VIJAY N. MEHTA, MUMBAI V. ASSTT. CIT RG- 17(3), MUMBAI

ITA 1569/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0048 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 08-12-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 16-03-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: POOJA SWAROOP
• Keywords: Bogus purchase; Accommodation entries
• Section: 142(1); 133(6); 68

Judgement Text

1 VIJAY N MEHTA IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI BEFORE SHRI D.T. GARASIA (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) ITA NO.1569/MUM /2015 (ASSESSMENT YEAR 2010-11 ) SHRI VIJAY N MEHTA (PROP RAJVI CHEMICAL CORPORATION), ROOM NO.13, 1 ST FLOOR, 338, NARSHI NATHA STREET, MUMBAI 400 009 PAN : AADPM8512G VS ACIT, RANGE -17(3), MUMBAI APPELLANT RESPONDENT APPELLANT BY SHRI MANDAR VAIDYA RESPONDENT BY MS. POOJA SWAROOP DATE OF HEARING 12-06-2017 DATE OF PRONOUNCEMENT 21-06-2017 O R D E R PER G MANJUNATHA, AM: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-46, MUMBAI DATE D 10-02-2015 AND IT PERTAINS TO THE ASST. YEAR 2010-11. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL, FILED HIS RETURN OF INCOME FOR THE A.Y. 2010-11 ON 14-10-2010 DECLARING TOTAL INCOME OF RS. 23,24,206/-. THE CASE WAS SELEC TED FOR SCRUTINY UNDER CASS AND ACCORDINGLY, NOTICES U/S 143(2) AND 142(1) OF THE INCOME TAX ACT, 1961 WERE ISSUED. IN RESPONSE TO NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED AND FILED N ECESSARY DETAILS AS CALLED FOR. DURING THE COURSE ASSESSMENT PROCEEDING S, TO VERIFY GENUINENESS OF PURCHASE, THE A.O. ISSUED NOTICES U/ S 133(6) TO ALL THE 2 VIJAY N MEHTA PARTIES FROM WHOM ASSESSEE HAD PURCHASES. IT IS SEE N THAT NOTICES ISSUED TO M/S SEJAL ENTERPRISES AND M/S HANS ENTERPRISES WERE RETURNED UNSERVED BY THE POSTAL AUTHORITIES AS THE ABOVE TWO PARTIES WERE NOT AVAILABLE IN THE GIVEN ADDRESS. THE A.O. FURTHER O BSERVED THAT M/S SEJAL ENTERPRISES AND M/S HANS ENTERPRISES HAVE BEEN DECL ARED AS HAWALA OPERATORS INVOLVED IN PROVIDING BOGUS PURCHASE ENTR IES BY MAHARASTRA SALES TAX DEPARTMENT. IN VIEW OF THE FACT THAT THE PARTIES DID NOT RESPOND TO THE NOTICES AND ALSO SHORTLISTED BY SALES TAX AU THORITIES, THE A.O. CALLED UPON THE ASSESSEE TO PRODUCE THE PARTIES IN PERSON TO EXAMINE THEM. IN RESPONSE, THE ASSESSEE APPEARED BEFORE THE A.O. AND HE WAS EXAMINED ON OATH. DURING HIS EXAMINATION, THE ASSESSEEE STAT ED THAT HE HAD PURCHASED GOODS FROM THE ABOVE PARTIES FOR THE FIRS T TIME DURING THE FINANCIAL YEAR AND NEVER PURCHASED IN THE PAST OR SUBSEQUENT YEARS. TH E ASSESSEE HAD PRODUCED PURCHASE BILLS AND ALSO CORRE SPONDING SALES BILLS FOR THE SAID GOODS. HE ALSO FURNISHED BANK STATEMEN TS TO PROVE PAYMENTS MADE FOR THE SAID PURCHASES, HOWEVER, DID NOT PRODU CE THE PARTIES IN PERSON FOR THE REASON THAT THE PARTIES ARE NOT AVAI LABLE AT THE GIVEN ADDRESS. THE A.O. AFTER CONSIDERING DETAILS FILED B Y THE ASSESSEE OBSERVED THAT THE ASSESSEE HAS TAKEN BOGUS PURCHASE BILLS FR OM HAWALA OPERATORS TO ENHANCE PURCHASES SO AS TO REDUCE PROFIT FROM TH E BUSINESS. THE A.O. FURTHER OBSERVED THAT FROM THE DETAILS FILED BY THE ASSESSEE IT APPEARED THAT THE PURCHASE BILLS ARE BOGUS. THE BILLS DID NO T CONTAIN NECESSARY INFORMATION REGARDING DELIVERY OF GOODS ETC. THOUGH , ASSESSEE CLAIMS TO HAVE DELIVERED GOODS DIRECTLY TO THE BUYERS, FAILED TO PRODUCE NECESSARY CONSIGNMENT NOTES TO PROVE HIS CLAIMS. THEREFORE, HE OPINED THAT THE PURCHASES STATED TO HAVE BEEN PURCHASED FROM THE AB OVE TWO PARTIES ARE BOGUS AND HENCE, DISALLOWED TOTAL PURCHASES FROM AB OVE TWO PARTIES AMOUNTING TO RS. 36,64,294/- HAVE BEEN TREATED AS U NEXPLAINED CREDIT U/S 68 OF THE ACT. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE AS SESSEE HAS FILED 3 VIJAY N MEHTA ELABORATE WRITTEN SUBMISSIONS. THE ASSESSEE FURTHER SUBMITTED THAT MERE NON AVAILABILITY OF THE PARTIES CANNOT BE A REASON FOR SUSPECTING PURCHASES WHICH IS SUPPORTED BY VALID BILLS. THE ASSESSEE FUR THER STATED THAT HE HAD PURCHASED GOODS FROM THE PARTIES FOR THE FIRST TIME . THE GOODS ARE DIRECTLY DELIVERED TO THE PLACE OF CUSTOMERS. THE PAYMENT HA S BEEN MADE BY CHEQUES. THEREFORE, THERE IS NO REASON FOR THE A.O. TO DOUBT GENUINENESS OF PURCHASES, ONLY BECAUSE OF NON AVAILABILITY OF T HE PARTIES AT THE GIVEN ADDRESS. THE ASSESSEE FURTHER SUBMITTED THAT IT IS NOT A CASE OF THE A.O. THAT BOOKS OF ACCOUNT ARE INCONSISTENT WITH FINANCI AL STATEMENTS FOR THE YEAR UNDER CONSIDERATION. HE HAD MAINTAINED BOOKS O F ACCOUNTS ALONG WITH STOCK REGISTERS. THE QUANTITATIVE DETAILS OF G OODS PURCHASED AND SOLD ARE IN CONFORMITY WITH FINANCIAL BOOKS OF ACCOUNTS. THE A.O. IGNORED ALL EVIDENCES FILED TO PROVE THE PURCHASES AND MADE ADD ITIONS MERELY ON SUSPICIOUS GROUNDS BASED ON THE NAMES APPEARED IN T HE LIST PUBLISHED BY THE MAHARASTRA SALES TAX DEPARTMENT. IN SUPPORT OF HIS ARGUMENTS RELIED UPON CERTAIN CASE LAWS. THE CIT(A) AFTER CONSIDERIN G EXPLANATION OF THE ASSESSEE AND ALSO RELIED UPON CERTAIN JUDICIAL PREC EDENTS INCLUDING THE CASE OF HONBLE GUJARAT HIGH COURT IN THE CASE OF V IJAY PROTEINS LTD VS. ACIT (1996) 58 ITD 428, DIRECTED THE A.O. TO ESTIMA TE NET PROFIT OF 15% ON TOTAL PURCHASES FROM THE ABOVE TO PARTIES. AGGRI EVED BY THE CIT(A) ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD. A.R. FOR THE ASSESSEE SUBMITTED THAT THE CIT(A) ERRED IN SUSTAINING ADDITION TOWARDS 15% PROFIT ON TOTAL PUR CHASES FROM THE ABOVE TWO PARTIES, IGNORING THE FACT THAT THE ASSESSEE HA S PROVED PURCHASES WITH NECESSARY EVIDENCES. THE A.R. FURTHER SUBMITTED THA T THE CIT(A) FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE HAS SOLD ALLE GED PURCHASES FROM ABOVE PARTIES AT PROFIT AND THE SAME HAS BEEN DULY OFFERED TO TAX. THE A.R. FURTHER SUBMITTED THAT THE A.O. NEITHER POINTE D OUT ANY IRREGULARITIES IN BOOKS NOR POINTED OUT ANY INCONSISTENCIES IN STO CK BOOKS. HE HAD ACCEPTED ASSESSEES FINANCIAL RESULTS, HOWEVER MADE ADDITIONS TO ALLEGED 4 VIJAY N MEHTA PURCHASES MERELY ON THE GROUND THAT THE PARTIES DID NOT RESPOND TO THE NOTICES WHICH IS INCORRECT. 5. ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPORT ING ORDER OF THE CIT(A) SUBMITTED THAT THE CIT(A) OUGHT TO HAVE UPHE LD 100% DISALLOWANCE MADE BY THE A.O. IN VIEW OF THE FACT T HAT THE A.O. HAS BROUGHT OUT CLEAR FACTS TO THE EFFECT THAT THESE PA RTIES WERE INDULGED IN PROVIDING BOGUS PURCHASE BILLS, WHICH IS FURTHER SU PPORTED BY THE FACT THAT THE COMMERCIAL TAX DEPARTMENT HAS SHORTLISTED ABOVE PARTIES IN THEIR LIST OF HAWALA OPERATORS PROVIDING ACCOMMODATION ENTRIES . THE LD. D.R. REFERRING TO THE RECENT JUDGMENT OF HONBLE SUPREME COURT, IN THE CASE OF NK PROTEINS LIMITED VS. CIT IN SPECIAL LEAVE PETITI ON NO. 769 OF 2017 DATED 16-1-2017, SUBMITTED THAT ONCE, IT IS PROVED PURCHASE IS BOGUS, THEN ADDITION SHOULD BE MADE TO ENTIRE PURCHASES, B UT NOT FOR PROFIT ELEMENT OF SUCH PURCHASES. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED MATER IALS AVAILABLE ON RECORD. THE A.O. DISALLOWED PURCHASES FROM TWO PART IES ON THE BASIS OF LIST OF HAWALA OPERATORS PUBLISHED BY MAHARASHTRA STATE SALES TAX DEPARTMENT. THE NOTICES SENT TO THESE PARTIES U/S 1 33(6) WERE RETURNED UNSERVED BY POSTAL AUTHORITIES WITH A REMARK NO SUC H PARTIES ARE EXISTED IN THE GIVEN ADDRESS. THOUGH, THE ASSESSEE FURNISHE D SALES BILLS AND PAYMENTS DETAILS TO PROVE GENUINENESS OF PURCHASES, FAILED TO FURNISH FURTHER SUPPORTING DOCUMENTS, LIKE PROPER LR RECEIP TS AND DELIVERY NOTES. THE ASSESSEE ALSO FAILED TO PRODUCE THE PARTIES BEF ORE THE A.O. FOR HIS EXAMINATION. UNDER THESE FACTS AND CIRCUMSTANCES, T HE A.O. CAME TO THE CONCLUSION THAT THESE PARTIES NEVER EXISTED AND PUR CHASES STATED TO HAVE BEEN MADE FROM ABOVE PARTIES ARE NOT GENUINE TRANSA CTIONS, THEREFORE, DISALLOWED ENTIRE PURCHASES AS UNDISCLOSED INCOME O F THE ASSESSEE. THE CONTENTION OF THE ASSESSEE IS THAT MERELY BECAUSE P ARTIES ARE NOT RESPONDED TO THE NOTICES, ADDITION CANNOT BE MADE O F PURCHASES, WHEN ASSESSEE HAS PRODUCED RELEVANT DOCUMENTS TO PROVE T HE PURCHASES AS GENUINE. THE ASSESSEE FURTHER CONTENDED THAT SUBSTA NTIAL TIME HAS 5 VIJAY N MEHTA ELAPSED FROM THE DATE OF TRANSACTION AND THE PARTIE S MIGHT HAVE CHANGED THEIR PLACE OF BUSINESS, THEREFORE IT IS DIFFICULT TO PRODUCE THE PARTIES PERSONALLY. THE ASSESSEE FURTHER CONTENDED THAT IT IS NOT A CASE OF A.O. THAT THERE ARE DISCREPANCIES IN BOOKS OF ACCOUNTS. THE A.O. HAD ACCEPTED FINANCIAL RESULTS INCLUDING SALES. ONCE SALES ARE A CCEPTED, CORRESPONDING PURCHASES CANNOT BE DOUBTED, UNLESS POINTED OUT DIF FERENCE IN QUANTITATIVE DETAILS FURNISHED BY THE ASSESSEE. 7. HAVING HEARD BOTH THE SIDES, WE FIND MERIT IN T HE ARGUMENTS OF THE ASSESSEE THAT THE A.O. DID NOT POINT OUT ANY DISCRE PANCIES IN FINANCIAL BOOKS INCLUDING STOCK DETAILS FURNISHED BY THE ASSE SSEE. THE A.O. HAD ACCEPTED FINANCIAL RESULTS IN TOTAL. THE A.O. NEITH ER DISPUTED SALES DECLARED BY THE ASSESSEE NOR POINTED OUT ANY DIFFER ENCE IN QUANTITATIVE DETAILS IN RESPECT OF GOODS PURCHASED AND SOLD. ONC E, SALES ARE ACCEPTED, CORRESPONDING PURCHASES CANNOT BE DOUBTED, PARTICUL ARLY, WHEN THE ASSESSEE HAS FURNISHED ALL DETAILS TO JUSTIFY THE P URCHASES. IN THIS CASE, THE ASSESSEE CLAIMS TO HAVE SOLD THE PURCHASES FROM THESE TWO PARTIES AND RESULTANT PROFIT HAS BEEN SUFFERED TAX. THOUGH, THE ASSESSEE CLAIMS TO HAVE CONSIDERED PURCHASES AS WELL AS SALES FROM THE SAID PARTIES, IN VIEW OF THE FACTS THAT THE ASSESSEE COULD NOT BE ABLE TO PROVE EXISTENCE OF THE PARTIES AND ALSO FINDING OF THE FACT BY THE MAHARAS HTRA SALES TAX DEPARTMENT THAT THESE PARTIES ARE HAWALA OPERATORS, INVOLVED IN PROVIDING ACCOMMODATION ENTRIES OF BOGUS PURCHASE BILLS, THE PURCHASES CANNOT BE ACCEPTED AS GENUINE. BUT, KEEPING IN VIEW OF THE FA CT THAT THE A.O. HAD NOT POINTED OUT ANY DIFFERENCE IN SALES, A REASONAB LE INFERENCE CAN BE DRAWN THAT THESE GOODS HAVE BEEN SOLD OUTSIDE THE B OOKS OF ACCOUNT. THEREFORE, WHAT NEEDS TO BE TAXED IS THE PROFIT ELE MENT IN THE GOODS WHICH ARE SOLD OUTSIDE THE BOOKS, BUT NOT ENTIRE PU RCHASES. 8. HAVING SAID SO, LET US EXAMINE WHAT IS REASONABL E PROFIT IN CASE OF THESE TRANSACTIONS. VARIOUS COURTS AND TRIBUNALS UP HELD ESTIMATION OF NET PROFIT RANGING FROM 12.5% TO 25% DEPENDING UPON FAC TS AND CIRCUMSTANCES. NO UNIFORM YARDSTICK COULD BE APPLIE D TO ESTIMATE RATE OF 6 VIJAY N MEHTA PROFIT AND IT VARIES FROM BUSINESS TO BUSINESS. THE CIT(A), AFTER CONSIDERING THE RATIO OF CERTAIN JUDICIAL PRECEDENT S, INCLUDING THE DECISION OF HONBLE GUJARAT HIGH COURT, DIRECTED THE A.O. TO ESTIMATE NET PROFIT OF 15% ON TOTAL ALLEGED BOGUS PURCHASES. THE ASSESSEE FAILED TO BRING ON RECORD ANY EVIDENCES TO PROVE THAT THE FINDINGS OF CIT(A) IS INCORRECT, EXCEPT STATING THAT VARIOUS TRIBUNALS HAVE CONSIDER ED NET PROFIT OF 12.5% ON THESE TYPES OF CASES. ON THE OTHER HAND, THE LD. D.R. RELIED UPON THE DECISION OF HONBLE SUPREME COURT, IN THE CASE OF N K PROTEINS LIMITED VS. CIT IN SPECIAL LEAVE PETITION NO. 769 OF 2017 DATED 16-1-2017 AND SUBMITTED THAT 100% DISALLOWANCE SHOULD BE UPHELD. WE FIND THAT THE FACTS OF THE CASE BEFORE THE HONBLE SUPREME COURT ARE DIFFERENT FROM THE FACTS OF THE PRESENT CASE. IN THE CASE RELIED UPON BY THE LD. D.R, THE ASSESSEE IS ENGAGED IN MANUFACTURING ACTIVITY, WHER EAS IN THE PRESENT CASE, THE ASSESSEE IS INVOLVED IN TRADING ACTIVITY. IN THE CASES OF MANUFACTURING ACTIVITY, ALL PURCHASES ARE CONSUMED IN THE PROCESS OF MANUFACTURING AND IT IS PART OF COST OF GOODS MANUF ACTURED. UNDER THESE FACTS, THE HONBLE COURT OBSERVED THAT ONCE PURCHAS E IS PROVED BOGUS, THEN ADDITION NEEDS TO BE MADE FOR ENTIRE PURCHASES , BUT NOT FOR PROFIT ELEMENT. IN THE CASE OF TRADING EACH PURCHASE IS S OLD SEPARATELY WITH PROFIT ELEMENT OF THE DEALER. SINCE, THE ASSESSEE I S A TRADER AND ALSO HE CANNOT MAKE ANY SALES WITHOUT PURCHASES, THE PROFIT ELEMENT ONLY NEEDS TO BE ADDED, BUT NOT FOR TOTAL PURCHASES. WE, THERE FORE ARE OF THE VIEW THAT THE CIT(A) HAS RIGHTLY DIRECTED THE A.O. TO ES TIMATE 15% PROFIT ON ALLEGED BOGUS PURCHASES. HENCE, WE ARE INCLINED TO UPHOLD THE CIT(A) ORDER AND DISMISS APPEAL FILED BY THE ASSESSEE. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST JUNE, 2017. SD/- SD/- (D.T. GARASIA) (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 21 ST JUNE, 2017 7 VIJAY N MEHTA COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI