MALAY SANGHAVI, MUMBAI V. ITO 8(3)(2), MUMBAI

ITA 151/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8371 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 06-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMARSR
• Assessee Lawyers: KIRTI J SHETH
• Keywords: Bogus purchase; Unexplained expenditure; Depreciation
• Section: 69C; 40A(3); 143(3); 80IB

Judgement Text

P A G E | 1 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, M UMBAI BEFORE SHRI G.S.PANNU , AM AND SHRI RAVISH SOOD, JM ITA NO. 151 /MUM/201 7 ITA NO. 5682/MUM/2013 ( / ASSESSMENT YEARS: 20 0 9 - 10 & 201 0 - 11 ) SHRI MALAY N. SANGHVI, M - 1, KALPITA ENCLAVE CO - OP. HOUSING SOCIETY, SAHAR ROAD, ANDHERI (EAST) MUMBAI - 400 069 / VS. I.T.O - 8(3)(2) AAYAKAR BHAVAN, CHURCHGAGE, MUMBAI - 20 ./ ./ PAN NO. AAAHE1478G ( / APPELLANT ) : ( / RE SPONDENT ) ITA NO. 6265 /MUM/201 2 ITA NO. 6463/MUM/2013 ( / ASSESSMENT YEARS: 20 0 9 - 10 & 2010 - 11 ) INCOME TAX OFFICER - 8(3)(2) 201, AAYAKAR BHAVAN, M.K. MARG, MUMBAI 400 020 / VS. SHRI MALAY N. SANGHVI, M - 1, KALPITA ENCLAVE CO - OP. HOUSING SOCIETY, SAHAR ROAD, ANDHERI (EAST) MUMBAI - 400 069 ./ ./ PAN NO. AAAHE1478G ( / RESPONDENT ) : ( / A PPELLANT ) / APPELLANT BY : SHRI KIRTI J. SHETH , D.R / RESPONDENT BY : SHRI SUMAN KUMAR , SR. A.R / DATE OF HEARING : 23 .11.2017 P A G E | 2 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO / DATE OF PRONOUNCEMENT : 29 .11.2017 / O R D E R PER RAVISH SOOD, JUDICIAL MEMBER: THE PRESENT SET OF APPEALS FILED BOTH BY THE ASSESSEE AND THE REVENUE FOR AY S: 2009 - 10 AND 2010 - 11 ARE DIRECTED AGAINST THE RESPECTIVE ORDERS PASSED BY THE CIT(A) - 18, MUMBAI, WHICH IN ITSELF ARISES FROM THE ORDER PASSED BY THE A.O UNDER SEC. 143(3) AND UNDER SEC. 271(1)(C) FOR AY 2009 - 10 AND THE ORDER PASSED BY THE A.O UNDER SEC. 14 3(3) FOR AY 2010 - 11. THAT AS CERTAIN COMMON ISSUE S ARE INVOLVED IN THE AFOREMENTIONED APPEALS , THEREFORE, THEY ARE BEING TAKEN UP AND DISPOSED OF BY WAY OF A CONSOLIDATE ORDER. WE SHALL FIRST TAKE UP THE APPEAL FILED BY THE REVENUE AGAINST THE ORDER PASSED BY THE CIT(A) FOR AY 2009 - 10, ALLOWING THE APPEAL OF THE ASSESSEE AGAINST THE ASSESSMENT FRAMED BY THE A.O UNDER SEC. 143(3). THE REVENUE ASSAILING THE ORDER OF THE CIT(A) HAD RAISED BEFORE US THE F OLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN ALLOWIN G DEDUCTION U/S. 80IB(4) OF RS. 41,65,688/ - WITHOUT APPRECIATING THE FINDINGS BY THE A . O FOR RESTRIC T ING THE SAME TO RS.12,03,773/ - . 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DIRECTING THE A .O TO ALLOW DEDUCTION U/S. 80I B(4) FULLY AS CLAIMED BY THE ASSESSEE WITHOUT APPRECIATING THE FINDINGS OF THE A . O FOR IN VOKING THE PROVISIONS OF SEC.80I A(8) AND SEC.80I A(10) FOR THE I.T. AC T IN RESTRICTING THE DEDUCTION. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ITO/ACIT/DCIT BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUNDS OR ADD A NEW G ROUND WHICH M AY BE NECESSARY. P A G E | 3 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE WHO IS ENGAGED IN THE BUSINESS OF TRADING IN LIQUID SOAP S , CHEMICAL S PLASTIC ITEMS ETC. HAD FILED HIS RETURN OF INCOME FOR AY 2009 - 10 ON 30.09.2009, DECLARING TOTAL INCOME AT RS.2,02,070/ - . THE RETURN OF INCOME FILED BY THE ASSESSEE WAS PROCESSED AS SUCH UNDER SEC 143(1) OF THE ACT. THE CASE OF THE ASSESSEE WAS THEREAFTER TAKEN UP FOR SCRUTINY ASSESSMENT UNDER SEC. 143(2). THE A.O WHILE FRAMING THE ASSESSMENT UNDER SEC. 143( 3) RESTRICTED THE ASSESSEES CLAIM OF DEDUCTION UNDER SEC. 80IB OF RS.41,65,688/ - TO RS.12,03,773/ - , THEREIN LEADING TO A CONSEQUENTIAL ADDITION OF RS.29,61,915/ - IN THE HANDS OF THE ASSESSEE . THE ASSESSEE ASSAILED THE RESTRICTIO N OF HI S CLAIM OF ENTITLEMENT UNDER SEC. 80IB BEFORE THE CIT(A) . THE CIT(A) AFTER DELIBERATING ON THE FACTS OF THE CASE CONCLUDED THAT AS NO MATERIAL WAS PLACED ON RECORD BY THE AO WHICH COULD GO TO SHOW THAT THE ASSESSEE HAD ARRANGED HIS AFFAIRS IN A MANNER TO FACILITATE G ENERATION OF PROFITS IN EXCESS OF THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS, NOR THERE WAS TRANSFER OF ANY GOODS O R SERVICES BELOW THE MARKET VALUE, THEREFORE, THE PROVISIONS OF SEC. 80IA(8) AND 80IA(10) WERE NOT APPLI CABLE TO THE CASE OF THE ASSESSEE. THUS, IN THE BACKDROP OF THE AFORESAID OBSERVATIONS , THE CIT(A) CONCLUDED THAT THE RELIANCE PLACED BY THE A.O ON THE PROVISIONS OF SEC. 80IA(8) AND 80IA(10) FOR DISALLOWING THE CLAIM OF THE ASSESSEE UNDER SEC. 80IB TO THE EXTENT OF RS.29,61,915/ - , COULD NOT BE SUSTAINED IN THE EYES OF THE LAW AND AS SUCH WAS LIABLE TO BE VACATED . 3. THE REVENUE BEING AGGRIEVED WITH THE ORDER OF THE CIT(A) CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. THE TRIBUNAL VIDE ITS ORDER DATED 08.01.2014 CONCLUDED THAT THE A.O WAS JUSTIFIED TO APPLY THE PROVISIONS OF SUB - SECTION (10) OF SECTION 80IA OF THE ACT TO REDETERMINE THE PROFIT , AS THE PROFIT SHOWN BY THE ELIGIBLE UNIT OF THE P A G E | 4 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO ASSESSEE AT JAMMU WAS FOUND TO BE ABNORMAL LY HIGH. THUS, TH E TRIBUNAL ON THE BASIS OF ITS OBSERVATION S UPHELD THE ORDER OF THE A.O RESTRICTING THE CLAIM OF THE ASSESSEE TOWARDS DEDUCTION UNDER SEC. 80IB AT RS.12,03,773/ - . THE MISCELLANEOUS APPLICATION FILED BY THE ASSESSEE UNDER SEC. 254(2) OF THE ACT WAS ALSO DI SMISSED BY THE TRIBUNAL , VIDE ITS ORDER DATED 19.09.2014 PASSED IN M.A. NO. 300/MUM/2014. 4. AGGRIEVED, THE ASSESSEE ASSAILED THE ORDER PASSED BY THE TRIBUNAL UNDER SEC. 254(1), DATED 08.01.2014 , BEFORE THE HONBLE HIGH COURT OF BOMBAY. THE HONBLE HIGH C OURT AFTER DELIBERATING AT LENGTH ON THE FACTS OF THE CASE, VIZ. (I) THAT NOTHING WAS AVAILABLE ON RECORD WHICH COULD GO TO INDICATE THAT THERE WAS ANY ARRANGEMENT BETWEEN THE ELIGIBLE UNIT OF THE ASSESSEE AT JAMMU AND THE UNIT OWNED BY HIS WIFE AT VALSAD, VIZ. M/S UMARGAUM INDUSTRIES , TO GENERATE MORE THAN ORDINARY PROFITS OR FACILITATE TRANSFER OF GOODS AND/OR SERVICES INTERSE, BELOW THE MARKET PRICE , RESULTING IN INFLATED PROFITS TO THE ELIGIBLE UNIT OF THE ASSESSEE AT JAMMU ; AND (II) THAT NOT HING HAD BEEN SHOWN BY THE REVENUE THAT ANY BUSINESS WAS TRANSACTED BETWEEN THE ELIGIBLE UNIT OF THE ASSESSEE AT JAMMU AND HIS WI F ES UNIT AT VALSAD, VIZ. UMBERGAUM INDUSTRIES, WHICH RESULTED IN INFLATING OF THE PROFITS BEING EARNED BY THE ASSESSEE , OR THAT THERE WAS ANY SUCH TRANSACTION BETWEEN THEM . THE HIGH COURT IN THE BACKDROP OF ITS AFORESAID OBSERVATIONS CONCLUDED THAT THE TRIBUNAL WITHOUT CONSIDERING THE VALIDITY OF THE OBSERVATIO NS ARRIVED AT BY THE CIT(A) , HAD ADOPTED THE TEST OF COMMON CUSTOMERS OF BOTH THE ELIGIBLE UNIT OF THE ASSESSEE AT JAMMU AND HIS WIF ES UNIT AT VALSAD, VIZ. UMARGAUM INDUSTRIES, TO CONCLUDE THAT THE PROFIT OF T HE ASSESSEE WAS INFLATED. THE HIGH COURT AFTER DELIBERATING ON THE FACTS OF THE CASE , THEREIN OBSERVED THAT COMMON CUSTOMERS BY ITSELF , IN THE ABSENCE OF SOME ARRANGEMENT P A G E | 5 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO BETWEEN THE PARTIES WOULD NOT INDICATE TRANSFER OF PROFITS TO THE ASSESSEES UNIT AT JAMMU . THE HIGH COURT BEING OF THE VIEW THAT THE TRIBUNAL HAD FAILED TO CONSIDER THE FACTUAL FINDINGS OF THE CIT(A), THEREFORE, SET ASIDE THE ORDER OF THE TRIBUNAL AND RESTORE D THE SAME TO ITS FILE FOR RECONSIDERATION, AFTER ACCORDING AN APPROPRIATE INTERPRETATION TO SEC. 80IB(8) AND 80IB(10) OF THE ACT. 5. THE LD. DEPARTMENTAL REPRESENTATIVE (FOR SHORT D.R) IN THE COURSE OF THE HEARING OF THE APPEAL HEAVILY RELIED ON THE ORDER PASSED BY THE A.O . AND AVERRED THAT IN THE BACKDROP OF THE FACTS INVOLVED IN THE CASE , THE ENTITLEMENT OF THE ASSESSEE UNDER SEC. 80IB(4) WAS RIGHTLY RESTRICTED BY HIM TO RS.12,03,773/ - . THE LD. D.R. IN ORDER TO BUTTRESS HIS AFORESAID CONTENTION , THEREIN TOOK US THROUGH THE OBSERVATIONS OF THE CIT(A) RECORDED AT PAGE 8 PARA 2.2 OF HIS ORDER, AND SUBMITTED THAT THE FIRST APPELLATE AUTHORITY HAD WRONGLY CONCLUDED THAT THERE WAS NO ARRAN GEMENT BETWEEN THE ELIGIBLE UNIT OF THE ASSESSEE AT JAMMU AND HIS WIF ES UNIT AT VALSAD , VIZ. UBERGAUM INDUSTRIES . THE LD. D.R IN ORDER TO DRIVE HOME HIS AFORESAID CONTENTION DREW OUR ATTENTION TO PAGE 2 - 3 OF THE ORDER PASSED BY THE A.O , WHEREIN THE LATTER HAD OBSERVED THAT BOTH THE ASSESSEE AND HIS SISTER CONCERN, VIZ. M/S UMERGAUM INDUS TRIES WHICH WAS OWNED BY HIS WIFE SMT. BHARTI SANGHVI, HAD AT THE SAME RATE MADE SALES TO THEIR MAIN COMMON BUYER, I.E. M/S KIMBERLY CLARK HYGIENE PRODUCT PVT. LTD. THE LD. D.R. FURTHER DREW OUR ATTENTION TO THE FACT THAT THE COST OF MATERIAL, ADMINISTRATION , SELLING AND OTHER EXPENSES AND NOTIONAL EXPENSE OF DEPRECIATION IN BOTH THE AFORESAID CONCERN S WERE ALSO VERY MUCH IN THE SAME RANGE . THE LD. D.R ON THE BASIS OF HIS AFORESAID SUBMISSIONS AVERRED THAT NOW WHEN ALL THE FACTS PERTAINING TO BOTH OF THE AFORESAID CONCERN S REMAINED THE SAME, THEREFORE, IT WAS BEYOND COMPREHENSION THAT THE ASSESSEE COULD HAVE MAINTAINED THE PROFIT AT 35% EVEN AFTER P A G E | 6 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO PA YING THE ADDITIONAL COST OF TRANSPORTATION , AS IN COMPARISON TO THE NET PROFIT OF 5% SHOWN BY HIS AFORESAID SISTER CONCERN, VIZ. M/S UMARGAUM INDUSTRIES WHICH IN ALL ASPECTS WAS FOUND TO BE SIMILARLY PLACED . IT WAS SUBMITTED BY THE LD. D.R THAT THE A.O KEE PING IN VIEW THE AFORESAID FACTS , HAD IN ALL FAIRNESS RESTRICTED THE CLAIM OF DEDUCTION OF THE ASSESSEE TO RS. 12,03,773/ - BY CONCLUDING THAT 25% OF THE NET PROFIT CLAIMED BY THE ASSESSEE UNDER SEC. 80IB(4) COULD SAFELY BE HELD TO BE EXCESSIVE IN VIEW OF T HE PROVISIONS OF SEC. 10A(7) R.W. SUB - SECTION ( 8 ) AND ( 10 ) OF SEC. 80IA OF ACT. PER CONTRA, THE LD. AUTHORIZED REPRESENTATIVE (FOR SHORT A.R) FOR THE ASSESSEE SUBMITTED THAT THE AU THORITIES BELOW HAD TILL DATE FAILED TO POINT OUT THE ARRANGE MENT BETWEEN THE ASSESSEE AND HI S AFORESAID SISTER CONCERN , VIZ. M/S UMARGAUM INDUSTRIES , ON THE BASIS OF WHICH THE ENTITLEMENT OF THE ASSESSEE TOWARDS CLAIM OF DEDUCTION UNDER SEC. 80IB(4) WAS RESTRICTED TO AN AMOUNT OF RS.12,03,773/ - . 6. WE HAVE HEARD THE AUT HORIZED REPRESENTATIVE S FOR BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES, THE ORDER OF THE HONBLE HIGH COURT OF BOMBAY AND THE MATERIAL AVAILABLE ON RECORD. WE HAVE DELIBERATED AT LENGTH ON THE FACTS OF THE CASE AND FIND THAT THE A.O HAD OBSERVED THAT BOTH THE ASSESSEE AND HI S SISTER CONCERN, VIZ. UMARGAUM INDUSTRIES WE RE FOUND TO BE SIMILARLY PLACED FOR MULTIPLE REASONS, VIZ. (I) THAT BOTH THE CONCERN S WERE CARRYING ON THE SIMILAR BUSINESS OF MANUFACTURING OF LIQUID SOAP MATERIALS; (II) T HE COST OF MATERIAL, ADMINISTRATION, SELLING AND OTHER EXPENSES, DEPRECIATION ETC, OF BOTH THE CONCERN S WERE VERY MUCH IN THE SAME RANGE; AND (III) THAT BOTH THE CONCERNS WERE CARRYING OUT SALES AT THE SAME RATES TO THEIR MAIN COMMON CUSTOMER , VIZ. M/S KIM BERLY CLARK HYGIENE PRODUCT PVT. LTD . THE A.O AFTER DELIBERATING ON THE AFORESAID FACTS WHICH WERE COMMON TO BOTH THE AFORESAID CONCERNS, THEREIN CONCLUDED THAT THE P A G E | 7 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO PROFIT RATE OF 35% SHOWN BY THE ASSESSEE EVEN AFTER INCURRING THE ADDITIONAL COST OF TRANSP ORTATION , WHEN PITTED AS AGAINST THE NET PROFIT RATE OF 5% SHOWN BY HI S SISTER CONCERN, VIZ. M/S UMARGAUM INDUSTRIES , WAS BEYOND COMPREHENSION. WE FIND THAT THE A.O MERELY ON THE BASIS OF THE AFORESAID COMPARABLE ANALYSIS HAD RUSHED TO CONCLUDE THAT THE NET PROFIT SHOWN BY THE ASSESSEE WHEN PITTED AGAINST THAT OF HI S SISTER CONCERN, VIZ. UMARGAUM INDUSTRIES , WAS FOUND TO BE SUBSTANTIAL LY EXCESSIVE, HAD THUS , PROMPTED BY THE SAID FACT CONCLUDED THAT THE N ET PROFIT OF 5% OVER AND ABOVE THE PROFIT RATE OF 5% SHOWN BY THE SISTER CONCERN, VIZ. UMARGAUM INDUSTRIES , COULD SAFELY BE HELD TO BE THE REASONABLE NET PROFIT IN THE HANDS OF THE ASSESSEE. WE FIND THAT THE A.O ON THE BASIS OF HIS AFORESAID OBSERVATIONS H AD RESTRICTED THE PROFIT OF THE ASSESSEE FROM HIS ELIGIBLE UNIT AT JAMMU TO 10%, AS AGAINST 35% CLAIMED BY HIM . WE FIND THAT WHEN T HE MATTER CAME UP BEFORE THE CIT(A), THE LATTER WAS NOT PERSUADED TO BE IN AGREEMENT WITH THE BASIS ON WHICH THE A.O HAD REST RICTED THE CLAIM OF THE ASSESSEE TOWAR DS DEDUCTION UNDER SEC. 80IB(4). WE FIND THAT THE CIT(A) BEING OF THE VIEW THAT NOW WHEN IT WAS A MATTER OF RECORD THAT NEITHER ANY ARRANGE MENT BETWEEN THE ASSESSEE AND HIS SISTER CONCERN, VIZ. UMARGAUM INDUSTRIES WAS PROVED TO BE IN EXISTENCE , ON THE BASIS OF WHICH IT COULD GATHERED THAT THE ASSESSEE HAD GENERATED MORE PROFITS AS AGAINST THE ORDINARY PROFITS, NOR THERE HAD BEEN A TRANSFER OF ANY GOODS OR SERVICES BELOW THE MARKET VALUE OF SUCH GOODS OR SERVICES, THEREFORE, NEITHER OF THE CONDITIONS CO N TEMPLATED UNDER SEC. 80IA(8) AND 80IA(10) WERE SATISFIED , WHICH THUS CLEARLY EXCLUDED THE APPLICABILITY OF THE AFORESAID STATUTORY PROVISIONS TO THE CASE OF THE ASSESSEE. WE FIND THAT THE CIT(A) BEING OF THE CONSIDERED VIEW THAT AS NOTHING WAS BROUGHT ON RECORD BY THE A.O TO WARRANT APPLICATION OF SEC. 80IA(8) AND 80IA(10) TO THE FACTS OF THE CASE INVOLVED IN THE CASE OF THE PRESENT ASSESSEE, THEREFORE, DELETED THE P A G E | 8 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO DISALLOWANCE OF THE ASSESSEES CLAIM OF DEDUCTION UNDER SEC. 80IB(4) BY THE A.O. 7. WE FIND THAT OUR INDULGENCE IN THE PRESENT CASE IS RESTRICTED TO ADJUDICATING THE VALIDITY OF THE ENTITLEMENT OF THE ASSESSEE TOWARDS CLAIM OF DEDUCTION UNDER SEC. 80IB(4) , IN THE BACKDROP OF THE PROVISIONS OF SE C. 80IA(8) AND 80IA(10). WE HAVE DELIBERATED AT LENGTH ON THE PROVISIONS OF SEC. 80IA(8) AND FIND THAT THE SAME CONTEMPLATES THAT WHERE ANY GOODS OR SERVICES WHICH ARE HELD BY AN ASSESSEE FOR THE PURPOSE OF AN ELIGIBLE BUSINESS ARE TRANSFERRED TO ANY OTHER BUSINESS CARRIED ON BY HIM OR VICE VERSA , AND THE CONSIDERATION, IF ANY , FOR SUCH TRANSFER AS RECORDED IN THE ACCOUNTS OF THE ELIGIBLE BUSINESS DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS OR SERVICES ON THE DATE OF THE TRANSFER, THEN , FOR THE PU RPOSE OF QUANTIFICATION OF THE DEDUCTION , THE PROFIT AND GAINS OF SUCH ELIGIBLE BUSINESS SHALL BE COMPUTED AS IF THE TRANSFER IN EITHER CASE, HAD BEEN MADE AT THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THAT DATE. WE FIND THAT IN THE CASE BEFORE U S, IT HAD N EVER BEEN THE CASE OF THE REVENUE THAT THE ASSESSEE HAD TRANSFERRED ANY GOODS HELD BY HIM FOR THE PURPOSE OF HIS ELIGIBLE BUSINESS TO ANY OTHER BUSINESS CARRIED ON BY HIM, OR VICE - VERSA, FOR A CONSIDERATION WHICH DID NOT CORRESPOND TO THE MARKET V ALUE OF THE GOODS AS ON THE DATE OF THE TRANSFER, NOR ANY SUCH FACTUAL POSITION EMERGES FROM THE ORDERS OF THE LOWER AUTHORITIES AND THE RECORD AVAILABLE BEFORE US, THEREFORE, THE VERY APPLICABILITY OF THE AFORESAID STATUTORY PROVISI ON, VIZ. SEC. 80IA(8) , AS HAD BEEN REFERRED TO BY THE A.O IN THE BODY OF THE ASSESSMENT ORDER IS CLEARLY OUSTED . WE THUS IN THE BACKDROP OF OUR AFORESAID OBSERVATIONS H O LD THAT THE PROVISIONS OF SEC. 80IA(8) ARE NOT AT ALL APPLICABLE TO THE CASE OF THE PRESENT ASSESSEE. P A G E | 9 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO 8. WE HA VE FURTHER DELIBERATED ON THE PROVISIONS OF SEC. 80IA(10) , WHICH HAD BEEN HEAVILY RELIED UPON BY THE LOWER AUTHORITIES TO CONCLUDE THAT THE ENTITLEMENT THE ASSESSEE TOWAR DS DEDUCTION UNDER SEC. 80IB(4) WAS LIABLE TO BE RESTRICTED TO AN AMOUNT OF RS.12,03,773/ - , AS AGAINST ITS CLAIM FOR THE SAME AT RS.41,65,688/ - . WE FIND THAT THE AFORESAID STATUTORY PROVISION, VIZ. SEC. 80IA(10) CONTEMPLATES THAT WHERE IT APPEARS TO THE ASSESSING OFFICER THAT, OW ING TO THE CLOSE CO NNECTION BETWEEN THE CARRYING OF THE ELIGIBLE BUSINESS TO WHICH THIS SECTION APPLIES AND ANY OTHER PERSON, OR FOR ANY OTHER REASON, THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WHICH MI GHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS, THE A.O SHALL, IN COMPUTING THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS FOR THE PURPOSE OF THE DEDUCTION UNDER THE SAID SECTION , TAKE THE AMOUNT OF PROFITS AS MAY BE REASONABLY DEEMED TO HAVE BEEN DER IVED THEREFROM. WE ARE OF A STRONG CONVICTION THAT THE VERY FOUNDATION FOR INVOKING OF THE PROVISIONS OF SEC. 80IA(10) ARE THAT IT HAS TO BE ESTABLISHED THAT OWING TO THE CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON THE ELIGIBLE BUSINESS TO WHICH THIS SECTION APPLIES AND ANY OTHER PERSON, OR FOR ANY OTHER REASON, THE COURSE OF THE BUSINESS BETWEEN THEM IS FOUND TO BE SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS. THUS, IT CAN SAFELY BE CONCLUDED THAT THE SINE QUA NON FOR INVOKING THE APPLICABILITY OF SEC. 80IA(10) IS THE VERY EXISTENCE OF AN ARRANGEMENT BETWEEN TH E ASSESSEE AND ANY OTHER PERSON, THEREIN LEADING TO MORE THAN ORDI NARY PROFITS FROM SUCH ELIGIBLE BUSINESS. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FACTS OF THE CASE BEFORE US, AND ARE OF THE CONSIDERED VIEW THAT THE A.O IN THE CASE OF THE PRESENT ASSESSEE HAD NOT DISALLOWED THE ASSESSEES ENTITLEMENT P A G E | 10 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO TOWARDS CLA IM OF DEDUCTION UNDER SEC. 80IB(4) FOR THE REASON THAT IT STOOD ESTABLISHED THAT THE ASSESSEE HAD ENT ERED INTO AN ARRANGEMENT WITH HI S SISTER CONCERN, VIZ. UMARGAUM INDUSTRIES , AS A RESULT WHEREOF THE BUSINESS TRANSACTED BETWEEN THEM HAD PRODUCED TO THE AS SESSEE MORE THAN THE ORDINARY PROFIT S WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS. WE FIND THAT THE ONLY REASONING GIVEN BY THE A.O F OR DISALLOWING THE ASSESSEES ENTITLEMENT UNDER SEC. 80IB(4) WAS THAT THE PROFITS OF THE ASSESSEE WERE FOUND TO BE SUBSTANTIALLY EXCESSIVE AS IN COMPARISON TO THOSE SHOWN BY HIS SISTER CONCERN, VIZ. UMARGAUM INDUSTRIES. WE FIND THAT THE A.O MERELY ON THE BASIS OF THE AFORESAID COMPARATIVE ANALYSIS HAD RESTRICTED THE NET PROFIT OF THE ASSESS EE TO 10% AS AGAINST 35% SHOWN BY HIM. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE OBSERVATIONS OF THE LOWER AUTHORITIES , AND ARE OF THE CONSIDERED VIEW THAT THE AFORE SAID FINDINGS OF THE A.O FOR RESTRICTING THE CLAIM OF THE ASSESSEE TOWARDS DEDUCTION UNDER SEC. 80IB(4) , I N THE BACKDROP OF HIS OBSERVATIONS RECORDED IN CONTEXT OF SEC. 80IA(8) AND 80IA(10), DOES NOT FIT IN THE SCHEME OF THE AFORESAID STATUTORY PROVISION. WE ARE OF THE CONSIDERED VIEW THAT THE A.O BY MISCONCEIVING AND MISINTERPRETING THE SCOPE AND GAMUT OF THE AFORESAID STATUTORY PROVISIONS , THEREIN PROCEEDED WITH IN A MOST WHIMSICAL MANNER AND RESTRICTED THE ENTITLEMENT OF THE ASSESSEE TOWARDS CLAIM OF DEDUCTION UNDER SEC. 80IB(4) . WE ARE UNABLE TO PERSUADE OURSELVES TO ACCEPT THE AFORESAID OBSERVATIONS OF THE A.O . WE ARE OF THE CONSIDERED VIEW THAT THE CIT(A) HAD BY WAY OF A VERY WELL REASONED ORDER CONCLUDED THAT THE PROVISION S OF SEC. 80IA(8) AND 80IA(10), IN THE BACKDROP OF THE FACTS OF THE CASE , DID NOT WARRANT APPLICATION AT ALL. WE THUS , ON THE BASIS OF OUR AFORESAID OBSERVATIONS UPHOLD THE O RDER OF THE CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. P A G E | 11 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO 9 . THE APPEAL OF THE REVENUE IS DISMISSED IN TERMS OF OUR AFORESAID OBSERVATIONS ITA NO. 151/MUM/2017 AY: 2009 - 10 10 . WE SHALL NOW TAKE UP THE APPEAL OF THE ASSESSEE FOR AY 2009 - 10 , WHICH IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) - 18, MUMBAI , CONFIRMING THE PENALTY IMPOSED BY THE A.O UNDER SEC. 271(1)(C) OF THE ACT. THE ASSESSEE ASSAILING THE ORDER OF THE CIT(A) HAD RAISE D BEFORE US THE F OLLOWING GROUNDS OF APPEAL: - 1. THE LEARNED CIT(A) HAS ERRED IN SUSTAINING PENALTY OF RS.9,63,000/ - LEVIED U/S. 271(1)(C) OF THE INCOME TAX ACT, 1961 BY THE LEARNED A.O. 2. YOUR APPELLANT RESPECTFULLY SUBMITS THAT ON FACTS AND IN LAW THE LEVY OF PENALTY IS UNJUSTIFIED AND IT MAY PLEASE BE DELETED. 3. YOUR APPELLANT PRAYS FOR A LEAVE TO ALLOW HIM TO ADD TO OR ALTER THE ABOVE GROUND. 1 1 . THE ASSESSEE HAS ASSAILED BEFORE US THE ORDER OF THE CIT(A) UPHOLDING THE PENALTY OF RS.9,63,200/ - IMPOSED BY THE A.O UNDER SEC 271(1)(C) OF THE ACT. WE FIND THAT THE A.O HAD IMPOSED PENALTY UNDER SEC. 271(1)(C) ON ACCOUNT OF SCALING DOWN OF THE ENTITLEMENT OF THE ASSESSEE TOWARDS CLAIM OF DEDUCTION UNDER SEC. 80IB OF RS.41,71,838/ - , AS RAISED BY THE ASSESSEE IN HIS RETURN OF INCOME, TO RS.12,03,773/ - AS WAS DETERMINED BY THE A.O IN THE ASSESSMENT FRAMED IN THE HANDS OF THE ASSESSEE . WE ARE OF THE CONSIDERED VIEW THAT AS WE HAVE ALREADY UPHELD THE ORDER OF THE CIT(A) , AND THEREIN SET ASIDE T HE RESTRICTING OF THE ENTITLEMENT OF THE ASSESSEES CLAIM OF DEDUCTION UNDER SEC. 80IB TO RS.12,03,773/ - BY THE A.O , AS AGAINST THE CLAIM RAISED BY THE ASSESSEE UNDER THE AFORE SAID STATUTORY PROVISION OF RS.41,71 ,838/ - , WHILE DISMISSING THE APPEAL OF THE REVE NUE FOR THE YEAR UNDER CONSIDERATION, VIZ. AY: 2009 - 10 IN ITA NO. 6265/MUM/2012, THEREFORE, THE VERY BASIS FOR THE IMPOSITION OF P A G E | 12 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO PENALTY UNDER SEC. 271(1)(C) DOES NOT SURVIVE. WE THUS IN TERMS OF OUR AFORESAID OBSERVATIONS SET ASIDE THE PENALTY OF RS.9,63, 000/ - IMPOSED BY THE A.O UNDER SEC. 271(1)(C) OF THE ACT. 1 2 . THE APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO. 5682 /MUM/201 3 AY: 20 10 - 1 1 1 3 . WE SHALL NOW TAKE UP THE APPEAL OF THE ASSESSEE WHICH IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) - 18, MUMBAI FOR AY: 2010 - 11, WHICH IN ITSELF ARISES FROM THE ORDER PASSED BY THE A.O UNDER SEC. 143(3), DATED 12.03.2013. THE ASSESSEE ASSAILING THE ORDER OF THE CIT(A) HAD RAISED BEFORE US THE FO LLOWING GROUNDS OF APPEAL: - 1. THE LEARNED CIT(A) I S GROSSLY ERRED IN ENHANCE AN ASSESSMENT WITHOUT PROVIDING THE REASONABLE OPPORTUNITY TO THE APPELLANT AS REQUIRED U/S 251(2). 2. THE LEARNED CIT (A) IS ERRED IN CONSIDERING THE GROSS PROFIT ON SO CALLED 'BOGUS PURCHASE' @ 24.26% INSTEAD OF THE 9.26% AS ADOPTED BY APPELLANT. THE LEARNED CIT(A) IS GROSSLY ERRED IN DISALLOWING ADDITIONAL 15% AS SAVING TOWARDS THE LOCAL TAXES ON PURCHASE FROM GRAY MARKET INSTEAD OF THE DISALLOWING ACTUAL AMOUNT OF SALES TAX OF RS. 93,109/ - . WIT HOUT PREJUDICE TO THE ABOVE, THE DISALLOWANCE SHOULD BE RESTRICTED TO 12.5% . 3. YOUR APPELLANT PRAYS FOR LEAVE TO ALLOW HER TO ADD TO OR ALTER THE ABOVE GROUND. 1 4 . BRIEFLY STATED , THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAD FILED HIS RETURN OF INCOME ON 30.09.2010 , DECLARING TOTAL INCOME AT RS. 3,77,450/ - . THE RETURN OF INCOME FILED BY THE ASSESSEE WAS PROCESSED AS SUCH UNDER SEC. 143 (1) OF THE ACT . THE CASE OF THE ASSESSEE WAS THEREAFTER T AKEN UP FOR SCRUTINY ASSESSMENT UNDER SEC. 143(2). THAT DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS I T WAS GATHERED BY THE A.O THAT AS PER INFORMATION RECEIVED FROM THE SALES TAX AUTHORITIES , THE ASSESSEE HAD BOOKED BOGUS PURCHASES AND OBTAINED P A G E | 13 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO ACCOMMODATION BILLS AGGREGATING TO RS.23,59,675/ - FROM THE FOLLOWING PARTIES: - S . NO . NAME OF THE PARTY AMOUNT (RS.) 1. VAISHALI ENTERPRISES 10,37,479/ - 2. MOKSH TRADING COMPANY 2,53,344/ - 3. M.R. CORPORATION 51,509/ - 4. MAGNUM ENTERPRISES 3,25,728/ - 5. RAMDEV TRADING 3,01,600/ - 6. SMARTLINK TRADEX PRIVATE LTD. 2,71,440/ - 7. AMBIKA TADE IMPEX 79,991/ - TOTAL 23,59,675/ - THE A.O CALLED UPON THE ASSESSEE TO PROVE THE GENUINENESS AND VERACITY OF THE PURCHASE S CLAIMED TO HAVE BEEN MADE FROM THE AFORESAID PARTIES , BY PLACING ON RECORD DOCUMENTARY EVIDENCE, VIZ. DELIVERY CHALLANS ETC, AS WELL AS PRODUCE THE SAID PARTIES FOR EXAMINATION BEFORE HIM, FAILING WHICH T HE PURCHASES CLAIMED TO HAVE BEEN MADE FROM THEM WERE TO BE HELD AS BOGUS PURCHASES. THE ASSESSEE IN COMPLIANCE TO THE AFORESAID DIRECTIONS OF THE A.O PLACED ON RECORD THE COPY OF THE PURCHASE BILLS AND SUBMITTED THE STOCK SUMMARY, AS PER WHICH THE GOODS P URCHASED FROM THE AFORESAID PARTIES WERE EITHER SOLD OR FORMED PART OF HIS CLOSING STOCK. THE ASSESSEE FURTHER SUBMITTED BEFORE THE A.O THAT AS IT WAS A FACT BORNE FROM THE RECORDS THAT HE HAD EARNED GROSS PROFIT @ 9.26% IN RESPECT OF THE SALE OF THE GOODS UNDER CONSIDERATION , WHICH WAS MORE THAN THE G.P OF 4.59% PERTAINING TO THE GOODS WHICH WERE PURCHASED FROM THE OTHER PARTIES, THEREFORE, CONCLUDED THAT ON THE SAID COUNT NO FURTHER ADDITION WAS LIABLE TO BE MADE IN HIS HANDS. THE ASSESSEE FURTHER IN HIS ATTEMPT TO DRIVE HOME HIS CONTENTION THAT HE HAD MADE GENUINE PURCHASES FROM THE AFORESAID PARTIES, SUBMITTED THAT THE PAYMENTS TOWARDS THE PURCHASE CONS IDERATION TO THE SAID RESPECT IVE PARTIES WERE MADE BY CHEQUES . THE A.O AFTER DELIBERATING ON THE CONTENTIONS OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE SAME FOR MULTIPLE REASONS, VIZ. (I) P A G E | 14 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO THE RESPECTIVE PARTIES HAD IN THEIR STATEMENT S RECORDED UNDER OATH BEFORE THE SALES TAX AUTHORITIES DEPOSED THAT THE TRANSACTIONS WERE NOT GENUINE AND THERE HAD BEEN NO ACTUAL PURCHASE OR SALE OF GOODS , BUT ONLY BILLS WERE ISSUED AGAINST CHEQUES; (II) THAT NEITHER OF THE PARTIES WERE TRACEABLE AT THE GIVEN ADDRESS, NOR T HEY COULD BE CONTACTED AT THE ADDRESS ES PROVIDED ON THE BILLS; (III) THE ASSESSEE DESPITE BEING AFFORDED AN OPPORTUNITY TO PRODUCE THE PARTIES FAILED TO DO SO DESPITE SEVERAL REMINDERS; (IV) THAT THE ASSESSEE FAILED TO PRODUCE THE DELIVERY CHALLANS TO PROV E THAT THERE WAS ACTUAL MO VE MENT OF GOODS FROM THE AFOREMENTIONED PARTIES TO THE PREMISES OF THE ASSESSEE ; AND (V) THAT THE CONTENTION OF THE ASSESSEE THAT THE PAYMENT OF THE PURCHASE CONSIDERATION TO THE PARTIES WAS MADE VIDE ACCOUNT PAYEE CHEQUES WOULD NOT CONCLUSIVELY PROVE THE GENUINENESS OF THE PURCHASE TRANSACTIONS, THEREFORE , DECLINED TO ACCEPT THE EXPLANATION OF THE ASSESSEE WHICH WAS TENDERED BY HIM TO SUPPORT THE GENUINENESS OF THE PURCHASE TRANSACTIONS. THE A.O CHARACTERIZE D THE PURCHASES MADE B Y THE ASSESSEE FROM THE AFOREMENTIONED PARTIES AS BOGUS PURCHASES , AND ADDED BACK THE AGGREGATE OF THE PURCHASES OF RS.23,19,675/ - WHICH WERE CLAIMED BY THE ASSESSEE TO HAVE BEEN MADE FROM THEM TO THE RETURNED INCOME OF THE ASSESSEE UNDER SEC. 69C OF THE ACT. 1 5 . THE A.O FURTHER OBSERVED THAT THOUGH THE ASSESSEE HAD SOLD THE GOODS UNDER CONSIDERATION, HOWEVER , THE SAME WERE NOT PROVE D TO HAVE BEEN PURCHASED FROM THE AFOREMENTIONED PARTIES. THE A.O CONCLUDED THAT THE ASSESSEE HAD AS A MATTER OF FACT PURCHASE D THE GOODS FROM CERTAIN UNKNOWN PARTIES AND THEREAFTER HAD MERELY OBTAINED BILLS FROM THE AFORE SAID HAWALA DEALERS. THUS, AS PER T HE A.O THE ASSESSEE HAD DEALT WITH TWO PARTIES, VIZ. (I) THE PARTIES FROM WHOM THE GOODS WERE NOT PURCHA SED BUT THE BILLS WERE OBTAINED, ON THE BASIS OF WHICH THE PURCHASES WERE RECORDED IN BOOKS OF ACCOUNTS ; AND (II) OTHER PARTIES P A G E | 15 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO FROM WHOM T HE GOODS WERE ACTUALLY PURCHASED BUT NOT RECORDED IN THE BOOKS OF ACCOUNTS. THE A.O FURTHER DELIBERATING ON THE MODE OF PAYMENT MADE BY THE ASSESSEE , THEREIN OBSERVED THAT CHEQUE PAYMENT S WERE MADE TO THE HAWALA PARTIES AND WERE RECORDED IN THE BOOKS OF ACCOUNTS, WHILE FOR THE PAYMENTS MADE TO THE PARTIES FROM WHOM THE GOODS WERE ACTUALLY PURCHASED WAS NOT REFLECTED IN THE BOOKS OF ACCOUNTS. THE A.O FURTHER OBSERVED THAT THE ASSESSEE COULD NOT PROVE THAT THE PAYMENT TOWARDS PURCHASE CONSIDERATION BY THE ASSESSEE TO THE PARTIES FROM WHOM THE GOODS WERE ACTUALLY PURCHASED WAS MADE BY CHEQUES. THUS, ON THE BASIS OF HIS AFORESAID OBSERVATIONS THE A.O CONCLUDED THAT THE ASSESSEE HAD GIVEN CHEQUES TO THE PARTIES ISSUING ACCOMMODATION BILLS , AND IN RETURN GOT CASH OF EQUIVALEN T AMOUNT , WHICH WAS UTILIZED FOR MAKING PAYMENT OF THE PURCHASE CONSIDERATION TO THE PARTIES FROM WHOM THE GOODS WERE ACTUALLY PURCHASED . THE A.O ON THE BASIS OF HIS AFORESAID OBSERVATIONS CONCLUDED THAT AS THE ASSESSEE HAD MADE PAYMENT FOR PURCHASE OF GOO DS , OTH ERWISE THAN BY C ROSS ED /ACCOUNT PAYEE CHEQUES , WHICH WAS IN CONTRAVENTION OF THE PROVISIONS OF SEC. 40A(3), THEREFORE, 20% OF THE SAID PURCHASE S I.E. RS.4,71,935/ - (20% OF RS.23,59,675/ - ) WAS LIABLE TO BE DISALLOWED. THE A.O ON THE BASIS OF HIS AFORESAID OBSERVATIONS, THEREIN INTERALIA MADE AN ADDITION OF RS.23,59,675/ - TOWARDS UNEXPLAINED PURCHASES MADE BY THE ASSESSEE UNDER SEC. 69C . 1 6 . THE A.O FURTHER OBSERVED THAT AS THE ASSESSEE HAD FAILED TO PROVE THE GENUINENESS OF THE BILLS SUBMITTED IN RESPECT OF THE BOGUS PARTIES, THEREFORE, THE PURCHASE RATE OF ACTUAL BILLS AGAINST WHICH THE GOODS WERE RECEIVED WAS NOT DETERMINABLE. THE A.O HELD A CONVICTION THAT AS THE ASSESSEE HAD BOOKED T HE PURCHASES ON THE BASIS OF THE PURCHASE RATE MENTIONED ON THE BOGUS PURCHASE BILLS, THEREFORE, THE G.P. RATE OF 9.26% DECLARED BY THE ASSESSEE IN RESPECT OF THE TRANSACTIONS P A G E | 16 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO INVOLVING ITEMS PE R TAINING TO BOGUS PURCHASES WAS NOT ACCEPTABLE . THE A.O ON THE BASIS OF HIS AFORESAID OBSERVATIONS ESTIMATED THE G.P RATE OF THE ASSESSEE @ 20% OF THE VALUE OF GOODS SOLD (RS. 24,55,446/ - ) FOR WHICH THE CORRESPONDING PURCHASES (RS.23,59,675/ - ) WERE BOGUS, AND AS SUCH WORKED OUT THE GROSS PROFIT IN THE HANDS OF THE AS SESSEE AT RS.4 ,91,089/ - (20% OF RS.24,55,446/ ). THAT ON THE BASIS OF HIS AFORESAID OBSERVATIONS THE A.O SUBSTITUTED THE G.P. RATE OF RS.2,27,464/ - SHOWN BY THE ASSESSEE BY RS.4,91,089/ - . HOWEVER , AS THE A.O HAD ALREADY DISALLOWED THE ENTIRE PURCHASES, THER EFORE , THE VARIANCE OF RS.2,63,625/ - [( RS.4,91,089/ - ( - ) RS.2,27,464/ - ) ] WAS NOT SEPARA TELY ADDED BY HIM TO THE RETURNED INCOME OF THE ASSESSEE. THE A.O ON THE BASIS OF HIS AFORESAID DELIBERATIONS ASSESSED THE INCOME OF THE ASSESSEE AT RS.88, 86,292/ - . 1 7 . AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE CIT(A) AFTER DELIBERATING ON THE ADDITIONS MADE BY THE A.O IN RESPECT OF THE BOGUS PURCHASES , THEREIN OBSERVED THAT AS THE A.O HAD NOT DOUBTED THE SALES CORRESPONDI NG TO THE PURCHASES UNDER CONSIDERATION, THEREFORE, IT COULD SAFELY BE CONCLUDED THAT THE ASSESSEE HAD MADE THE PURCHASES OF THE GOODS UNDER CONSIDERATION, THOUGH NOT FROM THE AFOREMENTIONED HAWALA PARTIES, BUT FROM THE OPEN/GR EY MARKET. THE CIT(A) FURTHE R HE LD A CONVICTION THAT BY MAKING THE PURCHASES OF THE GOODS UNDER CONSIDERATION FROM THE OPEN/GRE Y MARKET THE ASSESSEE HAD SAV ED ON THE TAXES ETC., I.E. VAT @ 13% AND OCTROI @ 2%. THE CIT(A) FURTHER TAKING COGNIZANCE OF THE FACT THAT THE ASSESSEE HAD SHOWN A G.P RATE OF 9.26%, THEREFORE , CONCLUDED THAT THE GROSS PROFIT IN THE HANDS OF THE ASSESSEE PERTAINING TO THE GOODS UNDER CONSIDERATION COULD SAFELY BE TAKEN @ 24. 26% (I.E. 9.26% (+) 15%) , AND ON THE BASIS OF HIS AFORESAID OBSERVATIONS CONFIRMED THE ADDITION IN RESPECT OF BOGUS PURCHASES TO THE EXTENT OF RS.23,59,675/ - . P A G E | 17 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO 1 8 . THE CIT(A) ADVERTING TO THE DISALLOWANCE OF RS.4,71,935/ - MADE BY THE A.O UNDER SEC. 40A(3), THEREIN OBSERVED THAT THE A.O HAD MERELY PRESUMED THAT THE ASSESSEE HAD MADE CASH PAYMENTS FOR PURCHASES MADE FROM THE OPEN/GREY MARKET , AND AS A RESULT THEREOF HAD DISALLOWED 20% OF THE PURCHASES UNDER THE AFORESAID STATUTORY PROVISION, VIZ. SEC. 40A(3). THE CIT(A) OBSERVED THAT AS THE AFORESAID ADDITION/DISALLOWANCE MADE BY THE A.O UNDER SEC. 40A(3) WAS ONLY ON THE BASIS OF A PRESUMPTION THAT THE ASSESSEE MIGHT HAVE MADE CASH PURCHASES, THEREFORE, THE SAME COULD NOT BE SUSTAINED ON THE SAID GROUND . THE C IT(A) WHILE SO CONCLUDING RELIED ON THE ORDER OF THE ITAT, MUMBAI , IN THE CASE OF FREE INDIA ASSURANCE SERVICES LTD. VS DCIT (ITA NO. 3541 TO 3544/MUM/2007; DATED 30.03.2011, THUS, ON THE BASIS OF HIS AFORESAID OBSERVATIONS THE CIT(A) DELETED THE DISALLOWANCE OF RS.4,11,935/ - MADE BY THE A.O UNDER SEC. 40A(3) OF THE ACT. 1 9 . THE ASSESSEE BEING AGGRIEVED WITH THE ORDER OF THE CIT(A) , TO THE EXTENT THE LATTER HAD SUSTAINED THE ADDITION OF RS.23,59,675/ - IN THE HANDS OF THE ASSESSEE, HAD CARRIED THE MATTER IN APPEAL BEFORE US. THE LD. A.R FOR THE ASSESSEE SUBMITTED THAT THE CIT(A) HAD ERRED IN SUSTAINING THE ADDITION OF 24.26% OF THE PURCHASES WHICH WERE CLAIMED BY THE ASSESSEE TO HAVE BEEN MADE FROM THE AFOREMENTIONED PARTI ES , WHICH THEREIN HAD LED TO AN EXORBITANT ADDITION OF RS .23,59,675/ - . IT WAS SUBMITTED BY THE LD. A.R THAT NOW WHEN THE ASSESSEE HAD ALREADY SHOWN A G.P. RATE OF 9.26% IN RESPECT OF THE SALES PERTAINING TO THE GOODS UNDER CONSIDERATION, THEREFORE, NO FURTHER ADDITION WAS CALLED FOR IN THE HANDS OF THE ASSESSEE. PER CONTRA, THE LD. D.R. RELIED ON THE ORDER OF THE A.O . P A G E | 18 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO 20 . WE HAVE H EARD THE AUTHORIZED REPRESENTATIVE S FOR BOTH THE PARTIES , PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FACTS OF THE CASE AND ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE H AD FAILED TO DISCHARGE THE ONUS AND PROVE THE GENUINENESS AND VERACITY OF THE PURCHASES CLAIMED TO HAVE BEEN MADE FROM THE AFOREMENTIONED PARTIES. WE FURTHER ARE OF THE CONSIDERED VIEW THAT AS THE A.O HAD NOT DOUBTED THE SALES OF THE GOODS UNDER CONSIDERAT ION, THEREFORE, THE CIT(A) HAD RIGHTLY CONCLUDED THAT THE ASSESSEE HAD MADE THE PURCHASES OF THE GOODS UNDER CONSIDERATION, THOUGH NOT FROM THE AFORE SAID HAWALA PARTIES, BUT FROM THE OPEN/GREY MARKET. WE FIND OURSELVES TO BE IN AGREEMENT WITH THE VIEW TAKE N BY THE CIT(A) THAT THE ADDITION IN THE HAND S OF THE ASSESSEE WAS LIABLE TO BE MADE ONLY IN RESPECT OF THE PROFIT ELEMENT PERTAINING TO THE PURCHASES MADE BY HIM FROM THE OPEN/GREY MARKET. WE HOWEVER ARE UNABLE TO PERSUADE OURSELVES TO BE IN AGREEMENT WI TH THE BASIS OF QUANTIFICATION OF THE PROFIT ELEMENT BY THE CIT(A) @ 24.26% OF THE PURCHASES CLAIMED BY THE ASSESSEE TO HAVE BEEN MADE FROM THE AFORESAID PARTIES . WE ARE OF THE CONSIDERED VIEW THAT WHEN IT COMES TO QUANTIFICATION OF THE PROFIT ELEMENT INVOLVED IN MAKING OF BOGUS PURCHASE, THE SAME HAS TO BE WORKED OUT KEEPING IN VIEW THE PROFIT WHICH THE ASSESSEE WOULD HAVE GENERATED FROM MAKING OF SUCH PURCHASES FROM THE OPEN/GREY MARKET , AS AGAINST THE PRICE FOR WHICH HE COULD HAVE PROCURED THE GOODS FROM THE REGULAR MARKET. WE ARE OF THE CONSIDERE D VIEW THAT THE PROFIT INVOLVED IN MAKING OF THE PURCHASES FROM THE OPEN/GREY MARKET WOULD INVOLVE SAVING OF VAT AS WELL AS CERTAIN OTHER LEVIES, CASH DISCOUNTS ETC. , WHICH W OULD NOT OTHERWISE BE AVAILABLE T O THE ASSESSEE IN CASE THE PURCHASES WERE MADE FROM A GENUINE DEALER OPERATING IN THE REGULAR MARKET. WE ARE OF THE VIEW THAT NOW WHEN IN THE CASE OF THE PRESENT ASSESSEE IT STANDS ESTABLISHED BEYOND ANY SCOPE OF DOUBT THAT P A G E | 19 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO GOODS WERE PURCHASED BY HIM FROM THE OPEN/GREY MARKET, THEREFORE, IT CAN SAFELY BE CONCLUDED THAT THE PURCHASE S WHICH HE HAD BOOKED ON THE BASIS OF THE BOGUS BILLS OBTAINED FROM THE HAWALA PARTIES WERE OVER PITCHED , AS AGAINST THE CONSIDERATION FOR WHICH THE SAME HAD ACTUALLY BEEN PROCUR ED BY HIM FROM THE OPEN/GREY MARKET. WE FIND THAT THE ISSUE AS REGARDS QUANTIFICATION OF THE PROFIT ELEMENT INVOLVED IN MAKING OF SUCH BOGUS PURCHASE S HAD CAME UP BEFORE THE HONBLE HIGH COURT OF GUJARAT IN THE CASE OF CIT - 2 VS. SIMIT P. SHETH (2013) 356 IT R 451 ( GUJ ) . THE HIGH COURT IN THE ABOVEMENTIONED CASE HAD CONCLUDED THAT 12.5% OF THE PURCHASE CONSIDERATION PERTAINING TO THE VALUE OF THE BOGUS PURCHASES COULD SAFELY BE HELD AS THE PROFIT INVOLVED IN MAKING OF SUCH BOGUS PURCHASE. WE FIND THAT THE AFORESAID ORDER OF THE HONBLE HIGH COURT HAD THEREAFTER, CONSISTENTLY BEEN FOLLOWED BY DIFFERENT BENCHES OF THE TRIBUNAL. WE THUS FINDING OURSEL VES AS BEING IN AGREEMENT WITH THE VIEW TAKEN BY THE HONBLE HIGH COURT OF GUJARAT IN THE CASE OF SIMIT P. SHE TH (SUPRA) , WHICH AS OBSERVED BY US HEREINABOVE , HAD CONSISTENTLY BEEN FOLLOWED BY DIFFERENT BENCH ES OF THE TRIBUNAL, THEREFORE, RESTRICT THE DISALLOWANCE IN THE HANDS OF THE ASSESSEE TO 12.5% AS AGAINST 24.26% DETERMINED BY THE CIT(A). WE THUS DIRECT THE A.O TO RESTRICT THE ADDITION/DISALLOWANCE IN RESPECT OF BOGUS PURCHASE IN THE HANDS OF ASSESSEE @ 12.5% OF THE AGGREGATE VALUE OF THE BOGUS PURCHASES OF RS.23,59,675/ - . THE ORDER OF THE CIT(A) THUS STANDS MODIFIED IN TERMS OF OUR AFORESAID OBSERVATIONS IN CONTEXT OF THE ISSUE UNDER CONSIDERATION. 2 1 . THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN TERMS OF OUR AFORESAID OBSERVATIONS. P A G E | 20 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO ITA NO. 6463 /MUM/201 3 AY: 20 10 - 1 1 2 2 . WE SHALL NOW TAKE UP THE APPEAL OF THE REVENUE FOR AY 2010 - 11. THE REVENUE ASSAILING THE ORDER OF THE CIT(A) HAD THEREIN RAISED BEFORE US THE F OLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE ADDITION OF BOGUS PURCHASES OF RS. 23,59,675/ - TO THE EXTENT OF PROFIT EARNED BY NOT PAYING VAT ON SUCH PURCHASES, WITHOUT APPRECIATING THAT HAVING HELD THAT PURCHASES WERE MADE IN CASH FROM THE GREY MARKET, THE LD. CIT(A) OUGHT TO HAVE SUSTAINED THE ADDITION U/S 69C ON ACC OUNT OF UNEXPLAINED EXPENDITURE INCURRED BY THE ASSESSEE OUT OF UNACCOUNTED CASH FOR PURCHASE OF STOCKS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE HAS ERRED IN DELETING THE DISALLOWANCE U/S. 40A(3) OF THE ACT, WHICH IS CONTRARY TO HIS OWN FINDING THAT THE ASSESSEE HAS MADE PURCHASES FROM THE GREY MARKET BY MAKING PAYMENTS IN CASH. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN UPHOLDING THE ASSESSEE'S CLAIM OF DEDUCTION U/S. 80IB AND ACCORDINGLY DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 80IA(8) AND SECTION 80IA(10) OF THE INCOME TAX ACT, WITHOUT APPRECIATING THE FIN DINGS OF THE ASSESSING OFFICER. 4. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE A ND THAT OF THE A.O.BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 2 3 . THE REVENUE HAD ASSAILED THE RESTRICTING OF THE ADDITION OF BOGUS PURCHASE OF RS.23,59,675/ - MADE BY THE A.O , TO THE EXTENT OF THE PROFIT ELEMENT OF 24.26% BY THE CIT(A). THE LD. D.R HAD AVERRED BEFORE US THAT NOW WHEN IT WAS ESTABLISHED THAT THE ASSESSEE HAD MADE THE PUR CHASE S OF THE GOODS UNDER CONSIDERATION FROM THE OPEN/GREY MARKET, THEREFORE, THE CIT(A) OUGHT TO HAVE SUSTAINED THE ADDITION OF THE ENTIRE PURCHASE VALUE OF RS.23,59,675/ - MADE BY THE A.O UNDER P A G E | 21 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO SEC. 69C TOWARDS UNEXPLAINED EXPENDITURE INCURRED BY THE ASSESSEE FOR PURCHASE OF THE GOODS UNDER CONSIDERATION. 2 4 . WE HAVE G IVEN A THOUGHTFUL CONSIDERATION TO THE AFO RESAID CO NTENTION OF THE REVENUE , AND ARE OF THE CONSIDERED VIEW THAT NOW WHEN IT REMAINS AS A MATTER O F FACT THAT BOTH THE PURCHASES AND SALES OF GOODS UNDER CONSIDERATION HAD BEEN RECORDED BY THE ASSESSEE IN HIS BOOKS OF AC COUNTS, THEREFORE, THERE REMAINED NO OCCASION FOR HAVING T REATED THE ENTIRE PURCHASES OF RS.23,59,675/ - AS AN UNEXPLAINED EXPENDITURE UNDER SEC. 69C IN THE HANDS OF THE ASSESSEE. WE HAD WHILE DISPOSING OF THE APPEAL OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION, VIZ. AY 2010 - 11 IN ITA NO. 5682/MUM/2013 RESTRICTED THE DISALLOWANCE/ADDITION IN RESPECT OF BOGUS PURCHASES TO THE EXTENT OF 12.5% OF THE VALUE OF PURCHASES CLAIMED BY THE ASSESSEE TO HAVE BEEN MADE FROM THE AFOREMENTIONED HAWALA PARTIES. WE THUS IN TERMS OF OUR AFORESAID O BSERVATIONS DISMISS THE GROUND OF APPEAL NO. 1 RAISED BY THE REVENUE BEFORE US. 2 5 . THE REVENUE HAD FURTHER ASSAILED THE SETTING ASIDE OF THE DISALLOWANCE OF RS.4,71,935/ - MADE BY THE A.O UNDER SEC. 40A(3). WE HAVE GIVEN A THOUGHTFU L CONSIDERATION TO THE ISSUE RAISED BY THE REVENUE BEFORE US. WE HAVE DELIBERATED ON THE FACTS OF THE CASE AND THE OBSERVATI ONS OF THE LOWER AUTHORITIES , AND FIND OURSELVES AS BEING IN AGREEME NT WITH THE VIEW TAKEN BY THE CIT(A) THAT AS THE DISALLOWANCE UNDER SEC.40A(3) OF THE PURCHASE S UNDER CONSIDERATION WAS MADE BY TH E A.O MERELY ON THE BASIS OF A PRESUMPTION THAT THE ASSESS EE MIGHT HAVE MADE CASH PURCHASES, THEREFORE, NO DISALLOWANCE UNDER SEC. 40A(3) COULD BE SUSTAINED ON THE SAID BASIS. WE FIND THAT THE CIT(A) HAD WHILE DECIDING THE AFORESAID ISSUE RELIED ON THE ORDER OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF FREE INDIA ASSURANCE SERVICES PVT. LTD. (SUPRA), WHEREIN THE TRIBUNAL HAD HELD P A G E | 22 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO THAT NO DISALLOWANCE UNDER SEC. 40A(3) CAN BE MADE MERELY ON THE BASIS OF PRESUMPTIONS . WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FACTS BEFORE US , AND ARE OF THE CONSIDERED VIEW THAT THE VERY FOUNDATION FOR MAKING OF A DISALLOWANCE UNDER SEC. 40A(3) , AS CONTEMPLATED IN THE SAID STATUTORY PROVISION , IS THAT THE ASSESSEE IS FOUND TO HAVE INCURRED AN EXPENDITURE OTHERWISE THEN BY AN ACCOUNT PAYEE CHEQU E OR AN ACCOUNT PAYEE BANK DRAFT , IN EXCESS OF THE AMOUNT CONTEMPLATED THEREIN. WE FIND OURSELVES TO BE IN AGREEMENT WITH THE VIEW TAKEN BY THE CIT(A) THAT IN THE ABSENCE OF ANY MATERIAL WHICH COULD GO TO PROVE THAT THE ASSESSEE HAD INCURRED EXPENDITURE IN CASH, NO DISALLOWANCE OF ANY PART OF THE PURCHASES COULD JUSTIFIABLY BE MADE UNDER SEC. 40A(3). WE ARE OF THE CONSIDERED VIEW THAT AS THE BASIC REQUIREMENT FOR DISALLOWANCE OF THE EXPENDITURE UNDER SEC.40A(3) HAD NOT BEEN CONCLUSIVELY ESTABLISHED BY THE A SSESSEE ON THE BASIS OF IRREFUTABLE EVIDENCE , THEREFORE, WE ARE UNABLE TO PERSUADE OURSELVES TO ACCEPT THE AFORESAID CONTENTION OF THE REVENUE, AND AS SUCH UPHOLD THE ORDER OF THE CIT(A). THE GROUND OF APPEAL NO. 2 RAISED BY THE REVENUE IS DISMISSED. 2 6 . THE REVENUE HAD FURTHER ASSAILED BEFORE US THE ORDER OF THE CIT(A) , TO THE EXTENT THE LATTER HAD SET ASIDE THE RESTRICTION OF THE ASSESSEES ENTITLEMENT TOWARDS CLAIM OF DEDUCTION UNDER SEC. 80IB , AND HAD DELETED THE DISALLOWANCE MADE BY THE A.O . BRIEFLY S TATED, THE FACTS PERTAINING TO THE ISSUE UNDER CONSIDERATION ARE THAT THE ASSESSEE HAD IN HIS RETURN OF INCOME CLA IMED DEDUCTION UNDER SEC. 80IB OF RS. 66,29,998/ - IN RESPECT OF HI S INDUSTRIAL UNDERTAKING AT JAMMU. THE A.O DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS CALLED UPON THE ASSESSEE TO EXPLAIN THAT NOW WHEN A SIMILAR CLAIM OF DEDUCTION RAISED BY HIM UNDER SEC. 80IB IN AY 2009 - 10 WAS RESTRICTED BY HIS PREDECESSOR TO 10% , KEE P ING IN VIEW THE PROFIT ELEMENT SHOWN BY HIS P A G E | 23 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO SISTER CONCERN, VI Z. UMBERGAUM INDUSTRIES, THEREFORE, AS TO WHY ON THE SAME BASIS THE ENTITLEMENT OF THE ASSESSEE TOWARDS CLAIM OF DEDUCTION UNDER SEC. 80IB FOR THE YEAR UNDER CONSIDERATION, VIZ. AY: 2010 - 11, MAY ALSO NOT BE RESTRICTED , KEEPING IN VIEW THE FACT THAT THE PRO FIT SHOWN BY THE SAID SISTER CONCERN OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WAS 2.85% , A S AGAINST THE PROFIT OF 49.05% SHOWN BY THE ELIGIBLE UNIT OF THE ASSESSEE AT JAMMU . THE A.O FURTHER OBSERVED THAT THE SA LES MADE BY THE ASSESSEE AND HIS SIST ER CONCERN , AS IN THE IMMEDIATELY PRECEDING YEAR, WAS DURING THE YEAR UNDER CONSIDERATION ALSO MAINLY MADE TO M/S KIMBERLY CLARK HYGIENE PRODUCT, PUNE. THE A.O FURTHER OBSERVED THAT UNLIKE THE BASIS ON WHICH THE DISALLOWANCE UNDER SEC. 80IB FOR A.Y 2009 - 1 0 WAS SET ASIDE ON APPE AL BY THE CIT(A), I.E. THERE WERE NO TRANSACTIONS BETWEEN THE ELIGIBLE UNIT OF THE ASSESSEE WITH HIS CONCERN, VIZ. M/S UMBERGAUM INDUSTRIES, AS A RESULT WHEREOF THE PROVISIONS OF SEC. 80IA(7 ) AND 80IA(8) WERE HELD TO BE NOT APPLICABLE, THE FACTUAL POSITION FOR THE YEAR UNDER CONSIDERATION WAS CLEARL Y DISTINGUISHABLE . THE A.O OBSERVED THAT A PERUSAL OF THE DETAILS OF THE PURCHASE S AND SALE S OF THE ELIGIBLE UNIT OF THE ASSESSEE AT JAMMU, REVEALED THAT THE ASSESSEES UNIT AT MUMBAI (NON ELIGIBLE FOR DEDUCTION UNDER SEC. 80IB) HAD MADE SALES OF RS.4,29,038/ - TO HIS UNIT AT JAMMU. THE A.O FURTHER OBSERVED THAT THE SISTER CONCERN OF THE ASSESSEE, VIZ. M/S UMARGAUM INDUSTRIES HAD ALSO DURING THE YEAR UNDER CONSIDERATION MADE S ALES OF RS.1,14,061/ - TO THE ASSESSEES UNIT AT JAMMU, WHICH FURTHER HAD GIVEN AN ADVANCE OF RS.27,49,203/ - TO HIS SISTER CONCERN, VIZ. M/S UMARGAUM INDUSTRIES . THE A.O FURTHER OBSERVED THAT THE ELIGIBLE UNIT OF THE ASSESSEE AT JAMMU HAD ALSO RECEIVED AN INT EREST FREE LOAN OF RS .6,00,000/ - FROM BHARTI SANGHVI , A FAMILY MEMBER OF THE ASSESSEE, AND STILL FURTHER THE ELIGIBLE UNIT OF THE ASSESSEE AT JAMMU HAD GIVEN AN INTEREST FREE LOAN OF RS.71,87,955/ - TO THE ASSESSEES UNIT AT P A G E | 24 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO MUMBAI. THE A.O ON THE BASIS OF HIS AFORESAID OBSERVATIONS CONCLUDED THAT AS THERE WAS A CLEAR INTERMINGLING OF THE FUNDS BETWEEN THE ELIGIBLE UNIT OF THE ASSESSSEE WITH HIS SISTER CONCERN AND HIS NON ELIGIBLE BUSINESS, THEREFORE, THE PROVISIONS OF SEC. 80IA(7) AND 80IA(8) WERE CLEARL Y APPLICABLE TO THE CASE OF THE ASSESSEE . THE A.O ON THE BASIS OF HIS AFORESAID OBSERVATIONS, FOLLOWING THE VIEW TAKEN BY HIS PREDECESSOR IN THE CASE OF THE ASSESSEE FOR AY 2009 - 10, ESTIMATED THE PROFITS OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION, VI Z. AY 2010 - 11 AT 7.85%, WHICH WAS 5% MORE THAN THE PROFIT OF 2.85% SHOWN BY HIS SISTER CONCERN , VIZ. M/S UMARGAUM INDUSTRIES. THUS , ON THE BASIS OF THE AFORESAID OBSERVATIONS THE A.O AFTER ESTIMATING THE PROFIT OF THE ELIGIBLE UNIT OF THE ASSESSEE AT JAM MU @ 7.85%, THEREIN QUANTIFIED THE SAME AT RS.10,60,893/ - , AND RESULTANTLY RESTRICTED THE CLAIM OF DEDUCTION OF THE ASSESSEE UNDER SEC.80IB TO THE SAID EXTENT, AS AGAINST THE SAME CLAIMED BY HIM AT RS.66,29,988/ - . 27 . AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE CIT(A) BEING OF THE VIEW THAT THE ISSUE UNDER CONSIDERATION AS REGARDS THE ENTITLEMENT OF THE ASSESSEE TOWARDS CLAIM UNDER SEC.80IB(4) INVOLVED THE SAME FACTS AND CIRCUMSTANCES , A S WERE THERE BEFORE HIS PREDECESSOR WHILE DISPOSING OF THE APPEAL OF THE ASSESSEE FOR AY 2009 - 10, THEREFORE, FOLLOWED THE OBSERVATIONS RECORDED BY HIS PREDECESSOR AND DELETED THE DISALLOWANCE MADE BY THE A.O AND ALLOWED THE CLAIM OF DEDUCTION AS WAS RAISED BY THE ASSESSEE UNDER SEC. 80IB(4) IN HIS RETURN OF INCOME. 28 . THE LD. D.R AT THE VERY OUTSET SUBMITTED THAT THE FACTS AND CIRCUMSTANCES PERTAINING TO CLAIM OF DISALLOWANCE UNDER SEC. 80IB(4) FOR THE YEAR UNDER CONSIDERATION, VIZ. AY: 2010 - 11, WERE CLEARLY DISTINGUISHABLE AS AGAINST THOSE MADE AVAILABLE ON RECORD IN THE CASE P A G E | 25 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO OF THE ASSESSEE FOR THE IMMEDIATELY PRECEDING YEAR, VIZ. AY 2009 - 10. THE LD. D.R TAKING US THROUGH THE OBSERVATIONS OF THE A.O SUBMITTED THAT DURING THE YEAR UNDER CONSIDERA TION, UNLIKE THE PRECEDING YEAR, VIZ. AY 2009 - 10 , WHEREIN CERTAIN MATERIAL FACTS WERE NOT MADE AVAILABLE ON RECORD, VIZ. (I) ASSESSEES UNIT AT MUMBAI (NON ELIGIBLE FOR DEDUCTION UNDER SEC. 80IB) HAD MADE SALES TO HIS UNIT AT JAMMU OF RS. 4,29,038/ - ; (II) THE SISTER CONCERN OF THE ASSESSEE, VIZ. M/S UMARGAUM INDUSTRIES (A PROPRIETA R Y CONCERN OF THE ASSESSEES WIFE) HAD MADE SALES OF RS.1,14,061/ - TO THE ASSESSEES UNIT AT JAMMU; (III) THE ELIGIBLE UNIT OF THE ASSESSEE AT JAMMU HAD GIVEN AN ADVANCE TO M/S UMA RGAUM INDUSTRIES OF RS. 27,49,203/ - ; (IV) THE ELIGIBLE UNIT OF THE ASSESSEE AT JAMMU HAD RECEIVED AN INTEREST FREE LOAN OF RS.6,00,000/ - FROM BHARTI SANGHVI , A FAMILY MEMBER OF THE ASSESSEE ; AND (V) THE ELIGIBLE UNIT OF THE ASSESSEE AT JAMMU HAD GIVEN AN I NTEREST FREE LOAN OF RS.71,87,955/ - TO THE ASSESSEE UNIT AT MUMBAI , ALL WERE FACTS WHICH PROVE D THAT THERE WAS A CLEAR INTERMINGLING OF FUNDS BETWEEN THE ASSESSEES ELIGIBLE UNIT AT JAMMU WITH TH O SE OF HIS SISTER CONCERN, VIZ. M/S UMARGAUM INDUSTRIES, AND HIS OTHER UNIT AT MUMBAI, THEREFORE, THE PROVISION OF SEC. 80IA(7) AND 80IA(8) WERE CLEARLY APPLICABLE TO THE CASE OF THE ASSESSEE. THUS , ON THE BASIS OF THE AFORESAID OBSERVATIONS , IT WAS SUBMITTED BY THE LD. D.R THAT AS THE FACTS INVOLVED IN THE CASE OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WERE DISTINGUISHABLE AS AGAINST THOSE FOR THE PRECEDING YEAR, VIZ. AY 2009 - 10, THEREFORE, THE A.O HAD FAIRLY RESTRICTED THE PROFITS OF THE ELIGIBLE UNIT OF THE ASSESSEE AT JAMMU TO 7.85% , I.E. 5% MORE THAN THE PROFIT SHOWN BY THE SISTER CONCERN, VIZ. M/S UMARGAUM INDUSTRIES DURING THE SAID YEAR. PER CONTRA, THE LD. A.R SUBMITTED THAT THE CIT(A) HAD CORRECTLY CONCLUDED THAT THE FACTS OF THE CASE FOR THE YEAR UNDER CONSIDERATION WERE THE SAME AS AGAINST THOSE WHICH WERE INVOLVED IN HIS CASE FOR THE IMMEDIATELY PRECEDING YEAR , VIZ. AY: 2009 - P A G E | 26 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO 10. IT WAS THUS AVERRED BY THE LD. A .R THAT THE CIT(A) FOLLOWING THE O RDER OF HIS PREDECESSOR HAD RIGHTLY DELETED THE DISALLOWANCE MADE BY THE A.O UNDER SEC. 80IB(4) FOR THE YEAR UNDER CONSIDERATION. 29 . WE HAVE HEARD T HE AUTHORIZED REPRESENTATIVES FOR BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECO RD IN CONTEXT OF THE ISSUE UNDER CONSIDERATION. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FACTS PERTAINING TO THE ENTITLEMENT OF THE ASSESSEE TOWARDS CLAIM OF DEDUCTION UNDER SEC. 80IB(4) , IN THE BACKDROP OF THE PROVISIONS OF SEC. 80IA(8) AND 80IA(10) , AS HAD BEEN HEAVILY RELIED UPON BY THE A.O . WE FIND THAT THE A.O IN ORDER TO DRIVE HOME HIS CONTENTION THAT THE PROVISION S OF SEC. 80IA(8) AND 80IA(10) WERE CLEARLY APPLICABLE TO THE CASE OF THE ASSESSE E , HAD THEREIN REFERRED TO CERTAIN BUSINESS TRANSACTIO NS BETWEE N THE ASSESSEES UNIT AT MUMBAI (NON ELIGIBLE FOR DEDUCTION UNDER SEC.80IB) WITH HIS ELIGIBLE UNIT AT JAMMU; THE MINIMAL SALES OF RS.1,14,061/ - MADE BY THE SISTER CONCERN OF THE ASSESSEE, VIZ. M/S UMARGAUM INDUSTRIES TO THE ELIGIBLE UNIT OF THE ASSESSEE AT JAMMU; ADVANCING OF AN AMOUNT BY THE ELIGIBLE UNIT OF THE ASSESSEE AT JAMMU TO HIS AFORESAID SISTER CONCERN M/S UMARGAUM INDUSTRIES; RECEIVING OF INTEREST FREE LOANS BY THE ELIGIBLE UNIT OF THE ASSESSEE AT JAMMU FROM HIS FAMILY MEMBER , VIZ. BHARTI SANGHVI ; AND GIVING OF INTEREST FREE LOAN BY THE ELIGIBLE UNIT OF THE ASSESSEE AT JAMMU TO HIS UNIT AT MUMBAI. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE AFORESAID O BSERVATIONS OF THE A.O AND HIS STRONG ASSERTION THAT THERE WAS AN INTERM INGLING OF FUND S BETWEEN THE ELIGIBLE UNIT OF THE ASSESSEE WITH HIS SISTER CONCERN AND HIS CONCERN AT MUMBAI. HOWEVER, WE ARE OF THE CONSIDERED VIEW THAT THE TRANSACTIONS REFERRED TO BY THE A.O ARE SIMPLE COMMERCIAL TRANSACTIONS, WHICH IN NO WAY ESTABLISH TRANSFER OF ANY GOODS OR SERVICES HELD FOR THE PURPOSE OF ELIGIBLE BUSINESS BY THE ASSESSEE TO P A G E | 27 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO ANY OTHER BUSINESS CARRIED ON BY HIM , OR VICE VERSA , FOR A CONSIDERATION WHICH AS RECORDED IN THE ACCOUNT S OF THE ELIGIBLE BUSINESS DOES NOT CORRESPOND TO THE MARKET VALUE OF SAID GOODS OR SERVICES AS ON THE DATE OF THE TRANSFER. WE ARE OF THE CONSIDERED VIEW THAT THE VERY ABSENCE OF SATISFACTION OF THE AFORESAID STATUTORY REQUIREMENTS , AS CONTEMPLATED UNDER SEC. 80IA(8), THEREFORE, CLEARLY OU STS THE APPLICABILITY OF THE SAID STATUTORY PROVISION, VIZ. SEC.80IA(8) TO THE CASE OF THE ASSESSEE. WE THUS ARE OF THE CONSIDERED VIEW THAT THE A.O HAD FAILED TO PLACE ON RECORD ANY MATERIAL WHICH COULD IRREFUTABLY BRING THE CASE OF THE ASSESSEE WITHIN TH E SWEEP OF SEC. 80IA(8 ). WE FURTHER FIND THAT THE REFERENCE TO SEC.80IA(7) BY THE A.O WOULD ALSO NOT BE APPLICABLE TO THE CASE OF THE ASSESSEE , AS THE LATTER HAD DULY FURNISHED ALONG WITH HIS RETURN OF INCOME, THE REPO RT OF SUCH AUDIT IN FORM NO. 10 CCB , DU LY VERIFIED AND SIGNED BY THE CHARTERED ACCOUNTANT. 30 . WE NOW ADVERT TO THE APPLICABILITY OF THE PROVISIONS OF SEC. 80IA(10) TO THE FACTS OF THE CASE BEFORE US. WE FIND THAT TO THE EXTENT THE TRANSACTIONS BETWEEN THE ASSESSEE AND H IS SISTER CONCERN, VIZ. M/S UMARGAUM INDUSTRIES ARE CONCERNED , NO SUCH ARRANGEMENT BETWEEN THE ASSESSEE AND HIS AFORESAID SISTER CONCERN, VIZ. UMARGAUM INDUSTRIES, HAD BE EN ESTABLISHED, ON THE BASIS OF WHICH IT COULD BE CONCLUDED THAT THE BUSINESS TRANSACT ED BETWEEN THEM HAD PRODUCED TO THE ASSESSEE MORE THAT THE ORDINARY PROFITS , WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS. WE ARE OF THE CONSIDERED VIEW THAT AGAIN HERE TOO THE A.O HAD FAILED TO ESTABLISH THE SATISFACTION OF THE REQUISITE CON DITIONS CONTEMPLATED IN THE AFORESAID STATUTORY PROVISIONS, VIZ. SECTION 80IA(10). 3 1 . WE HAVE DELIBERATED ON THE FACTS BEFORE US , AND ARE PERSUADED TO BE IN AGREEMENT WITH THE VIEW OF THE CIT(A) , THAT THE FACTS OF THE CASE P A G E | 28 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO FOR THE YEAR UNDER CONSIDERATION , VIZ. AY: 2010 - 11 ARE IN NO WAY DIFFE RENT FROM THOSE INVOLVED IN THE CASE OF THE ASSESSEE FOR THE IMMEDIATELY PRECEDING YEAR, VIZ. AY: 2009 - 10 , IN CONTEXT OF THE ENTITLEMENT OF THE ASSESSEE TOWARDS CLAIM OF DEDUCTION UNDER SECTION 80IB(4). W E THUS FIND OURSELVES TO BE IN AGREEMENT WITH THE VIEW TAKEN BY THE CIT(A) , AS REGARDS THE ENTITLEMENT OF THE ASSESSEE TOWARDS CLAIM OF DEDUCTION UNDER SEC. 80IB(4) , AND AS SUCH UPHOLD HIS ORDER ALLOWING THE CLAIM OF THE ASSESSEE TOWARDS DEDUCTION UNDER SE C. 80IB(4) TO THE EXTENT OF RS.66,29,998/ - . THE GROUND OF APPEAL NO. 3 RAISED BY THE REVENUE IS DISMISSED IN TERMS OF OUR AFORESAID OBSERVATIONS. 32 . THE GROUND OF APPEAL NO. 4 - 5 RAISED BY THE REVENUE BEFORE US ARE GENERAL IN NATURE AND ARE THEREFORE DISMISSED AS NOT PRESSED. 33 . THE APPEAL OF THE REVENUE IS DISMISSED IN TERMS OF OUR AFORESAID OBSERVATIONS. 34 . THAT THE APPEAL OF THE ASSESSEE FOR AY 2009 - 10, MARKED AS ITA NO. 15 1/MUM/2017 IS ALLOWED, AND THAT FOR AY 2010 - 11, MARKED AS ITA NO. 5682/MUM/2013, IS PARTLY ALLOWED. THE APPEAL S OF THE REVENUE FOR AY 2009 - 10, MARKED AS ITA NO. 6265/MUM/2012, AND FOR AY 2010 - 11 , MARKED AS ITA NO. 6463/MUM/2013 ARE DISMISSED. ORDER PRON OUNCED IN THE OPEN COURT ON 29. 11.2017 SD/ - SD/ - ( G.S. PANNU ) ( RAVISH SOOD ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; 29. 11 .2017 PS. ROHIT KUMAR P A G E | 29 ITA NOS. 151,5682,6265,6463/MUM/2012,2013,2017 SHRI MALAY N. SHANGHVI VS. ITO / 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 . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI