RANARAM S. CHOUDHARY (HUF), Mumbai V. I.T.O. - 19(3)(1), Mumbai

ITA 1612/MUM/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4022 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 13-03-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K BEPARI
• Keywords: Bogus purchase; Tangible material; Accommodation entries; Reason to believe
• Section: 133(6); 147; 2; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM I.T.A. NO S . 161 2 /MUM/2018 ( ASSESSMENT YEAR S : 2010 - 11 ) SHRI RANARAM S. CHOUDHARY HUF 204, 39/41, PURNA KUTIR, 1 ST PATHAN STREET, 4 TH KUMBHARWADA, GIRGAON, MUMBAI - 40 0 004 VS. ITO - 19(3)(5), MATRU MANDIR, MUMBAI - 400 007 PAN/GIR NO. AAKHR 47735 F ( APPELLANT ) : ( RESPONDENT ) APPELLANT BY : NONE RESPONDENT BY : SHRI S. K. BEPARI DATE OF HEARING : 17.10.2018 DATE OF PRONOUNCEMENT : 02.11 .2018 O R D E R PER S HAMIM YAHYA, A. M.: TH IS IS AN A PPEAL BY THE ASSESSEE WHEREIN THE ASSESSEE IS AGGRIEVED THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 51, MUMBAI (LD.CIT(A) FOR SHORT) DATED 12.12.2017 HAS ERRED IN SUSTAINING 9% D ISALLOWANCE ON ACCOUNT OF BOGUS PURCHASES. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN FERROUS AND NON - FERROUS METAL. THE ASSESSEE FILED ITS RETURN OF INCOME ON 29.09.2010 DECLARING TOTAL INCOME OF RS.4,97,580 / - . THE SALES TAX AUTHORITIES HAD CARRIED OUT A DETAILED INVESTIGATION AND HAD RECORDED STATEMENTS AND/OR OBTAINED AFFIDAVITS/DEPOSITIONS FROM THE VARIOUS HAWALA DEALERS WHO HAD ADMITTED THAT THEY ARE ONLY ENGAGED IN PROVIDING ACCOMMODATION ENTRIES OF PURCHASES/SALES W ITHOUT ANY ACTUAL DELIVERY OF GOODS. THIS INFORMATION WAS RECEIVED BY THE AO THROUGH THE DGIT(LNV.), 2 ITA NO . 1612/MUM/2018 MUMBAI. SINCE, THE ASSESSEE WAS ALSO ONE OF THE BENEFICIARIES OF THE ACCOMMODATION ENTRIES PROVIDED BY HAWALA DEALER S, M/S MUMBAI METAL CORPN. (RS. 5,79,742 / - ), M/S. VIRAJ ST EEL & ALLOYS (RS. 6,38,32 1/ - ), M/S. RATANDEEP IMPEX (RS. 10,68,612 / - ), M/S. MASTER TRADING CO. (RS. 4,58,149 / - ), M/S. RAJ IMPEX (RS. 6,84,776/ - ), M/S. NAVYUK TRADING CO. (RS.1.742/ - ), ARBUDA STEEL (RS. 4,78,972/ - ), M/ S. KONICA TUBES INDUSTRIE S (RS. 4,93,272/ - ), M/S. SAGAR ENTERPRISES (RS.10,17,313 / - ), M/S. J INDAL METAL CORPN. (RS.10,19,560/ - ), M/S. OSIAN STEEL I MPEX (RS. 10,53,624/ - ) , M/S. DARSHAN METAL INDIA (RS.11,94,267/ - ) , M/S. RATNAKAR TRADERS (RS. 12,03,137/ - ) AND M/ S. PIONEER METALS & ALL OYS (RS. 31,94,075 / - ), TOTALLY AGGREGATING TO RS. 1,30,85,562/ - , THE ASSESSMENT OF THE ASSESSEE WAS REOPENED BY ISSUE OF NOTICE U/S. 148. TO ASCERTAIN THE GENUINENESS OF THE SAID PURCHASES, THE AO ISSUED NOTICES U/S. 133(6) WHICH COULD NOT BE SERVED AND WERE RETURNED BACK BY THE POSTAL AUTHORITIES WITH THE REMARKS 'NOT KNOWN'/'NO SUCH ADDRESS'/'LEFT' ETC. THE AO, THEREFORE, ASKED THE ASSESSEE TO PRODUCE THE PARTIES ALONGWITH THEIR BOOKS OF ACCOUNTS AND ALSO FURNISH EVIDENCES TO ESTABLISH THE GENUINENESS OF TH E SAID TRANSACTION . THE ASSESSEE WAS UNABLE TO PRODUCE THE SAID PARTIES. SINCE THE ASSESSEE COULD TALLY THE PURCHASES WITH THE CORRESPONDING SALES, THE AO CONCLUDED THAT THE ASSESSEE HAS PURCHASED THE SAID GOODS FROM THE GREY MARKET. THEREAFTER, THE AO PRO CEEDED TO ADD AN AMOUNT OF RS. 16,35,695/ - BEING 12.5% OF THE TOTAL HAWALA PURCHASES OF RS 1,30,85,562/ - . 3. TH US TH E ASSESSING OFFICER (A.O.) I N THIS CASE HAS MADE 12.5% ADDITION ON ACCOUNT OF BOGUS PURCHASE AMOUNTING TO RS.16,35,695/ - . 4. UPON THE ASS ESSEES APPEAL, THE LD. CIT(A) RESTRICTED THE DISALLOWANCE TO 9%. THE LD. CIT(A)S OBSERVATION IN THIS REGARD ARE AS UNDER: 3 ITA NO . 1612/MUM/2018 5.1 TO ASCERTAIN THE GENUINENESS OF THE SAID PURCHASES, THE AO ISSUED NOTICES U/S. 133(6) WHICH COULD NOT BE SERVED AND WERE RETUR NED BACK BY THE POSTAL AUTHORITIES WITH THE REMARKS 'NOT KNOWN'/'NO SUCH ADDRESS'/'LEFT' ETC. THE AO, THEREFORE, ASKED THE ASSESSEE TO PRODUCE THE PARTIES ALONGWITH THEIR BOOKS OF ACCOUNTS AND ALSO FURNISH EVIDENCES TO ESTABLISH THE GENUINENESS OF THE SAID PURCHASE TRANSACTIONS. THE ASSESSEE WAS UNABLE TO PRODUCE THE SAID PARTIES. FURTHER, THE VITAL DOCUMENTS RELATED TO TRANSPORTATION OF THE MATERIAL SUCH AS DELIVERY CHALLAN, TRANSPORT RECEIPTS, OCTROI RECEIPTS, WEIGH - BRIDGE SLIP, ETC. COULD NOT BE SUBMITTE D BY THE ASSESSEE BOOKED BY IT. HOWEVER, THE ASSESSEE COULD, TALLY THE BOGUS PURCHASES WITH THE CORRESPONDING SALES. THEREFORE, THE AO CONCLUDED THAT THE ASSESSEE HAD MADE THE SAID PURCHASES FROM THE GREY MARKET. THEREAFTER, THE AO PROCEEDED TO MAKE AN ADD ITION OF RS 16,35,695/ - BEING 12.5% OF THE ALLEGED BOGUS PURCHASES OF RS 1,30,85,562 / - . 5.2 IN THE APPELLATE PROCEEDINGS, THE ASSESSEE SUBMITTED THAT ALL THE DETAILS OF SALES AND PURCHASES OF GOODS INCLUDING NAMES AND ADDRESSES OF THE SUPPLIERS ETC. WERE FURNISHED TO THE AO AND ALL THE PAYMENTS HAD BEEN MADE BY CHEQUE. MOREOVER, A CHART GIVING DETAILS OF THE PURCHASES AND A CORRESPONDING SALES WAS ALSO SUBMITTED. THEREFORE, IT WAS CONTENDED BY THE ASSESSEE THAT THE ACTION OF THE AO OF MAKING AN ADDITION OF RS. 16,35,695 / - BY ESTIMATING THE PROFIT @ 12.5% OF THE ALLEGED BOGUS PURCHASES IS NOT CORRECT. THE ASSESSEE EXPLAINED IN COURSE OF THE APPELLATE PROCEEDINGS THAT THE AO HAS ADOPTED THE RATE OF 12.5% BY RELYING UPON THE DECISION ITAT, AHMEDABAD IN THE CASE OF SIMIT P SHETH (ITA NO 3238 & 3293/AHD/2009) AND WHICH HAS ALSO BEEN APPROVED BY THE HON'BLE GUJARAT HIGH COURT. IT WAS POINTED OUT BY THE ASSESSEE THAT IN PARA 7 OF THE SAID ORDER OF THE HON'BLE ITAT, IT HAS BEEN NOTED THAT THE MALPRACTICE OF BOGUS PUR CHASES IS MAINLY TO SAVE 10% SALES TAX. AFTER CONSIDERING THIS, THE HON'BLE ITAT ESTIMATED THE ADDITIONAL PROFIT ON THE ALLEGED BOGUS PURCHASES @ 12.5%, IT WAS THEREFORE SUBMITTED BY THE ASSESSES THAT SINCE AS AGAINST 10% SALES TAX THEN APPLICABLE IN GUJAR AT, THE RATE OF SALES TAX IN MAHARASHTRA IS OF ONLY 4%, THEREFORE THE RATE APPLIED BY THE AO OF 12.5% IS ON THE HIGHER SIDE. 5.3 THE CONTENTIONS OF THE ASSESSEE HAVE BEEN DUTY CONSIDERED, IT IS A FACT THAT THE SAID ALLEGED HAWALA SUPPLIERS WERE FOUND TO B E NON - EXISTENT AT THE STATED ADDRESSES. THE ASSESSEE COULD NEITHER PROVIDE THEIR LATEST ADDRESSES NOR PRODUCE THE PARTIES BEFORE THE AO. HOWEVER, THE ASSESSEE WAS IN A POSITION TO RECONCILE THE PURCHASES FROM THE ALLEGED HAWALA SUPPLIERS WITH THE CORRESPON DING SALES. THEREFORE, THE ACTION OF THE AO OF CONCLUDING THAT THE SAID PURCHASES HAVE BEEN MADE FROM THE GREY MARKET CANNOT BE FAULTED. SINCE THE ASSESSES WAS IN A POSITION TO RECONCILE THE ALLEGED HAWALA PURCHASE WITH THE CORRESPONDING SALES BOOKED BY IT , THE AO RATHER THAN MAKING AN ADDITION OF THE ENTIRE AMOUNT OF THE ALLEGED HAWALA PURCHASES PROCEEDED TO ESTIMATE THE ADDITIONAL PROFIT @ 12.5%. HOWEVER, THERE IS SOME FORCE IN THE CONTENTION OF THE ASSESSEE THAT THE RATE ADOPTED BY THE AO OF 12.5% AFTER CONSIDERING THE DECISION OF THE HON'BLE ITAT AHMEDABAD IN THE CASE OF SIMIT P SHETH (SUPRA) IS ON THE HIGHER SIDE, CONSIDERING THAT THE SALES TAX THEN PREVALENT AT GUJARAT WAS OF 10% AS AGAINST SALES TAX OF 4% IN 4 ITA NO . 1612/MUM/2018 MAHARASHTRA. THEREFORE, AFTER CONSIDERING T HE FACTUAL POSITION IN THE CASE OF THE ASSESSEE INCLUDING THE NATURE OF BUSINESS AND THE SALES TAX RATE PREVALENT DURING THE YEAR, IT WILL BE APPROPRIATE IF THE RATE OF 12.5% ADOPTED BY THE AO IS SCALED DOWN TO 9%. 5 . AGAINST THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 6 . I HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIVE AND PERUSED THE RECORDS. NONE APPEARED ON BEHALF OF THE ASSESSEE. 7 . AS REGARDS THE REOPENING OF THE CASE , ON A CAREFUL CONSIDERATION, I NOTE THAT IN THIS CASE INFORMAT ION WAS RECEIVED BY THE ASSESSING OFFICER FROM DGIT INVESTIGATION (MUMBAI) THERE ARE SOME PARTIES WHO ARE ENGAGED IN THE HAWALA TRANSACTIONS AND ARE ALSO INVOLVED IN ISSUING BOGUS PURCHASE BILLS FOR SALE OF MATERIAL WITHOUT DELIVERY OF GOODS, WHICH INFORMA TION WAS BASED ON INFORMATION RECEIVED BY REVENUE FROM MAHARASHTRA SALES TAX AUTHORITY. INFORMATION WAS RECEIVED THAT THE ASSESSEE WAS BENEFICIARY OF HAWALA ACCOMMODATION ENTRIES FROM ENTRY PROVIDERS BY WAY OF BOGUS PURCHASE. THE ACCOMMODATION ENTRY PROVID ER HAS DEPOSED AND ADMITTED BEFORE THE MAHARASHTRA SALES TAX AUTHORITY VIDE STATEMENT/ AFFIDAVIT THAT THEY WERE ENGAGED IN PROVIDING BOGUS ACCOMMODATION ENTRIES WHEREIN BOGUS SALE BILLS WERE ISSUED WITHOUT DELIVERY OF GOODS, IN CONSIDERATION FOR COMMISSION . THESE, ACCOMMODATION ENTRY PROVIDERS, ON RECEIPT OF CHEQUES FROM PARTIES AGAINST BOGUS BILLS FOR SALE OF MATERIAL, LATER ON WITHDREW CASH FROM THEIR BANK ACCOUNTS, WHICH WAS RETURNED TO BENEFICIARIES OF BOGUS BILLS AFTER DEDUCTION OF THEIR AGREED COMMISS ION. THE ASSESSEE WAS STATED TO BE ONE OF THE BENEFICIARIES OF THESE BOGUS ENTRIES OF SALE OF MATERIAL FROM HAWALA ENTRY OPERATORS IN FAVOUR OF THE ASSESSEE WHEREIN THE ASSESSEE MADE ALLEGED BOGUS PURCHASES THROUGH THESE BOGUS BILLS ISSUED BY 5 ITA NO . 1612/MUM/2018 HAWALA ENTRY PROVIDERS IN FAVOUR OF THE ASSESSEE. THESE DEALERS WERE SURVEYED BY THE SALES TAX INVESTIGATION DEPARTMENT WHEREBY THE DIRECTORS OF THESE DEALERS HAVE ADMITTED IN A DEPOSITION VIDE STATEMENTS/AFFIDAVIT MADE BEFORE THE SALES TAX DEPARTMENT THAT THEY WERE IN VOLVED IN. ISSUING BOGUS PURCHASE BILLS WITHOUT DELIVERY OF ANY MATERIAL. THERE IS A LIST OF SUCH PARTIES WHEREIN THE ASSESSEE IS STATED TO BE BENEFICIARY OF BOGUS PURCHASE BILLS. 8 . FROM THE ABOVE, I FIND THAT TANGIBLE AND COGENT INCRIMINATING MATERIA L WERE RECEIVED BY THE AO WHICH CLEARLY SHOWED THAT THE ASSESSEE WAS BENEFICIARY OF BOGUS PURCHASE ENTRIES FROM BOGUS ENTRY PROVIDERS WHICH FORMED THE REASON TO BELIEVE BY THE AO THAT INCOME HAS ESCAPED ASSESSMENT. THE INFORMATION SO RECEIVED BY THE AO HAS LIVE LINK WITH REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. ON THESE INCRIMINATING TANGIBLE MATERIAL INFORMATION, ASSESSMENT WAS REOPENED. AT THIS STAGE THERE HAS TO BE PRIMA FACIE BELIEF BASED ON SOME TANGIBLE AND MATERIAL INFORMATION ABOUT ESCA PEMENT OF INCOME AND THE SAME IS NOT REQUIRED TO BE PROVED TO THE GUILT. IN THIS REGARD, I REFER TO THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF CIT(A) VS. RAJESH JHAVERI STOCK BROKERS P. LTD , 291 ITR 500: - 'SECTION 147 AUTHORISES AND PERMITS THE ASSESSING OFFICER TO ASSESS OR REASSESS INCOME CHARGEABLE TO LAX IF HE HAS REASON TO BELIEVE THAT INCOME FOR ANY ASSESSMENT YEAR HAS ESCAPED ASSESSMENT. THE WORD 'REASON' IN THE PHRASE 'REASON TO BELIEVE' WOULD MEAN CAUSE OR JUSTIFICATION. IF THE AO HAS CA USE OR JUSTIFICATION TO KNOW OR SUPPOSE (HAT INCOME HAD ESCAPED ASSESSMENT, IT CAN BE SAID TO HAVE REASON TO BELIEVE THAT AN INCOME HAD ESCAPED ASSESSMENT. THE EXPRESSION CANNOT BE READ TO MEAN THAT THE AO SHOULD HAVE FINALLY ASCERTAINED THE FACT BY LEGAL STATUTE WITH SOLICITUDE FOR THE PUBLIC EXCHEQUER WITH AN INBUILT IDEA OF FAIRNESS TO TAXPAYERS. AS OBSERVED BY THE SUPREME COURT IN CENTRAL PROVINCES MANAGNESE ORE CO, LTD. V. ITO(1991) 191 ITR 662, FOR INITIATION OF ACTION UNDER SECTION 147(A) (AS THE PRO VISION STOOD AT THE RELEVANT TIME) FULFILLMENT OF THE TWO REQUISITE CONDITIONS 6 ITA NO . 1612/MUM/2018 IN THAT REGARD IS ESSENTIAL. AT THAT STAGE, THE FINAL OUTCOME OF THE PROCEEDING IS NOT RELEVANT. IN OTHER WORDS, AT THE INITIATION STAGE, WHAT IS REQUIRED IS 'REASON TO BELIEVE' , BUT NOT THE ESTABLISHED FACT OF ESCAPEMENT OF INCOME. AT THE STAGE OF ISSUE OF NOTICE, THE ONLY QUESTION IS WHETHER THERE WAS RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COULD HAVE FORMED A REQUISITE BELIEF WHETHER THE MATERIALS WOULD CONCLUSIVELY PRO VE THE ESCAPEMENT IS NOT THE CONCERN AT THAT STAGE. THIS IS SO BECAUSE THE FORMATION OF BELIEF BY THE AO IS WITHIN THE REALM OF SUBJECTIVE SATISFACTION ITO V. SELECTED DALURBAND COAL CO, (P.) LTD. (1996) 217 ITR 597 (SUPREME COURT): RAYMOND WOOLLEN MILLS L TD. V. ITO (1999) 236 ITR 34 (SUPREME COURT). 9 . THE ABOVE DISCUSSION AND PRECEDENT FROM APEX COURT FULLY JUSTIFY THE VALIDITY OF REOPENING IN THIS CASE. 1 0 . AS REGARDS THE MERITS, I NOTE THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF PR CIT VS. TEJUA ROHITKUMAR KAPADIA ( IN TAX APPEAL NO 691 / 2017 VIDE ORDER DATED 04.05.2018). IN THIS CASE , THE HONBLE HIGH COURT HAS CONFIRMED THE DELETION OF DISALLOWANCE ON ACCOUNT OF ALLEGED BOGUS PURCHASE AS NECESSARY DOCUMENTARY EVIDENCE FOR THE PURCHA SE WAS ON RECORD . THE SPECIAL LEAVE PETITION AGAINST THIS ORDER HAS BEEN DISMISSED BY THE HONBLE SUPREME COURT IN ITS DECISION DATED 04.05.2018 IN SPECIAL LEAVE PETITION (CIVIL) DIARY NO. 1 2670/2018 . 11. U P ON CAREFUL CONSIDERATION I FIND THAT THE ASSESS EE 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 D OUBTED, HUNDRED PERCENT DISALLOWANCE FOR BOGUS PURCHASE CANNOT BE DONE. THE RATIONALE BEING NO SALES IS POSSIBLE WITHOUT ACTUAL PURCHASES. THIS PROPOSITION IS SUPPORTED FROM HON'BLE JURISDICTIONAL HIGH COURT DEC ISION IN THE CASE OF NIKUNJ EXIMP ENTERPRISES (IN WRIT PETITION NO 2860, ORDER DT. 18.6.2014). IN 7 ITA NO . 1612/MUM/2018 THIS CASE THE HONBLE HIGH COURT HAS UPHELD 100% ALLOWANCE FOR THE PURCHASES SAID TO BE BOGUS WHEN SALES ARE NOT DOUBTED. HOWEVER IN THAT CASE ALL THE SUPPLIES WERE TO 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 ACCOUNT 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 THE CASE , 12.5 % DISALLOWANCE OUT OF THE BOGUS PURCHASES MEETS THE END OF JUSTICE. HOWEVER IN THIS REGARD IT IS FURTHER NOTEWORTHY 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 , AS OTHERWISE THERE WILL BE DOUBLE JEOPARDY TO THE ASSESSEE. 12. ACCORDINGLY , I MODIFY THE ORDER OF THE LD. CIT(A) A ND 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 TRANSACTION. 13. IN THE RESULT , THIS APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 02.11.2018 SD/ - (S HAMIM YAHYA) A CCOUNTANT MEMBER MUMBAI ; DATED : 02.11.2018 ROSHANI , SR. PS 8 ITA NO . 1612/MUM/2018 COPY OF THE ORDER FORWARDED TO : 1. THE APPELL ANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT - CONCERNED 5. DR, ITAT, MUMBAI 6. GUARD F ILE BY ORDER, (DY./ASSTT. REGISTRAR) ITAT, MUMBAI