ITO 17(3)(5), MUMBAI V. SMT. URMILA KIRIT MEHTA, MUMBAI

ITA 1340/MUM/2020

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 4395 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 28-02-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Cost of acquisition; Accommodation entries
• Section: 133(6); 143(1); 13; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (VIRTUAL COURT) SMC BENCH, MUMBAI BEFORE SHRI C.N. PRAS AD, HON'BLE JUDICIAL MEMBER ITA NO. 1340 /MUM/20 20 ( A. Y : 20 11 - 12) INCOME TAX OFFICER 17 (3)(5) ROOM NO. 131, 1 ST FLOOR KAUTILYA BHAVAN, G - BLOCK BANDRA KURLA COMPLEX BANDRA(E), MUMBAI - 400051 V. SMT URMILA KIRIT MEHTA 10, HORNBY BUILDING 172/174, DR. D.N. ROAD MUMBAI - 400001 PAN: AAHPM2734N ( A PPELLANT) (RESPONDENT) ASSESSEE BY : NONE DEPARTMENT BY SHRI SANJAY J. SETHI DATE OF HEARING : 13.09.2021 DATE OF PRONOUNCEMENT : 13 . 09.2021 O R D E R PER C. N. PRASAD (JM) 1. THIS APPEAL IS FILED BY THE R EVENUE AGAINST ORDER OF THE LEARNED COMMISS IONER OF INCOME TAX (APPEALS) 28 , MUMBAI [HEREINAFTER IN SHORT LD.CIT(A)] DATED 26.11.2019 FOR THE A.Y. 20 1 1 - 12 IN RESTRICTING THE DISALLOWANCE TO 12.5 % OF PURCHASES OF . 3,00,948 / - AS AGAINST THE ENTIRE PURCHASES DISALLOWED AS NON - GENUINE/BOGUS BY THE ASSESSING OFFICER. 2 ITA NO. 1340/MUM/2020 (A.Y: 2011 - 12) SMT URMILA KIRIT MEHTA 2. BRIEFLY STATED THE FACTS ARE THAT, THE ASSESSEE ENGAGED IN THE BUSINESS OF TRADING IN M.S. SEAMLESS TUBES AND PIPES AND ALLIED GOODS , FILED RETURN OF INCOME FOR THE A.Y.2011 - 12 ON 15.09.2011 DECLARING INCOME OF . 6,49,910 / - AND THE RETURN WAS PROCESSED U/S. 143(1) OF THE ACT. SUBSEQUENTLY, ASSESSING OFFICER RECEIVED INFORMATION FROM THE DGIT(INV.)., MUMBAI ABOUT THE ACCOMMODATION ENTRIES PROVIDED BY VARIOUS DEALERS AND ASSESSEE WAS ALSO ONE OF THE BENEFICIARY FROM THOSE DEA LERS. THE ASSESSMENT WAS REOPENED U/S. 147 OF THE ACT BASED ON THE INFORMATION RECEIVED FROM DGIT(INV.)., MUMBAI, THAT THE ASSESSEE HAS AVAILED ACCOMMODATION ENTRIES FROM VARIOUS PARTIES WHO ARE SAID TO BE PROVIDING ACCOMMODATION ENTRIES WITHOUT THERE BEI NG TRANS PORTATION OF ANY GOODS. IN THE RE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS REQUIRED TO PROVE THE GENUINENESS OF THE PURCHASES MADE FROM VARIOUS PARTIES AS MENTIONED IN THE ASSESSMENT ORDER. IN REPLY , ASSESSEE FURNISHED COPIES OF LEDGER ACCOUNTS OF THE PURCHASE PARTY, PURCHASE BILL AND PAYMENT DETAILS TO PURCHASE PARTY AND SUBMITTED THAT THE TRANSACTIONS ARE GENUINE. ASSESSEE FURTHER SUBMITTED THAT THE PAYMENTS ARE MADE THROUGH ACCOUNT PAYEE CHEQUES A S SUCH CON TENDED THAT ALL THE PURCHASES ARE GENUINE. 3. NOT CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE THE ASSESSING OFFICER TREATED THE PURCHASES AS NON - GENUINE AND HE WAS OF THE OPINION 3 ITA NO. 1340/MUM/2020 (A.Y: 2011 - 12) SMT URMILA KIRIT MEHTA THAT ASSESSEE HAD OBTAINED ONLY ACCOMMODATION ENTRIES WITHOUT THERE BEING ANY TRANSPORTATION OF MATERIALS AND THE ASSESSEE MIGHT HAVE MADE PURCHASES IN THE GRAY MARKET. ASSESSING OFFICER OBSERVED THAT THE NOTICES ISSUED U/S. 133(6) OF THE ACT TO THE PARTIES ARE RETURNED UNSERVED AND THE ASSESSEE HAS NOT PRODUCED THE PARTIES BEFORE THE ASSESSING OFFICER . IT IS THE FINDING OF THE ASSESSING OFFICER THAT THE ASSESSEE FAILED TO PRODUCE THE PARTIES IN SUPPORT OF ITS CLAIM THAT PURCHASES ARE GENUINELY MADE FROM THE PARTIES . THEREFORE, ASSESSING OFFICER TREATED PURCHASES OF . 3,00,948 / - AS NON - GENUINE AND ADDED TO THE INCOME OF THE ASSESSEE. ON APPEAL THE LD.CIT(A) CONSIDERING THE EVIDENCES AND VARIOUS SUBMISSIONS OF THE ASSESSEE RESTRICTED TH E DISALLOWANCE TO THE EXTENT 12. 5% OF THE NON - GENUINE PURCHASES. 4. INSPITE OF ISSUE OF NOTICE NON E APPEARED ON BEHALF OF THE ASSESSEE NOR ANY ADJOURNMENT WAS SOUGHT. THEREFORE, I PROCEED TO DISPOSE OF THIS APP EAL ON HEARING LD.DR ON MERITS. 5. LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE ASSESSING OFFICER. 6. HEARD LD.DR , PERUSED THE ORDERS OF THE AUTHORITIES BELOW. ON A PERUSAL OF THE ORDER OF THE LD.CIT(A), I FIND THAT THE LD.CIT(A) CONSIDERED THIS ASPECT OF THE MATTER ELABORATELY WITH REFERENCE TO THE SUBMISSIONS OF 4 ITA NO. 1340/MUM/2020 (A.Y: 2011 - 12) SMT URMILA KIRIT MEHTA THE ASSESSEE AND THE AVERM ENTS IN THE ASSESSMENT ORD ER AND FOLLOWING THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V. SIMIT P. SHETH [356 ITR 451] RESTRICTED THE DISALLOWANCE TO 1 2 . 5% OF THE NON - GENUINE PURCHASES OF . 3,00,948 / - , WHILE HOLDING SO, THE LD.CIT(A) OBSERVED AS UNDER: - 5.7 IN THIS CONTEXT, THEREFORE, IT IS PERTINENT TO NOTE THAT THE HIGH COURT OF GUJARAT IN THE CASE OF COMMISSIONER OF INCOME - TAX V. SIMIT P. SHETH [2013] 356 ITR 451 (GUJARAT) HAS HELD THAT WHERE PURCHASES WERE NOT BOGUS BUT WERE MADE FROM PARTIES OTHER TH AN THOSE MENTIONED IN BOOKS OF ACCOUNTS NOT ENTIRE PURCHASE PRICE BUT ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES CAN BE ADDED TO INCOME OF ASSESSEE. IN THAT CASE THE ASSESSING OFFICER NOTICED THAT SOME OF THE ALLEGED 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 PROVIDED SALE BILLS. THE CIT(A) NOTED THAT THE APPELLANT - ASSESSEE MAY HAVE HAD MADE THE PURCHASES FROM OTHER PARTIES IN THE OPEN MARKET. THERE UPON, HE RETAINED 30 PER CENT OF THE PURCHASE COST AS THE PROBABLE PROFIT OF THE ASSESSEE. THE ITAT WAS OF THE OPINION THAT TWELVE AND HALF PER CENT OF THE DISPUTED PURCHASES SHOULD BE RETAINED IN THE HANDS OF THE ASSESSEE AS BUSINESS PROFIT. IN THE RESULT , THE TRIBUNAL PARTIALLY ALLOWED THE ASSESSEE'S APPEAL. THE HIGH COURT HELD THAT ONCE THE ASSESSEE'S SALE OF 'X' QUANTITY OF STEEL IS ACCEPTED, THE PURCHASES OF THE SAME QUANTITY HAD TO BE BELIEVED. IT WAS HELD THAT IT MAY BE THAT THE THREE SUPPLIERS FROM WHOM THE ASSESSEE CLAIMED TO HAVE PURCHASED THE STEEL DID NOT OWN UP TO SUCH SALES BUT THE VITAL QUESTION REMAINS I.E. WHETHER THE ENTIRE AMOUNT OF PURCHASES SHOULD BE ADDED BACK TO THE INCOME OF THE ASSESSEE OR ONLY THE PROFIT ELEMENT EMBEDDED THEREIN WAS TO ASCERTAINED; AND WHETHER THE PURCHASES THEMSELVES WERE COMPLETELY BOGUS AND NON - EXISTENT OR THAT THE PURCHASES WERE ACTUALLY MADE BUT NOT FROM THE PARTIES FROM WHOM IT WAS CLAIMED TO HAVE BEEN MADE AND INSTEAD MAY HAVE BEEN PURCHASED FROM GREY MARKET W ITHOUT PROPER BILLING OR DOCUMENTATION. THE HIGH COURT HELD THAT IN THE PRESENT CASE WHEN THE TOTAL SALE IS ACCEPTED BY THE ASSESSING OFFICER, HE COULD NOT HAVE QUESTIONED THE VERY BASIS OF THE PURCHASES. THAT BEING THE POSITION, NOT THE ENTIRE PURCHASE PR ICE BUT ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES CAN BE ADDED TO THE INCOME OF THE ASSESSEE. 5 ITA NO. 1340/MUM/2020 (A.Y: 2011 - 12) SMT URMILA KIRIT MEHTA 5.8 I, THEREFORE, FIND THAT IN THE CASE OF THE APPELLANT AS WELL, THE RATIO OF THE ABOVE SAID DECISION WOULD LARGELY APPLY, IN AS MUCH AS THE FACT THAT HERE ALSO IT WOULD BE A QUESTION OF A REASONED ESTIMATE OF THE PROFIT ELEMENT EMBEDDED IN THE TRANSACTION. THIS IS ALSO BASED ON SOUND LOGIC THAT THE EMBEDDED PROFIT ELEMENT OF THE TRANSACTION WOULD BE A CORRECT APPROACH TO TAKE, SINCE, THE RIVAL CONTENTIO NS ARE RESOLVED IN THE FINE BALANCE OF CONVENIENCE. THIS IS MORE SO BECAUSE THE STAND OF THE AO IN TAXING THE ENTIRE AMOUNT OF TRANSACTION WOULD BE A CLASSIC CASE OF EXECUTIVE OVERREACH. 5.9 I HAVE ALSO DULY CONSIDERED THE ARGUMENTS OF THE AR AND WHEREAS, I FIND THAT THE LD. AR MAY BE JUSTIFIED IN OPPOSING THE 100% ADDITION YET THERE IS NO PLAUSIBLE CASE THAT EVEN THE EMBEDDED PROFIT ELEMENT SHOULD NOT BE TAKEN FOR TAXAT ION. I HAVE ALSO DULY NOTED THE CASE LAWS CITED BY THE APPELLANT. HOWEVER, ON A CAREFUL PERUSAL OF THE SAME, IT IS SEEN THAT RATHER THAN PIN - POINT AS TO HOW AND IN WHAT MODE OR MANNER, DO THESE PRECEDENTS, APPLY TO THE INSTANT CASE, THE SUBMISSIONS SEEM TO BE A RAMBLING EXPOSITION ON THE VARIOUS ASPECTS OF DIFFERENT CASE LAWS. FURTHER, IT IS NEITHER JUDICIALLY EXPEDIENT, NOR PRUDENT TO SUPERIMPOSE THE FACTS OF THE CASE CITED BY THE AR TO THE FACTS OF THE PRESENT CASE. IN THIS SENSE, EACH CASE IS UNDISPUTEDLY UNIQUE AND STANDS ON DIFFERENT PEDESTAL. 5.10 FURTHER, IT WOULD BE VERY MUCH GERMANE T O NOTE THAT IN VARIOUS DECI SIONS , THE HON'BLE ITAT, MUMBAI HAS HELD THAT IN SUCH CASES WHICH ARE ESSENTIALLY OF TRADING, ESTIMATION OF 12.5% PROFIT AS HAVING BEEN EMBEDDED IN THE BOGUS PURCHASE TRANSACTION WAS HELD TO BE A FAIR AND JUST OUTCOME. SOME OF TH ESE DECISIONS ARE QUOTED BELOW: - A) MEM IMPEX EX IN ITA N O.2660/MUM./2017. B) MP RECYCLING CO. IN ITA N O.6358/MUM./2016. C) Y.A. MAMAJI FURNISHING & CO. IN ITA'S 4756, 4757 & 4758/MUM./2014 D) MANISH M SHAH IN ITA 2975/ MUM./20 15, 5.11. IN VIEW OF THE ABOVE, DETAILED STIPULATION, THE AO IS DIRECTED TO RETAIN THE ADDITION ONLY TO THE EXTENT OF 12.5% OF THE TOTAL BOGUS PURCHASES OF RS.3,00,498/ - . HENCE, ADDITION OF RS.37,562/ - IS CONFIRMED AND THE REST IS DELETED. IN VIEW OF THE ABOVE, THE ONLY IMPUGNED ISSUE IS PARTLY ALLOWED. 6 . IN THE RESULT, THE APPEAL IS 'PARTLY ALLOWED' . 6 ITA NO. 1340/MUM/2020 (A.Y: 2011 - 12) SMT URMILA KIRIT MEHTA 7. ON A CAREFUL PERUSAL OF THE ORDER OF THE LD.CIT(A) AND THE REASONS GIVEN THEREIN, I DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD.CIT(A) IN RESTRICTING THE ADDITION/DISALLOWANCE TO THE EXTENT OF 12. 5% OF THE PURCHASES . GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE VIRTUAL COURT ON 13.09.2021. S D / - (C.N. PRASAD) JUDICIAL MEMBER MUMBAI / DATED 13/09/2021 GIRIDHAR, SR.PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM