ITO.26(1)(1), Mumbai V. SHRI. ANISH AHMED CHAUDHARY, Mumbai

ITA 143/MUM/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8488 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 10-01-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHTAR HANSARI
• Keywords: Bogus purchase; Cost of acquisition; Reasonable cause; Accommodation entries
• Section: 143(3); 133(6); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC, BENCH MUMBAI BEFORE SHRI R.C.SHARMA, ACCOUNTANT MEMBER ITA NO. 143/MUM/2019 ( ASSESSMENT YEAR: 2011-12) I.T.O.-26(1)(1), BUILDING NO. C-11, ROOM NO. 703, 7 TH FLOOR, PRATYAKSHAKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI- 400051. VS. SHRI ANISH AHMED CHAUDHARY, SHALIMAR TRADING CO., SHOP NO. 6A, KOTHARI COMPOUND, KHAIRANI ROAD, SAKI NAKA, MUMBAI-400072. PAN/GIR NO. ACUPC 2967 N (APPELLANT ) .. (RESPONDENT ) REVENUE BY SHRI AKHTAR H ANSARI (DR) ASSESSEE BY NONE DATE OF HEARING 14/01/2020 DATE OF PRONOUNCEMENT 20/01/2020 / O R D E R PER: R.C. SHARMA, A.M. THIS IS THE APPEAL FILED BY THE REVENUE AGAINST TH E ORDER OF THE LD. CIT(A)-38, MUMBAI DATED 16/07/2018 FOR THE A.Y. 2011-12 IN THE MATTER OF ORDER PASSED U/S 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 (IN SHORT, THE ACT). 2. IN THIS APPEAL, THE ONLY GRIEVANCE OF THE REVENU E RELATES TO LD. CIT(A)S ORDER GIVING FURTHER RELIEF OF G.P. DECLAR ED BY THE ASSESSEE IN RESPECT OF ALLEGED BOGUS PURCHASES. ITA NO. 143/MUM/2019 ITO VS SHRI ANISH AHMED CHAUDHARY 2 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. IN THIS CASE, THE A.O. REOPENED THE ASSESSMENT ON OBTAINING INFORMATION FROM THE SALES TAX DEPARTMENT WITH REGARD TO ASSESSEE HA VING TAKEN BOGUS BILLS WITH REGARD TO PURCHASES. AFTER MAKING DETAIL ED ENQUIRY AND VERIFYING THE FACTS, THE A.O. MADE ADDITION BY ESTI MATING PROFIT AT 12.5% OF ALLEGED BOGUS PURCHASES. BY THE IMPUGNED O RDER, THE LD. CIT(A) AFTER CONSIDERING VARIOUS JUDICIAL PRONOUNCE MENTS AND THE FACTS OF THE CASE, DIRECTED FOR REDUCING THE G.P. OF 12.5 % BY THE PERCENTAGE OF G.P. ALREADY DECLARED BY THE ASSESSEE ON THE VER Y SAME PURCHASES. THE PRECISE OBSERVATION OF THE LD. CIT(A) WAS AS UN DER: 7 I HAVE CONSIDERED THE FACTS OF THE CASE, ORAL CO NTENTIONS AND WRITTEN SUBMISSIONS OF THE APPELLANT AS AGAINST THE OBSERVA TION/FINDINGS OF THE AO IN THE ASSESSMENT ORDER OF THE AO. THE CONTE NTIONS/ SUBMISSIONS OF THE APPELLANT ARE BEING DISCUSSED AN D DECIDED AS UNDER: 7.1 THE ONLY GROUND RAISED IN THIS APPEAL IS WITH REGARD TO DISALLOWANCE OF NOTIONAL PROFIT @ 12.5% ON BOGUS P URCHASES OF RS.44,97,483/- FROM 5 PARTIES AMOUNTING TO RS.5,62, 185/-. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND SUBM ISSIONS OF THE LD.AR. I HAVE ALSO GONE THROUGH THE DECISIONS RELIE D ON BY THE LD.AR. AS SEEN FROM THE FACTS OF THE CASE THE AO HAS REOPE NED THE ASSESSMENT BASED ON THE INFORMATION RECEIVED FROM T HE SALES TAX DEPARTMENT THROUGH DIT(INV.), MUMBAI WITH REGAR D TO NON- PAYMENT OF VAT BY SOME OF THE SELLERS WHOSE REGISTR ATION WAS CANCELLED LATER, HAVING OBSERVED THAT THOSE ARE THE NON- EXISTENT SELLERS AND THEY HAVE NOT MADE ANY SALES E XCEPT THE BOGUS INVOICES ISSUED IN THEIR NAMES. WHEN THE SALE S TAX ITA NO. 143/MUM/2019 ITO VS SHRI ANISH AHMED CHAUDHARY 3 DEPARTMENT HAS. MADE ENQUIRIES SOME OF THE SELLERS HAVE ADMITTED BEFORE THEM THAT THEY HAVE NOT MADE ANY SA LES BUT GIVEN THE INVOICES. HOWEVER, THE ASSESSEE HAVE ARGUED BEF ORE THE INCOME TAX AUTHORITIES THAT THEY HAVE MADE THE PAYMENTS TH ROUGH BANK CHEQUES TO THE SELLERS AND RECEIVED THE MATERIAL. T HEIR ARGUMENT WAS THAT UNLESS THE AO PROVES POSITIVELY THAT THE MATER IAL WAS NOT DELIVERED TO THE ASSESSEE AND THE PAYMENT MADE THRO UGH THE BANK CHANNELS HAVE BEEN BOGUS OR THE AMOUNTS PAID I N THE NAMES OF THE SUPPLIERS HAVE COME BACK TO THE PURCHASER-ASSES SEE, THE AO CANNOT MAKE ANY ADDITION TO TOTAL INCOME. IT IS SEE N IN THE INSTANT CASE THAT EVEN THOUGH THE AO HAS MADE EFFORTS TO RE ACH THE SUPPLIERS BY ISSUING NOTICES U/S. 133(6) WHICH HAVE COME BACK UNSERVED DUE TO NON-AVAILABILITY OF THE SO-CALLED S UPPLIERS AT THE GIVEN ADDRESS, OR SERVED BUT NOT RESPONDED IN SOME CASES, THE APPELLANT HAS NOT CONCLUSIVELY PROVED THAT THE APPE LLANT HAS RECEIVED THE MATERIAL AND THE AMOUNTS PAID THROUGH CHEQUES HAVE NOT COME BACK TO THE APPELLANT. HOWEVER, AS TH E AO HAS NOT DOUBTED THE SALES DISCLOSED BY THE APPELLANT HE HAS TO ALLOW THE PURCHASES SINCE THERE CANNOT BE ANY SALES WITHOUT T HE PURCHASE OF THE MATERIAL. THE ONLY POSSIBILITY IS THAT THE A PPELLANT MIGHT HAVE INFLATED ITS PURCHASES BY TAKING INTO ACCOUNT THE INVOICES IN THE NAMES OF THE BOGUS SUPPLIERS. THE PRESUMPTION I S THAT THE MATERIAL MIGHT HAVE BEEN PURCHASED FROM GREY MARKET AT A LOWER RATE AND MADE GOOD THE ENTRIES WITH BOGUS BILLS TO REDUCE THE PROFITS. UNDER SIMILAR CIRCUMSTANCES THE HONBIE HIG H COURT OF GUJRAT IN THE CASE OF SIMIT P SETH, 2013 (356 ITR 4 51) HAD AN OCCASION TO DELIVER ITS JUDGMENT BY CONFIRMING THE DECISION OF THE ITAT WHICH HAS ESTIMATED THE DISALLOWANCE AT 12.5% OF THE DISPUTED BOGUS PURCHASES TO MEET THE ENDS OF JUSTIC E. THE HEAD-NOTE OF THE LECISUM IS REPRODUCED AS UNDER- ITA NO. 143/MUM/2019 ITO VS SHRI ANISH AHMED CHAUDHARY 4 SECTION 145 OF THE INCOME-TAX ACT, 1961 - METHOD OF ACCOUNTING - ESTIMATION OF PROFITS [BOGUS PURCHASES ] - ASSESSMENT YEAR 2006-07 - ASSESSEE WAS ENGAGED IN BUSINESS OF TRADING IN STEEL ON WHOLESALE BASIS - A SSESSING OFFICER HAVING FOUND THAT SOME OF ALLEGED SUPPLIERS OF STEEL TO ASSESSEE HAD NOT SUPPLIED STEEL TO ASSESSEE BUT HAD ONLY PROVIDED SALE BILLS, HELD THAT PURCHASES MADE FROM SAID PARTIES WERE BOGUS - HE, ACCORDINGLY, ADDED ENTIRE AMOUNT O F PURCHASES TO GROSS PROFIT OF ASSESSEE - COMMISSIONER (APPEALS ) HAVING FOUND THAT ASSESSEE HAD INDEED MADE PURCHASES, THOU GH NOT FROM NAMED PARTIES BUT OTHER PARTIES FROM GREY MARK ET, SUSTAINED ADDITION TO EXTENT OF 30 PER CENT OF PURCHASE COST AS PROBABLE PROFIT OF ASSESSEE - TRIBUNAL HOWEVER, SUSTAINED AD DITION TO EXTENT OF 12.5 PER CENT - WHETHER SINCE PURCHASES WERE NOT BOGUS BUT WERE MADE FROM PARTIES OTHER THAN THOSE MENTIONED IN BOO KS OF ACCOUNT, ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES COUL D BE ADDED TO ASSESSEES INCOME - HELD, YES - WHETHER HENCE, ORDER OF TRIBUNAL NEEDED NO INTERFERENCE - HELD, YES [PARAS 6, 7 & 9] [IN FAVOUR OF ASSESSEE]'. (EMPHASIS SUPPLIED). 7.2 IN THE INSTANT CASE, NO DOUBT, THE AO HAS MADE EFFORTS TO EXAMINE THE SO-CALLED SUPPLIERS BY ISSUING NOTICES U/S. 133(6) BUT COULD NOT SUCCEED SINCE SUCH PARTIES WERE NOT AVAIL ABLE AT THE GIVEN/REVISED ADDRESS. THEREFORE, THE AO WAS PREVEN TED BY A REASONABLE CAUSE FROM GIVING AN OPPORTUNITY TO THE APPELLANT TO CROSS-EXAMINE THE OUTCOME OF HIS ENQUIRY. WITH R EGARD TO THE INFORMATION RECEIVED FROM DIT(INV.), MUMBAI THE SUM MARY OF THE COMMUNICATION WAS ALREADY PASSED ON TO THE APPELLAN T WHILE COMMUNICATING REASONS FOR REOPENING. EVEN THOUGH TH E AO COULD NOT PROVE SUBSTANTIVELY THAT THE AMOUNTS GIVEN TO THE S ELLERS IN CHEQUES FORM HAVE COME BACK TO THE APPELLANT, THE A CTIVITIES OF ACCOMMODATION ENTRIES IN THE TRADING COMMUNITY IS N OT UNHEARD OF. FURTHER, THE INVESTIGATIONS CARRIED OUT BY THE SALE S TAX DEPARTMENT, ANOTHER GOVERNMENT AGENCY, WITH REGARD TO VAT VIOLATION CANNOT BE LOST SIGHT OF. EVEN THOUGH THER E ARE CATENA OF CASES BY THE JURISDICTIONAL ITAT WHICH HAVE DECIDED THE ISSUE IN ITA NO. 143/MUM/2019 ITO VS SHRI ANISH AHMED CHAUDHARY 5 THE FAVOUR OF THE ASSESSEE, THEY ARE NOT UNIFORM IN ALL THE CASES AS THEY WERE DECIDED AS PER THE FACTS AND CIRCUMSTA NCES OF THAT PARTICULAR CASE BEFORE THEM. I AM OF THE OPINION TH AT THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE ARE MORE AKIN TO THE CASE DECIDED BY THE HON'BLE GUJRAT HIGH COURT IN THE CAS E OF SIMIT P SETH (SUPRA.). RESPECTFULLY FOLLOWING THE ABOVE DECISION , AND THE RATIO LAID DOWN THAT THE YARDSTICK FOR COMPUTING THE PROFIT EM BEDDED IN SUCH TRANSACTIONS WILL VARY ACCORDING TO THE NATURE OF B USINESS, TAKING INTO ACCOUNT THE BUSINESS ACTIVITY OF THE PRESENT A PPELLANT THAT OF TRADING IN ALL KINDS OF SCRAPS AND THE AVERAGE GROS S PROFIT RATIO BEING 8.26% (8.27+6.84+8.13+9.79=8.26%), FOR FOUR ASSESSM ENT YEARS, 2009-10 TO 2012-13 WHILE FOR THE CURRENT ASSESSMENT YEAR IN APPEAL, GP RATIO IS 8.13% AND NP RATIO IS 4.50%, I HEREBY ADOPT 9% TO WORK OUT THE PROFIT EMBEDDED IN THE ALLEGED TRAN SACTION OF RS.44,97,483/- WHICH COMES TO RS.4,04,773/-. THE AO IS DIRECTED TO RESTRICT THE ADDITION TO RS.4,04,773/- TO TOTAL INCOME DECLARED IN THE RETURN FILED. THE GROUND IS PARTLY ALLOWED. 4. I HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIE S BELOW AND FOUND THAT AFTER CONSIDERING VARIOUS JUDICIAL PRONO UNCEMENTS AND SPECIALLY THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS SIMIT P SHETH 365 ITR 0451 WHEREIN IT HAS BE EN HELD THAT ONCE THE SALE IS ACCEPTED BY THE A.O., THE VERY BASIS OF PURCHASES COULD NOT BE QUESTIONED. NOT THE ENTIRE PURCHASE PRICE COULD BE DISALLOWED BUT ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES COULD BE ADDED TO THE INCOME OF THE ASSESSEE. FOR THE CURRENT A.Y. IN APPEAL, THE G.P. RATIO IS 8.13% AND NP RATIO IS 4.50%, ACCORDINGLY H E ADOPTED 9% TO WORK OUT THE PROFIT EMBEDDED IN THE ALLEGED TRANSAC TION OF BOGUS ITA NO. 143/MUM/2019 ITO VS SHRI ANISH AHMED CHAUDHARY 6 PURCHASES. THE DETAILED FINDINGS SO RECORDED BY THE LD. CIT(A) HAS NOT BEEN CONTROVERTED, ACCORDINGLY, I DO NOT FIND ANY R EASON TO INTERFERE IN THE ORDER OF THE LD. CIT(A) FOR RESTRICTING THE ADD ITION TO THE EXTENT OF 9%, THEREBY GIVING FURTHER RELIEF OF GP ALREADY DEC LARED BY THE ASSESSEE. 5. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH JANUARY, 2020. SD/- (R.C.SHARMA) ACCOUNTANT MEMBER MUMBAI; DATED 20/01/2020 *RANJAN COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//