SHRI MALUKCHAND HAJMAL JAIN, MUMBAI V. INCOME TAX OFFICER 19(2)(3), MUMBAI

ITA 1591/MUM/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 8512 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 12-03-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K BEPARI
• Keywords: Bogus purchase; Initiation of penalty proceedings

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM ITA NO. 15 91 /MUM/ 2018 (ASSESSMENT YEAR: 20 09 - 10 ) SHRI MALUKCHAND HAJMAL JAIN M/S. VARDHAMAN METALS 42/62, LAD NIWAS, ARDESHIR DADY STREET, MUMBAI - 400 004 VS. ITO - 19(2)(3) MATRU MANDIR, MUMBAI PAN/GIR NO. ADGPJ 6570 M ( APPELLANT ) : ( RESPONDENT ) APPELLANT BY : MS. AASIFA KHAN RESPONDENT BY : SHRI S. K. BEPARI DATE OF HEARING : 1 7 .10.2018 DATE OF PRONOUNCEMENT : 01.01 .201 9 O R D E R PER SHAMIM YAHYA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE WHEREIN THE ASSESSEE IS AGGRIEVED THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 53, MUMBAI (LD.CIT(A) FOR SHORT) DATED 25.01.2018 HAS ERRED IN SUSTAINING 12.5% DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASES FOR THE ASSESSMENT YEAR (A.Y. FOR SHORT) 20 09.10 . 2. THE GROUNDS OF APPEAL READ AS UNDER: - 1. (A) ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE A.O AND APPROVING THE ADDITION CALCULATED BY THE A.O ON ALLEGED BOGUS PURCHASES WITHOUT APPRECIATING THE FACTS THAT THE OPINION OF THE A.O IS BASED ON MERELY PRESUMPTIONS AND SUB CONJECTURES AND NOT ON ANY MATERIAL EVIDENCES CORROBORATING THE PURCHASES WHEN IT IS AN ACCEPTED FACT THAT MATERIAL EVI DENCES SUPER CEDES ALL PRESUMPTIONS. (B) THE CIT (A) ERRED IN CONFIRMING THE ADDITION WITHOUT APPRECIATING THE UNDERSTATED VITAL FACTS THAT THE PURCHASES ARC DULY SUPPORTED WITH NECESSARY DOCUMENTARY EVIDENCES INCLUDING QUANTITATIVE TALLY OF PURCHASES AND SALES AND THERE APPEARS NO SIGN OF IT BEING BOGUS. (C) THE APPELLANT PRAYS THAT THE ADDITION/ DISALLOWANCE OF ENTIRE RS. 9 , 44,174/ - MADE IN RESPECT OF ALLEGED PURCHASES BE DELETED.' 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A), ER RED IN DISMISSING THE GROUND FOR THE APPELLANT'S PLEA OF WITHDRAWAL OF INITIATION OF PENALTY PROCEEDINGS U/S 271(1) (C). 3. THE ASSESSING OFFICER (A.O. FOR SHORT) IN THIS CASE HAS MADE 12.5 % ADDITION ON ACCOUNT OF BOGUS PURCHASE AMOUNTING TO RS.9,44,174/ - . 2 ITA NO. 15 9 1/MUM/2018 4. UPON THE ASSESSEES APPEAL, THE LD. CIT ( A ) CONFIRMED THE SAME . 5. AGAINST THE ABOVE ORDER , THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 6. I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. IN SUPPORT OF T HIS CASE , THE LEARNED COUNSEL OF THE ASSESSEE HAS PLACED RELIANCE UPON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF PR . CIT VS T R KAPADIA ( IN TAX APPEAL NO 691 OF 2017 ). IN THIS CASE , THE HONBLE HIGH COURT HAS CONFIRMED THE DELETION OF DISALLOWANCE ON AC COUNT OF ALLEGED BOGUS PURCHASE AS NECESSARY DOCUMENTARY EVIDENCE FOR THE PURCHASE WERE ON RECORD . THE S PECIAL L EAVE P ETITION AGAINST THIS ORDER HAS BEEN DISMISSED BY THE HONBLE SUPREME COURT IN ITS DECISION DATED 0 4 .05. 2018 IN SLP CIVIL DIARY NO 12670/20 18 . 7. U PON CAREFUL CONSIDERATION , I FIND THAT THE ASSESSEE HAS PROVIDED THE DOCUMENTARY EVIDENCE FOR THE PURCHASE. ADVERSE INFERENCE HAS BEEN DRAWN DUE TO THE INABILITY OF THE ASSESSEE TO PRODUCE THE SUPPLIERS. I FIND THAT IN THIS CASE THE SALES HAVE NOT BEEN DOUBTED. IT IS SETTLED LAW THAT WHEN SALES ARE NOT DOUBTED, 100% DISALLOWANCE FOR BOGUS PURCHASE CANNOT BE DONE. THE RATIONALE BEING NO SALES IS POSSIBLE WITHOUT ACTUAL PURCHASES. THIS PROPOSITION IS SUPPORTED FROM THE HON'BLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF NIKUNJ EXIMP ENTERPRISES (IN WRIT PETITION NO 2860, ORDER DT. 18.6.2014). IN THIS CASE , THE HONBLE HIGH COURT HAS UPHELD 100% ALLOWANCE FOR THE PURCHASES SAID TO BE BOGUS WHEN SALES ARE NOT DO UBTED. HOWEVER , IN THAT CASE ALL THE SUPPLIES WERE TO THE GOVERNMENT AGENCY. IN THE PRESENT CASE , THE FACTS OF THE CASE INDICATE THAT ASSESSEE HAS MADE PURCHASE FROM THE GREY MARKET. MAKING PURCHASES THROUGH THE GREY MARKET GIVES THE ASSESSEE SAVINGS ON A CCOUNT OF NON - PAYMENT OF TAX AND OTHERS AT THE EXPENSE OF THE EXCHEQUER. IN SUCH SITUATION , IN MY CONSIDERED OPINION , ON THE FACTS AND CIRCUMSTANCES OF 3 ITA NO. 15 9 1/MUM/2018 THE CASE , 12. 5 % DISALLOWANCE OUT OF THE BOGUS PURCHASES MEETS THE END OF JUSTICE. HOWEVER , IN THIS REGA RD THE LEARNED COUNSEL OF THE ASSESSEE HAS PRAYED THAT WHEN ONLY THE PROFITS EARNED BY THE ASSESSEE ON THESE BOGUS PURCHASE TRANSACTION IS TO BE TAXED , THE GROSS PROFIT ALREADY SHOWN BY THE ASSESSEE AND OFFERED TO TAX SHOULD BE REDUCED FROM THE STANDARD 12 .5% BEING DIRECTED TO BE DISALLOWED ON ACCOUNT OF BOGUS PURCHASE. 8. UPON CAREFUL CONSIDERATION , I FIND CONSIDERABLE COGENCY IN THE SUBMISSION OF THE LEARNED COUNSEL OF THE ASSESSEE, AS OTHERWISE IT WILL BE DOUBLE JEOPARDY TO THE ASSESSEE. ACCORDINGLY , I MODIFY THE ORDER OF LEARNED CIT - A AND DIRECT THAT THE DISALLOWANCE IN THIS CASE BE RESTRICTED TO 12.5 % OF THE BOGUS PURCHASES AS REDUCED BY THE GROSS PROFIT RATE ALREADY DECLARED BY THE ASSESSEE ON THESE TRANSACTIONS. THE LD. COUNSEL OF THE ASSESSEE FAIRL Y ACCEPTED TO THIS PROPOSITION. 9. IN THE RESULT , THIS APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 0 1 . 0 1 . 2 0 1 9 S D / - (SHAMIM YAHYA) ACCOUNTANT MEMBER MUMBAI ; DATED : 0 1 . 0 1 . 2 0 1 9 ROSHANI , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT - CONCERNED 5. DR, ITAT, MUMBAI 6. GUARD FILE BY ORDER, (DY./ASSTT. REGISTRAR) ITAT, MUMBAI