ACIT-19(2), MUMBAI V. MITAL VARDHIBHAI DOSHI, MUMBAI

ITA 1731/MUM/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 8957 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 16-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D G PANSARI
• Keywords: Bogus purchase; Unexplained expenditure; Transfer pricing; Accommodation entries; Set aside

Judgement Text

P A G E | 1 ITA NO. 1731/MUM/2018 A.Y. 2008 - 09 THE ACIT - 19(2) VS. MITAL VARDHIBHAI DOSHI IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SHAMIM YAHY A, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO.1731/MUM/2018 (ASSESSMENT YEAR: 2008 - 09 ) THE ACIT - 19(2) ROOM NO. 207, MATRU MANDIR, MUMBAI - 400 007 VS. MITAL VARDHIBHAI DOSHI PROP: M/S SPAKEL DIAMONDS 216, SHREEJI CHAMBERS, OPERA HOUSE, MUMBAI - 400004 PAN ADUPD8176D (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI D.G. PANSARI, D .R RESPONDENT BY: NONE DATE OF HEARING: 17 .06 .2019 DATE OF PRONOUNCEMENT: 1 9 . .06 .2019 O R D E R PER RAVISH SOOD, JM THE PRESENT APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) - 5, AHMEDABAD , DATED 04.12.2017, WHICH IN TURN ARISES FROM THE ORDER PASSED BY THE A.O UNDER SEC.143(3) R.W.S 147 OF THE INCOME TAX ACT, 1961 (FOR SHORT IT. ACT), DATED 28.03.2016 FOR A.Y. 2008 - 09. THE REVENUE ASSAILING THE ORDER OF THE CIT(A) HAS RAISED BEFORE US TH E FOLLOWING GROUNDS OF APPEAL: 1. WHETHER IN THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CTT(A) IS NOT JUSTIFIED IN NOT CONFIRMING THE ADDITION IN VIEW OF THE DECISION OF THE HON' BLE SUPREME COURT DATED 10 . 01.2017 IN THE CASE OF N K PROTEIN LTD . WHEREIN THE HON'BLE SUPREME COURT CONFIRMED THE ENTIRE ADDITION ON ACCOUNT OF BOGUS PURCHASES. P A G E | 2 ITA NO. 1731/MUM/2018 A.Y. 2008 - 09 THE ACIT - 19(2) VS. MITAL VARDHIBHAI DOSHI 2. WHETHER IN THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT( A) IS CORRECT IN DELETING THE ADDITION OF UNEXPLAINED EXPENDITURE OF RS. 1,48,39,310/ - MADE ON ACCOUNT OF BOGUS PURCHASES BY THE ASSESSING OFFICER AND LIMITING IT TO A GROSS PROFIT ADDITION. 3. WHETHER IN THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT(A) IS J USTIFIED IN CONFIRMING THE ADDITION @ 5% PROFIT RATE ON TOTAL PURCHASES OF RS .1,48,39 ,310/ - MADE BY THE ASSESSEE FROM 3 P ARTI ES WHEN DURING THE INVESTIGATION MADE BY SALE TAX DEPARTMENT OF MAHARASHTRA GOVERNMENT, IT WAS CONCLUSIVELY PROVED BEYOND DOUBT THAT THESE PARTIES ARE ONLY INTO PROVIDING ACCOMMODATION ENTRIES A ND DO NOT DO ANY REAL BUSINESS. 4. WHETHER IN THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN NOT APPRECIATING THE FACT THA T DURING THE INVESTIGATION MADE BY SAL E TAX DEPARTMENT OF MAHARASHTRA G OVER NMENT / DIREC TORS/PROP/PARTNERS OF SUCH PARTI ES HAVE ACCEPTED ON OATH THAT THEY ARE PROVIDING ONLY ACCOMMODATION ENTRIES AND NOT DOING ANY REAL BUSINESS, THE TREATMENT OF SUCH PURCHASES AS BEIN G GENUINE DOES NOT HOLD GROUND. 5. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER OR ADD A NEW GROUND WHICH MAY BE NECESSARY . 2. BRI EFLY STATED, ON THE BASIS OF INFORMATION RECEIVED BY THE A.O , THAT THE ASSESSEE AS A BENEFICIARY HAD OBTAINED BOGUS PURCHASE BILLS FROM CERTAIN ENTITIES BELONGING TO RAJENDRA JAIN, SANJAY CHOUDHARY AND DHARMICHAND JAIN G ROUP DURING THE YEAR UNDER CONSIDERATION, THE CASE OF THE ASSESSEE WAS REOPENED UNDER SEC. 147 OF THE ACT . 3. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS , IT WAS OBSERVED BY THE A.O , THAT THE ASSESSEE WHO WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF DIA MONDS, HAD BOOKED PURCHASES AGGREGATING TO RS.1,48,39,110/ - CLAIMED TO HAVE BEEN MADE FROM THE FOLLOWING PARTIES: SR. NO. NAME OF THE PARTY AMOUNT 1. SUN DIAM 29,46,303/ - 2. AVI EXPORTS 48,37,160/ - 3. SPARSH EXPORTS PVT. LTD. 70,55,647/ - TOTAL 1,48,39,110/ - IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESS EE FAILED TO PLACE ON RECORD IRREFUTABLE DOCUMENTARY EVIDENCE TO SUBSTANTIATE THE P A G E | 3 ITA NO. 1731/MUM/2018 A.Y. 2008 - 09 THE ACIT - 19(2) VS. MITAL VARDHIBHAI DOSHI GENUINENESS OF THE PURCHASES CLAIMED TO HAVE BEEN MADE FROM THE AFOREMENTIONED PARTIES, TO THE SATISFACTION OF THE A.O. ACCORDINGLY, THE A.O HELD A CONVICTION THAT THE ASSESSEE HAD FAILED TO DISCHARGE THE ONUS C A ST UPON HIM, AND THEREIN PROVE THE AUTHENTICITY OF THE PURCHASE TRANSACTIONS UNDER CONSIDERATION. ON THE BASIS OF HIS AFORESAID CONV ICTION AND , BEING GUIDED BY THE FACT THAT THE AFORESAID SUPPLIER PARTIES WERE A PART OF THE CARTAL OF BO G US COMPANIES BELONG ING TO RAJENDRA JAIN, SANJAY CHOUDHARY AND DHARMICHAND JAIN G ROUP S , WHICH WERE ENGAGED ONLY IN THE BUSINESS OF PROVIDING BOGUS ENTRI ES, IT WAS CONCLUDED BY THE A.O THAT THE ASSESSEE HAD NOT MADE ANY GENUINE PURCHASES FROM THE AFORESAID PARTIES. ACCORDINGLY, ON THE BASIS OF HIS AFORESAID DELIBERATIONS THE A.O DISALLOWED THE ENTIRE PURCHASES OF RS.1,48,39,110/ - AND ASSESSED THE INCOME OF THE ASSESSEE AT RS. 1,49,32,610/ - . 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). IN THE COURSE OF THE APPELLATE PROCEEDINGS MULTIPLE CONTENTIONS WERE ADVANCED BY THE ASSESSEE VIZ. (I) THAT, THE PURCHASES WERE DULY RECORDED IN THE BOOKS OF ACCOUNTS AND ACCORDINGLY DEBITED BY THE ASSESSEE IN HIS PROFIT AND LOSS ACCOUNT; (II) THAT, THE AFORESAID SUPPLIER PARTIES HAD PROVIDED SALES TAX INVOICES EVIDENCING SALE OF DIAMONDS TO THE ASSESSEE AND THE COPIES OF THE SAID INVOICES WERE SUBMITTED WITH THE A.O DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS; (III) THAT, THE AFORESAID SUPPLIER PARTIES WERE REGISTERED WITH GUJARAT VAT AND CENTRAL SALES TAX AUTHORITIES AND ALSO HAD VALID TAX IDENTIFICATION NUMBER (TIN ) ALLOTTED BOTH UNDER GUJARAT VAT ACT AND CENTRAL SALES TAX ACT; (IV) THAT, THE AFORESAID SUPPLIER PARTIES HAD ALSO CONFIRMED ON THE BASIS OF NOTARIZED AFFIDAVITS THAT THEY HAD SOLD DIAMONDS TO THE ASSESSEE AND HAD RECEIVED PAYMENTS THROUGH BANKING CHANNELS FROM THE ASSESSEE; (V) THAT, THE PAYMENTS IN RESPECT OF THE AFORESAID PURCHASES WERE MADE TO THE SUPPLIER PARTIES THROUGH ACCOUNT PAYEE P A G E | 4 ITA NO. 1731/MUM/2018 A.Y. 2008 - 09 THE ACIT - 19(2) VS. MITAL VARDHIBHAI DOSHI CHEQUES; (V I ) THAT, THE A.O HAD NOWHERE HELD THAT THE DOCUMENTS INCLUDING THE NOTARISED AFFIDAVIT PROVIDED BY THE AFORESA ID SUPP LIER PARTIES SUBSTANTIATING THE FACT THAT THE ASSESSEE HAD ACTUALLY PURCHASE D DIAMONDS FROM THEM WAS FOUND TO BE FALSE; (VII) THAT, THE A.O HAD NOWHERE ALLEGED THAT THE ASSESSEE HAD RECEIVED ANY CASH BACK FROM THE SUPPLIER S IN RELATION TO THE BOGUS PURCHAS ES MADE; AND (VIII) THAT, AS THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF DIAMONDS, THEREFORE, THE OBSERVATION OF THE A.O THAT THE ASSESSEE HAD NOT FURNISHED DELIVERY CHALLANS WAS IRRELEVANT IN THE BACKDROP OF THE NATURE OF THE TRADE OF THE ASSESSEE, AS THE DIAMONDS WERE NEVER TRANSPORTED THROUGH CARRIAGE BUT , WERE ALWAYS ACCOMPANIED BY SALES INVOICES, HENCE, THERE CAN NEVER BE ANY DELIVERY CHALLANS FOR PURCHASE OF DIAMONDS. THE CIT(A) AFTER DELIBERATING ON THE CONTENTIONS ADVANC ED BY THE ASSESSEE OBSERVED , THAT THE DETAILS OF CORRESPONDING SALES MADE BY THE ASSESSEE TO THE VARIOUS PARTIES INCLUDING THE DATE OF SALES, QUANTITY , INVOICE AMOUNT, NAME OF CUSTOMER ALONG WITH THE COPIES OF INVOICES AND BILLS OF PURCHASE, WAS NOT DISLOD GED BY THE A.O. ON THE BASIS OF THE AFORESAID FACTS, IT WAS CONCLUDED BY THE CIT(A) THAT NOW WHEN THE SALES HAD NOT BEEN DISLODGED BY THE A.O, THEREFORE, THE CORRESPONDING PURCHASES RECORDED BY THE ASSESSEE IN HIS BOOKS OF ACCOUNTS COULD NOT HAVE BEEN DISA LLOWED IN ENTIRETY. ACCORDINGLY, THE CIT(A) RESTRICTED THE ADDITION TO THE EXTENT OF THE PROFIT ELEMENT EMBEDDED IN MAKING OF SUCH PURCHASES BY THE ASSESSEE FROM THE OPEN/GREY MARKET. ON THE BASIS OF HIS AFORESAID DELIBERATIONS THE CIT(A) RESTRICTED THE DISALLOWANCE TO AN AMOUNT OF RS.7,41,956/ - I.E 5% OF THE AGGREGATE OF PURCHASES OF RS.1,48,39,110/ - WHICH WERE CLAIMED BY THE ASSESSEE TO HAVE BEEN MADE FROM THE AFORE SAID PARTIES . 5. THE REVENUE BEING AGGRIEVED WITH THE ORDER OF THE CIT(A) HAS CARRIED THE MATTER IN APPEAL BEFORE US. A S THE ASSESSEE DESPITE HAVING P A G E | 5 ITA NO. 1731/MUM/2018 A.Y. 2008 - 09 THE ACIT - 19(2) VS. MITAL VARDHIBHAI DOSHI BEEN PUT TO NOTICE AS REGARDS THE DATE OF HEARING OF THE APPEAL , HAD HOWEVER FAILED TO PUT UP AN APPEARANCE , THEREFORE, AS PER RULE 25 OF THE APPELLATE TRIBUNAL RULES, 1963 WE ARE CONSTRAINED TO PROCE ED WITH THE MATTER AND DISPOSE OFF THE APPEAL AFTER HEARING THE DEPARTMENTAL REPRESENTATIVE (FOR SHORT D.R) AND PERUSING THE ORDER S OF THE LOWER AUTHORITIES. 6. ADMITTEDLY, A PERUSAL OF THE ORDERS OF THE LOWER AUTHORITIES REVEALS THAT THE ASSESSEE HAD FAILED TO SUBSTANTIATE THE GENUINENESS AND VERACITY OF THE PURCHASES CLAIMED TO HAVE BEEN MADE FROM THE AFOREMENTIONED THREE PARTIES VIZ. (I) M/S SUN DIA M ; (II) AVI EXPORTS; AND (III) M/S SPARSH EXPORTS PVT. LTD. IN OUR CONSIDERED VIEW, IN THE BACKDROP OF THE INFORMATION RECEIVED BY THE A.O THAT THE ASSESSEE HAD MERELY OBTAINED BOGUS PURCHASE BILLS FROM THE AFORESAID ENTITIES BELONG ING TO RAJENDRA JAIN, S ANJAY CHOUDH ARY AND DHARMICHAND JAIN G ROUP, INFAMOUS ACCOMMODATION ENTRY PROVIDERS, THEREFORE, A VERY HEAVY ONUS WAS CAST UPON THE ASSESSEE TO SUBSTANTIATE BEYOND ANY SCOPE OF DOUBT THE GENUINENESS AND VERACITY OF THE PURCHASES WHICH WERE CLAIMED TO HAVE BEEN MADE FRO M THE AFOREMENTIONED PARTIES. HOWEVER, WE FIND , THAT THE ASSESSEE HAD FAILED TO SUBSTANTIATE THE AUTHENTICITY OF THE PURCHASE TRANSACTIONS TO THE SATISFACTION OF THE A.O. APART THERE FROM, WE FIND THAT THE ASSESSEE THOUGH BY WAY OF AN ALTERNATIV E CONTENTIO N HAD CLAIMED THAT EVEN IF THE AFORESAID PURCHASES WERE NOT TO BE ACCEPTED AS GENUINE, THE ADDITION IN ITS CASE WAS LIABLE TO BE RESTRICTED ONLY TO THE EXTENT OF THE PROFIT ELEMENT EMBEDDED IN MAKING OF SUCH PURCHASES. ACCORDINGLY, ON A PERUSAL OF THE FACT S AS ARE DISCERNIBLE FROM THE ORDERS OF THE LOWER AUTHORITIES, WE ARE IN AGREEMENT WITH THE VIEW TAKEN BY THEM THAT THE ASSESSEE HAD FAILED TO SUBSTANTIATE THE GENUINENESS OF THE PURCHASE TRANSACTIONS UNDER CONSIDERATION. BE THAT AS IT MAY, IN THE BACKDROP OF THE FACT THAT THE ASSESSEE HAD DULY CORRELATED THE SALES MADE AGAINST THE P A G E | 6 ITA NO. 1731/MUM/2018 A.Y. 2008 - 09 THE ACIT - 19(2) VS. MITAL VARDHIBHAI DOSHI PURCHASES WHICH WERE CLAIMED TO HAVE BEEN MADE FROM THE AFOREMENTIONED PARTIES, THEREFORE, THE CIT(A) IN OUR CONSIDERED VIEW HAD RIGHTLY CONCLUDED THAT THE ADDITION IN THE CASE O F THE ASSESSEE WAS LIABLE TO BE RESTRICTED ONLY TO THE EXTENT OF THE PROFIT ELEMENT EMBEDDED IN MAKING OF SUCH PURCHASES BY THE ASSESSEE FROM THE OPEN/GREY MARKET. AS REGARDS THE QUANTIFICATION OF THE PROFIT ELEMENT INVOLVED IN MAKING OF SUCH PURCHASES, AS HAD BEEN ESTIMATED BY THE CIT(A) @ 5%, WE FIND THAT THE SAME IS IN CONFORMITY WITH THE PROFIT ELEMENT EMBEDDED IN TRADE LINE OF DIAMOND INDUSTRY . IN FACT, WE FIND THAT THE TASK FORCE FOR DIAMOND INDUSTRY CONSTITUTED BY THE GOVERNMENT OF INDIA, MINISTRY OF COMMERCE AND INDUSTRY, HAD AFTER CONSIDERING THE BAP SCHEME RECOMMENDED PRESUMPTIVE TAX FOR NET PROFIT CALCULATED @ 2% OF TRADING ACTIVITY AND 3% FOR MANUFACTURING ACTIVITY OR 2.5% ACROSS THE BOARD. APART THERE FROM, THE OPERATING PROFIT IN THE CASE OF DI AMOND TRADING FOR COMPUTATION OF ARMS LENGTH PRICE BY THE TRANSFER PRICING WING HAS ALSO CONSISTENTLY REMAINED WITHIN THE RANGE OF AROUND 1.75% TO 3%. FURTHER, WE FIND THAT BY WAY OF A CONSISTENT PRACTISE THE A.OS HAD ALSO BEEN ADOPTING 3% ON THE PURCHASES MADE FROM BHANWARLAL JAIN/RAJENDRA JAIN GROUP CONCERNS, AS THE PROFIT ELEMENT EMBEDDED IN THE ASSESSMENTS INVOLVING SIMILAR FACTS. WE THUS, BEING OF THE CONSIDERED VIEW, THAT AS THE PROFIT ELEMENT EMBEDDED IN THE AFORESAID UNVERIFIED/BOGUS PURCHASE TRANSACTIONS TAKEN BY THE CIT(A) AT 5% OF THE AGGREGATE VALUE OF SUCH UNVERIFIED/BOGUS PURCHA SES IS WELL IN CONFORMITY WITH THE PROFIT INVOLVED IN THE SAID TRADE LINE, THEREFORE, FINDING NO INFIRMITY IN THE SAID QUANTIFICATION OF PROFIT ON HIS PART, WE UPHOLD HIS ORDER IN TERMS OF OUR AFORESAID OBSERVATIONS. 7. RESULTANTLY, FINDING NO MERIT IN THE APPEAL OF THE REVENUE, THE SAME IS DISMISSED. P A G E | 7 ITA NO. 1731/MUM/2018 A.Y. 2008 - 09 THE ACIT - 19(2) VS. MITAL VARDHIBHAI DOSHI ORDER PR ONOUNCED IN THE OPEN COURT ON 1 9 .06.2019 S D / - S D / - ( SHAMIM YAHYA) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; 19 .06.2019 PS. ROHIT / 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