHASES. THE N OTICE OF THE FOLLOWING PARTIES WERE ISSUED: 1 N.B. ENTERPRISES 53,66,200 2 ADINATH TRADING 21,62,893 3 SAMBHAV SALES CORPORATION 35,50,513 4 RUMEET ENTERPRISES 98,89,238 5 ZENITH ENTERPRISES 13,64,752 ITA NO. 1227/MUM/2016 & C.O. 267/M/2017 MANOJ SH ANTILAL MEHTA 4 6 J.B. INTERLINK 73,76,658 7 JINDAL STEEL CORPORATION 78,57,714 8 REVIKA TRADE IMPEX P. LTD. 14,82,468 TOTAL 3,83,50,436/- 4. NO INFORMATION OR RESPONSE WAS MADE BY THE PARTIES IN RESPONSE TO THE NOTICE UNDER SECTION 133(6). THE ASSESSEE WAS ASKED TO PRODUCE THE PARTIES IN ORDER TO VERIFY THE IDENTITY OF THE PARTIES AND GENUINENESS OF THE PURCHASES. THE ASSESSEE FAILED TO PRODUCE THE PARTI ES. THE ASSESSEE CONTENDED THAT THEY HAVE MADE THE GENUINE PURCHASES FROM THE PARTIES AND WHICH ARE DULY ACCOUNTED IN THE BOOKS OF ACCOUNT. T HE PURCHASES HAVE BEEN ENTERED INTO STOCK-REGISTER AND SUBSEQUENTLY S OLD AND CORRESPONDENCE SALE APPEARED AS A PARTY OF SALE TURNOVER. GROSS PR OFIT (GP) EARNED ON THESE TRANSACTIONS HAS BEEN OFFERED TO TAX. THE PAY MENTS TO THE PARTIES WERE MADE THROUGH ACCOUNT PAYEE CHEQUE, IN CASE PUR CHASES ARE DISALLOWED, IT WILL AMOUNT TO DOUBLE TAXATION AS CO RRESPONDING SALE AND PROFIT HAS ALREADY BEEN OFFERED FOR TAX. THE ASSESS EE REQUESTED THE ASSESSING OFFICER TO ISSUE NOTICE UNDER SECTION 131 . THE ASSESSING OFFICER TOOK HIS VIEW THAT THE ASSESSEE HAS NOT FURNISHED E VIDENCE RELATED WITH DELIVERY CHALLAN, TRANSPORT BILL AND THAT BY MAKING PAYMENT THROUGH ACCOUNT PAYEE CHEQUE IS NOT SUFFICIENT TO PROVE THE EXISTENCE OF THE PARTIES AND THE GENUINENESS OF THE TRANSACTION. THE ASSESSING OFFICER ON THE BASIS OF PEAK OF THE CUMULATIVE OUTSTANDING OF EIGHT PARTIES ADDED THE ADDITION OF RS. 1,65,65,711/- UNDER SECTION 69C OF THE ACT. ON APPEAL BEFORE THE LD. CIT(A) , THE ADDITION WAS RESTRICTED TO 1.87% OF THE TOTAL ITA NO. 1227/MUM/2016 & C.O. 267/M/2017 MANOJ SH ANTILAL MEHTA 5 PURCHASES FROM THESE EIGHT PARTIES/IMPUGNED BOGUS P ARTIES. THEREFORE, ONLY ADDITION TO THE EXTENT OF RS. 7,20,890/- WAS R ESTRICTED AND REST OF THE BALANCE ADDITION OF RS. 15,82,280/- WAS DELETED. TH EREFORE, AGGRIEVED BY THE ORDER OF LD. CIT(A), THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. 5. AT THE OUTSET OF HEARING, THE LD. AR OF THE ASSESSE E HAS NOT PRESSED THE CROSS OBJECTION; THEREFORE, CONSIDERING THE SUBMISS ION OF LD. AR OF THE ASSESSEE, THE CROSS OBJECTION OF ASSESSEE IS DISMIS SED AS NOT PRESSED. 6. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIVE ( DR) FOR THE REVENUE AND LD. AUTHORIZED REPRESENTATIVE (AR) OF THE ASSES SEE AND PERUSED THE MATERIAL AVAILABLE ON RECORD . THE LD. DR FOR THE REVENUE SUBMITS THAT THE LD. CIT(A) HAS WRONGLY RESTRICTED THE ADDITION TO 1 .87% OF THE TOTAL PURCHASES. THE ASSESSEE FAILED TO SUBSTANTIATE THE GENUINENESS OF THE PURCHASES. DESPITE GIVING SUFFICIENT OPPORTUNITY TO THE ASSESSEE, THE ASSESSEE FAILED TO PROVE THE PARTIES AND TO SUBSTAN TIATE THE PURCHASES BY SHOWING THE PROOF OF DELIVERY CHALLAN OF GOODS, TRA NSPORT BILL ETC. THE ASSESSEE MERELY SUBMITTED THAT THE MATERIAL WAS PUR CHASED THROUGH BROKERS. THE ASSESSEE HAS NOT GIVEN THE DETAILS OF BROKER. 7. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SUBMI TS THAT THE ASSESSEE MADE PURCHASES FROM DEALERS BY MAKING PAYMENT THROU GH ACCOUNT PAYEE CHEQUES. THE ASSESSEE FILED THE DOCUMENT RELATED WI TH BANK STATEMENT, SHOWING THE DEBIT TO THE BANK ACCOUNT OF ALL THE PA RTIES. THE ASSESSEE ALSO FURNISHED THE COPY OF PURCHASE BILL, BANK STATEMENT , AND OCTROI RECEIPT, ITA NO. 1227/MUM/2016 & C.O. 267/M/2017 MANOJ SH ANTILAL MEHTA 6 RECONCILIATION OF STOCK STATEMENT TO PROVE THE PURC HASES ARE GENUINE AND NOT BOGUS. THE ASSESSING OFFICER VIDE SHOW-CAUSE NO TICE DATED 13.04.2014 ASKED AS TO WHY THE PEAK OF THE AFORESAI D PURCHASES SHOULD NOT BE TREATED AS UNEXPLAINED EXPENDITURE. THE ASSESSEE EXPLAINED VIDE HIS LETTER DATED 21.03.2014. THE ASSESSING OFFICER BY I GNORING THE EXPLANATION ADDED THE ADDITION OF RS. 1,65,65,711/- BY APPLYING PEAK CREDIT. THE LD. CIT(A) AFTER CONSIDERING THE FACT OF THE CASE AND C ONSIDERING THE GROSS PROFIT MARGIN AS THE ASSESSEE IS WHOLESALER IN STEE L AND IRON, WHERE MARGIN IS BELOW 2%. THE ASSESSING OFFICER HAS NOT DISPUTED THE SALE OF THE ASSESSEE; THE ORDER PASSED BY ASSESSING OFFICER IS BASED ON PROPER APPRECIATION OF THE FACT. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDER OF AUTHORITIES BELOW. WE HAVE NOT ED THAT THE ASSESSING OFFICER MADE THE RE-OPENING ON THE BASIS OF SURVEY ACTION CARRIED OUT AT THE PREMISES OF THE ASSESSEE ON 22.01.2013 WHEREIN IT W AS FOUND THAT ASSESSEE MADE PURCHASES FROM PARTIES WHO HAVE BEEN DECLARED BOGUS BY THE SALE TAX AUTHORITIES. DURING THE RE-ASSESSMENT PROCEEDI NGS THE ASSESSING OFFICER ISSUED NOTICE UNDER SECTION 133(6) TO VERIF Y THE GENUINENESS OF THE PARTIES. NONE OF THE PARTIES RESPONDED IN RESPONSE TO THE NOTICE UNDER SECTION 133(6). EVEN, THE ASSESSEE COULD NOT PRODUC E THE PARTIES FOR VERIFICATION. THE ASSESSEE CONTENDED THAT THE PURCH ASES WERE MADE THROUGH BROKER. THE NAME AND ADDRESS OF THE BROKER IS NOWHE RE DISCLOSED BY THE ITA NO. 1227/MUM/2016 & C.O. 267/M/2017 MANOJ SH ANTILAL MEHTA 7 ASSESSEE. THE ASSESSING OFFICER BY APPLYING THE PEA K OF THE CUMULATIVE PURCHASES MADE THE ADDITION OF RS. 1,65,65,711/-. 9. WE HAVE NOTED THAT THE ADDITION MADE BY ASSESSING O FFICER IS ABOUT 43.19% OF THE ALLEGED BOGUS PURCHASES. BEFORE THE L D. CIT(A), THE ASSESSEE CONTENDED THAT THE PURCHASES OF THE ASSESS EE ARE GENUINE. THE ASSESSEE FURTHER CONTENDED THAT IF THE PURCHASES AR E DISALLOWED THEN IT WOULD AMOUNT TO DOUBLE TAXATION AS PROFIT HAS ALREA DY BEEN TAXED. THE ASSESSEE ALSO REITERATED THE SUBMISSION MADE BEFORE THE ASSESSING OFFICER. THE ASSESSEE CONTENDED THAT THE GROSS PROFIT RATE W AS 1.87%. THE LD. CIT(A) ON THE BASIS OF G.P. RATIO RESTRICTED THE AD DITION TO 1.87% OF THE ALLEGED BOGUS PURCHASES. WE HAVE NOTED THAT DURING THE ASSESSMENT PROCEEDING, THE ASSESSEE CONTENDED THAT G.P ADDITIO N OF 4% MAY BE ADDED ON THE ALLEGED BOGUS PURCHASES. IN OUR VIEW, THE AD DITION MADE BY ASSESSING OFFICER ON THE BASIS OF PEAK OF CUMULATIV E OUTSTANDING OF RS. 1,65,65,711/- WAS ON HIGHER SIDE. SIMILARLY, THE AD DITION RESTRICTED BY LD. CIT(A) IS ALSO ON EXTREMELY ON LOWER SIDE. 10. WE HAVE NOTICED THAT NEITHER THE AO NOR LD. CIT(A) REJECTED THE SALES OF THE ASSESSEE, NOR STATEMENT OF ACCOUNTS MAINTAINED BY ASSESSEE WAS REJECTED. WE ARE OF THE CONSIDERED OPINION THAT UND ER INCOME TAX ACT ONLY REAL INCOME CAN BE TAXED BY THE REVENUE. WE MAY FU RTHER NOTE THAT EVEN IN CASES WHERE THE WHOLE TRANSACTION IS NOT VERIFIA BLE DUE TO VARIOUS REASONS, THE ONLY TAXABLE IS THE TAXABLE INCOME COM PONENT AND NOT THE ITA NO. 1227/MUM/2016 & C.O. 267/M/2017 MANOJ SH ANTILAL MEHTA 8 ENTIRE TRANSACTION. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HARIRAM BHAMBANI IN ITA NO.313 OF 2013 DECIDED ON 04.02.15 HELD THAT THE REVENUE IS NOT ENTITLED TO BRING THE ENTIR E SALES CONSIDERATION TO TAX, BUT ONLY THE PROFIT ATTRIBUTABLE ON THE TOTAL UNRECORDED SALE CONSIDERATION ALONE CAN BE SUBJECT TO INCOME TAX. WE HAVE FURTHER NOTICED THAT THE LD. CIT(A) NOT EXAMINED THE GROSS PROFIT R ATIO OR NET PROFIT RATIO OF ASSESSEE FOR PREVIOUS YEAR AND IN SUBSEQUENT YEA RS. THE LD. CIT(A) RESTRICTED THE ADDITION TO 1.87% OF THE BOGUS PURCH ASES ON THE BASIS OF GROSS PROFIT RATIO FURNISHED BY ASSESSEE. CONSIDERI NG THE FACT THAT ASSESSEE FAILED TO PRODUCE BROKER, TRANSPORT RECEIPT, DELIVE RY CHALLAN. IN OUR VIEW, THE ADDITION SUSTAINED BY LD. CIT(A) IS ON LOWER SI DE. AFTER CONSIDERING THE FACTS AND RIVAL CONTENTIONS OF THE PARTIES, WE ARE OF THE OPINION THAT IN ORDER TO FULFILL THE GAP OF REVENUE LEAKAGE THE DIS ALLOWANCE OF REASONABLE PERCENTAGE OF IMPUGNED PURCHASE WOULD MEET THE END OF JUSTICE. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. H ARIRAM BHAMBANI IN ITA NO.313 OF 2013 DECIDED ON 04.02.15 HELD THAT THE REVENUE IS NOT ENTITLED TO BRING THE ENTIRE SALES CONSIDERATION TO TAX, BUT ONLY THE PROFIT ATTRIBUTABLE ON THE TOTAL UNRECORDED SALE CONSIDERA TION ALONE CAN BE SUBJECT TO INCOME TAX. THUS, CONSIDERING THE PECULIARITY O F THE FACTS, THAT THE ASSESSEE IS DEALING IN STEEL AND IRON ON WHICH THE VAT IS APPLICABLE @ 4%, HENCE, WE ARE OF THE OPINION THAT DISALLOWANCE MADE ON ACCOUNT OF BOGUS PURCHASES BE RESTRICTED TO 4% OF THE IMPUGNED / DISPUTED PURCHASES, ITA NO. 1227/MUM/2016 & C.O. 267/M/2017 MANOJ SH ANTILAL MEHTA 9 INSTEAD OF 1.8% WHICH WOULD BE SUFFICIENT TO FULFIL L THE GAP OF REVENUE LEAKAGE. HENCE, THE GROUNDS OF APPEAL RAISED BY REV ENUE ARE PARTLY ALLOWED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED AND CROSS OBJECTION OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29.05.2018. SD/- SD/- RAJESH KUMAR PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 29.05.2018 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR B BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI