ASST CIT 19(1), MUMBAI V. ATUL JAYANTILAL SONI, MUMBAI

ITA 1374/MUM/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9934 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 11-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANJU GARODIA
• Assessee Lawyers: BHUPENDRA N SHROFF
• Keywords: Bogus purchase; Additional evidence; Accommodation entries
• Section: 69C; 133(6); 148

Judgement Text

1 ITA /MUM/2014 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J, MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) ITA NO.1374/MUM/2016 - AY 2010-11 ITA NO.1377/MUM/2016 - AY 2009-10 ITA NO.1378/MUM/2016 - AY 2011-12 ACIT 19(1), MUMBAI VS SHRI ATUL JAYANTILAL SONI A/28, GITA BUILDING PANDITA RAMBAI ROAD MUMBAI 400 007 PAN : ALGPS6722G APPELLANT RESPONDENT APPELLANT BY ANJU GARODIA RESPONDENT BY SHRI BHUPENDRA N SHROFF DATE OF HEARING 05 -07-2017 DATE OF PRONOUNCEMENT 26-07-2017 O R D E R PER G MANJUNATHA, AM : THESE THREE APPEALS FILED BY THE ASSESSEE ARE DIRE CTED AGAINST THE COMMON ORDER PASSED BY THE CIT(A)-30, MUMBAI DATED 11-12-2015 FOR THE ASSESSMENT YEARS 2009-10, 2010-11 & 2011-12. SINCE COMMON FACTS AND ISSUES ARE INVOLVED, FOR THE SAKE OF CONVENIENCE, THESE AP PEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER. 2 ITA /MUM/2014 2. THE BRIEF FACTS OF THE CASE EXTRACTED FROM ITA NO.1 377/MUM/2016 FOR THE ASSESSMENT YEAR 2109-10 ARE THAT THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION AND INTERIOR DECORAT ION UNDER THE NAME & STYLE M/S ZIGMA ENTERPRISES. THE ASSESSEE HAS FILED TH E RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 ON 29-09-2009 DECLARING TOT AL INCOME AT RS.1,65,36,980. SUBSEQUENTLY INFORMATION HAS BEEN RECEIVED FROM THE DGIT (INVESTIGATION) THAT THE ASSESSEE WAS INVOLVED IN M AKING BOGUS PURCHASES THROUGH HAWALA DEALERS. ON THE BASIS OF INFORMATIO N, THE AO CONDUCTED NECESSARY ENQUIRIES THROUGH THE INSPECTOR OF THE OF FICE AND FOUND THAT THE PARTIES FROM WHOM PURCHASES MADE ARE NOT TRACEABLE. THEREFORE, THE ASSESSMENT WAS REOPENED BY ISSUING NOTICE U/S 148 C ALLING FOR RETURN OF INCOME FROM THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAS DEBITED PURCHASES OF RS.9,66,66,828. TO ASCERTAIN CORRECTNESS OF PURCHASES CLAIMED BY THE A SSESSEE AND ALSO TO CO- RELATE INFORMATION RECEIVED FROM SALES-TAX DEPARTME NT REGARDING SUSPICIOUS PARTIES PROVIDING ACCOMMODATION ENTRIES WITHOUT DOI NG ANY ACTUAL BUSINESS, THE AO ISSUED NOTICE TO THE ASSESSEE TO FURNISH DET AILS OF PURCHASES ALONG WITH NECESSARY BILLS TO JUSTIFY THE PURCHASES. THE AO A FTER CLARIFYING THE DETAILS FILED BY THE ASSESSEE OBSERVED THAT THE ASSESSEE HAS MADE PURCHASES FROM 5 PARTIES AMOUNTING TO RS.21,01,618, THEREFORE, ASKED THE ASS ESSEE TO EXPLAIN WITH 3 ITA /MUM/2014 DOCUMENTARY EVIDENCE AS TO WHY THE AMOUNT OF RS.21, 01,618 BEING PURCHASES MADE FROM THE ALLEGED BOGUS SUPPLIERS SHOULD NOT BE ADDED TO THE TOTAL INCOME. IN RESPONSE TO NOTICE, THE ASSESSEE SUBMIT TED THAT HE HAD PURCHASED MATERIALS FROM THE ABOVE PARTIES AND THE SAME MATER IAL ARE USED IN EXECUTION OF WORKS CONTRACT. THE ASSESSEE HAS FILED NECESSAR Y PURCHASE BILLS, DELIVERY CHALLANS AND ALSO BANK DETAILS SHOWING PAYMENTS THR OUGH BANKING CHANNELS AGAINST SUCH PURCHASES. THE AO, AFTER CONSIDERIN G THE EXPLANATIONS OF THE ASSESSEE OBSERVED THAT THE ASSESSEE HAS FAILED TO P ROVE GENUINENESS OF PURCHASES BY PRODUCING THE PARTIES IN PERSON. THOU GH ASSESSEE FILED DETAILS LIKE PURCHASE BILLS AND PAYMENT PROOF, FAILED TO FU RNISH FURTHER EVIDENCE TO PROVE THAT THE PURCHASES ARE GENUINE IN NATURE. TH E AO FURTHER OBSERVED THAT THE INFORMATION RECEIVED FROM THE SALES-TAX DEPARTM ENT CATEGORICALLY PROVES THAT THE PARTIES WERE INVOLVED IN PROVIDING ACCOMMO DATION ENTRIES WITHOUT ACTUAL DELIVERY OF GOODS, THEREFORE, HE OPINED THAT PURCHASES FROM THOSE PARTIES ARE BOGUS IN NATURE AND HENCE, MADE ADDITIO N OF RS.21,01,618 U/S 69C OF THE ACT. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PRE FERRED APPEAL BEFORE CIT(A). BEFORE CIT(A), THE ASSESSEE SUBMITTED THA T HE HAD FURNISHED ORIGINAL INVOICE WITH SPECIFIC MENTION THEREIN OF VAT AND CS T NO. AND THE SUPPLIERS 4 ITA /MUM/2014 CHALLANS FOR RECEIPT OF GOODS AS PER THE DESCRIPTIO N IN THE INVOICE AND ALSO PROOF OF PAYMENT AGAINST SUCH PURCHASES. THE AO, I GNORING ALL THE EVIDENCES MADE ADDITION ONLY ON THE BASIS OF INFORMATION RECE IVED FROM SALES-TAX DEPARTMENT. THE AO NEVER DOUBTED THE SALES DECLARE D AND ALSO NOT POINTED OUT ANY DISCREPANCIES IN THE BOOKS OF ACCOUNT EXCEP T STATING THAT THE SAID PARTIES APPEAR IN THE LIST PREPARED BY THE SALES-TA X DEPARTMENT AS HAWALA OPERATORS. IN THE ABSENCE OF FINDING AS TO THE COR RECTNESS OF BOOKS OF ACCOUNT, ADDITION BASED ON THE INFORMATION RECEIVED FROM THE SALES-TAX DEPARTMENT IS INCORRECT. THE CIT(A), DURING THE COURSE OF APPELL ATE PROCEEDINGS FORWARDED ADDITIONAL EVIDENCE FILED BY THE ASSESSEE IN THE FO RM OF PURCHASE BILLS, DELIVERY CHALLANS AND PAYMENT PROOF TO THE AO FOR HIS COMMEN TS. THE AO, VIDE HIS REMAND REPORT DATED 15-10-2015 REITERATED HIS FINDI NGS IN THE ASSESSMENT ORDER AND STATED THAT MERELY FURNISHING PURCHASE BI LLS ALONGWITH PAYMENT PROOF WILL NOT ABSOLVE THE ASSESSEE FROM THE RESPON SIBILITY OF PROVING THE PURCHASES BY PRODUCING THE PARTIES IN PERSON. THE ASSESSEE FAILED TO PRODUCE THE PARTIES AND ALSO THE NOTICES ISSUED U/S 133(6) ARE RETURNED UNSERVED WITH REMARK THAT NO SUCH PARTIES WERE AVAILABLE AT THE G IVEN ADDRESS. THEREFORE, THE CLAIM OF THE ASSESSEE THAT THE PURCHASES FROM T HESE PARTIES ARE GENUINE, CANNOT BE ACCEPTED. 5 ITA /MUM/2014 4. THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE AND ALSO TAKING INTO ACCOUNT THE REMAND REPORT OF THE AO, OB SERVED THAT IT WAS FOUND THAT IN THE PRESENT CASE THE AO HAS CONDUCTED INDEP ENDENT INVESTIGATION APART FROM THE INFORMATION RECEIVED FROM MAHARASHTRA SALE S-TAX DEPARTMENT WHICH PROVES THAT THE PARTIES ARE NOT TRACEABLE. THE SHO W CAUSE NOTICES ISSUED TO THE PARTIES U/S 133(6) WERE RETURNED UNSERVED WITH REMA RK THAT SUCH PARTIES WERE NOT AVAILABLE AT THE GIVEN ADDRESS. HOWEVER, THE A SSESSEE CLAIMS THAT THE GOODS PURCHASED FROM THE SAID PARTIES WERE BILLED T O THE CUSTOMERS IN EXECUTION OF WORKS CONTRACT. THE ASSESSEE HAS FILE D NECESSARY EVIDENCES TO SUPPORT ITS ARGUMENTS THAT THE SAID MATERIALS WERE USED IN THE WORKS CONTRACT AND ALSO BILLED TO THE CUSTOMERS. IN FACT, THE AO HAS NOT DOUBTED THE GENUINENESS OF SALES. ONCE SALES ARE NOT DISPUTED, OBVIOUSLY, THE CORRESPONDING PURCHASES CANNOT BE DISPUTED. THE DE TAILED STATEMENT FURNISHED BY THE ASSESSEE SHOWING THE PURCHASES FRO M DIFFERENT PARTIES AND THE GOODS PURCHASED SHOWN AS CONSUMPTION IN RESPECT OF SPECIFIC CONTRACTS ALSO INDICATED THAT THE SAID PURCHASES ARE USED IN THE EXECUTION OF WORKS CONTRACT. THE CIT(A) FURTHER OBSERVED THAT THE ARG UMENT OF THE ASSESSEE THAT NO SALES ARE POSSIBLE WITHOUT PURCHASES IS HAVING S OME FORCE. THEREFORE, TAKING INTO ACCOUNT ALL THE FACTS INTO CONSIDERATIO N, NATURE OF BUSINESS, THE CIT(A) WAS OF THE VIEW THAT ESTIMATION OF 12.5% AS PROFIT EMBEDDED ON SAID 6 ITA /MUM/2014 BOGUS PURCHASES WOULD MEET THE ENDS OF JUSTICE. TH E ASSESSEE ALSO, IN ALL HIS SUBMISSIONS FROM THE BEGINNING, URGED FOR ESTIMATIO N OF PROFIT FROM BOGUS PURCHASES TO THE EXTENT OF NET PROFIT PERCENTAGE AD MITTED IN THE RETURN OF INCOME. THE ASSESSEE HAS ADMITTED AROUND 12.5% NET PROFIT WHICH IS QUITE REASONABLE IN THIS NATURE OF BUSINESS. IN VIEW OF THE SAME, TAKING ALL THE FACTS INTO CONSIDERATION, THE AO WAS DIRECTED TO ESTIMATE THE NET PROFIT AT 12.5% ON THE TOTAL BOGUS PURCHASES FROM THOSE ALLEGED BOGUS SUPPLIERS. AGGRIEVED BY THE SAID ORDER, THE REVENUE IS IN APPEAL BEFORE US. 5. THE LD.DR SUBMITTED THAT THE LD.CIT(A) WAS NOT JUST IFIED IN CONFIRMING THE ADDITION @12.5% OF THE TOTAL BOGUS PURCHASES. THE LD.DR FURTHER SUBMITTED THAT THE AO HAS BROUGHT OUT CLEAR FACTS TO THE EFFE CT THAT THE ALLEGED BOGUS SUPPLIERS DID NOT EXIST AT THE TIME OF INSPECTION B Y THE INSPECTOR AND ALSO THE NOTICES ISSUED U/S 133(6) WERE RETURNED WITH REMARK THAT NO SUCH PARTIES WERE AVAILABLE IN THE GIVEN ADDRESS. UNDER THESE FACTS, THE AO HAS CONCLUDED THAT THE PURCHASES MADE FROM THE SAID PARTIES ARE BOGUS IN NATURE AND ACCORDINGLY MADE ADDITION U/S 69C OF THE ACT. THE LD.DR, REFER RING TO THE DECISION OF HONBLE SUPREME COURT, IN THE CASE OF NK PROTEINS L TD REPORTED IN (2017) TOIL- 23-SG-IT SUBMITTED THAT ONCE PURCHASES ARE TREATED AS BOGUS IN NATURE, ADDITION SHOULD BE MADE OF THE ENTIRE PURCHASES. T HE LD.DR FURTHER REFERRING 7 ITA /MUM/2014 TO THE DECISION OF RAJASTHAN HIGH COURT IN THE CASE OF DCIT VS M/S CARPET MAHAL IN ITA 170 OF 2009 DATED 10-05-2017 SUBMITTED THAT THE HONBLE HIGH COURT UPHELD THE ADDITION MADE BY THE AO TOWARDS 10 0% BOGUS PURCHASES. SINCE THE PURCHASES ARE PROVED BOGUS, ADDITION MADE BY THE AO TOWARDS ALLEGED BOGUS PURCHASES U/S 69C SHOULD BE UPHELD. 6. THE LD.AR OF THE ASSESSEE STRONGLY SUPPORTED THE OR DER OF THE LD.CIT(A) AND SUBMITTED THAT THE SAID PURCHASES ARE USED IN T HE EXECUTION OF WORKS CONTRACT, THEREFORE, THE LD.CIT(A) WAS RIGHT IN DIR ECTING THE AO TO ESTIMATE NET PROFIT @12.5% ON THE SO-CALLED ALLEGED BOGUS PURCHA SES. 7. WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED THE M ATERIALS AVAILABLE ON RECORD. THE AO MADE ADDITION TOWARDS BOGUS PURCHAS ES FROM ALLEGED HAWALA OPERATORS, BASED ON THE INFORMATION RECEIVED FROM M AHARASHTRA SALES-TAX DEPARTMENT WHICH LISTED THE SAID PARTIES IN THE LIS T OF HAWALA OPERATORS. BASED ON THE INFORMATION RECEIVED FROM SALES-TAX DEPARTME NT, THE AO HAS CONDUCTED NECESSARY ENQUIRIES BY SENDING NOTICES U/S 133(6) W HICH WERE RETURNED WITH REMARKS, NO SUCH PARTIES WERE AVAILABLE AT THE GIVE N ADDRESS. THEREFORE, THE AO OPINED THAT THE PURCHASES MADE FROM THE SAID PAR TIES ARE BOGUS IN NATURE AND HENCE MADE ADDITIONS TOWARDS 100% BOGUS PURCHAS ES U/S 69C OF THE ACT. 8 ITA /MUM/2014 THE ASSESSEE CONTENDS THAT IT HAS PURCHASED MATERIA LS FROM THE SAID PARTIES AND USED THE SAID MATERIALS IN EXECUTION OF WORKS C ONTRACT, THEREFORE, THE AO WAS INCORRECT IN TREATING THE PURCHASES AS BOGUS ME RELY ON THE BASIS OF LIST PUBLISHED BY THE SALES-TAX DEPARTMENT DESPITE FURNI SHING NECESSARY EVIDENCE IN THE FORM OF PURCHASE BILLS, DELIVERY CHALLANS AN D PROOF OF PAYMENT. THE ASSESSEE FURTHER CONTENDED THAT THE AO NEVER DISPUT ED THE SALES DECLARED. THE AO HAS NOT POINTED OUT ANY DISCREPANCIES IN THE BOOKS OF ACCOUNT OR IN THE STOCK STATEMENTS. IN THE ABSENCE OF ANY SPECIFIC D ISCREPANCIES IN THE BOOKS OF ACCOUNT, ADDITION CANNOT BE MADE BASED ON THE INFOR MATION RECEIVED FROM THE SALES-TAX DEPARTMENT. 8. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAS FAILED TO PRODUCE THE PARTIES IN PERSON BEFORE THE AO. IT IS ALSO AN ADMITTED FACT THAT THE NOTICES ISSUED U/ S 133(6) WERE RETURNED UNSERVED WITH REMARK THAT NO SUCH PARTIES WERE AVAI LABLE AT THE GIVEN ADDRESS. UNDER THESE CIRCUMSTANCES, THE AO HAS RIGHTLY HELD THAT THE PURCHASES FROM THOSE PARTIES WERE NOT PROVED BY THE ASSESSEE. HAV ING SAID SO, LET US EXAMINE WHETHER ADDITION MADE BY THE AO TOWARDS 100% BOGUS PURCHASES IS JUSTIFIABLE UNDER THE FACTS AND CIRCUMSTANCES OF THIS CASE. IN THIS CASE, THE ASSESSEE HAS FILED CERTAIN DETAILS LIKE PURCHASE BILLS, DELIVERY CHALLANS AND PROOF OF PAYMENT 9 ITA /MUM/2014 TO PROVE THE PURCHASES. THE ASSESSEE ALSO FURNISHE D DETAILED STATEMENT SHOWING PURCHASES FROM DIFFERENT PARTIES AND THE GO ODS PURCHASED HAVE BEEN SHOWN AS CONSUMED IN RESPECT OF SPECIFIC CONTRACT. WE FURTHER OBSERVE THAT THE AO HAS NOT DISPUTED SALES DECLARED BY THE ASSES SEE. THE AO NEITHER POINTED OUT ANY DISCREPANCY IN THE BOOKS OF ACCOUNT NOR ANY INCORRECTNESS IN THE QUANTITATIVE DETAILS FURNISHED BY THE ASSESSEE INCLUDING CONSUMPTION OF RAW MATERIALS. ONCE THE SALES ARE ACCEPTED, THE CO RRESPONDING PURCHASES CANNOT BE DISPUTED. THE ASSESSEE MIGHT HAVE PURCHAS ED THE GOODS FROM THE GREY MARKET BY PAYING CASH AND OBTAINED THE BILLS F ROM THE SAID HAWALA OPERATORS TO COVER UP THE SAID PURCHASES. UNDER TH ESE FACTS, ADDITION CANNOT BE MADE TOWARDS 100% BOGUS PURCHASES. WHAT NEEDS T O BE TAXED IS THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES. NORMALLY IN TH E CASE OF BOGUS PURCHASES, THE PROFIT ELEMENT IS ESTIMATED RANGING FROM 12.5% TO 25% DEPENDING UPON THE FACTS OF EACH CASE. VARIOUS HIG H COURTS AND TRIBUNALS HAVE UPHELD THE ESTIMATION OF NET PROFIT RANGING FR OM 12.5% TO 25%. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF VIJAY PRO TEINS LTD VS CIT (2015) (I) TMI 828 (GUJ HC) HAS UPHELD 12.5% OF NET PROFIT ON BOGUS PURCHASES. THEREFORE, KEEPING IN VIEW THE FACTS AND CIRCUMSTAN CES OF THIS CASE AND ALSO FOLLOWING THE JUDGEMENT OF GUJARAT HIGH COURT IN VI JAY PTROTEINS LTD (SUPRA), WE ARE OF THE VIEW THAT THE PROFIT ELEMENT EMBEDDED IN SUCH BOGUS PURCHASES 10 ITA /MUM/2014 ONLY NEEDS TO BE TAXED. IN THIS CASE, THE ASSESSEE HAS ADMITTED AROUND 12.5% PROFIT IN HIS REGULAR BOOKS OF ACCOUNT. THE ASSESS EE ALSO PLEADED BEFORE THE CIT(A) THAT A REASONABLE PROFIT MAY BE ESTIMATED FR OM THE BOGUS PURCHASES. CONSIDERING THE ABOVE FACTS, THE CIT(A) HAS DIRECTE D THE AO TO ESTIMATE GROSS PROFIT AT 12.5% ON THE TOTAL BOGUS PURCHASES MADE F ROM THE SAID PARTIES. WE DO NOT FIND ANY ERROR IN THE ORDER OF CIT(A); HENCE , WE DIRECT THE AO TO ESTIMATE GROSS PROFIT OF 12.5% ON THE TOTAL BOGUS P URCHASES. 9. COMING TO THE CASE LAW RELIED UPON BY THE LD.DR, IN THE CASE OF NK PROTEINS LTD VS CIT (SUPRA), WE HAVE GONE THROUGH T HE CASE LAW AND FIND THAT THE FACTS OF THAT CASE ARE NOT APPLICABLE TO THE FA CTS OF THE PRESENT CASE. IN NK PROTEINS LTD (SUPRA) THERE WAS SEARCH PROCEEDINGS A ND IN THE COURSE OF SEARCH BLANK SIGNED CHEAQUE BOOKS AND VOUCHERS OF NUMBER O F CONCERNS WERE FOUND. UNDER THESE FACTS, THE HONBLE COURT HELD THAT THE PURCHASES MADE FROM THOSE CONCERNS WERE TO BE TREATED AS BOGUS. IN THIS CASE , THE ASSSSEE HAS FILED NECESSARY EVIDENCES TO PROVE THE PURCHASES. THEREF ORE, THE CASE LAW RELIED UPON BY THE LD.DR IS NOT CONSIDERED. 10. IN THE RESULT, THE APPEALS FILED BY THE REVENUE IS DISMISSED. 11 ITA /MUM/2014 11. THE FACTS AND ISSUES IN ITA NOS 1374 & 1378/MUM/201 6 ARE IDENTICAL TO FACTS AND ISSUE IN ITA NO.1377/MUM/2016, THEREFORE, FOR THE DETAILED DISCUSSION IN THE PRECEDING PARAGRAPHS IN ITA NO.13 77/MUM/2016, WE DIRECT THE AO TO ESTIMATE GROSS PROFIT AT 12.5% ON TOTAL B OGUS PURCHASES. 12. IN THE RESULT, THE APPEALS FILED BY THE REVENUE IN ITA NOS 1374 & 1378/MUM/2016 ARE ALSO DISMISSED. 13. IN THE RESULT, ALL THE APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH JULY, 2017. SD/- SD/- (SAKTIJIT DEY) (G MANJUNATHA) ACCOUNTANT MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 26 TH JULY, 2017 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI