ITO 29(2)(1), MUMBAI V. KUNDAN K. BUCH, MUMBAI

ITA 1563/MUM/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9706 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 06-03-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 16-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Assessee Lawyers: AASTHA SHAH
• Keywords: Reopening of assessment; Bogus purchase; Principle of natural justice; Opportunity of cross examination; Validity of assessment; Accommodation entries; Reason to believe
• Section: 69C; 142(1); 133(6); 147; 148

Judgement Text

1 ITA 1563/MUM/2015 ITA 1987/MUM/2015 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A.NO. 1563/MUM/2015 (ASSESSMENT YEAR : 2009-2010) ITO 29(2)(1), MUMBAI VS SMT. KUNDAN K BUCH B-14, SHANTI BHAVAN JD ROAD, MULUND W), MUMBAI-80 PAN : AFQPB0496F APPELLANT RESPONDENT I.T.A.NO. 1987/MUM/2015 (ASSESSMENT YEAR : 2009-2010) SMT. KUNDAN K BUCH WIFE OF LATE KRISHNAKANT BUCH B-14, SHANTI BHAVAN JD ROAD, MULUND W), MUMBAI-80 PAN : AFQPB0496F VS ITO 23(2)(4), MUMBAI APPELLANT RESPONDENT ASSESSEE BY SHRI RAJESH KUMAR YADAV RESPONDENT BY MS AASTHA SHAH DATE OF HEARING 27 -07-2017 DATE OF PRONOUNCEMENT 31- 07-2017 O R D E R PER G MANJUNATHA, AM : THESE CROSS APPEALS FILED BY THE ASSESSEE AND REV ENUE ARE DIRECTED AGAINST THE ORDER OF THE CIT(A)-40, MUMBAI DATED 07 -01-2015 AND THEY PERTAIN 2 ITA 1563/MUM/2015 ITA 1987/MUM/2015 TO ASSESSMENT YEAR 2009-10. SINCE FACTS ARE IDENTI CAL AND THE ISSUES ARE ALSO COMMON, FOR THE SAKE OF CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A LEGAL HEIR OF LATE SHRI KRISHNAKANGT T BUCH, ENGAGED IN THE BUSINESS OF TRA DING IN FERROUS AND NON FERROUS METALS. THE RETURN OF INCOME FOR THE ASSES SMENT YEAR 2009-10 WAS FILED ON 25-09-2009 DECLARING TOTAL INCOME OF RS.2, 87,970. SUBSEQUENTLY INFORMATION RECEIVED FROM DGIT (INVESTIGATION) REVE ALED THAT THE ASSESSEE HAS MADE PURCHASES FROM CERTAIN PARTIES, WHO WERE LISTE D IN THE LIST PREPARED BY MAHARASHTRA SALES-TAX DEPARTMENT AS HAWALA OPERATOR S INVOLVED IN PROVIDING BOGUS BILLS WITHOUT DELIVERY OF GOODS. THEREFORE, BASED ON THE INFORMATION, THE AO HAD REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT AND HENCE, REOPENED THE ASSESSMENTS BY I SSUING NOTICE U/S 148 OF THE ACT. THE CASE HAS BEEN SELECTED FOR SCRUTINY A ND ACCORDINGLY, NOTICES U/S 143(2) AND 142(1) OF THE ACT WERE ISSUED. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS IT WAS INFORMED THAT THE ASSESSEE HAS S INCE EXPIRED ON 28-10- 2010, THEREFORE, THE AO BROUGHT ON RECORD THE LEGAL HEIR OF THE ASSESSEE, SMT. KUNDAN K BUCH. IN RESPONSE TO NOTICES, THE LEGAL H EIR OF THE ASSESSEE HAS FILED A LETTER ON 21-02-2014 AND SUBMITTED THAT HER HUSBA ND WAS DOING GENUINE BUSINESS AND THAT PURCHASES FROM THE ALLEGED HAWALA OPERATORS WERE GENUINE 3 ITA 1563/MUM/2015 ITA 1987/MUM/2015 PURCHASES MADE IN THE NORMAL COURSE OF BUSINESS, WH ICH ARE SUPPORTED BY PROPER BILLS. THE PAYMENT FOR THE SAID PURCHASES H AS BEEN MADE THROUGH BANKING CHANNEL. IN THIS REGARD, SHE FURNISHED NEC ESSARY EVIDENCE LIKE PURCHASE BILLS AND BANK STATEMENT. THE AO, AFTER C ONSIDERING THE EXPLANATIONS OF THE ASSESSEE HELD THAT THOUGH ASSESSEE HAS FURNI SHED CERTAIN EVIDENCES, BUT FAILED TO REBUT THE ALLEGATIONS MADE IN THE BACKDRO P OF THE CLEAR-CUT FINDINGS OF MAHARASHTRA SALES-TAX DEPARTMENT COUPLED WITH FURTH ER INDEPENDENT ENQUIRIES CONDUCTED BY THIS OFFICE CLEARLY INDICATED THAT THE PURCHASES MADE FROM THOSE PARTIES ARE BOGUS IN NATURE AND HENCE, MADE ADDITIO N TOWARDS TOTAL PURCHASES MADE FROM THOSE PARTIES FOR AN AMOUNT OF RS.4,56,72 ,468. 3. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREFERR ED APPEAL BEFORE CIT(A). BEFORE CIT(A), ASSESSEE REITERATED HER SUB MISSIONS MADE BEFORE THE AO. THE ASSESSEE FURTHER SUBMITTED THAT PURCHASES FROM THOSE PARTIES ARE GENUINE IN NATURE, WHICH ARE SUPPORTED BY BILLS AND ALSO PAYMENT HAS BEEN MADE BY CHEQUE. THE AO MERELY BECAUSE THE PARTIES DID NOT RESPOND TO THE NOTICES ISSUED U/S 133(6) HAS COME TO THE CONCLUSIO N THAT THESE PARTIES ARE HAWALA OPERATORS WITHOUT PROVIDING AN OPPORTUNITY T O CROSS EXAMINATION THEREBY VIOLATED PRINCIPLES OF NATURAL JUSTICE. TH E ASSESSEE FURTHER SUBMITTED THAT THE AO NEITHER POINTED OUT ANY IRREGULARITIES IN BOOKS OF ACCOUNT NOR HAS DISPUTED SALES DECLARED BY THE ASSESSEE. IN THE AB SENCE OF ANY INCORRECTNESS IN 4 ITA 1563/MUM/2015 ITA 1987/MUM/2015 THE BOOKS OF ACCOUNT AND STOCK DETAILS, ADDITION CA NNOT BE MADE MERELY ON THE BASIS OF INFORMATION RECEIVED FROM THIRD PARTIES, M ORE SO, IN THE BACK OF THE ASSESSEE WITHOUT GIVING A REASONABLE OPPORTUNITY OF CROSS EXAMINATION OF THE PARTIES. THE ASSESSEE FURTHER SUBMITTED THAT IN CA SE IT IS HELD THAT PURCHASES ARE NOT GENUINE, THE ADDITION CANNOT BE MADE OF TOT AL PURCHASES AND WHAT NEEDS TO BE ADDED IS ONLY PROFIT ELEMENT IN SUCH PU RCHASES. THE ASSESSEE IS ENGAGED IN TRADING OF FERROUS AND NON FERROUS METAL S AN NORMAL PROFIT IN THIS KIND OF BUSINESS IS BETWEEN 1% TO 2%, THEREFORE, A REASONABLE NET PROFIT MAY BE ESTIMATED ON TOTAL PURCHASES MADE FROM THE ABOVE PARTIES. 4. THE CIT(A), AFTER CONSIDERING THE RELEVANT SUBMISSI ONS OF THE ASSESSEE AND ALSO RELYING UPON CERTAIN CASE LAWS INCLUDING THE D ECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF BHOLANATH POLYFAB PVT LTD 254 ITR 290 (GUJ) AND THE DECISION OF AHMEDABAD ITAT, CBENCH IN THE CASE OF VIJAY PROTEINS LTD 58 ITD 428 DIRECTED THE AO TO ESTIMATE PROFIT AT 15% ON TH E ALLEGED BOGUS PURCHASES. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE AS W ELL AS THE REVENUE ARE IN APPEAL BEFORE US. 5. THE ASSESSEE HAS RAISED TWO LEGAL GROUNDS CHALLENGI NG THE VALIDITY OF REOPENING OF ASSESSMENT U/S 147 AND ALSO LEGALITY O F THE ASSESSMENT ORDER FRAMED IN THE NAME OF LEGAL HEIR OF THE ASSESSEE WI THOUT FOLLOWING DUE PROCESS OF LAW TO BRING THE LEGAL HEIR INTO THE PROCEEDINGS . DURING THE COURSE OF 5 ITA 1563/MUM/2015 ITA 1987/MUM/2015 HEARING, THE LD.AR FOR THE ASSESSEE SUBMITTED THAT SHE DID NOT WANT TO PRESS THE LEGAL GROUNDS CHALLENGING THE VALIDITY OF RE-AS SESSMENT AND LEGALITY OF ASSESSMENT FRAMED ON THE LEGAL HEIR. HENCE, THESE GROUNDS RAISED BY THE ASSESSEE ARE DISMISSED, AS NOT PRESSED. THUS, THE E FFECTIVE GROUND REMAINS FOR OUR CONSIDERATION FROM BOTH THE APPEALS IS ADDITION TOWARDS BOGUS PURCHASES U/S 69C OF THE ACT. 6. WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED MATER IALS AVAILABLE ON RECORD. THE AO MADE ADDITIONS TOWARDS BOGUS PURCHA SES ON THE BASIS OF INFORMATION RECEIVED FROM INVESTIGATION WING OF INC OME-TAX DEPARTMENT WHICH STATED THAT THE PURCHASES FROM CERTAIN PARTIE S WHO ARE INVOLVED IN PROVIDING ACCOMMODATION ENTRIES WITHOUT ACTUAL DELI VERY OF GOODS. THE AO OBSERVED THAT THE ASSESSEE HAS MADE PURCHASES FROM CERTAIN PARTIES, WHO APPEARED IN THE LIST PREPARED BY MAHARASHTRA SALES- TAX DEPARTMENT AND HENCE, HE OPINED THAT PURCHASES FROM THOSE PARTIES ARE BOG US IN NATURE. THE ASSESSEE HAS FAILED TO SUBSTANTIATE PURCHASES WITH NECESSARY EVIDENCE. PER CONTRA, THE ASSESSEE CLAIMS THAT PURCHASES ARE SUPPORTED BY PUR CHASE BILLS AND PAYMENT HAS BEEN MADE THROUGH CHEQUE. THEREFORE, MERELY BE CAUSE THOSE PARTIES HAVE NOT RESPONDED TO THE NOTICE U/S 133(6), NO ADVERSE INFERENCE CAN BE DRAWN TO HOLD THAT THE PURCHASES ARE BOGUS IN NATURE. WE F IND THAT A SIMILAR ISSUE HAS BEEN ARISEN FOR OUR CONSIDERATION IN THE CASE OF M/ S FAGIOLI INDIA PVT LTD IN 6 ITA 1563/MUM/2015 ITA 1987/MUM/2015 I.T.A.NOS. 4557 & 4558/MUM/2015 ORDER DATED 28-07-2 017. THE CO-ORDINATE BENCH OF THIS TRIBUNAL, UNDER SIMILAR CIRCUMSTANCES HAS CONSIDERED THE ISSUE AND AFTER ANALYSING THE FACTS OF THE CASE AND ALSO BY RELYING UPON CERTAIN JUDICIAL PRECEDENTS HAS DIRECTED THE AO TO ESTIMATE NET PROFIT AT 12.5% ON ALLEGED BOGUS PURCHASES. RELEVANT PART OF THE ORDE R IS EXTRACTED BELOW: 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED MATERIAL S AVAILABLE ON RECORD AND ALSO GONE THROUGH THE ORDERS OF AUTHO RITIES BELOW. THE AO DISALLOWED PURCHASES FROM TWO PARTIES, VIZ.M/S R USHABH ENTERPRISES AND M/S SWASTIK ENTERPRISES, ON THE BAS IS OF LIST OF HAWALA OPERATORS PUBLISHED BY MAHARASHTRA SALES-TAX DEPART MENT WHICH CONTAINED THE NAME OF ABOVE PARTIES. THE NOTICES SENT TO THESE PARTIES WERE RETURNED UNSERVED BY POSTAL AUTHORITIE S WITH REMARK, NO SUCH PARTIES ARE EXISTED AT THE GIVEN ADDRESS. UN DER THESE CIRCUMSTANCES, THE AO WAS OF THE OPINION THAT THE A SSESSEE FAILED TO DISCHARGE ONUS CAST UPON IT TO PROVE THE PURCHASES WITH NECESSARY EVIDENCE. THE AO FURTHER WAS OF THE OPINION THAT A LTHOUGH ASSESSEE HAS FURNISHED CERTAIN EVIDENCE IN THE FORM OF PURCH ASE BILLS AND PAYMENT DETAILS FAILED TO REBUT THE ALLEGATIONS MAD E IN THE BACKDROP OF OBSERVATIONS OF SALES-TAX DEPARTMENT WHICH FOUND THAT THE SAID PARTIES WERE INVOLVED IN PROVIDING ACCOMMODATION EN TRIES WITHOUT ACTUAL DELIVERY OF GOODS. THEREFORE, HE OPINED THA T PURCHASES FROM ABOVE PARTIES ARE BOGUS IN NATURE AND HENCE, MADE A DDITION U/S 69C OF THE ACT. THE CONTENTION OF THE ASSESSEE IS THAT MERELY BECAUSE PARTIES HAVE NOT RESPONDED TO THE NOTICE, ADDITION CANNOT BE MADE TOWARDS PURCHASES, WHICH ARE SUPPORTED BY VARIOUS D OCUMENTS. THE ASSESSEE FURTHER CONTENDED THAT THE AO HAS NOT POIN TED OUT ANY IRREGULARITIES IN THE BOOKS OF ACCOUNT OR STOCK DET AILS AND IN THE ABSENCE OF ANY FINDING AS TO THE INCORRECTNESS OF B OOKS OF ACCOUNT, ADDITION CANNOT BE MADE SOLELY ON THE BASIS OF THIR D PARTY INFORMATION, THAT TOO, WITHOUT PROVIDING AN OPPORTU NITY OF CROSS EXAMINATION. 10. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATERIAL ON RECORD, WE FIND THAT THE AOS MAIN ALLEGATION IS THAT ABOVE TWO PARTIES ARE 7 ITA 1563/MUM/2015 ITA 1987/MUM/2015 INVOLVED IN PROVIDING ACCOMMODATION ENTRIES AS PER THE LIST PUBLISHED BY MAHARASHTRA SALES-TAX DEPARTMENT. ON THE OTHER HAND, ASSESSEE HAS FURNISHED CERTAIN EVIDENCES IN THE FORM OF PURC HASE ORDER, PURCHASE BILL, DELIVERY CHALLAN, CONSIGNMENT NOTE A ND PAYMENT DETAILS TO PROVE THE PURCHASES. THE ASSESSEE ALSO FURNISHE D COMPLETE DETAILS OF QUANTITATIVE STOCK STATEMENT AND ARGUED THAT THE RE IS NO DIFFERENCE IN STOCK DETAILS. THOUGH THE ASSESSEE HAS PRODUCED CERTAIN DETAILS TO PROVE THE PURCHASES FROM THE SAID PARTIES, IN VIEW OF THE FACT THAT THE ASSESSEE COULD NOT PROVE THE EXISTENCE OF THE PARTI ES AND ALSO COULD NOT REBUT THE FINDING OF MAHARASHTRA STATE SALES-TA X DEPARTMENT THAT THE PARTIES WERE HAWALA OPERATORS, INVOLVED IN PROV IDING ACCOMMODATION ENTRIES, THE PURCHASES FROM THE SAID PARTIES CANNOT BE ACCEPTED AS GENUINE. BUT KEEPING IN VIEW THE FAC T THAT THE AO HAD NOT DOUBTED SALES DECLARED BY THE ASSESSEE, A REASO NABLE INFERENCE CAN BE DRAWN THAT THE ASSESSEE HAS PURCHASED GOODS FROM THE GREY MARKET AND OBTAINED BILLS FROM THESE PARTIES TO COV ER UP THE PURCHASES. THEREFORE, UNDER THESE FACTS AND CIRCUM STANCES, WHAT NEEDS TO BE TAXED IS ONLY THE PROFIT ELEMENT EMBEDD ED IN SUCH PURCHASES, BUT NOT THE ENTIRE PURCHASES FROM THESE PARTIES. 11. HAVING SAID SO, LET US EXAMINE WHAT IS REASONABLE P ROFIT IN CASE OF THESE TRANSACTIONS. VARIOUS COURTS AND TRIBUNAL S UPHELD ESTIMATION OF NET PROFIT RANGING FROM 12.5% TO 25% DEPENDING UPON FACTS AND CIRCUMSTANCES OF EACH CASE. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF VIJAY PROTEINS LTD VS ACIT (19 96) 58 ITD 428 (GUJ), UNDER SIMILAR SET OF FACTS, HAS UPHELD ESTIMATION O F NET PROFIT OF 15% ON BOGUS PURCHASES. NO UNIFORM YARDSTICKS COULD BE APPLIED TO ESTIMATE NET PROFIT BECAUSE VARIOUS OF VARIOUS NATU RE OF RISK INVOLVED IN VARIOUS TYPES OF BUSINESS. IN THIS CASE, THE AS SESSEE IS INVOLVED IN SPECIALIZED BUSINESS OF PROVIDING LIFTING SOLUTIONS OF HEAVY EQUIPMENT FROM THE GROUND LEVEL TO THE CRITICAL POINT OF ITS FINAL PLACEMENT WHICH REQUIRES SPECIALIZED SKILLS AND KNOWLEDGE. THE ASS ESSEE ALSO DECLARED A GROSS PROFIT OF 37% ON ITS GROSS RECEIPTS. KEEPI NG IN VIEW OVERALL FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT A REASONABLE NET PROFIT OF 12.5% ON TOTAL BOGU S PURCHASES WOULD BE SUFFICIENT TO MEET THE ENDS OF JUSTICE. HENCE, W E DIRECT THE AO TO ESTIMATE NET PROFIT OF 12.5% ON TOTAL PURCHASES MAD E FROM THE ABOVE TWO PARTIES. 8 ITA 1563/MUM/2015 ITA 1987/MUM/2015 7. THE CO-ORDINATE BENCH HAS TAKEN A CONSISTENT VIE W ON BOGUS PURCHASE CONSIDERATION AND UPHELD ESTIMATION OF 12.50% PROFI T. THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THE CASES CONSIDERED BY THE BEN CH. IN THIS VIEW OF THE MATTER AND ALSO RESPECTFULLY FOLLOWING THE DECISION OF CO- ORDINATE BENCH, WE DIRECT THE AO TO ESTIMATE NET PROFIT AT 12.5% ON THE ALLEGED B OGUS PURCHASES. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JULY, 2017. SD/- SD/- (MAHAVIR SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 31 ST JULY, 2017 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI